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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-9743
ENRON OIL & GAS COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 47-0684736
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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1400 SMITH STREET, HOUSTON, TEXAS 77002-7369
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713-853-6161
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing sale price in the daily composite list for
transactions on the New York Stock Exchange on February 26, 1999 was
$1,108,372,096. As of March 1, 1999, there were 153,731,704 shares of the
registrant's Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Certain portions of the registrant's
definitive Proxy Statement to be filed by April 30, 1999 ("Proxy Statement") are
incorporated in Part III by reference.
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TABLE OF CONTENTS
PART I
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Item 1. Business
General..................................................... 1
Business Segments........................................... 2
Exploration and Production.................................. 2
Wellhead Volumes and Prices, and Lease and Well Expenses.... 7
Competition................................................. 8
Regulation.................................................. 8
Relationship Between the Company and Enron Corp............. 10
Other Matters............................................... 13
Current Executive Officers of the Registrant................ 16
Item 2. Properties
Oil and Gas Exploration and Production Properties and
Reserves.................................................... 17
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters......................................... 21
Item 6. Selected Financial Data..................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 34
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Disagreements on Accounting and Financial Disclosure........ 34
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 34
Item 11. Executive Compensation...................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 35
Item 13. Certain Relationships and Related Transactions.............. 35
PART IV
Item 14. Financial Statements and Financial Statement Schedule,
Exhibits and Reports on Form 8-K............................ 35
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PART I
ITEM 1. BUSINESS
GENERAL
Enron Oil & Gas Company (the "Company"), a Delaware corporation organized
in 1985, is engaged, either directly or through a marketing subsidiary with
regard to domestic operations or through various subsidiaries with regard to
international operations, in the exploration for, and the development,
production and marketing of, natural gas and crude oil primarily in major
producing basins in the United States, as well as in Canada, Trinidad and India
and, to a lesser extent, selected other international areas. The Company's
principal producing areas are further described under "Exploration and
Production" below. At December 31, 1998, the Company's estimated net proved
natural gas reserves were 5,229 billion cubic feet ("Bcf"), including 1,180 Bcf
of proved undeveloped methane reserves in the Big Piney deep Paleozoic
formations, and estimated net proved crude oil, condensate and natural gas
liquids reserves were 105 million barrels ("MMBbl"). (See "Supplemental
Information to Consolidated Financial Statements"). At such date, approximately
53% of the Company's reserves (on a natural gas equivalent basis) was located in
the United States, 9% in Canada, 18% in Trinidad, 18% in India and 2% in China.
As of December 31, 1998, the Company employed approximately 1,190 persons,
including foreign national employees.
The Company's business strategy is to maximize the rate of return on
investment of capital by controlling both operating and capital costs and
enhancing the certainty of future revenues through the selective use of various
marketing mechanisms. This strategy enhances the generation of both income and
cash flow from each unit of production and allows for the growth of production
on a cost-effective basis by optimizing the reinvestment of cash flow. The
Company continued to focus its 1998 drilling activity toward natural gas
deliverability in addition to natural gas reserve enhancement and to a lesser
extent crude oil exploitation. The Company also continues to focus on the
cost-effective utilization of advances in technology associated with gathering,
processing and interpretation of 3-D seismic data, developing reservoir
simulation models and drilling operations through the use of new and/or improved
drill bits, mud motors, mud additives, formation logging techniques and
reservoir fracturing methods. These advanced technologies are used, as
appropriate, throughout the Company to reduce the risks associated with all
aspects of oil and gas reserve exploration, exploitation and development. The
Company implements its strategy by emphasizing the drilling of internally
generated prospects in order to find and develop low cost reserves. Achieving
and maintaining the lowest possible operating cost structure are also important
goals in the implementation of the Company's strategy. Consistent with the
Company's desire to optimize the use of its assets, it also maintains a strategy
of selling selected oil and gas properties that for various reasons may no
longer fit into future operating plans, or which are not assessed to have
sufficient future growth potential and when the economic value to be obtained by
selling the properties and reserves in the ground is evaluated to be greater
than what would be obtained by holding the properties and producing the reserves
over time. As a result, the Company typically receives each year a varying but
substantial level of proceeds related to such sales which proceeds are available
for general corporate use.
As of December 31, 1998, Enron Corp. owned 54% of the outstanding shares of
the common stock of the Company. (See "Relationship Between the Company and
Enron Corp."). In December 1998, Enron Corp. publicly disclosed that it had
received an unsolicited indication of interest from a third party with respect
to exploring a possible transaction pursuant to which the third party would
acquire Enron Corp.'s shares of common stock of the Company, and offer to
acquire the remaining shares of outstanding common stock of the Company. In
response to this indication of interest, the Board of Directors of the Company
has established a special committee consisting of two independent directors who
have retained a financial advisor and legal counsel. Although Enron Corp. has
publicly indicated that it currently intends to actively explore alternative
transactions for its Company common stock along with the unsolicited indication
of interest, there can be no assurance that any such transactions will be
pursued or, if pursued, will be consummated.
Unless the context otherwise requires, all references herein to the Company
include Enron Oil & Gas Company, its predecessors and subsidiaries, and any
reference to the ownership of interests or pursuit of
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operations in any international areas by the Company recognizes that all such
interests are owned and operations are pursued by subsidiaries of Enron Oil &
Gas Company. Unless the context otherwise requires, all references herein to
Enron Corp. include Enron Corp., its predecessors and affiliates, other than the
Company and its predecessors and subsidiaries.
With respect to information on the Company's working interest in wells or
acreage, "net" oil and gas wells or acreage are determined by multiplying
"gross" oil and gas wells or acreage by the Company's working interest in the
wells or acreage. Unless otherwise defined, all references to wells are gross.
BUSINESS SEGMENTS
The Company's operations are all natural gas and crude oil exploration and
production related.
EXPLORATION AND PRODUCTION
NORTH AMERICA OPERATIONS
United States. The Company's eight principal United States producing areas
are the Big Piney area of Wyoming, South Texas area, East Texas area, Offshore
Gulf of Mexico area, Canyon/Strawn Trend area of West Texas, Sand Tank and
Pitchfork Ranch areas of New Mexico and Vernal area of Utah. Properties in these
areas comprised approximately 81% of the Company's United States reserves (on a
natural gas equivalent basis) and 82% of the Company's United States net natural
gas deliverability as of December 31, 1998 and are substantially all operated by
the Company.
The Company's other United States natural gas and crude oil producing
properties are located primarily in other areas of Texas, Utah, New Mexico,
Oklahoma, California, Mississippi and Kansas.
At December 31, 1998, 93% of the Company's proved United States reserves,
including the reserves in the Big Piney deep Paleozoic formations (on a natural
gas equivalent basis), was natural gas and 7% was crude oil, condensate and
natural gas liquids. A substantial portion of the Company's United States
natural gas reserves is in long-lived fields with well-established production
histories. The Company believes that opportunities exist to increase production
in many of these fields through continued infill and other development drilling.
Big Piney Area. The Company's largest reserve accumulation is located in
the Big Piney area in Sublette and Lincoln counties in southwestern Wyoming. The
Company is the holder of the largest productive acreage base in this area, with
approximately 280,000 net acres under lease directly within field limits. The
Company operates approximately 800 natural gas and crude oil wells in this area
in which it owns an 85% average working interest. Deliveries from the area net
to the Company averaged 118 million cubic feet ("MMcf") per day of natural gas
and 4.0 thousand barrels ("MBbl") per day of crude oil, condensate, and natural
gas liquids in 1998. At December 31, 1998, natural gas deliverability net to the
Company was approximately 110 MMcf per day.
The current principal producing intervals are the Almy, Mesaverde and
Frontier formations. The Frontier formation, which occurs at 6,500 to 10,000
feet, contains approximately 64% of the Company's Big Piney proved developed
reserves. The Company drilled 44 wells in the Big Piney area in 1998 and
anticipates an active drilling program will continue for several years.
The Company has recorded as proved undeveloped reserves 1,180 Bcf of
methane contained, along with high concentrations of carbon dioxide as well as
small amounts of other gaseous substances, in the deep Wyoming Paleozoic
(Madison) formation located under acreage leased by the Company and held by
production in the Big Piney area. In January 1999, the Company acquired certain
adjacent Madison formation producing interests that include the rights to an
agreement covering the processing of natural gas from such adjacent interests
from the Madison formation through an existing plant operated by another company
in the industry.
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South Texas Area. The Company's activities in South Texas are focused in
the Lobo, Wilcox and Frio producing horizons. The principal areas of activity
are in the Lobo and Wilcox Trends which occur primarily in Webb, Zapata and
Duval counties, as well as the Frio Trend in Matagorda County.
In Matagorda County, two wells were completed in 1998, each with a rate of
40 MMcf per day of natural gas and 2.0 MBbl per day of condensate. The Company
operates approximately 420 wells in the South Texas area, and production is
primarily from the Frio, Wilcox and Lobo sands at depths ranging from 5,000 to
16,000 feet. The Company has approximately 273,000 net leasehold acres and more
than 40,000 net mineral fee acres in this area. Natural gas deliveries net to
the Company averaged approximately 162 MMcf per day in 1998. At December 31,
1998, natural gas deliverability from this area net to the Company was
approximately 182 MMcf per day. The Company drilled 47 wells in the South Texas
area in 1998, acquired 758 square miles of new 3-D seismic and leased 64,500 net
acres. An active drilling program in this area is anticipated to continue for
several years.
East Texas Area. The Company's activities in the East Texas area are
primarily in the Carthage field, located in Panola County, the North Milton
field, located in northern Harris County and the Stowell/Big Hill area, located
in Jefferson and Chambers Counties.
The Carthage field production is primarily from the Cotton Valley, Travis
Peak and Pettit formations. The Company holds approximately 17,900 net acres
under lease with an average 74% working interest in this area. The Company
drilled 29 wells in the Carthage field in 1998 and anticipates an active
drilling program will continue for several years. The Company has continued its
activity in the North Milton field where it now operates 27 wells and holds a
100% working interest in the acreage. The Company expects to drill additional
wells during 1999. The Company drilled 10 wells in the Stowell/Big Hill area in
1998 and expects to continue expansion of the program in 1999. Net deliveries
from the East Texas area averaged 56.4 MMcf per day of natural gas and 2.3 MBbl
per day of crude oil, condensate and natural gas liquids in 1998. At December
31, 1998, deliverability from the area was approximately 80 MMcf per day of
natural gas with 2.0 MBbl per day of crude oil, condensate and natural gas
liquids both net to the Company.
Offshore Gulf of Mexico Area. During 1998, the Company participated in two
lease sales offering leases in the Gulf of Mexico and acquired approximately
20,700 net acres (6 leases). As a result of the lease sale activity, the Company
acquired two deepwater (greater than 600 feet) tracts to add to the 19 deepwater
tracts held at the end of 1997. During 1998, the Company made a significant
acquisition in the OCS Gulf of Mexico purchasing a 19% working interest in the
Matagorda Island 623 field which increased the Company's natural gas deliveries,
adding 55 MMcf per day net to the Company. Development of the Eugene Island 135
discovery continued with a third development well increasing the Company's net
field production to 17 MMcf per day and 760 barrels of condensate per day. At
December 31, 1998, the Company held an interest in 184 blocks in the Offshore
Gulf of Mexico area totaling approximately 544,000 net acres. Of these 184
blocks, located predominantly in federal waters offshore Texas and Louisiana,
127 are operated by the Company. Natural gas deliveries from this area averaged
116 MMcf per day during 1998 net to the Company with total deliveries at year
end of 152 MMcf per day. A substantial portion of such deliveries was from
interests in the Matagorda Island and Mustang Island areas of offshore Texas
with significant volumes also coming from Eugene Island 135. Deliverability from
the offshore Gulf of Mexico area at December 31, 1998 was approximately 161 MMcf
per day net to the Company sourced principally as noted above. During 1998, the
Company participated in the drilling of 10 wells (3.9 net wells) in the Gulf of
Mexico. In 1999, the Company anticipates participating in the drilling of 5-10
wells.
Canyon/Strawn Trend Area. The Company's activities in this area have been
concentrated in Crockett, Terrell and Val Verde Counties in Texas where the
Company drilled 21 natural gas wells during 1998. The Company holds
approximately 66,000 net acres and now operates approximately 350 natural gas
wells in this area in which it owns a 90% average working interest. Production
is from the Canyon sands and Strawn limestone at depths from 5,500 to 12,500
feet. At December 31, 1998, natural gas deliverability net to the Company was
approximately 35 MMcf per day. The Company plans an aggressive program on
several new prospects in 1999.
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Sand Tank Area. The Sand Tank area located in Eddy County, New Mexico
produces from the Chester, Morrow, and Atoka formations. Natural gas deliveries
for 1998 averaged 16 MMcf per day and deliveries of crude oil, condensate and
natural gas liquids averaged .3 MBbl per day in 1998 both net to the Company. At
year end 1998, deliverability, net to the Company, was approximately 15 MMcf per
day of natural gas and .2 MBbl per day of crude oil, condensate and natural gas
liquids. The Company holds 14,000 net acres and has an average working interest
of approximately 60%. Several wells are planned in 1999 for this stacked-pay
area.
Pitchfork Ranch Area. The Pitchfork Ranch area located in Lea County, New
Mexico, produces primarily from the Bone Spring, Wolfcamp, Atoka and Morrow
formations. In 1998, deliveries net to the Company averaged 18 MMcf per day of
natural gas and approximately 2.0 MBbl per day of crude oil, condensate and
natural gas liquids. At December 31, 1998, deliverability net to the Company was
approximately 21 MMcf per day of natural gas and 1.8 MBbl per day of crude oil,
condensate and natural gas liquids. The Company holds approximately 34,000 net
acres and is continuing to interpret a 3-D seismic survey shot over this entire
area. The Company expects to maintain a drilling program in this area in 1999.
Vernal Area. In the Vernal area, located primarily in Uintah County, Utah,
the Company operates approximately 305 producing wells and presently controls
approximately 77,000 net acres. In 1998, natural gas deliveries net to the
Company from the Vernal area averaged 21 MMcf per day. Deliverability at
December 31, 1998, was approximately 26 MMcf per day. Production is from the
Green River and Wasatch formations located at depths between 4,500 and 8,000
feet. The Company has an average working interest of approximately 60%. Numerous
drilling opportunities will be available in this area in 1999.
Canada. The Company is engaged in the exploration for and the development,
production and marketing of natural gas, natural gas liquids and crude oil in
Western Canada, principally in the provinces of Alberta, Saskatchewan, and
Manitoba. The Company conducts operations from offices in Calgary, Alberta, and
produces natural gas and crude oil from five major areas. The Sandhills area in
southwestern Saskatchewan is the largest single natural gas producing area in
Canada for the Company. In 1998, 150 wells were drilled in the area and
additional acreage and wells were acquired in the area resulting in
deliverability of approximately 44 MMcf per day net to the Company at December
31, 1998. The Blackfoot area in southeastern Alberta is the second largest
natural gas producing area in Canada for the Company. In 1998, 16 new wells were
drilled and numerous recompletions, workovers and facility optimizations were
carried out resulting in deliverability of approximately 30 MMcf per day and 1.2
MBbl per day of crude oil and condensate net to the Company at December 31,
1998. Total Canadian natural gas deliverability net to the Company at December
31, 1998 was approximately 120 MMcf per day, and the Company held approximately
555,000 net undeveloped acres in Canada. Total Canadian natural gas deliveries
net to the Company for 1998 averaged approximately 105 MMcf per day. The Company
expects to maintain an active drilling program in Western Canada for several
years.
OUTSIDE NORTH AMERICA OPERATIONS
The Company has producing operations offshore Trinidad and India, and is
evaluating and conducting exploration, exploitation and development in selected
other international areas.
Trinidad. In November 1992, the Company was awarded a 95% working interest
concession in the South East Coast Consortium ("SECC") Block offshore Trinidad,
encompassing three undeveloped fields, previously held by three government-owned
energy companies. The Kiskadee field has since been developed. The Ibis field is
under development and the Oilbird field is anticipated to be developed over the
next several years. Existing surplus processing and transportation capacity at
the Pelican field facilities owned and operated by Trinidad and Tobago
government-owned companies is being used to process and transport the
production. Natural gas is being sold into the local market under a take-or-pay
agreement with the National Gas Company of Trinidad and Tobago. In 1998,
deliveries net to the Company averaged 139 MMcf per day of natural gas, which
includes 24 MMcf per day of gas balancing volumes relating to a field allocation
agreement, and 3.0 MBbl per day of crude oil and condensate. At December 31,
1998, the Company held approximately 144,000 net undeveloped acres in Trinidad.
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In 1995, the Company was awarded the right to develop the modified U(a)
block near the SECC Block. A production sharing contract was signed with the
Government of Trinidad and Tobago in 1996. The contract committed the Company to
the acquisition of 3-D seismic data and the drilling of three wells. The first
well was drilled in 1998 and was successful, encountering over 400 feet of net
pay, resulting in the largest exploration discovery in the Company's history.
The Company estimates the gross proved reserves of the discovery to be over 600
billion cubic feet equivalent.
India. In December 1994, the Company signed agreements covering profit
sharing, joint operations and product sales and representing a 30% working
interest in, and was designated operator of, the Tapti, Panna and Mukta Blocks
located offshore Bombay, India. The blocks were previously operated by the
Indian national oil company, Oil & Natural Gas Corporation Limited, which
retained a 40% working interest. The 363,000 acre Tapti Block contains two major
proved natural gas accumulations delineated by 22 expendable exploration wells
that have been plugged. The Company has substantially implemented an initial
development plan for the Tapti Block accumulations and production began during
1997. At December 31, 1998, production, net to the Company, from Tapti was 50
MMcf per day. The 106,000 acre Panna Block and the 192,000 acre Mukta Block are
partially developed with 65 wells capable of producing from six production
platforms located in the Panna and Mukta fields. The Panna field was producing
approximately 7.1 MBbl per day of crude oil net to the Company as of December
31, 1998. Natural gas sales began from the Panna field during the first quarter
of 1998 and as of December 31, 1998, production, net to the Company, was 18 MMcf
per day. The Company intends to continue development of the fields.
Venezuela. The Company was awarded exploration, exploitation and
development rights for a block offshore the eastern state of Sucre, Venezuela in
early 1996. The Company signed agreements with the government of Venezuela and
other participants associated with a concession awarded in the Gulf of Paria
East. The Company holds an initial 90% working interest in the joint venture and
acts as operator. One exploratory well was drilled during 1998 and encountered
hydrocarbons. Additional evaluation work is being done, and another well is
expected to be drilled during 1999.
China. In August 1997, the Company signed a 30-year production sharing
contract with the China National Petroleum Corporation for the appraisal and
potential development of crude oil and natural gas reserves within the
Chuanzhong Block situated in one of China's oldest producing areas in the
central Sichuan Province. The Company holds a 100% working interest in the
fields and is the operator.
The contract provides for a two-year evaluation period during which the
Company will perform three workover/stimulations to improve productivity in
existing wells and will drill three new wells in the proved areas. Further
commitments, if any, would arise from entering into the development period as
specified in the contract. In 1998, the Company drilled and completed one well
and recompleted another well.
Other International. The Company continues to evaluate other selected
conventional natural gas and crude oil opportunities outside North America by
pursuing other exploitation opportunities in countries where indigenous natural
gas and crude oil reserves have been identified, particularly where synergies in
natural gas transportation, processing and power generation can be optimized
with other Enron Corp. affiliated companies. The Company is also participating
in discussions concerning the potential for natural gas development
opportunities in Mozambique as well as other opportunities in Trinidad, India
and other countries. (See "Relationship Between the Company and Enron
Corp. - Business Opportunity Agreement" for a further discussion of the
relationship between the Company and Enron Corp. in the Mozambique project.)
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MARKETING
Wellhead Marketing. The Company's North America wellhead natural gas
production is currently being sold on the spot market and under long-term
natural gas contracts at market responsive prices. In many instances, the
long-term contract prices closely approximate the prices received for natural
gas being sold on the spot market. Wellhead natural gas volumes from Trinidad
are sold at prices that are based on a fixed price schedule with annual
escalations. Under terms of the production sharing contracts, natural gas
volumes in India are sold to a nominee of the Government of India at a price
linked to a basket of world market fuel oil quotations with floor and ceiling
limits. Approximately 7% of the Company's wellhead natural gas production is
currently being sold to pipeline and marketing subsidiaries of Enron Corp. The
Company believes that the terms of its transactions and agreements with Enron
Corp. are and intends that future such transactions and agreements will be at
least as favorable to the Company as could be obtained from third parties.
Substantially all of the Company's wellhead crude oil and condensate is
sold under various terms and arrangements at market responsive prices.
Approximately 1% of the Company's wellhead crude oil and condensate production
is currently being sold to subsidiaries of Enron Corp.
Other Marketing. Enron Oil & Gas Marketing, Inc. ("EOGM"), a wholly-owned
subsidiary of the Company, is a marketing company engaging in various marketing
activities. Both the Company and EOGM contract to provide, under short and
long-term agreements, natural gas to various purchasers and then aggregate the
necessary supplies for the sales with purchases from various sources including
third-party producers, marketing companies, pipelines or from the Company's own
production and arrange for any necessary transportation to the points of
delivery. In addition, EOGM has purchased and constructed several small
gathering systems in order to facilitate its entry into the gathering business
on a limited basis. Both the Company and EOGM utilize other short and long-term
hedging and trading mechanisms including sales and purchases utilizing
NYMEX-related commodity market transactions. These marketing activities have
provided an effective balance in managing a portion of the Company's exposure to
commodity price risks for both natural gas and crude oil and condensate wellhead
prices. (See "Other Matters - Risk Management").
In September 1992, the Company sold a volumetric production payment for
$326.8 million to a limited partnership. Delivery obligations were terminated in
December 1998. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Capital Resources and Liquidity - Sale of Volumetric
Production Payment").
In March 1995, in a series of transactions with Enron Corp., the Company
exchanged all of its fuel supply and purchase contracts and related price swap
agreements associated with a Texas City cogeneration plant (the "Cogen
Contracts") for certain natural gas price swap agreements (the "Swap
Agreements") of equivalent value. As a result of the transactions, the Company
was relieved of all performance obligations associated with the Cogen Contracts.
The Company will realize net operating revenues and receive corresponding cash
payments of approximately $91 million during the period extending through
December 31, 1999, under the terms of the Swap Agreements. The estimated fair
value of the Swap Agreements was approximately $81 million at the date the Swap
Agreements were received. The net effect of this series of transactions has
resulted in increases in net operating revenues and cash receipts for the
Company during 1995 and 1996 of approximately $13 million and $7 million,
respectively, with offsetting decreases in 1998 and 1999 versus that anticipated
under the Cogen Contracts.
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WELLHEAD VOLUMES AND PRICES, AND LEASE AND WELL EXPENSES
The following table sets forth certain information regarding the Company's
wellhead volumes of and average prices for natural gas per thousand cubic feet
("Mcf"), crude oil and condensate, and natural gas liquids per barrel ("Bbl"),
and average lease and well expenses per thousand cubic feet equivalent ("Mcfe" -
natural gas equivalents are determined using the ratio of 6.0 Mcf of natural gas
to 1.0 Bbl of crude oil, condensate or natural gas liquids) delivered during
each of the three years in the period ended December 31, 1998:
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YEAR ENDED DECEMBER 31,
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1998 1997 1996
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VOLUMES (PER DAY)
Natural Gas (MMcf)
United States(1)....................................... 671 657 608
Canada................................................. 105 101 98
Trinidad............................................... 139 113 124
India.................................................. 56 18 -
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Total............................................. 971 889 830
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Crude Oil and Condensate (MBbl)
United States.......................................... 14.0 11.7 9.2
Canada................................................. 2.6 2.5 2.4
Trinidad............................................... 3.0 3.4 5.2
India.................................................. 5.1 2.3 2.8
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Total............................................. 24.7 19.9 19.6
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Natural Gas Liquids (MBbl)
United States.......................................... 2.9 2.6 1.3
Canada................................................. 1.0 1.3 1.2
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Total............................................. 3.9 3.9 2.5
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AVERAGE PRICES
Natural Gas ($/Mcf)
United States(2)....................................... $ 1.93 $ 2.32 $ 2.04
Canada................................................. 1.40 1.43 1.15
Trinidad............................................... 1.06 1.05 1.00
India.................................................. 2.41 2.79 -
Composite......................................... 1.78 2.07 1.78
Crude Oil and Condensate ($/Bbl)
United States.......................................... $12.84 $19.81 $21.88
Canada................................................. 11.82 17.16 18.01
Trinidad............................................... 12.26 18.68 19.76
India.................................................. 12.86 20.05 20.17
Composite......................................... 12.66 19.30 20.60
Natural Gas Liquids ($/Bbl)
United States.......................................... $ 8.38 $12.76 $14.67
Canada................................................. 5.32 8.94 9.14
Composite......................................... 7.56 11.54 11.99
LEASE AND WELL EXPENSES ($/MCFE)
United States.......................................... $ .22 $ .23 $ .19
Canada................................................. .37 .39 .34
Trinidad............................................... .12 .16 .16
India.................................................. .24 .64 .99
Composite......................................... .24 .26 .22
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(1) Includes 48 MMcf per day in 1998, 1997 and 1996 delivered under the terms of
a volumetric production payment agreement effective October 1, 1992, as
amended. Delivery obligations were terminated in December 1998.
(2) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998,
$1.73 per Mcf in 1997, and $1.17 per Mcf in 1996 for the volumes described
in note (1), net of transportation costs.
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COMPETITION
The Company actively competes for reserve acquisitions and
exploration/exploitation leases, licenses and concessions, frequently against
companies with substantially larger financial and other resources. To the extent
the Company's exploration budget is lower than that of certain of its
competitors, the Company may be disadvantaged in effectively competing for
certain reserves, leases, licenses and concessions. Competitive factors include
price, contract terms, and quality of service, including pipeline connection
times and distribution efficiencies. In addition, the Company faces competition
from other producers and suppliers, including competition from other world wide
energy supplies, such as natural gas from Canada.
REGULATION
United States Regulation of Natural Gas and Crude Oil Production. Natural
gas and crude oil production operations are subject to various types of
regulation, including regulation in the United States by state and federal
agencies.
United States legislation affecting the oil and gas industry is under
constant review for amendment or expansion. Also, numerous departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations which, among other things, require permits for the
drilling of wells, regulate the spacing of wells, prevent the waste of natural
gas and liquid hydrocarbon resources through proration and restrictions on
flaring, require drilling bonds and regulate environmental and safety matters.
The regulatory burden on the oil and gas industry increases its cost of doing
business and, consequently, affects its profitability.
A substantial portion of the Company's oil and gas leases in the Big Piney
area and in the Gulf of Mexico, as well as some in other areas, are granted by
the federal government and administered by the Bureau of Land Management (the
"BLM") and the Minerals Management Service (the "MMS") federal agencies.
Operations conducted by the Company on federal oil and gas leases must comply
with numerous statutory and regulatory restrictions concerning the above and
other matters. Certain operations must be conducted pursuant to appropriate
permits issued by the BLM and the MMS.
MMS leases contain relatively standardized terms requiring compliance with
detailed MMS regulations and, in the case of offshore leases, orders pursuant to
the Outer Continental Shelf Lands Act ("OCSLA") (which are subject to change by
the MMS). Such offshore operations are subject to numerous regulatory
requirements, including the need for prior MMS approval for exploration,
development, and production plans, stringent engineering and construction
specifications applicable to offshore production facilities, regulations
restricting the flaring or venting of production, and regulations governing the
plugging and abandonment of offshore wells and the removal of all production
facilities. Under certain circumstances, the MMS may require operations on
federal leases to be suspended or terminated. Any such suspension or termination
could adversely affect the Company's interests.
The MMS has issued a notice of proposed rulemaking in which it proposes to
amend its regulations governing the calculation of royalties and the valuation
of crude oil produced from federal leases. This proposed rule would modify the
valuation procedures for both arm's length and non-arm's length crude oil
transactions to decrease reliance on oil posted prices and assign a value to
crude oil that, in the opinion of the MMS, better reflects its market value,
establish a new MMS form for collecting differential data, and amend the
valuation procedure for the sale of federal royalty oil. The Company cannot
predict what action the MMS will take on this matter, nor can it predict how the
Company will be affected by any change to this regulation.
The MMS recently issued a final rule to clarify the types of costs that are
deductible transportation costs for purposes of royalty valuation of production
sold off the lease. In particular, the MMS will not allow deduction of costs
associated with marketer fees, cash out and other pipeline imbalance penalties,
or long-term storage fees. The Company cannot predict what, if any, effect the
new rule will have on its operations.
Sales of crude oil, condensate and natural gas liquids by the Company are
made at unregulated market prices.
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<PAGE> 11
The transportation and sale for resale of natural gas in interstate
commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and
the Natural Gas Policy Act of 1978 (the "NGPA"). These statutes are administered
by the Federal Energy Regulatory Commission (the "FERC"). Effective January 1,
1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas
prices for all "first sales" of natural gas, which includes all sales by the
Company of its own production. All other sales of natural gas by the Company,
such as those of natural gas purchased from third parties, remain jurisdictional
sales subject to a blanket sales certificate under the NGA, which has flexible
terms and conditions. Consequently, all of the Company's sales of natural gas
currently may be made at market prices, subject to applicable contract
provisions. The Company's jurisdictional sales, however, are subject to the
future possibility of greater federal oversight, including the possibility the
FERC might prospectively impose more restrictive conditions on such sales.
Since 1985, the FERC has endeavored to enhance competition in natural gas
markets by making natural gas transportation more accessible to natural gas
buyers and sellers on an open and nondiscriminatory basis. These efforts
culminated in Order No. 636 and various rehearing orders ("Order No. 636"),
which mandate a fundamental restructuring of interstate natural gas pipeline
sales and transportation services, including the "unbundling" by interstate
natural gas pipelines of the sales, transportation, storage, and other
components of their service, and to separately state the rates for each
unbundled service. The courts have largely affirmed the significant features of
Order No. 636 and numerous related orders pertaining to the individual
pipelines, although certain appeals remain pending and the FERC continues to
review and modify its open access regulations. Order No. 636 does not directly
regulate the Company's activities, but has an indirect effect because of its
broad scope. Order No. 636 has ended interstate pipelines' traditional role as
wholesalers of natural gas, and substantially increased competition in natural
gas markets. In spite of this uncertainty, Order No. 636 may enhance the
Company's ability to market and transport its natural gas production, although
it may also subject the Company to more restrictive pipeline imbalance
tolerances and greater penalties for violation of such tolerances.
The Company owns, directly or indirectly, certain natural gas pipelines
that it believes meet the traditional tests the FERC has used to establish a
pipeline's status as a gatherer not subject to FERC jurisdiction under the NGA.
State regulation of gathering facilities generally includes various safety,
environmental, and in some circumstances, nondiscriminatory take requirements,
but does not generally entail rate regulation. Natural gas gathering may receive
greater regulatory scrutiny at both the state and federal levels as the pipeline
restructuring under Order No. 636 is implemented. For example, the Texas
Railroad Commission has approved changes to its regulations governing
transportation and gathering services performed by intrastate pipelines and
gatherers, which prohibit such entities from unduly discriminating in favor of
their affiliates. The Company's gathering operations could be adversely affected
should they be subject in the future to the application of state or federal
regulation of rates and services.
The Company's natural gas gathering operations also may be or become
subject to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement, and management of
facilities. Additional rules and legislation pertaining to these matters are
considered or adopted from time to time. The Company cannot predict what effect,
if any, such legislation might have on its operations, but the industry could be
required to incur additional capital expenditures and increased costs depending
on future legislative and regulatory changes.
The FERC has recently begun a broad review of its transportation
regulations, including how they operate in conjunction with state proposals for
retail gas marketing restructuring, whether to eliminate cost-of-service rates
for short-term transportation, whether to allocate all short-term capacity on
the basis of competitive auctions, and whether changes to its long-term
transportation policies may also be appropriate to avail a market bias toward
short-term contracts. While any resulting FERC action would affect the Company
only indirectly, these inquiries are intended to further enhance competition in
natural gas markets, while maintaining adequate consumer protections.
The Company cannot predict the effect that any of the aforementioned orders
or the challenges to such orders will ultimately have on the Company's
operations. Additional proposals and proceedings that might
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<PAGE> 12
affect the natural gas industry are considered from time to time by Congress,
the FERC and the courts. The Company cannot predict when or whether any such
proposals or proceedings may become effective. It should also be noted that the
natural gas industry historically has been very heavily regulated; therefore,
there is no assurance that the less regulated approach currently being pursued
by the FERC will continue indefinitely.
Environmental Regulation. 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 the
Company's operations and costs as a result of their effect on natural gas and
crude oil exploration, development and production operations. Compliance with
such laws and regulations has not had a material adverse effect on the Company's
operations or financial condition. It is not anticipated, based on current laws
and regulations, that the Company will be required in the near future to expend
amounts that are material in relation to its total exploration and development
expenditure program by reason of environmental laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the Company is
unable to predict the ultimate cost of compliance.
Canadian Regulation. In Canada, the petroleum industry is subject to
extensive controls and operates under various provincial and federal legislation
and regulations governing land tenure, royalties, taxes, production rates,
operational standards, environmental protection, health and safety, exports and
other matters. The Company operates within this regulatory framework and
continues to monitor and evaluate the impact of the regulatory regime when
determining parameters for engaging in oil and gas activities and investments in
Canada. The price of natural gas and crude oil in Canada has been deregulated
and is determined by market conditions and negotiations between buyers and
sellers in a North American market place. The North American Free Trade
Agreement supports the on-going cross-border commercial transactions of the
natural gas and crude oil business.
Various matters relating to the transportation and export of natural gas
continue to be subject to regulation by provincial agencies and federally, by
the National Energy Board; however, the North American Free Trade Agreement may
have reduced the risk of altering existing cross-border commercial transactions
through the assurance of fair implementation of regulatory changes, minimal
disruption of contractual arrangements and the prohibition of discriminatory
order restrictions and export taxes.
Canadian governmental regulations may have a material effect on the
economic parameters for engaging in oil and gas activities in Canada and may
have a material effect on the advisability of investments in Canadian oil and
gas drilling activities. The Company is monitoring political, regulatory and
economic developments in Canada.
Other International Regulation. The Company's exploration and production
operations outside North America are subject to various types of regulations
imposed by the respective governments of the countries in which the Company's
operations are conducted, and may affect the Company's operations and costs
within that country. The Company currently has producing operations offshore
Trinidad and India and exploration, exploitation and development activities in
other selected international areas.
RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP.
Ownership of Common Stock. Enron Corp. owns a majority of the outstanding
shares of common stock of the Company. Through its ability to elect all of the
directors of the Company, Enron Corp. generally has the ability to control
matters relating to the management and policies of the Company, including
determination with respect to acquisition or disposition of Company assets, the
Company's exploration, development, and operating expenditure plans, future
issuances of common stock or other securities of the Company and dividends
payable on the common stock. (See also "General" relating to the announced
intent by Enron Corp. to explore various potential transactions for its Company
common stock.)
Conflicts of Interest. The nature of the respective businesses of the
Company and Enron Corp. and its other affiliates ("Enron") is such as to give
rise to conflicts of interest between the companies from time to time. Conflicts
may arise, for example, with respect to transactions involving purchases, sales
and transportation of natural gas and other business dealings between the
Company and Enron, potential acquisitions of
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<PAGE> 13
businesses or crude oil and natural gas properties or the payment of dividends
by the Company. In connection with its finance and trading business conducted by
its subsidiaries, Enron Capital & Trade Resources Corp. ("ECT") and Enron
International Capital & Trade Corp. ("EICT"), Enron provides or arranges
financing for others, including exploration and production companies, some of
which compete with the Company. Enron may make investments in the debt or equity
of such companies, may make loans secured by crude oil and natural gas
properties or securities of crude oil and natural gas companies, may acquire
production payments or may receive interests in crude oil and natural gas
properties as equity components of lending transactions. As a result of its
finance and trading business, Enron may also acquire crude oil and natural gas
properties or companies upon foreclosure of secured loans or as part of a
borrower's rearrangement of its obligations. Enron also has interests in
entities such as Joint Energy Development Investments Limited Partnership, which
makes debt and equity investments in energy-related businesses, including
exploration and production companies. The acquisition, exploration, development
and production activities of entities in which Enron has interests may directly
or indirectly compete with the Company's business.
Business Opportunity Agreement. In December 1997, Enron Corp. and the
Company entered into an Equity Participation and Business Opportunity Agreement
(the "Business Opportunity Agreement") that defines certain obligations that
Enron owes to the Company and relieves Enron from certain obligations to the
Company that it might otherwise have, including the obligation to offer certain
business opportunities to the Company. Enron has advised the Company that,
although it believes that it has conducted its business in a manner that is
consistent with its duties as a majority shareholder of the Company, it was
motivated to enter into the Business Opportunity Agreement because of the
difficulty of determining the applicability of the law relating to duties that
Enron may owe to the Company in connection with Enron's finance and trading
business and because of Enron's desire to have more flexibility in pursuing
business opportunities identified by or developed solely by Enron personnel. The
Business Opportunity Agreement was approved by the Board of Directors of the
Company after it was approved unanimously by a special committee of the Board of
Directors consisting of the Company's independent directors. The special
committee retained its own legal and financial advisers in connection with its
evaluation of Enron's proposal, and the Business Opportunity Agreement as
executed reflects significant concessions on Enron's part resulting from its
negotiations with members of the special committee.
The Business Opportunity Agreement provides generally that, so long as such
activities are conducted in compliance with the Business Opportunity Agreement
in all material respects, Enron may pursue business opportunities independently
of the Company. The Business Opportunity Agreement contains an acknowledgment by
the Company that Enron's finance and trading business may result in the
acquisition by Enron of oil and gas properties or companies and that in certain
cases Enron or entities in which Enron has an interest may acquire such assets
pursuant to bidding or auction processes in which the Company is also a bidder.
In the Business Opportunity Agreement, the Company acknowledges and agrees that
such activities may have an impact on the Company or the price it pays for
properties or securities it purchases from others, that Enron or entities in
which it has an interest may acquire direct or indirect interests in oil and gas
properties or companies as a result of such activities, may own, operate and
control any such assets in connection therewith, and may acquire additional oil
and gas properties or companies or pursue opportunities related thereto in
connection therewith, in each case without any duty to offer all or any portion
of such assets or opportunities to the Company. The Business Opportunity
Agreement contains an acknowledgment and agreement by the Company that, to the
extent that a court might hold that the conduct of such activity is a breach of
a duty to the Company (and without admitting that the conduct of such activity
is such a breach of duty), the Company waives any and all claims and causes of
action that it may have to claim that the conduct of such activity is a breach
of a duty to the Company.
The Business Opportunity Agreement contains certain restrictions on the
conduct of Enron's business. It also provides that, except with respect to
business opportunities pursued jointly by Enron and the Company and except as
otherwise agreed to between Enron and the Company, Enron's business will be
conducted through the use of its own personnel and assets and not with the use
of any personnel or assets of the Company. Thus, without the consent of the
Company, the finance and trading business conducted by ECT, EICT or other Enron
entities may only involve business opportunities identified by or presented to
ECT
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<PAGE> 14
personnel, EICT personnel or other Enron personnel and developed and pursued
solely through the use of the personnel and assets of ECT, EICT or other Enron
entities. Enron has agreed that, so long as it controls the Company, it will not
pursue any business opportunity a majority of the value of which involves oil
and gas properties if the opportunity is first presented to an officer or
director of Enron who is also an officer or director of the Company at the time
such opportunity is presented, unless Enron first offers such opportunity to the
Company. The Business Opportunity Agreement states that its provisions relate
exclusively to the duties that Enron owes the Company and that nothing in the
Business Opportunity Agreement affects the fiduciary or other duties owed to the
Company by any individual director or officer of the Company in his or her
capacity as such. In this connection, Enron has agreed that its representatives
on the Board of Directors of the Company will not, for the purpose of enabling
Enron to pursue an opportunity in the oil and gas business, vote in such a
manner as to effectively prevent, prohibit or restrict the Company from pursuing
such opportunity.
In consideration for the Company's agreements in the Business Opportunity
Agreement, Enron provided valuable consideration to the Company, including
options to purchase common stock of Enron that will give the Company the
opportunity to participate in future appreciation in value of Enron, including
any appreciation in value resulting from activities that the Company has agreed
to permit Enron and its subsidiaries to pursue. Enron granted the Company ten
year options to purchase 3,200,000 shares of Enron common stock at $39.1875 per
share, the closing price per share on the date that the Company's Board of
Directors approved the Business Opportunity Agreement. The options vest in
accordance with a schedule that provides that 25% vested immediately, 15% vest
on the anniversary of the Business Opportunity Agreement in 1998 and 10% vest
each anniversary thereafter until all of the options are vested. Vesting will be
accelerated in the event of a change of control of the Company. For such
purposes a "change of control" means that (a) Enron no longer owns capital stock
of the Company representing at least 35% of the voting power for the election of
directors and (b) a majority of the members of the Board of Directors of the
Company consists of persons who are not officers or directors of Enron or any
affiliate of Enron other than the Company. The Business Opportunity Agreement
also included (i) an agreement to replace the existing services agreement, under
which Enron provides certain services to the Company, with a new services
agreement under which the Company's maximum payments to Enron for allocated
indirect costs will be reduced by $2.8 million per year, (ii) an agreement by
Enron relieving the Company of the obligation to bear the costs of any
registration of sales by Enron of shares of common stock of the Company, (iii)
an agreement by Enron to pay the costs of registration of the Company's sales of
Enron common stock acquired upon exercise of the options granted in the Business
Opportunity Agreement, (iv) an agreement that if Enron takes any action that
results in the loss by the Company of its status as an "independent producer"
under the Internal Revenue Code, Enron will pay the Company each year through
2006 the lesser of (a) $1 million and (b) an amount which, after payment of
applicable taxes, will compensate the Company for the additional income tax
liability resulting from the loss of independent producer status, (v) an
agreement that if Enron requests that the Company relocate its offices, and if
the Company agrees to do so, Enron will pay the Company's moving expenses,
including expenses of building out or refurbishing the space in its new offices
and expenses of removing and reinstalling the Company's telecommunications and
information systems facilities and (vi) an agreement by Enron to reimburse the
Company for the costs and expenses of legal and financial consultants retained
to assist the special committee in connection with the Business Opportunity
Agreement. In addition, pursuant to the Business Opportunity Agreement, Enron
agreed to cause its subsidiary, Houston Pipe Line Company, to enter into various
agreements with the Company rearranging certain existing contractual
arrangements between them, and Enron and the Company entered into a licensing
agreement covering the Enron name and mark and recognizing that the EOG and EOGI
names and marks belong to the Company. In the Business Opportunity Agreement
Enron and the Company also entered into agreements in principle regarding the
manner in which they will share the burdens and benefits of the integrated
projects under joint development by Enron and the Company in Qatar, Mozambique
and Uzbekistan. The agreements in principle provide generally that the Company's
interests in these projects will be 20%, 20% and 80%, respectively, of the
combined ownership interest of the Company and Enron. In December 1998, the
Company sold its interest in the Uzbekistan project and anticipates disposing of
its interest in the Qatar project in early 1999.
The Business Opportunity Agreement also contains provisions that give Enron
the right to maintain its equity interest in the Company at certain levels. It
provides that if the Company issues additional shares of its
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<PAGE> 15
capital stock Enron will have the right to purchase additional shares of capital
stock of the Company as follows: (i) if Enron owns a majority interest, Enron
will have the right to purchase sufficient shares to permit it to retain its
majority interest; (ii) if Enron does not own a majority interest but accounts
for the assets and operations of the Company on a consolidated basis for
financial reporting purposes Enron will have the right to purchase sufficient
shares to permit it to continue to account for the Company on a consolidated
basis; and (iii) if Enron accounts for the assets and operations of the Company
using the equity method for financial reporting purposes Enron will have the
right to purchase sufficient shares to permit it to continue to account for the
Company using the equity method. Any such purchase by Enron will be for cash at
97% of the average closing price per share over a specified 20 day period
(reflecting a 3% private placement discount).
Contractual Arrangements. As part of the Business Opportunity Agreement,
the Company entered into a Services Agreement (the "Services Agreement") with
Enron Corp. effective January 1, 1997, pursuant to which Enron Corp. provides
various services, such as maintenance of certain employee benefit plans,
provision of certain telecommunications and computer services, lease of certain
office space and the provision of certain purchasing and operating services and
certain other corporate staff and support services. Such services historically
have been supplied to the Company by Enron Corp., and the Services Agreement
provides for the further delivery of such services substantially identical in
nature and quality to those services previously provided. The Company has agreed
to a fixed rate for the rental of office space and to reimburse Enron Corp. for
all other direct costs incurred in rendering services to the Company under the
contract and to pay Enron Corp. for allocated indirect costs incurred in
rendering such services up to a maximum of approximately $5.1 million for 1998
and $5.3 million for 1997. The limit on cost for the allocated indirect services
provided by Enron Corp. to the Company will increase in subsequent years for
inflation and certain changes in the Company's allocation bases. The Services
Agreement is for an initial term of ten years through December 2006 and will
continue thereafter until terminated by either party.
In March 1995, in a series of transactions with Enron Corp., the Company
exchanged all of its fuel supply and purchase contracts and related price swap
agreements associated with a Texas City cogeneration plant (the "Cogen
Contracts") for certain natural gas price swap agreements (the "Swap
Agreements") of equivalent value. As a result of the transactions, the Company
was relieved of all performance obligations associated with the Cogen Contracts.
The Company will realize net operating revenues and receive corresponding cash
payments of approximately $91 million during the period extending through
December 31, 1999 under the terms of the Swap Agreements. The estimated fair
value of the Swap Agreements was approximately $81 million at the date the Swap
Agreements were received. The net effect of this series of transactions has
resulted in increases in net operating revenues and cash receipts for the
Company during 1995 and 1996 of approximately $13 million and $7 million,
respectively, with offsetting decreases in 1998 and 1999 versus that anticipated
under the Cogen Contracts.
The Company and Enron Corp. have in the past entered into material
intercompany transactions and agreements incident to their respective
businesses, and they may be expected to enter into such transactions and
agreements in the future. Such transactions and agreements have related to,
among other things, the purchase and sale of natural gas and crude oil, hedging
and trading activities, the financing of exploration and development efforts by
the Company, and the provision of certain corporate services. (See "Marketing"
and the Consolidated Financial Statements and notes thereto). The Company
believes that its existing transactions and agreements with Enron Corp. have
been at least as favorable to the Company as could be obtained from third
parties, and the Company intends that the terms of any future transactions and
agreements between the Company and Enron Corp. will be at least as favorable to
the Company as could be obtained from third parties.
OTHER MATTERS
Energy Prices. Since the Company is primarily a natural gas company, it is
more significantly impacted by changes in natural gas prices than in the prices
for crude oil, condensate or natural gas liquids. During recent periods,
domestic natural gas has been priced significantly below parity with crude oil
and condensate based on the energy equivalency of, and differences in
transportation and processing costs associated with, the respective products
although that relationship improved during 1998. This imbalance in parity has
been
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<PAGE> 16
primarily driven by, among other things, a supply of domestic natural gas
volumes in excess of demand requirements. The Company is unable to predict when
this supply imbalance may be resolved due to the significant impacts of factors
such as general economic conditions, technology developments, weather and other
international energy supplies over which the Company has no control.
Average North America wellhead natural gas prices have fluctuated, at times
rather dramatically, during the last three years. While these fluctuations
resulted in increases in average North America wellhead natural gas prices
received by the Company of 43% from 1995 to 1996 and 15% from 1996 to 1997, the
average North America wellhead natural gas prices realized by the Company from
1997 to 1998 decreased by 15%. Wellhead natural gas volumes from Trinidad are
sold at prices that are based on a fixed schedule with periodic escalations.
Natural gas deliveries in India commenced in June 1997 and, under the terms of
the production sharing contracts, the price of such deliveries are indexed to a
basket of world market fuel oil quotations structured to include floor and
ceiling limits. Due to the many uncertainties associated with the world
political environment, the availabilities of other world wide energy supplies
and the relative competitive relationships of the various energy sources in the
view of the consumers, the Company is unable to predict what changes may occur
in natural gas prices in the future.
Substantially all of the Company's wellhead crude oil and condensate is
sold under various terms and arrangements at market responsive prices. Crude oil
and condensate prices also have fluctuated during the last three years. Due to
the many uncertainties associated with the world political environment, the
availabilities of other world wide energy supplies and the relative competitive
relationships of the various energy sources in the view of the consumers, the
Company is unable to predict what changes may occur in crude oil and condensate
prices in the future.
Risk Management. The Company engages in price risk management activities
from time to time primarily for non-trading and to a lesser extent for trading
purposes. Derivative financial instruments (primarily price swaps and costless
collars) are utilized for non-trading purposes to hedge the impact of market
fluctuations of natural gas and crude oil market prices on net income and cash
flow.
At December 31, 1998, the Company had outstanding crude oil commodity price
swap transactions, designated as hedges, covering approximately 700 MBbl of
crude oil and condensate for 1999. The fair value of the positions was a net
revenue increase of $4 million at December 31, 1998.
At December 31, 1998, based on the portion of the Company's anticipated
natural gas volumes for 1999 for which prices have not, in effect, been hedged
using NYMEX-related commodity market transactions and long-term marketing
contracts, the Company's net income and cash flow sensitivity to changing
natural gas prices is approximately $18 million for each $.10 per Mcf change in
average wellhead natural gas prices. While the Company is not impacted as
significantly by changing crude oil prices for those volumes not otherwise
hedged, its net income and cash flow sensitivity is approximately $6 million for
$1.00 per barrel change in average wellhead crude oil prices. Natural gas prices
received in India fluctuate between floor and ceiling price limits based on
prices for a basket of petroleum products.
Tight Gas Sand Tax Credits (Section 29) and Severance Tax Exemption. United
States federal tax law provides a tax credit for production of certain fuels
produced from nonconventional sources (including natural gas produced from tight
formations), subject to a number of limitations. Fuels qualifying for the credit
must be produced from a well drilled or a facility placed in service after
November 5, 1990 and before January 1, 1993, and must be sold before January 1,
2003.
The credit, which is currently approximately $.52 per million British
thermal units ("MMBtu") of natural gas, is computed by reference to the price of
crude oil, and is phased out as the price of crude oil exceeds $23.50 in 1980
dollars (adjusted for inflation) with complete phaseout if such price exceeds
$29.50 in 1980 dollars (similarly adjusted). Under this formula, the
commencement of phaseout would be triggered if the average price for crude oil
rose above approximately $48 per barrel in current dollars. Significant benefits
from the tax credit have accrued and continue to accrue to the Company since a
portion (and in some cases a substantial portion) of the Company's natural gas
production from new wells drilled after November 5, 1990,
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and before January 1, 1993, on the Company's leases in several of the Company's
significant producing areas qualify for this tax credit.
Natural gas production from wells spudded or completed after May 24, 1989
and before September 1, 1996 in tight formations in Texas qualifies for a
ten-year exemption, ending August 31, 2001, from severance taxes, subject to
certain limitations. In 1995, the drilling qualification period was extended in
a modified and somewhat reduced form from September 1996 through August 2002.
Consequently, new qualifying production will be added prospectively to that
presently qualified.
Other. All of the Company's natural gas and crude oil activities are
subject to the risks normally incident to the exploration for and development
and production of natural gas and crude oil, including blowouts, cratering and
fires, each of which could result in damage to life and property. Offshore
operations are subject to usual marine perils, including hurricanes and other
adverse weather conditions, and governmental regulations as well as interruption
or termination by governmental authorities based on environmental and other
considerations. In accordance with customary industry practices, insurance is
maintained by the Company against some, but not all, of the risks. Losses and
liabilities arising from such events could reduce revenues and increase costs to
the Company to the extent not covered by insurance.
The Company's operations outside of North America are subject to certain
risks, including expropriation of assets, risks of increases in taxes and
government royalties, renegotiation of contracts with foreign governments,
political instability, payment delays, limits on allowable levels of production
and currency exchange and repatriation losses, as well as changes in laws,
regulations and policies governing operations of foreign companies generally.
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<PAGE> 18
CURRENT EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their names and ages are
as follows (all positions are with the Company unless otherwise noted):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Forrest E. Hoglund.......... 65 Chairman of the Board; Director
Mark G. Papa................ 52 President and Chief Executive Officer; Director
Edmund P. Segner, III....... 45 Vice Chairman and Chief of Staff
Dennis M. Ulak.............. 45 President, International Operations and Chairman of
the Board and Chief Executive Officer, Enron Oil & Gas
International, Inc.
Jeffrey B. Sherrick......... 44 President and Chief Operating Officer, Enron Oil & Gas
International, Inc.
Loren M. Leiker............. 45 Executive Vice President, Exploration
Gary L. Thomas.............. 49 Executive Vice President, North American Operations
Barry Hunsaker, Jr.......... 48 Senior Vice President and General Counsel
Walter C. Wilson............ 56 Senior Vice President and Chief Financial Officer
</TABLE>
Forrest E. Hoglund joined the Company as Chairman of the Board and Director
in September 1987. He also served as Chief Executive Officer of the Company
until September 1998 and served as President from May 1990 until December 1996.
Mr. Hoglund is an advisory director of Chase Bank of Texas, National
Association.
Mark G. Papa was elected President and Chief Executive Officer and Director
of the Company in September 1998, President and Chief Operating Officer in
September 1997, President in December 1996 and was President North America
Operations from February 1994 to September 1998. From May 1986 through January
1994, Mr. Papa served as Senior Vice President - Operations. Mr. Papa joined
Belco Petroleum Corporation, a predecessor of the Company, in 1981.
Edmund P. Segner, III became Vice Chairman and Chief of Staff of the
Company in September 1997. Mr. Segner was a director of the Company from January
1997 to October 1997. Mr. Segner joined Enron Corp. in 1988 and was Executive
Vice President and Chief of Staff.
Dennis M. Ulak has been President - International Operations since January
1996 with responsibility for activities outside North America. Mr. Ulak also
serves as Chairman and Chief Executive Officer of Enron Oil & Gas International,
Inc. Mr. Ulak joined the Company in March 1987 as Senior Counsel and was named
Assistant General Counsel for international operations in February 1989,
Assistant General Counsel in August 1990 and Vice President and General Counsel
in March 1992.
Jeffrey B. Sherrick joined the Company in July 1989 and has been President
and Chief Operating Officer of Enron Oil & Gas International, Inc., since
September 1997. Mr. Sherrick was previously Senior Vice President, Acquisitions
and Engineering of the Company.
Loren M. Leiker joined the Company in April 1989 and has been Executive
Vice President, Exploration since May 1998. Mr. Leiker was previously Senior
Vice President, Exploration of the Company.
Gary L. Thomas was elected Executive Vice President, North American
Operations in May 1998. He was previously Senior Vice President and General
Manager of the Company's Midland Division. Mr. Thomas joined a predecessor of
the Company in July 1978.
Barry Hunsaker, Jr. has been Senior Vice President and General Counsel
since he joined the Company in May 1996. Prior to joining the Company, Mr.
Hunsaker was a partner in the law firm of Vinson & Elkins L.L.P.
Walter C. Wilson joined the Company in November 1987 and has been Senior
Vice President and Chief Financial Officer since May 1991.
16
<PAGE> 19
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
Reserve Information. For estimates of the Company's net proved and proved
developed reserves of natural gas and liquids, including crude oil, condensate
and natural gas liquids, see "Supplemental Information to Consolidated Financial
Statements".
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth in Supplemental Information to Consolidated
Financial Statements represent only estimates. Reserve engineering is a
subjective process of estimating underground accumulations of natural gas and
liquids, including crude oil, condensate and natural gas liquids, that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a function
of the amount and quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates of different engineers
normally 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 are often different from the quantities
ultimately recovered. The meaningfulness of such estimates is highly dependent
upon the accuracy of the assumptions upon which they were based.
In general, the volume of production from oil and gas properties owned by
the Company declines as reserves are depleted. Except to the extent the Company
acquires additional properties containing proved reserves or conducts successful
exploration, exploitation and development activities, the proved reserves of the
Company will decline as reserves are produced. Volumes generated from future
activities of the Company are therefore highly dependent upon the level of
success in finding or acquiring additional reserves and the costs incurred in so
doing. The Company's estimates of reserves filed with other federal agencies
agree with the information set forth in Supplemental Information to Consolidated
Financial Statements.
17
<PAGE> 20
Acreage. The following table summarizes the Company's developed and
undeveloped acreage at December 31, 1998. Excluded is acreage in which the
Company's interest is limited to owned royalty, overriding royalty and other
similar interests.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------------------- --------------------- ---------------------
GROSS NET GROSS NET GROSS NET
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States
California.................... 21,324 16,747 821,738 748,238 843,062 764,985
Texas......................... 413,305 220,075 637,850 513,807 1,051,155 733,882
Offshore Gulf of Mexico....... 283,571 126,306 564,775 417,827 848,346 544,133
Wyoming....................... 153,597 116,092 324,531 251,792 478,128 367,884
Oklahoma...................... 188,963 104,633 122,848 87,264 311,811 191,897
Montana....................... 119,686 1,651 146,013 103,779 265,699 105,430
New Mexico.................... 71,945 35,091 106,133 64,232 178,078 99,323
Utah.......................... 74,454 50,311 40,873 27,205 115,327 77,516
Mississippi................... 5,144 5,052 43,174 42,950 48,318 48,002
Kansas........................ 17,339 15,489 6,747 4,009 24,086 19,498
Colorado...................... 20,619 1,233 30,908 13,618 51,527 14,851
Louisiana..................... 6,285 5,429 6,520 3,767 12,805 9,196
Arkansas...................... 8,522 1,319 2,457 2,010 10,979 3,329
Other......................... 5,247 984 1,015 795 6,262 1,779
--------- --------- --------- --------- --------- ---------
Total................. 1,390,001 700,412 2,855,582 2,281,293 4,245,583 2,981,705
Canada
Saskatchewan.................. 251,805 235,121 288,834 283,732 540,639 518,853
Alberta....................... 372,612 243,225 336,713 243,971 709,325 487,196
Manitoba...................... 11,743 9,954 23,730 21,966 35,473 31,920
British Columbia.............. 656 164 8,755 5,553 9,411 5,717
--------- --------- --------- --------- --------- ---------
Total Canada.......... 636,816 488,464 658,032 555,222 1,294,848 1,043,686
Other International
China......................... 5,000 5,000 1,844,531 1,844,531 1,849,531 1,849,531
Venezuela..................... - - 268,413 241,572 268,413 241,572
India......................... 98,300 29,490 564,307 169,292 662,607 198,782
France........................ - - 168,032 168,032 168,032 168,032
Trinidad...................... 4,200 3,990 147,233 143,490 151,433 147,480
--------- --------- --------- --------- --------- ---------
Total Other
International....... 107,500 38,480 2,992,516 2,566,917 3,100,016 2,605,397
--------- --------- --------- --------- --------- ---------
Total................. 2,134,317 1,227,356 6,506,130 5,403,432 8,640,447 6,630,788
========= ========= ========= ========= ========= =========
</TABLE>
Producing Well Summary. The following table reflects the Company's
ownership in gas and oil wells located in Texas, the Gulf of Mexico, Oklahoma,
New Mexico, Utah, Wyoming, and various other states, Canada, Trinidad, India and
China at December 31, 1998. Gross gas and oil wells include 255 with multiple
completions.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
-----------------
GROSS NET
------- -------
<S> <C> <C>
Gas......................................................... 5,253 3,788
Oil......................................................... 897 506
----- -----
Total............................................. 6,150 4,294
===== =====
</TABLE>
18
<PAGE> 21
Drilling and Acquisition Activities. During the years ended December 31,
1998, 1997 and 1996 the Company spent approximately $769 million, $693 million
and $599 million, respectively, for exploratory and development drilling and
acquisition of leases and producing properties. The Company drilled,
participated in the drilling of or acquired wells as set out in the table below
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Development Wells Completed
North America
Gas....................................... 478 402.80 467 352.90 396 325.04
Oil....................................... 38 34.98 94 74.85 80 57.46
Dry....................................... 79 62.16 101 80.01 80 68.77
--- ------ --- ------ --- ------
Total................................ 595 499.94 662 507.76 556 451.27
Outside North America
Gas....................................... - - 12 3.60 - -
Oil....................................... 21 6.30 6 1.80 1 .30
Dry....................................... - - - - - -
--- ------ --- ------ --- ------
Total................................ 21 6.30 18 5.40 1 .30
--- ------ --- ------ --- ------
Total Development.................... 616 506.24 680 513.16 557 451.57
--- ------ --- ------ --- ------
Exploratory Wells Completed
North America
Gas....................................... 5 4.40 8 5.12 14 10.36
Oil....................................... 6 5.50 - - 1 .78
Dry....................................... 22 15.70 12 7.53 26 19.00
--- ------ --- ------ --- ------
Total................................ 33 25.60 20 12.65 41 30.14
Outside North America
Gas....................................... 1 1.00 - - - -
Oil....................................... 1 .90 - - - -
Dry....................................... - - - - 1 .50
--- ------ --- ------ --- ------
Total................................ 2 1.90 - - 1 .50
--- ------ --- ------ --- ------
Total Exploratory.................... 35 27.50 20 12.65 42 30.64
--- ------ --- ------ --- ------
Total................................ 651 533.74 700 525.81 599 482.21
Wells in Progress at end of period............. 28 15.73 44 36.39 87 61.08
--- ------ --- ------ --- ------
Total................................ 679 549.47 744 562.20 686 543.29
=== ====== === ====== === ======
Wells Acquired
Gas....................................... 333 317.23* 227 82.45* 350 148.20*
Oil....................................... - 1.70* 48 20.50* 5 .65
--- ------ --- ------ --- ------
Total................................ 333 318.93 275 102.95 355 148.85
=== ====== === ====== === ======
</TABLE>
- ---------------
* Includes the acquisition of additional interests in certain wells in which the
Company previously acquired an interest.
All of the Company's drilling activities are conducted on a contract basis
with independent drilling contractors. The Company owns no drilling equipment.
19
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries and related companies are named defendants
in numerous lawsuits and named parties in numerous governmental proceedings
arising in the ordinary course of business. While the outcome of lawsuits or
other proceedings against the Company cannot be predicted with certainty,
management does not expect these matters to have a material adverse effect on
the financial condition or results of operations of the Company.
Enron Oil & Gas India Ltd. ("EOGIL"), a wholly-owned subsidiary of the
Company, is a respondent in two public interest lawsuits filed in the Delhi High
Court, India. The first (the "Wadehra Action") was brought by B. L. Wadehra, an
Indian public interest lawyer, against the Union of India, EOGIL, EOGIL co-
participants in the Panna and Mukta fields, Reliance Industries Limited
("Reliance") and Oil & Natural Gas Corporation Limited ("ONGC"), and certain
other respondents. ONGC is the Indian national oil company and is wholly-owned
by the Union of India. The second suit (the "CPIL Action") was brought by the
Centre for Public Interest Litigation and the National Alliance of People's
Movement against the Union of India, the Central Bureau of Investigation, ONGC,
Reliance and EOGIL. Petitioners in both the Wadehra Action and the CPIL Action
allege various improprieties in the award of the Panna and Mukta fields to
EOGIL, Reliance and ONGC, and seek the cancellation of the Production Sharing
Contract for the Panna and Mukta fields. The Union of India is vigorously
disputing these allegations. The Company believes that the public competitive
bidding process for the fields was fair and that the award of these fields to
EOGIL, Reliance and ONGC was proper. Following a series of hearings, the Delhi
High Court has entered an order dismissing both lawsuits. The plaintiffs have
filed a special leave petition seeking to appeal this decision to the India
Supreme Court. Although no assurances can be given, based on currently available
information the Company believes that the claims made by the petitioners in both
actions are without merit, and that the ultimate resolution of these matters
will not have a material adverse effect on its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
20
<PAGE> 23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table sets forth, for the periods indicated, the high and low
sales prices per share for the common stock of the Company, as reported on the
New York Stock Exchange Composite Tape, and the amount of cash dividends paid
per share.
<TABLE>
<CAPTION>
PRICE RANGE
--------------- CASH
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1996
First Quarter............................................. $28.50 $22.38 $0.03
Second Quarter............................................ 28.63 23.88 0.03
Third Quarter............................................. 30.63 22.88 0.03
Fourth Quarter............................................ 28.38 23.25 0.03
1997
First Quarter............................................. $27.00 $19.88 $0.03
Second Quarter............................................ 21.75 17.50 0.03
Third Quarter............................................. 25.06 17.69 0.03
Fourth Quarter............................................ 23.81 18.50 0.03
1998
First Quarter............................................. $24.13 $18.56 $0.03
Second Quarter............................................ 24.50 18.13 0.03
Third Quarter............................................. 20.69 11.75 0.03
Fourth Quarter............................................ 18.50 12.69 0.03
</TABLE>
As of March 1, 1999, there were approximately 440 record holders of the
Company's common stock, including individual participants in security position
listings. There are an estimated 22,000 beneficial owners of the Company's
common stock, including shares held in street name.
The Company currently intends to continue to pay quarterly cash dividends
on its outstanding shares of common stock. However, the determination of the
amount of future cash dividends, if any, to be declared and paid will depend
upon, among other things, the financial condition, funds from operations, level
of exploration, exploitation and development expenditure opportunities and
future business prospects of the Company.
21
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net operating revenues............ $ 769,188 $ 783,501 $ 730,648 $ 648,702 $ 625,823
Operating expenses
Lease and well.................. 98,868 96,064 76,618 69,463 60,384
Exploration costs............... 65,940 57,696 55,009 42,044 41,811
Dry hole costs.................. 22,751 17,303 13,193 12,911 17,197
Impairment of unproved oil and
gas properties............... 32,076 27,213 21,226 23,715 24,936
Depreciation, depletion and
amortization................. 315,106 278,179 251,278 216,047 242,182
General and administrative...... 69,010 54,415 56,405 56,626 51,418
Taxes other than income......... 51,776 59,856 48,089 32,587 28,254
---------- ---------- ---------- ---------- ----------
Total................... 655,527 590,726 521,818 453,393 466,182
---------- ---------- ---------- ---------- ----------
Operating income.................. 113,661 192,775 208,830 195,309 159,641
Other income (expense), net....... (4,800) (1,588) (5,007) 669 2,783
Interest expense (net of interest
capitalized).................... 48,579 27,717 12,861 11,924 8,489
---------- ---------- ---------- ---------- ----------
Income before income taxes........ 60,282 163,470 190,962 184,054 153,935
Income tax provision(1)........... 4,111(2) 41,500(3) 50,954(4) 41,936(5) 5,937(6)
---------- ---------- ---------- ---------- ----------
Net income........................ $ 56,171 $ 121,970 $ 140,008 $ 142,118 $ 147,998
========== ========== ========== ========== ==========
Net income per share of common stock
Basic........................... $ .36 $ .78 $ .88 $ .89 $ .93
========== ========== ========== ========== ==========
Diluted......................... $ .36 $ .77 $ .87 $ .88 $ .92
========== ========== ========== ========== ==========
Average number of common shares
Basic........................... 154,345 157,376 159,853 159,917 159,845
========== ========== ========== ========== ==========
Diluted......................... 155,054 158,160 161,525 161,132 160,654
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties - net..... $2,676,363 $2,387,207 $2,099,589 $1,881,545 $1,684,811
Total assets..................... 3,018,095 2,723,355 2,458,353 2,147,258 1,861,867
Long-term debt
Trade.......................... 942,779 548,775 466,089 147,559 165,337
Affiliate...................... 200,000 192,500 - 141,520 25,000
Deferred revenue................. 4,198 39,918 56,383 205,453 184,183
Shareholders' equity............. 1,280,304 1,281,049 1,265,090 1,163,659 1,043,419
</TABLE>
- ---------------
(1) Includes benefits of approximately $12 million, $12 million, $16 million,
$22 million and $36 million in 1998, 1997, 1996, 1995 and 1994,
respectively, relating to tight gas sand federal income tax credits.
(2) Includes a benefit of $2 million related to the final audit assessments of
India taxes for certain prior years, a benefit of $3.8 million related to
reduced deferred franchise taxes, and $3.5 million related to Venezuela
deferred tax benefits.
(3) Includes a benefit of $15 million primarily associated with the refiling of
certain Canadian tax returns and the sale of certain international assets
and subsidiaries.
(4) Includes a benefit of $9 million primarily associated with a reassessment of
deferred tax requirements and the successful resolution on audit of Canadian
income taxes for certain prior years.
(5) Includes a benefit of approximately $14 million associated with the
successful resolution on audit of federal income taxes for certain prior
years.
(6) Includes a benefit of approximately $8 million related to reduced estimated
state income taxes and certain franchise taxes, a portion of which is
treated as income tax under Statement of Financial Accounting Standards
("SFAS") No. 109 - "Accounting for Income Taxes", and a $5 million benefit
from the reduction of the Company's deferred federal income tax liability
resulting from a reevaluation of deferred tax requirements.
22
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of operations for each of the three years in the
period ended December 31, 1998 should be read in conjunction with the
consolidated financial statements of the Company and notes thereto beginning
with page F-1.
RESULTS OF OPERATIONS
Net Operating Revenues. Wellhead volume and price statistics for the
specified years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Natural Gas Volumes (MMcf per day)
United States(1).......................................... 671 657 608
Canada.................................................... 105 101 98
Trinidad.................................................. 139 113 124
India..................................................... 56 18 -
------ ------ ------
Total............................................. 971 889 830
====== ====== ======
Average Natural Gas Prices ($/Mcf)
United States(2).......................................... $ 1.93 $ 2.32 $ 2.04
Canada.................................................... 1.40 1.43 1.15
Trinidad.................................................. 1.06 1.05 1.00
India..................................................... 2.41 2.79 -
Composite......................................... 1.78 2.07 1.78
Crude Oil and Condensate Volumes (MBbl per day)
United States............................................. 14.0 11.7 9.2
Canada.................................................... 2.6 2.5 2.4
Trinidad.................................................. 3.0 3.4 5.2
India..................................................... 5.1 2.3 2.8
------ ------ ------
Total............................................. 24.7 19.9 19.6
====== ====== ======
Average Crude Oil and Condensate Prices ($/Bbl)
United States............................................. $12.84 $19.81 $21.88
Canada.................................................... 11.82 17.16 18.01
Trinidad.................................................. 12.26 18.68 19.76
India..................................................... 12.86 20.05 20.17
Composite......................................... 12.66 19.30 20.60
Natural Gas Equivalent Volumes (MMcfe per day)(3)
United States............................................. 771 743 670
Canada.................................................... 128 124 120
Trinidad.................................................. 157 133 156
India..................................................... 86 32 17
------ ------ ------
Total............................................. 1,142 1,032 963
====== ====== ======
Total Bcfe Deliveries............................. 417 377 353
</TABLE>
- ---------------
(1) Includes 48 MMcf per day in 1998, 1997 and 1996 delivered under the terms of
a volumetric production payment agreement effective October 1, 1992, as
amended. Delivery obligations were terminated in December 1998.
(2) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998,
$1.73 per Mcf in 1997, and $1.17 per Mcf in 1996 for the volumes detailed in
note (1), net of transportation costs.
(3) Includes natural gas and crude oil, condensate and natural gas liquids.
23
<PAGE> 26
1998 compared to 1997. During 1998, net operating revenues decreased $14
million to $769 million. Total wellhead revenues of $755 million decreased by
$74 million, or 9%, as compared to 1997.
Average wellhead natural gas prices for 1998 were approximately 14% lower
than the comparable period in 1997 reducing net operating revenues by
approximately $104 million. Average wellhead crude oil and condensate prices
were down by 34% worldwide decreasing net operating revenues by $60 million.
Revenues from the sale of natural gas liquids decreased $6 million primarily due
to lower wellhead prices. Wellhead natural gas volumes were approximately 9%
higher than the comparable period in 1997 increasing net operating revenues by
nearly $62 million. Natural gas production in India increased 38 MMcf per day
from the Tapti and Panna fields, which did not commence deliveries until late in
the second quarter of 1997 and the first quarter of 1998, respectively.
Production in Trinidad increased 26 MMcf per day due primarily to additional
volumes above the current contract level relating to gas balancing volumes
pursuant to a field allocation agreement. North America wellhead natural gas
production was approximately 2% higher than the comparable period in 1997.
Wellhead crude oil and condensate volumes were 24% higher than in 1997
increasing net operating revenues by $34 million. Production from the Panna and
Mukta fields in India more than doubled as a result of the ongoing development
program and shut-down of crude oil production in the second quarter of 1997 to
allow for the conversion from temporary to permanent production facilities.
North America crude oil and condensate volumes increased 17% due primarily to
higher levels of liquids production in South Texas and offshore.
Other marketing activities associated with sales and purchases of natural
gas, natural gas and crude oil price hedging and trading transactions, and
margins related to the volumetric production payment decreased net operating
revenue by $4 million during 1998, compared to a $61 million reduction in 1997,
representing an improvement of $57 million.
1997 compared to 1996. During 1997, net operating revenues increased $53
million to $784 million. Total wellhead revenues of $828 million increased by
$129 million, or 18%, as compared to 1996.
Average wellhead natural gas prices for 1997 were up approximately 16% from
the comparable period in 1996 increasing net operating revenues by approximately
$82 million. Wellhead natural gas volumes were up 7% from 1996 adding net
operating revenues of approximately $49 million. This is primarily attributable
to a 7% increase in North America wellhead natural gas volumes and commencement
of natural gas production from the Tapti field in India. Wellhead crude oil and
condensate average prices decreased 6%, reducing net operating revenues by
approximately $10 million from 1996. Wellhead crude oil and condensate volumes
increased slightly from the comparable period a year ago and added approximately
$2 million to net operating revenues as a 23% increase in North America wellhead
crude oil and condensate volumes was partially offset by a natural decline in
crude oil production from the Ibis field offshore Trinidad.
Gains on the sales of reserves and related assets totaled $9 million in
1997 as compared to $20 million realized in 1996, reflecting a lower level of
sales activity.
Other marketing activities associated with sales and purchases of natural
gas, natural gas and crude oil price hedging and trading transactions, and
margins related to the volumetric production payment decreased net operating
revenues by $61 million during 1997, compared to a $4 million increase in 1996.
A $51 million revenue reduction related to natural gas commodity price hedging
activities utilizing NYMEX-related commodity market transactions in 1997
partially offset greater wellhead price benefits noted above and compares to a
$13 million revenue increase associated with similar transactions a year ago. A
decrease in margins associated with sales and purchases of natural gas and the
volumetric production payment reduced net revenues by approximately $9 million
as compared to an $18 million addition in 1996, primarily resulting from higher
costs of natural gas delivered in 1997. Additionally, the Company incurred a $5
million revenue reduction on its NYMEX-related crude oil price swap transactions
in 1997 compared to a $13 million revenue reduction in 1996.
24
<PAGE> 27
Operating Expenses
1998 compared to 1997. During 1998, operating expenses of $656 million were
approximately $65 million higher than the $591 million incurred in 1997.
Lease and well expenses increased $3 million to $99 million primarily due
to commencement of operations in China. Exploration expenses of $66 million and
dry hole expenses of $23 million increased $8 million and $5 million,
respectively, from 1997 primarily due to increased exploratory drilling and
other exploration activities in North America. Impairment of unproved oil and
gas properties increased $5 million to $32 million resulting from a full year of
impairment recorded on unproved leases acquired in 1997 in North America.
Depreciation, depletion and amortization ("DD&A") expense increased
approximately $37 million to $315 million in 1998 primarily reflecting a higher
per unit rate in North America and increased worldwide production volumes.
General and administrative expenses were $15 million higher than in 1997 due to
expanded worldwide operations. Taxes other than income were down by
approximately $8 million from the prior year primarily due to lower state
severance taxes associated with decreased wellhead revenues in the United
States.
Total operating costs per unit of production, which include lease and well,
DD&A, general and administrative, taxes other than income and interest expense,
increased 2% to $1.40 per thousand cubic feet equivalent ("Mcfe") in 1998 from
$1.37 per Mcfe in 1997. This increase is primarily due to a higher per unit rate
of interest expense, DD&A expense and general and administrative expenses,
partially offset by a lower per unit rate of lease and well expense and taxes
other than income.
1997 compared to 1996. During 1997, operating expenses of $591 million were
approximately $69 million higher than the $522 million incurred in 1996.
Lease and well expenses increased $19 million to $96 million primarily due
to expanded operations and increased North America production activities at
higher costs to maximize the volumes delivered at higher product prices.
Exploration expenses of $58 million and dry hole expenses of $17 million
increased $3 million and $4 million, respectively, from 1996 primarily due to
increased exploratory drilling activities in North America. Impairment of
unproved oil and gas properties increased $6 million to $27 million as a result
of increased acquisition of unproved leases in North America. DD&A expense
increased approximately $27 million to $278 million in 1997 primarily reflecting
an increase in North America production volumes. Taxes other than income were up
by approximately $12 million from the prior year primarily due to higher state
severance taxes associated with increased wellhead revenues in the United
States.
Total operating costs per unit of production, which include lease and well,
DD&A, general and administrative, taxes other than income and interest expense,
increased 9% to $1.37 per Mcfe in 1997 from $1.26 per Mcfe in 1996. This
increase was primarily attributable to increased lease and well costs industry-
wide, higher per unit DD&A and higher interest expense associated with expanded
worldwide operations, partially offset by lower per unit general and
administrative expenses.
Other Income (Expense). The net expense for 1998 was primarily comprised of
provisions for doubtful accounts receivable associated with certain
international activities and contract settlements partially offset by interest
income.
Interest Expense. The increase in net interest expense of $21 million from
1997 to 1998 and $15 million from 1996 to 1997 primarily reflects a higher level
of debt outstanding due to expanded worldwide operations and common stock
repurchases. (See Note 4 to Consolidated Financial Statements.)
Income Taxes. Income tax provision decreased approximately $37 million for
1998 as compared to 1997 and decreased approximately $9 million for 1997 as
compared to 1996 primarily due to lower pre-tax income year to year.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flow. The primary sources of cash for the Company during the
three-year period ended December 31, 1998 included funds generated from
operations, proceeds from the sales of selected oil and gas
25
<PAGE> 28
reserves and related assets and proceeds from new borrowings. Primary cash
outflows included funds used in operations, exploration and development
expenditures, common stock repurchases, dividends paid to Company shareholders
and the repayment of debt.
Net operating cash flows of $404 million in 1998 decreased approximately
$127 million as compared to 1997 primarily reflecting increased working capital
for operating activities, higher interest expense, decreased operating revenues,
increased cash operating expenses and increased cash taxes. Changes in working
capital and other liabilities decreased operating cash flows by $72 million as
compared to 1997 primarily due to the payment of $25 million of income taxes due
under the 1997 tax agreement with Enron Corp. and changes in accounts
receivable, accrued royalties payable and accrued production taxes caused by
fluctuation of commodity prices at each year end. Net investing cash outflows of
$760 million in 1998 increased by $63 million as compared to 1997 due primarily
to increased exploration and development expenditures of $78 million, partially
offset by higher proceeds from sales of reserves and related assets of $24
million. Changes in Components of Working Capital Associated with Investing
Activities included for all periods changes in accounts payable related to the
accrual of exploration and development expenditures and changes in inventories
which represent materials and equipment used in drilling and related activities.
Cash provided by financing activities in 1998 was $353 million as compared to
$168 million in 1997. Financing activities in 1998 included the net issuance of
$402 million of long-term debt primarily to fund exploration and development
activities, to repurchase shares of the Company's common stock and to pay cash
dividends. Share repurchases in 1998 totaled $26 million as compared to
repurchases of $99 million in 1997. Dividend payments were approximately $19
million in each year.
Net operating cash flows of $531 million in 1997 increased approximately
$166 million as compared to 1996 due to higher production related net operating
revenues net of cash operating expenses, lower current income taxes and reduced
working capital requirements. The working capital changes primarily reflected
higher 1996 end of year operating revenues collected in 1997 partially offset by
the higher level of end of year 1996 operating-related accounts payable paid in
1997. Net investing cash outflows of $697 million in 1997 increased by
approximately $185 million as compared to 1996 due primarily to increased
exploration and development expenditures of approximately $93 million and
reduced proceeds from sales of reserves and related assets of $26 million. The
investing cash outflows in 1997 included a $22 million increase in working
capital requirements associated with investing activities as compared to a $37
million decrease in 1996 primarily related to the timing of drilling
expenditures. Cash provided by financing activities in 1997 increased $37
million, as compared to 1996, to $168 million. Financing activities in 1997
included the net issuance of $279 million of long-term debt as compared to $179
million issued in 1996. Share repurchases were $99 million in 1997 as compared
to $44 million in 1996, and dividends paid were approximately $19 million in
each year.
Discretionary cash flow, a frequently used measure of performance for
exploration and production companies, is generally derived by adjusting net
income to eliminate the effects of depreciation, depletion and amortization,
impairment of unproved oil and gas properties, deferred income taxes, gains on
sales of oil and gas reserves and related assets, certain other non-cash
amounts, except for amortization of deferred revenue, and exploration and dry
hole costs. The Company generated discretionary cash flow of approximately $463
million in 1998, $508 million in 1997 and $479 million in 1996.
Volumetric Production Payment. In September 1992, the Company sold a
volumetric production payment for $326.8 million to a limited partnership. (See
Note 5 to Consolidated Financial Statements.) Under the terms of the production
payment, as amended October 1, 1993, the Company conveyed a real property
interest of certain natural gas and other hydrocarbons to the purchaser.
Deliveries were scheduled at the rate of 50 billion British thermal units per
day through March 31, 1999. The Company accounted for the proceeds received in
the transaction as deferred revenue, which was amortized into revenue and income
as natural gas and other hydrocarbons were produced and delivered during the
term of the volumetric production payment agreement. In December 1998, the
Company settled the remainder of the contract in cash which was not materially
different from the recorded deferred revenue, and delivery obligations were
terminated.
26
<PAGE> 29
Exploration and Development Expenditures. The table below sets out
components of actual exploration and development expenditures for the years
ended December 31, 1998, 1997 and 1996, along with those budgeted for the year
1999.
<TABLE>
<CAPTION>
ACTUAL
------------------ BUDGETED
EXPENDITURE CATEGORY 1998 1997 1996 1999
- -------------------- ---- ---- ---- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Capital
Drilling and Facilities................................... $421 $446 $408
Leasehold Acquisitions.................................... 36 77 45
Producing Property Acquisitions........................... 211 81 69
Capitalized Interest and Other............................ 22 22 18
---- ---- ----
Subtotal.......................................... 690 626 540
Exploration Costs........................................... 66 58 55
Dry Hole Costs.............................................. 23 17 13
---- ---- ----
Total............................................. $779 $701 $608 $575-$650
==== ==== ==== =========
</TABLE>
Exploration and development expenditures increased $78 million in 1998 as
compared to 1997 primarily due to the third quarter 1998 acquisition of
producing properties in the Gulf of Mexico for $156 million. Unproved leasehold
acquisitions decreased $41 million primarily in North America. Drilling and
facilities expenditures declined by approximately $25 million in 1998 as
decreased activity in North America and lower expenditures in India were
partially offset by new drilling in Trinidad and Venezuela. While development
activities continued in India, expenditures in 1998 were less than in 1997 due
to 1997 expenditures associated with the installation of permanent production
facilities.
Exploration and development expenditures increased $93 million in 1997 as
compared to 1996 primarily due to increased exploration and development
activities in the United States and the acquisition of producing properties in
South Texas and in the Blackfoot area in Canada. Partially offsetting these
increases were the reduction of construction expenditures in India related to
the Tapti and Panna/Mukta production facilities which were completed in 1997.
(See "Business - Exploration and Production" for additional information
detailing the specific geographic locations of the Company's drilling programs
and "Outlook" below for a discussion related to 1999 exploration and development
expenditure plans).
Hedging Transactions. The Company's 1998 NYMEX-related natural gas and
crude oil commodity price swaps closed with "other marketing revenue" increases
of $1 million pretax and $5 million pretax, respectively. At December 31, 1998,
there were open crude oil commodity price swaps for 1999 covering approximately
700 MBbl of crude oil at a weighted average price of $18.85 per barrel. There
were no outstanding natural gas commodity price swaps.
Financing. The Company's long-term debt-to-total-capital ratio was 47% and
37% as of December 31, 1998 and 1997, respectively.
During 1998, total long-term debt increased $402 million to $1,143 million
as a result of borrowings related to increased exploration and development
expenditures and the repurchase of the Company's common stock. (See Note 4 to
the Consolidated Financial Statements). The estimated fair value of the
Company's long-term debt at December 31, 1998 and 1997 was $1,141 million and
$744 million, respectively, based upon quoted market prices and, where such
prices were not available, upon interest rates currently available to the
Company at year end. The Company's debt is primarily at fixed interest rates. At
December 31, 1998, a 1% change in interest rates would result in a $49 million
change in the estimated fair value of the fixed rate obligations. (See Note 14
to the Consolidated Financial Statements). Certain borrowings of the Company
contain covenants requiring the maintenance of certain financial ratios and
limitations on liens, debt issuance and dispositions of assets. These covenants
include a 50% debt-to-total-capital limitation. Should commodity price levels
experienced in late 1998 and early 1999 persist, the resulting reduction in cash
flow available from
27
<PAGE> 30
operations may necessitate further action(s) which could include a reduction in
capital expenditure plans, the issuance of preferred stock and/or common equity,
and/or the renegotiation of the debt covenants in order to remain in compliance.
The Company maintains reciprocal agreements with Enron Corp. that provide
for the borrowing by the Company of up to $200 million and investing by the
Company of surplus funds of up to $200 million at market-based interest rates
through December 31, 1999. Advances from Enron Corp. of $200 million and $193
million were outstanding as of December 31, 1998 and 1997, respectively. There
were no investments with Enron Corp. as of December 31, 1998 or 1997.
Outlook. Uncertainty continues to exist as to the direction of future North
America natural gas and crude oil price trends, and there remains a rather wide
divergence in the opinions held by some in the industry. This divergence in
opinion is caused by various factors including improvements in the technology
used in drilling and completing crude oil and natural gas wells that are tending
to mitigate the impacts of fewer crude oil and natural gas wells being drilled,
improvements being realized in the availability and utilization of natural gas
storage capacity and warmer than normal weather experienced in 1998. However,
the continually increasing recognition of natural gas as a more environmentally
friendly source of energy along with the availability of significant
domestically sourced supplies should result in further increases in demand and a
supporting/strengthening of the overall natural gas market over time. Being
primarily a natural gas producer, the Company is more significantly impacted by
changes in natural gas prices than by changes in crude oil and condensate
prices. (See "Business - Other Matters - Energy Prices"). At December 31, 1998,
based on the portion of the Company's anticipated natural gas volumes for 1999
for which prices have not, in effect, been hedged using NYMEX-related commodity
market transactions and long-term marketing contracts, the Company's net income
and cash flow sensitivity to changing natural gas prices is approximately $18
million for each $.10 per Mcf change in average wellhead natural gas prices.
While the Company is not impacted as significantly by changing crude oil prices
for those volumes not otherwise hedged, its net income and cash flow sensitivity
is approximately $6 million for $1.00 per barrel change in average wellhead
crude oil prices.
The Company plans to continue to focus a substantial portion of its
development and exploration expenditures in its major producing areas in North
America. However, based on the continuing uncertainty associated with North
America natural gas prices and as a result of the recent success realized in
Trinidad and India and commencement of development activities in China, the
Company anticipates expending a substantial portion of its available funds in
the further development of these opportunities outside North America. In
addition, the Company expects to conduct limited exploratory activity in other
areas outside of North America and will continue to evaluate the potential for
involvement in other exploitation type opportunities. (See
"Business - Exploration and Production" for additional information detailing the
specific geographic locations of the related drilling programs). Budgeted 1999
expenditures are anticipated to be managed within the range of $575-$650
million, addressing the continuing uncertainty with regard to the future of the
North America natural gas and crude oil and condensate price environment.
Budgeted expenditures for 1999 are structured to maintain the flexibility
necessary under the Company's continuing strategy of funding North America
exploration, exploitation, development and acquisition activities primarily from
available internally generated cash flow.
The level of exploration and development expenditures may vary in 1999 and
will vary in future periods depending on energy market conditions and other
related economic factors. Based upon existing economic and market conditions,
the Company believes net operating cash flow and available financing
alternatives in 1999 will be sufficient to fund its net investing cash
requirements for the year. However, the Company has significant flexibility with
respect to its financing alternatives and adjustment of its exploration,
exploitation, development and acquisition expenditure plans if circumstances
warrant. While the Company has certain continuing commitments associated with
expenditure plans related to operations in India, Trinidad, Venezuela and China,
such commitments are not anticipated to be material when considered in relation
to the total financial capacity of the Company.
Other factors representing positive impacts continue to hold good potential
for the Company in future periods. While the drilling qualification period for
the tight gas sand federal income tax credit expired as of
28
<PAGE> 31
December 31, 1992, the Company continued in 1998, and should continue in the
future, to realize significant benefits associated with production from wells
drilled during the qualifying period as it will be eligible for the federal
income tax credit through the year 2002. However, the annual benefit, which was
approximately $12 million in 1998 and is estimated to be approximately $8
million for 1999, is expected to continue to decline in future periods as
production from the qualified wells declines. The drilling qualification period
for a Texas severance tax exemption available on qualifying high cost natural
gas revenues continued through August 1996 in its original form and is
continuing in a modified and somewhat reduced form from that point through
August 2002. Consequently, new qualifying production will be added prospectively
to that presently qualified. (See "Business - Other Matters - Tight Gas Sand Tax
Credits (Section 29) and Severance Tax Exemption").
Environmental Regulations. Various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to protection of the environment, may affect the Company's
operations and costs as a result of their effect on natural gas and crude oil
exploration, exploitation, development and production operations. Compliance
with such laws and regulations has not had a material adverse effect on the
Company's operations or financial condition. It is not anticipated, based on
current laws and regulations, that the Company will be required in the near
future to expend amounts that are material in relation to its total exploration
and development expenditure program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
NEW ACCOUNTING PRONOUNCEMENT - SFAS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 - "Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The statement cannot
be applied retroactively and must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997.
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statements of income and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting treatment.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of adoption. Based on
the criteria of SFAS No. 133 and current interpretations thereof, the Company
believes that the options it owns to purchase 3,200,000 Enron Corp. common
shares, at a price of $39.1875 per share that expire in December 2007, qualify
as derivative instruments. Accordingly, SFAS No. 133 would require the changes
in the fair value of the options to be recognized currently in earnings. The
Company cannot predict whether future interpretations currently being considered
by the Emerging Issues Task Force of the FASB or potential amendments of SFAS
No. 133 will result in the options being considered derivative instruments at
the time of its adoption. At December 31, 1997, the carrying value of the
options was approximately $23 million pre-tax, which represented the estimated
fair value at the date of grant. At December 31, 1998, Enron Corp. common shares
closed at $57.06 per share. Based on the Company's current level of other
derivative and hedging activities, the Company does not expect the impact of
adoption of SFAS No. 133 relative to those other activities to be material.
29
<PAGE> 32
YEAR 2000
The Year 2000 problem generally results from the use in computer hardware
and software of two digits rather than four digits to define the applicable
year. When computer systems must process dates both before and after January 1,
2000, two-digit year "fields" may create processing ambiguities that can cause
errors and system failures. For example, a date represented by "00" may be
interpreted as referring to the year 1900, instead of 2000.
The effects of the Year 2000 problem can be exacerbated by the
interdependence of computer and telecommunications systems in the United States
and throughout the world. This interdependence can affect the Company and its
suppliers, trading partners, and customers, as well as governments of countries
around the world where the Company does business.
State of Readiness
The Company Board of Directors has been briefed about the Year 2000
problem. The Board has adopted a Year 2000 Project (the "Project") aimed at
preventing the Company's mission-critical functions from being impaired due to
the Year 2000 problem. "Mission-critical" functions are those critical functions
whose loss would cause an immediate stoppage of or significant impairment to
core business processes (a core business process is one of material importance
to the Company business).
Implementation of the Project is directly supervised by a Year 2000
Oversight Committee, made up of four senior executives of the Company and its
affiliates. Each operating division of the Company is implementing procedures
specific to it that are part of the overall Project. The Company also has
engaged certain outside consultants, technicians and other external resources to
aid in formulating and implementing the Project.
The Company is actively implementing the Project, which will be modified as
events warrant. Under the Project, the Company will continue to inventory
mission-critical computer hardware and software systems and embedded
microprocessors (microprocessors with date-related functions, contained in a
wide variety of devices), and software; assess the effects of Year 2000 problems
on the mission-critical functions of the Company; remedy systems, software and
embedded microprocessors in an effort to avoid material disruptions or other
material adverse effects on mission-critical functions, processes and systems;
verify and test the mission-critical systems to which remediation efforts have
been applied; and attempt to mitigate those mission-critical aspects of the Year
2000 problem that are not remediated by January 1, 2000, including the
development of contingency plans to cope with the mission-critical consequences
of Year 2000 problems that have not been identified or remediated by that date.
The Project recognizes that the computer, telecommunications, and other
systems ("Outside Systems") of outside entities ("Outside Entities") have the
potential for major, mission-critical, adverse effects on the conduct of Company
business. The Company does not have control of these Outside Entities or Outside
Systems. (In some cases, Outside Entities are U.S., state and local governmental
organizations, foreign governments or businesses located in foreign countries.)
However, the Project includes an ongoing process of identifying and contacting
Outside Entities whose systems in the Company's judgment have, or may have, a
substantial effect on the Company's ability to continue to conduct the
mission-critical aspects of Company business without disruption from Year 2000
problems. The Project envisions the Company making an attempt to inventory and
assess the extent to which these Outside Systems may not be "Year 2000 ready" or
"Year 2000 compatible". The Company will attempt reasonably to coordinate with
these Outside Entities in an ongoing effort to obtain assurance that the Outside
Systems that are mission-critical will be Year 2000 compatible well before
January 1, 2000. Consequently, the Company will work with Outside Entities in a
reasonable attempt to inventory, assess, analyze, convert (where necessary),
test, and develop contingency plans for connections to these mission-critical
Outside Systems and to ascertain the extent to which they are, or can be made to
be, Year 2000 ready and compatible with the Company's remediation of its own
mission-critical systems.
30
<PAGE> 33
As of March 1999, the Company is at various stages in implementation of the
Project, as shown in the following tables. Any notation of "complete" conveys
the fact only that the initial iteration of this phase has been substantially
completed. All dates are only relevant for the initial iteration of the
applicable stage of the Project.
YEAR 2000 PROJECT READINESS
<TABLE>
<CAPTION>
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY PLAN
--------- ---------- -------- ---------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mission-Critical Internal
Items.................. C IP IP IP IP IP IP
Mission-Critical Outside
Entities............... IP IP IP IP IP IP IP
</TABLE>
- ---------------
Legend: C = Complete IP = In Process
YEAR 2000 PROJECT ESTIMATED COMPLETION DATES
<TABLE>
<CAPTION>
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY PLAN
--------- ---------- -------- ---------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mission-Critical Internal
Items.................. 12/98 3/99 3/99 6/99 9/99 9/99 9/99
Mission-Critical Outside
Entities............... 3/99 6/99 6/99 9/99 9/99 9/99 9/99
</TABLE>
It is important to recognize that the processes of inventorying, assessing,
analyzing, converting (where necessary), testing, and developing contingency
plans for mission-critical items in anticipation of the Year 2000 event may be
iterative processes, requiring a repeat of some or all of these processes as the
Company learns more about the Year 2000 problem and its effects on internal
business information systems and on Outside Systems, and about the effects of
embedded microprocessors on systems and business operations. The Company
anticipates that it will continue with these processes through January 1, 2000
and on into the Year 2000 in order to assess and remediate problems that
reasonably can be identified only after the start of the new century.
The Project envisions verification and validation of certain
mission-critical facilities and functions by independent consultants. These
consultants will participate to varying degrees in many or all of the stages,
including the inventory, assessment, and testing phases. Currently, the Company
is utilizing Raytheon Engineers & Constructors, Inc. to assist Company personnel
in the inventory and assessment phases of onshore and offshore and domestic and
international operations.
Costs to Address Year 2000 Issues
The Company has not incurred material historical costs for Year 2000
awareness, inventory, assessment, analysis, conversion, testing, or contingency
planning and anticipates that any future costs for these purposes, including
those for implementing Year 2000 contingency plans, are not likely to be
material.
Although management believes that its estimates are reasonable, there can
be no assurance, for the reasons stated in the "Summary" section below, that the
actual costs of implementing the Project will not differ materially from the
estimated costs or that the Company will not be materially adversely affected by
Year 2000 issues.
Year 2000 Risk Factors
Regulatory requirements. Certain of the Company's operations are regulated
by governmental authorities. The Company expects to satisfy these regulatory
authority requirements for achieving Year 2000 readiness. If the Company's
reasonable expectations in this regard are in error, and if a regulatory
authority
31
<PAGE> 34
should order the temporary cessation of operations in one or more of these
areas, the adverse effect on the Company could be material. Outside Entities may
face similar problems that materially adversely affect the Company.
Shortage of Resources. Between now and 2000 it is anticipated that there
will be increased competition for people with technical and managerial skills
necessary to deal with the Year 2000 problem. While the Company is taking
substantial precautions to recruit and retain sufficient people skilled in
dealing with the Year 2000 problem, and has hired consultants who bring
additional skilled people to deal with the Year 2000 problem, the Company could
face shortages of skilled personnel or other resources, such as particular
microprocessors or components containing Year 2000 ready microprocessors, and
these shortages might delay or otherwise impair the Company's ability to assure
that its mission-critical systems are Year 2000 ready. Outside Entities could
face similar problems that materially adversely affect the Company. The Company
believes that the possible impact of the shortage of skilled people and
resources is not, and will not be, unique to the Company.
Potential Shortcomings. The Company estimates that mission-critical
systems, domestic and international, will be Year 2000-ready substantially
before January 1, 2000. However, there is no assurance that the Project will
succeed in accomplishing its purpose, or that unforeseen circumstances will not
arise during implementation of the Project that would materially adversely
affect the Company.
Cascading Effect. The Company is taking reasonable steps to identify,
assess, and, where appropriate, to replace devices that contain embedded
microprocessors. Despite these reasonable efforts, the Company anticipates that
it will not be able to find and remediate all embedded microprocessors in all
systems. Further, it is anticipated that Outside Entities also will not be able
to find and remediate all embedded microprocessors in their systems. Some of the
embedded microprocessors that fail to operate or that produce anomalous results
may create system disruptions or failures. Some of these disruptions or failures
may spread from the systems in which they are located to other systems causing
adverse effects upon the Company's ability to maintain safe operations, to serve
its customers and otherwise to fulfill certain contractual and other legal
obligations. The embedded microprocessor problem is widely recognized as one of
the more difficult aspects of the Year 2000 problem across industries and
throughout the world. The possible adverse impact of the embedded microprocessor
problem is not, and will not be, unique to the Company.
Third parties. The Company cannot assure that suppliers upon which it
depends for essential goods and services will convert and test their
mission-critical systems and processes in a timely manner. Failure or delay by
all or some of these entities, including the U.S. and state or local governments
and foreign governments, could create substantial disruptions having a material
adverse effect on Company business.
Contingency Plans
As part of the Project, the Company is developing contingency plans that
deal with, among others, two primary aspects of the Year 2000 problem: (1) that
the Company, despite its good-faith, reasonable efforts, may not have
satisfactorily remediated all internal, mission-critical systems; and (2) that
Outside Systems may not be Year 2000 ready, despite the Company's good-faith,
reasonable efforts to work with Outside Entities. These contingency plans are
being designed to mitigate the disruptions or other adverse effects resulting
from Year 2000 incompatibilities regarding these mission-critical functions or
systems, and to facilitate the early identification and remediation of
mission-critical Year 2000 problems that first manifest themselves after January
1, 2000.
These contingency plans will contemplate an assessment of all
mission-critical internal information technology systems and internal
operational systems that use computer-based controls. This process will be
pursued continuously into the Year 2000 as circumstances require. Further, the
Company will in that time frame assess any mission-critical disruptions due to
Year 2000-related failures that are external to the Company.
These contingency plans include the creation, as deemed reasonably
appropriate, of teams that will be standing by on the eve of the new millennium,
prepared to respond rapidly and otherwise as necessary to
32
<PAGE> 35
mission-critical Year 2000-related problems as soon as they become known. The
composition of teams that are assigned to deal with Year 2000 problems will vary
according to the nature, mission-criticality, and location of the problem.
Because the Company operates internationally, some of its Year 2000 contingency
teams will be located at mission-critical facilities overseas.
Worst Case Scenario
The Securities and Exchange Commission requires that public companies must
forecast the most reasonably likely worst case Year 2000 scenario, assuming that
the Company's Year 2000 plan is not effective. Analysis of the most reasonably
likely worst case Year 2000 scenarios the Company may face leads to
contemplation of the following possibilities which, though considered highly
unlikely, must be included in any consideration of worst cases: widespread
failure of electrical, natural gas, and similar supplies by utilities serving
the Company domestically and internationally; widespread disruption of the
services of communications common carriers domestically and internationally;
similar disruption to means and modes of transportation for the Company and its
employees, contractors, suppliers, and customers; significant disruption to the
Company's ability to gain access to, and continue working in, office buildings
and other facilities; the failure of substantial numbers of mission-critical
hardware and software computer systems, including both internal business systems
and systems (such as those with embedded microprocessors) controlling
operational facilities such as electrical generation, transmission, and
distribution systems and crude oil and natural gas plants and pipelines,
domestically and internationally; and the failure, domestically and
internationally, of Outside Systems, the effects of which would have a
cumulative material adverse impact on the Company's mission-critical systems.
Among other things, the Company could face substantial claims by customers for
loss of revenues due to supply interruptions, inability to fulfill contractual
obligations, inability to account for certain revenues or obligations or to bill
or pay customers accurately and on a timely basis, and increased expenses
associated with litigation, stabilization of operations following
mission-critical failures, and the execution of contingency plans. The Company
could also experience an inability by customers, traders, and others to pay, on
a timely basis or at all, obligations owed to the Company. Under these
circumstances, the adverse effect on the Company, and the diminution of Company
revenues, could be material, although not quantifiable at this time. Further in
this scenario, the cumulative effect of these failures could have a substantial
adverse effect on the economy, domestically and internationally. The adverse
effect on the Company, and the diminution of Company revenues, from a domestic
or global recession or depression also could be material, although not
quantifiable at this time.
The Company will continue to monitor business conditions with the aim of
assessing and quantifying material adverse effects, if any, that result or may
result from the Year 2000 problem.
Summary
The Company has a plan to deal with the Year 2000 challenge and believes
that it will be able to achieve substantial Year 2000 readiness with respect to
the mission critical systems that it controls. From a forward-looking
perspective, the extent and magnitude of the Year 2000 problem as it will affect
the Company, both before and for some period after January 1, 2000, are
difficult to predict or quantify for a number of reasons. Among these are: the
difficulty of locating "embedded" microprocessors that may be in a great variety
of mission-critical hardware used for process or flow control, environmental,
transportation, access, communications, and other systems; the difficulty of
inventorying, assessing, remediating, verifying and testing, Outside Systems
connected, and vital, to the Company's computer, telecommunications, or other
mission-critical systems; the difficulty of locating all mission-critical
software (computer code) that is not Year 2000 compatible; and the
unavailability of certain necessary internal or external resources, including
but not limited to trained hardware and software engineers, technicians, and
other personnel to perform adequate remediation, verification, and testing of
mission-critical Company systems or Outside Systems. Year 2000 costs are
difficult to estimate accurately because of unanticipated vendor delays,
technical difficulties, the impact of tests of Outside Systems, and similar
events. There can be no assurance for example that all Outside Systems with a
mission-critical impact will be adequately remediated so that they are Year 2000
ready by January 1, 2000, or by some earlier date, so as not to create a
material disruption to the Company's business. If, despite reasonable
33
<PAGE> 36
efforts under the Year 2000 Project, there are mission-critical Year
2000-related failures that create substantial disruptions to Company business,
the adverse impact on the Company could be material. Additionally, Year 2000
costs are difficult to estimate accurately because of unanticipated vendor
delays, technical difficulties, the impact of tests of Outside Systems and
similar events. Moreover, despite the Company's belief that costs for
implementing the Project will not be material, the estimated costs of
implementing the Project do not take into account the costs, if any, that might
be incurred as a result of Year 2000-related failures that occur despite
implementation of the Project.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
such expectations will be achieved. Important factors that could cause actual
results to differ materially from those in the forward looking statements herein
include, but are not limited to, the timing and extent of changes in commodity
prices for crude oil, natural gas and related products and interest rates; the
extent of the Company's success in discovering, developing, marketing and
producing reserves and in acquiring oil and gas properties; the Company's
success in implementing its Year 2000 Plan, the effectiveness of the Company's
Year 2000 Plan, and the Year 2000 readiness of Outside Entities; political
developments around the world and conditions of the capital and equity markets
during the periods covered by the forward looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to interest rate risk and commodity price risk is
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources and Liquidity - Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity - Outlook", respectively. The
Company's exposure to foreign currency exchange rate risks and other market
risks is insignificant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding directors is set forth in
the Proxy Statement under the caption entitled "Election of Directors", and is
incorporated herein by reference.
See list of "Current Executive Officers of the Registrant" in Part I
located elsewhere herein.
There are no family relationships among the officers listed, and there are
no arrangements or understandings pursuant to which any of them were elected as
officers. Officers are appointed or elected annually by the Board of Directors
at its first meeting following the Annual Meeting of Shareholders, each to hold
office until the corresponding meeting of the Board in the next year or until a
successor shall have been elected, appointed or shall have qualified.
34
<PAGE> 37
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Proxy Statement
under the caption "Compensation of Directors and Executive Officers", and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Proxy Statement
under the captions "Election of Directors" and "Compensation of Directors and
Executive Officers", and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Proxy Statement
under the caption "Certain Transactions", and is incorporated herein by
reference.
PART IV
ITEM 14.FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, EXHIBITS AND
REPORTS ON FORM 8-K
(A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements" set forth on page F-1.
(A)(3) EXHIBITS
See pages E-1 through E-5 for a listing of the exhibits.
(B) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K on April 17, 1998 reporting the sale
on April 8, 1998 of $150 million principal amount of 6.65% Notes due April 1,
2028 pursuant to an underwritten public offering.
The Company filed a Report on Form 8-K on December 24, 1998 reporting the
sale on December 14, 1998 of $175 million principal amount of 6.00% Notes due
December 15, 2008 pursuant to an underwritten public offering.
35
<PAGE> 38
ENRON OIL & GAS COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Management's Responsibility for Financial Reporting....... F-2
Report of Independent Public Accountants.................. F-3
Consolidated Statements of Income and Comprehensive Income
for Each of the Three Years in the Period Ended
December 31, 1998...................................... F-4
Consolidated Balance Sheets - December 31, 1998 and
1997................................................... F-5
Consolidated Statements of Shareholders' Equity for Each
of the Three Years in the Period Ended December 31,
1998................................................... F-6
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1998...... F-7
Notes to Consolidated Financial Statements................ F-8
Supplemental Information to Consolidated Financial
Statements................................................ F-25
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and
Reserves.................................................. S-1
</TABLE>
Other financial statement schedules have been omitted because they are
inapplicable or the information required therein is included elsewhere in the
consolidated financial statements or notes thereto.
F-1
<PAGE> 39
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The following consolidated financial statements of Enron Oil & Gas Company
and its subsidiaries were prepared by management, which is responsible for their
integrity, objectivity and fair presentation. The statements have been prepared
in conformity with generally accepted accounting principles and, accordingly,
include some amounts that are based on the best estimates and judgments of
management.
Arthur Andersen LLP, independent public accountants, was engaged to audit
the consolidated financial statements of Enron Oil & Gas Company and its
subsidiaries and issue a report thereon. In the conduct of the audit, Arthur
Andersen LLP was given unrestricted access to all financial records and related
data including minutes of all meetings of shareholders, the Board of Directors
and committees of the Board. Management believes that all representations made
to Arthur Andersen LLP during the audit were valid and appropriate.
The system of internal controls of Enron Oil & Gas Company and its
subsidiaries is designed to provide reasonable assurance as to the reliability
of financial statements and the protection of assets from unauthorized
acquisition, use or disposition. This system includes, but is not limited to,
written policies and guidelines including a published code for the conduct of
business affairs, conflicts of interest and compliance with laws regarding
antitrust, antiboycott and foreign corrupt practices policies, the careful
selection and training of qualified personnel, and a documented organizational
structure outlining the separation of responsibilities among management
representatives and staff groups.
The adequacy of financial controls of Enron Oil & Gas Company and its
subsidiaries and the accounting principles employed in financial reporting by
the Company are under the general oversight of the Audit Committee of the Board
of Directors. No member of this committee is an officer or employee of the
Company. The independent public accountants and internal auditors have direct
access to the Audit Committee and meet with the committee from time to time to
discuss accounting, auditing and financial reporting matters. It should be
recognized that there are inherent limitations to the effectiveness of any
system of internal control, including the possibility of human error and
circumvention or override. Accordingly, even an effective system can provide
only reasonable assurance with respect to the preparation of reliable financial
statements and safeguarding of assets. Furthermore, the effectiveness of an
internal control system can change with circumstances.
It is management's opinion that, considering the criteria for effective
internal control over financial reporting and safeguarding of assets which
consists of interrelated components including the control environment, risk
assessment process, control activities, information and communication systems,
and monitoring, the Company maintained an effective system of internal control
as to the reliability of financial statements and the protection of assets
against unauthorized acquisition, use or disposition during the year ended
December 31, 1998.
<TABLE>
<S> <C>
WALTER C. WILSON MARK G. PAPA
Senior Vice President and President and
Chief Financial Officer Chief Executive Officer
</TABLE>
Houston, Texas
March 5, 1999
F-2
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Enron Oil & Gas Company:
We have audited the accompanying consolidated balance sheets of Enron Oil &
Gas Company (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income and comprehensive
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule 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 Enron Oil & Gas Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 5, 1999
F-3
<PAGE> 41
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas
Trade.................................................. $558,376 $544,181 $393,129
Associated Companies................................... 62,929 71,339 164,745
Crude Oil, Condensate and Natural Gas Liquids
Trade.................................................. 120,366 121,838 108,365
Associated Companies................................... 9,266 29,951 37,539
Gains on Sales of Reserves and Related Assets and Other,
Net.................................................... 18,251 16,192 26,870
-------- -------- --------
Total............................................. 769,188 783,501 730,648
OPERATING EXPENSES
Lease and Well............................................ 98,868 96,064 76,618
Exploration Costs......................................... 65,940 57,696 55,009
Dry Hole Costs............................................ 22,751 17,303 13,193
Impairment of Unproved Oil and Gas Properties............. 32,076 27,213 21,226
Depreciation, Depletion and Amortization.................. 315,106 278,179 251,278
General and Administrative................................ 69,010 54,415 56,405
Taxes Other Than Income................................... 51,776 59,856 48,089
-------- -------- --------
Total............................................. 655,527 590,726 521,818
-------- -------- --------
OPERATING INCOME............................................ 113,661 192,775 208,830
OTHER INCOME (EXPENSE), NET................................. (4,800) (1,588) (5,007)
-------- -------- --------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES............. 108,861 191,187 203,823
INTEREST EXPENSE
Incurred
Trade.................................................. 60,701 41,399 20,383
Affiliate.............................................. 589 24 1,614
Capitalized............................................... (12,711) (13,706) (9,136)
-------- -------- --------
Net Interest Expense................................... 48,579 27,717 12,861
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 60,282 163,470 190,962
INCOME TAX PROVISION........................................ 4,111 41,500 50,954
-------- -------- --------
NET INCOME.................................................. 56,171 121,970 140,008
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency Translation Adjustment................... (16,077) (9,592) 568
-------- -------- --------
COMPREHENSIVE INCOME........................................ $ 40,094 $112,378 $140,576
======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK
Basic..................................................... $ .36 $ .78 $ .88
======== ======== ========
Diluted................................................... $ .36 $ .77 $ .87
======== ======== ========
AVERAGE NUMBER OF COMMON SHARES
Basic..................................................... 154,345 157,376 159,853
======== ======== ========
Diluted................................................... 155,054 158,160 161,525
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 42
ENRON OIL & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents................................. $ 6,303 $ 9,330
Accounts Receivable
Trade.................................................. 176,608 185,979
Associated Companies................................... 16,980 46,120
Inventories............................................... 39,581 32,040
Other..................................................... 6,878 8,566
----------- -----------
Total............................................. 246,350 282,035
OIL AND GAS PROPERTIES (Successful Efforts Method).......... 4,814,425 4,291,405
Less: Accumulated Depreciation, Depletion and
Amortization........................................... (2,138,062) (1,904,198)
----------- -----------
Net Oil and Gas Properties............................. 2,676,363 2,387,207
OTHER ASSETS................................................ 95,382 54,113
----------- -----------
TOTAL ASSETS...................................... $ 3,018,095 $ 2,723,355
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
Trade.................................................. $ 159,690 $ 198,109
Associated Companies................................... 46,597 37,613
Accrued Taxes Payable..................................... 20,087 28,841
Dividends Payable......................................... 4,710 4,705
Other..................................................... 31,550 21,729
----------- -----------
Total............................................. 262,634 290,997
LONG-TERM DEBT
Trade..................................................... 942,779 548,775
Affiliate................................................. 200,000 192,500
OTHER LIABILITIES
Trade..................................................... 21,516 37,739
Associated Companies...................................... 46,327 44,699
DEFERRED INCOME TAXES....................................... 260,337 287,678
DEFERRED REVENUE............................................ 4,198 39,918
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Common Stock, $.01 Par, 320,000,000 shares Authorized and
160,000,000 shares Issued.............................. 201,600 201,600
Additional Paid In Capital................................ 401,524 402,877
Unearned Compensation..................................... (4,900) (4,694)
Cumulative Foreign Currency Translation Adjustment........ (35,848) (19,771)
Retained Earnings......................................... 838,371 800,709
Common Stock Held in Treasury, 6,276,156 shares at
December 31, 1998 and 4,935,744 shares at December 31,
1997................................................... (120,443) (99,672)
----------- -----------
Total Shareholders' Equity........................ 1,280,304 1,281,049
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 3,018,095 $ 2,723,355
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 43
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN COMMON
ADDITIONAL CURRENCY STOCK TOTAL
COMMON PAID IN UNEARNED TRANSLATION RETAINED HELD IN SHAREHOLDERS'
STOCK CAPITAL COMPENSATION ADJUSTMENT EARNINGS TREASURY EQUITY
-------- ---------- ------------ ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......... $201,600 $399,379 $ - $(10,747) $576,740 $ (3,313) $1,163,659
Net Income.......................... - - - - 140,008 - 140,008
Dividends Paid/Declared, $.12 Per
Share............................. - - - - (19,184) - (19,184)
Translation Adjustment.............. - - - 568 - - 568
Treasury Stock Purchased/
Tendered.......................... - - - - - (63,004) (63,004)
Treasury Stock Issued Under Stock
Plans............................. - (11,167) (7,085) - - 59,937 41,685
Amortization of Unearned
Compensation...................... - - 1,358 - - - 1,358
-------- -------- ------- -------- -------- --------- ----------
Balance at December 31, 1996.......... 201,600 388,212 (5,727) (10,179) 697,564 (6,380) 1,265,090
Net Income.......................... - - - - 121,970 - 121,970
Dividends Paid/Declared, $.12 Per
Share............................. - - - - (18,825) - (18,825)
Translation Adjustment.............. - - - (9,592) - - (9,592)
Treasury Stock Purchased............ - - - - - (99,306) (99,306)
Treasury Stock Issued Under Stock
Plans............................. - (872) - - - 6,014 5,142
Options Granted by Enron Corp....... - 15,081 - - - - 15,081
Amortization of Unearned
Compensation...................... - - 1,033 - - - 1,033
Other............................... - 456 - - - - 456
-------- -------- ------- -------- -------- --------- ----------
Balance at December 31, 1997.......... 201,600 402,877 (4,694) (19,771) 800,709 (99,672) 1,281,049
Net Income.......................... - - - - 56,171 - 56,171
Dividends Paid/Declared, $.12 Per
Share............................. - - - - (18,509) - (18,509)
Translation Adjustment.............. - - - (16,077) - - (16,077)
Treasury Stock Purchased............ - - - - - (25,875) (25,875)
Treasury Stock Issued Under Stock
Plans............................. - (492) (1,709) - - 5,104 2,903
Amortization of Unearned
Compensation...................... - - 1,503 - - - 1,503
Other............................... - (861) - - - - (861)
-------- -------- ------- -------- -------- --------- ----------
Balance at December 31, 1998.......... $201,600 $401,524 $(4,900) $(35,848) $838,371 $(120,443) $1,280,304
======== ======== ======= ======== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 44
ENRON OIL & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash
Inflows:
Net Income................................................ $ 56,171 $ 121,970 $ 140,008
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization............... 315,106 278,179 251,278
Impairment of Unproved Oil and Gas Properties.......... 32,076 27,213 21,226
Deferred Income Taxes.................................. (26,794) 16,665 2,276
Other, Net............................................. 7,761 359 7,830
Exploration Costs......................................... 65,940 57,696 55,009
Dry Hole Costs............................................ 22,751 17,303 13,193
Gains On Sales of Reserves and Related Assets and Other,
Net.................................................... (11,191) (9,287) (20,358)
Other, Net................................................ 1,116 (2,590) 8,871
Changes in Components of Working Capital and Other
Liabilities
Accounts Receivable.................................... 36,363 48,893 (120,370)
Inventories............................................ (7,541) (11,294) (9,049)
Accounts Payable....................................... (65,249) (11,478) 87,495
Accrued Taxes Payable.................................. (8,754) 10,287 (1,041)
Other Liabilities...................................... 2,324 2,521 3,752
Other, Net............................................. (3,620) 9,760 270
Amortization of Deferred Revenue.......................... (43,344) (43,345) (43,463)
Changes in Components of Working Capital Associated with
Investing and Financing Activities..................... 30,491 18,077 (31,817)
--------- --------- ---------
NET OPERATING CASH INFLOWS.................................. 403,606 530,929 365,110
INVESTING CASH FLOWS
Additions to Oil and Gas Properties....................... (690,352) (626,198) (539,330)
Exploration Costs......................................... (65,940) (57,696) (55,009)
Dry Hole Costs............................................ (22,751) (17,303) (13,193)
Proceeds from Sales of Reserves and Related Assets........ 61,858 37,521 63,951
Changes in Components of Working Capital Associated with
Investing Activities................................... (30,173) (22,454) 37,402
Other, Net................................................ (12,262) (11,000) (5,381)
--------- --------- ---------
NET INVESTING CASH OUTFLOWS................................. (759,620) (697,130) (511,560)
FINANCING CASH FLOWS
Long-Term Debt
Trade.................................................. 394,004 86,595 320,580
Affiliate.............................................. 7,500 192,500 (141,520)
Dividends Paid............................................ (18,504) (18,938) (19,161)
Treasury Stock Purchased.................................. (25,875) (99,306) (43,507)
Proceeds from Sales of Treasury Stock..................... 2,883 5,141 22,188
Other, Net................................................ (7,021) 1,895 (7,525)
--------- --------- ---------
NET FINANCING CASH INFLOWS.................................. 352,987 167,887 131,055
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (3,027) 1,686 (15,395)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 9,330 7,644 23,039
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 6,303 $ 9,330 $ 7,644
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 45
ENRON OIL & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements of Enron
Oil & Gas Company (the "Company"), 54% of the outstanding common stock of which
was owned by Enron Corp. as of December 31, 1998, include the accounts of all
domestic and foreign subsidiaries. All material intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
the consolidated financial statements for prior years to conform with the
current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company records as cash equivalents all
highly liquid short-term investments with original maturities of three months or
less. The Company had approximately $32 million of outstanding checks payable
classified as accounts payable at December 31, 1998.
Oil and Gas Operations. The Company accounts for its natural gas and crude
oil exploration and production activities under the successful efforts method of
accounting.
Oil and gas lease acquisition costs are capitalized when incurred. Unproved
properties with significant acquisition costs are assessed quarterly on a
property-by-property basis, and any impairment in value is recognized.
Amortization of any remaining costs of such leases begins at a point prior to
the end of the lease term depending upon the length of such term. Unproved
properties with acquisition costs that are not individually significant are
aggregated, and the portion of such costs estimated to be nonproductive, based
on historical experience, is amortized over the average holding period. If the
unproved properties are determined to be productive, the appropriate related
costs are transferred to proved oil and gas properties. Lease rentals are
expensed as incurred.
Oil and gas exploration costs, other than the costs of drilling exploratory
wells, are charged to expense as incurred. The costs of drilling exploratory
wells are capitalized pending determination of whether they have discovered
proved commercial reserves. If proved commercial reserves are not discovered,
such drilling costs are expensed. Costs to develop proved reserves, including
the costs of all development wells and related equipment used in the production
of natural gas and crude oil, are capitalized.
Depreciation, depletion and amortization of the cost of proved oil and gas
properties is calculated using the unit-of-production method. Estimated future
dismantlement, restoration and abandonment costs (classified as long-term
liabilities), net of salvage values, are taken into account. Certain other
assets are depreciated on a straight-line basis. In the first quarter of 1996,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Periodically, or when circumstances indicate that an
asset may be impaired, the Company compares expected undiscounted future cash
flows at a producing field level to the unamortized capitalized cost of the
asset. If the future undiscounted cash flows, based on the Company's estimate of
future crude oil and natural gas prices and operating costs, and anticipated
production from proved and risk-adjusted probable and possible reserves, are
lower than the unamortized capitalized cost, the capitalized cost is reduced to
fair value. Fair value is calculated by discounting the future cash flows at an
appropriate risk-adjusted discount rate. Since the adoption of SFAS No. 121, the
Company has recorded non-cash impairment charges that were immaterial to and
included in depreciation, depletion and amortization expense.
F-8
<PAGE> 46
Inventories, consisting primarily of tubular goods and well equipment held
for use in the exploration for, and development and production of natural gas
and crude oil reserves, are carried at cost with adjustments made from time to
time to recognize changes in condition value.
Natural gas revenues are recorded on the entitlement method based on the
Company's percentage ownership of current production. Each working interest
owner in a well generally has the right to a specific percentage of production,
although actual production sold may differ from an owner's ownership percentage.
Under entitlement accounting, a receivable is recorded when underproduction
occurs and a payable when overproduction occurs.
Gains and losses associated with the sale of in place natural gas and crude
oil reserves and related assets are classified as net operating revenues in the
consolidated statements of income and comprehensive income based on the
Company's strategy of continuing such sales in order to maximize the economic
value of its assets.
Accounting for Price Risk Management. The Company engages in price risk
management activities from time to time primarily for non-trading and to a
lesser extent for trading purposes. Derivative financial instruments (primarily
price swaps and costless collars) are utilized for non-trading purposes to hedge
the impact of market fluctuations on natural gas and crude oil market prices.
Hedge accounting is utilized in non-trading activities when there is a high
degree of correlation between price movements in the derivative and the item
designated as being hedged. Gains and losses on derivative financial instruments
used for hedging purposes are recognized as revenue in the same period as the
hedged item. Gains and losses on hedging instruments that are closed prior to
maturity are deferred in the consolidated balance sheets. In instances where the
anticipated correlation of price movements does not occur, hedge accounting is
terminated and future changes in the value of the derivative are recognized as
gains or losses using the mark-to-market method of accounting. Derivative and
other financial instruments utilized in connection with trading activities,
primarily price swaps and call options, are accounted for using the
mark-to-market method, under which changes in the market value of outstanding
financial instruments are recognized as gains or losses in the period of change.
The cash flow impact of derivative and other financial instruments used for
non-trading and trading purposes is reflected as cash flows from operating
activities in the consolidated statements of cash flows.
Capitalized Interest Costs. Certain interest costs have been capitalized as
a part of the historical cost of unproved oil and gas properties and in work in
progress for exploratory drilling and related facilities with significant cash
outlays. Interest costs capitalized during each of the three years in the period
ended December 31, 1998 are set out in the consolidated statements of income and
comprehensive income.
Income Taxes. The Company accounts for income taxes under the provisions of
SFAS No. 109 - "Accounting for Income Taxes". SFAS No. 109 requires the asset
and liability approach for accounting for income taxes. Under this approach,
deferred tax assets and liabilities are recognized based on anticipated future
tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases (See
Note 8 "Income Taxes").
Foreign Currency Translation. For subsidiaries whose functional currency is
deemed to be other than the U.S. dollar, asset and liability accounts are
translated at year-end exchange rates and revenue and expenses are translated at
average exchange rates prevailing during the year. Translation adjustments are
included as a separate component of shareholders' equity. Any gains or losses on
transactions or monetary assets or liabilities in currencies other than the
functional currency are included in net income in the current period.
Net Income Per Share. In accordance with the provisions of SFAS No.
128 - "Earnings per Share", basic net income per share is computed on the basis
of the weighted-average number of common shares outstanding during the periods.
Diluted net income per share is computed based upon the weighted-average number
of common shares plus the assumed issuance of common shares for all potentially
dilutive securities. (See Note 10 "Net Income Per Share" for additional
information to reconcile the difference between the Average Number of Common
Shares outstanding for basic and diluted net income per share).
F-9
<PAGE> 47
2. NATURAL GAS AND CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS NET OPERATING
REVENUES
Natural gas revenues, trade for 1998, 1997 and 1996 are net of costs of
natural gas purchased for sale related to natural gas marketing activities of
$44.8 million, $73.6 million and $72.6 million, respectively. Natural gas
revenues, associated for 1998, 1997 and 1996 are net of costs of natural gas
purchased for sale related to natural gas marketing activities of $51.0 million,
$47.7 million and $24.9 million, respectively.
In March 1995, in a series of transactions with Enron Corp. and an
affiliate of Enron Corp., the Company exchanged all of its fuel supply and
purchase contracts and related price swap agreements associated with a Texas
City cogeneration plant (the "Cogen Contracts") for certain natural gas price
swap agreements of equivalent value issued by the affiliate that are designated
as hedges (the "Swap Agreements"). Such Swap Agreements were closed on March 31,
1995. As a result of the transactions, the Company was relieved of all
performance obligations associated with the Cogen Contracts. The Company will
realize net operating revenues and receive corresponding cash payments of
approximately $91 million during the period extending through December 31, 1999,
under the terms of the closed Swap Agreements. The estimated fair value of the
Swap Agreements was approximately $81 million at the date the Swap Agreements
were received in exchange for the Cogen Contracts. The net effect of this series
of transactions resulted in increases in net operating revenues and cash
receipts for the Company during 1995 and 1996 of approximately $13 million and
$7 million, respectively, with offsetting decreases in 1998 and 1999 versus that
anticipated under the Cogen Contracts. The total cash payments receivable under
the terms of the Swap Agreements were approximately $4 million and $13 million
at December 31, 1998 and 1997, respectively, and are presented in the
accompanying balance sheet as Accounts Receivable - Associated Companies for the
$4 million and $9 million current portion, respectively, and as Other Assets for
the $4 million noncurrent portion at December 31, 1997. The corresponding total
future revenue of approximately $4 million and $13 million, respectively, is
classified as Deferred Revenue. (See Note 14 "Price and Interest Rate Risk
Management").
3. OTHER ASSETS
In December 1997, the Company and Enron Corp. entered into an Equity
Participation and Business Opportunity Agreement (the "Business Opportunity
Agreement"). (See Note 7 "Transactions with Enron Corp. and Related
Parties - Business Opportunity Agreement"). Among other things, under the
agreement, Enron Corp. granted to the Company ten-year options to purchase
3,200,000 shares of Enron Corp. common stock at a price of $39.1875 per share
which was the closing price of the stock on the date that the agreement was
approved by the Board of Directors of the Company. The option vesting schedule
provides that 25% vested immediately, 15% vest on the anniversary of the
Business Opportunity Agreement in 1998 and 10% vest each anniversary thereafter
until all of the options are vested. Vesting will be accelerated in the event of
a change of control of the Company. For such purposes, a "change of control"
means that (a) Enron Corp. no longer owns capital stock of the Company
representing at least 35% of the voting power for the election of directors and
(b) a majority of the members of the Board of Directors of the Company consists
of persons who are not officers or directors of Enron Corp. or any affiliate of
Enron Corp. other than the Company. Other Assets at December 31, 1998 and 1997
includes $23.3 million or $7.29 per share representing the estimated fair value
of the Enron Corp. stock options at the date of grant. Such estimated fair value
was determined using the Black-Scholes option-pricing model with the following
weighted-average assumptions at the date the options were issued: (1) dividend
yield of 2.5%, (2) expected volatility of 17.5%, (3) risk-free interest rate of
5.85%, and (4) expected average life of 4.0 years. Receipt of the options
represented a capital contribution from Enron Corp. and, accordingly, the fair
value received, net of tax effects of $8.2 million, was credited to Additional
Paid In Capital. (See Note 16 "New Accounting Pronouncement - SFAS No. 133").
F-10
<PAGE> 48
4. LONG-TERM DEBT
Long-Term Debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Commercial Paper............................................ $ 162,539 $ 42,415
6.50% Notes due 2004........................................ 100,000 100,000
6.70% Notes due 2006........................................ 150,000 150,000
6.50% Notes due 2007........................................ 100,000 100,000
6.00% Notes due 2008........................................ 175,000 -
6.65% Notes due 2028........................................ 150,000 -
9.10% Notes due 1998........................................ - 20,000
Subsidiary Debt due 2001.................................... 105,000 105,000
Subsidiary Debt due 1998.................................... - 31,000
Other....................................................... 240 360
---------- --------
942,779 548,775
Affiliate................................................... 200,000 192,500
---------- --------
Total............................................. $1,142,779 $741,275
========== ========
</TABLE>
The Company has three credit facilities with domestic and foreign banks
which provide for an aggregate of $550 million in long-term committed credit,
with $250 million expiring in 1999 and $300 million expiring in 2002. With
respect to the aggregate $250 million from two separate facilities, both of
which expire during 1999, the Company may, at its option, extend the final
maturity date of any advances made under the facilities by one full year from
the expiration date of the applicable facility, effectively qualifying such debt
as long-term. Advances under all three agreements bear interest, at the option
of the Company, based upon a base rate or a Eurodollar rate. At December 31,
1998, there were no advances outstanding under any of these agreements.
Commercial Paper and short-term funding from uncommitted credit facilities
provide financing for various corporate purposes and bear interest based upon
market rates. No advances were outstanding under the uncommitted lines on
December 31, 1998 or 1997. Commercial paper, uncommitted credit and affiliate
facility balances (when present) are classified as long-term debt based on the
Company's intent and ability to ultimately replace such amounts with other
long-term debt. (See Note 14 "Price and Interest Rate Risk Management").
The 6.00% to 6.70% Notes due 2004 to 2028 were issued through public
offerings and have effective interest rates of 6.14% to 6.83%. The Subsidiary
Debt due 2001 bears interest at variable market-based rates and is guaranteed by
the Company.
Certain borrowings of the Company contain covenants requiring the
maintenance of certain financial ratios and limitations on liens, debt issuance
and dispositions of assets. These covenants include a 50% debt-to- total-capital
limitation. Should commodity price levels experienced in late 1998 and early
1999 persist, the resulting reduction in cash flow available from operations may
necessitate further action(s) which could include a reduction in capital
expenditure plans, the issuance of preferred stock and/or common equity, and/or
the renegotiation of the debt covenants in order to remain in compliance.
At December 31, 1998, the aggregate annual maturities of long-term debt
outstanding were less than $1.0 million for each of the years 1999 and 2000,
$105 million for 2001 and none for 2002 and 2003.
Shelf Registration. The Company may sell from time to time up to an
aggregate of approximately $90 million in debt securities and/or common stock
pursuant to an effective "shelf" registration statement filed with the
Securities and Exchange Commission.
Financing Arrangements With Enron Corp. The Company engages in various
transactions with Enron Corp. that are characteristic of a consolidated group
under common control. Accordingly, the Company maintains reciprocal agreements
with Enron Corp. that provide for the borrowing by the Company of up to
F-11
<PAGE> 49
$200 million and investing by the Company of surplus funds of up to $200 million
at market-based interest rates through December 31, 1999. Advances from Enron
Corp. of $200 million and $193 million were outstanding at December 31, 1998 and
1997, respectively, and such balances were classified as long-term based on the
Company's intent and ability to ultimately replace such amounts with other
long-term debt. There were no investments with Enron Corp. at December 31, 1998
or 1997. (See Note 14 "Price and Interest Rate Risk Management").
Fair Value Of Long-Term Debt. At December 31, 1998 and 1997, the Company
had $1,143 million and $741 million, respectively, of long-term debt which had
fair values of approximately $1,141 million and $744 million, respectively. The
fair value of long-term debt is the value the Company would have to pay to
retire the debt, including any premium or discount to the debtholder for the
differential between the stated interest rate and the year-end market rate. The
fair value of long-term debt is based upon quoted market prices and, where such
quotes were not available, upon interest rates available to the Company at
year-end.
5. VOLUMETRIC PRODUCTION PAYMENT
In September 1992, the Company sold a volumetric production payment for
$326.8 million to a limited partnership. Under the terms of the production
payment, as amended October 1, 1993, the Company conveyed a real property
interest of certain natural gas and other hydrocarbons to the purchaser.
Deliveries were scheduled at the rate of 50 billion British thermal units per
day through March 31, 1999. The Company accounted for the proceeds received in
the transaction as deferred revenue, which was amortized into revenue and income
as natural gas and other hydrocarbons were produced and delivered during the
term of the volumetric production payment agreement. In December 1998, the
Company settled the remainder of the contract in cash which was not materially
different from the recorded deferred revenue, and delivery obligations were
terminated.
6. SHAREHOLDERS' EQUITY
The Board of Directors of the Company has approved an authorization for
purchasing and holding in treasury at any time up to 1,000,000 shares of common
stock of the Company for the purpose of, but not limited to, meeting obligations
associated with the exercise of stock options granted to qualified employees
pursuant to the Company's stock option plans. The Board of Directors has also
approved the selling from time to time, subject to certain conditions, of put
options on the common stock of the Company. The 1,000,000 share limit mentioned
above applies to shares held in treasury and unexpired put options outstanding.
In February 1997, as amended in February 1998, the Board of Directors authorized
the additional purchase of up to an aggregate maximum of 10 million shares of
common stock of the Company from time to time in the open market to be held in
treasury for the purpose of, but not limited to, fulfilling any obligations
arising under the Company's stock option plans and any other approved
transactions or activities for which such common stock shall be required. At
December 31, 1998 and 1997, 6,276,156 shares and 4,935,744 shares, respectively,
were held in treasury under these authorizations. (See Note 9 "Commitments and
Contingencies - Treasury Shares"). The Company has, from time to time, entered
into transactions in which it writes put options on its own common stock. At
December 31, 1998, there were put options outstanding for 175,000 shares of
common stock. Such options have strike prices ranging from $13.13 to $21.13 per
share and are exercisable by the counterparties only on the dates of expiration
ranging from May 1999 to December 1999. Settlement alternatives are at the
option of the Company and include physical share, net share and net cash
settlement. These transactions are accounted for as equity transactions with any
premiums received and cash payments made being recorded to Additional Paid In
Capital in the consolidated balance sheets.
7. TRANSACTIONS WITH ENRON CORP. AND RELATED PARTIES
Business Opportunity Agreement. In December 1997, Enron Corp. and the
Company entered into the Business Opportunity Agreement which defines certain
obligations that Enron Corp. owes to the Company and relieves Enron Corp. from
certain obligations to the Company that it might otherwise have, including the
obligation to offer certain business opportunities to the Company. Enron Corp.
has advised the Company that,
F-12
<PAGE> 50
although it believes that it has conducted its business in a manner that is
consistent with its duties as a majority shareholder of the Company, it was
motivated to enter into the Business Opportunity Agreement because of the
difficulty of determining the applicability of the law relating to duties that
Enron Corp. may owe to the Company in connection with Enron Corp.'s finance and
trading business and because of Enron Corp.'s desire to have more flexibility in
pursuing business opportunities identified by or developed solely by Enron Corp.
personnel. The Business Opportunity Agreement was approved by the Board of
Directors of the Company after it was approved unanimously by a special
committee of the Board of Directors consisting of the Company's independent
directors.
The Business Opportunity Agreement provides generally that, so long as such
activities are conducted in compliance with the Business Opportunity Agreement
in all material respects, Enron Corp. may pursue business opportunities
independently of the Company. The Business Opportunity Agreement contains an
acknowledgment by the Company that Enron Corp.'s finance and trading business
may result in the acquisition by Enron Corp. of oil and gas properties or
companies and that in certain cases Enron Corp. or entities in which Enron Corp.
has an interest may acquire such assets pursuant to bidding or auction processes
in which the Company is also a bidder. In the Business Opportunity Agreement,
the Company acknowledges and agrees that such activities may have an impact on
the Company or the price it pays for properties or securities it purchases from
others. The Business Opportunity Agreement contains an acknowledgement and
agreement by the Company that, to the extent that a court might hold that the
conduct of such activity is a breach of a duty to the Company (and without
admitting that the conduct of such activity is such a breach of duty), the
Company waives any and all claims and courses of action that it may have to
claim the conduct of such activity is a breach of duty to the Company. The
Business Opportunity Agreement contains certain restrictions on the conduct of
Enron's business. It also provides that, except with respect to business
opportunities pursued jointly by Enron Corp. and the Company and except as
otherwise agreed to between Enron Corp. and the Company, Enron Corp.'s business
will be conducted through the use of its own personnel and assets and not with
the use of any personnel or assets of the Company.
The Business Opportunity Agreement states that its provisions relate
exclusively to the duties that Enron Corp. owes the Company and that nothing in
the Business Opportunity Agreement affects the fiduciary or other duties owed to
the Company by any individual director or officer of the Company in his or her
capacity as such. In this connection, Enron Corp. has agreed that its
representatives on the Board of Directors of the Company will not, for the
purpose of enabling Enron Corp. to pursue an opportunity in the oil and gas
business, vote in such a manner as to effectively prevent, prohibit or restrict
the Company from pursuing such opportunity.
In consideration for the Company's agreements in the Business Opportunity
Agreement, Enron Corp. provided valuable consideration to the Company, including
options to purchase common stock of Enron Corp. that will give the Company the
opportunity to participate in future appreciation in value of Enron, including
any appreciation in value resulting from activities that the Company has agreed
to permit Enron Corp. and its subsidiaries to pursue. (See Note 3 "Other
Assets"). The Business Opportunity Agreement also included (i) an agreement to
replace the existing services agreement, under which Enron Corp. provides
certain services to the Company, with a new services agreement under which the
Company's maximum payments to Enron Corp. for allocated indirect costs will be
reduced by $2.8 million per year, (ii) an agreement by Enron Corp. relieving the
Company of the obligation to bear the costs of any registration of sales by
Enron Corp. of shares of common stock of the Company, (iii) an agreement by
Enron Corp. to pay the costs of registration of the Company's sales of Enron
Corp. common stock acquired upon exercise of the options granted in the Business
Opportunity Agreement, (iv) an agreement that if Enron Corp. takes any action
that results in the loss by the Company of its status as an "independent
producer" under the Internal Revenue Code, Enron Corp. will pay the Company each
year through 2006 the lesser of (a) $1 million and (b) an amount which, after
payment of applicable taxes, will compensate the Company for the additional
income tax liability resulting from the loss of independent producer status, (v)
and an agreement that if Enron Corp. requests that the Company relocate its
offices, and if the Company agrees to do so, Enron will pay the Company's moving
expenses, including expenses of building out or refurbishing the space in its
new offices and expenses of removing and reinstalling the Company's
telecommunications and information systems facilities. In addition,
F-13
<PAGE> 51
pursuant to the Business Opportunity Agreement, Enron Corp. agreed to cause its
subsidiary, Houston Pipe Line Company, to enter into various agreements with the
Company rearranging certain existing contractual arrangements between them and
Enron Corp., and the Company entered into a licensing agreement covering the
Enron Corp. name and mark and recognizing that the EOG and EOGI names and marks
belong to the Company. In the Business Opportunity Agreement, Enron Corp. and
the Company also entered into agreements in principle regarding the manner in
which they will share the burdens and benefits of the integrated projects under
joint development by Enron Corp. and the Company in Qatar, Mozambique and
Uzbekistan. The agreements in principle provide generally that the Company's
interests in these projects will be 20%, 20% and 80%, respectively, of the
combined ownership interest of the Company and Enron Corp. In December 1998, the
Company sold its interest in the Uzbekistan project and anticipates disposing of
its interest in the Qatar project in early 1999.
The Business Opportunity Agreement also contains provisions that give Enron
Corp. the right to maintain its equity interest in the Company at certain
levels. It provides that if the Company issues additional shares of its capital
stock, Enron Corp. will have the right to purchase additional shares of capital
stock of the Company as follows: (i) if Enron Corp. owns a majority interest,
Enron Corp. will have the right to purchase sufficient shares to permit it to
retain its majority interest; (ii) if Enron Corp. does not own a majority
interest but accounts for the assets and operations of the Company on a
consolidated basis for financial reporting purposes Enron Corp. will have the
right to purchase sufficient shares to permit it to continue to account for the
Company on a consolidated basis; and (iii) if Enron Corp. accounts for the
assets and operations of the Company using the equity method for financial
reporting purposes Enron Corp. will have the right to purchase sufficient shares
to permit it to continue to account for the Company using the equity method. Any
such purchase by Enron Corp. will be for cash at 97% of the average closing
price per share over a specified 20 day period (reflecting a 3% private
placement discount).
Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating
Revenues. Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net
Operating Revenues include revenues from and associated costs paid to various
subsidiaries and affiliates of Enron Corp. pursuant to contracts which, in the
opinion of management, are no less favorable than could be obtained from third
parties. (See Note 2 "Natural Gas and Crude Oil, Condensate and Natural Gas
Liquids Net Operating Revenues"). Natural Gas and Crude Oil, Condensate and
Natural Gas Liquids Net Operating Revenues also include certain commodity price
swap and NYMEX-related commodity transactions with Enron Corp. affiliated
companies, which in the opinion of management, are no less favorable than could
be received from third parties. (See Note 14 "Price and Interest Rate Risk
Management.)
General and Administrative Expenses. The Company is charged by Enron Corp.
for all direct costs associated with its operations. Such direct charges,
excluding benefit plan charges (See Note 9 "Commitments and
Contingencies - Employee Benefit Plans"), totaled $14.2 million, $16.1 million
and $17.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Management believes that these charges are reasonable.
Additionally, certain administrative costs not directly charged to any
Enron Corp. operations or business segments are allocated to the entities of the
consolidated group. Allocation percentages are generally determined utilizing
weighted average factors derived from property gross book value, net operating
revenues and payroll costs. Effective January 1, 1997, the Company entered into
an agreement with Enron Corp. with an initial term of ten years through December
2006, which agreement replaced a similar previous agreement, providing for
services substantially identical in nature and quality to those services
previously provided and for allocated indirect costs incurred in rendering such
services up to a maximum of approximately $5.1 million for 1998 and $5.3 million
for 1997. Maximum allocated indirect costs under the previous service agreement
were $7.5 million for 1996. The limit on cost for the allocated indirect
services provided by Enron Corp. to the Company will increase in subsequent
years for inflation and certain changes in the Company's allocation bases.
Management believes the indirect allocated charges for the numerous types of
support services provided by the corporate staff are reasonable. Approximately
$5.1 million and $5.3 million was incurred by the Company for indirect general
and administrative expenses for 1998 and 1997, respectively. Under the previous
F-14
<PAGE> 52
agreement, approximately $7.5 million was charged to the Company for indirect
general and administrative expenses for 1996.
Financing. See Note 4 "Long-Term Debt - Financing Arrangements with Enron
Corp." for a discussion of financing arrangements with Enron Corp.
Enron Corp. Ownership. In December 1998, Enron Corp. publicly disclosed
that it had received an unsolicited indication of interest from a third party
with respect to exploring a possible transaction pursuant to which the third
party would acquire Enron Corp.'s shares of common stock of the Company, and
offer to acquire the remaining shares of outstanding common stock of the
Company. In response to this indication of interest, the Board of Directors of
the Company has established a special committee consisting of two independent
directors who have retained a financial advisor and legal counsel. Although
Enron Corp. has publicly indicated that it currently intends to actively explore
alternative transactions for its Company common stock along with the unsolicited
indication of interest, there can be no assurance that any such transactions
will be pursued or, if pursued, will be consummated.
8. INCOME TAXES
The principal components of the Company's net deferred income tax liability
at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred Income Tax Assets
Cogen Contract Exchange.......................... $ 9,519 $ 19,781
Net Operating Loss Carryforward, India........... 44,640 27,500
Non-Producing Leasehold Costs.................... 19,411 13,391
Seismic Costs Capitalized for Tax................ 7,687 7,144
Alternative Minimum Tax Credit Carryforward...... 17,656 12,681
Trading Activity................................. 4,253 -
Other............................................ 12,084 11,441
-------- --------
Total Deferred Income Tax Assets......... 115,250 91,938
Deferred Income Tax Liabilities
Oil and Gas Exploration and Development Costs
Deducted for Tax Over Book Depreciation,
Depletion and Amortization.................... 360,045 304,122
Capitalized Interest............................. 12,512 10,231
Volumetric Production Payment Book Revenue Over
Income for Tax................................ - 58,850
Trading Activity................................. - 3,470
Other............................................ 3,030 2,943
-------- --------
Total Deferred Income Tax Liabilities.... 375,587 379,616
-------- --------
Net Deferred Income Tax Liability........ $260,337 $287,678
======== ========
</TABLE>
The components of income (loss) before income taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States...................................... $ (3,297) $103,831 $146,335
Foreign............................................ 63,579 59,639 44,627
-------- -------- --------
Total.................................... $ 60,282 $163,470 $190,962
======== ======== ========
</TABLE>
F-15
<PAGE> 53
Total income tax provision (benefit) was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 10,496 $ 50,494 $ 21,064
State............................................ 1,474 840 (916)
Foreign.......................................... 18,935 23,614 28,530
-------- -------- --------
Total.................................... 30,905 74,948 48,678
Deferred:
Federal.......................................... (31,279) (32,711) 13,620
State............................................ (4,589) 348 (1,826)
Foreign.......................................... 9,074 (1,085) (9,518)
-------- -------- --------
Total.................................... (26,794) (33,448) 2,276
-------- -------- --------
Income Tax Provision............................... $ 4,111 $ 41,500 $ 50,954
======== ======== ========
</TABLE>
The differences between taxes computed at the U.S. federal statutory tax
rate and the Company's effective rate were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate.................. 35.00% 35.00% 35.00%
State Income Tax, Net of Federal Benefit........... (3.36) 0.47 (0.76)
Income Tax Related to Foreign Operations........... 4.76 2.83 6.16
Tight Gas Sand Federal Income Tax Credits.......... (17.36) (7.51) (8.22)
Revision of Prior Years' Tax Estimates............. (10.78) (4.34) (4.46)
Other.............................................. (1.45) (1.06) (1.04)
-------- -------- --------
Effective Income Tax Rate................ 6.81% 25.39% 26.68%
======== ======== ========
</TABLE>
In 1997, the Company and Enron Corp. agreed to replace an existing tax
allocation agreement with a new tax allocation agreement. In the new agreement,
Enron Corp. agreed to refund a $13 million payment made by the Company pursuant
to the existing agreement, the Company agreed to release Enron Corp. from the
liabilities assumed related to the $13 million payment and the parties agreed to
indemnify each other in a manner consistent with a former agreement. Enron Corp.
also advanced the Company approximately $50 million to fund certain federal
income taxes related to the 1995 taxable year. This advance is being repaid in
annual installments through January 1, 2001.
The Company's foreign subsidiaries' undistributed earnings of approximately
$243 million at December 31, 1998 are considered to be indefinitely invested
outside the U.S. and, accordingly, no U.S. federal or state income taxes have
been provided thereon. Upon distribution of those earnings in the form of
dividends, the Company may be subject to both foreign withholding taxes and U.S.
income taxes, net of allowable foreign tax credits. Determination of any
potential amount of unrecognized deferred income tax liabilities is not
practicable.
The Company has a $93 million India tax net operating loss carryforward at
December 31, 1998. The loss carryforward utilization is limited to future
taxable earnings of Enron Oil & Gas India Ltd. which earnings are expected to
exceed this carryforward amount before the carryforward period expires. The
India carryforward period is eight years, and unutilized net operating loss
carryforward will begin to expire with the fiscal year ending March 31, 2002.
The Company has an alternative minimum tax ("AMT") credit carryforward of
$18 million which can be used to offset regular income taxes payable in future
years. The AMT credit carryforward has an indefinite carryforward period.
F-16
<PAGE> 54
9. COMMITMENTS AND CONTINGENCIES
Employee Benefit Plans. Employees of the Company are covered by various
retirement, stock purchase and other benefit plans of Enron Corp. During each of
the years ended December 31, 1998, 1997 and 1996, the Company was charged $6.4
million, $5.0 million and $5.0 million, respectively, for all such benefits,
including pension expense totaling $1.3 million, $1.0 million and $1.0 million,
respectively, by Enron Corp.
As of September 30, 1998, the most recent valuation date of the various
Enron Corp. pension and other postretirement plans in which the employees of the
Company participate, the actuarial present value of projected aggregate plan
benefit obligations exceeded the aggregate plan net assets by approximately $24
million. The assumed discount rate, rate of return on plan assets and rate of
increases in wages used in determining the actuarial present value of projected
plan benefits were 6.75%, 10.5% and 4.0%, respectively.
The Company also has in effect pension and savings plans related to its
Canadian, Trinidadian and Indian subsidiaries. Activity related to these plans
is not material relative to the Company's operations.
The Company provides certain postretirement medical and dental benefits to
eligible employees and their eligible dependents. Benefits are provided under
the provisions of contributory defined dollar benefit plans of Enron Corp. The
Company accrues the cost of these postretirement benefits over the service lives
of the employees expected to be eligible to receive such benefits. The
transition obligation is being amortized over an average period of 19 years.
Stock Plans
Stock Options. The Company has various stock plans ("the Plans") under
which employees of the Company and its subsidiaries and nonemployee members of
the Board of Directors have been or may be granted rights to purchase shares of
common stock of the Company at a price not less than the market price of the
stock at the date of grant. Stock options granted under the Plans vest over a
period of time based on the nature of the grants and as defined in the
individual grant agreements. Terms for stock options granted under the Plans
have not exceeded a maximum term of 10 years.
The Company accounts for the stock options under the provisions and related
interpretations of Accounting Principles Board Opinion No. 25 ("APB No.
25") - "Accounting for Stock Issued to Employees." No compensation expense is
recognized for such options. In accordance with SFAS No. 123 - "Accounting for
Stock-Based Compensation" issued in 1995, the Company has continued to apply APB
No. 25 for purposes of determining net income and to present the pro forma
disclosures required by SFAS No. 123.
The following table sets forth the option transactions under the Plans for
the years ended December 31 (options in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE
GRANT GRANT GRANT
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1....... 9,735 $19.99 8,796 $20.70 8,019 $18.61
Granted...................... 5,949 15.76 3,079 20.18 2,941 24.53
Exercised.................... (172) 15.14 (261) 17.16 (1,989) 17.95
Forfeited.................... (476) 20.62 (1,879) 24.06 (175) 20.28
------- ------- -------
Outstanding at December 31..... 15,036 18.35 9,735 19.99 8,796 20.70
======= ======= =======
Options Exercisable at December
31........................... 7,703 19.38 5,618 19.70 4,402 19.13
======= ======= =======
Options Available for Future
Grant........................ 3,098 2,519 3,741
======= ======= =======
Average Fair Value of Options
Granted During Year.......... $ 4.75 $ 6.96 $ 9.29
======= ======= =======
</TABLE>
F-17
<PAGE> 55
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1998, 1997 and 1996, respectively: (1) dividend yield of 0.6%, 0.6%
and 0.5%, (2) expected volatility of 26%, 27% and 31%, (3) risk-free interest
rate of 5.1%, 6.3% and 5.8%, and (4) expected life of 4.9 years, 5.2 years and
5.5 years.
During 1997, in response to extremely competitive conditions for technical
personnel, the Company cancelled options issued in 1996 to purchase 1,282,000
shares of common stock at an exercise price of $25.38 per share, and reissued
the same number of options with an exercise price of $18.25 per share. The
reissue did not involve any executive officers of the Company.
The following table summarizes certain information for the options
outstanding at December 31, 1998 (options in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING GRANT GRANT
RANGE OF GRANT PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- --------------------- ------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$ 9.00 to $12.99...................... 409 3 years $ 9.87 409 $ 9.87
13.00 to 17.99...................... 5,607 9 14.98 1,737 16.08
18.00 to 22.99...................... 7,410 6 20.18 4,494 20.51
23.00 to 29.00...................... 1,610 6 23.81 1,063 23.77
------ -----
9.00 to 29.00...................... 15,036 7 18.35 7,703 19.38
====== =====
</TABLE>
The Company's pro forma net income and net income per share of common stock
for 1998, 1997 and 1996, had compensation costs been recorded in accordance with
SFAS No. 123, are presented below (in millions except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income................ $56.2 $47.3 $122.0 $116.7 $140.0 $135.5
Net Income per Share of
Common Stock
Basic................ $ .36 $ .31 $ .78 $ .74 $ .88 $ .85
===== ===== ====== ====== ====== ======
Diluted.............. $ .36 $ .30 $ .77 $ .74 $ .87 $ .84
===== ===== ====== ====== ====== ======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure should
not be interpreted as being indicative of future effects. SFAS No. 123 does not
apply to awards prior to 1995, and the extent and timing of additional future
awards cannot be predicted.
The Black-Scholes model used by the Company to calculate option values, as
well as other currently accepted option valuation models, were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting and/or trading restrictions, which significantly differ from the
Company's stock option awards. These models also require highly subjective
assumptions, including future stock price volatility and expected time until
exercise, which significantly affect the calculated values. Accordingly,
management does not believe that this model provides a reliable single measure
of the fair value of the Company's stock option awards.
Restricted Stock. Under the Plans, participants may be granted restricted
stock without cost to the participant. The shares granted vest to the
participant at various times ranging from one to seven years. Upon
F-18
<PAGE> 56
vesting, the shares are released to the participants. The following summarizes
shares of restricted stock granted:
<TABLE>
<CAPTION>
RESTRICTED SHARES
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Outstanding at January 1............................. 284,000 284,000 -
Granted............................................ 108,500 - 301,500
Released to Participants........................... (14,166) - (17,500)
Forfeited or Expired............................... (33,000) - -
-------- -------- --------
Outstanding at December 31........................... 345,334 284,000 284,000
======== ======== ========
Average Fair Value of Shares Granted During Year..... $ 20.11 $ - $ 23.50
======== ======== ========
</TABLE>
The fair value of the restricted shares at date of grant has been recorded
in shareholders' equity as unearned compensation and is being amortized as
compensation expense. Related compensation expense for 1998, 1997 and 1996 was
approximately $1.5 million, $1.0 million and $1.4 million, respectively.
Treasury Shares. During 1998, 1997 and 1996, the Company purchased or was
tendered 1,590,200, 4,954,344 and 2,383,727 of its common shares, respectively,
and delivered such shares upon the exercise of stock options and awards of
restricted stock, except for shares held in treasury at December 31, 1998, 1997
and 1996. The difference between the cost of the treasury shares and the
exercise price of the options, net of federal income tax benefit of $.3 million,
$.5 million and $6.1 million for the years 1998, 1997 and 1996, respectively, is
reflected as an adjustment to Additional Paid In Capital. In December 1992, as
amended in September 1994 and December 1996, the Company commenced a stock
repurchase program of up to 1,000,000 shares authorized by the Board of
Directors to facilitate the availability of treasury shares of common stock for,
but not limited to, the settlement of employee stock option exercises pursuant
to the Plans. In February 1997 as amended in February 1998, the Board of
Directors authorized the additional purchase of up to 10 million shares for
similar purposes. At December 31, 1998 and 1997, 6,276,156 and 4,935,744 shares,
respectively, were held in treasury under these authorizations. (See Note 6
"Shareholders' Equity").
Letters Of Credit. At December 31, 1998 and 1997, the Company had letters
of credit outstanding totaling approximately $127 million and $169 million,
respectively.
Contingencies. Enron Oil & Gas India Ltd. ("EOGIL"), a wholly-owned
subsidiary of the Company, is a respondent in two public interest lawsuits filed
in the Delhi High Court, India. The first (the "Wadehra Action") was brought by
B. L. Wadehra, an Indian public interest lawyer, against the Union of India,
EOGIL, EOGIL co-participants in the Panna and Mukta fields, Reliance Industries
Limited ("Reliance") and Oil & Natural Gas Corporation Limited ("ONGC"), and
certain other respondents. ONGC is the Indian national oil company and is
wholly-owned by the Union of India. The second suit (the "CPIL Action") was
brought by the Centre for Public Interest Litigation and the National Alliance
of People's Movement against the Union of India, the Central Bureau of
Investigation, ONGC, Reliance and EOGIL. Petitioners in both the Wadehra Action
and the CPIL Action allege various improprieties in the award of the Panna and
Mukta fields to EOGIL, Reliance and ONGC, and seek the cancellation of the
Production Sharing Contract for the Panna and Mukta fields. The Union of India
is vigorously disputing these allegations. The Company believes that the public
competitive bidding process for the fields was fair and that the award of these
fields to EOGIL, Reliance and ONGC was proper. Following a series of hearings,
the Delhi High Court has entered an order dismissing both lawsuits. The
plaintiffs have filed a special leave petition seeking to appeal this decision
to the India Supreme Court. Although no assurances can be given, based on
currently available information the Company believes that the ultimate
resolution of these matters will not have a material adverse effect on its
financial condition or results of operations. There are various other suits and
claims against the Company that have arisen in the ordinary course of business.
However, management does not believe these suits and claims will individually or
in the aggregate have a material adverse effect on the Company's financial
condition or results of operations. The Company has been named as a potentially
responsible party in certain Comprehensive Environmental Response Compensation
and Liability Act proceedings. However, management does not
F-19
<PAGE> 57
believe that any potential assessments resulting from such proceedings will
individually or in the aggregate have a materially adverse effect on the
financial condition or results of operations of the Company.
10. NET INCOME PER SHARE
The difference between the Average Number of Common Shares outstanding for
basic and diluted net income per share of common stock is due to the assumed
issuance of approximately 709,000, 784,000 and 1,672,000 common shares relating
to employee stock options in 1998, 1997 and 1996, respectively.
11. CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest (net of amount capitalized).................... $51,166 $27,759 $14,237
Income taxes............................................ 38,551 28,708 42,014
</TABLE>
12. BUSINESS SEGMENT INFORMATION
The Company's operations are all natural gas and crude oil exploration and
production related. The Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," during the fourth quarter of
1998. SFAS No. 131 establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports. Operating
segments are defined as components of an enterprise about which separate
financial information is available and evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group is the Executive Committee, which consists of the President and
Chief Executive Officer and other key officers. This group routinely reviews and
makes operating decisions related to significant issues associated with each of
the Company's major producing areas in the United States and each significant
international location. For segment reporting purposes, the major U.S. producing
areas have been aggregated as one reportable segment due to similarities in
their operations as allowed by SFAS No. 131. Financial information by reportable
segment is presented below for the years ended December 31, or at December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998
Net Operating Revenues............. $ 564,378 $ 68,622 $ 66,967 $ 72,826 $ (3,605) $ 769,188
Depreciation, Depletion and
Amortization..................... 265,738 25,972 12,867 8,456 2,073 315,106
Operating Income (Loss)............ 54,272 11,908 42,094 41,718 (36,331) 113,661
Interest Income.................... 216 88 507 205 131 1,147
Other Income (Expense)............. (559) - (150) (1,761) (3,477) (5,947)
Interest Expense................... 53,773 6,558 859 100 - 61,290
Income Tax Provision (Benefit)..... (6,214) (1,112) 21,517 13,401 (23,481) 4,111
Additions to Oil and Gas
Properties....................... 547,209 49,142 19,347 46,657 27,997 690,352
Total Assets....................... 2,238,969 277,861 131,964 289,596 79,705 3,018,095
1997
Net Operating Revenues............. $ 603,845 $ 73,466 $ 66,000 $ 35,332 $ 4,858 $ 783,501
Depreciation, Depletion and
Amortization..................... 239,418 23,116 11,031 3,716 898 278,179
Operating Income (Loss)............ 138,213 19,983 38,968 13,794 (18,183) 192,775
Interest Income.................... 2,746 392 484 134 366 4,122
Other Income (Expense)............. (5,517) 4 (289) (848) 940 (5,710)
Interest Expense................... 28,548 8,132 4,701 42 - 41,423
Income Tax Provision (Benefit)..... 30,940 (3,228) 21,538 1,402 (9,152) 41,500
Additions to Oil and Gas
Properties....................... 468,168 79,789 163 67,777 10,301 626,198
Total Assets....................... 2,036,933 276,998 116,578 252,115 40,731 2,723,355
(Table continued on following page)
</TABLE>
F-20
<PAGE> 58
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996
Net Operating Revenues............. $ 563,346 $ 63,076 $ 83,536 $ 20,691 $ (1) $ 730,648
Depreciation, Depletion and
Amortization..................... 209,635 24,935 15,447 611 650 251,278
Operating Income (Loss)............ 160,109 12,720 48,962 5,667 (18,628) 208,830
Interest Income.................... 959 44 836 412 13 2,264
Other Income (Expense)............. (4,569) 9 394 5 (3,110) (7,271)
Interest Expense................... 9,006 7,969 4,003 1,019 - 21,997
Income Tax Provision (Benefit)..... 36,519 (10,508) 26,172 754 (1,983) 50,954
Additions to Oil and Gas
Properties....................... 407,115 33,008 8,654 82,098 8,455 539,330
Total Assets....................... 1,882,900 236,925 129,896 180,225 28,407 2,458,353
</TABLE>
13. OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Interest Income(1)...................................... $ 1,147 $ 4,122 $ 2,264
Financial Reserve Accruals(2)........................... (4,350) - (6,897)
Contract Settlement..................................... (610) - -
Litigation Provision.................................... - (5,800) -
Other, Net.............................................. (987) 90 (374)
------- ------- -------
Total......................................... $(4,800) $(1,588) $(5,007)
======= ======= =======
</TABLE>
- ---------------
(1) Includes $102, $2,549 and $403 from related parties.
(2) Pertains to provisions for doubtful accounts receivable associated with
certain international activities.
14. PRICE AND INTEREST RATE RISK MANAGEMENT
Periodically, the Company enters into certain trading and non-trading
activities including NYMEX-related commodity market transactions and other
contracts. The non-trading portions of these activities have been designated to
hedge the impact of market price fluctuations on anticipated commodity delivery
volumes or other contractual commitments.
Trading Activities. Trading activities in 1998 included a revenue increase
of $1.1 million related to change in market value of natural gas price swap
options exercisable by a counterparty and partially offsetting "buy" price swap
positions.
During 1995, the Company entered into a NYMEX-related natural gas price
swap covering 73 trillion British thermal units ("TBtu") for the year ended
December 31, 1996. This swap contained an option to extend the price swap
covering 73 TBtu for each of the years 1997 and 1998 which was exercisable at
one time prior to December 31, 1996. The 1996 price swap was closed in the first
quarter of 1996. During 1996, this option was restructured into four options
each exercisable, in total, at one time by the counterparty before December 31,
1996, 1997, 1998 and 1999 to purchase 37 TBtu of notional natural gas for each
of the years 1997, 1998, 1999 and 2000 at an average fixed price of $1.98,
$1.98, $1.93 and $1.93 per million British thermal units ("MMBtu"),
respectively. The 1997 and 1998 options were subsequently restructured to be
exercisable monthly at a price of $2.16 and $2.07 per MMBtu, respectively. These
options cover notional volumes averaging 3 TBtu per month during 1997 and 1998.
During the fourth quarter of 1996, the 1999 and 2000 options were terminated. In
1996, the Company entered into "buy" NYMEX-related natural gas price swap
positions in the same notional quantities and maturities as are covered by the
1997 and 1998 options. The Company recognized a $1.1 million and $3.4 million
revenue increase in 1998 and 1997, respectively, and a $12 million revenue
reduction in 1996 related to these trading activities.
F-21
<PAGE> 59
The following table summarizes the estimated fair value of financial
instruments held for trading purposes at year-end and the average during the
year:
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUES(1)
(IN MILLIONS)
----------------------------------------------------
1998 1997 1996
-------------- ---------------- ----------------
YEAR YEAR YEAR
END AVERAGE END AVERAGE END AVERAGE
---- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options Written..................... $ - $(5.1) $(10.5) $(13.7) $(12.8) $(8.3)
NYMEX-related Natural Gas Price
Swaps............................. - 5.0 4.2 7.1 0.8 3.4
</TABLE>
- ---------------
(1) Estimated fair values have been determined by using available market data
and valuation methodologies. Judgment is necessarily required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.
Interest Rate Swap Agreements and Foreign Currency Contracts. At December
31, 1998 and 1997, a subsidiary of the Company and the Company are parties to
offsetting foreign currency and interest rate swap agreements with an aggregate
notional principal amount of $210 million. Such swap agreements are scheduled to
terminate in 2001. At December 31, 1998 and 1997, the composite fair value of
the agreements was not significant based upon termination values obtained from
third parties. In November 1998, the Company entered into two interest rate swap
agreements having notional values of $100 million each. The agreements were
entered into to hedge the base variable interest rates of the Company's
commercial paper, uncommitted credit facilities and affiliate borrowings. The
Company anticipates having such borrowings outstanding of at least the notional
amounts under the swap agreements during the term of the swap agreements. Under
the agreements, the Company will pay interest based on fixed rates of
approximately 4.96% and 5.01% and receive interest based on the three-month
LIBOR calculated on the notional value of the swap agreements. These agreements
are scheduled to terminate in November 2000. At December 31, 1998, the composite
fair value of these agreements was not significant based upon termination values
obtained from third parties.
Hedging Transactions. With the objective of enhancing the certainty of
future revenues, the Company from time to time enters into NYMEX-related
commodity price swaps and costless collars. Using NYMEX-related commodity price
swaps, the Company receives a fixed price for the respective commodity hedged
and pays a floating market price, as defined for each transaction, to the
counterparty at settlement.
At December 31, 1998, the Company had outstanding positions covering
notional volumes of .7 million barrels ("MMBbl") of crude oil and condensate for
1999. The fair value of the positions was a net revenue increase of
approximately $4 million. In 1998, the Company closed positions covering
notional volumes of approximately 4 TBtu of natural gas for each of the years
1999 through 2005. The Company also recorded closed positions covering 2.2 MMBbl
and 1.7 MMBbl of crude oil and condensate for the years 1999 and 2000,
respectively. At December 31, 1998, the aggregate deferred revenue reduction for
1999, 2000 and thereafter was approximately $13 million, $12 million and $6
million, respectively, and is classified as "Other Assets".
At December 31, 1997, the Company had outstanding positions covering
notional volumes of approximately 37 TBtu of natural gas for 1998 and
approximately 4 TBtu of natural gas for each of the years 1999 and 2000 and
approximately 1.3 MMBbl and .7 MMBbl of crude oil and condensate for the years
1998 and 1999, respectively. The fair value of the positions was a net revenue
increase of $1 million at December 31, 1997. During the fourth quarter of 1997,
the Company closed positions covering notional volumes of approximately 37 TBtu
of natural gas for each of the years 1999 and 2000. At December 31, 1997, the
aggregate deferred revenue reduction for the 1998, 1999 and 2000 closed
positions was approximately $9 million, $10 million and $10 million,
respectively.
F-22
<PAGE> 60
The following table summarizes the estimated fair value of financial
instruments and related transactions for non-trading activities at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE(1) AMOUNT FAIR VALUE(1)
-------- ------------- -------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Long-Term Debt(2)....................... $1,142.8 $1,141.0 $741.3 $744.4
Swap Agreements......................... 4.2 4.1 13.3 12.7
NYMEX-Related Commodity Market
Positions............................. (30.9) (26.5) (27.4) (31.6)
</TABLE>
- ---------------
(1) Estimated fair values have been determined by using available market data
and valuation methodologies. Judgment is necessarily required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.
(2) See Note 4 "Long-Term Debt."
Credit Risk. While notional contract amounts are used to express the
magnitude of price and interest rate swap agreements, the amounts potentially
subject to credit risk, in the event of nonperformance by the other parties, are
substantially smaller. The Company does not anticipate nonperformance by the
other parties.
15. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's accounts receivable at December 31, 1998
and 1997 result from crude oil and natural gas sales and/or joint interest
billings to affiliate and third party companies including foreign state-owned
entities in the oil and gas industry. This concentration of customers and joint
interest owners may impact the Company's overall credit risk, either positively
or negatively, in that these entities may be similarly affected by changes in
economic or other conditions. In determining whether or not to require
collateral from a customer or joint interest owner, the Company analyzes the
entity's net worth, cash flows, earnings, and credit ratings. Receivables are
generally not collateralized. Historical credit losses incurred on receivables
by the Company have been immaterial.
16. NEW ACCOUNTING PRONOUNCEMENT - SFAS NO. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 - "Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The statement cannot
be applied retroactively and must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997.
The statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statements of income and requires a company to formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting treatment.
F-23
<PAGE> 61
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its financial statements and has not determined the timing of adoption. Based on
the criteria of SFAS No. 133 and current interpretations thereof, the Company
believes that the options it owns to purchase 3,200,000 Enron Corp. common
shares, at a price of $39.1875 per share that expire in December 2007, qualify
as derivative instruments. Accordingly, SFAS No. 133 would require the changes
in the fair value of the options to be recognized currently in earnings. The
Company cannot predict whether future interpretations currently being considered
by the Emerging Issues Task Force of the FASB or potential amendments of SFAS
No. 133 will result in the options being considered derivative instruments at
the time of its adoption. At December 31, 1997, the carrying value of the
options was approximately $23 million pre-tax, which represented the estimated
fair value at the date of grant. At December 31, 1998, Enron Corp. common shares
closed at $57.06 per share. Based on the Company's current level of other
derivative and hedging activities, the Company does not expect the impact of
adoption of SFAS No. 133 relative to those other activities to be material.
F-24
<PAGE> 62
ENRON OIL & GAS COMPANY
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE INDICATED)
(UNAUDITED EXCEPT FOR RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING
ACTIVITIES)
OIL AND GAS PRODUCING ACTIVITIES
The following disclosures are made in accordance with SFAS No.
69 - "Disclosures about Oil and Gas Producing Activities":
Oil and Gas Reserves. Users of this information should be aware that the
process of estimating quantities of "proved", "proved developed" and "proved
undeveloped" crude oil and natural gas reserves is very complex, requiring
significant subjective decisions in the evaluation of all available geological,
engineering and economic data for each reservoir. The data for a given reservoir
may also change substantially over time as a result of numerous factors
including, but not limited to, additional development activity, evolving
production history, and continual reassessment of the viability of production
under varying economic conditions. Consequently, material revisions to existing
reserve estimates occur from time to time. Although every reasonable effort is
made to ensure that reserve estimates reported represent the most accurate
assessments possible, the significance of the subjective decisions required and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
Proved reserves represent estimated quantities of natural gas, crude oil,
condensate, and natural gas liquids that geological and engineering data
demonstrate, with reasonable certainty, to be recoverable in future years from
known reservoirs under economic and operating conditions existing at the time
the estimates were made.
Proved developed reserves are proved reserves expected to be recovered,
through wells and equipment in place and under operating methods being utilized
at the time the estimates were made.
Proved undeveloped reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
are limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Estimates for proved undeveloped reserves are not attributed to any acreage for
which an application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
Canadian provincial royalties are determined based on a graduated
percentage scale which varies with prices and production volumes. Canadian
reserves, as presented on a net basis, assume prices and royalty rates in
existence at the time the estimates were made, and the Company's estimate of
future production volumes. Future fluctuations in prices, production rates, or
changes in political or regulatory environments could cause the Company's share
of future production from Canadian reserves to be materially different from that
presented.
Estimates of proved and proved developed reserves at December 31, 1998,
1997 and 1996 were based on studies performed by the engineering staff of the
Company for reserves in the United States, Canada, Trinidad, India and China.
Opinions by DeGolyer and MacNaughton ("D&M"), independent petroleum consultants,
for the years ended December 31, 1998, 1997 and 1996 covered producing areas
containing 39%, 54% and 64%, respectively, of proved reserves, excluding deep
Paleozoic methane reserves, of the Company on a net-equivalent-cubic-feet-of-gas
basis. D&M's opinions indicate that the estimates of proved reserves prepared by
the Company's engineering staff for the properties reviewed by D&M, when
compared in total on a net-equivalent-cubic-feet-of-gas basis, do not differ
materially from the estimates prepared by D&M. The deep Paleozoic methane
reserves were covered by the opinion of D&M for the year ended December 31,
1995. Such estimates by D&M in the aggregate varied by not more than 5% from
those prepared by the engineering
F-25
<PAGE> 63
staff of the Company. The India reserves, which accounted for 23% of the
Company's December 31, 1998 proved reserves, excluding deep Paleozoic reserves,
were not included in the year end review by D&M; however, a review was conducted
as of April 30, 1998. The estimate of the India reserves prepared by D&M varied
by not more than 10% from the estimate prepared by the engineering staff of the
Company. All reports by D&M were developed utilizing geological and engineering
data provided by the Company.
No major discovery or other favorable or adverse event subsequent to
December 31, 1998 is believed to have caused a material change in the estimates
of proved or proved developed reserves as of that date.
The following table sets forth the Company's net proved and proved
developed reserves at December 31 for each of the four years in the period ended
December 31, 1998, and the changes in the net proved reserves for each of the
three years in the period then ended as estimated by the engineering staff of
the Company.
NET PROVED AND PROVED DEVELOPED RESERVE SUMMARY
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- ------- -------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas (Bcf)(1)
Net proved reserves at December 31,
1995.................................... 2,654.1(2) 313.9 245.5 75.0 - 3,288.5
Revisions of previous estimates......... 3.6 (2.9) 79.6 - - 80.3
Purchases in place...................... 100.6 0.9 - - - 101.5
Extensions, discoveries and other
additions............................ 256.8 49.2 90.7 124.6 - 521.3
Sales in place.......................... (58.4) (4.3) - - - (62.7)
Production.............................. (210.2) (35.9) (45.6) - - (291.7)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1996.................................... 2,746.5(2) 320.9 370.2 199.6 - 3,637.2
Revisions of previous estimates......... (50.8) (1.5) (0.4) 25.1 - (27.6)
Purchases in place...................... 60.0 67.6 - - - 127.6
Extensions, discoveries and other
additions............................ 275.9 37.8 - 253.5 7.7 574.9
Sales in place.......................... (17.7) (0.4) - - - (18.1)
Production.............................. (229.1) (37.0) (41.0) (6.6) - (313.7)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1997.................................... 2,784.8(2) 387.4 328.8 471.6 7.7 3,980.3
Revisions of previous estimates......... (55.9) (2.5) 4.7 32.3 (0.4) (21.8)
Purchases in place...................... 123.0 54.9 - - - 177.9
Extensions, discoveries and other
additions............................ 272.8 62.9 693.8 340.9 103.0 1,473.4
Sales in place.......................... (37.5) - - - - (37.5)
Production.............................. (233.8) (38.5) (50.9) (20.2) - (343.4)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1998.................................... 2,853.4(2) 464.2 976.4 824.6 110.3 5,228.9
======= ======= ======= ======= ======= =======
(Table continued on following page)
</TABLE>
F-26
<PAGE> 64
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- ------- -------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Liquids (MBbl)(3)(4)
Net proved reserves at December 31,
1995.................................... 25,399 6,585 6,870 11,542 - 50,396
Revisions of previous estimates......... 339 191 1,835 - - 2,365
Purchases in place...................... 312 2 - - - 314
Extensions, discoveries and other
additions............................ 7,103 2,116 1,388 275 - 10,882
Sales in place.......................... (447) (121) - - - (568)
Production.............................. (3,830) (1,321) (1,925) (1,026) - (8,102)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1996.................................... 28,876 7,452 8,168 10,791 - 55,287
Revisions of previous estimates......... 3,515 225 (31) 19 - 3,728
Purchases in place...................... 127 1,123 - - - 1,250
Extensions, discoveries and other
additions............................ 6,037 1,590 - 20,123 - 27,750
Sales in place.......................... (1,683) - - - - (1,683)
Production.............................. (5,223) (1,384) (1,236) (838) - (8,681)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1997.................................... 31,649 9,006 6,901 30,095 - 77,651
Revisions of previous estimates......... (152) (504) (1,049) 3,063 73 1,431
Purchases in place...................... 3,104 - - - - 3,104
Extensions, discoveries and other
additions............................ 9,396 448 11,429 11,501 1,089 33,863
Sales in place.......................... (1,039) - - - - (1,039)
Production.............................. (6,131) (1,358) (1,077) (1,874) - (10,440)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1998.................................... 36,827 7,592 16,204 42,785 1,162 104,570
======= ======= ======= ======= ======= =======
Bcf Equivalent (Bcfe)(1)
Net proved reserves at December 31,
1995.................................... 2,806.6(2) 353.3 286.7 144.3 - 3,590.9
Revisions of previous estimates......... 5.7 (1.8) 90.6 - - 94.5
Purchases in place...................... 102.5 0.9 - - - 103.4
Extensions, discoveries and other
additions............................ 299.4 61.9 99.0 126.2 - 586.5
Sales in place.......................... (61.0) (5.1) - - - (66.1)
Production.............................. (233.1) (43.9) (57.1) (6.2) - (340.3)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1996.................................... 2,920.1(2) 365.3 419.2 264.3 - 3,968.9
Revisions of previous estimates......... (29.8) (0.1) (0.5) 25.2 - (5.2)
Purchases in place...................... 60.7 74.4 - - - 135.1
Extensions, discoveries and other
additions............................ 312.1 47.4 - 374.2 7.7 741.4
Sales in place.......................... (27.7) (0.4) - - - (28.1)
Production.............................. (260.4) (45.3) (48.5) (11.7) - (365.9)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1997.................................... 2,975.0(2) 441.3 370.2 652.0 7.7 4,446.2
Revisions of previous estimates......... (57.0) (5.5) (1.7) 50.8 - (13.4)
Purchases in place...................... 141.6 54.9 - - - 196.5
Extensions, discoveries and other
additions............................ 329.2 65.6 762.4 409.9 109.5 1,676.6
Sales in place.......................... (43.7) - - - - (43.7)
Production.............................. (270.6) (46.6) (57.3) (31.4) - (405.9)
------- ------- ------- ------- ------- -------
Net proved reserves at December 31,
1998.................................... 3,074.5(2) 509.7 1,073.6 1,081.3 117.2 5,856.3
======= ======= ======= ======= ======= =======
(Table continued on following page)
</TABLE>
F-27
<PAGE> 65
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- ------- -------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Net proved developed reserves at
Natural Gas (Bcf)
December 31, 1995.................... 1,218.1 310.1 233.9 - - 1,762.1
December 31, 1996.................... 1,325.7 319.5 370.2 124.6 - 2,140.0
December 31, 1997.................... 1,349.0 370.9 328.8 286.6 - 2,335.3
December 31, 1998.................... 1,429.7 387.4 283.0 407.4 - 2,507.5
Liquids (MBbl)(4)
December 31, 1995.................... 19,977 6,505 5,607 11,542 - 43,631
December 31, 1996.................... 24,868 7,452 8,168 10,791 - 51,279
December 31, 1997.................... 27,707 8,885 6,901 23,322 - 66,815
December 31, 1998.................... 33,045 7,465 4,782 33,472 - 78,764
Bcf Equivalents
December 31, 1995.................... 1,338.0 349.1 267.5 69.3 - 2,023.9
December 31, 1996.................... 1,474.9 364.2 419.2 189.3 - 2,447.6
December 31, 1997.................... 1,515.3 424.2 370.2 426.5 - 2,736.2
December 31, 1998.................... 1,628.0 432.1 311.7 608.2 - 2,980.0
</TABLE>
- ---------------
(1) Billion cubic feet or billion cubic feet equivalent, as applicable.
(2) Includes 1,180 Bcf of proved undeveloped methane reserves contained, along
with high concentrations of carbon dioxide and other gases in deep Paleozoic
(Madison) formations in the Big Piney area of Wyoming.
(3) Thousand barrels.
(4) Includes crude oil, condensate and natural gas liquids.
Capitalized Costs Relating to Oil and Gas Producing Activities. The
following table sets forth the capitalized costs relating to the Company's
natural gas and crude oil producing activities at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Proved Properties........................................... $4,630,353 $4,069,914
Unproved Properties......................................... 184,072 221,491
---------- ----------
Total.................................................. 4,814,425 4,291,405
Accumulated depreciation, depletion and amortization........ (2,138,062) (1,904,198)
---------- ----------
Net capitalized costs....................................... $2,676,363 $2,387,207
========== ==========
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities. The acquisition, exploration and development costs
disclosed in the following tables are in accordance with definitions in SFAS No.
19 - "Financial Accounting and Reporting by Oil and Gas Producing Companies".
Acquisition costs include costs incurred to purchase, lease, or otherwise
acquire property.
Exploration costs include exploration expenses, additions to exploration
wells including those in progress, and depreciation of support equipment used in
exploration activities.
Development costs include additions to production facilities and equipment,
additions to development wells including those in progress and depreciation of
support equipment and related facilities used in development activities.
F-28
<PAGE> 66
The following tables set forth costs incurred related to the Company's oil
and gas activities for the years ended December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1998
Acquisition Costs of Properties
Unproved...................... $ 32,925 $ 3,545 $ - $ - $ - $ 36,470
Proved........................ 198,006 12,896 - - - 210,902
-------- ------- ------- ------- ------- --------
Total................. 230,931 16,441 - - - 247,372
Exploration Costs............... 82,248 12,375 15,217 1,278 25,465 136,583
Development Costs............... 297,904 27,822 6,157 46,657 16,548 395,088
-------- ------- ------- ------- ------- --------
Total................. $611,083 $56,638 $21,374 $47,935 $42,013 $779,043
======== ======= ======= ======= ======= ========
1997
Acquisition Costs of Properties
Unproved...................... $ 69,258 $ 7,700 $ - $ - $ 235 $ 77,193
Proved........................ 42,386 38,949 - - 28 81,363
-------- ------- ------- ------- ------- --------
Total................. 111,644 46,649 - - 263 158,556
Exploration Costs............... 74,360 8,279 1,344 965 15,935 100,883
Development Costs............... 333,093 30,856 163 67,777 9,869 441,758
-------- ------- ------- ------- ------- --------
Total................. $519,097 $85,784 $ 1,507 $68,742 $26,067 $701,197
======== ======= ======= ======= ======= ========
1996
Acquisition Costs of Properties
Unproved...................... $ 38,832 $ 3,565 $ 2,000 $ - $ 77 $ 44,474
Proved........................ 68,706 672 - - - 69,378
-------- ------- ------- ------- ------- --------
Total................. 107,538 4,237 2,000 - 77 113,852
Exploration Costs............... 60,880 8,069 2,082 748 16,490 88,269
Development Costs............... 283,985 25,705 6,654 82,098 6,969 405,411
-------- ------- ------- ------- ------- --------
Total................. $452,403 $38,011 $10,736 $82,846 $23,536 $607,532
======== ======= ======= ======= ======= ========
</TABLE>
F-29
<PAGE> 67
Results of Operations for Oil and Gas Producing Activities(1). The
following tables set forth results of operations for oil and gas producing
activities for the years ended December 31:
<TABLE>
<CAPTION>
UNITED
STATES CANADA TRINIDAD INDIA OTHER TOTAL
-------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1998
Operating Revenues
Trade.................................... $431,943 $53,485 $66,967 $72,826 $ 52 $625,273
Associated Companies..................... 117,719 15,132 - - - 132,851
Gains on Sales of Reserves and Related
Assets................................. 29,268 (15) - - (3,658) 25,595
-------- ------- ------- ------- -------- --------
Total............................. 578,930 68,602 66,967 72,826 (3,606) 783,719
Exploration Expenses, including Dry Hole... 63,875 7,496 2,027 1,278 14,015 88,691
Production Costs........................... 98,909 19,715 7,361 13,617 3,666 143,268
Impairment of Unproved Oil and Gas
Properties............................... 29,952 2,124 - - - 32,076
Depreciation, Depletion and Amortization... 264,927 25,972 12,867 8,456 2,073 314,295
-------- ------- ------- ------- -------- --------
Income (Loss) before Income Taxes.......... 121,267 13,295 44,712 49,475 (23,360) 205,389
Income Tax Provision (Benefit)............. 22,944 3,840 24,592 23,748 (7,370) 67,754
-------- ------- ------- ------- -------- --------
Results of Operations...................... $ 98,323 $ 9,455 $20,120 $25,727 $(15,990) $137,635
======== ======= ======= ======= ======== ========
1997
Operating Revenues
Trade.................................... $448,824 $58,712 $66,000 $35,332 $ 21 $608,889
Associated Companies..................... 206,738 15,280 - - 2 222,020
Gains on Sales of Reserves and Related
Assets................................. 4,464 (13) - - 4,836 9,287
-------- ------- ------- ------- -------- --------
Total............................. 660,026 73,979 66,000 35,332 4,859 840,196
Exploration Expenses, including Dry Hole... 50,930 5,995 1,344 965 15,765 74,999
Production Costs........................... 106,395 20,073 12,256 10,505 75 149,304
Impairment of Unproved Oil and Gas
Properties............................... 24,229 2,643 - - 341 27,213
Depreciation, Depletion and Amortization... 238,765 23,116 11,032 3,716 901 277,530
-------- ------- ------- ------- -------- --------
Income (Loss) before Income Taxes.......... 239,707 22,152 41,368 20,146 (12,223) 311,150
Income Tax Provision (Benefit)............. 69,252 8,130 22,752 9,670 (252) 109,552
-------- ------- ------- ------- -------- --------
Results of Operations...................... $170,455 $14,022 $18,616 $10,476 $(11,971) $201,598
======== ======= ======= ======= ======== ========
1996
Operating Revenues
Trade.................................... $281,522 $48,717 $83,536 $20,691 $ - $434,466
Associated Companies..................... 253,629 13,715 - - - 267,344
Gains on Sales of Reserves and Related
Assets................................. 19,127 670 - - - 19,797
-------- ------- ------- ------- -------- --------
Total............................. 554,278 63,102 83,536 20,691 - 721,607
Exploration Expenses, including Dry Hole... 45,291 5,003 2,082 748 15,078 68,202
Production Costs........................... 77,352 16,633 14,577 9,890 - 118,452
Impairment of Unproved Oil and Gas
Properties............................... 18,571 2,284 - - 371 21,226
Depreciation, Depletion and Amortization... 208,872 24,935 15,447 611 648 250,513
-------- ------- ------- ------- -------- --------
Income (Loss) before Income Taxes.......... 204,192 14,247 51,430 9,442 (16,097) 263,214
Income Tax Provision (Benefit)............. 54,412 5,674 28,287 4,721 (50) 93,044
-------- ------- ------- ------- -------- --------
Results of Operations...................... $149,780 $ 8,573 $23,143 $ 4,721 $(16,047) $170,170
======== ======= ======= ======= ======== ========
</TABLE>
- ---------------
(1) Excludes net revenues associated with other marketing activities, interest
charges, general corporate expenses and certain gathering and handling fees
for each of the three years in the period ended December 31, 1998. The
gathering and handling fees and other marketing net revenues are directly
associated with oil and gas operations with regard to segment reporting as
defined in SFAS No. 131 - "Disclosures about Segments of an Enterprise and
Related Information", but are not part of Disclosures about Oil and Gas
Producing Activities as defined in SFAS No. 69.
F-30
<PAGE> 68
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves. The following information has been developed utilizing
procedures prescribed by SFAS No. 69 and based on crude oil and natural gas
reserve and production volumes estimated by the engineering staff of the
Company. It may be useful for certain comparison purposes, but should not be
solely relied upon in evaluating the Company or its performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Company.
The future cash flows presented below are based on sales prices, cost
rates, and statutory income tax rates in existence as of the date of the
projections. It is expected that material revisions to some estimates of crude
oil and natural gas reserves may occur in the future, development and production
of the reserves may occur in periods other than those assumed, and actual prices
realized and costs incurred may vary significantly from those used.
Management does not rely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
F-31
<PAGE> 69
The following table sets forth the standardized measure of discounted
future net cash flows from projected production of the Company's crude oil and
natural gas reserves at December 31, for the years ended December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- -------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998
Future cash inflows(1)................... $5,471,121 $950,151 $1,210,060 $2,384,459 $179,329 $10,195,120
Future production costs.................. (1,280,875) (319,938) (347,431) (556,609) (127,039) (2,631,892)
Future development costs................. (316,175) (42,252) (161,424) (392,546) (11,325) (923,722)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows before income
taxes.................................. 3,874,071 587,961 701,205 1,435,304 40,965 6,639,506
Future income taxes...................... (903,983) (119,655) (229,281) (614,297) (7,111) (1,874,327)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows.................... 2,970,088 468,306 471,924 821,007 33,854 4,765,179
Discount to present value at 10% annual
rate................................... (1,399,541) (161,988) (234,129) (434,714) (13,893) (2,244,265)
---------- -------- ---------- ---------- -------- -----------
Standardized measure of discounted future
net cash flows relating to proved oil
and gas reserves(2).................... $1,570,547 $306,318 $ 237,795 $ 386,293 $ 19,961 $ 2,520,914
========== ======== ========== ========== ======== ===========
1997
Future cash inflows(1)................... $5,186,755 $814,195 $ 532,318 $1,633,199 $ 13,862 $ 8,180,329
Future production costs.................. (1,138,401) (302,965) (106,999) (422,474) (3,587) (1,974,426)
Future development costs................. (313,463) (19,610) (400) (102,014) (1,814) (437,301)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows before income
taxes.................................. 3,734,891 491,620 424,919 1,108,711 8,461 5,768,602
Future income taxes...................... (887,521) (92,927) (215,344) (501,109) (779) (1,697,680)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows.................... 2,847,370 398,693 209,575 607,602 7,682 4,070,922
Discount to present value at 10% annual
rate................................... (1,297,651) (121,381) (61,656) (287,874) (1,906) (1,770,468)
---------- -------- ---------- ---------- -------- -----------
Standardized measure of discounted future
net cash flows relating to proved oil
and gas reserves....................... $1,549,719 $277,312 $ 147,919 $ 319,728 $ 5,776 $ 2,300,454
========== ======== ========== ========== ======== ===========
1996
Future cash inflows(1)................... $9,390,661 $715,143 $ 709,082 $ 864,386 $ - $11,679,272
Future production costs.................. (1,639,531) (281,244) (236,643) (338,202) - (2,495,620)
Future development costs................. (306,028) (9,014) (1,588) (150) - (316,780)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows before income
taxes.................................. 7,445,102 424,885 470,851 526,034 - 8,866,872
Future income taxes...................... (2,260,500) (98,606) (245,577) (227,177) - (2,831,860)
---------- -------- ---------- ---------- -------- -----------
Future net cash flows.................... 5,184,602 326,279 225,274 298,857 - 6,035,012
Discount to present value at 10% annual
rate................................... (2,692,833) (100,521) (68,436) (104,672) - (2,966,462)
---------- -------- ---------- ---------- -------- -----------
Standardized measure of discounted future
net cash flows relating to proved oil
and gas reserves....................... $2,491,769 $225,758 $ 156,838 $ 194,185 $ - $ 3,068,550
========== ======== ========== ========== ======== ===========
</TABLE>
- ---------------
(1) Based on year end market prices determined at the point of delivery from the
producing unit.
(2) Based on natural gas and crude oil prices as of March 1, 1999, the
standardized measure of discounted future net cash flows for operations in
the United States would have been lower by approximately 23%. Changes in
other producing areas and changes in reported reserve quantities were not
material.
F-32
<PAGE> 70
Changes in Standardized Measure of Discounted Future Net Cash Flows. The
following table sets forth the changes in the standardized measure of discounted
future net cash flows at December 31, for each of the three years in the period
ended December 31, 1998.
<TABLE>
<CAPTION>
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL
------------- -------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995....................... $1,240,140(1) $176,573 $115,026 $ 53,401 $ - $1,585,140
Sales and transfers of oil and gas
produced, net of production costs... (437,143) (45,799) (68,959) (10,801) - (562,702)
Net changes in prices and production
costs............................... 1,817,466 57,587 60,387 53,676 - 1,989,116
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 580,417 62,506 62,165 150,475 - 855,563
Development costs incurred............ 57,800 2,200 2,200 - - 62,200
Revisions of estimated development
costs............................... (14,490) (2,696) 1,010 13,500 - (2,676)
Revisions of previous quantity
estimates........................... 7,002 (1,227) 79,933 - - 85,708
Accretion of discount................. 137,441 18,387 19,376 8,928 - 184,132
Net change in income taxes............ (655,801) (29,814) (73,985) (86,627) - (846,227)
Purchases of reserves in place........ 161,454 456 - - - 161,910
Sales of reserves in place............ (102,671) (3,561) - - - (106,232)
Changes in timing and other........... (299,846) (8,854) (40,315) 11,633 - (337,382)
---------- -------- -------- --------- ------- ----------
December 31, 1996....................... 2,491,769(1) 225,758 156,838 194,185 - 3,068,550
Sales and transfers of oil and gas
produced, net of production costs... (518,594) (53,919) (53,744) (24,827) - (651,084)
Net changes in prices and production
costs............................... (1,664,174) (19,784) 4,730 (34,611) - (1,713,839)
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 374,283 37,533 - 257,256 5,616 674,688
Development costs incurred............ 52,300 1,900 - - - 54,200
Revisions of estimated development
costs............................... 3,681 4,345 1,188 (33,210) - (23,996)
Revisions of previous quantity
estimates........................... (17,257) (101) (442) 26,696 - 8,896
Accretion of discount................. 327,724 26,287 30,956 31,669 - 416,636
Net change in income taxes............ 605,769 11,097 12,734 (90,729) 160 539,031
Purchases of reserves in place........ 43,882 52,911 - - - 96,793
Sales of reserves in place............ (28,589) (379) - - - (28,968)
Changes in timing and other........... (121,075) (8,336) (4,341) (6,701) - (140,453)
---------- -------- -------- --------- ------- ----------
December 31, 1997....................... 1,549,719(1) 277,312 147,919 319,728 5,776 2,300,454
Sales and transfers of oil and gas
produced, net of production costs... (423,733) (48,902) (59,606) (59,209) 3,664 (587,786)
Net changes in prices and production
costs............................... (33,809) 10,891 (36,730) (103,097) (6,961) (169,706)
Extensions, discoveries, additions and
improved recovery net of related
costs............................... 325,308 43,686 159,497 218,168 18,894 765,553
Development costs incurred............ 59,600 2,900 6,000 43,400 4,300 116,200
Revisions of estimated development
costs............................... (26,611) 690 (11,410) (66,128) (3,233) (106,692)
Revisions of previous quantity
estimates........................... (35,216) (4,137) (1,142) 36,877 - (3,618)
Accretion of discount................. 174,102 30,332 28,791 53,296 562 287,083
Net change in income taxes............ 47,745 (5,822) (122) 212 (428) 41,585
Purchases of reserves in place........ 156,818 20,131 - - - 176,949
Sales of reserves in place............ (33,549) - - - - (33,549)
Changes in timing and other........... (189,827) (20,763) 4,598 (56,954) (2,613) (265,559)
---------- -------- -------- --------- ------- ----------
December 31, 1998....................... $1,570,547(1) $306,318 $237,795 $ 386,293 $19,961 $2,520,914
========== ======== ======== ========= ======= ==========
</TABLE>
- ---------------
(1) Includes approximately $77,500, $344,300, $85,700 and $155,400, discounted
before income taxes, in 1995, 1996, 1997 and 1998, respectively, related to
the reserves in the Big Piney deep Paleozoic formations.
F-33
<PAGE> 71
UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
Net Operating Revenues.......................... $199,831 $183,307 $191,262 $194,788
======== ======== ======== ========
Operating Income................................ $ 38,286 $ 32,669 $ 19,199 $ 23,507
======== ======== ======== ========
Income before Income Taxes...................... $ 28,206 $ 22,173 $ 3,969 $ 5,934
Income Tax Provision (Benefit).................. 1,201 8,916 (1,975) (4,031)
-------- -------- -------- --------
Net Income...................................... $ 27,005 $ 13,257 $ 5,944 $ 9,965
======== ======== ======== ========
Net Income per Share of Common Stock
Basic......................................... $ .17 $ .09 $ .04 $ .06
======== ======== ======== ========
Diluted....................................... $ .17 $ .09 $ .04 $ .06
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 154,736 154,857 154,083 153,702
======== ======== ======== ========
Diluted....................................... 155,522 155,770 154,409 154,516
======== ======== ======== ========
1997
Net Operating Revenues.......................... $180,651 $171,753 $193,120 $237,977
======== ======== ======== ========
Operating Income................................ $ 41,170 $ 28,619 $ 48,757 $ 74,229
======== ======== ======== ========
Income before Income Taxes...................... $ 37,311 $ 24,111 $ 40,975 $ 61,073
Income Tax Provision (Benefit).................. 14,246 (460) 9,802 17,912
-------- -------- -------- --------
Net Income...................................... $ 23,065 $ 24,571 $ 31,173 $ 43,161
======== ======== ======== ========
Net Income per Share of Common Stock
Basic......................................... $ .15 $ .16 $ .20 $ .28
======== ======== ======== ========
Diluted....................................... $ .14 $ .16 $ .20 $ .28
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 158,866 157,489 157,072 156,076
======== ======== ======== ========
Diluted....................................... 159,790 157,950 158,049 156,808
======== ======== ======== ========
1996
Net Operating Revenues.......................... $159,026 $197,113 $170,182 $204,327
======== ======== ======== ========
Operating Income................................ $ 31,997 $ 73,643 $ 46,179 $ 57,011
======== ======== ======== ========
Income before Income Taxes...................... $ 27,338 $ 70,332 $ 43,361 $ 49,931
Income Tax Provision............................ 1,415 22,750 11,994 14,795
-------- -------- -------- --------
Net Income...................................... $ 25,923 $ 47,582 $ 31,367 $ 35,136
======== ======== ======== ========
Net Income per Share of Common Stock Basic...... $ .16 $ .30 $ .20 $ .22
======== ======== ======== ========
Diluted....................................... $ .16 $ .29 $ .19 $ .22
======== ======== ======== ========
Average Number of Common Shares
Basic......................................... 159,934 159,910 159,850 159,719
======== ======== ======== ========
Diluted....................................... 161,411 161,656 161,677 161,352
======== ======== ======== ========
</TABLE>
F-34
<PAGE> 72
SCHEDULE II
ENRON OIL & GAS COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS DEDUCTIONS
BALANCE AT CHARGED TO FOR PURPOSE FOR BALANCE AT
BEGINNING OF COSTS AND WHICH RESERVES END OF
DESCRIPTION YEAR EXPENSES WERE CREATED YEAR
- ----------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C>
1998
Reserves deducted from assets to which they
apply -
Allowance for Doubtful Accounts
Receivable........................ $7,025 $4,350 $ - $11,375
====== ====== ====== =======
1997
Reserves deducted from assets to which they
apply -
Allowance for Doubtful Accounts
Receivable........................ $7,030 $ - $ 5 $ 7,025
====== ====== ====== =======
1996
Reserves deducted from assets to which they
apply -
Allowance for Doubtful Accounts
Receivable........................ $2,571 $6,897 $2,438 $ 7,030
====== ====== ====== =======
</TABLE>
S-1
<PAGE> 73
EXHIBITS
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference to the Company's Form S-1
Registration Statement, Registration No. 33-30678, filed on August 24, 1989
("Form S-1"), or as otherwise indicated.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S> <C>
3.1(a) - Restated Certificate of Incorporation of Enron Oil & Gas
Company (Exhibit 3.1 to Form S-1).
3.1(b) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company (Exhibit 4.1(b) to
Form S-8 Registration Statement No. 33-52201, filed February
8, 1994).
3.1(c) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company (Exhibit 4.1(c) to
Form S-8 Registration Statement No. 33-58103, filed March
15, 1995).
3.1(d) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company, dated June 11,
1996 (Exhibit 3(d) to Form S-3 Registration Statement No.
333-09919, filed August 9, 1996).
3.1(e) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company, dated May 7, 1997
(Exhibit 3(e) to Form S-3 Registration Statement No.
333-44785, filed January 23, 1998).
*3.2 - By-laws of Enron Oil & Gas Company dated August 23, 1989, as
amended December 12, 1990, February 8, 1994, January 19,
1996, February 13, 1997 and May 5, 1998.
3.3 - Specimen of Certificate evidencing the Common Stock (Exhibit
3.3 to Form S-1).
4.3(a) - Amended and Restated Enron Oil & Gas Company 1994 Stock Plan
(Exhibit 4.3 to Form S-8 Registration Statement No.
33-58103, filed March 15, 1995).
4.3(b) - Amendment to Amended and Restated Enron Oil & Gas Company
1994 Stock Plan, dated effective as of December 12, 1995
(Exhibit 4.3(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
4.3(c) - Amendment to Amended and Restated Enron Oil & Gas Company
1994 Stock Plan, dated effective as of December 10, 1996
(Exhibit 4.3(a) to Form S-8 Registration Statement No.
333-20841, filed January 31, 1997).
4.3(d) - Third Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of December 9,
1997 (Exhibit 4.3(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
*4.3(e) - Fourth Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of May 5, 1998.
*4.3(f) - Fifth Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of December 8,
1998.
10.2(a) - Stock Restriction and Registration Agreement dated as of
August 23, 1989 (Exhibit 10.2 to Form S-1).
10.2(b) - Amendment to Stock Restriction and Registration Agreement,
dated December 9, 1997, between Enron Oil & Gas Company and
Enron Corp. (Exhibit 10.2(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
*10.3 - Tax Allocation Agreement, entered into effective as of
Deconsolidation Date between Enron Corp., Enron Oil & Gas
Company, and the subsidiaries of Enron Oil & Gas Company
listed therein as additional parties.
</TABLE>
E-1
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S> <C>
10.9(a) - Employment Agreement between Enron Oil & Gas Company and
Forrest Hoglund, dated as of September 1, 1987, as amended
(Exhibit 10.19 to Form S-1), and Second and Third Amendments
to Employment Agreement dated June 30, 1989 and February 14,
1992, respectively (Exhibit 10.10 to Form S-1 Registration
Statement No. 33-50462, filed August 5, 1992).
10.9(b) - 4th Amendment to Employment Agreement dated December 14,
1994, among Enron Corp., Enron Oil & Gas Company and Forrest
Hoglund (Exhibit 10.9(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
*10.9(c) - Fifth Amendment to Employment Agreement entered into
September 8, 1998, and effective as of September 1, 1998,
among Enron Corp., Enron Oil & Gas Company and Forrest E.
Hoglund.
10.14(a) - Enron Oil & Gas Company 1993 Nonemployee Directors' Stock
Option Plan (Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.14(b) - First Amendment to Enron Oil & Gas Company 1993 Nonemployee
Directors' Stock Option Plan (Exhibit 10.14(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.16 - Interest Rate and Currency Exchange Agreement, dated as of
June 1, 1991, between Enron Risk Management Services Corp.
and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991), Confirmation dated June 14, 1992
(Exhibit 10.17 to Form S-1 Registration Statement, No.
33-50462, filed August 5, 1992) and Confirmations dated
March 25, 1991, April 25, 1991, and September 23, 1992
(assigned to Enron Risk Management Services Corp. by Enron
Finance Corp. pursuant to an Assignment and Assumption
Agreement, dated as of November 1, 1993, by and between
Enron Finance Corp., Enron Risk Management Services Corp.
and Enron Oil & Gas Marketing, Inc.). (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.17 - Assignment and Assumption Agreement, dated as of November 1,
1993, by and between Enron Oil & Gas Marketing, Inc., Enron
Oil & Gas Company and Enron Risk Management Services Corp.
(Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10.18 - ISDA Master Agreement, dated as of November 1, 1993, between
Enron Oil & Gas Company and Enron Risk Management Services
Corp., and Confirmation Nos. 1268.0, 1286.0, 1291.0, 1292.0,
1304.0, 1305.0, 1321.0, 1335.0, 1338.0, 1370.0, 1471.0,
1485.0, 1486.0, 1494.0, 1495.0, 1509.0, 1514.0, 1533.01,
1569.0, 1986.0, 2217.0, 2227.0, 2278.0, 2299.0, 2372.0,
2647.0 (Exhibit 10.18 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.19 - Letter Agreement between Colorado Interstate Gas Company and
Enron Oil & Gas Marketing, Inc. dated November 1, 1990
(Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.23 - Gas Purchase Agreement between Enron Oil & Gas Company and
Enron Oil & Gas Marketing, Inc. dated August 22, 1989
(Exhibit 10.41 to Form S-1).
10.24 - Gas Purchase Agreement between Enron Oil & Gas Company and
Enron Oil & Gas Marketing, Inc. dated August 22, 1989
(Exhibit 10.42 to Form S-1).
10.25 - Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp.
Annual Report on Form 10-K for the year ended December 31,
1991).
10.26 - Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form S-1).
</TABLE>
E-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S> <C>
10.28 - Enron Executive Supplemental Survivor Benefits Plan
Effective January 1, 1987 (Exhibit 10.51 to Form S-1).
10.30 - Credit Agreement between Enron Corp. and Enron Oil & Gas
Company dated September 29, 1995 (Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.31 - Credit Agreement between Enron Oil & Gas Company and Enron
Corp. dated September 29, 1995 (Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.34(a) - Enron Oil & Gas Company 1992 Stock Plan (As Amended and
Restated effective December 14, 1994) (incorporated by
reference to Exhibit A to the Company's Proxy Statement,
dated March 27, 1995, with respect to the Company's 1995
Annual Meeting of Shareholders).
10.34(b) - Amendment to Enron Oil & Gas Company 1992 Stock Plan (As
Amended and Restated Effective December 14, 1994) (Exhibit
10.34(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.34(c) - Second Amendment to Enron Oil & Gas Company 1992 Stock Plan
(As Amended and Restated Effective December 14, 1994
(Exhibit 10.34(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.35 - Enron Corp. 1992 Deferral Plan (Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.36(a) - Conveyance of Production Payment, dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.36(b) - First Amendment to Conveyance of Production Payment, dated
effective April 1, 1993 between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.36(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.36(c) - Second Amendment to Conveyance of Production Payment, dated
effective July 1, 1993 between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.36(c) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.36(d) - Third Amendment to Conveyance of Production Payment, dated
effective October 1, 1993 between Enron Oil & Gas Company
and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.36(d) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.37(a) - Hydrocarbon Exchange Agreement dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.37(b) - Amendment to Hydrocarbon Exchange Agreement dated effective
as of January 1, 1993, between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.37(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.37(c) - First Amendment to Hydrocarbon Exchange Agreement dated
effective as of April 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
</TABLE>
E-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S> <C>
10.37(d) - Second Amendment to Hydrocarbon Exchange Agreement dated
effective as of July 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.37(e) - Amendment to Hydrocarbon Exchange Agreement dated effective
as of August 1, 1993, between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.37(e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.37(f) - Fourth Amendment to Hydrocarbon Exchange Agreement, dated
effective October 1, 1993, between Enron Oil & Gas Company
and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.37 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.38 - Purchase and Sale Agreement, dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.39(a) - Production and Delivery Agreement, dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.39(b) - First Amendment to Production and Delivery Agreement, dated
effective April 1, 1993 between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.39(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.39(c) - Second Amendment to Production and Delivery Agreement, dated
effective July 1, 1993 between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.39(c) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.39(d) - Third Amendment to Production and Delivery Agreement, dated
effective October 1, 1993 between Enron Oil & Gas Company
and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.39(d) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.57(a) - Letter Agreement relating to Natural Gas Swap Transactions,
dated March 31, 1995, among Enron Oil & Gas Company, Enron
Corp. and Enron Capital & Trade Resources Corp (Exhibit
10.57(a) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.57(b) - Amendment to Natural Gas Swap Transactions Letter Agreement,
dated March 31, 1995, among Enron Oil & Gas Company, Enron
Corp. and Enron Capital & Trade Resources Corp (Exhibit
10.57(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.58 - Confirmation Letter (revised due to adjustments to the
attached Payment Schedule), dated March 31, 1995, between
Enron Oil & Gas Company and Enron Capital & Trade Resources
Corp. (ECT Transaction Reference No. 15198.00) (Exhibit
10.58 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.59 - Confirmation Letter (revised due to Price Change for 1998
and adjustment to the attached Payment Schedule), dated
March 31, 1995, between Enron Oil & Gas Company and Enron
Capital & Trade Resources Corp. (ECT Transaction Reference
No. 15198.01) (Exhibit 10.59 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
</TABLE>
E-4
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S> <C>
10.60 - Services Agreement, dated January 1, 1997, between Enron
Corp. and Enron Oil & Gas Company (Exhibit 10.60 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.61 - Equity Participation and Business Opportunity Agreement,
dated December 9, 1997, between Enron Oil & Gas Company and
Enron Corp. (Exhibit 10 to Form S-3 Registration Statement
No. 333-44785, filed January 23, 1998).
10.62 - Stock Restriction and Registration Rights Agreement, dated
December 9, 1997, between Enron Corp. and Enron Oil & Gas
Company (Exhibit 10.62 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.63(a) - Enron Oil & Gas Company 1996 Deferral Plan (Exhibit 10.63(a)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.63(b) - First Amendment to Enron Oil & Gas Company 1996 Deferral
Plan, dated effective as of December 9, 1997 (Exhibit
10.63(b) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
*10.63(c) - Second Amendment to Enron Oil & Gas Company 1996 Deferral
Plan, dated effective as of December 8, 1998.
10.64 - Executive Employment Agreement between Enron Oil & Gas
Company and Mark G. Papa, effective as of November 1, 1997
(Exhibit 10.64 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
*10.65 - Executive Employment Agreement between Enron Oil & Gas
Company and Edmund P. Segner, III, effective as of September
1, 1998.
*10.66 - Executive Employment Agreement between Enron Oil & Gas
Company and Dennis M. Ulak, effective as of September 1,
1998.
*10.67 - Executive Employment Agreement between Enron Oil & Gas
Company and Jeffery B. Sherrick, effective as of September
1, 1998.
*21 - List of subsidiaries.
*23.1 - Consent of DeGolyer and MacNaughton.
*23.2 - Opinion of DeGolyer and MacNaughton dated January 11, 1999.
*23.3 - Consent of Arthur Andersen LLP.
*24 - Powers of Attorney.
*27 - Financial Data Schedule.
</TABLE>
E-5
<PAGE> 78
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, on the 18th day of
March, 1999.
ENRON OIL & GAS COMPANY
(Registrant)
By /s/ WALTER C. WILSON
------------------------------------
(Walter C. Wilson)
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of registrant and in
the capacities with Enron Oil & Gas Company indicated and on the 18th day of
March, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ MARK G. PAPA President and Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive
(Mark G. Papa) Officer)
/s/ WALTER C. WILSON Senior Vice President and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial
(Walter C. Wilson) and Principal Accounting Officer)
FORREST E. HOGLUND * Chairman of the Board and Director
- -----------------------------------------------------
(Forrest E. Hoglund)
FRED C. ACKMAN * Director
- -----------------------------------------------------
(Fred C. Ackman)
RICHARD A. CAUSEY * Director
- -----------------------------------------------------
(Richard A. Causey)
JAMES V. DERRICK, JR * Director
- -----------------------------------------------------
(James V. Derrick, Jr.)
JOHN H. DUNCAN * Director
- -----------------------------------------------------
(John H. Duncan)
KEN L. HARRISON * Director
- -----------------------------------------------------
(Ken L. Harrison)
KENNETH L. LAY * Director
- -----------------------------------------------------
(Kenneth L. Lay)
EDWARD RANDALL, III * Director
- -----------------------------------------------------
(Edward Randall, III)
JEFFREY K. SKILLING * Director
- -----------------------------------------------------
(Jeffrey K. Skilling)
FRANK G. WISNER * Director
- -----------------------------------------------------
(Frank G. Wisner)
*By /s/ ANGUS H. DAVIS
--------------------------------------------------
(Angus H. Davis)
(Attorney-in-fact for persons indicated)
</TABLE>
<PAGE> 79
EXHIBIT INDEX
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits not so
designated are incorporated herein by reference to the Company's Form S-1
Registration Statement, Registration No. 33-30678, filed on August 24, 1989
("Form S-1"), or as otherwise indicated.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
3.1(a) - Restated Certificate of Incorporation of Enron Oil & Gas
Company (Exhibit 3.1 to Form S-1).
3.1(b) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company (Exhibit 4.1(b) to
Form S-8 Registration Statement No. 33-52201, filed
February 8, 1994).
3.1(c) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company (Exhibit 4.1(c) to
Form S-8 Registration Statement No. 33-58103, filed March
15, 1995).
3.1(d) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company, dated June 11,
1996 (Exhibit 3(d) to Form S-3 Registration Statement No.
333-09919, filed August 9, 1996).
3.1(e) - Certificate of Amendment of Restated Certificate of
Incorporation of Enron Oil & Gas Company, dated May 7, 1997
(Exhibit 3(e) to Form S-3 Registration Statement No.
333-44785, filed January 23, 1998).
*3.2 - By-laws of Enron Oil & Gas Company dated August 23, 1989,
as amended December 12, 1990, February 8, 1994, January 19,
1996, February 13, 1997 and May 5, 1998.
3.3 - Specimen of Certificate evidencing the Common Stock
(Exhibit 3.3 to Form S-1).
4.3(a) - Amended and Restated Enron Oil & Gas Company 1994 Stock
Plan (Exhibit 4.3 to Form S-8 Registration Statement No.
33-58103, filed March 15, 1995).
4.3(b) - Amendment to Amended and Restated Enron Oil & Gas Company
1994 Stock Plan, dated effective as of December 12, 1995
(Exhibit 4.3(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
4.3(c) - Amendment to Amended and Restated Enron Oil & Gas Company
1994 Stock Plan, dated effective as of December 10, 1996
(Exhibit 4.3(a) to Form S-8 Registration Statement No.
333-20841, filed January 31, 1997).
4.3(d) - Third Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of December 9,
1997 (Exhibit 4.3(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
*4.3(e) - Fourth Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of May 5, 1998.
*4.3(f) - Fifth Amendment to Amended and Restated Enron Oil & Gas
Company 1994 Stock Plan, dated effective as of December 8,
1998.
10.2(a) - Stock Restriction and Registration Agreement dated as of
August 23, 1989 (Exhibit 10.2 to Form S-1).
10.2(b) - Amendment to Stock Restriction and Registration Agreement,
dated December 9, 1997, between Enron Oil & Gas Company and
Enron Corp. (Exhibit 10.2(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
*10.3 - Tax Allocation Agreement, entered into effective as of
Deconsolidation Date between Enron Corp., Enron Oil & Gas
Company, and the subsidiaries of Enron Oil & Gas Company
listed therein as additional parties.
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.9(a) - Employment Agreement between Enron Oil & Gas Company and
Forrest Hoglund, dated as of September 1, 1987, as amended
(Exhibit 10.19 to Form S-1), and Second and Third
Amendments to Employment Agreement dated June 30, 1989 and
February 14, 1992, respectively (Exhibit 10.10 to Form S-1
Registration Statement No. 33-50462, filed August 5, 1992).
10.9(b) - 4th Amendment to Employment Agreement dated December 14,
1994, among Enron Corp., Enron Oil & Gas Company and
Forrest Hoglund (Exhibit 10.9(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
*10.9(c) - Fifth Amendment to Employment Agreement entered into
September 8, 1998, and effective as of September 1, 1998,
among Enron Corp., Enron Oil & Gas Company and Forrest E.
Hoglund.
10.14(a) - Enron Oil & Gas Company 1993 Nonemployee Directors' Stock
Option Plan (Exhibit 10.14 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.14(b) - First Amendment to Enron Oil & Gas Company 1993
Nonemployee Directors' Stock Option Plan (Exhibit 10.14(b)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.16 - Interest Rate and Currency Exchange Agreement, dated as of
June 1, 1991, between Enron Risk Management Services Corp.
and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991), Confirmation dated June 14, 1992
(Exhibit 10.17 to Form S-1 Registration Statement, No.
33-50462, filed August 5, 1992) and Confirmations dated
March 25, 1991, April 25, 1991, and September 23, 1992
(assigned to Enron Risk Management Services Corp. by Enron
Finance Corp. pursuant to an Assignment and Assumption
Agreement, dated as of November 1, 1993, by and between
Enron Finance Corp., Enron Risk Management Services Corp.
and Enron Oil & Gas Marketing, Inc.). (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.17 - Assignment and Assumption Agreement, dated as of November
1, 1993, by and between Enron Oil & Gas Marketing, Inc.,
Enron Oil & Gas Company and Enron Risk Management Services
Corp. (Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.18 - ISDA Master Agreement, dated as of November 1, 1993,
between Enron Oil & Gas Company and Enron Risk Management
Services Corp., and Confirmation Nos. 1268.0, 1286.0,
1291.0, 1292.0, 1304.0, 1305.0, 1321.0, 1335.0, 1338.0,
1370.0, 1471.0, 1485.0, 1486.0, 1494.0, 1495.0, 1509.0,
1514.0, 1533.01, 1569.0, 1986.0, 2217.0, 2227.0, 2278.0,
2299.0, 2372.0, 2647.0 (Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993).
10.19 - Letter Agreement between Colorado Interstate Gas Company
and Enron Oil & Gas Marketing, Inc. dated November 1, 1990
(Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.23 - Gas Purchase Agreement between Enron Oil & Gas Company and
Enron Oil & Gas Marketing, Inc. dated August 22, 1989
(Exhibit 10.41 to Form S-1).
10.24 - Gas Purchase Agreement between Enron Oil & Gas Company and
Enron Oil & Gas Marketing, Inc. dated August 22, 1989
(Exhibit 10.42 to Form S-1).
10.25 - Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp.
Annual Report on Form 10-K for the year ended December 31,
1991).
10.26 - Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form
S-1).
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.28 - Enron Executive Supplemental Survivor Benefits Plan
Effective January 1, 1987 (Exhibit 10.51 to Form S-1).
10.30 - Credit Agreement between Enron Corp. and Enron Oil & Gas
Company dated September 29, 1995 (Exhibit 10.30 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.31 - Credit Agreement between Enron Oil & Gas Company and Enron
Corp. dated September 29, 1995 (Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.34(a) - Enron Oil & Gas Company 1992 Stock Plan (As Amended and
Restated effective December 14, 1994) (incorporated by
reference to Exhibit A to the Company's Proxy Statement,
dated March 27, 1995, with respect to the Company's 1995
Annual Meeting of Shareholders).
10.34(b) - Amendment to Enron Oil & Gas Company 1992 Stock Plan (As
Amended and Restated Effective December 14, 1994) (Exhibit
10.34(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.34(c) - Second Amendment to Enron Oil & Gas Company 1992 Stock
Plan (As Amended and Restated Effective December 14, 1994
(Exhibit 10.34(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.35 - Enron Corp. 1992 Deferral Plan (Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.36(a) - Conveyance of Production Payment, dated September 25,
1992, between Enron Oil & Gas Company and Cactus
Hydrocarbon 1992-A Limited Partnership (Exhibit 10.34 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.36(b) - First Amendment to Conveyance of Production Payment, dated
effective April 1, 1993 between Enron Oil & Gas Company and
Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.36(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.36(c) - Second Amendment to Conveyance of Production Payment,
dated effective July 1, 1993 between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.36(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.36(d) - Third Amendment to Conveyance of Production Payment, dated
effective October 1, 1993 between Enron Oil & Gas Company
and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.36(d) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.37(a) - Hydrocarbon Exchange Agreement dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.37(b) - Amendment to Hydrocarbon Exchange Agreement dated
effective as of January 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.37(c) - First Amendment to Hydrocarbon Exchange Agreement dated
effective as of April 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
10.37(d) - Second Amendment to Hydrocarbon Exchange Agreement dated
effective as of July 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.37(e) - Amendment to Hydrocarbon Exchange Agreement dated
effective as of August 1, 1993, between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.37(e) to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.37(f) - Fourth Amendment to Hydrocarbon Exchange Agreement, dated
effective October 1, 1993, between Enron Oil & Gas Company
and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit
10.37 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.38 - Purchase and Sale Agreement, dated September 25, 1992,
between Enron Oil & Gas Company and Cactus Hydrocarbon
1992-A Limited Partnership (Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992).
10.39(a) - Production and Delivery Agreement, dated September 25,
1992, between Enron Oil & Gas Company and Cactus
Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.39(b) - First Amendment to Production and Delivery Agreement,
dated effective April 1, 1993 between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.39(b) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.39(c) - Second Amendment to Production and Delivery Agreement,
dated effective July 1, 1993 between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.39(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.39(d) - Third Amendment to Production and Delivery Agreement,
dated effective October 1, 1993 between Enron Oil & Gas
Company and Cactus Hydrocarbon 1992-A Limited Partnership
(Exhibit 10.39(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.57(a) - Letter Agreement relating to Natural Gas Swap
Transactions, dated March 31, 1995, among Enron Oil & Gas
Company, Enron Corp. and Enron Capital & Trade Resources
Corp (Exhibit 10.57(a) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.57(b) - Amendment to Natural Gas Swap Transactions Letter
Agreement, dated March 31, 1995, among Enron Oil & Gas
Company, Enron Corp. and Enron Capital & Trade Resources
Corp (Exhibit 10.57(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.58 - Confirmation Letter (revised due to adjustments to the
attached Payment Schedule), dated March 31, 1995, between
Enron Oil & Gas Company and Enron Capital & Trade Resources
Corp. (ECT Transaction Reference No. 15198.00) (Exhibit
10.58 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.59 - Confirmation Letter (revised due to Price Change for 1998
and adjustment to the attached Payment Schedule), dated
March 31, 1995, between Enron Oil & Gas Company and Enron
Capital & Trade Resources Corp. (ECT Transaction Reference
No. 15198.01) (Exhibit 10.59 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
10.60 - Services Agreement, dated January 1, 1997, between Enron
Corp. and Enron Oil & Gas Company (Exhibit 10.60 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.61 - Equity Participation and Business Opportunity Agreement,
dated December 9, 1997, between Enron Oil & Gas Company and
Enron Corp. (Exhibit 10 to Form S-3 Registration Statement
No. 333-44785, filed January 23, 1998).
10.62 - Stock Restriction and Registration Rights Agreement, dated
December 9, 1997, between Enron Corp. and Enron Oil & Gas
Company (Exhibit 10.62 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.63(a) - Enron Oil & Gas Company 1996 Deferral Plan (Exhibit
10.63(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.63(b) - First Amendment to Enron Oil & Gas Company 1996 Deferral
Plan, dated effective as of December 9, 1997 (Exhibit
10.63(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
*10.63(c) - Second Amendment to Enron Oil & Gas Company 1996 Deferral
Plan, dated effective as of December 8, 1998.
10.64 - Executive Employment Agreement between Enron Oil & Gas
Company and Mark G. Papa, effective as of November 1, 1997
(Exhibit 10.64 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
*10.65 - Executive Employment Agreement between Enron Oil & Gas
Company and Edmund P. Segner, III, effective as of
September 1, 1998.
*10.66 - Executive Employment Agreement between Enron Oil & Gas
Company and Dennis M. Ulak, effective as of September 1,
1998.
*10.67 - Executive Employment Agreement between Enron Oil & Gas
Company and Jeffery B. Sherrick, effective as of September
1, 1998.
*21 - List of subsidiaries.
*23.1 - Consent of DeGolyer and MacNaughton.
*23.2 - Opinion of DeGolyer and MacNaughton dated January 11,
1999.
*23.3 - Consent of Arthur Andersen LLP.
*24 - Powers of Attorney.
*27 - Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
ENRON OIL & GAS COMPANY
A Delaware Corporation
Date of Adoption: August 23, 1989
As Amended: December 12, 1990,
February 8, 1994,
January 19, 1996,
February 13, 1997,
May 5, 1998.
<PAGE> 2
BYLAWS
Table of Contents
<TABLE>
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Article I. Offices
Section 1. Registered Office 1
Section 2. Other Offices 1
Article II. Stockholders
Section 1. Place of Meetings 1
Section 2. Quorum; Adjournment of Meetings 1
Section 3. Annual Meetings 2
Section 4. Special Meetings 2
Section 5. Record Date 3
Section 6. Notice of Meeting 3
Section 7. Stockholder List 3
Section 8. Proxies 4
Section 9. Voting; Elections; Inspectors 4
Section 10. Conduct of Meetings 5
Section 11. Treasury Stock 5
Section 12. Business to Be Brought Before
the Annual Meeting 6
Article III. Board of Directors
Section 1. Power; Number; Term of Office 7
Section 2. Quorum; Voting 7
Section 3. Place of Meetings; Order of Business 7
Section 4. First Meeting 8
Section 5. Regular Meetings 8
Section 6. Special Meetings 8
Section 7. Nomination of Directors 8
Section 8. Removal 9
Section 9. Vacancies; Increases in the Number
of Directors 9
Section 10. Compensation 10
Section 11. Action Without a Meeting; Telephone
Conference Meeting 10
</TABLE>
<PAGE> 3
<TABLE>
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<S> <C>
Section 12. Approval or Ratification of Acts or
Contracts by Stockholders 10
Section 13. Retirement 11
Article IV. Committees
Section 1. Executive Committee 11
Section 2. Audit Committee 11
Section 3. Other Committees 11
Section 4. Procedure; Meetings; Quorum 12
Section 5. Substitution and Removal of Members;
Vacancies 12
Article V. Officers
Section 1. Number, Titles and Term of Office 12
Section 2. Powers and Duties of the Chairman
of the Board 13
Section 3. Powers and Duties of the President,
President-North American Operations,
and President-International Operations 13
Section 4. Powers and Duties of Vice Chairman
of the Board 14
Section 5. Vice Presidents 14
Section 6. General Counsel 14
Section 7. Secretary 14
Section 8. Deputy Corporate Secretary and
Assistant Secretaries 15
Section 9. Treasurer 15
Section 10. Assistant Treasurers 15
Section 11. Action with Respect to Securities
of Other Corporations 15
Section 12. Delegation 16
Article VI. Capital Stock
Section 1. Certificates of Stock 16
Section 2. Transfer of Shares 16
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
Section 3. Ownership of Shares 17
Section 4. Regulations Regarding Certificates 17
Section 5. Lost or Destroyed Certificates 17
Article VII. Miscellaneous Provisions
Section 1. Fiscal year 17
Section 2. Corporate Seal 17
Section 3. Notice and Waiver of Notice 18
Section 4. Facsimile Signatures 18
Section 5. Reliance upon Books, Reports and
Records 18
Section 6. Application of Bylaws 18
Article VIII. Amendments 19
</TABLE>
-4-
<PAGE> 5
BYLAWS
OF
ENRON OIL & GAS COMPANY
Article I
Offices
Section 1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware shall be the registered office named in
the original Certificate of Incorporation of the Corporation, or such other
office as may be designated from time to time by the Board of Directors in the
manner provided by law.
Section 2. Offices. The Corporation may also have offices at such
other places both within and without the state of incorporation of the
Corporation as the Board of Directors may from time to time determine or the
business of the Corporation may require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the state of incorporation of the Corporation as shall be
specified or fixed in the notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise
required by law or provided in the Certificate of Incorporation or these Bylaws,
(i) the holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at any meeting of stockholders for the transaction of business, (ii) in
all matters other than election of directors, the affirmative vote of the
holders of a majority of such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative
<PAGE> 6
vote of the majority of the shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, subject to the provisions of clauses
(ii) and (iii) above.
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Notwithstanding the other provisions of the Certificate of
Incorporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of stockholders, whether
or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the
time and place of the holding of the adjourned meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 3. Annual Meetings. An annual meeting of the stockholders,
for the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of incorporation of the
Corporation), on such date, and at such time as the Board of Directors shall fix
and set forth in the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the last annual meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, by
the President, by the Vice Chairman of the Board, by a majority of the Board of
Directors, or by a majority of the executive committee (if any), at such time
and at such place as may be stated in the notice of the meeting. A special
meeting of stockholders shall be called by the Chairman of the Board, the
President or the Secretary upon written request therefor, stating the purpose(s)
of the meeting, delivered to such officer and signed by the holder(s) of at
least ten percent (10%) of the issued and outstanding stock entitled to vote at
such meeting. Business transacted at a special meeting shall be confined to the
purpose(s) stated in the notice of such meeting.
-2-
<PAGE> 7
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of stockholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting of stockholders, nor more
than sixty (60) days prior to any other action.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VII, Section 3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Chairman of the Board, the President, the Vice Chairman of the Board, the
Secretary or the other person(s) calling the meeting to each stockholder
entitled to vote thereat not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Such notice may be delivered either personally
or by mail. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 7. Stockholder List. A complete list of stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
for each class of stock and showing the address of each such stockholder and the
number of shares registered in the name of such stockholder, shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced
-3-
<PAGE> 8
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him by proxy.
Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
Section 9. Voting; Elections; Inspectors. Unless otherwise required
by law or provided in the Certificate of Incorporation, each stockholder shall
on each matter submitted to a vote at a meeting of stockholders have one vote
for each share of stock entitled to vote which is registered in his name on the
record date for the meeting. For the purposes hereof, each election to fill a
directorship shall constitute a separate matter. Shares registered in the name
of another corporation, domestic or foreign, may be voted by such officer, agent
or proxy as the bylaws (or comparable instrument) of such corporation may
prescribe, or in the absence of such provision, as the Board of Directors (or
comparable body) of such corporation may determine. Shares registered in the
name of a deceased person may be voted by the executor or administrator of such
person's estate, either in person or by proxy.
-4-
<PAGE> 9
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however, upon
request of the chairman of the meeting or upon demand therefor by stockholders
holding a majority of the issued and outstanding stock present in person or by
proxy at any meeting a stock vote shall be taken. Every stock vote shall be
taken by written ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting. All elections of directors shall be by
written ballots, unless otherwise provided in the Certificate of Incorporation.
At any meeting at which a vote is taken by written ballots, the
chairman of the meeting may appoint one or more inspectors, each of whom shall
subscribe an oath or affirmation to execute faithfully the duties of inspector
at such meeting with strict impartiality and according to the best of such
inspector's ability. Such inspector shall receive the written ballots, count the
votes and make and sign a certificate of the result thereof. The chairman of the
meeting may appoint any person to serve as inspector, except no candidate for
the office of director shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders
shall be presided over by the Chairman of the Board, or if the Chairman of the
Board is not present, by the President, or if the President is not present, by
the Vice Chairman of the Board, or if neither the Chairman of the Board, the
President nor the Vice Chairman of the Board is present, by a chairman elected
at the meeting. The Secretary of the Corporation, if present, shall act as
secretary of such meetings, or if the Secretary is not present, the Deputy
Corporate Secretary or an Assistant Secretary shall so act; if neither the
Secretary or the Deputy Corporate Secretary or an Assistant Secretary is
present, then a secretary shall be appointed by the chairman of the meeting. The
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to the chairman in order.
Section 11. Treasury Stock. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
-5-
<PAGE> 10
Section 12. Business to Be Brought Before the Annual Meeting. To be
properly brought before the annual meeting of stockholders, business must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 12 of Article II, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 12 of Article II.
In addition to any other applicable requirements, for business to be brought
before an annual meeting by a stockholder of the Corporation, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
120 days prior to the anniversary date of the proxy statement for the preceding
annual meeting of stockholders of the Corporation. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the
acquisition date, the class and the number of shares of voting stock of the
Corporation which are owned beneficially by the stockholder, (iv) any material
interest of the stockholder in such business, and (v) a representation that the
stockholder intends to appear in person or by proxy at the meeting to bring the
proposed business before the meeting.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 12.
The chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 12 of
Article II, and if the chairman should so determine, the chairman shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12 of Article
II, a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 12.
-6-
<PAGE> 11
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, the Board of Directors may exercise all the powers of the
Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the Board
of Directors). If the Board of Directors makes no such determination, the number
of directors shall be three. Each director shall hold office for the term for
which such director is elected, and until such Director's successor shall have
been elected and qualified or until such Director's earlier death, resignation
or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the state of incorporation
of the Corporation.
Section 2. Quorum; Voting. Unless otherwise provided in the
Certificate of Incorporation, a majority of the total number of directors shall
constitute a quorum for the transaction of business of the Board of Directors
and the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the state of incorporation of the Corporation, as the Board of
Directors may from time to time determine. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the Chairman of the Board, or in the Chairman of the Board's
absence by the President (should the President be a director), or in the
President's absence by the Vice Chairman of the Board, or by the Board of
Directors.
-7-
<PAGE> 12
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board or, in the absence of the Chairman of
the Board, by the President (should the President be a director), or in the
President's absence, by the Vice Chairman of the Board. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President (should the
President be a director) or the Vice Chairman of the Board or, on the written
request of any two directors, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the Certificate of
Incorporation or these Bylaws. Meetings may be held at any time without notice
if all the directors are present or if those not present waive notice of the
meeting in writing.
Section 7. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders (a) by or at the direction
of the Board of Directors or (b) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Section 7 of Article III, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth
in this Section 7 of Article III. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (i) with respect to an election
to be held at the annual meeting of the stockholders of the Corporation, not
less than 120 days prior to the anniversary date of the proxy statement for the
immediately preceding annual meeting of stockholders of the Corporation, and
(ii) with respect to an election to be held at a special meeting of stockholders
of the Corporation for the election of directors, not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or
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public disclosure of the date of the meeting was made, whichever first occurs.
Such stockholder's notice to the Secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, all information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors, or is
otherwise required, pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (including the written consent of such person to be named in
the proxy statement as a nominee and to serve as a director if elected); and (b)
as to the stockholder giving the notice (i) the name and address, as they appear
on the Corporation's books, of such stockholder, and (ii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the stockholder. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
In the event that a person is validly designated as nominee to the
Board and shall thereafter become unable or unwilling to stand for election to
the Board of Directors, the Board of Directors or the stockholder who proposed
such nominee, as the case may be, may designate a substitute nominee.
No person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 7
of Article III. The chairman of the meeting of stockholders shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the Bylaws, and if the chairman
should so determine, the chairman shall so declare to the meeting and the
defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 7 of Article
III, a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section 7 of Article
III.
Section 8. Removal. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 9. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies existing on
the Board of Directors for any reason and newly created directorships resulting
from any increase in the authorized number of directors may be filled by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director; and
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any director so chosen shall hold office until the next annual election and
until such Director's successor shall have been elected and qualified, or until
such Director's earlier death, resignation or removal.
Section 10. Compensation. Directors and members of standing
committees may receive such compensation as the Board of Directors from time to
time shall determine to be appropriate, and shall be reimbursed for all
reasonable expenses incurred in attending and returning from meetings of the
Board of Directors.
Section 11. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of the state of incorporation of the Corporation.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone connection or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 12. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation.
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<PAGE> 15
Section 13. Retirement. No incumbent Director serving the Corporation
as of February 13, 1997, shall be eligible to stand for reelection as a Director
of the Corporation after attaining the age of 73 years, and no Director elected
subsequent to February 13, 1997, shall be eligible to stand for reelection as a
Director of the Corporation after having attained the age of 72 years.
Article IV
Committees
Section 1. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate an
Executive Committee consisting of one or more of the directors of the
Corporation, one of whom shall be designated chairman of the Executive
Committee. During the intervals between the meetings of the Board of Directors,
the Executive Committee shall possess and may exercise all the powers of the
Board of Directors, including the power to authorize the seal of the Corporation
to be affixed to all papers which may require it; provided, however, that the
Executive Committee shall not have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, amending, altering or repealing
these Bylaws or adopting new bylaws for the Corporation or otherwise acting
where action by the Board of Directors is specified by the Delaware General
Corporation Law. The Executive Committee shall also have, and may exercise, all
the powers of the Board of Directors, except as aforesaid, whenever a quorum of
the Board of Directors shall fail to be present at any meeting of the Board.
Section 2. Audit Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate an
Audit Committee consisting of one or more of the directors of the Corporation,
one of whom shall be designated chairman of the Audit Committee. The Audit
Committee shall have and may exercise such powers and authority as provided in
the resolution creating it and as determined from time to time by the Board of
Directors.
Section 3. Other Committees. The Board of Directors may, by
resolution passed from time to time by a majority of the whole Board of
Directors, designate such other committees as it shall see fit consisting of one
or more of the directors of the Corporation, one of whom shall be designated
chairman of each such committee. Any such committee
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<PAGE> 16
shall have and may exercise such powers and authority as provided in the
resolution creating it and as determined from time to time by the Board of
Directors.
Section 4. Procedure; Meetings; Quorum. Any committee designated
pursuant to this Article IV shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be. At every meeting of any such
committee, the presence of a majority of all the members thereof shall
constitute a quorum, except as provided in Section 5 of this Article IV, and the
affirmative vote of a majority of the members present shall be necessary for the
adoption by it of any resolution.
Section 5. Substitution and Removal of Members; Vacancies. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a Chairman of the Board, a President, a President-North
American Operations, one or more Presidents-International Operations, one or
more Vice Presidents (any one or more of whom may be designated Executive Vice
President or Senior Vice President), a General Counsel, a Treasurer, a Secretary
and such other officers as the Board of Directors may from time to time elect or
appoint (including, but not limited to, a Vice Chairman of the Board, a Deputy
Corporate Secretary, one or more Assistant Secretaries and one or more Assistant
Treasurers). Each officer shall hold office until such officer's successor shall
be duly elected and shall qualify or until such officer's death or until such
officer shall resign or shall have been removed. Any number of offices may be
held by
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<PAGE> 17
the same person, unless the Certificate of Incorporation provides otherwise.
Except for the Chairman of the Board and the Vice Chairman of the Board, no
officer need be a director.
Section 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall be the chief executive officer of the Corporation.
Subject to the control of the Board of Directors and the Executive Committee (if
any), the Chairman of the Board shall have general executive charge, management
and control of the properties, business and operations of the Corporation with
all such powers as may be reasonably incident to such responsibilities; may
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation and may sign all certificates
for shares of capital stock of the Corporation; and shall have such other powers
and duties as designated in accordance with these Bylaws and as from time to
time may be assigned to the Chairman of the Board by the Board of Directors. The
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board of Directors.
Section 3. Powers and Duties of the President, President-North
American Operations, and President-International Operations.
(a) Unless the Board of Directors otherwise determines, the President
shall have the authority to agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation;
and, unless the Board of Directors otherwise determines, the President shall, in
the absence of the Chairman of the Board or if there be no Chairman of the
Board, preside at all meetings of the stockholders and (should the President be
a director) of the Board of Directors; and the President shall have such other
powers and duties as designated in accordance with these Bylaws and as from time
to time may be assigned to the President by the Board of Directors or the
Chairman of the Board.
(b) Unless the Board of Directors otherwise determines, the
President-North American Operations shall have the authority to agree upon and
execute all leases, contracts, evidences of indebtedness and other obligations
in the name of the Corporation pertaining to the Corporation's North American
operations; and the President-North American Operations shall have such other
powers and duties as designated in accordance with these Bylaws and as from time
to time may be assigned to the President-North American Operations by the Board
of Directors or the Chairman of the Board.
(c) Unless the Board of Directors otherwise determines, each
President-International Operations shall have the authority to agree upon and
execute all leases, contracts, evidences of indebtedness and other obligations
in the name of the Corporation
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<PAGE> 18
pertaining to the Corporation's international operations; and each
President-International Operations shall have such other powers and duties as
designated in accordance with these Bylaws and as from time to time may be
assigned to each President-International Operations by the Board of Directors or
the Chairman of the Board.
Section 4. Powers and Duties of the Vice Chairman of the Board. The
Board of Directors may assign areas of responsibility to the Vice Chairman of
the Board, and, in such event, and subject to the overall direction of the
Chairman of the Board and the Board of Directors, the Vice Chairman of the Board
shall be responsible for supervising the management of the affairs of the
Corporation and its subsidiaries within the area or areas assigned and shall
monitor and review on behalf of the Board of Directors all functions within the
corresponding area or areas of the Corporation and each such subsidiary of the
Corporation. In the absence of the President, or in the event of the President's
inability or refusal to act, the Vice Chairman of the Board shall perform the
duties of the President, and when so acting shall have all the powers of and be
subject to all the restrictions upon the President. Further, the Vice Chairman
of the Board shall have such other powers and duties as designated in accordance
with these Bylaws and as from time to time may be assigned to the Vice Chairman
of the Board by the Board of Directors or the Chairman of the Board.
Section 5. Vice Presidents. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the President or the Vice Chairman of the Board or of the Corporation.
Each Vice President shall have such other powers and duties as from time to time
may be assigned to such Vice President by the Board of Directors, the Chairman
of the Board, the President or the Vice Chairman of the Board.
Section 6. General Counsel. The General Counsel shall act as chief
legal advisor to the Corporation. The General Counsel may have one or more staff
attorneys and assistants, and may retain other attorneys to conduct the legal
affairs and litigation of the Corporation under the General Counsel's
supervision.
Section 7. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts of the Corporation and attest the affixation of the
seal of the Corporation thereto; may sign with the other appointed officers all
certificates for shares of capital stock of the Corporation; shall have charge
of the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors may direct, all of which shall at all
reasonable
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<PAGE> 19
times be open to inspection of any director upon application at the office of
the Corporation during business hours; shall have such other powers and duties
as designated in these Bylaws and as from time to time may be assigned to the
Secretary by the Board of Directors, the Chairman of the Board, the President or
the Vice Chairman of the Board; and shall in general perform all acts incident
to the office of Secretary, subject to the control of the Board of Directors,
the Chairman of the Board, the President or the Vice Chairman of the Board.
Section 8. Deputy Corporate Secretary and Assistant Secretaries. The
Deputy Corporate Secretary and each Assistant Secretary shall have the usual
powers and duties pertaining to such offices, together with such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Deputy Corporate Secretary or an Assistant Secretary by the
Board of Directors, the Chairman of the Board, the President, the Vice Chairman
of the Board, or the Secretary. The Deputy Corporate Secretary shall exercise
the powers of the Secretary during that officer's absence or inability or
refusal to act.
Section 9. Treasurer. The Treasurer shall have responsibility for
the custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chairman of the Board, the President or the Vice Chairman of the Board. The
Treasurer shall perform all acts incident to the position of Treasurer, subject
to the control of the Board of Directors, the Chairman of the Board, the
President and the Vice Chairman of the Board; and the Treasurer shall, if
required by the Board of Directors, give such bond for the faithful discharge of
the Treasurer's duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chairman of
the Board, the President, the Vice Chairman of the Board, or the Treasurer. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board,
the President or the Vice Chairman of the Board, together with the Secretary,
the Deputy Corporate Secretary or any Assistant Secretary shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of security holders of or with respect to any action of security
holders of any other corporation in which this Corporation may hold securities
and otherwise to exercise any and all rights and powers
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<PAGE> 20
which this Corporation may possess by reason of its ownership of securities in
such other corporation.
Section 12. Delegation. For any reason that the Board of Directors
may deem sufficient, the Board of Directors may, except where otherwise provided
by statute, delegate the powers or duties of any officer to any other person,
and may authorize any officer to delegate specified duties of such officer to
any other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
Article VI
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. Every holder of stock represented by certificates
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman of the Board, President, Vice Chairman of the Board
or a Vice President and the Secretary, Deputy Corporate Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary, or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by
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<PAGE> 21
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of
incorporation of the Corporation.
Section 4. Regulations Regarding Certificates. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors
may determine the conditions upon which the Corporation may issue a new
certificate of stock in place of a certificate theretofore issued by it which is
alleged to have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
Article VII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January of each year.
Section 2. Corporate Seal. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contracts or
other documents. Duplicates of the seal may be kept for use by the Deputy
Corporate Secretary or any Assistant Secretary.
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<PAGE> 22
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Certificate of Incorporation or under the
provisions of these Bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission (including by telecopy
or facsimile transmission) or (ii) by deposit of the same in a post office box
or by delivery to an overnight courier service company in a sealed prepaid
wrapper addressed to the person entitled thereto at such person's post office
address, as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these Bylaws.
Section 4. Facsimile Signatures. In addition to the provisions for
the use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 5. Reliance upon Books, Reports and Records. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be fully protected
in relying in good faith upon the records of the Corporation and upon such
information, opinion, reports or statements presented to the Corporation by any
of the Corporation's officers or employees, or committees of the Board of
Directors, or by any other person as to matters the member reasonably believes
are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
Section 6. Application of Bylaws. In the event that any provisions
of these Bylaws is or may be in conflict with any law of the United States, of
the state of incorporation of the Corporation or of any other governmental body
or power having jurisdiction over this Corporation, or over the subject matter
to which such provision of these Bylaws applies, or may apply, such provision of
these Bylaws shall be inoperative
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<PAGE> 23
to the extent only that the operation thereof unavoidably conflicts with such
law, and shall in all other respects be in full force and effect.
Article VIII
Amendments
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors.
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<PAGE> 1
EXHIBIT 4.3(e)
FOURTH AMENDMENT TO
AMENDED AND RESTATED ENRON OIL & GAS COMPANY
1994 STOCK PLAN
WHEREAS, Enron Oil & Gas Company (the "Company") has theretofore
adopted and maintains the Amended and Restated Enron Oil & Gas Company 1994
Stock Plan, as amended by amendments dated effective as of December 12, 1995,
December 10, 1996, and December 9, 1997 (hereinafter collectively referred to as
the "Plan"); and
WHEREAS, the Company desires to amend the Plan to provide for the
increase in the number of shares available for grant;
NOW, THEREFORE, the Plan is amended as follows:
Section 3.1(i) is hereby rescinded and amended in its entirety to read
as follows:
"(i) Calculation Of Number Of Shares Available. The number of
Shares available for granting Awards under the Plan shall be
twelve million (12,000,000) Shares, subject to adjustment as
provided in Section 3.2."
AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed.
Dated effective as of May 5, 1998.
ATTEST: ENRON OIL & GAS COMPANY
By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards
------------------------------ -------------------------------
Angus H. Davis Patricia L. Edwards
Vice President, Communications Vice President, Human Resources
and Corporate Secretary and Administration
<PAGE> 1
EXHIBIT 4.3(f)
FIFTH AMENDMENT TO
AMENDED AND RESTATED ENRON OIL & GAS COMPANY
1994 STOCK PLAN
WHEREAS, Enron Oil & Gas Company (the "Company") has theretofore
adopted and maintains the Amended and Restated Enron Oil & Gas Company 1994
Stock Plan, as amended by amendments dated effective as of December 12, 1995,
December 10, 1996, December 9 1997, and May 5, 1998 (hereinafter collectively
referred to as the "Plan"); and
WHEREAS, the Company desires to amend the Plan to provide for the
increase in the number of shares available for grant;
NOW, THEREFORE, the Plan is amended as follows:
Section 3.1(i) is hereby rescinded and amended in its entirety to read
as follows:
"(i) Calculation of Number of Shares Available. The number of
Shares available for granting Awards under the Plan shall be
fifteen million (15,000,000) Shares, subject to adjustment as
provided in Section 3.2."
AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed.
Dated effective as of December 8, 1998.
ATTEST: ENRON OIL & GAS COMPANY
By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards
------------------------------ -------------------------------
Angus H. Davis Patricia L. Edwards
Vice President, Communications Vice President, Human Resources
And Corporate Secretary and Administration
<PAGE> 1
EXHIBIT 10.3
TAX ALLOCATION AGREEMENT
THIS AGREEMENT ("Agreement") is entered into effective as of the
Deconsolidation Date among Enron Corp., formerly a Delaware corporation and
currently an Oregon corporation ("Enron"), Enron Oil & Gas Company, a Delaware
corporation ("EOG"), and those subsidiaries of EOG (the "EOG Subsidiaries")
listed on the signature pages of this Agreement as additional parties to this
Agreement. (Enron, EOG and the EOG Subsidiaries are referred to collectively as
the "Parties" and separately as a "Party").
Enron, EOG, and certain of the EOG Subsidiaries entered into that
certain First Amended and Restated Tax Allocation Agreement (the "Base
Agreement") on the 9th day of August, 1991. Enron, EOG, and certain of the EOG
Subsidiaries entered into that certain Modification "A" to the First Amended
and Restated Tax Allocation Agreement ("Modification A") on February 6, 1992.
Enron, EOG, and the EOG Subsidiaries entered into that certain 1995 Tax
Allocation Agreement (the "1995 Agreement") on December 11, 1995. Each of the
Base Agreement, Modification A, and the 1995 Agreement provided for the
apportionment and allocation of federal income and other tax liabilities among
the Parties.
On the Deconsolidation Date, Enron sold a number of shares of EOG
common stock which reduced Enron's ownership of EOG below that required to
include EOG in the Consolidated Return of the Enron Group for periods following
the Deconsolidation Date.
Enron, EOG, and the EOG Subsidiaries now desire to terminate the 1995
Agreement and to restate their respective rights, obligations and intentions as
to tax matters for the Post-Deconsolidation Date Period.
Accordingly, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Actual Tax Liability" is defined in Section 3.3.
"Actual Tax Savings" is defined in Section 3.3.
"Base Agreement" is defined in the preamble to this Agreement.
<PAGE> 2
"Change Date" is defined in Section 3.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Alternative Minimum Tax Liability" means the
consolidated alternative minimum tax liability computed in accordance with
sections 55, 1502 and 1503 of the Code and shown on a Consolidated Return.
"Consolidated Group" means an "affiliated group" of corporations of
which one corporation is the "common parent" corporation, as such terms are
defined in section 1504(a)(1) of the Code.
"Consolidated Minimum Tax Credits" means the consolidated minimum tax
credits computed in accordance with sections 53, 1502 and 1503 of the Code and
shown on a Consolidated Return.
"Consolidated Return" means the consolidated federal income tax return
of a Consolidated Group for a taxable year.
"Consolidated Tax Liability" means the consolidated federal income tax
liability determined in accordance with Treasury Regulation ss. 1.1502-2 and
shown on a Consolidated Return, taking into account all credits to which the
Consolidated Group is entitled under the Code, but without regard to any
Consolidated Alternative Minimum Tax Liability or any Consolidated Minimum Tax
Credits.
"Deconsolidation Date" means the last day on which EOG was includible
as a member of the Enron Group, which the Parties believe to be December 13,
1995.
"Enron" is defined in the preamble to this Agreement.
"Enron Entity" for any taxable year means any corporation or other
entity which is required to be included in the Consolidated Return of the Enron
Group or in a Unitary Tax Return filed by Enron, other than an EOG Entity.
"Enron Group" means the Consolidated Group of which Enron is the
common parent corporation.
"EOG" is defined in the preamble to this Agreement.
"EOG Entity" for any taxable year means any of EOG, the EOG
Subsidiaries, and any other corporation or other entity 50 percent or more of
the outstanding equity interests (by
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voting power or value) in which is owned directly or indirectly by any one or
more other EOG Entities.
"EOG Group" means the Consolidated Group of which EOG is the common
parent corporation.
"EOG 1995 Adjustment" is defined in Section 5.2.
"EOG 1995 Unsevered Adjustment" is defined in Section 5.2.
"EOG Subsidiaries" is defined in the preamble to this Agreement.
"EOG Unitary Loss" is defined in Section 2.2.
"Fuel Contracts" is defined in Section 2.1.
"Hypothetical Tax Liability" is defined in Section 3.3.
"Interest Rate" means eight percent (8%) per annum or, if lower, the
maximum rate of interest permitted by applicable law.
"Loss Contracts" means the Fuel Contracts listed in Schedule A to this
Agreement.
"Loss Contracts Tax Basis" is defined in Section 3.3.
"Modification A" is defined in the preamble to this Agreement.
"Net Swap Gain" is defined in Section 2.1
"1995 Agreement" is defined in the preamble to this Agreement.
"1995 Swap Transactions" is defined in Section 2.1.
"Party" and "Parties" are defined in the preamble to this Agreement.
"Permanent Difference" is defined in Section 5.2.
"Pre-Deconsolidation Date Period" means those taxable years ending on
or before December 31, 1994, plus the taxable period beginning January 1, 1995
and ending on and including the Deconsolidation Date.
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"Post-Deconsolidation Date Period" means that period following the
Deconsolidation Date.
"Recognized Loss Allowance Year" is defined in Section 3.3.
"Recognized Loss Allowed Portion" is defined in Section 3.3.
"Recognized Loss Amortization Amount" is defined in Section 3.3.
"Section 29 Credits" means the credits provided by section 29 of the
Code, prior to application of the limitation of section 29(b)(6) of the Code.
"Swap Contracts" is defined in Section 2.1.
"Swap Contracts Tax Basis" means EOG's federal income tax basis in the
Swap Contracts resulting from the 1995 Swap Transactions.
"Tax" or "Taxes" means any tax imposed by any federal, state, local,
or foreign taxing authority, including, without limitation, income tax, add-on
or alternative minimum tax, ad valorem tax, environmental tax, excise tax,
franchise tax, gains tax, gross income tax, gross receipts tax, occupation tax,
payroll tax, profits tax, severance tax, value added tax, windfall profit tax,
withholding tax, and any other tax or like assessment, together with any
interest, penalties, additions to tax or additional amounts imposed in
connection with such tax.
"Tax Item" means any item of income, gain, loss, deduction or credit,
or other item, relevant to the determination of any Tax.
"Tax Opinion" is defined in Section 5.2.
"Timing Difference" is defined in Section 5.2.
"Unitary Tax" means a state income tax which reflects the combined
and/or consolidated tax reporting (either on a domestic or worldwide basis) of
a corporation and its affiliates and which is imposed by that state either (i)
on its apportioned and/or allocable share of the net income of a taxpayer and
its United States affiliates that are engaged in a unitary business, part of
which is conducted in the state or (ii) on its apportioned and/or allocable
share of the net income of a taxpayer and its affiliates, both domestic and
foreign, that are engaged in a unitary business. A "unitary business" is a
group of affiliated corporations that (i) exhibits common ownership,
centralized management, functional integration, and/or economies of scale, or
(ii) is doing business in the state and included in a Consolidated Return.
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"Unitary Tax Liability" means the liability for a Unitary Tax.
"Unitary Tax Return" means a state income tax return with respect to a
Unitary Tax.
ARTICLE II
TAX RETURNS
2.1 AMENDED TAX RETURNS FOR 1995. Within 30 days following the
execution of this Agreement, Enron shall file an amended Consolidated Return
for the Enron Group for 1995, and as soon as practicable thereafter but in any
event within the time limits prescribed by applicable law, Enron shall file
(where applicable) amended Unitary Tax Returns for 1995, in each case to
reflect therein the recognition by EOG of gain (net of loss where determined by
Enron to be allowable by the relevant state taxing jurisdiction) on the
transfer of certain natural gas fuel supply contracts and natural gas fuel
purchase contracts and its position in a natural-gas-based notional principal
contract (collectively, the "Fuel Contracts") in exchange for two notional
principal contracts (the "Swap Contracts") with Enron Capital & Trade Resources
Corp. on March 31, 1995 (the "1995 Swap Transactions"). The Parties agree that
the amount of the gain from the 1995 Swap Transactions net of the amortization
of the Swap Contracts Tax Basis in the Pre-Deconsolidation Date Period is
$143,179,195 (the "Net Swap Gain") and that the amended tax returns will
reflect such amount except to the extent that the relevant state taxing
jurisdiction allows the Net Swap Gain to be offset by any loss from the 1995
Swap Transactions. Enron shall pay the additional Taxes attributable to the Net
Swap Gain so reflected in such amended tax returns.
2.2 UNITARY TAX RETURNS.
(a) Enron shall continue to file any Unitary Tax Return which
includes or reflects the operations of both Enron Entities and EOG Entities,
and shall allocate the Unitary Tax Liability owed pursuant to such Unitary Tax
Returns as provided in Section 2.2(b) or 2.2(c).
(b) With respect to any Unitary Tax Return which includes or
reflects the operations of any of the EOG Entities for any taxable year ending
on or before December 31, 1996, the Unitary Tax Liability for the period
covered by such Unitary Tax Return shall be allocated between Enron and EOG in
a manner consistent with the methodology followed for the Pre-Deconsolidation
Date Period. No Unitary Tax Liability shall be allocated to EOG by Enron for
1995 except (x) with respect to the Net Swap Gain reflected in the amended
returns as provided in Sections 2.1 and 3.1(iii) of this Agreement and (y) with
respect to any
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change to the Unitary Tax Liability for 1995 by reason of the filing of any
other amended return or an audit of any tax return.
(c) With respect to any Unitary Tax Return which includes or
reflects the operations of any of the EOG Entities for any taxable year ending
after December 31, 1996, the Unitary Tax Liability for the period covered by
such Unitary Tax Return shall be allocated to EOG to the extent of the amount
of Unitary Tax which would be due with respect to such period if such Unitary
Tax Return included only those EOG Entities, and the balance of such Unitary
Tax Liability shall be allocated to Enron. If any such Unitary Tax Return would
show a loss for the taxable year if it included only the EOG Entities (an "EOG
Unitary Loss"), Enron shall compensate EOG for such EOG Unitary Loss, when and
to the extent that such EOG Unitary Loss actually is utilized and results in a
reduction in the amount of Unitary Tax Liability of one or more Enron Entities,
by the payment to EOG of an amount equal to the product of the EOG Unitary Loss
so utilized and the effective rate of Unitary Tax applicable to the EOG
Entities (as determined by Enron and EOG) for the taxable year in which such
EOG Unitary Loss is so utilized. In the event of any adjustment to an EOG Tax
Item or an EOG Unitary Loss (or its utilization) by reason of the filing of an
amended return or the audit of a tax return, the amount of any payment due from
Enron to EOG with respect to an EOG Unitary Loss shall be recomputed, and a
payment shall be made between Enron and EOG to reflect such adjustment.
(d) Schedules allocating the Unitary Tax Liability between the
Enron Entities and the EOG Entities, respectively, shall be prepared by Enron
and provided to EOG for its review by December 1 of the year in which the
Unitary Tax Return is filed. EOG shall pay to Enron the amount of Unitary Tax
Liability so allocated to the EOG Entities by December 31 of such year; any
amount not so paid shall bear interest at the Interest Rate until paid. If EOG
does not approve such schedules, EOG and Enron shall resolve their differences
on a mutually agreeable basis; if Enron and EOG agree on an allocation of
Unitary Tax Liability to the EOG Entities that is less than the amount
previously paid by EOG to Enron therefor, Enron shall refund such excess to EOG
together with interest at the Interest Rate. In the event a Unitary Tax Return
is amended or audited, schedules reallocating the Unitary Tax Liability between
the Enron Entities and the EOG Entities, respectively, shall be prepared by
Enron and provided to EOG for its review. EOG shall pay to Enron any increase
in the amount of Unitary Tax Liability so allocated to the EOG Entities, or
Enron shall pay to EOG any decrease in the amount of Unitary Tax Liability so
allocated to the EOG Entities, within 30 days after Enron delivers such
schedules to EOG; any amount not so paid shall bear interest at the Interest
Rate until paid. If EOG does not approve such schedules, EOG and Enron shall
resolve their differences on a mutually agreeable basis; if Enron and EOG agree
on a reallocation of Unitary Tax Liability to the EOG Entities that is less
than the amount previously paid by EOG to Enron therefor, Enron shall refund
such excess to EOG together with interest at the Interest Rate.
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ARTICLE III
PAYMENTS BETWEEN PARTIES
3.1 PAYMENTS BETWEEN ENRON AND EOG. Upon the execution of this
Agreement, Enron shall be obligated to pay to EOG, and EOG shall be obligated
to pay to Enron, the following amounts on the following dates:
(i) Enron shall pay to EOG $13,000,000 on the date of
execution of this Agreement plus interest thereon at the Interest Rate
for the period from December 18, 1995 to the date of execution of this
Agreement.
(ii) EOG shall pay to Enron $50,112,718 in six annual
installments of $8,352,119.66 each (except for the last installment
which shall be in the amount of $8,352,119.70) as of January 1 of the
years 1996 through 2001. The first three such installments shall be
paid on the date of execution of this Agreement, and the remaining
three installments shall be paid on January 1, 1999, January 1, 2000
and January 1, 2001, respectively.
(iii) EOG shall pay to Enron the amount of Unitary Tax
Liability attributable to the Net Swap Gain reflected in the amended
Unitary Tax Returns filed pursuant to Section 2.1 of this Agreement,
within 5 days after delivery by Enron to EOG of a schedule of such
Unitary Tax Liability.
Any amount not paid on the date specified for such amount shall bear interest
at the Interest Rate until paid.
3.2 PAYMENTS FOR USE OF CREDITS. As of the date of this Agreement,
no Consolidated Minimum Tax Credits have been allocated to EOG or any EOG Entity
by Enron based on Consolidated Returns of the Enron Group for the
Pre-Deconsolidation Date Period. In the event Consolidated Minimum Tax Credits
are allocated to EOG or any EOG Entity for any taxable year or period in the
Pre-Deconsolidation Date Period, EOG shall make a good faith effort to utilize
such Consolidated Minimum Tax Credits, and shall be obligated to reimburse
Enron for the amount of such Consolidated Minimum Tax Credits so allocated to
EOG upon the occurrence of the earlier of the following two events:
(i) the date on which EOG files its federal income tax return
for a taxable year in the Post-Deconsolidation Date Period in which
EOG or any EOG Entity utilizes any such Consolidated Minimum Tax
Credits; or
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(ii) the date on which the Tax liability of EOG or any EOG
Entity is reduced by such Consolidated Minimum Tax Credits (if not on
an original return) by reason of the receipt of a refund of Tax or the
reduction in a payment of Tax otherwise required to be made by EOG or
an EOG Entity.
Any minimum tax credits generated by EOG in the Post-Deconsolidation Date
Period shall be disregarded in making determinations pursuant to this Section
3.2. Payments by EOG to reimburse Enron shall be made for each taxable year in
the Post-Deconsolidation Date Period upon the occurrence of either of the above
events until the Consolidated Minimum Tax Credits allocated to EOG are used in
their entirety. In the event the amount of the Consolidated Minimum Tax Credits
allocated to EOG is adjusted, resulting in a reduction of Consolidated Minimum
Tax Credits previously utilized by EOG, and a payment has been made by EOG to
Enron pursuant to this Section 3.2, Enron shall be obligated to pay EOG for any
assessment of Taxes made against it by the Internal Revenue Service
attributable to such adjustment. Any such payment by Enron shall be made to EOG
on the day EOG pays the Internal Revenue Service the amount of such assessment.
3.3 PAYMENT FOR THE RECOGNITION OF LOSS ON 1995 SWAP TRANSACTIONS.
(a) In the event Enron's stock ownership in EOG is reduced on
any date after the execution of this Agreement (the "Change Date") such that
Enron and EOG are no longer members of the same controlled group (within the
meaning of section 267(b)(3) and (f) of the Code), Enron and EOG shall
determine EOG's federal income tax basis in the Loss Contracts as of the Change
Date (the "Loss Contracts Tax Basis"). If any portion of the Loss Contracts Tax
Basis is allowed as an item of deduction or amortization to the Enron Group (a
"Recognized Loss Allowed Portion") for any taxable year in the
Post-Deconsolidation Date Period (a "Recognized Loss Allowance Year"), Enron
shall be obligated to pay to EOG with respect to each of the six taxable years
commencing with such Recognized Loss Allowance Year the greater of (x) the
Actual Tax Savings (as determined in Section 3.3(a)(i)) or (y) the Recognized
Loss Amortization Amount (as determined in Section 3.3(a)(ii)). Each such
payment shall be made by Enron to EOG within 30 days after the filing of the
Consolidated Return of the Enron Group for the respective taxable year. In the
event of any adjustment that reduces the amount Enron is obligated to pay to
EOG under this Section 3.3, EOG shall repay to Enron an amount equal to such
reduction upon written notice from Enron of such adjustment.
(i) The "Actual Tax Savings" means the amount by which the
Hypothetical Tax Liability exceeds the Actual Tax Liability for any
taxable year. For this purpose, the "Actual Tax Liability" means the
Consolidated Tax Liability of the Enron Group for the taxable year,
and the "Hypothetical Tax Liability" means the amount that would be
the Actual Tax Liability for such
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taxable year if the Recognized Loss Allowed Portion were not taken
into account.
(ii) The "Recognized Loss Amortization Amount" means an
amount determined by (x) multiplying the Recognized Loss Allowed
Portion by the maximum rate of tax imposed on corporations under
section 11 of the Code for the year in which the Recognized Loss
Allowed Portion is allowed as an item of deduction or amortization to
the Enron Group and (y) dividing the result by six.
(b) Notwithstanding the preceding provisions of this Section
3.3, in no event shall the aggregate payments made by Enron to EOG under
Section 3.3(a) with respect to any Recognized Loss Allowed Portion exceed an
amount determined by multiplying such Recognized Loss Allowed Portion by the
maximum rate of tax imposed on corporations under section 11 of the Code for
the year in which such Recognized Loss Allowed Portion is allowed as an item of
deduction or amortization to the Enron Group.
(c) Any Recognized Loss Allowed Portion shall be treated as an
EOG Unitary Loss for purposes of Section 2.2(c) of this Agreement.
3.4 PAYMENTS FOR SECTION 29 CREDITS. Enron shall pay to EOG on the
date of the execution of this Agreement the net amount of $669,184 related to
the net underreporting of Section 29 Credits for the taxable years 1992 through
1994 (which is comprised of $956,346 related to underreporting, and $ 287,162
related to overreporting, of Section 29 Credits for such years), together with
interest at the Interest Rate computed from the 15th day of the third month
following the end of the taxable year to which the respective Section 29
Credits relate.
3.5 PAYMENTS WITH RESPECT TO CAPITAL LOSS CARRYBACKS. If for any
taxable year in the Post-Deconsolidation Date Period EOG or an EOG Entity has a
"net capital loss" that is a "capital loss carryback" to a "prior taxable year"
in the Pre-Deconsolidation Date Period in which there is "capital gain net
income" (as such terms are defined in section 1212(a) of the Code), the
following payments shall be made between Enron and EOG upon the allowance of
such capital loss carryback as a deduction against the capital gain net income
for such prior taxable year:
(i) Enron shall pay to EOG an amount determined by
multiplying the capital loss carryback of EOG or such EOG Entity that
actually is allowed as a deduction to the Enron Group for the prior
taxable year by the statutory rate of federal income tax imposed on
the net capital gain of a corporation for such prior taxable year.
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(ii) EOG shall pay to Enron an amount equal to 100% of the
Section 29 Credits shown on the Consolidated Return of the Enron Group
for the prior taxable year that are disallowed for the prior taxable
year because of the carryback of the net capital loss of EOG or such
EOG Entity to the prior taxable year, together with interest on such
amount at the Interest Rate from the 15th day of the third month
following the end of the prior taxable year until paid.
ARTICLE IV
INDEMNIFICATION FOR TAXES
4.1 EOG TAXES. EOG and the EOG Subsidiaries, jointly and severally,
shall be responsible for, and shall indemnify and hold Enron and each Enron
Entity harmless from, (x) all Taxes imposed on, incurred by, or measured by the
income, operations, assets or capital of, EOG or any EOG Entity and (y) all
Taxes imposed on or incurred by Enron or any Enron Entity which are allocated
to EOG or any EOG Entity by Enron in accordance with the allocation methodology
set forth in the Base Agreement, Modification A, or this Agreement, including
specifically, but without limitation, any Taxes attributable to the 1995 Swap
Transactions or the amended returns filed pursuant to Section 2.1 of this
Agreement in excess of those paid by Enron pursuant to Section 2.1 of this
Agreement. EOG, in turn, shall be entitled to receive all refunds of such
Taxes, if any (including any refund of Taxes attributable to the 1995 Net Swap
Transactions paid by Enron pursuant to Section 2.1 of this Agreement), from
either the applicable taxing authorities or Enron (in the event such refunds
have been made directly to Enron).
4.2 ENRON TAXES. Enron shall be responsible for, and shall indemnify
and hold EOG and the EOG Subsidiaries harmless from, (x) all Taxes imposed on,
incurred by, or measured by the income, operations, assets or capital of, Enron
or any Enron Entity and (y) all Taxes imposed on or incurred by EOG or any EOG
Entity which are allocated to Enron or any Enron Entity by Enron in accordance
with the allocation methodology set forth in the Base Agreement, Modification
A, or this Agreement. Enron, in turn, shall be entitled to receive all refunds
of such Taxes, if any, from either the applicable taxing authorities or EOG (in
the event such refunds have been made directly to EOG).
4.3 PAYMENTS. Any payment by a Party to indemnify another Party
pursuant to this Article IV shall be made within 5 days after demand therefor
by the indemnified Party.
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ARTICLE V
AUDITS AND OTHER TAX PROCEEDINGS
5.1 GENERAL COOPERATION AND EXCHANGE OF INFORMATION.
(a) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, shall provide or cause to be provided to the other Party copies
of all correspondence received from any taxing authority in connection with the
liability of the Parties for Taxes for the Pre-Deconsolidation Date Period.
Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand,
shall also provide the other Party with access to or copies of any materials
requested by such Party which would be of assistance in resolving any tax
matters for the Pre-Deconsolidation Date Period. Further, the Parties will
provide each other with such cooperation and information as they may reasonably
request of each other in preparing or filing any return, amended return, or
claim for refund, in determining liability or right of refund, or in conducting
any audit or other proceeding in respect of Taxes imposed on the Parties or
their respective affiliates.
(b) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, and their affiliates, will preserve and retain all returns,
schedules, workpapers, and all material records and other documents relating to
any such returns, claims, audits, or other proceedings until the expiration of
the statutory period of limitations (including extensions) of the taxable
periods to which such documents relate and until the final determination of any
payments which may be required with respect to such periods under this
Agreement, and shall make such documents available at the then-current
corporate headquarters of such Party to the other Party or any affiliate
thereof, and their respective officers, employees, and agents, upon reasonable
notice and at reasonable times, it being understood that such representatives
shall be entitled to make copies of any such books and records relating to
Enron or EOG and the EOG Subsidiaries as they shall deem necessary.
(c) Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, further agree to permit representatives of the other Party or
any affiliate thereof to meet with employees of such Party on a mutually
convenient basis in order to enable such representatives to obtain additional
information and explanations of any documents provided pursuant to this Section
5.1. Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other
hand, shall make available to the representatives of the other Party or any
affiliate thereof sufficient work space and facilities to perform the
activities described in this Section 5.1. Any information obtained pursuant to
this Section 5.1 shall be kept confidential, except as may otherwise be
necessary in connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each Party shall provide the
cooperation and information required by this Section 5.1 at its own expense.
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5.2 AUDITS.
(a) In the event of an audit by the Internal Revenue Service or
any state, local or foreign taxing authority of a tax return filed by Enron for
any taxable period or portion thereof in the Pre-Deconsolidation Date Period,
or of any Unitary Tax Return or other tax return for any period that includes
both an Enron Entity and an EOG Entity, Enron shall give EOG timely and
reasonable notice of audit proceedings, and EOG and the EOG Subsidiaries shall
provide all necessary information and other assistance reasonably requested by
Enron with respect to issues concerning the activities of EOG and the EOG
Subsidiaries. All communications with the applicable taxing authority
concerning such audit shall be made or controlled by Enron. Enron shall use all
reasonable efforts to refute any unfavorable adjustments to EOG and the EOG
Entities, but Enron shall have full, exclusive and final control over all such
audit proceedings, except to the extent provided in Section 5.2(b).
(b) In the event that the Internal Revenue Service proposes an
adjustment to any Tax Item of EOG or any of the EOG Subsidiaries for that
portion of the 1995 taxable year ending on the Deconsolidation Date with
respect to which EOG has obtained and delivered to Enron a written opinion
satisfactory in form and substance to Enron of nationally recognized tax
counsel satisfactory to Enron (the "Tax Opinion") to the effect that it is at
least more likely than not that the tax treatment of such Tax Item (as reported
on the 1995 Consolidated Return of the Enron Group) will be upheld (an
adjustment which meets the foregoing Tax Opinion requirement is referred to as
an "EOG 1995 Adjustment"), EOG shall be permitted (at EOG's sole expense) to
control the audit proceedings and pursue any available administrative and
judicial remedies with respect to such EOG 1995 Adjustment, but only if such
EOG 1995 Adjustment can be separated from the audit and final determination of
all other adjustments proposed with respect to other Tax Items in the 1995
Consolidated Return of the Enron Group in a manner that would permit Enron to
control the settlement or contest of all such other Tax Items separate and
apart from the settlement or contest of the Tax Item related to such EOG 1995
Adjustment. Any EOG 1995 Adjustment which cannot be so separated from all other
adjustments (an "EOG 1995 Unsevered Adjustment") shall be subject to the
control of Enron as provided in Section 5.2(a). However, each of the EOG 1995
Unsevered Adjustments shall be categorized as either a Timing Difference or a
Permanent Difference. For this purpose, a "Timing Difference" is an EOG 1995
Unsevered Adjustment which, as finally determined, results in an increase in an
item of income or gain or decrease in an item of loss, deduction or credit for
1995 but will reverse by resulting in a decrease in an item of income or gain
or an increase in an item of loss, deduction or credit for any subsequent year
or years, and a "Permanent Difference" is any EOG 1995 Unsevered Adjustment, as
finally determined, other than a Timing Difference. The Timing Differences (in
the aggregate) and each Permanent Difference shall be subject to whichever of
the following is applicable:
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(i) If the aggregate of all Timing Differences increases the
federal income tax liability of EOG and the EOG Entities for that
portion of the 1995 taxable year ending on the Deconsolidation Date by
at least $1,750,000, Enron shall pay to EOG interest, at the Interest
Rate, for each 12- month period commencing March 15, 1996 until March
15 following the taxable year in which all Timing Differences have
fully reversed, on an amount equal to 35% (or 100% in the case of
those Timing Differences which result from a decrease in an item of
tax credit for 1995) of the excess of (x) the aggregate of all Timing
Differences over (y) the amount of all Timing Differences which have
reversed by the end of the taxable year preceding the end of the
respective 12-month period.
(ii) If the aggregate of all Timing Differences increases the
federal income tax liability of EOG and the EOG Entities for that
portion of the 1995 taxable year ending on the Deconsolidation Date by
less than $1,750,000, Enron shall not be obligated to pay any amount
to EOG with respect to Timing Differences.
(iii) In the case of each Permanent Difference, the method
for dealing with the settlement or contest of such Permanent
Difference shall be determined by the tax personnel of Enron and EOG
as part of their general cooperation and exchange of information
contemplated by Section 5.1 of this Agreement. If the tax personnel
are unable to resolve such matter, the matter shall be referred to
senior management of Enron and EOG for resolution. If senior
management are also unable to resolve such matter, Enron shall be
obligated to pay to EOG (x) an amount determined by multiplying 35% of
the amount of such Permanent Difference as finally determined (or 100%
if such Permanent Difference resulted from a decrease in an item of
tax credit for 1995) by 50% if the Tax Opinion concluded that the Tax
Item related to such Permanent Difference was more likely than not to
be upheld or by such other higher percentage expressed in the Tax
Opinion as to the likelihood that such Tax Item would be upheld, plus
(y) interest on such amount, at the Interest Rate, from March 15, 1996
until such amount is paid.
5.3 ACTIONS BY EOG AND ENRON. In no event shall EOG or any EOG
Subsidiary file any tax return or amended tax return, claim any refund, or make
any tax election with respect to or which could in any way affect or be
inconsistent with (x) any tax return filed for any taxable period or portion
thereof in the Pre-Deconsolidation Date Period or (y) any Unitary Tax Return
for any period that includes both an Enron Entity and an EOG Entity, without
first obtaining the written permission of Enron. In no event shall Enron file
any amended tax return, claim any refund, or make any tax election affecting or
with respect to
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the Pre-Deconsolidation Date Period that would have a material adverse effect
on EOG's financial condition or results of operation without first obtaining
the written permission of EOG. Upon written request from EOG, Enron shall take
all reasonable measures to timely obtain any refund of Tax due EOG or any EOG
Entity.
5.4 EOG TAX RETURNS. For any taxable period at any time during which
one or more members of the Enron Group own at least 50 percent (by voting power
or value) of the outstanding stock of EOG, EOG shall furnish to Enron a copy of
each Consolidated Return of the EOG Group, and any other tax return of any EOG
Entity requested by Enron, which is proposed to be filed by or with respect to
the EOG Group or an EOG Entity for such taxable period at least 15 days prior
to the proposed filing of such tax return with the applicable taxing authority.
With respect to any Consolidated Return filed with respect to the EOG Group for
a taxable period in the Post-Deconsolidation Date Period, EOG shall elect
pursuant to section 172(b)(3) of the Code to relinquish the carryback period
with respect to any net operating loss to the extent such loss otherwise could
be carried back to a taxable period in the Pre-Deconsolidation Date Period.
ARTICLE VI
OTHER PROVISIONS
6.1 EFFECT OF THIS AGREEMENT. The obligations of the Parties set
forth in this Agreement shall be unconditional and absolute, and shall remain
in effect without limitation as to time. All other tax sharing or allocation
agreements between Enron, on the one hand, and EOG and the EOG Subsidiaries, on
the other hand, including the Base Agreement and Modification A, shall
terminate effective with respect to taxable periods beginning after the
Deconsolidation Date, except that those provisions of the Base Agreement and
Modification A regarding the allocation of Unitary Tax Liability shall remain
in effect for the 1995 and 1996 taxable years except to the extent inconsistent
with the provisions of this Agreement.
6.2 TERMINATION OF 1995 AGREEMENT. Upon the execution of this
Agreement, the 1995 Agreement shall terminate and be of no force or effect
whatsoever.
6.3 CONFLICT. Because the terms of this Agreement generally
supersede the terms of the Base Agreement and Modification A, the Parties agree
that if there is any conflict or ambiguity between this Agreement and the Base
Agreement or Modification A, the terms of this Agreement shall control.
Notwithstanding the preceding sentence, if there is any conflict or ambiguity
between sections 2, 3 and 4 of Modification A and this Agreement, sections 2, 3
and 4 of Modification A shall control.
-14-
<PAGE> 15
6.4 ASSIGNABILITY. The rights and obligations of the Parties under
this Agreement may not be assigned by any Party without the prior written
consent of the other Parties to this Agreement.
6.5. MODE OF PAYMENT. Any payment to be made by a Party to another
Party pursuant to this Agreement shall be made by wire transfer to the account
of the payee-Party specified in a notice to the payor-Party.
6.6. NOTICES. All notices or demands pursuant to this Agreement shall
be in writing and shall be delivered in person, by confirmed facsimile or by
registered or certified mail to the chief financial officer (or the chief
accounting and information officer in the case of Enron) of the Party to whom
notice or demand is given at the then-current corporate headquarters of such
Party, or to such other officer or address as a Party may have previously
furnished to the other Parties in the manner provided herein for giving notice.
Any notice or demand shall be deemed to have been received as of the date so
delivered in person or by confirmed facsimile or, if mailed, three days after
the date so mailed.
6.7 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas.
IN WITNESS WHEREOF, the Parties hereto have caused their names to be
subscribed and this Agreement to be executed by their respective authorized
officers, on the dates indicated, effective as of the date stated above.
ENRON CORP.
Date: 2-17-98 By: /s/ Richard A. Causey
----------- -------------------------------------
Richard A. Causey
Sr. Vice President & Chief
Accounting & Information Officer
<PAGE> 16
ENRON OIL & GAS COMPANY
Date: 2-10-98 By: /s/ W. C. Wilson
--------------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS MARKETING, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
--------------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOG - CANADA, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
--------------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS INTERNATIONAL, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
--------------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - TRINIDAD, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
--------------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
<PAGE> 17
EOGI - AUSTRALIA, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - FRANCE, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - QATAR, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - UZBEKISTAN, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - KUWAIT, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
<PAGE> 18
ENRON OIL & GAS - CARTHAGE, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
ERSO, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
ENRON OIL & GAS PROPERTY
MANAGEMENT, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
NILO OPERATING COMPANY
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - TRINIDAD U(a) BLOCK, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
<PAGE> 19
EOGI - ALGERIA, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - KHAZAKSTAN, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - INDIA, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - CHINA, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
EOGI - UNITED KINGDOM, INC.
Date: 2-10-98 By: /s/ W. C. Wilson
----------- -------------------------------------
Walter C. Wilson
Senior Vice President &
Chief Financial Officer
<PAGE> 20
SCHEDULE A
LOSS CONTRACTS
1. Gas Sales Contract dated September 2, 1987 between Enron Oil & Gas
Company ("Seller") and Cogenron, Inc. ("Buyer"), as amended.
2. Gas Sales Contract dated October 5, 1987 between Enron Oil & Gas
Company ("Buyer") and Panhandle Gas Company ("Seller"), as amended.
3. Swap Agreement effective November 1, 1990 between Enron Oil & Gas
Company and Banque Paribas, as amended.
<PAGE> 1
Exhibit 10.9(c)
FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement, entered into on this 8th of September, 1998, and
made effective as of September 1, 1998, by and between ENRON CORP. ("Enron"
or "Parent") and ENRON OIL & GAS COMPANY ("Company"), and FORREST E. HOGLUND
("Employee") is an amendment to that certain Employment Agreement made and
entered into among the parties the 28th day of August, 1987 and made effective
as of September 1, 1987 (the "Employment Agreement"), as amended to date.
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration of Employee's continued engagement
with Company, and of the covenants contained herein, and for other good and
valuable consideration, the parties agree as follows:
1. Article 1: EMPLOYMENT AND DUTIES, Section 1.1 is amended to
read as follows:
"Employee agrees to serve as Chairman of the Board of the
Company, and to perform diligently and to the best of
Employee's abilities, the duties and services appertaining
to such position as reasonably directed by the Company.
Employee shall have the general powers and duties of
management and supervision customarily vested in the office
of Chairman in the same or similar businesses or enterprises
as that engaged in by Company."
2. Article 2: TERM OF EMPLOYMENT is amended to read as follows:
"Unless sooner terminated pursuant to other provisions
hereof, Employee's period of employment under this Agreement
shall extend from the effective date of this Agreement
through September 1, 1999 (the "initial Term").
3. Paragraph 2 of the Fourth Amendment to the Employment
Agreement is hereby deleted and the following inserted in
its place:
"Before December 31, 1994, the Company shall cause Employee
to receive a grant of an option under the Enron Oil & Gas
Company 1992 Stock Plan (the "Plan") to purchase one million
eight hundred twenty thousand (1,820,000) shares of common
stock of the Company (the "Shares") at a price equal to the
Fair Market Value (as defined in the Plan) of such shares on
the date of grant; provided however, said grant shall be
contingent upon and subject to the Company's shareholders
approving
-1-
<PAGE> 2
before May 15, 1995 an amendment to the Plan that increases
the number of shares available for granting Awards under the
Plan by a number not less than said number of Shares. If for
any reason after the grant is made such shareholder approval
is not obtained before May 15, 1995, this Agreement shall be
rescinded and the grant made hereunder shall become null and
void as thought it never existed. The grant is further
amended hereby and Employee, Employee's estate or the person
who acquires the Option by bequest or inheritance by reason
of death of Employee, may exercise the Option at any time
during the period of thirty six months following the date of
Employee's death, Disability, Retirement or Involuntary
Termination up to the number of vested shares of Stock
Employee was entitled to under the Option; provided however,
the Option shall not be exercisable in any event after the
expiration of seven years from the date of grant.
This Amendment is a Fifth Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON CORP.
By: /s/ Peggy B. Menchaca
-----------------------------------------
Name: Peggy B. Menchaca
Title: Vice President & Secretary
This 18th day of December, 1998
---- -------- ----------------
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
-----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 18th day of December, 1998
---- -------- ----------------
FORREST E. HOGLUND
/s/ Forrest E. Hoglund
---------------------------------------------
This 18th day of December, 1998
---- -------- ----------------
-3-
<PAGE> 1
EXHIBIT 10.63(c)
SECOND AMENDMENT TO
ENRON OIL & GAS COMPANY 1996 DEFERRAL PLAN
WHEREAS, Enron Oil & Gas Company (the "Company") has heretofore adopted
the Enron Oil & Gas Company 1996 Deferral Plan (the "Plan"); and
WHEREAS, the Board of Directors of the Company has determined and
authorized that the Plan be amended;
NOW, THEREFORE, effective January 1, 1999, the Plan is amended as
follows:
Section 3.7 is added to Article III:
"3.7 Company Deferral Contributions. As of any date selected by
the Company, the Company may make Company Deferrals on a Member's
behalf in such amount, if any, as the Company shall determine in
its sole discretion, and to any investment account under the
Plan. Such Company Deferrals may be made on behalf of some
Participants to the exclusion of others, and may vary among
individual Participants in amount and/or with respect to the
investment account in which they may be credited."
Section 6.1 under Article VI of the Plan is deleted and the following
is inserted in its place:
"6.1 Participant Elections. Participants may elect a lump sum
payout or periodic annual payouts from two years to 15 years
following the event of retirement, disability, death or
termination (except for cause). Additionally, a Participant may
elect to receive a distribution, with respect to all or a part of
his Deferrals for a Plan Year, to commence prior to such an event
of retirement, disability, death or termination, any time
following the third anniversary of such election. The period of
benefit payments must be chosen at the time that the election to
defer compensation is made (an "Initial Payout Election"). A lump
sum payment may be elected for 1996 deferrals or for any
subsequent year of Plan participation."
AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed.
Dated effective as of December 8, 1998.
ATTEST: ENRON OIL & GAS COMPANY
By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards
------------------------------ ---------------------------
Angus H. Davis Patricia L. Edwards
Vice President, Communications Vice President, Human Resources
and Corporate Secretary & Administration
<PAGE> 1
Exhibit 10.64(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 12th of March, 1999, and made
effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY
("Company" or "Employer") and MARK G. PAPA ("Employee") is an amendment to that
certain Employment Agreement made effective as of November 1, 1997 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
" 3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the then
current Monthly Base Salary as if Employee's employment (which
shall cease on the date of such Involuntary Termination) had
continued for the full Term of this Agreement.
Notwithstanding any other provisions of this Agreement, a
termination of the employment relationship by either the
Employer or Employee which meets the definition of Involuntary
Termination under the Company's Change of Control Severance
Plan (the "Plan") shall constitute an Involuntary Termination
under this Agreement. In the event of such Involuntary
Termination which entitles Employee to severance benefits
under the Plan but for the following severance payment by the
Company to the Employee, Employee shall receive from the
Company a severance benefit under this Agreement equal to the
sum of Employee's then current Monthly Base Salary times 12
times 2.99 plus two times the Employee's annual bonus target
award under the Company's annual bonus program for the year in
which the Change of Control Date occurs. Employee's severance
benefit payable under the Plan, if any, shall be determined
according to the provisions thereof. Employee shall not be
under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts
due Employee hereunder shall not be reduced or suspended if
Employee accepts subsequent employment. Employee's rights
under this Section 3.5 are Employee's sole and exclusive
rights against Employer, Enron, or their affiliates, and
<PAGE> 2
Employer's sole and exclusive liability to Employee under this
Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
2. The following sentence shall be inserted at the end of Article
6, Section 6.1:
"However, upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect."
3. The following new Article 8 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 8: U.S. EXCISE TAX INDEMNIFICATION
8.1 Indemnification. In the event it shall be
determined that any payment or distribution by the Company to
or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement, the Company's Change of Control Severance Plan or
otherwise, but determined without regard to any additional
payments required under this Article 8) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Employee
shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income and employment taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
8.2 Determination of Amount. Subject to the
provisions of Section 8.3, all determinations required to be
made under this Article 8, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a public accounting firm
chosen by the Company (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company
and Employee if
<PAGE> 3
requested by either the Company or Employee. All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any determination by the Accounting Firm shall be
binding upon the Company and Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and Employee thereafter is
required to make a payment of any additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of Employee.
8.3 Contest of Claims. If the Company elects to
contest a claim by the Internal Revenue Service that Excise
Tax is due from Employee, Employee shall cooperate fully with
the Company in order to effectively contest such claim,
including, but not limited to providing information reasonably
requested by the Company relating to such claim, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company and permitting the Company
to participate in any proceedings relating to such claim. The
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, for any Excise Tax
or other tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of costs and expenses.
8.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 8.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 8.4, a determination is made
that Employee is not entitled to any refund with respect to
such claim, then such advance shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the
<PAGE> 4
Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ Forrest E. Hoglund
--------------------------------------
Name: Forrest E. Hoglund
Title: Chairman
This 11th day of March, 1999
MARK G. PAPA
/s/ Mark G. Papa
--------------------------------------
This 12th day of March, 1999
<PAGE> 1
EXHIBIT 10.65(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and
Edmund P. Segner, III, an individual currently residing at 4130 Tennyson,
Houston, Texas 77005 ("Employee"), to be effective as of September 1, 1998 (the
"Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities, provided that such assignment or
modification is consistent with that of an officer of Employer. Employee agrees
to serve in the assigned position and to perform diligently and to the best of
Employee's abilities the duties and services appertaining to such position as
determined by Employer, as well as such additional or different duties and
services appropriate to such position which Employee from time to time may be
reasonably directed to perform by Employer. Employee shall at all times comply
with and be subject to such policies and procedures as Employer may establish
from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron Corp. ("Enron"), or requires any significant
portion of Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
1
<PAGE> 2
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with
2
<PAGE> 3
Employer's standard payroll practice. Any calculation to be made under this
Agreement with respect to Employee's Monthly Base Salary shall be made using the
then current Monthly Base Salary in effect at the time of the event for which
such calculation is made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1 Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or management committee (or, if there is no management
committee, the highest applicable level of Employer's management)
that "cause" exists for the termination of the employment
relationship. As used in this Section 3.1(i), the term "cause"
shall mean [a] Employee's gross negligence or willful misconduct
in the performance of the duties and services required of Employee
pursuant to this Agreement; [b] Employee's final conviction of a
felony involving moral turpitude; [c] Employee's willful refusal
without proper legal reason to perform the duties and
responsibilities required of Employee under this Agreement which
remains uncorrected for thirty (30) days following written notice
to Employee by Employer of such breach; [d] Employee's involvement
in a conflict of interest as referenced in Section 1.6 for which
Employer makes a determination to terminate the employment of
Employee which remains uncorrected for thirty (30) days following
written notice
3
<PAGE> 4
to Employee by Employer of such breach; [e] Employee's willful
engagement in conduct that Employee knows or should know is
materially injurious to Employer, Enron, or any of their
respective subsidiaries; [f] Employee's material breach of any
material provision of this Agreement or corporate code or policy
which remains uncorrected for thirty (30) days following written
notice to Employee by Employer of such breach; or [g] Employee's
violation of the Foreign Corrupt Practices Act or other applicable
United States law as proscribed by Section 5.1. It is expressly
acknowledged and agreed that the decision as to whether "cause"
exists for termination of the employment relationship by Employer
is delegated to the Employer's management committee (or, if there
is no management committee, the highest applicable level of
Employer's management) for determination. If Employee disagrees
with the decision reached by Employer's management committee (or,
if there is no management committee, the highest applicable level
of Employer's management), the dispute will be limited to whether
Employer's management committee (or, if there is no management
committee, the highest applicable level of Employer's management)
reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is no
management committee, the highest applicable level of management)
of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if Employee
is not eligible to participate in such plan, then Employee is
permanently and totally unable to perform Employee's duties for
Employer as a result of any medically determinable physical or
mental impairment as supported by a written medical opinion to the
foregoing effect by a physician selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of this
Agreement which remains uncorrected for 30 days following written
notice of such breach by Employee to Employer; or
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<PAGE> 5
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, Employee shall be entitled to pro rata
salary through the date of such termination, but Employee shall not be entitled
to any individual bonuses or individual incentive compensation not yet paid at
the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the then current Monthly Base Salary as
if Employee's employment (which shall cease on the date of such Involuntary
Termination) had continued for the full Term of this Agreement. If such
Involuntary Termination occurs within two years after a Change of Control, as
defined in Employer's Change of Control Severance Plan, Employee shall receive a
minimum of twenty-four (24) months of the then current Monthly Base Salary.
Employee shall not be under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee accepts subsequent
employment. Employee's rights under this Section 3.5 are Employee's sole and
exclusive rights against Employer, Enron, or their affiliates, and Employer's
sole and exclusive liability to Employee under this Agreement, in contract,
tort, or otherwise, for any Involuntary Termination of the employment
relationship. Employee covenants not to sue or lodge any claim, demand or cause
of action against Employer for any sums for Involuntary Termination other than
those sums specified in this Section 3.5. If Employee breaches this covenant,
Employer shall be entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection with such suit,
claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination,
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<PAGE> 6
but Employee shall not be entitled to any individual bonuses or individual
incentive compensation not yet paid to Employee at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or their affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
3.10 Upon termination of the employment relationship between Employee
and Employer for any reason, Employee shall be entitled to receive compensation
and benefits earned and accrued by Employee during his/her employment as are
specifically provided in any applicable employee compensation and/or benefit
plan document and any grant or award agreement thereunder.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
5.1 Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of
6
<PAGE> 7
the FCPA or other applicable United States law were taken in good faith and in
compliance with all applicable policies of Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates , all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 6, but shall
be in addition to all remedies available at law or in equity to
7
<PAGE> 8
Employer, including the recovery of damages from Employee and his or her agents
involved in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated
8
<PAGE> 9
companies are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the business conducted by
Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship. Further, if Employer ceases to be publicly traded, Employee may
exercise his right to voluntarily resign under Section 3.2(ii). If Employee
exercises such right, these non-competition obligations shall expire immediately
and have no further force and effect, and the Employer shall have no further
obligations to Employee under this Agreement.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
9
<PAGE> 10
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers, employees,
agents, or representatives in a false light before the public; or that
constitute a misappropriation of the name or likeness of Employer, Enron, any of
their respective subsidiaries or affiliates, or any of such entities' or its
officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights afforded
the Enron entities and affiliates under this provision are in addition to any
and all rights and remedies otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through
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<PAGE> 11
direct discussions, then Employer and Employee agree to first endeavor to settle
the dispute in an amicable manner by mediation, before having recourse to any
other proceeding or forum.
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to compensation and benefit plans. This
Agreement replaces and merges previous agreements and discussions pertaining to
the following subject matters covered herein: the nature of Employee's
employment relationship with Employer and the term and termination of such
relationship. This Agreement constitutes the entire agreement of the parties
with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not embodied
herein, and that no agreement, statement, or promise relating to the employment
of Employee by Employer that is not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing and signed by each party whose rights hereunder are affected thereby,
provided that any such modification must be authorized or approved by the Board
of Directors of Employer.
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IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
---------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
---------------------------------------
This 29th day of September, 1998
---- --------- ---------------
EDMUND P. SEGNER, III
/s/ Edmund P. Segner, III
---------------------------------------------
This 29th day of September, 1998
---- --------- ----------------
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND EDMUND P. SEGNER, III
Employee Name: Edmund P. Segner, III
Term: September 1, 1998 through August 31, 2001
Position: Vice Chairman and Chief of Staff
Location: Houston, Texas
Reporting Relationship: Reports to Mark G. Papa, President and Chief
Executive Officer
Monthly Base Salary: Twenty-nine thousand one hundred sixty-six dollars
and sixty-seven cents ($29,166.67)
Bonus: Employee shall be eligible to participate in
Employer's annual bonus program, under which bonuses
may be paid in a combination of cash, stock options,
and/or phantom stock units, as determined by the
Compensation Committee of Employer's Board of
Directors.
Long-Term Incentives: Employee shall be eligible to receive long-term
incentive grants consistent with similarly situated
executives of Employer.
Stock Option Grant: Employee shall receive a grant of 175,000 stock
options, effective September 8, 1998, vesting 20% on
the Grant Date and 20% on each of the first four
anniversaries of the Grant Date, as evidenced by an
Award Agreement, upon execution of this Agreement.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
---------------------------------------
This 29th day of September, 1998
---- --------- ---------------
EDMUND P. SEGNER, III
/s/ Edmund P. Segner, III
This 29th day of September, 1998
---- --------- ---------------
13
<PAGE> 1
Exhibit 10.65(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 11th of March, 1999, and made
effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY
("Company" or "Employer") and EDMUND P. SEGNER, III ("Employee") is an amendment
to that certain Employment Agreement made effective as of September 1, 1998 (the
"Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the then
current Monthly Base Salary as if Employee's employment (which
shall cease on the date of such Involuntary Termination) had
continued for the full Term of this Agreement. Notwithstanding
any other provisions of this Agreement, a termination of the
employment relationship by either the Employer or Employee
which meets the definition of Involuntary Termination under
the Company's Change of Control Severance Plan (the "Plan")
shall constitute an Involuntary Termination under this
Agreement. In the event of such Involuntary Termination which
entitles Employee to severance benefits under the Plan but for
the following severance payment by the Company to the
Employee, Employee shall receive from the Company a severance
benefit under this Agreement equal to the sum of Employee's
then current Monthly Base Salary times 12 times 2.99 plus two
times the Employee's annual bonus target award under the
Company's annual bonus program for the year in which the
Change of Control Date occurs. Employee's severance benefit
payable under the Plan, if any, shall be determined according
to the provisions thereof. Employee shall not be under any
duty or obligation to seek or accept other employment
following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee
accepts subsequent employment. Employee's rights under this
Section 3.5 are Employee's sole and exclusive rights against
Employer, Enron, or their affiliates, and Employer's sole and
exclusive liability to Employee under
<PAGE> 2
this Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
2. The last paragraph of Article 7, Section 7.1 is hereby deleted
in its entirety and the following is substituted therefor:
"These non-competition obligations shall extend until the
earlier of (a) expiration of the Term or (b) one year after
termination of the employment relationship; provided, however,
that upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect. Further, if Employer ceases to be
publicly traded, Employee may exercise his right to
voluntarily resign under Section 3.2(ii). If Employee
exercises such right, these non-competition obligations shall
expire immediately and have no further force and effect, and
the Employer shall have no further obligations to Employee
under this Agreement."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be
determined that any payment or distribution by the Company to
or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement, the Company's Change of Control Severance Plan or
otherwise, but determined without regard to any additional
payments required under this Article 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Employee
shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income and employment taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
<PAGE> 3
9.2 Determination of Amount. Subject to the provisions
of Section 9.3, all determinations required to be made under
this Article 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a public accounting firm chosen by the
Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee if
requested by either the Company or Employee. All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any determination by the Accounting Firm shall be
binding upon the Company and Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9.3 and Employee thereafter is
required to make a payment of any additional Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of Employee.
9.3 Contest of Claims. If the Company elects to contest
a claim by the Internal Revenue Service that Excise Tax is due
from Employee, Employee shall cooperate fully with the Company
in order to effectively contest such claim, including, but not
limited to providing information reasonably requested by the
Company relating to such claim, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company and permitting the Company to participate in
any proceedings relating to such claim. The Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses.
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 9.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this
<PAGE> 4
Section 9.4, a determination is made that Employee is not
entitled to any refund with respect to such claim, then such
advance shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ Forrest E. Hoglund
--------------------------------------
Name: Forrest E. Hoglund
Title: Chairman
This 11th day of March, 1999
EDMUND P. SEGNER, III
/s/ Edmund P. Segner, III
--------------------------------------
This 11th day of March, 1999
<PAGE> 1
EXHIBIT 10.66(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and
Dennis M. Ulak, an individual currently residing at 54 Lyric Arbor, The
Woodlands, Texas 77381 ("Employee"), to be effective as of September 1, 1998
(the "Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities, provided that such assignment or
modification is consistent with that of an officer of Employer. Employee agrees
to serve in the assigned position and to perform diligently and to the best of
Employee's abilities the duties and services appertaining to such position as
determined by Employer, as well as such additional or different duties and
services appropriate to such position which Employee from time to time may be
reasonably directed to perform by Employer. Employee shall at all times comply
with and be subject to such policies and procedures as Employer may establish
from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron Corp. ("Enron"), or requires any significant
portion of Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
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1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with
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<PAGE> 3
Employer's standard payroll practice. Any calculation to be made under this
Agreement with respect to Employee's Monthly Base Salary shall be made using the
then current Monthly Base Salary in effect at the time of the event for which
such calculation is made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1 Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or management committee (or, if there is no management
committee, the highest applicable level of Employer's management)
that "cause" exists for the termination of the employment
relationship. As used in this Section 3.1(i), the term "cause"
shall mean [a] Employee's gross negligence or willful misconduct
in the performance of the duties and services required of
Employee pursuant to this Agreement; [b] Employee's final
conviction of a felony involving moral turpitude; [c] Employee's
willful refusal without proper legal reason to perform the duties
and responsibilities required of Employee under this Agreement
which remains uncorrected for thirty (30) days following written
notice to Employee by Employer of such breach; [d] Employee's
involvement in a conflict of interest as referenced in Section
1.6 for which Employer makes a determination to terminate the
employment of Employee which remains uncorrected for thirty (30)
days following written notice
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<PAGE> 4
to Employee by Employer of such breach; [e] Employee's willful
engagement in conduct that Employee knows or should know is
materially injurious to Employer, Enron, or any of their
respective subsidiaries; [f] Employee's material breach of any
material provision of this Agreement or corporate code or policy
which remains uncorrected for thirty (30) days following written
notice to Employee by Employer of such breach; or [g] Employee's
violation of the Foreign Corrupt Practices Act or other
applicable United States law as proscribed by Section 5.1. It is
expressly acknowledged and agreed that the decision as to whether
"cause" exists for termination of the employment relationship by
Employer is delegated to the Employer's management committee (or,
if there is no management committee, the highest applicable level
of Employer's management) for determination. If Employee
disagrees with the decision reached by Employer's management
committee (or, if there is no management committee, the highest
applicable level of Employer's management), the dispute will be
limited to whether Employer's management committee (or, if there
is no management committee, the highest applicable level of
Employer's management) reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is no
management committee, the highest applicable level of management)
of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if Employee
is not eligible to participate in such plan, then Employee is
permanently and totally unable to perform Employee's duties for
Employer as a result of any medically determinable physical or
mental impairment as supported by a written medical opinion to
the foregoing effect by a physician selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of this
Agreement which remains uncorrected for 30 days following written
notice of such breach by Employee to Employer; or
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<PAGE> 5
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, Employee shall be entitled to pro rata
salary through the date of such termination, but Employee shall not be entitled
to any individual bonuses or individual incentive compensation not yet paid at
the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the then current Monthly Base Salary as
if Employee's employment (which shall cease on the date of such Involuntary
Termination) had continued for the full Term of this Agreement. If such
Involuntary Termination occurs within two years after a Change of Control, as
defined in Employer's Change of Control Severance Plan, Employee shall receive a
minimum of twenty-four (24) months of the then current Monthly Base Salary.
Employee shall not be under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee accepts subsequent
employment. Employee's rights under this Section 3.5 are Employee's sole and
exclusive rights against Employer, Enron, or their affiliates, and Employer's
sole and exclusive liability to Employee under this Agreement, in contract,
tort, or otherwise, for any Involuntary Termination of the employment
relationship. Employee covenants not to sue or lodge any claim, demand or cause
of action against Employer for any sums for Involuntary Termination other than
those sums specified in this Section 3.5. If Employee breaches this covenant,
Employer shall be entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection with such suit,
claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination,
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but Employee shall not be entitled to any individual bonuses or individual
incentive compensation not yet paid to Employee at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or their affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
3.10 Upon termination of the employment relationship between Employee
and Employer for any reason, Employee shall be entitled to receive compensation
and benefits earned and accrued by Employee during his/her employment as are
specifically provided in any applicable employee compensation and/or benefit
plan document and any grant or award agreement thereunder.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
5.1 Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of
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the FCPA or other applicable United States law were taken in good faith and in
compliance with all applicable policies of Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 6, but shall
be in addition to all remedies available at law or in equity to
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Employer, including the recovery of damages from Employee and his or her agents
involved in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated
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companies are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the business conducted by
Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or
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confidential information about Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' business affairs, officers,
employees, agents, or representatives; or that constitute an intrusion into the
seclusion or private lives of Employer, Enron, any of their respective
subsidiaries or affiliates, or such entities' officers, employees, agents, or
representatives; or that give rise to unreasonable publicity about the private
lives of Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' officers, employees, agents, or representatives; or that
place Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' or its officers, employees, agents, or representatives in
a false light before the public; or that constitute a misappropriation of the
name or likeness of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' or its officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined by the courts. The rights afforded the Enron entities and affiliates
under this provision are in addition to any and all rights and remedies
otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
10
<PAGE> 11
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Montgomery County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to compensation and benefit plans. This
Agreement replaces and merges previous agreements and discussions pertaining to
the following subject matters covered herein: the nature of Employee's
employment relationship with Employer and the term and termination of such
relationship. This Agreement constitutes the entire agreement of the parties
with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not embodied
herein, and that no agreement, statement, or promise relating to the employment
of Employee by Employer that is not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing and signed by each party whose rights hereunder are affected thereby,
provided that any such modification must be authorized or approved by the Board
of Directors of Employer.
11
<PAGE> 12
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
---------------------------------------
This 29th day of September, 1998
---- --------- ---------------
DENNIS M. ULAK
/s/ Dennis M. Ulak
---------------------------------------------
This 29th day of September, 1998
---- --------- ---------------
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND DENNIS M. ULAK
Employee Name: Dennis M. Ulak
Term: September 1, 1998 through August 31, 2001
Position: Chairman and Chief Executive Officer, Enron Oil & Gas
International
Location: Houston, Texas
Reporting Relationship: Reports to Mark G. Papa, President and Chief
Executive Officer
Monthly Base Salary: Twenty-five thousand dollars ($25,000)
Bonus: Employee shall be eligible to participate in
Employer's annual bonus program, under which bonuses
may be paid in a combination of cash, stock options,
and/or phantom stock units, as determined by the
Compensation Committee of Employer's Board of
Directors.
Long-Term Incentives: Employee shall be eligible to receive long-term
incentive grants consistent with similarly situated
executives of Employer.
Stock Option Grant: Employee shall receive a grant of 125,000 stock
options, effective September 8, 1998, vesting 20% on
the Grant Date and 20% on each of the first four
anniversaries of the Grant Date, as evidenced by an
Award Agreement, upon execution of this Agreement.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
------------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
---------------------------------------
This 29th day of September, 1998
---- --------- ---------------
DENNIS M. ULAK
/s/ Dennis M. Ulak
---------------------------------------------
This 29th day of September, 1998
---- --------- ---------------
13
<PAGE> 1
EXHIBIT 10.66(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 18th of March, 1999, and
made effective as of February 1, 1999, by and between ENRON OIL & GAS
COMPANY ("Company" or "Employer") and DENNIS M. ULAK ("Employee") is an
amendment to that certain Employment Agreement made effective as of September 1,
1998 (the "Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the then
current Monthly Base Salary as if Employee's employment (which
shall cease on the date of such Involuntary Termination) had
continued for the full Term of this Agreement. Notwithstanding
any other provisions of this Agreement, a termination of the
employment relationship by either the Employer or Employee
which meets the definition of Involuntary Termination under
the Company's Change of Control Severance Plan shall
constitute an Involuntary Termination under this Agreement. In
the event of such Involuntary Termination which entitles
Employee to severance benefits under said Plan, but for the
following severance payment by the Company to the Employee,
Employee shall receive from the Company a severance benefit
under this Agreement equal to the sum of Employee's then
current Monthly Base Salary times 12 times 2.99 plus two times
the Employee's annual bonus target award under the Company's
annual bonus program for the year in which the Change of
Control Date occurs. Employee's severance benefit payable
under said Plan, if any, shall be determined according to the
provisions thereof. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and the amounts due Employee hereunder
shall not be reduced or suspended if Employee accepts
subsequent employment. Employee's rights under this Section
3.5 are Employee's sole and exclusive rights against Employer,
Enron, or their affiliates, and Employer's sole and exclusive
liability to Employee under
<PAGE> 2
this Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
2. The following sentence shall be inserted at the end of
Article 7, Section 7.1:
"However, upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be
determined that any payment or distribution by the Company to
or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement, the Company's Change of Control Severance Plan or
otherwise, but determined without regard to any additional
payments required under this Article 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Employee
shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income and employment taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
9.2 Determination of Amount. Subject to the provisions
of Section 9.3, all determinations required to be made under
this Article 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a public accounting firm chosen by the
Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee if
requested by either the Company or Employee. All fees and
expenses of
<PAGE> 3
the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9.3 and Employee thereafter is required to
make a payment of any additional Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of Employee.
9.3 Contest of Claims. If the Company elects to contest
a claim by the Internal Revenue Service that Excise Tax is due
from Employee, Employee shall cooperate fully with the Company
in order to effectively contest such claim, including, but not
limited to providing information reasonably requested by the
Company relating to such claim, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company and permitting the Company to participate in
any proceedings relating to such claim. The Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses.
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 9.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 9.4, a determination is made
that Employee is not entitled to any refund with respect to
such claim, then such advance shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the
<PAGE> 4
Employment Agreement, and any amendments thereto, shall remain in full force
and effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
----------------------------------------
Name: Patricia Edwards
Title: V. P. Human Resources & Administration
This 18th day of March, 1999
DENNIS M. ULAK
/s/ DENNIS M. ULAK
----------------------------------------
This 18th day of March, 1999
<PAGE> 1
Exhibit 10.67(a)
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between Enron Oil & Gas Company, a Delaware corporation,
having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and
Jeffrey B. Sherrick, an individual currently residing at 18822 Autumn Breeze
Drive, Spring, Texas 77379 ("Employee"), to be effective as of September 1, 1998
(the "Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee initially shall be employed in the position set forth on
Exhibit A. Employer may subsequently assign Employee to a different position or
modify Employee's duties and responsibilities, provided that such assignment or
modification is consistent with that of an officer of Employer. Employee agrees
to serve in the assigned position and to perform diligently and to the best of
Employee's abilities the duties and services appertaining to such position as
determined by Employer, as well as such additional or different duties and
services appropriate to such position which Employee from time to time may be
reasonably directed to perform by Employer. Employee shall at all times comply
with and be subject to such policies and procedures as Employer may establish
from time to time.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or Enron Corp. ("Enron"), or requires any significant
portion of Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall endeavor to provide Employee access to such confidential information
pertaining to the business and services of Employer as is appropriate for
Employee's employment responsibilities. Employer also shall endeavor to provide
to Employee the opportunity to develop business relationships with those of
Employer's clients and potential clients that are appropriate for Employee's
employment responsibilities.
1
<PAGE> 2
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business, its
interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit of others any information or opportunities pertaining
to Employer's business or interests that are entrusted to Employee or that he
learned while employed by Employer. Employee acknowledges and agrees that upon
termination of the employment relationship, Employee shall continue to refrain
from using for his own benefit or the benefit of others any information or
opportunities pertaining to Employer's business or interests that were entrusted
to Employee during the employment relationship or that he learned while employed
by Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Employee agrees that Employee shall
disclose to Employer's President any facts which might involve such a conflict
of interest that has not been approved by Employer's President. Employer and
Employee recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Employer and Employee recognize there are many borderline situations. In some
instances, full disclosure of facts by the Employee to Employer's President may
be all that is necessary to enable Employer or its affiliates to protect its
interests. In others, if no improper motivation appears to exist and the
interests of Employer or its affiliates have not suffered, prompt elimination of
the outside interest will suffice. In still others, it may be necessary for
Employer to terminate the employment relationship. Employer and Employee agree
that Employer's determination as to whether a conflict of interest exists shall
be conclusive. Employer reserves the right to take such action as, in its
judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and conditions
of this Agreement constitute confidential information. Employee shall keep
confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with
2
<PAGE> 3
Employer's standard payroll practice. Any calculation to be made under this
Agreement with respect to Employee's Monthly Base Salary shall be made using the
then current Monthly Base Salary in effect at the time of the event for which
such calculation is made.
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective date
or thereafter are made available by Employer to all or substantially all of
Employer's employees. Such benefits, plans, and programs may include, without
limitation, medical, health, and dental care, life insurance, disability
protection, and pension plans. Nothing in this Agreement is to be construed or
interpreted to provide greater rights, participation, coverage, or benefits
under such benefit plans or programs than provided to similarly situated
employees pursuant to the terms and conditions of such benefit plans and
programs.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as such
actions are similarly applicable to covered employees generally. Moreover,
unless specifically provided for in a written plan document adopted by the Board
of Directors of either Employer or Enron, none of the benefits or arrangements
described in this Article 2 shall be secured or funded in any way, and each
shall instead constitute an unfunded and unsecured promise to pay money in the
future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
(i) For "cause" upon the determination by the Employer's Board of
Directors or management committee (or, if there is no management
committee, the highest applicable level of Employer's management)
that "cause" exists for the termination of the employment
relationship. As used in this Section 3.1(i), the term "cause"
shall mean [a] Employee's gross negligence or willful misconduct
in the performance of the duties and services required of
Employee pursuant to this Agreement; [b] Employee's final
conviction of a felony involving moral turpitude; [c] Employee's
willful refusal without proper legal reason to perform the duties
and responsibilities required of Employee under this Agreement
which remains uncorrected for thirty (30) days following written
notice
3
<PAGE> 4
to Employee by Employer of such breach; [d] Employee's
involvement in a conflict of interest as referenced in Section
1.6 for which Employer makes a determination to terminate the
employment of Employee which remains uncorrected for thirty (30)
days following written notice to Employee by Employer of such
breach; [e] Employee's willful engagement in conduct that
Employee knows or should know is materially injurious to
Employer, Enron, or any of their respective subsidiaries; [f]
Employee's material breach of any material provision of this
Agreement or corporate code or policy which remains uncorrected
for thirty (30) days following written notice to Employee by
Employer of such breach; or [g] Employee's violation of the
Foreign Corrupt Practices Act or other applicable United States
law as proscribed by Section 5.1. It is expressly acknowledged
and agreed that the decision as to whether "cause" exists for
termination of the employment relationship by Employer is
delegated to the Employer's management committee (or, if there is
no management committee, the highest applicable level of
Employer's management) for determination. If Employee disagrees
with the decision reached by Employer's management committee (or,
if there is no management committee, the highest applicable level
of Employer's management), the dispute will be limited to whether
Employer's management committee (or, if there is no management
committee, the highest applicable level of Employer's management)
reached its decision in good faith;
(ii) for any other reason whatsoever, with or without cause, in the
sole discretion of the management committee (or, if there is no
management committee, the highest applicable level of management)
of Employer;
(iii) upon Employee's death; or
(iv) upon Employee's becoming disabled so as to entitle Employee to
benefits under Enron's long-term disability plan or, if Employee
is not eligible to participate in such plan, then Employee is
permanently and totally unable to perform Employee's duties for
Employer as a result of any medically determinable physical or
mental impairment as supported by a written medical opinion to
the foregoing effect by a physician selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1(i); the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1(ii); the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1(iii) as
a result of Employee's death is specified in Section 3.6. The effect of the
employment relationship being terminated pursuant to Section 3.1(iv) as a result
of the Employee becoming incapacitated is specified in Section 3.7.
3.2 Notwithstanding any other provisions of this Agreement except
Section 8.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
(i) a material breach by Employer of any material provision of this
Agreement which remains uncorrected for 30 days following written
notice of such breach by Employee to Employer; or
4
<PAGE> 5
(ii) for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2(i); the effect of such termination is specified in Section 3.5. The
termination of Employee's employment by Employee prior to the expiration of the
Term shall constitute a "Voluntary Termination" if made pursuant to Section
3.2(ii); the effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, Employee shall be entitled to pro rata
salary through the date of such termination, but Employee shall not be entitled
to any individual bonuses or individual incentive compensation not yet paid at
the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by Employer
for Cause prior to expiration of the Term, Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to the expiration of the Term, Employee shall
be entitled, in consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation, Employee's
non-competition obligations), to receive the then current Monthly Base Salary as
if Employee's employment (which shall cease on the date of such Involuntary
Termination) had continued for the full Term of this Agreement. If such
Involuntary Termination occurs within two years after a Change of Control, as
defined in Employer's Change of Control Severance Plan, Employee shall receive a
minimum of twenty-four (24) months of the then current Monthly Base Salary.
Employee shall not be under any duty or obligation to seek or accept other
employment following Involuntary Termination and the amounts due Employee
hereunder shall not be reduced or suspended if Employee accepts subsequent
employment. Employee's rights under this Section 3.5 are Employee's sole and
exclusive rights against Employer, Enron, or their affiliates, and Employer's
sole and exclusive liability to Employee under this Agreement, in contract,
tort, or otherwise, for any Involuntary Termination of the employment
relationship. Employee covenants not to sue or lodge any claim, demand or cause
of action against Employer for any sums for Involuntary Termination other than
those sums specified in this Section 3.5. If Employee breaches this covenant,
Employer shall be entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection with such suit,
claim, demand or cause of action.
3.6 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination, but
Employee's heirs, administrators, or legatees shall not be entitled to any
individual bonuses or individual incentive compensation not yet paid to Employee
at the date of such termination.
3.7 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination,
5
<PAGE> 6
but Employee shall not be entitled to any individual bonuses or individual
incentive compensation not yet paid to Employee at the date of such termination.
3.8 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under any
and all severance plans, and policies of Employer, Enron, or their affiliates.
3.9 Termination of the employment relationship does not terminate those
obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 6 and 7.
3.10 Upon termination of the employment relationship between Employee
and Employer for any reason, Employee shall be entitled to receive compensation
and benefits earned and accrued by Employee during his/her employment as are
specifically provided in any applicable employee compensation and/or benefit
plan document and any grant or award agreement thereunder.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF
TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a
month-to-month relationship terminable at any time by either Employer or
Employee for any reason whatsoever, with or without cause. Upon such termination
of the employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all future
benefits for which Employee is eligible shall cease and terminate. Employee
shall be entitled to pro rata salary through the date of such termination, but
Employee shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS:
5.1. Employee shall at all times comply with United States laws
applicable to Employee's actions on behalf of Employer, including specifically,
without limitation, the United States Foreign Corrupt Practices Act, generally
codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo contendere or admits
civil or criminal liability under the FCPA or other applicable United States
law, or if a court finds that Employee has personal civil or criminal liability
under the FCPA or other applicable United States law, or if a court finds that
Employee committed an action resulting in any Enron entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were likely to occur, such
action or finding shall constitute "cause" for termination under this Agreement
unless Employer's management committee (or, if there is no management committee,
the highest applicable level of Employer's management) determines that the
actions found to be in violation of
6
<PAGE> 7
the FCPA or other applicable United States law were taken in good faith and in
compliance with all applicable policies of Employer and Enron.
ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
6.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and are
and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
6.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Employer, Enron, or their affiliates use in their
business to obtain a competitive advantage over their competitors. Employee
further acknowledges that protection of such confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to Employer, Enron, and their affiliates in maintaining their
competitive position. Employee hereby agrees that Employee will not, at any time
during or after his or her employment by Employer, make any unauthorized
disclosure of any confidential business information or trade secrets of
Employer, Enron, or their affiliates, or make any use thereof, except in the
carrying out of his or her employment responsibilities hereunder. Enron and its
affiliates shall be third party beneficiaries of Employee's obligations under
this Section. As a result of Employee's employment by Employer, Employee may
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality of
such third party confidential information and trade secrets to the same extent,
and on the same basis, as Employer's confidential business information and trade
secrets. Employee acknowledges that money damages would not be sufficient remedy
for any breach of this Article 6 by Employee, and Employer shall be entitled to
enforce the provisions of this Article 6 by terminating any payments then owing
to Employee under this Agreement and/or to specific performance and injunctive
relief as remedies for such breach or any threatened breach. Such remedies shall
not be deemed the exclusive remedies for a breach of this Article 6, but shall
be in addition to all remedies available at law or in equity to
7
<PAGE> 8
Employer, including the recovery of damages from Employee and his or her agents
involved in such breach.
6.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case may
be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
6.4 If, during Employee's employment by Employer, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Employer's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Employer's premises or otherwise), Employee shall disclose such work to
Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Employer shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and is deemed to be a work
made for hire, then Employee hereby agrees to assign, and by these presents does
assign, to Employer all of Employee's worldwide right, title, and interest in
and to such work and all rights of copyright therein.
6.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Employer or its nominee and the execution of
all lawful oaths and applications for applications for patents and registration
of copyright in the United States and foreign countries.
ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
7.1 As part of the consideration for the compensation and benefits to
be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary
and in order to protect Employer's interests in the confidential information of
Employer and the business relationships developed by Employee with the clients
and potential clients of Employer, and as an additional incentive for Employer
to enter into this Agreement, Employer and Employee agree to the non-competition
provisions of this Article 7. Employee agrees that during the period of
Employee's non-competition obligations hereunder, Employee will not, directly or
indirectly for Employee or for others, in any geographic area or market where
Employer or Enron or any of their affiliated
8
<PAGE> 9
companies are conducting any business as of the date of termination of the
employment relationship or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with the business conducted by
Employer;
(ii) render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or indirectly, in any
business competitive with the business conducted by Employer;
(iii) induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer, Enron, or their
affiliates, or hire or assist in the hiring of any such employee by person,
association, or entity not affiliated with Enron.
These non-competition obligations shall extend until the earlier of (a)
expiration of the Term or (b) one year after termination of the employment
relationship.
7.2 Employee understands that the foregoing restrictions may limit his
or her ability to engage in certain businesses anywhere in the world during the
period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach of
this Article 7 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 7 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 7, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
7.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 7 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
ARTICLE 8: MISCELLANEOUS:
8.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
8.2 Employee shall refrain, both during the employment relationship and
after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or
9
<PAGE> 10
confidential information about Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' business affairs, officers,
employees, agents, or representatives; or that constitute an intrusion into the
seclusion or private lives of Employer, Enron, any of their respective
subsidiaries or affiliates, or such entities' officers, employees, agents, or
representatives; or that give rise to unreasonable publicity about the private
lives of Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' officers, employees, agents, or representatives; or that
place Employer, Enron, any of their respective subsidiaries or affiliates, or
any of such entities' or its officers, employees, agents, or representatives in
a false light before the public; or that constitute a misappropriation of the
name or likeness of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' or its officers, employees, agents, or
representatives. A violation or threatened violation of this prohibition may be
enjoined by the courts. The rights afforded the Enron entities and affiliates
under this provision are in addition to any and all rights and remedies
otherwise afforded by law.
8.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer:
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
8.4 This Agreement shall be governed in all respects by the laws of the
State of Texas, excluding any conflict-of-law rule or principle that might refer
the construction of the Agreement to the laws of another State or country.
8.5 No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
8.6 If a dispute arises out of or related to this Agreement, other than
a dispute regarding Employee's obligations under Article 6, or Article 7, and if
the dispute cannot be settled through direct discussions, then Employer and
Employee agree to first endeavor to settle the dispute in an amicable manner by
mediation, before having recourse to any other proceeding or forum.
10
<PAGE> 11
8.7 Each of Employer and Employee is a citizen of the State of Texas.
Employer's principal place of business is in Houston, Harris County, Texas.
Employee resides in Harris County, Texas. This Agreement was negotiated and
signed in Houston, Texas. This Agreement shall be performed in Houston, Texas.
Any litigation that may be brought by either Employer or Employee involving the
enforcement of this Agreement or the rights, duties, or obligations of this
Agreement, shall be brought exclusively in the State or federal courts sitting
in Houston, Harris County, Texas. In the event that service of process cannot be
effected upon a party, each party hereby irrevocably appoints the Secretary of
State for the State of Texas as its or his agent for service of process to
receive the summons and other pleadings in connection with any such litigation.
8.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term, provision,
covenant, or remedy of this Agreement or the application thereof to any person,
association, or entity or circumstances shall, to any extent, be construed to be
invalid or unenforceable in whole or in part, then such term, provision,
covenant, or remedy shall be construed in a manner so as to permit its
enforceability under the applicable law to the fullest extent permitted by law.
In any case, the remaining provisions of this Agreement or the application
thereof to any person, association, or entity or circumstances other than those
to which they have been held invalid or unenforceable, shall remain in full
force and effect.
8.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee shall
not be voluntarily or involuntarily assigned, alienated, or transferred, whether
by operation of law or otherwise, without the prior written consent of Employer.
8.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to compensation and benefit plans. This
Agreement replaces and merges previous agreements and discussions pertaining to
the following subject matters covered herein: the nature of Employee's
employment relationship with Employer and the term and termination of such
relationship. This Agreement constitutes the entire agreement of the parties
with regard to such subject matters, and contains all of the covenants,
promises, representations, warranties, and agreements between the parties with
respect such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not embodied
herein, and that no agreement, statement, or promise relating to the employment
of Employee by Employer that is not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing and signed by each party whose rights hereunder are affected thereby,
provided that any such modification must be authorized or approved by the Board
of Directors of Employer.
11
<PAGE> 12
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
-------------------------------------
This 8th day of October, 1998
--- ------- -----------------
JEFFREY B. SHERRICK
/s/ Jeffrey B. Sherrick
--------------------------------------------
This 2nd day of October, 1998
--- ------- -----------------
12
<PAGE> 13
EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN ENRON OIL & GAS COMPANY AND JEFFREY B. SHERRICK
Employee Name: Jeffrey B. Sherrick
Term: September 1, 1998 through August 31, 2001
Position: President and Chief Operating Officer, Enron Oil &
Gas International
Location: Houston, Texas
Reporting Relationship: Reports to Mark G. Papa, President and Chief
Executive Officer
Monthly Base Salary: Twenty-two thousand nine hundred seventeen dollars
($22,917)
Bonus: Employee shall be eligible to participate in
Employer's annual bonus program, under which bonuses
may be paid in a combination of cash, stock options,
and/or phantom stock units, as determined by the
Compensation Committee of Employer's Board of
Directors.
Long-Term Incentives: Employee shall be eligible to receive long-term
incentive grants consistent with similarly situated
executives of Employer.
Stock Option Grant: Employee shall receive a grant of 150,000 stock
options, effective September 8, 1998, vesting 20% on
the Grant Date and 20% on each of the first four
anniversaries of the Grant Date, as evidenced by an
Award Agreement, upon execution of this Agreement.
ENRON OIL & GAS COMPANY
By: /s/ Patricia Edwards
----------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
-------------------------------------
This 8th day of October, 1998
--- ------- -----------------
JEFFREY B. SHERRICK
/s/ Jeffrey B. Sherrick
--------------------------------------------
This 2nd day of October, 1998
--- ------- -----------------
13
<PAGE> 1
Exhibit 10.67(b)
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement, entered into on this 17th of March, 1999,
and made effective as of February 1, 1999, by and between ENRON OIL & GAS
COMPANY ("Company" or "Employer") and JEFFREY B. SHERRICK ("Employee") is an
amendment to that certain Employment Agreement made effective as of September 1,
1998 (the "Employment Agreement").
WHEREAS, the parties desire to amend the Employment Agreement as
provided herein;
NOW, THEREFORE, in consideration thereof and of the mutual covenants
contained herein, the parties agree as follows:
1. Article 3, Section 3.5 of the Employment Agreement is hereby
deleted in its entirety and the following is substituted
therefor:
"3.5 Upon an Involuntary Termination of the employment
relationship by either Employer or Employee prior to the
expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder
after such termination (including, without limitation,
Employee's non-competition obligations), to receive the then
current Monthly Base Salary as if Employee's employment (which
shall cease on the date of such Involuntary Termination) had
continued for the full Term of this Agreement. Notwithstanding
any other provisions of this Agreement, a termination of the
employment relationship by either the Employer or Employee
which meets the definition of Involuntary Termination under
the Company's Change of Control Severance Plan shall
constitute an Involuntary Termination under this Agreement. In
the event of such Involuntary Termination which entitles
Employee to severance benefits under said Plan, but for the
following severance payment by the Company to the Employee,
Employee shall receive from the Company a severance benefit
under this Agreement equal to the sum of Employee's then
current Monthly Base Salary times 12 times 2.99 plus two times
the Employee's annual bonus target award under the Company's
annual bonus program for the year in which the Change of
Control Date occurs. Employee's severance benefit payable
under said Plan, if any, shall be determined according to the
provisions thereof. Employee shall not be under any duty or
obligation to seek or accept other employment following
Involuntary Termination and the amounts due Employee hereunder
shall not be reduced or suspended if Employee accepts
subsequent employment. Employee's rights under this Section
3.5 are Employee's sole and exclusive rights against Employer,
Enron, or their affiliates, and Employer's sole and exclusive
liability to Employee under
<PAGE> 2
this Agreement, in contract, tort, or otherwise, for any
Involuntary Termination of the employment relationship.
Employee covenants not to sue or lodge any claim, demand or
cause of action against Employer for any sums for Involuntary
Termination other than those sums specified in this Section
3.5. If Employee breaches this covenant, Employer shall be
entitled to recover from Employee all sums expended by
Employer (including costs and attorneys fees) in connection
with such suit, claim, demand or cause of action."
2. The following sentence shall be inserted at the end of
Article 7, Section 7.1:
"However, upon an Involuntary Termination as defined in the
Company's Change of Control Severance Plan, which entitles
Employee to severance benefits under said Plan, these
non-competition obligations shall expire immediately and have
no further force and effect."
3. The following new Article 9 shall be inserted at the end of
the Employment Agreement:
"ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION
9.1 Indemnification. In the event it shall be
determined that any payment or distribution by the Company to
or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement, the Company's Change of Control Severance Plan or
otherwise, but determined without regard to any additional
payments required under this Article 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the
United States Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Employee
shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income and employment taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
9.2 Determination of Amount. Subject to the provisions
of Section 9.3, all determinations required to be made under
this Article 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by a public accounting firm chosen by the
Company (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee if
requested by either the Company or Employee. All fees and
expenses of
<PAGE> 3
the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 9.3 and Employee thereafter is required to
make a payment of any additional Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of Employee.
9.3 Contest of Claims. If the Company elects to contest
a claim by the Internal Revenue Service that Excise Tax is due
from Employee, Employee shall cooperate fully with the Company
in order to effectively contest such claim, including, but not
limited to providing information reasonably requested by the
Company relating to such claim, accepting legal representation
with respect to such claim by an attorney reasonably selected
by the Company and permitting the Company to participate in
any proceedings relating to such claim. The Company shall bear
and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or other tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses.
9.4 Advances and Refunds. If the Company directs
Employee to pay a claim by the Internal Revenue Service and
sue for a refund, the Company shall advance the amount of such
payment to Employee on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance. If, after the receipt by Employee of an amount
advanced by the Company pursuant to this Section 9.4, Employee
becomes entitled to receive, and receives, any refund with
respect to such claim, Employee shall promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by Employee of an amount advanced by the
Company pursuant to this Section 9.4, a determination is made
that Employee is not entitled to any refund with respect to
such claim, then such advance shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid."
This Agreement is the First Amendment to the Employment Agreement, and
the parties agree that all other terms, conditions and stipulations contained in
the
<PAGE> 4
Employment Agreement, and any amendments thereto, shall remain in full force and
effect and without any change or modification, except as provided herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ENRON OIL & GAS COMPANY
By: /s/ PATRICIA EDWARDS
---------------------------------------
Name: Patricia Edwards
Title: V.P. Human Resources & Administration
This 17th day of March, 1999
JEFFREY B. SHERRICK
/s/ JEFFREY B. SHERRICK
---------------------------------------
This 17th day of March, 1999
<PAGE> 1
EXHIBIT 21
ENRON OIL & GAS COMPANY
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
DATE OF WHERE
COMPANY NAME INCORPORATION INCORPORATED
- ------------------------------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
INTERNATIONAL SUBSIDIARIES:
Enron Oil & Gas Company 06/12/85 Delaware
Enron Oil & Gas International, Inc. 05/27/93 Delaware
EOGI-Trinidad, Inc. 06/02/93 Delaware
EOGI Trinidad Company 06/02/93 Cayman Islands
Enron Gas & Oil Trinidad Limited 11/04/92 Trinidad
Enron Oil & Gas Capital Management I, Ltd. 12/08/95 Cayman Islands
Wilsyx International Finance B.V. 09/27/96 The Netherlands
EOGI Company of Trinidad 03/14/97 Cayman Islands
Harfin Capital and Finance Ltd. 07/24/97 Cayman Islands
OCC Investment Company Ltd. 10/27/97 Cayman Islands
EOGI - Trinidad U(a) Block, Inc. 11/07/95 Delaware
EOGI Trinidad - U(a) Block Company 11/09/95 Cayman Islands
Enron Gas & Oil Trinidad - U(a) Block Limited 11/10/95 Cayman Islands
EOGI-Australia, Inc. 06/02/93 Delaware
EOGI-France, Inc. 06/02/93 Delaware
Enron Exploration France S.A. 11/13/92 France
EOGI-Kazakhstan, Inc. 07/29/93 Delaware
Enron Oil & Gas Kazakhstan Ltd. 08/18/94 Cayman Islands
EOGI-United Kingdom, Inc. 07/29/93 Delaware
EOGI United Kingdom Company B.V. 12/04/81 The Netherlands
Enron Oil UK Limited 05/22/90 England
EOGI-India, Inc. 03/17/94 Delaware
Enron Oil & Gas India Ltd. 06/02/93 Cayman Islands
EOGI-China, Inc. 08/18/94 Delaware
Enron Oil & Gas China International Ltd. 05/07/97 Cayman Islands
EOGI-Qatar, Inc. 09/22/94 Delaware
Enron Oil & Gas Qatar Ltd. 09/23/94 Cayman Islands
EOGI-Uzbekistan, Inc. 01/30/95 Delaware
EOGI - Abu Dhabi, Inc. 04/11/95 Delaware
Enron Oil & Gas Abu Dhabi Ltd. 04/12/95 Cayman Islands
EOGI - Algeria, Inc. 11/07/95 Delaware
Enron Oil & Gas Algeria Ltd. 11/09/95 Cayman Islands
EOGI - Venezuela, Inc. 06/17/96 Delaware
EOGI Venezuela Company 06/20/96 Cayman Islands
Gulf of Paria East Operating Company 06/21/96 Cayman Islands
Enron Oil & Gas Venezuela Ltd. 01/11/96 Cayman Islands
Administradora del Golfo de Paria Este, S.A. 08/07/96 Venezuela
EOGI Venezuela (Guarico), Inc. 05/15/96 Delaware
Enron Oil & Gas Venezuela - Guarico Ltd. 04/03/96 Cayman Islands
EOGI - China (Sichuan), Inc. 05/07/96 Delaware
EOGI China Company 12/08/95 Cayman Islands
Enron Oil & Gas China Ltd. 05/08/96 Cayman Islands
EOGI - Mozambique, Inc. 05/15/96 Delaware
Enron Oil & Gas Mozambique Ltd. 05/16/96 Cayman Islands
Enron Oil & Gas Bangladesh Ltd. 06/27/97 Cayman Islands
</TABLE>
Page 1 of 2
<PAGE> 2
<TABLE>
<CAPTION>
DATE OF WHERE
COMPANY NAME INCORPORATION INCORPORATED
- ------------------------------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
DOMESTIC SUBSIDIARIES:
Enron Oil & Gas Company 06/12/85 Delaware
Enron Oil & Gas - Carthage, Inc. 03/21/95 Delaware
ERSO, Inc. 04/24/67 Texas
Enron Oil & Gas Property Management, Inc. 04/20/95 Delaware
Enron Oil & Gas Investments, Inc. 04/24/95 Delaware
Enron Oil & Gas Acquisitions L.P. 04/24/95 Delaware
EOG Expat Services, Inc. 02/01/96 Delaware
Enron Oil & Gas Marketing, Inc. 04/09/90 Delaware
EOG - Canada, Inc. 03/13/85 Delaware
EOG Company of Canada 12/14/95 Nova Scotia
EOG Canada Company Ltd. 12/12/95 Alberta
Enron Oil Canada Ltd. 04/01/82 Alberta
Nilo Operating Company 04/04/94 Delaware
Enron Oil & Gas - Callaghan, Inc. 04/11/97 Delaware
</TABLE>
Page 2 of 2
<PAGE> 1
EXHIBIT 23.1
March 15, 1999
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Gentlemen:
We hereby consent to the references to our firm and to the opinions delivered
to Enron Oil & Gas Company (the Company) regarding our comparison of estimates
prepared by us with those furnished to us by the Company of the proved oil,
condensate, natural gas liquids, and natural gas reserves of certain selected
properties owned by the Company. The opinions are contained in our letter
reports dated January 17, 1997, January 13, 1998, and January 11, 1999, for
estimates as of December 31, 1996, December 31, 1997, and December 31, 1998,
respectively. The opinions are referred to in the section "Supplemental
Information to Consolidated Financial Statements-Oil and Gas Producing
Activities" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, to be filed with the Securities and Exchange Commission on
or about March 18, 1999. DeGolyer and MacNaughton also consents to the
inclusion of our letter report, dated January 11, 1999, addressed to the
Company as Exhibit (23.2) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, to be filed with the Securities and Exchange
Commission. Additionally, we hereby consent to the incorporation by reference
of such references to our firm and to our opinions included in the Company's
Form 10-K in the Company's previously filed Registration Statement Nos.
33-42620, 33-48358, 33-52201, 33-58103, 33-62005, 33-64055, 333-09919,
333-20841, 333-18511, 333-31715, 333-44785, and 333-69483.
Very truly yours,
DeGOLYER and MacNAUGHTON
<PAGE> 1
EXHIBIT 23.2
January 11, 1999
Enron Oil & Gas Company
1400 Smith Street
Houston, Texas 77002
Gentlemen:
Pursuant to your request, we have prepared estimates of the proved
oil, condensate, natural gas liquids, and natural gas reserves, as of December
31, 1998, of certain selected properties in the United States, Canada, and
Trinidad owned by Enron Oil & Gas Company (Enron). The properties consist of
working interests located in California, New Mexico, Texas, Utah, and Wyoming
and in the offshore waters of Texas, Louisiana, and Alabama, in Saskatchewan,
Canada, and in the offshore waters of Trinidad. The estimates are reported in
detail in our "Report as of December 31, 1998, on Proved Reserves of Certain
Properties in the United States owned by Enron Oil & Gas Company - Selected
Properties," our "Report as of December 31, 1998, on Proved Reserves of Certain
Properties in Canada owned by Enron Oil & Gas Company - Selected Properties,"
and our "Report as of December 31, 1998, on Proved Reserves of the Kiskadee
Field, Offshore Trinidad for Enron Oil and Gas Company," hereinafter
collectively referred to as the "Reports." We also have reviewed information
provided to us by Enron that it represents to be Enron's estimates of the
reserves, as of December 31, 1998, for the same properties as those included in
the Reports.
Proved reserves estimated by us and referred to herein are judged to
be economically producible in future years from known reservoirs under existing
economic and operating conditions and assuming continuation of current
regulatory practices using conventional production methods and equipment.
Proved reserves are defined as those that have been proved to a high degree of
certainty by reason of actual completion, successful testing, or in certain
cases by adequate core analyses and electrical-log interpretation when the
producing characteristics of the formation are known from nearby fields. These
reserves are defined areally by reasonable geological interpretation of
structure and known continuity of oil- or
<PAGE> 2
gas-saturated material. This definition is in agreement with the definition of
proved reserves prescribed by the Securities and Exchange Commission.
Enron represents that its estimates of the proved reserves, as of
December 31, 1998, net to its leasehold interests in the properties included in
the Reports are as follows, expressed in thousands of barrels (Mbbl) or
millions of cubic feet (MMcf):
Oil, Condensate, and
Natural Gas Liquids Natural Gas Net Equivalent
(Mbbl) (MMcf) (MMcf)
---------------------- ------------- ----------------
30,995 1,643,050 1,829,020
Note: Net equivalent million cubic feet is based on 1 barrel of oil,
condensate, or natural gas liquids being equivalent to 6,000 cubic
feet of gas.
Enron has advised us, and we have assumed, that its estimates of
proved oil, condensate, natural gas liquids, and natural gas reserves are in
accordance with the rules and regulations of the Securities and Exchange
Commission.
Proved reserves estimated by us for the properties included in the
Reports, as of December 31, 1998, are as follows, expressed in thousands (Mbbl)
or millions of cubic feet (MMcf):
Oil, Condensate, and
Natural Gas Liquids Natural Gas Net Equivalent
(Mbbl) (MMcf) (MMcf)
---------------------- ------------- ----------------
32,012 1,623,101 1,815,173
Note: Net equivalent million cubic fee is based on 1 barrel of oil,
condensate, or natural gas liquids being equivalent to 6,000 cubic
feet of gas.
In making a comparison of the detailed reserves estimates prepared by
us and by Enron of the properties involved, we have found differences, both
positive and negative, in reserves estimates for individual properties. These
differences appear to be compensating to a great extent when considering the
reserves of Enron in the properties included in our reports, resulting in
overall differences not being substantial. It is our opinion that the reserves
estimates prepared by Enron on the
<PAGE> 3
properties reviewed by us and referred to above, when compared on the basis of
net equivalent million cubic feet of gas, do not differ materially from those
prepared by us.
Submitted,
DeGOLYER and MacNAUGHTON
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Enron Oil & Gas Company and
subsidiaries' previously filed Registration Statement File Nos. 33-52201,
33-58103, 33- 62005, 33-64055, 333-09919, 333-20841, 333-18511, 333-31715,
333-44785 and 333-69483.
ARTHUR ANDERSEN LLP
Houston, Texas
March 18, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 27th day of February, 1999.
/s/ Fred C. Ackman
---------------------------------------
Fred C. Ackman
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ Kenneth L. Lay
---------------------------------------
Kenneth L. Lay
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 19th day of February, 1999.
/s/ Edward Randall, III
---------------------------------------
Edward Randall, III
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 27th day of February, 1999.
/s/ Ken L. Harrison
---------------------------------------
Ken L. Harrison
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 2nd day of March, 1999.
/s/ Frank G. Wisner
---------------------------------------
Frank G. Wisner
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ Jeffrey K. Skilling
---------------------------------------
Jeffrey K. Skilling
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ James V. Derrick, Jr.
---------------------------------------
James V. Derrick, Jr.
<PAGE> 8
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ Richard A. Causey
---------------------------------------
Richard A. Causey
<PAGE> 9
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ John H. Duncan
---------------------------------------
John H. Duncan
<PAGE> 10
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, as a director of Enron Oil & Gas Company, a Delaware
corporation (the "Company"), in connection with the filing by the Company of its
Annual Report on Form 10-K for the year ended December 31, 1998, with the
Securities and Exchange Commission, does hereby make, constitute and appoint
Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power
(any one of them acting alone), as true and lawful attorneys-in-fact and agents,
for and on behalf and in the name, place and stead of the undersigned, in any
and all capacities, to sign, execute and file such Annual Report on Form 10-K,
together with any amendments or supplements thereto, with all exhibits and any
and all documents required to be filed with respect thereto with any regulatory
authority, granting unto each above-mentioned individual the full power and
authority to do and perform each and every act and action requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereto set his hand
this 17th day of February, 1999.
/s/ Forrest E. Hoglund
---------------------------------------
Forrest E. Hoglund
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<PERIOD-END> DEC-31-1998
<CASH> 6,303
<SECURITIES> 0
<RECEIVABLES> 193,588
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