UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9971
BURLINGTON RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1413284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5051 Westheimer, Suite 1400, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 624-9500
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding
Common Stock, par value $.01 per share,
as of June 30, 1999 177,493,347
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
(In Millions, Except per Share Amounts)
<S> <C> <C> <C> <C>
Revenues ..................................... $ 376 $ 412 $ 725 $ 844
----- ----- ----- -----
Costs and Expenses
Production Taxes ............................ 24 24 41 48
Production and Processing ................... 89 96 183 189
Depreciation, Depletion and Amortization .... 125 132 254 260
Exploration Costs ........................... 41 62 89 116
Administrative .............................. 32 34 67 68
----- ----- ----- -----
Total Costs and Expenses ..................... 311 348 634 681
----- ----- ----- -----
Operating Income ............................. 65 64 91 163
Interest Expense ............................. 42 36 83 72
Other Expense (Income) - Net ................. 1 (2) -- (5)
----- ----- ----- -----
Income Before Income Taxes ................... 22 30 8 96
Income Tax Expense ........................... 7 7 3 25
----- ----- ----- -----
Net Income ................................... $ 15 $ 23 $ 5 $ 71
===== ===== ===== =====
Basic Earnings per Common Share .............. $ .08 $ .13 $ .03 $ .40
===== ===== ===== =====
Diluted Earnings per Common Share ............ $ .08 $ .13 $ .03 $ .40
===== ===== ===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BURLINGTON RESOURCES INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- -------
(In Millions, Except Share Data)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents ........................................ $ -- $ --
Accounts Receivable .............................................. 343 402
Inventories ...................................................... 34 33
Other Current Assets ............................................. 26 21
------- -------
403 456
------- -------
Oil & Gas Properties (Successful Efforts Method) ................... 9,554 9,348
Other Properties ................................................... 854 828
------- -------
10,408 10,176
Accumulated Depreciation, Depletion and Amortization ............. 5,081 4,818
------- -------
Properties - Net ............................................... 5,327 5,358
------- -------
Other Assets ....................................................... 122 103
------- -------
Total Assets ................................................. $ 5,852 $ 5,917
======= =======
LIABILITIES
Current Liabilities
Accounts Payable ................................................. $ 302 $ 374
Taxes Payable .................................................... 49 53
Accrued Interest ................................................. 34 26
Dividends Payable ................................................ 24 24
Deferred Revenue ................................................. 16 17
Other Current Liabilities ........................................ 2 --
------- -------
427 494
------- -------
Long-term Debt ..................................................... 1,988 1,938
------- -------
Deferred Income Taxes .............................................. 200 199
------- -------
Deferred Revenue ................................................... 32 40
------- -------
Other Liabilities and Deferred Credits ............................. 217 217
------- -------
Put Options on Common Stock ........................................ -- 11
------- -------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Preferred Stock, Par Value $.01 Per Share
(Authorized 75,000,000 Shares; No Shares Issued) ................ -- --
Common Stock, Par Value $.01 Per Share
(Authorized 325,000,000 Shares; Issued 202,795,635 Shares) ...... 2 2
Paid-in Capital .................................................... 2,993 2,984
Retained Earnings .................................................. 995 1,039
------- -------
3,990 4,025
Cost of Treasury Stock
(25,302,288 and 25,420,562 Shares for 1999 and 1998, respectively) 1,002 1,007
------- -------
Stockholders' Equity ............................................... 2,988 3,018
------- -------
Total Liabilities and Stockholders' Equity ................... $ 5,852 $ 5,917
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
----------------
1999 1998
----- -----
(In Millions)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income .............................................. $ 5 $ 71
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation, Depletion and Amortization .............. 262 267
Deferred Income Taxes ................................. 1 (11)
Exploration Costs ..................................... 89 116
Working Capital Changes
Accounts Receivable ................................... 59 48
Inventories ........................................... (1) (8)
Other Current Assets .................................. (5) --
Accounts Payable ...................................... (72) (159)
Taxes Payable ......................................... (4) 16
Accrued Interest ...................................... 8 (1)
Other Current Liabilities ............................. 1 (1)
Other ................................................... 15 37
----- -----
Net Cash Provided By Operating Activities ............ 358 375
----- -----
Cash Flows From Investing Activities
Additions to Properties ............................... (312) (537)
Short-term Investments ................................ -- 14
Other ................................................. (31) (35)
----- -----
Net Cash Used In Investing Activities .............. (343) (558)
----- -----
Cash Flows From Financing Activities
Proceeds from Long-term Debt .......................... 450 92
Reduction in Long-term Debt ........................... (400) --
Dividends Paid ........................................ (49) (49)
Common Stock Purchases ................................ (9) --
Other ................................................. (7) 11
----- -----
Net Cash Provided By (Used In) Financing Activities (15) 54
----- -----
Decrease in Cash and Cash Equivalents .................... -- (129)
Cash and Cash Equivalents
Beginning of Year ..................................... -- 152
----- -----
End of Period ......................................... $ -- $ 23
===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BURLINGTON RESOURCES INC.
Notes TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The 1998 Annual Report of Burlington Resources Inc. (the "Company")
includes certain definitions and a summary of significant accounting policies
and should be read in conjunction with this Quarterly Report on Form 10-Q
("Quarterly Report"). The financial statements for the periods presented herein
are unaudited, condensed and do not contain all information required by
generally accepted accounting principles to be included in a full set of
financial statements. In the opinion of management, all material adjustments
necessary to present fairly the results of operations have been included. All
such adjustments are of a normal, recurring nature. The results of operations
for any interim period are not necessarily indicative of the results of
operations for the entire year. The consolidated financial statements include
certain reclassifications that were made to conform to current presentation.
Basic earnings per common share ("EPS") is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding for computing basic EPS was 177 million for the second quarter and
for the first six months of 1999 and 1998. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. The weighted average number of
common shares outstanding for computing diluted EPS, including dilutive stock
options, was 178 million for the second quarter and for the first six months of
1999 and 1998. No adjustments were made to reported net income in the
computation of EPS. EPS discussions within this document are in reference to
basic EPS.
2. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in several proceedings challenging the payment
of royalties for its crude oil and natural gas production.
On November 20, 1997, the Company and numerous other defendants entered
into a settlement agreement in a lawsuit styled as The McMahon Foundation, et
al. v. Amerada Hess Corporation, et al. This lawsuit is a proposed class action
consisting of both working interest owners and royalty owners against numerous
defendants, all of which are oil companies and/or purchasers of oil from oil
companies, including Burlington Resources Oil & Gas Company, formerly known as
Meridian Oil Inc. ("BROG") and The Louisiana Land and Exploration Company
("LL&E"). The plaintiffs allege that the defendants conspired to fix, depress,
stabilize and maintain at artificially low levels the prices paid for oil by,
among other things, setting their posted prices at arbitrary levels below
competitive market prices. Cases involving similar allegations have been filed
in federal courts in other states. On January 14, 1998, the United States
Judicial Panel on Multidistrict Litigation issued an order consolidating these
cases and transferring the McMahon case to the United States District Court for
the Southern District of Texas in Corpus Christi (In Re Lease Oil Antitrust
Litigation, MDL No. 1206). The Company and other defendants have entered into a
Settlement Agreement which received preliminary approval by the Court on October
28, 1998. A hearing was held by the Court in April 1999 to receive evidence
relating to the fairness and reasonableness of the settlement and a decision by
the Court is pending.
5
<PAGE>
The Company is also involved in several governmental proceedings
relating to the payment of royalties. Various administrative proceedings are
pending before the Minerals Management Service ("MMS") of the United States
Department of the Interior with respect to the proper valuation of oil and gas
produced on federal and Indian lands for purposes of paying royalties on
production sold by BROG to its affiliate, Burlington Resources Trading Inc.
("BRTI"), or gathered by its affiliate, Burlington Resources Gathering Inc. In
general, these proceedings stem from regular MMS audits of the Company's royalty
payments over various periods of time and involve the interpretation of the
relevant federal regulations.
In late February 1998, the Company and numerous other oil and gas
companies received a complaint filed in the United States District Court for the
Eastern District of Texas in Lufkin in a lawsuit styled as United States of
America ex rel J. Benjamin Johnson, Jr., et al v. Shell Oil Company, et al.
alleging violations of the civil False Claims Act. The United States has
intervened in this lawsuit as to some of the defendants, including the Company,
and has filed a separate complaint. This suit alleges that the Company underpaid
royalties for crude oil produced on federal and Indian lands through the use of
below-market posted prices in the sale of oil from BROG to BRTI. The suit
alleges that royalties paid by BROG based on these posted prices were lower than
the royalties allegedly required to be paid under federal regulations, and that
the forms filed by BROG with the MMS reporting the royalties paid were false,
thereby violating the civil False Claims Act. The Company and others have also
received document subpoenas and other inquiries from the Department of Justice
relating to the payment of royalties to the federal government for natural gas
production. These requests and inquiries have been made in the context of one or
more other False Claims Act cases brought by individuals which remain under seal
and are now being investigated by the Civil Division of the Department of
Justice. The Company has responded and continues to respond to these requests
and inquiries, but the Company does not know what action, if any, the Department
of Justice will take with regard to these other cases. If the government chooses
not to intervene and pursue these cases, the individuals who initially brought
these cases are free to pursue them in return for a share, if any, of any final
settlement or judgment. In addition, the Company has been advised that it is a
target of a criminal investigation by the United States Attorney for the
District of Wyoming into the alleged underpayment of oil and gas royalties. The
Company has responded to numerous grand jury document subpoenas in connection
with an investigation and is otherwise cooperating with the investigation.
Management cannot predict when the investigation will be completed or its
ultimate outcome.
Based on the Company's present understanding of the various
governmental proceedings relating to royalty payments, described in the
preceding two paragraphs, the Company believes that it has substantial defenses
to these claims and intends to vigorously assert such defenses. However, in the
event that the Company is found to have violated the civil False Claims Act or
is indicted or convicted on criminal charges, the Company could be subjected to
a variety of sanctions, including treble damages, substantial monetary fines,
civil and/or criminal penalties and a temporary suspension from entering into
future federal mineral leases and other federal contracts for a defined period
of time. While the ultimate outcome and impact on the Company cannot be
predicted with certainty, management believes that the resolution of these
proceedings will not have a material adverse effect on the consolidated
financial position of the Company, although results of operations and cash flow
could be significantly impacted in the reporting periods in which such matters
are resolved.
6
<PAGE>
In addition to the foregoing, the Company and its subsidiaries are
named defendants in numerous other lawsuits and named parties in numerous
governmental and other proceedings arising in the ordinary course of business.
While the outcome of these other lawsuits and proceedings cannot be predicted
with certainty, management believes these matters, other than the
above-described proceedings, will not have a material adverse effect on the
consolidated financial position, results of operations or cash flows of the
Company.
3. COMMODITY HEDGING ACTIVITIES
The Company enters into gas swap agreements to fix the price of
anticipated future natural gas production. As of June 30, 1999, the Company has
the following volumes hedged.
Total Hedged Average
Production Volume Hedge/Strike Deferred Loss
Period (MMBTU) Price (In Millions)
------------ ------------- -------------- --------------
1999 49,810,000 $ 2.27 $ (3)
2000 156,950,000 2.33 (22)
2001 91,345,000 2.35 (12)
2002 2,530,000 $ 2.57 $ -
The Company enters into call option agreements which when matched with
gas swap agreements result in a synthetic put option, which allows the Company
to participate in market price increases that exceed the floor price. As of June
30, 1999, the Company had approximately 27 million MMBTU of gas matched with
swap agreements at $2.27. The deferred gain on these transactions is
approximately $2 million.
4. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's reportable segments are North America and International.
Both segments are engaged principally in the exploration, development,
production and marketing of oil and gas. The North America segment is
responsible for the Company's operations in the U.S. and Canada and the
International segment is responsible for all operations outside that
geographical region. There are no significant intersegment sales or transfers.
The following tables present information about reported segment
operations.
<TABLE>
<CAPTION>
Second Quarter
----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
North North
America International Total America International Total
--------- --------------- ------- --------- --------------- -------
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................... $340 $ 36 $376 $374 $ 38 $412
Operating income (loss) ............ 109 (10) 99 99 1 100
Additions to oil and gas properties $134 $ 33 $167 $258 $ 15 $273
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Six Months
----------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
North North
America International Total America International Total
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 660 $ 65 $ 725 $ 759 $ 85 $ 844
Operating income (loss) ........... 196 (32) 164 235 2 237
Additions to oil and gas properties $ 197 $ 101 $ 298 $ 458 $ 57 $ 515
</TABLE>
The following is a reconciliation of segment operating income to
consolidated income (loss) before income taxes.
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
(In Millions)
<S> <C> <C> <C> <C>
Total operating income for reportable segments $ 99 $ 100 $ 164 $ 237
Corporate expenses ........................... 34 36 73 74
Interest expense ............................. 42 36 83 72
Other expense (income) - net ................. 1 (2) -- (5)
------------ ------------ ----------- -----------
Consolidated income before income taxes ...... $ 22 $ 30 $ 8 $ 96
============ ============ =========== ===========
</TABLE>
The following is a reconciliation of segment additions to oil and gas
properties to consolidated amounts.
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------- --------------------
1999 1998 1999 1998
-------- ------- -------- --------
(In Millions)
<S> <C> <C> <C> <C>
Total additions to oil and gas properties for reportable segments.. $ 167 $ 273 $ 298 $ 515
Administrative expenditures.............................................. 3 19 14 22
-------- ------- -------- --------
Consolidated additions to properties................................... $ 170 $ 292 $ 312 $ 537
======== ======= ======== ========
</TABLE>
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Liquidity
The total long-term debt to capital ratio at June 30, 1999 and December
31, 1998 was 40 percent and 39 percent, respectively.
The Company's credit facilities are comprised of a $600 million
revolving credit agreement that expires in February 2003 and a $400 million
revolving credit agreement that expires in February 2000. The $400 million
revolving credit agreement is renewable annually by mutual consent. As of June
30, 1999, there were no borrowings outstanding under the credit facilities. The
Company also has the capacity to issue $1 billion of securities under a shelf
registration statement filed with the Securities and Exchange Commission.
At June 30, 1999, the Company's total outstanding debt included
commercial paper borrowings of $91 million at an average interest rate of 6
percent and $150 million of 6 7/8 percent notes maturing in August 1999.
Net cash provided by operating activities for the first six months of
1999 was $358 million compared to $375 million in 1998. The decrease was
primarily due to lower operating income partially offset by higher working
capital and other changes.
The Company and its subsidiaries are named defendants in numerous
lawsuits and named parties in numerous governmental and other proceedings
arising in the ordinary course of business. While the outcome of lawsuits and
other proceedings cannot be predicted with certainty, management believes these
matters will not have a material adverse effect on the consolidated financial
position of the Company, although results of operations and cash flows could be
significantly impacted in the reporting periods in which such matters are
resolved.
The Company has certain other commitments and uncertainties related to
its normal operations. Management believes that there are no other commitments,
uncertainties or contingent liabilities that will have a material adverse effect
on the consolidated financial position, results of operations or cash flows of
the Company.
Capital Expenditures
Capital expenditures for the first six months of 1999 totaled $312
million compared to $537 million in 1998. Capital expenditures are currently
projected to be approximately $750 million for all of 1999 and are expected to
be primarily for the development and exploration of oil and gas properties and
plant and pipeline expenditures. Capital expenditures will be funded from
internal cash flows, supplemented, if needed, by external financing.
Dividends
On July 7, 1999, the Board of Directors declared a quarterly common stock
dividend of $.1375 per share, payable October 1, 1999.
9
<PAGE>
Results of Operations - Second Quarter 1999 Compared to Second Quarter 1998
The Company reported net income of $15 million or $.08 per share for
the second quarter of 1999 compared to $23 million or $.13 per share in 1998.
Operating income for the second quarter of 1999 was $65 million compared to $64
million in 1998.
Revenues were $376 million for the second quarter of 1999 compared to
$412 million for the second quarter of 1998. Natural gas sales prices decreased
1 percent to $1.92 per MCF and gas sales volumes decreased 10 percent to 1,502
MMCF per day which decreased revenues $1 million and $28 million, respectively.
Average oil sales prices increased 14 percent to $15.33 per barrel and oil sales
volumes decreased 17 percent to 69.9 MBbls per day which increased revenues $12
million and decreased revenues $18 million, respectively. Gas and oil sales
volumes decreased primarily due to reduced capital spending on the Gulf of
Mexico shelf coupled with steep production declines in the area.
Costs and expenses were $311 million for the second quarter of 1999
compared to $348 in 1998. The decrease was primarily due to a $21 million
decrease in exploration costs, a $7 million decrease in production and
processing expenses, a $7 million decrease in depreciation, depletion and
amortization and a $2 million decrease in administrative expenses.
Interest expense was $42 million for the second quarter of 1999
compared to $36 million in 1998. The increase was due to the $450 million of
fixed-rate debt issued in March 1999 and also higher outstanding commercial
paper borrowings in 1999.
Other expense (income) - net was an expense of $1 million for the second
quarter of 1999 compared to income of $2 million in 1998, primarily due to lower
interest income in 1999.
The effective income tax rate was 32 percent for the second quarter of 1999
compared to 24 percent in 1998. The effective tax rate increased primarily as a
result of lower nonconventional fuel tax credits.
Results of Operations - Six Months 1999 Compared to Six Months 1998
The Company reported net income of $5 million or $.03 per share for the
first six months of 1999 compared to $71 million or $.40 per share in 1998.
Operating income for the first six months of 1999 was $91 million compared to
$163 million in 1998.
Revenues were $725 million for the first six months of 1999 compared to
$844 million in 1998. Natural gas sales prices decreased 4 percent to $1.90 per
MCF and gas sales volumes decreased 7 percent to 1,533 MMCF per day which
decreased revenues $22 million and $43 million, respectively. Average oil sales
prices decreased 10 percent to $12.88 per barrel and oil sales volumes decreased
15 percent to 72.2 MBbls per day which decreased revenues $19 million and $34
million, respectively. Gas and oil sales volumes decreased primarily due to
reduced capital spending on the Gulf of Mexico shelf coupled with steep
production declines in the area.
Costs and expenses were $634 million for the first six months of 1999
compared to $681 million in 1998. The decrease was primarily due to a $27
million decrease in exploration costs, a $7 million decrease in production
taxes, a $6 million decrease in production and processing, a $6 million decrease
in depreciation, depletion and amortization and a $1 million decrease in
administrative expenses.
10
<PAGE>
Interest expense was $83 million for the first six months of 1999
compared to $72 million in 1998. The increase was due to the $450 million of
fixed-rate debt issued in March 1999 and also higher outstanding commercial
paper borrowings in 1999.
Other expense (income) - net was an expense of $100 thousand for the second
quarter of 1999 compared to income of $5 million in 1998, primarily due to lower
interest income in 1999.
The effective income tax rate was 34 percent and an expense of $3 million
for the first six months of 1999 compared to 26 percent and an expense of $25
million in 1998. The decreased tax expense in 1999 is primarily a result of
lower pretax income offset by lower benefits from nonconventional fuel tax
credits.
Other Matters
Year 2000 Compliance
The year 2000 issue is the result of computer systems and other
equipment with embedded chips or processors using two digits instead of four to
define a specific year and potentially being unable to process accurately
certain data before, during or after the year 2000. This could result in system
failures or miscalculations, causing disruptions to various activities and
operations.
The Company began a program during 1996 to assess computer software and
hardware (hereafter referred to as information technology), which included an
assessment of any year 2000 issues. Since 1996, significant portions of the
Company's information technology have been replaced with information technology
that is year 2000 compliant, and the Company has further developed a year 2000
readiness plan.
The Company's year 2000 readiness plan involves four phases:
assessment, remediation, testing and implementation. The Company has completed
its assessment of all material systems that could be affected by the year 2000
issue. The assessment confirmed that information technology exposures were not
material; however, assets used in producing, gathering and transporting
hydrocarbons (hereafter referred to as operating equipment) were determined to
be at risk of encountering year 2000 problems.
The Company has completed the remediation, testing and implementation
phases for all significant operating equipment. The Company's goal under its
year 2000 readiness plan is to ensure that all critical operating equipment,
systems and processes under its direct control remain operational. However,
because certain operating equipment, systems and processes may be linked with
systems outside of the Company's control, there can be no assurance that all
implementations will be successful.
The Company has no means of ensuring that its third-party vendors and
suppliers will be year 2000 compliant. The Company has contacted all third-party
vendors and suppliers of products and services that it considers material to its
operations in order to ascertain their level of year 2000 readiness. All of the
significant vendors and suppliers of the Company have responded that they
believe the year 2000 issue will not have a material adverse impact on their
ability to perform. However, if the Company's third party vendors and suppliers
are unable to perform because of year 2000 problems, such failures could result
in the inability to transport, deliver or market crude oil, natural gas or
natural gas liquids.
Crude oil gathering, transportation and marketing by the Company are
widely dispersed across the United States, and it is unlikely that a year 2000
failure by any single gatherer, transporter, or purchaser of crude oil would
significantly impact the Company. A significant portion of natural gas sales
originate in the San Juan Basin. Natural gas is gathered in the San Juan Basin
11
<PAGE>
through three primary gathering systems operated by an affiliate and two other
companies. The gas is then sold through two primary pipelines. Approximately 70%
of natural gas sales by all producers in the San Juan Basin and 35% of the
Company's natural gas sales are transported to markets by a single pipeline
system. The Company, in conjunction with other major producers in the San Juan
Basin, has evaluated these entities' assessment, remediation, testing and
implementation on their systems for year 2000 readiness. The Company and other
major producers have had discussions with certain suppliers and vendors upon
which these gathering and transportation systems rely to perform their services
for the Company. The Company has also participated in the development of
contingency plans to deal with unforeseeable year 2000 failures. If a failure
does occur with respect to the gathering and transportation of natural gas in
the San Juan Basin, the Company is continuing to develop contingency plans to
address the reasonably foreseeable issues. These plans include manual back-up of
computer controlled and embedded technology systems and identification of
alternative vendors and suppliers.
Although management believes it is unlikely, the most reasonable worst
case scenario for the Company would be a complete or partial failure of one or
more of the three gathering systems or the complete or partial failure of one of
the transportation lines in the San Juan Basin. Such a failure could disrupt or
delay a significant portion of the gas sales out of the San Juan Basin during
the time of the failure and could be material to the Company.
The Company has enhanced existing crisis management plans and year 2000
contingency plans to address potential operational disruptions throughout its
production areas. The Company has substantially completed its year 2000
readiness project at a cost of approximately $3 million. The costs of the
contingency plans are estimated to be $500,000.
The Company's plan to complete the year 2000 modifications and its
estimate of the worst case scenarios and contingency plans are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, the failure of embedded chip
technology, the inability to control third parties and their year 2000 readiness
programs, the failure of electric, communication or transportation
infrastructure in the areas where the Company operates and other uncertainties.
Presently, based on information available, the Company cannot conclude
that any failure of the Company or third parties to achieve year 2000 compliance
will not adversely affect the Company.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133.
SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No. 137 during
the first quarter of the year ended December 31, 2001.
Forward-looking Statements
This Quarterly Report contains projections and other forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These projections and statements reflect the Company's current views with
respect to future events and financial performance. No assurances can be given,
however, that these events will occur or that these projections will be achieved
and actual results could differ materially from those projected as a result of
certain factors. A discussion of these factors is included in the Company's 1998
Form 10-K.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note 2 of Notes to Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 7, 1999. The
following were nominated and elected to serve as Directors of
Burlington Resources Inc. for a term of one year or until their
successors shall have been duly elected and qualified:
Nominee For Withheld
J. V. Byrne 142,647,638 12,947,287
S. P. Gilbert 142,760,663 12,834,262
L. I. Grant 142,809,357 12,785,568
J. T. LaMacchia 142,781,577 12,813,348
J. F. McDonald 142,809,080 12,785,845
K. W. Orce 142,793,016 12,801,909
D. M. Roberts 142,790,572 12,804,353
J. F. Schwarz 142,734,606 12,860,319
W. Scott, Jr. 142,741,619 12,853,306
B. S. Shackouls 142,740,306 12,854,619
H. L. Steward 142,698,241 12,896,684
W. E. Wall 142,705,878 12,899,047
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibits are filed as part of this report.
Exhibit Nature of Exhibit Page
4.1 The Company and its subsidiaries either * have filed
with the Securities and Exchange Commission or upon
request will furnish a copy of any instrument with
respect to long-term debt of the Company.
10.29 Employment contract between the 15
Company and Bobby S. Shackouls
27.1 Financial Data Schedule **
* Exhibit incorporated by reference.
** Exhibit required only for filings made electronically using the Securities
and Exchange Commission's EDGAR System.
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during the second quarter
of 1999.
Items 2, 3 and 5 of Part II are not applicable and have been omitted.
13
<PAGE>
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.
BURLINGTON RESOURCES INC.
(Registrant)
By /s/ John E. Hagale
--------------------
John E. Hagale
Executive Vice President and
Chief Financial Officer
By /s/ Philip W. Cook
--------------------
Philip W. Cook
Vice President, Controller and
Chief Accounting Officer
Date: August 5, 1999
14
<PAGE>
EXHIBIT 10.29
July 7, 1999
Mr. Bobby S. Shackouls
5051 Westheimer, Suite 1400
Houston, Texas 77056
Dear Bobby,
Your employment agreement with Burlington Resources Inc. (the
"Company") is dated December 5, 1995 and was previously amended on July 9, 1997.
The Board of Directors of the Company (the "Board") has deemed it advisable and
in the best interests of the Company and its stockholders to amend and restate
the 1995 agreement with respect to the matters addressed herein. Accordingly,
this letter (the "Agreement"), when accepted by you in the space provided below,
will amend and restate the 1995 agreement (as amended) in its entirety. In
consideration of the mutual promises and agreements set forth herein, you and
the Company agree as follows:
1. Position. The Company agrees to employ you and you agree to act as its
Chairman of the Board, President and Chief Executive Officer. During the Term
(as defined below) of this Agreement, you agree to devote substantially all of
your business efforts on a full time basis to the business, affairs and
interests of the Company and its subsidiaries.
2. Term. The term of this Agreement (the "Term") shall commence on July 7,
1999 and shall be for three years, subject to earlier termination in accordance
with the provisions of Section 4 below. If the Agreement has not already been
terminated in accordance with the provisions of Section 4 below, beginning on
August 1, 1999 and on the first day of each month thereafter, the Term shall
automatically be extended for an additional month (so as to establish a three
year remaining term) unless either party has given notice in writing that it
does not wish to extend the Term. Notwithstanding the foregoing, this Agreement
shall end automatically and without additional notice on the date of the
Company's Annual Meeting of Stockholders that next follows the date of your 60th
birthday.
3. Compensation and Benefits.
3.1 Base Salary. Your minimum salary will be $825,000 per annum or such
higher rate as may be fixed from time to time by the Board.
15
<PAGE>
3.2 Incentive Compensation and Other Benefits. You will participate with
other senior executives of the Company in compensation and benefit plans in
effect from time to time, including the Incentive Compensation Plan, the Stock
Incentive Plan, the Performance Share Unit Plan, the Deferred Compensation Plan,
the Supplemental Benefits Plan, the Senior Executive Survivor Benefit Plan, the
Key Executive Severance Protection Plan and any other plan or perquisites
available to other senior executives of the Company, including a company
automobile and company-provided country and luncheon club memberships. You will
also participate in health, retirement, survivor and disability plans available
to all employees of the Company. You understand that the Company may amend,
modify or terminate these plans at any time.
3.3 Deferred Compensation Benefit. In consideration of the accrued unvested
compensation and benefits that you forfeited in terminating employment with a
former employer, the Company established a deferred compensation memorandum
account under the Supplemental Benefits Plan. This account was credited with
$350,000 as of June 1, 1993. This arrangement is an unfunded deferred
compensation arrangement that will be paid to you in a lump sum upon termination
of your employment with the Company.
3.4 Supplemental Pension Benefit. You are a participant under the Company's
qualified Pension Plan and non-qualified Supplemental Benefits Plan. If you are
still employed by the Company on your 55th birthday, you (or, in the event your
employment terminates by reason of your death, your surviving spouse) will
receive upon termination of your employment with the Company a supplemental
pension benefit equal to the difference between the benefit calculated using
your actual service and the benefit calculated assuming you started employment
at age 30. If, before your 55th birthday, your employment is terminated by the
Company without Cause, by you for Good Reason, or by reason of your death, you
(or, in the event your employment terminates by reason of your death, your
surviving spouse) will receive the supplemental pension benefit at termination
(calculated based on service from age 30 to the date of termination of your
employment) equal to the supplemental benefit described above that would have
been payable at age 55 (including, without limitation, the early retirement
provisions) but actuarially reduced to reflect the payment of this benefit at or
commencing at the time of such termination. This supplemental pension benefit
will be calculated using the provisions of the qualified Pension Plan and the
non-qualified Supplemental Benefits Plan in effect at the time of the
termination of your employment. This benefit is a non-qualified, unfunded
deferred compensation arrangement. For purposes of this Agreement, the terms
"Cause" and "Good Reason" are defined in the Company's Key Executive Severance
Protection Plan.
4. Termination of Employment.
4.1 Right to Terminate Employment. You and the Company agree and
acknowledge that, at any time during the Term of this Agreement, either you or
the Company may terminate this Agreement and your employment with the Company on
the terms and subject to the conditions set forth in this Agreement.
4.2 Involuntary Termination. An "Involuntary Termination" of your
employment will be deemed to have occurred for purposes of this Agreement if,
during the Term of this Agreement, your employment is terminated either (i) by
the Company for any reason, other than as a result of your death, permanent
disability, for Cause, or for a material breach by you of your obligations under
this Agreement or (ii) is initiated by you for Good Reason. Subject to Section 5
below, in the event of such an Involuntary Termination, the Company will:
16
<PAGE>
(a) pay you within 10 days after the date of termination an amount equal to
three (3) times the sum of (i) your Base Salary at the time of such termination
and (ii) your "target" bonus opportunity under the Incentive Compensation Plan
(your "target" bonus opportunity currently is 50% of your base salary);
(b) provide you and your eligible dependents with health, life insurance
and long-term disability coverage for three (3) years following such Involuntary
Termination at benefit levels and at a net cost to you comparable to that
provided to you immediately prior to your Involuntary Termination; and
(c) provide (i) for the full and immediate vesting of any stock options and
restricted stock, (ii) that all outstanding stock options will be exercisable
until the earlier to occur of three (3) years following such Involuntary
Termination or the original expiration date of such stock options, and (iii) for
the full and immediate vesting of that portion of any performance share units
that were eligible to have been vested with respect to the Company's performance
for the year in which such Involuntary Termination occurred (without regard to
any units that did not vest during prior years and have been carried over to the
end of the performance cycle), with payment for such performance share units to
occur in accordance with the terms of such plan as in effect at the time of such
Involuntary Termination.
4.3 Other Termination. If, during the Term of this Agreement, (a) the
Company terminates your employment for Cause or for a material breach by you of
your obligations under this Agreement, (b) you voluntarily resign or retire from
the Company, other than for Good Reason or (c) your employment with the Company
is terminated due to your death or permanent disability, you will not be
entitled to any of the termination benefits provided for in Section 4.2 above,
and the Term of this Agreement shall end immediately and without further notice.
5. Coordination With Other Plans. If your termination entitles you to
severance benefits under Section 4.2 of the Key Executive Severance Protection
Plan (the "Severance Plan"), you will receive those benefits instead of the
benefits under Section 4.2 of this Agreement. You may, however, elect to receive
the benefits payable under Section 4.2 of this Agreement instead of the benefits
under Section 4.2 of the Severance Plan. If you elect to receive the benefits
under this Agreement, you will nevertheless be eligible to receive the
additional benefits related to the gross-up payment for excise taxes under
Article 6 of the Severance Plan. If you elect to receive the benefits under the
Severance Plan, you will nevertheless be eligible to receive the additional
deferred compensation and supplemental pension benefits described in Sections
3.3 and 3.4, respectively, of this Agreement, in each case on the terms and
subject to the conditions set forth therein.
6. Non-Disclosure. You agree that all reports, maps, data, interpretations,
strategies, plans and other data and information furnished to you or obtained or
developed by you while employed by the Company are and shall remain
confidential. Except as otherwise required by law, you agree that you will not
divulge, communicate or otherwise disclose such reports, maps, data,
interpretations, plans and other data and information furnished to you or
obtained or developed by you while employed by the Company to any person, firm,
corporation, governmental agency or other legal entity without the prior express
written permission of the Company; provided, however, that this restriction
shall not apply to any information which you can show: (a) was in your
possession prior to your employment by the Company; or (b) is, or lawfully
becomes, part of the public domain; or (c) otherwise lawfully becomes available
to you from a source independent of the Company.
17
<PAGE>
You agree that, for a period of two years from the date on which your
employment with the Company terminates, you will not make any oral or written
statements or reveal any information to any person, company or agency which may
be construed to be disparaging or damaging to the name, reputation or business,
or which would interfere in any way with the business relations, of the Company
or any of its subsidiaries, or any of their affiliates, directors or officers
and, except to the extent required by law, will not discuss the operations,
plans, strategies, business relationships or agreements of the Company, or any
of its subsidiaries or affiliates, with any third party (other than your
immediate family members or advisors from whom legal or financial advice is
sought).
7. Non-Competition. In order to enforce your obligations under Section 6
and in consideration for the benefits of employment described in this Agreement,
you agree to the covenant not to compete in this Section 7. You agree and
acknowledge that this covenant not to compete is ancillary to your commitment as
set forth in Section 6 to refrain from disclosing such confidential information.
If you initiate the termination of your employment with the Company other than
for Good Reason during the term of this Agreement, you agree that you will not
for a period of two years after your termination be employed by, consult with,
provide advice or information to, otherwise perform services for, own, manage,
operate, join, control or participate in the ownership of more than 5% of the
voting power of equity securities of, management, operation or control of any
Competitor (as defined in this Agreement) unless released by the Company from
such obligation in writing with respect to a specific situation. A Competitor is
defined as any entity (i) that is engaged in exploring for and producing oil and
natural gas in Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas,
federal or state waters in the Gulf of Mexico, the North Sea or East Irish Sea
of the United Kingdom, Algeria, or any other state or country (including,
without limitation, its territorial waters) in which the Company has or, during
the term of this Agreement, develops or obtains significant exploration or
production assets (a "New Business Region"), or in the oil and gas marketing
business in the mainland United States, the United Kingdom, Algeria or in any
such New Business Region and (ii) whose assets associated with such oil and gas
business exceed $500 million.
8. Non-Interference. During the Term of this Agreement and for a period of
two years after the termination of your employment with the Company, you agree
not to solicit, directly or indirectly, any officer or employee of the Company
to leave and work for any other employer. During this same period, you agree not
to suggest to others that they approach or solicit any officers or employees of
the Company with respect to potential employment elsewhere.
9. Miscellaneous Provisions.
9.1 Entire Agreement. All terms and conditions of this Agreement are set
forth herein and there are no warranties, agreements or understandings, express
or implied, except those expressly set forth in this Agreement.
9.2 Modification and Amendment. Any modification to this Agreement shall be
binding only if evidenced in writing signed by you and the Company.
9.3 Governing Law. This Agreement is made pursuant to, and shall be
governed by, the laws of the State of Texas in all respects (without giving
effect to principles of conflict of laws), including, without limitation,
matters of construction, validity and performance.
18
<PAGE>
9.4 Severability. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable, the parties hereby agree and
consent that such provision will be reformed to make it a valid and enforceable
provision to the maximum extent permitted by law. Any provision hereof not
capable of such reformation and determined to be prohibited by or unenforceable
under applicable law of any jurisdiction will as to such jurisdiction be deemed
ineffective and deleted from this Agreement without affecting any other
provision of this Agreement.
9.5 Enforcement. In the event of a breach by you of any of the provisions
of Sections 6, 7 or 8, you understand and agree that the Company may, in
addition to any other rights or remedies existing in its favor, apply to any
court of law or equity of competent jurisdiction for specific performance and
injunctive or other relief in order to enforce or prevent any violations of such
provisions.
9.6 No Duty to Mitigate. You shall not be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to you under any provision of this Agreement.
9.7 Right to Amend Plans. You understand and acknowledge that (a) the
Company may, at any time, amend, modify or terminate any of the compensation or
benefit plans referred to in this Agreement and (b) your compensation and
benefit levels, incentive award opportunities and performance objectives, and
other matters pertaining to the administration of the Company's compensation and
benefit plans are subject to review and approval by the Compensation and
Nominating Committee of the Board of Directors.
9.8 Affiliates. You understand and agree that this Agreement is being
executed by the Company on behalf of itself and each of its affiliates, and that
all rights of the Company under this Agreement and all of your obligations and
duties under this Agreement will inure to the benefit of and may be enforced by
the Company or any of its affiliates.
9.9 Dispute Resolution and Legal Expenses.
(a) If any dispute or controversy arises under or in connection with this
Agreement, including without limitation any claim under any Federal, state or
local law, rule, decision or order relating to employment or the fact or manner
of its termination, you and the Company hereby agree to attempt to resolve such
dispute or controversy through good faith negotiations.
(b) If you and the Company fail to resolve any such dispute or controversy
within 90 days, you and the Company agree to settle such dispute or controversy
by arbitration, conducted before a panel of three arbitrators in Houston, Texas
in accordance with the applicable rules and procedures of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction. Such arbitration
will be final and binding on the parties. If you substantially prevail on the
substantive matters at issue in such arbitration, the Company will reimburse you
for your costs of any arbitration, including without limitation your reasonable
attorneys' fees.
19
<PAGE>
(c) Pending the resolution of any dispute, the Company will continue
payment of all amounts due to you under this Agreement and all benefits to which
you are entitled other than those specifically at issue.
9.10 Prior Agreements. This Agreement supersedes and replaces in its
entirety the letter agreement dated December 5, 1995, as amended by that letter
agreement dated July 7, 1997, by and between you and the Company.
If the above correctly set forth our agreement, please sign the original
and return it to me. Please retain a copy for your records.
Very truly yours,
BURLINGTON RESOURCES INC.
By /s/ Walter Scott, Jr.
Walter Scott, Jr.
Its Chairman, Compensation
and Nominating Committee
ACCEPTED and AGREED TO
this seventh day of July, 1999
/s/ Bobby S. Shacklouls
Bobby S. Shackouls
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM THE BURLINGTON RESOURCES INC. CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1999 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 343
<ALLOWANCES> 0
<INVENTORY> 34
<CURRENT-ASSETS> 403
<PP&E> 10,408
<DEPRECIATION> 5,081
<TOTAL-ASSETS> 5,852
<CURRENT-LIABILITIES> 427
<BONDS> 0
<COMMON> 2
0
0
<OTHER-SE> 2,986
<TOTAL-LIABILITY-AND-EQUITY> 5,852
<SALES> 725
<TOTAL-REVENUES> 725
<CGS> 634
<TOTAL-COSTS> 634
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 8
<INCOME-TAX> 3
<INCOME-CONTINUING> 5
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<EXTRAORDINARY> 0
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<NET-INCOME> 5
<EPS-BASIC> 0.03
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</TABLE>
