<PAGE> 1
Pursuant to Rule 424(b)(2)
File No.: 333-42139
BENTON OIL AND GAS COMPANY
OFFER TO EXCHANGE ITS 9 3/8% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 FOR ANY AND ALL OF
ITS OUTSTANDING 9 3/8% SENIOR NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON FEBRUARY 20, 1998, UNLESS EXTENDED.
Benton Oil and Gas Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $105 million aggregate
principal amount of its 9 3/8% Senior Notes due 2007 (the "New Notes"), pursuant
to a Registration Statement (as defined herein) of which this Prospectus
constitutes a part, for a like principal amount of its outstanding 9 3/8% Senior
Notes due 2007 (the "Old Notes"), issued on November 3, 1997, of which $115
million aggregate principal amount is outstanding. The Company holds $10 million
aggregate principal amount of such Notes, which will not be subject to this
Exchange Offer.
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes, except that (i) the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act") and therefore will not
be subject to certain restrictions on transfer applicable to the Old Notes, will
not contain certain legends relating thereto and will not be entitled to
registration rights, and (ii) the New Notes will not provide for any increase in
the interest rate thereon. In that regard, the Old Notes provide that if (i) a
registration statement relating to the Exchange Offer is not filed with the
Securities and Exchange Commission on or prior to January 2, 1998, (ii) the
registration statement for the Exchange Offer is not declared effective by, or a
shelf registration statement with respect to the resale of the Old Notes (the
"Shelf Registration Statement) is not filed with the Commission on or prior to
February 1, 1998, or (iii) the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to resale of the Old Notes is not declared
effective on or prior to March 3, 1998, then additional interest (in addition to
the interest otherwise due on the Old Notes) will accrue. See "Description of
the Old Notes." The New Notes are being offered for exchange in order to satisfy
certain obligations of the Company under the Registration Rights Agreement dated
as of November 3, 1997, (the "Registration Rights Agreement") between the
Company and the Initial Purchasers (as defined herein) of the Old Notes. The New
Notes will be issued under the same Indenture (as defined herein) as the Old
Notes and the New Notes and the Old Notes will constitute a single series of
debt securities under the Indenture. In the event that the Exchange Offer is
consummated, any Old Notes which remain outstanding after consummation of the
Exchange Offer and the New Notes issued in the Exchange Offer will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount of Notes (as defined herein) have
taken certain actions or exercise certain rights under the Indenture. The New
Notes and the Old Notes are collectively referred to herein as the "Notes." See
"Description of the New Notes" and "Description of the Old Notes."
Interest on the New Notes is payable semi-annually on May 1 and November 1 of
each year, (each, an "Interest Payment Date"), commencing on the first such date
following the original issuance date of the New Notes. The New Notes will mature
on November 1, 2007. The New Notes are not entitled to any sinking fund. The New
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after November 1, 2002, at the redemption prices set forth
herein, together with accrued and unpaid interest to the redemption date. The
Company may also redeem at its option at any time prior to November 1, 2000 up
to 33% of the aggregate principal amount of the Notes then outstanding with the
proceeds of one or more public offerings of certain equity securities at a
redemption price equal to 109.375% of the principal amount of such Notes, plus
accrued and unpaid interest to the redemption date; provided that at least $77.0
million in aggregate principal amount of Notes remains outstanding immediately
after giving effect to such redemption.
The New Notes will be senior unsecured obligations of the Company and will rank
senior in right of payment to all existing and future Subordinated Indebtedness
(as defined) and pari passu with all other Senior Indebtedness (as defined) of
the Company. The New Notes will be effectively subordinated to all liabilities
of the Company's subsidiaries and all secured indebtedness of the Company.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN RISK FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is January 14, 1998.
<PAGE> 2
(Cover page continued)
At September 30, 1997, $89.4 million of consolidated indebtedness and trade
payables would have been liabilities of the Company's subsidiaries or secured
indebtedness of the Company and ranked effectively senior to the Notes and the
Company would have had $135.4 million of outstanding indebtedness and trade
payables that would have ranked pari passu with the Notes. See "Capitalization"
and "Description of the New Notes -Ranking."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Company believes that the New Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing New Notes, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(b) will not be permitted or entitled to tender such Old Notes in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Notes acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period ending 180 days after the Expiration Date referred to below
(subject to extension under certain limited circumstances described below) or,
if earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of
2
<PAGE> 3
(Cover page continued)
New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently is no
market. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the New Notes, it is not obligated to do
so, and any such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes. The Company currently does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Summary -- Certain
Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York City
time, on February 20, 1998 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses." Each New Note will bear interest from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no such interest has been paid
or duly provided for on such Old Note, from November 1, 1997. Holders of the Old
Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New Notes or, if no such interest
has been paid or duly provided for, will not receive any accrued interest on
such Old Notes, and will be deemed to have waived the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after November
1, 1997.
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by the Company through a release to the Dow Jones News Service and as
otherwise required by applicable law or regulations.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of Old Notes (except for the Company) as of January 19, 1998.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
3
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary................................ 5
Risk Factors........................... 17
Use of Proceeds........................ 21
Capitalization......................... 22
Selected Consolidated Financial Data... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................ 24
Business............................... 31
Management............................. 46
Exchange Offer......................... 48
Description of Outstanding
Indebtedness......................... 55
<CAPTION>
Page
<S> <C>
Description of the New Notes........... 56
Description of the Old Notes........... 75
Certain United States Federal Income
Tax Considerations................... 75
Plan of Distribution................... 76
Legal Matters.......................... 77
Experts................................ 77
Available Information.................. 77
Incorporation of Certain Documents by
Reference......................... 77
Glossary............................... 78
</TABLE>
FORWARD-LOOKING STATEMENTS
THE COMPANY CAUTIONS THAT ANY FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) CONTAINED IN
THIS OFFERING MEMORANDUM OR MADE BY MANAGEMENT OF THE COMPANY INVOLVE RISKS AND
UNCERTAINTIES AND ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS. THE
FOLLOWING FACTORS, AMONG OTHERS, IN SOME CASES HAVE AFFECTED AND COULD CAUSE
ACTUAL RESULTS AND PLANS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED IN ANY SUCH FORWARD-LOOKING STATEMENTS: FLUCTUATIONS IN OIL
AND GAS PRICES; CHANGES IN OPERATING COSTS; OVERALL ECONOMIC CONDITIONS;
POLITICAL STABILITY; CURRENCY AND EXCHANGE RISKS; CHANGES IN EXISTING OR
POTENTIAL TARIFFS; DUTIES OR QUOTAS; AVAILABILITY OF ADDITIONAL EXPLORATION AND
DEVELOPMENT OPPORTUNITIES; AVAILABILITY OF SUFFICIENT FINANCING; CHANGES IN
WEATHER CONDITIONS; AND ABILITY TO HIRE AND TRAIN PERSONNEL.
4
<PAGE> 5
SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere, or
incorporated by reference, in this Prospectus. Unless the context requires
otherwise, "Benton" or the "Company" refers to Benton Oil and Gas Company and
its subsidiaries. Capitalized terms in this summary under the caption "The
Exchange Offer" and "The New Notes" and not otherwise defined are defined under
the caption "Description of the New Notes -- Certain Definitions." See
"Glossary" for the definition of certain oil and gas terms used herein.
THE COMPANY
GENERAL
Benton Oil and Gas Company is an independent energy company which has been
engaged in the development and production of oil and gas properties since 1989.
The Company has developed significant interests in Venezuela and Russia, and has
recently acquired certain interests in China, Jordan and the United States. The
Company's producing operations are conducted principally through its 80%-owned
Venezuelan subsidiary, Benton-Vinccler, C.A. ("Benton-Vinccler"), which operates
in the South Monagas Unit in Venezuela, and its 34%-owned Russian joint venture,
GEOILBENT, which operates in the North Gubkinskoye Field in West Siberia,
Russia. The Company has also recently expanded into projects, which involve
significant exploration components, in Venezuela through its participation in
the Delta Centro exploration block and in Santa Barbara County, California
through the acquisition of a participation interest in three state offshore oil
and gas leases.
As of December 31, 1996, the Company had total assets of $435.7 million, total
estimated proved reserves of 109,620 MBOE, and a standardized measure of
discounted future net cash flow, before income taxes, for total proved reserves
of $537.6 million. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company had total revenues of $165.1 million and
$132.5 million, respectively, and EBITDA (hereafter as defined in the Indenture)
of $92.3 million and $69.4 million, respectively.
The Company has been successful in increasing reserves, production, revenues,
EBITDA and earnings during the last three years. From year-end 1993 through
1996, estimated proved reserves increased from 42,785 MBOE to 109,620 MBOE, and
net annual production increased from a total of 519 MBOE in 1993 to 13,413 MBOE
in 1996. Through September 30, 1997, net production totaled 11,970 MBOE. Between
1993 and 1996, the Company's annual revenues increased from $7.5 million to
$165.1 million. During the same period, the Company's EBITDA increased from $0.6
million to $92.3 million. See "--Summary Consolidated Financial Information."
The following table summarizes the Company's financial operating data, proved
reserves and production activity in Venezuela and Russia for each of the four
years in the period ended December 31, 1996, and financial operating data and
production activity for the nine months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
VENEZUELA(1) RUSSIA(2)
----------------------------------------------------------- -------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
Dollars in -------------------------------------- ------------------ ------------------------------------- ---------------
thousands 1993 1994 1995 1996 1996 1997 1993 1994 1995(3) 1996 1996 1997
------- ------- ------- -------- ------- -------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oil and
Gas
Revenues $ 1,333 $21,472 $49,174 $136,840 $92,932 $114,236 $ 324 $ 3,513 $6,016 $ 9,047 $6,937 $7,633
Expenses(4) 1,394 8,806 17,876 47,193 28,180 53,904 558 3,670 4,276 9,010 7,655 7,864
------- ------- ------- -------- ------- -------- ------- ------- ------- ------- ------ ------
Results of
Operations
from Oil
and Gas
Producing
Activities $ (61) $12,666 $31,298 $ 89,647 $64,752 $ 60,332 $ (234) $ (157) $1,740 $ 37 $ (718) $ (231)
======= ======= ======= ======== ======= ======== ======= ======= ======== ======= ====== ======
Proved
Reserves
(MBOE) 19,389 60,707 73,593 86,076 N/A N/A 10,121 17,540 22,618 23,544 N/A N/A
Average
Daily
Production
(BOE) 440 6,902 14,949 34,557 32,883 41,403 77 806 1,345 2,091 2,091 2,444
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, production activity and financial
data, without deduction for minority interest. All Venezuelan reserves are
attributable to an operating service agreement between Benton-Vinccler and
Lagoven, S.A. ("Lagoven") an affiliate of the national oil company,
Petroleos de Venezuela, S.A. ("PdVSA"), under which all mineral rights are
owned by the Government of Venezuela. See "Business -- South Monagas Unit,
Venezuela" and "-- Reserves."
(2) The Company's Russian operations are conducted through GEOILBENT, which is
only 34%-owned by the Company and, consequently, does not qualify as a
Restricted Subsidiary as defined in the Indenture. Accordingly, for purposes
of the Indenture, the Company's Russian operations will be excluded from the
calculation of covenants and Oil and Gas Reserve Estimate, as defined. See
"Description of the New Notes -- Certain Covenants."
(3) The financial information related to Russia includes information for the
twelve months ended December 31, 1994, the nine months ended September 30,
1995 and the twelve months ended September 30, 1996, the end of the fiscal
period for GEOILBENT. See Note 15 to the Company's Consolidated Financial
Statements.
(4) Expenses include lease operating costs and production taxes and depletion.
5
<PAGE> 6
BUSINESS STRATEGY
The Company's business strategy is to identify and exploit new oil and gas
reserves in under-developed areas while seeking to minimize the associated risk
of such activities. Specifically, the Company endeavors to minimize risk by
employing the following strategies in its business activities: (i) seek new
reserves in areas of low geologic risk; (ii) use proven advanced technology in
both exploration and development to maximize recovery; (iii) establish a local
presence through joint venture partners and the use of local personnel; (iv)
commit capital in a phased manner to limit total commitments at any one time;
and (v) reduce foreign exchange risks through receipt of revenues in U.S.
currency.
- - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had
significant success in identifying under-developed reserves in the U.S. and
internationally. In particular, the Company has notable experience and expertise
in seeking and developing new reserves in countries where perceived potential
political and operating difficulties have sometimes discouraged other energy
companies from competing. As a result, the Company has established operations in
Venezuela and Russia, which have significant reserves that have been acquired
and developed at relatively low costs. The Company has recently acquired rights
to establish operations in the United States, China and Jordan and is seeking
similar opportunities in other regions and areas which it believes have high
potential.
- - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The
Company's use of 3-D seismic technology, in which a three dimensional image of
the earth's subsurface is created through the computer interpretation of seismic
data, combined with its experience in designing the seismic surveys and
interpreting and analyzing the resulting data, allow for a more detailed
understanding of the subsurface than do conventional surveys. Such technology
contributes significantly to field appraisal, development and production. The
3-D seismic information, in conjunction with subsurface geologic data from
previously drilled wells, is used by the Company's experienced in-house
technical team to identify previously undetected reserves. The 3-D seismic
information can also be used to guide drilling on a real-time basis, and has
been especially helpful in the horizontal drilling done in Venezuela in order to
take advantage of oil-trapping faults.
- - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL
PERSONNEL. The Company has sought to establish a local presence where it does
business to facilitate stronger relationships with local government and labor
through joint venture arrangements with local partners. Moreover, the Company
employs almost exclusively local personnel to run foreign operations both to
take advantage of local knowledge and experience and to minimize cost. These
efforts have created an expertise within Company management in forming effective
foreign partnerships and operating abroad. The Company believes that it has
gained access to new development opportunities as a result of its reputation as
a dependable partner.
- - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE
TIME. While the Company typically has agreed to a minimum capital expenditure or
development commitment at the outset of new projects, expenditures to fulfill
these commitments are phased over time. In addition, the Company seeks, where
possible, to use internally generated funds for further capital expenditures and
to invest in projects which provide the potential for an early return to the
Company.
- - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency
exchange risks by providing for the receipt of revenues by the Company in U.S.
dollars while most operating costs are incurred in local currency. Pursuant to
the operating agreement between the Company's Venezuelan subsidiary and the
state oil company, the operating fees earned by the Company are paid directly to
the Company's bank account in the U.S. in U.S. dollars. GEOILBENT receives
revenues from export sales in U.S. dollars paid to its account in Moscow. As the
Company continues to expand internationally, it will seek to establish similar
arrangements for new operations.
THE VENEZUELAN OPERATIONS
South Monagas Unit
In July 1992, the Company and Venezolana de Inversiones y Construcciones
Clerico, C.A. ("Vinccler"), a Venezuelan construction and engineering company,
signed a 20-year operating service agreement with Lagoven to reactivate and
further develop the Uracoa, Tucupita and Bombal Fields, which are a part of the
South Monagas Unit. The oil and gas operations are conducted by Benton-Vinccler,
the Company's 80%-owned subsidiary. Under the terms of the operating service
agreement, Benton-Vinccler is a contractor for Lagoven and is responsible for
overall operations of the South Monagas Unit. Benton-Vinccler invoices Lagoven
each quarter based on Bbls of oil accepted by Lagoven during the quarter, using
quarterly adjusted contract service fees per Bbl, and receives payments from
Lagoven in U.S. dollars deposited directly into a U.S. bank account.
During September 1997, a total of approximately 81 wells were producing an
average of approximately 42.1 MBbls of oil per day in the Uracoa Field. Since
1992, 15 previously drilled wells have been reactivated, 94 new wells have been
drilled in the Uracoa Field, with 85 wells, or 90%, completed and placed on
production, and nine injection wells have been drilled.
6
<PAGE> 7
Before becoming inactive in 1987, the Tucupita Field had been substantially
developed and produced. In 1996, Benton-Vinccler drilled a pilot well to
evaluate the future development potential of the Tucupita Field, which has
produced an average of 3,850 Bbls of oil and 11,940 Bbls of water per day.
Beginning in 1998, Benton-Vinccler intends to drill approximately six producing
wells, drill six water injection wells and expand the capacity of its production
facilities at an anticipated cost of $60.0 million. Benton-Vinccler currently
plans to reactivate and develop the Bombal Field beginning in late 1998 by
drilling approximately 18 wells, reactivating one additional well and expanding
production facilities at an anticipated cost of up to $40.0 to $50.0 million.
At December 31, 1996, proved reserves attributable to the Company's Venezuelan
operations were 86,076 MBOE, which represented approximately 79% of the
Company's proved reserves.
Delta Centro Block
In January 1996, the Company and its bidding partners, Louisiana Land and
Exploration, which was recently acquired by Burlington Resources Inc., ("LL&E")
and Norcen Energy Company ("Norcen") were awarded the right to explore and
develop the Delta Centro Block in Venezuela by Corporacion Venezolana del
Petroleo, S.A. ("CVP"), an affiliate of PdVSA. The Delta Centro Block consists
of approximately 2,100 square kilometers (526,000 acres) located in the delta of
the Orinoco River in the eastern part of Venezuela. Although no significant
exploratory activity had been conducted in the block prior to the award of the
exploration and development rights, PdVSA has estimated that the area may
contain recoverable reserves of as much as 820 MMBbls, and may be capable of
producing up to 160 MBbls of oil per day. The general area of Venezuela in which
the Delta Centro Block is located is known to be a significant source of
hydrocarbons, evidenced by the Orinoco tar sands to the south and the El Furrial
light oil trend to the northwest.
The contract requires a minimum exploration work program consisting of
completing a 550 square kilometer 3-D and a 289 kilometer 2-D seismic survey and
drilling three wells to depths of 12,000 to 18,000 feet within five years. A 598
square kilometer 3-D seismic survey was completed in September 1997, and a 371
kilometer 2-D survey will be completed in December 1997. The Company expects
that an initial Exploratory Well will be drilled in the third quarter of 1998.
The Company has a 30% interest in the exploration venture, with LL&E and Norcen
each owning a 35% interest, with possible subsequent significant participation
in development by CVP. See "Business -- Delta Centro Block,
Venezuela -- General."
THE RUSSIAN OPERATIONS
The Company operates in Russia through its 34% interest in the GEOILBENT joint
venture. The Company's partners in this venture are the local exploration
company, Purneftegasgeologia, and the local production company, Purneftegas,
each of which owns a 33% interest. GEOILBENT develops, produces and markets oil
from the North Gubkinskoye and the Prisklonovoye Fields in the West Siberia
region of Russia, located approximately 2,000 miles northeast of Moscow. Before
GEOILBENT commenced its operations, North Gubkinskoye was one of the largest oil
and gas fields in the region not under commercial production.
Production is delivered via the pipeline network owned by Transneft, the state
oil pipeline monopoly, to various points on the western border of Russia. Since
1995, the majority of GEOILBENT's crude sales have been made to purchasers in
eastern Europe. All export sales are paid in U.S. dollars directly into
GEOILBENT's account in Moscow. During September 1997, approximately 40 wells
were producing an average of approximately 6,500 MBbls of oil per day. In
October 1997, GEOILBENT received $10.2 million, representing the initial draw
from its $65.0 million parallel loan facility (the "EBRD Credit Facility") with
the European Bank for Reconstruction and Development (the "EBRD") and
International Moscow Bank ("IMB"). All funding from the EBRD Credit Facility
will be used for accelerated development of the North Gubkinskoye Field. The
loan is non-recourse to the Company.
OTHER AREAS OF OPERATION
United States
In March 1997, the Company acquired a 40% participation interest from Molino
Energy Company L.L.C. ("Molino Energy") in three California State offshore oil
and gas leases covering an aggregate of approximately 12,340 acres. The project
area covers the Molino, the Gaviota and the Caliente Fields, located
approximately 35 miles west of Santa Barbara. Molino Energy holds a 100% working
interest in each of the leases. The Company serves as operator of the project.
Permits have been obtained and the Company expects to commence drilling the
first 14,000 foot directional well on the Gaviota structure, from an onshore
drillsite, during the fourth quarter of 1997. The onshore drillsite has
immediate access to oil and gas pipelines. Assuming the successful completion of
the first well, the Company expects production from the well to commence early
in 1998.
In consideration for the 40% participation interest, the Company will pay 53% of
the costs of the first well to be drilled on the block. In addition, the Company
will pay 70% (or $1.8 million) of the approximately $2.5 million costs
associated with the first
7
<PAGE> 8
well, incurred by Molino Energy prior to the agreement with the Company. During
1998, the Company intends to drill an additional one to two wells in the project
area at an anticipated cost to the Company of $5.0 to $12.0 million.
China
In December 1996, the Company acquired Crestone Energy Corporation ("Crestone"),
a privately held company headquartered in Denver, Colorado. Crestone's principal
asset is a petroleum contract with China National Offshore Oil Company ("CNOOC")
for an area known as Wan'An Bei, WAB-21 ("WAB-21"). The WAB-21 contract covers
6.2 million acres in the South China Sea in water depths of 0 to 6,500 feet,
with an option for an additional 1.0 million acres under certain circumstances,
and lies within an area which is the subject of a territorial dispute between
the People's Republic of China and Vietnam. Vietnam has also executed an
agreement on a portion of the same offshore acreage with Conoco, a unit of
DuPont Corporation. The territorial dispute has existed for many years, and
there has been limited exploration and no development activity in the area under
dispute. It is uncertain when or how this dispute will be resolved, and under
what terms the various countries and parties to the agreements may participate
in the resolution, although certain proposed economic solutions currently under
discussion would result in the Company's interest being reduced. The Company,
through Crestone, has submitted plans and budgets to CNOOC for an initial
seismic program to survey the area. However, exploration activities will be
subject to resolution of such territorial dispute. The Company has recorded no
reserves attributable to this petroleum contract.
In October 1997, the Company signed a farmout agreement with Shell Exploration
(China) Limited ("Shell"), pursuant to which the Company will acquire a 50%
participation interest in Shell's Liaohe area onshore exploration project in
northeast China, subject to approval of such assignment from the Ministry of
Foreign Trade and Economic Cooperation of China. Shell has entered into a
petroleum contract with the China National Petroleum Corporation ("CNPC") to
explore and develop the deep rights in the Qingshui Block, a 563 square
kilometer area (approximately 140,000 acres) in the delta of the Liaohe River.
The deep rights are below 3,300 and 3,500 meters. Shell will be operator of the
project. The Company anticipates capital expenditures for 1998 of up to $20.0
million for drilling up to two wells.
Jordan
In August 1997, the Company acquired rights to a production sharing agreement
with Jordan's Natural Resources Authority, Ministry of Energy and Mineral
Resources, to explore and develop the Sirhan block in southeastern Jordan. The
block covers 4,827 square kilometers (approximately 1.2 million acres), and is
located in the Sirhan basin, adjacent to the Jordan-Saudi Arabia border.
Pursuant to the terms of the agreement, the Company is required to expend $5.0
million for the first phase of the project, to re-enter, stimulate and test two
existing wells, to redrill a third well and to conduct various seismic and
geologic studies of the project area, which must be completed by March 1999. The
Company then has the option to renew the agreement and commit to the work and
capital requirements for the second phase of the project. The Company
anticipates capital expenditures of approximately $6.0 to $10.0 million through
1998 for recompletion and reworking of existing wells and further development of
the block.
8
<PAGE> 9
THE EXCHANGE OFFER
<TABLE>
<S> <C>
THE EXCHANGE OFFER........................... Up to $105 million aggregate principal amount of New
Notes are being offered in exchange for a like
aggregate principal amount of Old Notes. The Company
is making the Exchange Offer in order to satisfy its
obligations under the Registration Rights Agreement
relating to the Old Notes. For a description of the
procedures for tendering Old Notes, see "The Exchange
Offer -- Procedures for Tendering Old Notes."
EXPIRATION DATE.............................. 5:00 p.m., New York City time, on February 20, 1998
(such time on such date being hereinafter called the
"Expiration Date") unless the Exchange Offer is
extended by the Company (in which case the term
"Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended). Any waiver,
extension or termination of the Exchange Offer will be
publicly announced by the Company through a release to
the Dow Jones News Service and as otherwise required
by applicable law or regulations. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
CERTAIN CONDITIONS TO THE EXCHANGE OFFER..... The Exchange Offer is subject to certain conditions.
The Company reserves the right in its sole and
absolute discretion, subject to applicable law, at any
time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to
terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to extend
the Expiration Date of the Exchange Offer and retain
all Old Notes tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of Old Notes
to withdraw their tendered Old Notes, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments" and
"-- Certain Conditions to the Exchange Offer."
WITHDRAWAL RIGHTS............................ Tenders of Old Notes may be withdrawn at any time on
or prior to 5:00 p.m., New York City time on the
Expiration Date by delivering a written notice of such
withdrawal to the Exchange Agent in conformity with
certain procedures set forth below under "The Exchange
Offer -- Withdrawal Rights."
PROCEDURES FOR TENDERING OLD NOTES........... Tendering holders of Old Notes must complete and sign
a Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the Exchange Agent (as
defined below) at the address set forth herein by 5:00
p.m. New York City time on the Expiration Date, either
with the Old Notes to be tendered or in compliance
with the specified procedures for guaranteed delivery
of Old Notes. Certain brokers, dealers, commercial
banks, trust companies and other nominees may also
effect tenders by book-entry transfer. Holders of Old
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish to
tender Old Notes pursuant to the Exchange Offer. See
"The Exchange Offer -- Procedures for Tendering Old
Notes." Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender and
requests for information should be directed to the
Exchange Agent. See "The Exchange Offer -- Exchange
Agent."
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes, a
Letter of Transmittal or any other document required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Procedures for
Tendering Old Notes -- Guaranteed Delivery."
RESALES OF NEW NOTES......................... The Company is making the Exchange Offer in reliance
on the position of the staff of the Division of
Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third
parties in other transactions. However, the Company
has not sought its own interpretive letter and there
can be no assurance that the staff of the Division of
Corporation Finance of the Commission would make a
similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the staff
of the Division of Corporation Finance, and subject to
the two immediately following sentences, the Company
believes that New Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred
by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the
registration and prospectus delivery requirements of
the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's
business and that such holder is not participating,
and has no arrangement or understanding with any
person to participate, in a distribution (within the
meaning of the Securities Act) of such New Notes.
However, any holder of Old Notes who is an "affiliate"
of the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the New
Notes, or any broker-dealer who purchased the Old
Notes from the Company to resell pursuant to Rule 144A
or any other available exemption under the Securities
Act, (a) will not be able to rely on the
interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be
permitted or entitled to tender such Old Notes in the
Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with any sale or
other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements.
In addition, as described below, if any broker-dealer
holds Old Notes acquired for its own account as a
result of market-making or other trading activities
and exchanges such Old Notes for New Notes, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old
Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Company within the meaning of Rule
405 under the Securities Act, (ii) any New Notes to be
received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and
does not intend to engage in, a distribution (within
the meaning of the Securities
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the
Old Notes for its own account as the result of
market-making activities or other trading activities
and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes
for their own accounts as a result of market-making
activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received
upon exchange of such Old Notes with a prospectus
meeting the requirements of the Securities Act, which
may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of
distribution with respect to the resale of such New
Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as a
result of market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement and to the limitations
described below under "The Exchange Offer -- Resale of
New Notes," the Company has agreed that this
Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New
Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain
limited circumstances) or, if earlier, when all such
New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of
the Company may not rely on such interpretive letters
and must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer -- Resales of New Notes."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES...................... Subject to the terms and conditions of the Exchange
Offer, including the reservation of certain rights by
the Company, the Company will accept for exchange any
and all Old Notes which are properly tendered in the
Exchange Offer, and not withdrawn, prior to 5:00 p.m.
New York City time, on the Expiration Date. Subject to
such terms and conditions, the New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Acceptance for Exchange and Issuance
of New Notes."
EXCHANGE AGENT............................... The exchange agent with respect to the Exchange Offer
is First Trust of New York, National Association (the
"Exchange Agent"). The addresses, and telephone and
facsimile numbers of the Exchange Agent are set forth
in "The Exchange Offer -- Exchange Agent" and in the
Letter of Transmittal.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
USE OF PROCEEDS.............................. The Company will not receive any cash proceeds from
the issuance of the New Notes offered hereby. See "Use
of Proceeds."
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS............................. Holders of Old Notes should review the information set
forth under "Certain United States Federal Income Tax
Considerations" prior to tendering Old Notes in the
Exchange Offer.
</TABLE>
THE NEW NOTES
<TABLE>
<S> <C>
SECURITIES OFFERED........................... Up to $105 million aggregate principal amount of the
Company's 9 3/8% Senior Notes due 2007. The New Notes
will be issued and the Old Notes were issued under an
Indenture dated as of November 3, 1997 (the
"Indenture") between the Company and First Trust of
New York, National Association (the "Trustee"). The
New Notes and any Old Notes which remain outstanding
after consummation of the Exchange Offer will
constitute a single series of debt securities under
the Indenture and, accordingly, will vote together as
a single class for purposes of determining whether
holders of the requisite percentage in outstanding
principal amount thereof have taken certain actions or
exercised certain rights under the Indenture. See
"Description of the New Notes -- General." The terms
of the New Notes are identical in all material
respects to the terms of the Old Notes, except that
(i) the offer and sale of the New Notes have been
registered under the Securities Act and therefore the
New Notes are not subject to certain restrictions on
transfer applicable to the Old Notes, will not contain
legends relating thereto and will not be entitled to
registration rights or other rights under the
Registration Rights Agreement, and (ii) the New Notes
will not provide for any increase in the interest rate
thereon. See "The Exchange Offer -- Purpose of the
Exchange Offer," "Description of the New Notes" and
"Description of the Old Notes."
MATURITY DATE................................ November 1, 2007.
INTEREST PAYMENT DATES....................... May 1 and November 1, commencing on May 1, 1998.
OPTIONAL REDEMPTION.......................... The New Notes will be redeemable, at the Company's
option, in whole or in part, at any time on or after
November 1, 2002 at the redemption prices set forth
herein plus accrued and unpaid interest, if any, to
the date of redemption. The Company may also redeem at
its option at any time prior to November 1, 2000 up to
33% of the aggregate principal amount of the New Notes
and Old Notes then outstanding with the proceeds of
one or more public offerings of certain equity
securities at a redemption price equal to 109.375% of
the principal amount of such New Notes and Old Notes,
plus accrued and unpaid interest to the redemption
date; provided that at least $77.0 million in
aggregate principal amount of New Notes and old Notes
remains outstanding immediately after giving effect to
such redemption. See "Description of the New Notes --
Optional Redemption."
CHANGE IN CONTROL............................ Upon a Change in Control, each holder of the New Notes
may require the Company to repurchase such holder's
New Notes, in whole or in part, at a purchase price in
cash equal to 101% of the principal amount thereof,
plus accrued and unpaid interest. See "Description of
the New Notes -- Change in Control."
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
RANKING...................................... The New Notes will constitute senior unsecured debt
obligations of the Company and will rank senior in
right of payment to all existing and future
Subordinated Indebtedness and pari passu with all
other Senior Indebtedness. The New Notes will be
effectively subordinated to secured indebtedness of
the Company and all liabilities of the Company's
subsidiaries, except to the extent that the Company is
itself recognized as a creditor to such subsidiary, in
which case the claims of the Company would still be
subordinate to any security interest in the assets of
such subsidiary, and indebtedness of such subsidiary
senior to that held by the Company. At September 30,
1997, $89.4 million of consolidated indebtedness and
trade payables would have been liabilities of the
Company's subsidiaries or secured indebtedness of the
Company and ranked effectively senior to the New Notes
and the Company would have had $135.4 million of
outstanding indebtedness and trade payables that would
have ranked pari passu with the New Notes.
CERTAIN COVENANTS............................ The Indenture contains certain covenants that, among
other restrictions, limit the ability of the Company
and its Restricted Subsidiaries to incur additional
indebtedness, pay dividends and make certain
investments, engage in transactions with its
affiliates, sell assets, incur or suffer to exist
certain liens securing indebtedness unless the New
Notes are equally and ratably secured, and engage in
mergers and consolidations. The Indenture will also
limit the amount of indebtedness the Company's
Restricted Subsidiaries may assume or the amount of
indebtedness of the Company they may guarantee unless
such Restricted Subsidiaries simultaneously guarantee
the payment of the New Notes. See "Description of the
New Notes -- Certain Covenants."
USE OF PROCEEDS.............................. The Company will receive no proceeds from this
Exchange Offer.
ABSENCE OF MARKET FOR THE NEW NOTES.......... The New Notes will be a new issue of securities for
which there currently is no market. Although J.P.
Morgan Securities Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Morgan Stanley Dean Witter,
the initial purchasers of the Old Notes (the "Initial
Purchasers"), have informed the Company that they
currently intend to make a market in the New Notes,
they are not obligated to do so, and any such market
making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Company currently does not intend to apply
for listing of the New Notes on any securities
exchange or for quotation through the National
Association of Securities Dealers Automated Quotation
System.
</TABLE>
13
<PAGE> 14
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The sale of the Old Notes was not registered under the Securities Act or any
state securities laws and therefore the Old Notes may not be offered, sold or
otherwise transferred except in compliance with the registration requirements of
the Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Notes which
remain outstanding will not be entitled to any rights to have the resale of such
Old Notes registered under the Securities Act or to any similar rights under the
Registration Rights Agreement. The Company currently does not intend to register
under the Securities Act the resale of any Old Notes which remain outstanding
after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. In
addition, although the Old Notes are eligible for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market, to
the extent that Old Notes are tendered and accepted in connection with the
Exchange Offer, any trading market for Old Notes which remain outstanding after
the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation of
the Exchange Offer will constitute a single series of debt securities under the
Indenture and, accordingly, will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture. See "Description of the New Notes -- General."
The Old Notes provide that, if the Exchange Offer is not consummated by March 3,
1998, the interest rate borne by the Old Notes will increase by 0.25% per annum
during the first 90-day period immediately following the occurrence of a
registration default, and the amount of interest will increase by an additional
0.25% per annum for each subsequent 90-day period until such registration
default is cured, up to a maximum amount of additional interest of 1.00% per
annum. See "Description of the Old Notes." Following consummation of the
Exchange Offer, the Old Notes will not be entitled to any increase in the
interest rate thereon. The New Notes will not be entitled to any such increase
in the interest rate thereon.
14
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information for
the Company and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, related notes and other financial data
included elsewhere herein.
<TABLE>
<CAPTION>
--------------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
In thousands, except ratios 1994 1995(1) 1996 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Total revenues $ 34,705 $ 65,068 $ 165,066 $ 115,729 $132,464
Lease operating costs and production taxes 9,531 10,703 24,518 15,273 29,878
Depletion, depreciation and amortization 10,298 17,411 34,525 22,810 32,662
General and administrative expense 5,242 9,411 18,906 12,597 16,726
Interest expense 3,888 7,497 16,128 10,776 16,721
Partnership exchange expense -- -- 2,140 2,140 --
Litigation settlement expenses -- 1,673 -- -- --
-------- -------- --------- --------- --------
Income before income taxes and minority
interest 5,746 18,373 68,849 52,133 36,477
Income tax expense 698 2,478 20,508 15,843 14,908
-------- -------- --------- --------- --------
Income before minority interest 5,048 15,895 48,341 36,290 21,569
Minority interest 2,094 5,304 9,984 7,277 5,584
-------- -------- --------- --------- --------
Income before extraordinary charge 2,954 10,591 38,357 29,013 15,985
Extraordinary charge for early retirement of
debt, net of tax benefit -- -- 10,075 10,075 --
-------- -------- --------- --------- --------
Net income $ 2,954 $ 10,591 $ 28,282 $ 18,938 $ 15,985
========= ========= =========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
1994 1995(1) 1996 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(2) $ 15,603 $ 32,396 $ 92,308 $ 65,849 $ 69,436
Capital expenditures 55,711 78,727 108,963 58,526 76,979
Net cash provided by (used in) operating
activities 13,462 32,349 84,852 60,414 81,923
Net cash used in investing activities (55,078) (53,644) (164,772) (147,240) (80,924)
Net cash provided by financing activities 19,500 13,282 106,172 103,293 (476)
EBITDA/Interest Ratio(2)(3)(6) 3.51 4.21 5.51 5.73 4.18
Ratio of earnings to fixed charges(4) 2.45 3.25 5.08 5.63 3.11
</TABLE>
<TABLE>
<CAPTION>
---------------------
AT SEPTEMBER 30, 1997
---------------------
<S> <C>
BALANCE SHEET DATA:
Working capital $ 77,984
Total assets 478,096
Long-term obligations, net of current portion 176,489
Stockholders' equity(5) 192,796
</TABLE>
- ------------------------
(1) The financial information related to Russia includes information for the
twelve months ended December 31, 1994, the nine months ended, September 30,
1995 and the twelve months ended September 30, 1996, the end of the fiscal
period for GEOILBENT. See Note 15 to the Company's Consolidated Financial
Statements.
(2) EBITDA has been calculated as defined in the Indenture and has been included
solely to facilitate consideration of the covenants in the Indenture that
are based, in part, on EBITDA. See "Description of the New Notes -- Certain
Definitions." EBITDA is not intended to represent cash flow from operating
activities as defined by generally accepted accounting principles ("GAAP")
and should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flow as a measure of
liquidity.
(3) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See
"Description of the New Notes -- Certain Definitions."
(4) For purposes of determining the ratio of earnings to fixed charges,
"earnings" represents income (loss) before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of interest,
whether expensed or capitalized, amortization of debt expense and an
estimated portion of rent expense representing interest costs.
(5) No cash dividends were paid during the periods presented.
(6) After giving effect to the issuance of the Old Notes as if such issuance had
occurred at the beginning of the period presented, and at an interest rate
on the Old Notes of 9.375%, the EBITDA/ Interest Ratio would have been 3.35
for the period ending December 31, 1996 and 2.81 for the period ending
September 30, 1997.
15
<PAGE> 16
SUMMARY OIL AND GAS RESERVE INFORMATION
The following sets forth summary information with respect to the estimates of
the Company's proved oil and gas reserves at December 31, 1994, 1995 and 1996,
prepared by the Company and audited by Huddleston & Co., Inc., independent
petroleum engineers.
<TABLE>
<CAPTION>
---------------------------------------
YEARS ENDED DECEMBER 31
Dollars in thousands 1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
VENEZUELA(1):
Crude oil and condensate (MBbl) 60,707 73,593 86,076
Natural gas (Mmcf) -- -- --
Oil equivalent (MBOE) 60,707 73,593 86,076
RUSSIA:
Crude oil and condensate (MBbl) 17,540 22,618 23,544
Natural gas (Mmcf) -- -- --
Oil equivalent (MBOE) 17,540 22,618 23,544
UNITED STATES:
Crude oil and condensate (MBbl) 233 -- --
Natural gas (Mmcf) 16,077 6 --
Oil equivalent (MBOE) 2,913 1 --
TOTAL(1):
Crude oil and condensate (MBbl) 78,480 96,211 109,620
Natural gas (Mmcf) 16,077 6 --
Oil equivalent (MBOE) 81,160 96,212 109,620
Standardized measure of discounted future net cash flows before
provision for income taxes(1)(2) $ 336,320 $ 372,293 $ 537,559
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, without deduction for minority
interest. All Venezuelan reserves are attributable to an operating service
agreement between Benton-Vinccler and Lagoven under which all mineral rights
are owned by the Government of Venezuela.
(2) The Company values its reserves as of December 31 of each year, based on oil
and natural gas prices as of that date. Market prices for both oil and
natural gas are subject to a significant degree of variation both in
domestic and international markets, and this variation will affect the
calculation of future net cash flows reported by the Company at any specific
date.
16
<PAGE> 17
RISK FACTORS
Prospective purchasers of the New Notes should read this entire Prospectus
carefully. Ownership of the Notes involves certain risks. In addition to the
other information contained in this Prospectus, investors should carefully
consider the following factors in connection with an investment in the Notes.
RISKS RELATED TO THE COMPANY
Risk from Substantial Concentration of Operations
The Company's cash flow-generating operations are substantially concentrated in
Venezuela. For 1996, the Company derived approximately 91% of its consolidated
oil and gas revenues and approximately 79% of its proved reserves from its
Venezuelan operations. If the Venezuelan operations are adversely affected, the
Company, due to its concentration in and reliance on the Venezuelan operations,
will experience an adverse impact on its financial condition and operations.
There are significant operating and economic risks associated with conducting
business in Venezuela. See "-- Risks Related to the Company -- Political and
Economic Risks of International Operations -- Venezuela."
Political and Economic Risks of International Operations -- General
A substantial portion of the Company's oil and gas producing operations and
non-financial assets are in Venezuela and Russia. The Company expects that a
substantial portion of its operating income will be generated from these
countries and that a portion of operating income may also be generated from its
proposed operations in China and Jordan. As a result, the Company is and will be
subject to certain political, economic and other uncertainties including risks
of war, civil disturbance, expropriation, nationalization, renegotiation or
modification of existing contracts, taxation policies, foreign exchange
restrictions, international monetary fluctuations and other hazards arising out
of foreign governmental sovereignty over the Company's operations.
Political and Economic Risks of International Operations -- Venezuela
The Company began to operate in Venezuela in 1992. For 1996, the Company derived
approximately 91% of its consolidated oil and gas revenues and approximately 79%
of its proved reserves from its Venezuelan operations. The petroleum industry in
Venezuela is highly regulated by the government with respect to such matters as
maximum daily production, methods of production and environmental matters, both
directly and indirectly through PdVSA. In addition, the timing and extent of the
Company's development activities are subject to the approval of Lagoven and the
Ministry of Energy and Mines. There can be no assurance that the government or
PdVSA will not impose significant new regulations regarding the petroleum
industry generally or that the development activities proposed by
Benton-Vinccler will receive the necessary approval. The Company also expects to
increase its exposure to Venezuela through the continued investment in
Benton-Vinccler and the Delta Centro consortium. While Benton-Vinccler has never
had a material dispute or payment interruption with Lagoven, PdVSA or the
Venezuelan government, the country of Venezuela has experienced significant
political and economic instability, high inflation, and shortages of foreign
currency.
Political and Economic Situation. In 1994, Venezuela experienced a solvency
crisis in the banking system which necessitated a government takeover of nine
financial institutions, including Banco Latino, one of the largest Venezuelan
banks. Consequently, the bolivar devalued sharply, inflation rose and gross
domestic product ("GDP") contracted. Though Venezuela experienced positive GDP
growth for 1995, it was the first increase in three years and the 1995 GDP
figures did not reflect the full effects of a currency devaluation at year end.
In April 1996, the Venezuelan government announced the lifting of controls on
foreign exchange transactions, having announced the lifting of controls on
interest rates one week earlier. The Venezuelan government also announced a $1.4
billion preliminary loan accord with the International Monetary Fund. These
actions led to the devaluation of the bolivar and a rise in interest rates. In
1996, GDP contracted by 1.6% in real terms. The objectives of the government's
economic recovery plan include the promotion of social development, the
transformation of the economy and its legal structure into a model of greater
competitiveness and efficiency, the stabilization and strengthening of the
country's fiscal accounts, and balance of payments and international reserves
and the achievement of a sustainable low level of inflation. There can be no
assurance, however, that such actions will be successful in resolving
Venezuela's economic difficulties.
Inflation and Currency Controls. Venezuela has experienced high levels of
inflation over the past decade. The consumer price inflation rate was
approximately 70.8% for calendar year 1994, 56.7% for 1995 and 103.2% for 1996.
In addition to increasing the Company's bolivar-denominated expenses with
respect to its Venezuelan operations, these high rates of inflation led the
Venezuelan government to devalue the bolivar by 41% on December 11, 1995. In
July 1994, the Venezuelan government imposed a program of currency exchange
controls that was lifted in April 1996. Pursuant to its agreement with Lagoven,
Benton-Vinccler receives its payments from Lagoven in U.S. dollars deposited
directly into a U.S. bank account. See
17
<PAGE> 18
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Effects of Changing Prices, Foreign Exchange Rates and Inflation."
Oil Production and OPEC. News reports speculate that Venezuela is currently
producing oil in excess of the output quota established by OPEC. While Venezuela
remains a member of OPEC and has yet to face any sanctions, there is a risk that
pressure from OPEC could cause Venezuela to cut oil production voluntarily to
comply with the established quotas or take action that could depress world oil
prices. Such compliance could require a significant reduction in Venezuelan oil
production and could have a material adverse impact on Benton-Vinccler.
Political and Economic Risks of International Operations -- Russia
Since the dissolution of the Soviet Union in 1991, Russia has experienced
periods of political unrest and instability, high inflation, wide currency
exchange rate swings, contractions in GDP, volatile tariff and taxation
policies, and the lack of a clear and stable legal and administrative
environment governing oil and gas licensing and operations. There can be no
assurance that any of these factors in addition to other factors may not persist
or worsen and therefore negatively affect the Company's operations in Russia.
In addition to the factors discussed above, prior to July 1996, Russia levied an
export tariff on all oil produced in and exported from Russia which, as imposed,
had the effect of reducing the profits to the Company. Effective in July 1996,
oil export tariffs were terminated in accordance with an IMF loan condition.
However, Russia continues to levy excise, pipeline and other taxes on all oil
producers and certain exporters. The legislative and regulatory environment in
Russia continues to be subject to frequent change and uncertainty. There can be
no assurance that Russia will not reinstate an export tariff or other taxes,
duties or burdens which individually or in the aggregate could have an adverse
impact on the Company's Russian operations.
The Company believes it will not receive any significant distributions from
GEOILBENT for several years because substantially all of the money received by
GEOILBENT from the North Gubkinskoye Field will be reinvested to fund
development activities.
Dispute Related to WAB-21 Contract
The WAB-21 contract acreage lies within an area which is the subject of a
territorial dispute between the People's Republic of China and Vietnam. Vietnam
has executed an agreement on a portion of the same offshore acreage with Conoco,
a unit of DuPont Corporation. The territorial dispute has existed for many
years, and there has been limited exploration and no development activity in the
area under dispute, due in part to government military action taken to protect
each country's purported interest in the area. It is uncertain when or how this
dispute will be resolved, and under what terms the various countries and parties
to the agreements may participate in the resolution, although certain proposed
economic solutions currently under discussion would result in the Company's
interest being reduced.
Properties Under Development
As of December 31, 1996, approximately 53% of the Company's proved reserves were
undeveloped and required development activities, consisting primarily of
development drilling and construction of production facilities. As a result, the
Company will require substantial capital expenditures to develop all of its
proved reserves. At December 31, 1996, the anticipated future development costs
for proved reserves in Venezuela and Russia were $65.4 million and $45.7
million, respectively. If capital is not available to develop all of these
reserves, the Company will either enter into joint ventures to develop the
projects, which will result in the Company retaining a smaller interest, or not
develop the reserves. There can be no certainty regarding the commercial
feasibility of developing these reserves, the availability of financing, or the
timing or costs associated therewith. If such capital is available, there can be
no assurance that the Company will be able to develop and produce sufficient
reserves to recover the costs expended and operate the wells profitably. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity."
Future Drilling Activities
The Company's projects in China, Jordan, the Delta Centro Block and Santa
Barbara, California will require significant capital expenditures for seismic
and drilling costs associated with the drilling of Exploratory Wells. These
activities involve higher risks than Development Wells.
Engineers' Estimates of Reserves and Future Net Revenue
Estimates of economically recoverable oil and gas reserves and of future net
cash flows are based upon a number of variable factors and assumptions, all of
which are to some degree speculative and may vary considerably from actual
results. Therefore, actual production, revenues, taxes, and development and
operating expenditures may not occur as estimated. Future results of operations
of the Company will depend upon its ability to develop, produce and sell its oil
and gas reserves. The reserve data
18
<PAGE> 19
included herein are estimates only and are subject to many uncertainties. Actual
quantities of oil and gas may differ considerably from the amounts set forth
herein. In addition, different reserve engineers may make different estimates of
reserve quantities and cash flows based upon the same available data. See
"Business -- Reserves."
Development of Additional Reserves
The Company's future success may also depend upon its ability to find or acquire
additional oil and gas reserves that are economically recoverable. Except to the
extent that the Company conducts successful exploration or development
activities or acquires properties containing proved reserves, the proved
reserves of the Company will generally decline as reserves are produced. There
can be no assurance that the Company will be able to discover additional
commercial quantities of oil and gas, or that the Company will be able to
continue to acquire interests in under-developed oil and gas fields and enhance
production and reserves by drilling replacement wells and drilling development
wells, or that the Company will have continuing success drilling productive
wells and acquiring under-developed properties at low finding costs.
Retention and Attraction of Key Personnel
The Company depends to a large extent on the abilities and continued
participation of certain key employees, the loss of whose services could have a
material adverse effect on the Company's business. In an effort to minimize the
risk, the Company has entered into employment agreements with certain key
employees, and has purchased a $5.0 million key-man life insurance policy on the
life of A.E. Benton. There can be no assurance that the Company will be able to
attract and retain such personnel on acceptable terms and the failure to do so
could have a material adverse effect on the Company.
RISKS RELATED TO THE OIL AND GAS INDUSTRY
Risk of Oil and Gas Operations
The Company's operations are subject to all of the risks normally incident to
the operation and development of oil and gas properties and the drilling of oil
and gas wells, including encountering unexpected formations or pressures,
blowouts, cratering and fires, and, in horizontal wellbores, the increased risk
of mechanical failure and collapsed holes, the occurrence of any of which could
result in personal injuries, loss of life, environmental damage and other damage
to the properties of the Company or others. In addition, because the Company
acquires interests in under-developed oil and gas fields that have been operated
by others for many years, the Company may be liable for any damage or pollution
caused by any prior operations of such oil and gas fields. In accordance with
customary industry practice, the Company is not fully insured against these
risks, nor are all such risks insurable. Accordingly, there can be no assurance
that such insurance as the Company does maintain will be adequate to cover any
losses or exposure for liability.
Current Oil and Gas Industry Conditions
Historically, the markets for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. Prices for oil and natural gas
are subject to wide fluctuation in response to relatively minor changes in
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of foreign imports, the level of consumer product demand,
weather conditions, domestic and foreign government regulations, the price and
availability of alternative fuels and overall economic conditions. Lower oil
prices also may reduce the amount of the Company's oil that is economic to
produce. In addition, the marketability of the Company's production depends upon
the availability and capacity of gathering systems and pipelines.
Government Regulation; Environmental Risks
The Company's business is regulated by certain federal, state, local and foreign
laws and regulations relating to the development, production, marketing and
transmission of oil and gas, as well as environmental and safety matters. There
can be no assurance that laws and regulations enacted in the future will not
adversely affect the Company's exploration for, or the production and marketing
of, oil and gas.
Oil and gas operations are subject to extensive foreign, federal, state and
local laws regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and consequently affects its
profitability. These laws, rules and regulations affect the operations of the
Company. Compliance with environmental requirements generally could have a
material adverse effect upon the capital expenditures, earnings or competitive
position of the Company.
19
<PAGE> 20
Competition
The oil and gas exploration and production business is highly competitive. A
large number of companies and individuals engage in the drilling for oil and
gas, and there is a high degree of competition for desirable oil and gas
properties suitable for drilling and for materials and third-party services
essential for their exploration and development. Many of the Company's
competitors have greater financial and other resources than does the Company.
RISKS RELATED TO AN INVESTMENT IN THE NOTES
Substantial Leverage
After giving effect to this Placement, the Company will require substantial cash
flow to meet its principal repayment and interest obligations on the Notes.
After giving effect to the sale of the Old Notes as if it had occurred on
September 30, 1997 the Company and its subsidiaries would have had total pro
forma indebtedness of approximately $293.0 million at such date. The Company
expects to use a substantial portion of the proceeds from the sale of the Old
Notes for development activities at its oil and gas properties which the Company
anticipates will increase oil and gas production and cash flow to enable the
Company to repay or refinance the Notes when due. However, there can be no
assurance that expenditure of the proceeds of the Placement hereunder will
result in sufficient increased cash flow to repay or refinance the Notes when
due. In addition, the Indenture will impose significant operating and financial
restrictions on the Company. Such restrictions will affect, and in many respects
limit or prohibit, among other things, the ability of the Company and its
Restricted Subsidiaries to incur additional indebtedness, pay dividends and make
certain investments, engage in transactions with affiliates, sell assets, incur
or suffer to exist certain liens securing indebtedness unless the Notes are
equally and ratably secured, and engage in mergers or consolidations. The
Indenture will also limit the amount of indebtedness the Company's Restricted
Subsidiaries may assume and the amount of indebtedness of the Company they may
guarantee unless such Restricted Subsidiaries simultaneously guarantee the
payment of the Notes. The leveraged position of the Company and the restrictive
covenants contained in the Indenture could significantly limit the ability of
the Company to respond to changing business or economic conditions or to respond
to substantial declines in operating results. See "Description of the New
Notes."
Liquidity Needs; Ability to Repay Notes
The Company may from time to time fund a portion of its working capital needs
and capital expenditure requirements from external financing. In addition, the
Company expects that in order to repay the principal amount of the Notes or to
purchase the Notes upon the occurrence of a Change in Control, it may be
required to seek additional financing or engage in asset sales or in similar
transactions. There can be no assurance that sufficient funds for any of the
foregoing purposes would be available to the Company at the time they were
required. See "Description of the New Notes."
Holding Company Structure; Structural Subordination
The New Notes will be obligations exclusively of the Company. Because the
Company's operations are conducted almost entirely through its subsidiaries, the
cash flow and the consequent ability of the Company to service its debt,
including the Notes, are dependent upon the earnings of the Company's
subsidiaries and the distribution of those earnings to the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Notes or to make
funds available therefore, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and advances to the
Company by its subsidiaries may be subject to statutory or contractual
restrictions and are contingent upon the earnings of those subsidiaries and
subject to various business considerations. Currently, the Company only has one
operating subsidiary, Benton-Vinccler, that may be expected to make funds
available to the Company to pay any amounts due pursuant to the Notes. Claims of
holders of the Notes will be effectively subordinated to the indebtedness and
other liabilities and commitments of the Company's subsidiaries and joint
ventures, and the interest of the Company in the joint ventures will be limited
to the extent of its direct or indirect equity interest in such entities.
Consequently, in the event of an insolvency, liquidation, reorganization,
dissolution or other winding up of the Company's subsidiaries or joint ventures,
the ability of the Company's creditors, including holders of the Notes, will be
subject to the prior claims of those entities' creditors, including trade
creditors, and any prior or equal claim of any joint venture partner. Any
distributions in respect of the Company's equity interests in non-wholly owned
subsidiaries or joint ventures may be expected to be made on a pro rata basis to
all equity holders.
Lack of a Public Market for the New Notes
The New Notes will be a new issue of securities, and the Company does not intend
to list them on any securities exchange. If the New Notes are traded after their
initial issuance, they may trade at a discount from their initial offering price
depending upon prevailing interest rates, the market for similar securities and
other factors. The Initial Purchasers have informed the Company that they
currently intend to make a market in the Notes. However, they are not obligated
to do so, and any such market-making may be discontinued at any time without
notice. See "Plan of Distribution."
20
<PAGE> 21
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes in exchange for
the Old Notes as described in this Prospectus, the Company will receive Old
Notes in like principal amount. The Old Notes surrendered in exchange for the
New Notes will be retired and cancelled. Accordingly, the issuance of the New
Notes will not result in any change in the indebtedness of the Company.
The net proceeds from the sale of the Old Notes was approximately $111.3
million. The Company intends to use such net proceeds for general corporate
purposes, including the Company's ongoing exploration and development programs.
Pending such use, the net proceeds will be invested in Cash Equivalents. See
"Business -- South Monagas Unit, Venezuela -- Drilling and Development
Activity," "-- Delta Centro Block, Venezuela -- Drilling and Development
Activity," "-- North Gubkinskoye, Russia -- Drilling and Development Activity,"
"-- Santa Barbara County, California -- Drilling and Development Activity,"
"-- Qingshui Block, China -- Drilling and Development Activity" and "-- Sirhan
Block, Jordan -- Drilling and Development Activity."
21
<PAGE> 22
CAPITALIZATION
The following table sets forth the short-term indebtedness and capitalization of
the Company (i) as of September 30, 1997, and (ii) as adjusted to reflect the
sale of the Old Notes and the use of proceeds as described herein.
<TABLE>
<CAPTION>
------------------------
AS OF SEPTEMBER 30, 1997
In thousands ACTUAL ADJUSTED
-------- ----------
<S> <C> <C>
SHORT-TERM INDEBTEDNESS
Current maturities of long-term indebtedness $ 12 $ 12
Short-term indebtedness 1,530 1,530
-------- --------
Total short-term indebtedness $ 1,542 $ 1,542
======== ========
LONG-TERM INDEBTEDNESS(1)
9.375% Senior Unsecured Notes offered hereby $ -- $115,000
11.625% Senior Unsecured Notes due 2003 125,000 125,000
Secured credit facility(2) 50,000 50,000
Other 1,501 1,501
-------- --------
Total long-term indebtedness 176,501 291,501
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value; authorized 40,000 shares;
issued 29,170 shares 292 292
Additional paid-in capital 143,256 143,256
Retained earnings 49,947 49,947
Treasury stock, at cost, 50 shares (699) (699)
-------- --------
Total stockholders' equity 192,796 192,796
-------- --------
Total capitalization $369,297 $484,297
======== ========
</TABLE>
- ---------------
(1) See "Description of Outstanding Indebtedness."
(2) The secured credit facility is cash collateralized, and such cash collateral
is designated as Restricted Cash on the Company's Consolidated Financial
Statements.
22
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company for each of
the five years in the period ended December 31, 1996, are derived from the
Company's audited consolidated financial statements. The following table also
sets forth the selected consolidated financial data presented below for the nine
month periods ended September 30, 1996 and 1997 which are derived from the
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited financial data include only normal recurring
adjustments necessary for a fair presentation of such financial data in
accordance with GAAP. The results of operations for the nine month period ended
September 30, 1997 are not necessarily indicative of the results of operations
for the full year. The consolidated financial data below should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained elsewhere herein or incorporated herein by
reference.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
NINE MONTHS ENDED
Dollars in thousands, except per share YEARS ENDED DECEMBER 31 SEPTEMBER 30
and ratio data 1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Total revenues $ 8,622 $ 7,503 $ 34,705 $ 65,068 $165,066 $115,729 $132,464
Lease operating costs and production
taxes 4,414 5,110 9,531 10,703 24,518 15,273 29,878
Depletion, depreciation and
amortization 3,041 2,633 10,298 17,411 34,525 22,810 32,662
General and administrative expense 2,245 2,631 5,242 9,411 18,906 12,597 16,726
Interest expense 1,831 1,958 3,888 7,497 16,128 10,776 16,721
Partnership exchange expenses -- -- -- -- 2,140 2,140 --
Litigation settlement expenses -- -- -- 1,673 -- -- --
-------- ------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest (2,909) (4,829) 5,746 18,373 68,849 52,133 36,477
Income tax expense -- -- 698 2,478 20,508 15,843 14,908
-------- ------- -------- -------- -------- -------- --------
Income (loss) before minority interest (2,909) (4,829) 5,048 15,895 48,341 36,290 21,569
Minority interest -- -- 2,094 5,304 9,984 7,277 5,584
-------- ------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charge (2,909) (4,829) 2,954 10,591 38,357 29,013 15,985
Extraordinary charge for early
retirement of debt, net of tax
benefit -- -- -- -- 10,075 10,075 --
-------- ------- -------- -------- -------- -------- --------
Net income (loss) $ (2,909) $ (4,829) $ 2,954 $ 10,591 $ 28,282 $ 18,938 $ 15,985
======== ======= ======== ======== ======== ======== ========
Net income (loss) per common share
(primary) $ (0.22) $ (0.26) $ 0.12 $ 0.40 $ 0.96 $ 0.65 $ 0.52
======== ======= ======== ======== ======== ======== ========
Net income (loss) per common share
(fully diluted) $ (0.22) $ (0.26) $ 0.12 $ 0.39 $ 0.93 $ 0.63 $ 0.51
======== ======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (2) $ 2,153 $ 598 $ 15,603 $ 32,396 $ 92,308 $ 65,849 $ 69,436
Capital expenditures 16,770 26,249 55,711 78,727 108,963 58,526 76,979
Net cash provided by (used in)
operating activities (648) (1,790) 13,462 32,349 84,852 60,414 81,923
Net cash used in investing activities (10,944) (18,619) (55,078) (53,644) (164,772) (147,240) (80,924)
Net cash provided by financing
activities 21,588 43,044 19,500 13,282 106,172 103,293 (476)
EBITDA/Interest Ratio (2)(3)(6) 1.48 0.23 3.51 4.21 5.52 5.73 4.18
Ratio of earnings to fixed charges
(4) -- -- 2.45 3.25 5.08 5.63 3.11
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
AT DECEMBER 31 AT SEPTEMBER 30
1992 1993 1994 1995(1) 1996 1997
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $ 10,486 $ 26,635 $ 21,785 $ (2,888) $ 98,417 $ 77,984
Total assets 68,217 108,635 162,561 214,750 435,745 478,096
Long-term obligations, net of current
portion 13,463 11,788 31,911 49,486 175,028 176,489
Stockholders' equity (5) 50,468 84,021 88,259 103,681 174,889 192,796
</TABLE>
- ---------------
(1) The financial information for Russia includes information for the twelve
months ended December 31, 1994, the nine months ended September 30, 1995 and
the twelve months ended September 30, 1996, the end of the fiscal period for
GEOILBENT. See Note 15 to the Company's Consolidated Financial Statements.
(2) EBITDA has been calculated as defined in the Indenture and has been included
solely to facilitate consideration of the covenants in the Indenture that
are based, in part, on EBITDA. See "Description of the New Notes -- Certain
Definitions." EBITDA is not intended to represent cash flow from operating
activities as defined by GAAP and should not be considered as an alternative
to net income as an indicator of the Company's operating performance or to
cash flow as a measure of liquidity.
(3) EBITDA/Interest Ratio has been calculated as defined in the Indenture. See
"Description of the New Notes -- Certain Definitions."
(4) For purposes of determining the ratio of earnings to fixed charges,
"earnings" represents income (loss) before income taxes plus fixed charges
exclusive of capitalized interest, and "fixed charges" consists of interest,
whether expensed or capitalized, amortization of debt expense and an
estimated portion of rent expense representing interest costs. As a result
of the losses incurred by the Company for the years ended December 31, 1992
and 1993, earnings were insufficient to cover fixed charges by $2.9 million
and $4.8 million, respectively.
(5) No cash dividends were paid during the periods presented.
(6) After giving effect to the issuance of the Old Notes as if such issuance had
occurred at the beginning of the period presented, and at an interest rate
on the Old Notes of 9.375%, the EBITDA/Interest Ratio would have been 3.35
for the period ending December 31, 1996 and 2.81 for the period ending
September 30, 1997.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Principles of Consolidation and Accounting Methods
The Company has included the results of operations of Benton-Vinccler in its
consolidated statement of operations since January 1, 1994 and has reflected the
50% ownership interest of Vinccler during January and February 1994 and the 20%
ownership interest of Vinccler subsequent thereto as a minority interest.
Beginning in 1995, GEOILBENT has been included in the consolidated financial
statements based on a fiscal period ending September 30. Results of operations
in Russia reflect the twelve months ended December 31, 1994, the nine months
ended September 30, 1995 and the twelve months ended September 30, 1996. Results
of operations in the first nine months of 1996 and 1997 for Russia reflect the
nine months ended June 30, 1996 and 1997, respectively. The Company's investment
in GEOILBENT is proportionately consolidated based on the Company's ownership
interest, and for oil and gas reserve information, the Company reports its 34%
share of the reserves attributable to GEOILBENT.
The Company follows the full-cost method of accounting for its investments in
oil and gas properties. The Company capitalizes all acquisition, exploration,
and development costs incurred. The Company accounts for its oil and gas
properties using cost centers on a country by country basis. Proceeds from sales
of oil and gas properties are credited to the full-cost pools. Capitalized costs
of oil and gas properties are amortized within the cost centers on an overall
unit-of-production method using proved oil and gas reserves as audited by
independent petroleum engineers. Costs amortized include all capitalized costs
(less accumulated amortization), the estimated future expenditures (based on
current costs) to be incurred in developing proved reserves, and estimated
dismantlement, restoration and abandonment costs. See Note 1 to the Company's
Consolidated Financial Statements.
The following discussion of the results of operations and financial condition as
of December 31, 1996 and 1995 and for each of the years in the three year period
ended December 31, 1996, respectively, should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto. The
following discussion of the results of operations and financial condition as of
September 30, 1997 and for the periods ended September 30, 1996 and 1997,
respectively, should be read in conjunction with the Company's Unaudited
Consolidated Financial Statements and related Notes thereto.
RESULTS OF OPERATIONS
The Company's results of operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997, primarily reflect the substantial growth
of Benton-Vinccler in Venezuela. During 1996, Benton-Vinccler accounted for more
than 90% of the Company's production, oil and gas sales and net income, and
reported increases of more than 80% in these areas over the corresponding period
of 1995. Other major influences on the Company's results of operations during
the year ended December 31, 1996 were the sale of its Gulf Coast operations,
resulting in a gain of $7.2 million, and the restructuring of its long term
debt, including the issuance of $125.0 million of senior unsecured notes and an
extraordinary charge of $11.0 million ($10.1 million net of tax benefits)
related to the early retirement of certain privately placed notes. In the first
quarter of 1996, the Company completed a partnership exchange offer, resulting
in a noncash charge of $2.1 million related to the issuance of certain warrants
to purchase shares of common stock.
The following table presents selected expense items as a percentage of oil and
gas sales:
<TABLE>
<CAPTION>
---------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER
YEARS ENDED DECEMBER 31 30
--------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Lease operating costs and production taxes 29.8% 17.2% 16.6% 14.9% 24.5%
Depletion, depreciation and amortization 32.2 28.0 23.4 22.3 26.8
General and administrative 16.4 15.1 12.8 12.3 13.7
Interest 12.2 12.1 10.9 10.5 13.7
</TABLE>
Nine Months Ended September 30, 1997 and 1996
The Company had revenues of $132.5 million for the nine months ended September
30, 1997. Expenses incurred during the period consisted of lease operating costs
and production taxes of $29.9 million, depletion, depreciation and amortization
expense of $32.7 million, general and administrative expense of $16.7 million,
interest expense of $16.7 million, income tax expense
24
<PAGE> 25
of $14.9 million and a minority interest of $5.6 million. Net income for the
period was $16.0 million or $0.51 per share (fully diluted).
By comparison, the Company had revenues of $115.7 million for the nine months
ended September 30, 1996. Expenses incurred during the period consisted of lease
operating costs and production taxes of $15.3 million, depletion, depreciation
and amortization expense of $22.8 million, general and administrative expense of
$12.6 million, interest expense of $10.8 million, partnership exchange expense
of $2.1 million, income tax expense of $15.8 million, minority interest of $7.3
million and an extraordinary charge for early retirement of debt, net of tax
benefit, of $10.1 million. Income before extraordinary charge for the period was
$29.0 million or $0.96 per share (fully diluted). Net income was $18.9 million
or $0.63 per share (fully diluted).
Revenues increased $16.8 million, or 14.5%, during the nine months ended
September 30, 1997 compared to the corresponding period of 1996 primarily due to
increased oil sales in Venezuela partially offset by the sale of substantially
all of the Company's domestic properties in April 1996. Sales quantities for the
nine months ended September 30, 1997 from Venezuela and Russia were 11,302,893
Bbl and 667,312 Bbl, respectively, compared to 9,009,983 Bbl and 572,947 Bbl,
respectively, for the nine months ended September 30, 1996. Prices for crude oil
averaged $10.11 per Bbl (pursuant to terms of an operating service agreement)
from Venezuela and $11.44 per Bbl from Russia for the nine months ended
September 30, 1997 compared to $10.31 per Bbl from Venezuela and $12.11 per Bbl
from Russia for the corresponding period of 1996. Domestic sales quantities for
the nine months ended September 30, 1996 were 5,876 Bbl of crude oil and
condensate and 1,443,834 Mcf of natural gas. Domestic prices for crude oil and
natural gas averaged $20.18 per Bbl and $2.92 per Mcf during the nine months
ended September 30, 1996. Revenues for the nine months ended September 30, 1996
were reduced by a loss of $1.8 million related to a commodity hedge agreement.
Investment earnings increased $4.8 million, or 117.1%, during the nine months
ended September 30, 1997 compared to the nine months ended September 30, 1996
due to increased cash and marketable securities resulting primarily from the
issuance of senior unsecured notes in May 1996 and sale of property interests in
Louisiana. Revenues for the nine months ended September 30, 1997 were increased
by a foreign exchange gain of $1.7 million compared to a gain of $2.0 million
during the corresponding period of 1996.
Lease operating costs and production taxes increased $14.6 million, or 95.4%,
during the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996 primarily due to continued growth of the Company's
Venezuelan operations, as well as the continuing maturation of the Uracoa oil
field resulting in higher water handling, gas handling, workover, transportation
and chemical costs in Venezuela and penalties related to late payments of
various taxes in Russia by GEOILBENT. Depletion, depreciation and amortization
increased $9.9 million, or 43.4%, during the nine months ended September 30,
1997 compared to the corresponding period of 1996 primarily due to the increased
oil production and increased capital costs in Venezuela. Depletion expense per
barrel of oil equivalent produced from Venezuela and Russia during the nine
months ended September 30, 1997 was $2.63 and $3.53, respectively, compared to
$2.09 and $3.34, respectively, during the corresponding period of the previous
year. General and administrative expenses increased $4.1 million, or 32.5%,
during the nine months ended September 30, 1997 compared to the corresponding
period of 1996 primarily due to increased corporate activity associated with the
growth of the Company's business and increased Venezuelan municipal taxes of
$1.3 million (which are a function of growing oil revenues). Interest expense
increased $5.9 million, or 54.6%, during the nine months ended September 30,
1997 compared to the nine months ended September 30, 1996 primarily due to the
issuance of $125 million in 11.625% senior unsecured notes in May 1996. The
Company incurred partnership exchange expenses of $2.1 million during the nine
months ended September 30, 1996 as a result of the completion of an exchange
offer resulting in the liquidation of three limited partnerships. Income tax
expense decreased $0.9 million, or 5.7%, during the nine months ended September
30, 1997 compared to the corresponding period of 1996 due primarily to decreased
taxable income in Venezuela. The net income attributable to the minority
interest decreased $1.7 million, or 23.3%, for the nine months ended September
30, 1997 compared to the nine months ended September 30, 1996 as a result of
decreased net income from Benton-Vinccler's operations in Venezuela. The Company
recorded an extraordinary charge for early retirement of debt, net of tax
benefit, of $10.1 million during the nine months ended September 30, 1996 as a
result of prepayment premiums due upon the early repayment of senior unsecured
notes.
Years ended December 31, 1996 and 1995
The Company had revenues of $165.1 million for the year ended December 31, 1996.
Expenses incurred during the period consisted of lease operating costs and
production taxes of $24.5 million, depletion, depreciation and amortization
expense of $34.5 million, general and administrative expense of $18.9 million,
interest expense of $16.1 million, partnership exchange expense of $2.1 million,
income tax expense of $20.5 million, minority interest of $10.0 million and an
extraordinary charge for early retirement of debt, net of tax benefit, of $10.1
million. Net income for the period was $28.3 million or $0.93 per share (fully
diluted).
25
<PAGE> 26
By comparison, the Company had revenues of $65.1 million for the year ended
December 31, 1995. Expenses incurred during the period consisted of lease
operating costs and production taxes of $10.7 million, depletion, depreciation
and amortization expense of $17.4 million, general and administrative expense of
$9.4 million, interest expense of $7.5 million, litigation settlement expenses
of $1.7 million, income tax expense of $2.5 million and a minority interest of
$5.3 million. Net income for the period was $10.6 million or $0.39 per share
(fully diluted).
Revenues increased $100.0 million, or 154%, during the year ended December 31,
1996 compared to the corresponding period of 1995 primarily due to increased oil
sales in Venezuela. Sales quantities for the year ended December 31, 1996 from
Venezuela and Russia were 12,647,987 Bbls and 765,137 Bbls, respectively,
compared to 5,456,473 Bbls and 490,960 Bbls, respectively, for the year ended
December 31, 1995. Prices for crude oil per Bbl averaged $10.82 (pursuant to
terms of an operating service agreement) from Venezuela and $11.83 from Russia
for the year ended December 31, 1996 compared to $9.01 and $12.25, respectively,
for the year ended December 31, 1995. Domestic sales quantities for the year
ended December 31, 1996 were 6,589 Bbls of crude oil and condensate and
1,523,106 Mcf of natural gas compared to 68,975 Bbls of crude oil and 3,784,830
Mcf of natural gas for the year ended December 31, 1995. Domestic prices per Bbl
for crude oil and per Mcf for natural gas averaged $19.70 and $3.04 during the
year ended December 31, 1996 compared to $15.79 and $1.77 during the year ended
December 31, 1995. Revenues for the year ended December 31, 1996 were reduced by
a loss of $2.9 million related to a commodity hedge agreement compared to a loss
of $0.7 million in 1995. Revenues for 1996 were increased by a foreign exchange
gain of $2.8 million compared to a gain of $1.0 million in 1995.
Expenses increased during 1996 as Benton-Vinccler's operations continued to grow
significantly, but decreased as a percentage of oil and gas sales. Lease
operating costs and production taxes increased $13.8 million, or 129%, during
the year ended December 31, 1996 compared to 1995, partially offset by the sale
of the Company's remaining interest in the West Cote Blanche Bay, Rabbit Island
and Belle Isle Fields. Depletion, depreciation and amortization increased $17.1
million, or 98%, during the year ended December 31, 1996 compared to the
corresponding period in 1995. Depletion expense per BOE produced from Venezuela,
United States and Russia during the year ended December 31, 1996 was $2.33,
$6.55 and $3.59, respectively, compared to $2.09, $5.98 and $3.08, respectively,
during the previous year. The increase in general and administrative expenses of
$9.5 million, or 101%, during the year ended December 31, 1996 compared to 1995
was primarily due to the implementation of certain consulting and related
arrangements among Benton-Vinccler, the Company and Vinccler, Venezuelan
municipal taxes (which are a function of growing oil revenues) and the Company's
increased corporate activity associated with the growth of the Company's
business. Interest expense increased $8.6 million, or 115%, in 1996 compared to
1995 primarily due to the issuance of $125 million in senior unsecured notes in
May 1996. The Company incurred partnership exchange expense of $2.1 million
during the year ended December 31, 1996 as a result of the completion of an
exchange offer resulting in the liquidation of three limited partnerships (see
Note 2 of Notes to the Consolidated Financial Statements). Income tax expense
increased $18.0 million, or 720%, during the year ended December 31, 1996
compared to 1995 primarily due to increased taxable income in Venezuela. The net
income attributable to the minority interest increased $4.7 million, or 89%, for
1996 compared to 1995 as a result of the increased profitability of
Benton-Vinccler's operations in Venezuela.
Years Ended December 31, 1995 and 1994
The Company had revenues of $65.1 million for the year ended December 31, 1995.
Expenses incurred during the period consisted of lease operating costs and
production taxes of $10.7 million, depletion, depreciation and amortization
expense of $17.4 million, general and administrative expense of $9.4 million,
interest expense of $7.5 million, litigation settlement expenses of $1.7
million, income tax expense of $2.5 million and a minority interest of $5.3
million. Net income for the period was $10.6 million or $0.40 per share.
By comparison, the Company had revenues of $34.7 million for the year ended
December 31, 1994. Expenses incurred during the period consisted of lease
operating costs and production taxes of $9.5 million, depletion, depreciation
and amortization expense of $10.3 million, general and administrative expense of
$5.2 million, interest expense of $3.9 million, income tax expense of $0.7
million and a minority interest of $2.1 million. The net income for the period
was $3.0 million or $0.12 per share.
Revenues increased $30.4 million, or 88%, during the year ended December 31,
1995 compared to the corresponding period of 1994 primarily due to increased oil
sales in Venezuela. Sales quantities for the year ended December 31, 1995 from
Venezuela and Russia were 5,456,473 and 490,960 Bbls, respectively, compared to
2,519,514 and 294,364 Bbls, respectively, for the year ended December 31, 1994.
Prices per Bbl for crude oil averaged $9.01 (pursuant to terms of an operating
service agreement) from Venezuela and $12.25 from Russia for the year ended
December 31, 1995 compared to $8.52 and $11.93 from Venezuela and Russia,
respectively, for the year ended December 31, 1994. Domestic sales quantities
for the year ended December 31, 1995 were 68,975 Bbls of crude oil and
condensate and 3,784,830 Mcf of natural gas compared to 225,954
26
<PAGE> 27
Bbls of crude oil and condensate and 2,061,892 Mcf of natural gas for the year
ended December 31, 1994. Domestic prices for crude oil and natural gas averaged
$15.79 per Bbl and $1.77 per Mcf during the year ended December 31, 1995
compared to $14.46 per Bbl and $1.79 per Mcf during the year ended December 31,
1994. Revenues for the year ended December 31, 1995 were reduced by a loss of
$0.7 million related to a commodity hedge agreement compared to a loss of $0.3
million in 1994. Revenues for the year ended December 31, 1995 were increased by
a foreign exchange gain of $1.0 million compared to a gain of $1.4 million in
1994.
Lease operating costs and production taxes increased $1.2 million, or 13%,
during the year ended December 31, 1995 compared to 1994 primarily due to the
growth of the Company's Venezuelan operations, partially offset by the sale of
certain of the Company's interests in the West Cote Blanche Bay Field.
Depletion, depreciation and amortization increased $7.1 million, or 69%, during
the year ended December 31, 1995 compared to the corresponding period in 1994
primarily due to the increased oil production in Venezuela. Depletion expense
per BOE produced from Venezuela, United States and Russia during the year ended
December 31, 1995 was $2.09, $5.98 and $3.08, respectively, compared to $1.98,
$7.46 and $2.85, respectively, during the previous year. The increase in general
and administrative expenses of $4.2 million, or 81%, during the year ended
December 31, 1995 compared to 1994 was primarily due to the Company's increased
corporate activity associated with the growth of the Company's business. The
Company incurred litigation settlement expenses of $1.7 million during the year
ended December 31, 1995 as a result of a settlement agreement reached with
investors in partnerships which were sponsored by a third party. See Note 5 to
the Company's Consolidated Financial Statements. Interest expense increased $3.6
million, or 93%, in 1995 compared to 1994 primarily due to increased borrowing
to fund operations in Venezuela and Russia. Income tax expense increased $1.8
million, or 257%, during the year ended December 31, 1995 compared to 1994
primarily due to increased income taxes in Venezuela and Russia. The net income
attributable to the minority interest increased $3.2 million, or 152%, for 1995
compared to 1994 as a result of the increased profitability of Benton-Vinccler's
operations in Venezuela.
INTERNATIONAL OPERATIONS
As a private contractor, Benton-Vinccler is subject to a statutory income tax
rate of 34%. However, Benton-Vinccler reported significantly lower effective tax
rates for 1996 due to significant non-cash tax deductible expenses resulting
from devaluations in Venezuela when Benton-Vinccler had net monetary liabilities
in U.S. dollars. The Company cannot predict the timing or impact of future
devaluations in Venezuela.
A 3-D seismic survey is being conducted over the southwestern portion of the
Delta Centro Block in Venezuela with an expected total cost to the Company
during 1997 of approximately $7.0-8.0 million. Following the initial
interpretation of the seismic data, an exploration well is expected to be
drilled during 1998 at a cost to the Company of approximately $4.0 million.
Subsequent seismic and drilling programs will be based on the results of the
1997-1998 activity. The Company's operations related to Delta Centro will be
subject to oil and gas industry taxation, which currently provides for royalties
of 16.67% and income taxes of 66.67%.
GEOILBENT is subject to a statutory income tax rate of 35%. GEOILBENT has also
been subject to various other tax burdens, including an oil export tariff which
was terminated effective July 1, 1996. Excise, pipeline and other taxes continue
to be levied on all oil producers and certain exporters. The Russian regulatory
environment continues to be volatile and the Company is unable to predict the
impact of taxes, duties and other burdens for the future.
In December 1996, the Company acquired Crestone Energy Corporation, a privately
held company headquartered in Denver, Colorado. Crestone's principal asset is a
petroleum contract with China National Offshore Oil Company for an area known as
Wan'An Bei, WAB-21. The WAB-21 petroleum contract covers 6.2 million acres in
the South China Sea, with an option for another one million acres under certain
circumstances, and lies within an area which is the subject of a territorial
dispute between the People's Republic of China and Vietnam. Vietnam has also
executed an agreement on a portion of the same offshore acreage with Conoco, a
unit of DuPont Corporation. The territorial dispute has existed for many years,
and there has been limited exploration and no development activity in the area
under dispute. It is uncertain when or how this dispute will be resolved, and
under what terms the various countries and parties to the agreements may
participate in the resolution, although certain proposed economic solutions
currently under discussion would result in the Company's interest being reduced.
The Company, through Crestone, has submitted plans and budgets to CNOOC for an
initial seismic program to survey the area. However, exploration activities will
be subject to resolution of such territorial dispute. The Company has recorded
no reserves attributable to this petroleum contract.
In August 1997, the Company acquired the rights to a PSA with Jordan's Natural
Resources Authority to explore, develop and produce the Sirhan block in
southeastern Jordan. The Sirhan block consists of approximately 1.2 million
acres (4,827 square kilometers) and is located in the Sirhan basin adjacent to
the Saudi Arabia border. Under the terms of the PSA, the Company is obligated to
make certain capital and operating expenditures in up to three phases over eight
years. The Company is obligated to
27
<PAGE> 28
spend $5.1 million in the first exploration phase, which is expected to last
approximately two years. If the Company ultimately elects to continue through
phases two and three, it would be obligated to spend an additional $18.0 million
over the succeeding six years.
In October 1997, the Company signed a farmout agreement with Shell Exploration
(China) Limited ("Shell") whereby the Company will acquire a 50% participation
interest in Shell's Liaohe area onshore exploration project in northeast China,
subject to approval of such assignment by the Ministry of Foreign Trade and
Economic Cooperation of China. Shell holds a petroleum contract with China
National Petroleum Corporation ("CNPC") to explore and develop the deep rights
in the Qingshui Block, a 563 square kilometer area (approximately 140,000 acres)
in the delta of the Liaohe River. Shell will be the operator of the project. The
Company is required to pay to Shell 50% of Shell's costs to date, estimated to
be approximately $4.0 million ($2 million to the Company) and to pay 100% of the
costs for the phase one exploration period, with a maximum required expenditure
of $8.0 million. If the first phase of the exploration period results in a
commercial discovery and if the Company elects to continue to phase two, then
the Company will pay 100% of the costs of the second phase of the exploration
period, with a maximum required expenditure of $8.0 million. The Company and
Shell will be responsible for the costs of the third exploration phase and the
costs of development activities associated with any of the three phases in
proportion to their interests.
EFFECTS OF CHANGING PRICES, FOREIGN EXCHANGE RATES AND INFLATION
The Company's results of operations and cash flow are affected by changing oil
and gas prices. However, the Company's Venezuelan revenues are based on a fee
adjusted quarterly by the percentage change of a basket of crude oil prices
instead of by absolute dollar changes, which dampens both any upward and
downward effects of changing prices on the Company's Venezuelan revenues and
cash flows. If the price of oil and gas increases, there could be an increase in
the cost to the Company for drilling and related services because of increased
demand, as well as an increase in revenues. Fluctuations in oil and gas prices
may affect the Company's total planned development activities and capital
expenditure program.
Effective May 1, 1994, the Company entered into a commodity hedge agreement with
Morgan Guaranty Trust Company of New York ("Morgan Guaranty") designed to reduce
a portion of the Company's risk from oil price fluctuations. Pursuant to the
hedge agreement, with respect to the period from May 1, 1994 through the end of
1996, the Company received from Morgan Guaranty $16.82 per Bbl and the Company
paid to Morgan Guaranty the average price per Bbl of West Texas Intermediate
Light Sweet Crude Oil ("WTI") determined in the manner set forth in the hedge
agreement. Such payments were made with respect to production of 1,000 Bbls of
oil per day for 1994, 1,250 Bbls of oil per day for 1995, and 1,500 Bbls of oil
per day for 1996. The Company's total exposure for the year ended December 31,
1994, 1995 and 1996 under the hedge agreement was $0.3 million, $0.7 million and
$2.9 million, respectively. The Company's oil production is not materially
affected by seasonality.
There are presently no restrictions in either Venezuela or Russia that restrict
converting U.S. dollars into local currency. However, from June 1994 through
April 1996, Venezuela implemented exchange controls which significantly limited
the ability to convert local currency into U.S. dollars. Because payments made
to Benton-Vinccler are made in U.S. dollars into its United States bank account,
and Benton-Vinccler is not subject to regulations requiring the conversion or
repatriation of those dollars back into Venezuela, the exchange controls did not
have a material adverse effect on Benton-Vinccler or the Company. Currently,
there are no exchange controls in Venezuela or Russia that restrict conversion
of local currency into U.S. dollars.
Within the United States, inflation has had a minimal effect on the Company, but
it is potentially an important factor in results of operations in Venezuela and
Russia. With respect to Benton-Vinccler and GEOILBENT, substantially all of the
sources of funds, including the proceeds from oil sales, the Company's
contributions and credit financings, are denominated in U.S. dollars, while
local transactions in Russia and Venezuela are conducted in local currency. If
the rate of increase in the value of the dollar compared to the bolivar
continues to be less than the rate of inflation in Venezuela, then inflation
could be expected to have an adverse effect on Benton-Vinccler.
During the nine months ended September 30, 1997, the Company realized net
foreign exchange gains of $1.7 million. During the year ended December 31, 1996,
the Company realized net foreign exchange gains, primarily as a result of the
decline in the value of the Venezuelan bolivar and the Russian rouble during
periods when Benton-Vinccler and GEOILBENT had substantial net monetary
liabilities denominated in bolivares and roubles. During the year ended December
31, 1996, the Company's net foreign exchange gains attributable to its
Venezuelan and Russian operations were $1.8 million and $1.0 million,
respectively. During the year ended December 31, 1995, the Company realized net
foreign exchange gains, primarily as a result of the decline in the value of the
Venezuelan bolivar and the Russian rouble during periods when Benton-Vinccler
and GEOILBENT had substantial net monetary liabilities denominated in bolivares
and roubles. During the year ended December 31, 1995, the Company's net foreign
exchange gains attributable to its Venezuelan operations were $1.0 million and
net foreign exchange losses attributable to its Russian operations were $0.1
million. However, there are many factors affecting foreign exchange rates
28
<PAGE> 29
and resulting exchange gains and losses, many of which are beyond the control of
the Company. The Company has recognized significant exchange gains and losses in
the past, resulting from fluctuations in the relationship of the Venezuelan and
Russian currencies to the U.S. dollar. It is not possible to predict the extent
to which the Company may be affected by future changes in exchange rates and
exchange controls.
CAPITAL RESOURCES AND LIQUIDITY
The oil and gas industry is a highly capital intensive business. The Company
requires capital principally to fund the following costs: (i) drilling and
completion costs of wells and the cost of production and transportation
facilities; (ii) geological, geophysical and seismic costs; and (iii)
acquisition of interests in oil and gas properties. The amount of available
capital will affect the scope of the Company's operations and the rate of its
growth.
The net funds raised and/or used in each of the operating, investing and
financing activities for the year ended December 31, 1996 and the nine months
ended September 30, 1997 are summarized in the following table and discussed in
further detail below (in thousands):
<TABLE>
<CAPTION>
---------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 SEPTEMBER 30
1996 1997
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 84,852 81,923
Net cash used in investing activities (164,772) (80,924)
Net cash provided by (used in) financing activities 106,172 (476)
-------- --------
Net increase in cash $ 26,252 523
======== ========
</TABLE>
At September 30, 1997, the Company had current assets of $142.9 million
(including $4.5 million of cash restricted as collateral for a loan to
GEOILBENT), and current liabilities of $64.9 million (including a $1.5 million
loan collateralized by restricted cash), resulting in working capital of $78.0
million and a current ratio of 2.2:1. This compares to the Company's working
capital of $98.4 million at December 31, 1996. The decrease of $20.4 million was
due primarily to expenditures related to the continuing development of the South
Monagas Unit in Venezuela.
At December 31, 1996, the Company had current assets of $150.5 million
(including $4.5 million of cash restricted as collateral for a loan to
GEOILBENT), and current liabilities of $52.1 million (including a $1.0 million
loan collateralized by restricted cash), resulting in working capital of $98.4
million and a current ratio of 2.9:1. This compares to the Company's working
capital deficit of $2.9 million at December 31, 1995. The increase of $101.3
million was due primarily to the issuance of $125 million of senior unsecured
notes, net of repayment of certain indebtedness.
Cash Flow from Operating Activities
During the nine months ended September 30, 1997 and 1996, net cash provided by
operating activities was approximately $81.9 million and $60.4 million,
respectively. Cash flow from operating activities increased by $21.5 million
during the nine months ended September 30, 1997 over the corresponding period of
the prior year due primarily to increased oil sales in Venezuela.
During 1996, 1995 and 1994, net cash provided by operating activities was
approximately $84.9 million, $32.4 million and $13.5 million, respectively. Cash
flow from operating activities increased by $52.5 million and $18.9 million in
1996 and 1995, respectively, over the prior years due primarily to increased oil
and gas production in Venezuela.
Cash Flow from Investing Activities
During the nine months ended September 30, 1997 and 1996, the Company had
drilling and production related capital expenditures of approximately $76.4
million and $62.2 million, respectively. Of the 1997 expenditures, $68.5 million
was attributable to the development of the South Monagas Unit in Venezuela, $2.3
million related to the development of the North Gubkinskoye Field in Russia,
$1.8 million related to a 3-D seismic survey in the Delta Centro Block in
Venezuela, $0.9 million related to the development of the Sirhan Block in Jordan
and $2.9 million was attributable to other projects.
During 1996, 1995 and 1994, the Company had drilling and production related
capital expenditures of approximately $96.1 million, $68.3 million and $39.6
million, respectively. Of the 1996 expenditures, $84.5 million was attributable
to the development of the South Monagas Unit in Venezuela, $6.0 million related
to the development of the North Gubkinskoye Field in Russia, $1.9 million
related to drilling activity in the West Cote Blanche Bay, Rabbit Island and
Belle Isle Fields in Louisiana, and $3.7 million was attributable to other
projects. The Company also sold certain oil and gas properties for net proceeds
of approximately $34.6 million, $15.4 million and $5.8 million in 1996, 1995 and
1994, respectively.
29
<PAGE> 30
The Company expects 1997 capital expenditures to be approximately $110.0
million, including $6.0 million in expenditures for Russia, net to the Company's
interest (which will be funded solely from borrowings under the EBRD Credit
Facility, cash flow from operations or other financings). The Company expects
1998 capital expenditures of approximately $160.0 million, including $20.0
million in expenditures for Russia, net to the Company's interest (which will be
funded from borrowings under the EBRD Credit Facility, cash flow from operations
or other financings). Funding for the currently anticipated 1998 capital
expenditures is expected to come from working capital, cash flow from operations
or sales of property interests.
The Company continues to evaluate and pursue domestic and international
opportunities which fit within the Company's business strategy. The Company is
currently evaluating certain development and/or acquisition opportunities, but
it is not presently known whether, or on what terms, such evaluations will
result in future agreements or acquisitions.
Cash Flow from Financing Activities
In May 1996, the Company issued $125.0 million in 11.625% senior unsecured notes
due May 1, 2003. Interest on the notes is due May 1 and November 1 of each year.
The indenture agreement provides for certain limitations on liens, additional
indebtedness, certain investment and capital expenditures, dividends, mergers
and sales of assets. At September 30, 1997, the Company was in compliance with
all covenants of the indenture. A portion of the proceeds from the notes was
used to repay certain long term indebtedness and certain short term obligations,
and the remainder has been or will be used for capital expenditure and working
capital purposes.
In November 1997, the Company issued $115.0 million of the Old Notes. The
Company subsequently repurchased $10 million of the Old Notes at their par
value. The proceeds from the offering will be used for general corporate
purposes, including the Company's ongoing exploration and development programs.
Pending such use, the net proceeds will be invested in Cash Equivalents (as
defined in the Indenture).
The EBRD and IMB have agreed to lend a total of $65.0 million to GEOILBENT
(owned 34% by the Company). Funding of the loans occurred upon satisfaction of
certain conditions precedent, and are limited based on production and cash flow.
The initial borrowing by GEOILBENT was $10.2 million. The proceeds from the
loans will be used by GEOILBENT to develop the North Gubkinskoye and
Prisklonovoye Fields in West Siberia, Russia.
30
<PAGE> 31
BUSINESS
INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS
The following documents filed with the Commission by the Company are hereby
incorporated by reference in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997; and
(e) All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
Expiration Date.
GENERAL
The Company is an independent energy company which has been engaged in the
development and production of oil and gas properties since 1989. The Company has
developed significant interests in Venezuela and Russia, and has recently
acquired certain interests in China, Jordan and the United States. The Company's
producing operations are conducted principally through its 80%-owned Venezuelan
subsidiary, Benton-Vinccler, which operates in the South Monagas Unit in
Venezuela, and its 34%-owned Russian joint venture, GEOILBENT, which operates in
the North Gubkinskoye Field in West Siberia, Russia. The Company has also
recently expanded into projects, which involve significant exploration
components, in Venezuela through its participation in the Delta Centro
exploration block and in Santa Barbara County, California through the
acquisition of a participation interest in three state offshore oil and gas
leases.
As of December 31, 1996, the Company had total assets of $435.7 million, total
estimated proved reserves of 109,620 MBOE, and a standardized measure of
discounted future net cash flow, before income taxes, for total proved reserves
of $537.6 million. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company had total revenues of $165.1 million and
$132.5 million, respectively, and EBITDA of $92.3 million and $69.4 million,
respectively.
The Company has been successful in increasing reserves, production, revenues,
EBITDA and earnings during the last three years. From year end 1993 through
1996, estimated proved reserves increased from 42,785 MBOE to 109,620 MBOE and
net annual production increased from a total of 519 MBOE in 1993 to 13,413 MBOE
in 1996. Through September 30, 1997, net production totaled 11,970 MBOE.
The Company was incorporated in Delaware in September 1988 and its principal
executive offices are located at 1145 Eugenia Place, Suite 200, Carpinteria,
California 93013, and its telephone number is (805) 566-5600.
BUSINESS STRATEGY
The Company's business strategy is to identify and exploit new oil and gas
reserves in under-developed areas while seeking to minimize the associated risk
of such activities. Specifically, the Company endeavors to minimize risk by
employing the following strategies in its business activities: (i) seek new
reserves in areas of low geologic risk; (ii) use proven advanced technology in
both exploration and development to maximize recovery; (iii) establish a local
presence through joint venture partners and the use of local personnel; (iv)
commit capital in a phased manner to limit total commitments at any one time;
and (v) reduce foreign exchange risks through receipt of revenues in U.S.
currency.
- - SEEK NEW RESERVES IN AREAS OF LOW GEOLOGIC RISK. The Company has had
significant success in identifying under-developed reserves in the U.S. and
internationally. In particular, the Company has notable experience and expertise
in seeking and developing new reserves in countries where perceived potential
political and operating difficulties have sometimes discouraged other energy
companies from competing. As a result, the Company has established operations in
Venezuela and Russia, which have significant reserves that have been acquired
and developed at relatively low costs. The Company has recently acquired rights
to establish operations in the United States, China and Jordan and is seeking
similar opportunities in other regions and areas which it believes have high
potential.
- - USE OF PROVEN ADVANCED TECHNOLOGY IN BOTH EXPLORATION AND DEVELOPMENT. The
Company's use of 3-D seismic technology, in which a three dimensional image of
the earth's subsurface is created through the computer interpretation of seismic
data, combined with its experience in designing the seismic surveys and
interpreting and analyzing the resulting data, allow for a more detailed
understanding of the subsurface than do conventional surveys. Such technology
contributes significantly to field
31
<PAGE> 32
appraisal, development and production. The 3-D seismic information, in
conjunction with subsurface geologic data from previously drilled wells, is used
by the Company's experienced in-house technical team to identify previously
undetected reserves. The 3-D seismic information can also be used to guide
drilling on a real-time basis, and has been especially helpful in the horizontal
drilling done in Venezuela in order to take advantage of oil-trapping faults.
- - ESTABLISH A LOCAL PRESENCE THROUGH JOINT VENTURE PARTNERS AND THE USE OF LOCAL
PERSONNEL. The Company has sought to establish a local presence where it does
business to facilitate stronger relationships with local government and labor
through joint venture arrangements with local partners. Moreover, the Company
employs almost exclusively local personnel to run foreign operations both to
take advantage of local knowledge and experience and to minimize cost. These
efforts have created an expertise within Company management in forming effective
foreign partnerships and operating abroad. The Company believes that it has
gained access to new development opportunities as a result of its reputation as
a dependable partner.
- - COMMIT CAPITAL IN A PHASED MANNER TO LIMIT TOTAL COMMITMENTS AT ANY ONE
TIME. While the Company typically has agreed to a minimum capital expenditure or
development commitment at the outset of new projects, expenditures to fulfill
these commitments are phased over time. In addition, the Company seeks, where
possible, to use internally generated funds for further capital expenditures and
to invest in projects which provide the potential for an early return to the
Company.
- - REDUCE FOREIGN EXCHANGE RISKS. The Company seeks to reduce foreign currency
exchange risks by providing for the receipt of revenues by the Company in U.S.
dollars while most operating costs are incurred in local currency. Pursuant to
the operating agreement between Benton-Vinccler and Lagoven, the operating fees
earned by the Company are paid directly to the Company's bank account in the
United States in U.S. dollars. GEOILBENT receives revenues from export sales in
U.S. dollars paid to its account in Moscow. As the Company continues to expand
internationally, it will seek to establish similar arrangements for new
operations.
PRINCIPAL AREAS OF ACTIVITY
The following table summarizes the Company's proved reserves, drilling and
production activity, and financial operating data by principal geographic area
at and for each of the years ended December 31, and financial data and drilling
and production activity for the nine months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
VENEZUELA(1) RUSSIA
------------------------------------------------------- -------------------------------------------------
NINE MONTHS ENDED NINE MONTHS
ENDED
SEPTEMBER 30, SEPTEMBER 30,
Dollars in ------------------- ----------------
thousands 1994 1995 1996 1996 1997 1994 1995(2) 1996 1996 1997
-------- -------- -------- ------- -------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESERVE
INFORMATION:
Proved Reserves
(MBOE) 60,707 73,593 86,076 N/A N/A 17,540 22,618 23,544 N/A N/A
Discounted
Future Net
Cash Flows
Before Income
Taxes $268,830 $286,916 $446,854 N/A N/A $48,833 $85,361 $90,705 N/A N/A
Standardized
Measure of
Future Net
Cash Flows $172,703 $206,545 $323,550 N/A N/A $32,398 $55,434 $73,423 N/A N/A
DRILLING AND
PRODUCTION
ACTIVITY:
Gross Wells
Drilled 11 19 33 27 24 9 25 5 5 3
Average Daily
Production
(BOE) 6,902 14,949 34,557 32,883 41,403 806 1,345 2,091 2,091 2,444
FINANCIAL DATA:
Oil and Gas
Revenues $ 21,472 $ 49,174 $136,840 $92,932 $114,236 $ 3,513 $6,016 $ 9,047 $6,937 $7,633
Expenses:
Lease
Operating
Costs and
Production
Taxes 3,808 6,483 17,670 9,309 24,230 2,832 2,764 6,263 5,739 5,509
Depletion 4,998 11,393 29,523 18,871 29,674 838 1,512 2,747 1,916 2,355
-------- -------- -------- ------- -------- ------- ------- ------- ------ ------
Total
Expenses 8,806 17,876 47,193 28,180 53,904 3,670 4,276 9,010 7,655 7,864
-------- -------- -------- ------- -------- ------- ------- ------- ------ ------
Results of
Operations
from Oil and
Gas
Producing
Activities $ 12,666 $ 31,298 $ 89,647 $64,752 $ 60,332 $ (157) $1,740 $ 37 $ (718) $ (231)
======== ======== ======== ======= ======== ======= ========= ======= ====== ======
</TABLE>
- ------------------------
(1) Includes 100% of the reserve information, drilling and production activity
and financial data, without deduction for minority interest. All Venezuelan
reserves are attributable to an operating service agreement between
Benton-Vinccler and Lagoven under which all mineral rights are owned by the
Government of Venezuela. See "-- South Monagas Unit, Venezuela" and
"-- Reserves."
32
<PAGE> 33
(2) The financial information for Russia includes information for the twelve
months ended December 31, 1994, the nine months ended September 30, 1995 and
the twelve months ended September 30, 1996, the end of the fiscal period for
GEOILBENT. See Note 15 to the Company's Consolidated Financial Statements.
SOUTH MONAGAS UNIT, VENEZUELA
General
In July 1992, the Company and Vinccler, a Venezuelan construction and
engineering company, signed a 20-year operating service agreement with Lagoven,
an affiliate of the national oil company, PdVSA, to reactivate and further
develop the Uracoa, Tucupita and Bombal Fields, which are a part of the South
Monagas Unit (the "Unit"). At that time, the Company was one of three foreign
companies ultimately awarded an operating service agreement to reactivate
existing fields by PdVSA, and was the first U.S. company since 1976 to be
granted such an oil field development contract in Venezuela.
The oil and gas operations in the Unit are conducted by Benton-Vinccler, the
Company's 80%-owned subsidiary. The remaining 20% of the outstanding capital
stock of Benton-Vinccler is owned by Vinccler. The Company, through its majority
ownership of stock in Benton-Vinccler, makes all operational and corporate
decisions related to Benton-Vinccler, subject to certain super-majority
provisions of Benton-Vinccler's charter documents related to mergers,
consolidations, sales of substantially all of its corporate assets, change of
business and similar major corporate events. Vinccler has an extensive operating
history in Venezuela. It provided the Company with initial financial assistance
and continues to provide ongoing assistance with construction services and
governmental and labor relations.
Under the terms of the operating service agreement, Benton-Vinccler is a
contractor for Lagoven and is responsible for overall operations of the South
Monagas Unit, including all necessary investments to reactivate and develop the
fields comprising the Unit. The Venezuelan government maintains full ownership
of all hydrocarbons in the fields. In addition, Lagoven maintains full ownership
of equipment and capital infrastructure following its installation.
Benton-Vinccler invoices Lagoven each quarter based on Bbls of oil accepted by
Lagoven during the quarter, using quarterly adjusted contract service fees per
Bbl, and receives its payments from Lagoven in U.S. dollars deposited directly
into a U.S. bank account. The operating service agreement provides for
Benton-Vinccler to receive an operating fee for each Bbl of crude oil delivered
and a capital recovery fee for certain of its capital expenditures, provided
that such operating fee and capital recovery fee cannot exceed the maximum total
fee per Bbl set forth in the agreement. The operating fee is subject to periodic
adjustments to reflect changes in the special energy index of the U.S. Consumer
Price Index, and the maximum total fee is subject to periodic adjustments to
reflect changes in the average of certain world crude oil prices. Since
commencement of operations, the adjusted maximum total fee has been cumulatively
less than the adjusted operating fee, resulting in no capital recovery fee. The
Company cannot predict the extent to which future maximum total fee adjustments
will provide for capital recovery components in the fees it receives, and has
recorded no asset for future capital recovery fees.
Location and Geology
The Unit is located in the southeastern part of the state of Monagas in eastern
Venezuela. The Unit is approximately 51 miles long and eight miles wide and
consists of 157,843 acres, of which the fields comprise approximately one-half.
At December 31, 1996, proved reserves attributable to the Company's Venezuelan
operations were 86,076 MBOE, which represented approximately 79% of the
Company's proved reserves. Benton-Vinccler is currently developing the Oficina
sands in the Uracoa Field, which contain 76% of the Unit's proved reserves. The
associated natural gas which is produced is currently being reinjected into the
field, as no ready market exists for the natural gas.
33
<PAGE> 34
Drilling and Development Activity
Uracoa Field. Benton-Vinccler has been developing the Uracoa Field since 1992.
During September 1997, a total of approximately 81 wells were producing an
average of approximately 42.1 MBbls of oil per day in the Uracoa Field. The
following table sets forth the Uracoa Field drilling activity and production
information for each of the quarters presented:
<TABLE>
<CAPTION>
------------------------------------------------------
WELLS DRILLED AVERAGE DAILY
VERTICAL HORIZONTAL PRODUCTION FROM FIELD (Bbls)
-------- ---------- ----------------------------
<S> <C> <C> <C>
1994:
First Quarter 5 0 3,400
Second Quarter 0 0 6,700
Third Quarter 3 0 7,200
Fourth Quarter 0 3 10,200
1995:
First Quarter 1 1 11,800
Second Quarter 1 2 11,300
Third Quarter 3 2 15,800
Fourth Quarter 1 8 20,800
1996:
First Quarter 1 8 29,600
Second Quarter 5 4 33,700
Third Quarter 2 7 37,700
Fourth Quarter 1 4 37,500
1997:
First Quarter 2 6 36,100
Second Quarter 4 4 35,800
Third Quarter 1 6 40,500
</TABLE>
Benton-Vinccler contracts with third parties for drilling and completion of
wells. Currently, Helmerich & Payne International Drilling Co. is performing
drilling services for Benton-Vinccler. The Company's technical personnel
identify drilling locations, specify the drilling program and equipment to be
used and monitor the drilling activities. To date, 15 previously drilled wells
have been reactivated, 94 new wells have been drilled in the Uracoa Field using
modern drilling and completion techniques that had not previously been utilized
on the field, with 85 wells, or 90%, completed and placed on production, and
nine injection wells have been drilled. In the Company's recent experience, each
vertical deviated well, drilled to an average depth of 5,600 feet, has been
drilled in approximately 10 days and completed in approximately 6 days, and each
horizontal well, drilled to an average depth of 6,500 feet, has been drilled in
20 days and completed in 3 days.
In December 1993, Benton-Vinccler commenced drilling the first horizontal well
in the Uracoa Field. Since the completion of this well, the Company has
successfully integrated modern technology and modern drilling and completion
techniques to improve the ultimate recovery. The Company has conducted a 3-D
seismic survey and interpreted the seismic data over the Uracoa Field. As a
horizontal well is drilled, information regarding formations encountered by the
drill bit is transmitted to the Company. Geologists, engineers and geophysicists
at the Company can determine the location of the drill bit by comparing the
information about the formations being drilled with the 3-D seismic data. The
Company then directs the movement of the drill bit to more accurately direct the
well to the expected reservoir. The Company intends to continue this method of
horizontal drilling in the development of the field.
Once oil is produced in the Uracoa Field, it is transported to production
facilities, which were designed in the United States and installed by
Benton-Vinccler. These production facilities are of the type commonly used in
heavy oil production in the United States, but not previously used extensively
in Venezuela to process crude oil of similar gravity or quality. The current
production facilities are capable of processing 60 MBbls of oil per day.
Tucupita and Bombal Fields. Before becoming inactive in 1987, the Tucupita Field
had been substantially developed, producing 67.1 MMBbls of oil, 34.7 MMBbls of
water and 17.6 Bcf of natural gas. Benton-Vinccler drilled a successful pilot
well in 1996 to evaluate the remaining development potential of the Tucupita
Field. This well has produced at an average rate of 3,850 Bbls of oil per day
and 11,940 Bbls of water per day through September 1997.
The Company's approach to the future development of the Tucupita Field is to
process large volumes of fluid to access the remaining oil. Working under the
assumption that this field was abandoned prematurely, the Company will use new
technology, including large diameter wellbores and high volume pumps, to produce
the reservoir at progressively higher water to oil ratios.
34
<PAGE> 35
Based on the performance of this pilot well, as well as the Company's analysis
of high-quality 3-D seismic surveys and reservoir geometry that favors
horizontal drilling applications, a significant redevelopment effort is now
underway.
Beginning in early 1998, Benton-Vinccler will drill six producing wells and six
water injection wells, and will expand production facilities, at an estimated
aggregate cost of $60.0 million. Currently, oil is being trucked from the
Tucupita Field to the Uracoa processing facilities. Benton-Vinccler is analyzing
alternatives for barging the oil and for installing a pipeline from the Tucupita
Field to the Uracoa Field.
The prospective pipeline would also be used for production from the Bombal Field
when it is developed. To date, the Company has drilled one well in the Bombal
Field and reactivated another, resulting in current combined production of 1,200
Bbls of oil per day. Benton-Vinccler currently plans to further develop the
Bombal Field beginning in late 1998 by drilling up to 18 wells, reactivating one
additional well and expanding production facilities at an anticipated cost of up
to $40.0 to $50.0 million.
Customers and Market Information
Oil produced in Venezuela is delivered to Lagoven under the terms of an
operating service agreement for an operating service fee. Benton-Vinccler has
constructed a 25-mile oil pipeline from its oil processing facilities at Uracoa
to Lagoven's storage facility, which is the custody transfer point. The service
agreement specifies that the oil stream may contain no more than 1% base
sediment and water, and quality measurements are conducted both at
Benton-Vinccler's facilities and at Lagoven's storage facility. A continuous
flow measuring unit is installed at Benton-Vinccler's facility, so that quantity
is monitored constantly. Lagoven provides Benton-Vinccler with a daily
acknowledgment regarding the amount of oil accepted the previous day, which is
reconciled to Benton-Vinccler's measurement. At the end of each quarter,
Benton-Vinccler prepares an invoice to Lagoven for that quarter's deliveries.
Lagoven pays the invoice at the end of the second month after the end of the
quarter. Invoice amounts and payments are denominated in U.S. dollars. Payments
are wire transferred into Benton-Vinccler's account in New York.
Employees; Community Relations
Benton-Vinccler seeks to employ nationals rather than bring expatriates into the
country. Presently, there are 12 full-time expatriates working with
Benton-Vinccler and 135 local employees. Benton-Vinccler also conducts ongoing
community relations programs, providing medical care, training, equipment and
supplies, and support for local schools, in both states in which the South
Monagas Unit falls.
DELTA CENTRO BLOCK, VENEZUELA
General
In January 1996, the Company and its bidding partners, LL&E and Norcen, were
awarded the right to explore and develop the Delta Centro Block in Venezuela.
The contract requires a minimum exploration work program consisting of
completing a 550 square kilometer 3-D and a 289 kilometer 2-D seismic survey and
drilling three wells to depths of 12,000 to 18,000 feet within five years. PdVSA
estimates that this minimum exploration work program will cost $60.0 million,
and required that the Company, LL&E and Norcen each post a performance surety
bond or standby letter of credit for its pro rata share of the estimated work
commitment expenditures. The Company has provided a standby letter of credit in
the amount of $18.0 million. The Company has a 30% interest in the exploration
venture, with LL&E and Norcen each owning a 35% interest. Under the terms of the
operating agreement, which establishes the management company for the project,
LL&E is the operator of the block and therefore the Company does not exercise
control of the operations of the venture. It is currently proposed that CVP will
have a 35% interest in the management company, which will dilute the voting
power of the partners on a pro rata basis.
If areas within the block are deemed to be commercially viable, then the group
has the right to enter into further agreements with CVP to develop those areas
during the next 20-25 years. CVP would participate in the revenues and costs
with an interest between 1 and 35%, at CVP's discretion. Any oil and gas
produced by the Delta Centro consortium will be sold at market prices and will
be subject to the oil and gas taxation regime in Venezuela and to the terms of a
profit sharing agreement with PdVSA. Under the current oil and gas tax law, a
royalty of up to 16.67% will be paid to the state. Under the contract bid terms,
41% of the pre-tax income will be shared with PdVSA for the period during which
the first $1.0 billion of revenues is produced; thereafter, the profit sharing
amount may increase to up to 50% according to a formula based on return on
assets. Currently, the statutory income tax rate for oil and gas enterprises is
66.7%. Royalties and shared profits are currently deductible for tax purposes.
Location and Geology
The Delta Centro block consists of approximately 2,100 square kilometers
(526,000 acres) located in the delta of the Orinoco River in the eastern part of
Venezuela. Although no significant exploratory activity has been conducted on
the block, PdVSA has estimated that the area may contain recoverable reserves of
as much as 820 MMBbls, and may be capable of producing up to
35
<PAGE> 36
160 MBbls of oil per day. The general area of Venezuela in which the Delta
Centro Block is located is known to be a significant source of hydrocarbons,
evidenced by the Orinoco tar sands to the south and the El Furrial light oil
trend to the northwest. Based on its geological studies of the basins in this
area, the Company's technical staff believes that hydrocarbons have essentially
migrated over time from the deeper Maturin basin area of Venezuela southward
toward the shallower Orinoco tar belt area. If so, then potential trapping
structures and/or faults in the path of the migrating oil would serve as traps
for the migrating oil and have the opportunity to be filled to their spill
points. Delta Centro is directly in line with this migration path, making it an
attractive exploration area. The area is mostly swampy in nature, with terrain
ranging from forest in the north to savannah in the south. The marshlands in the
block are similar to the transition zone areas in the Gulf of Mexico in which
the Company has significant experience in seismic and drilling operations.
Drilling and Development Activity
The venture has acquired a 598 square kilometer 3-D seismic survey over the
southwestern portion of the Delta Centro Block and the venture is currently
acquiring an additional 371 kilometer 2-D seismic survey to evaluate the
remaining exploration potential of the block, at an expected total cost to the
Company of approximately $8.0 to 9.0 million, of which $2.9 million has been
spent to date. Following the initial interpretation of the seismic data, the
venture intends to drill an initial exploration well during the third quarter of
1998, at a cost to the Company of approximately $3.0 to 4.0 million.
Community and Country Relations
The Company conducts an ongoing community relations program in the area,
providing medical care, equipment and supplies to the Waroa tribe which resides
in this area.
OVERVIEW OF VENEZUELAN OIL AND GAS INDUSTRY
Oil and gas is a vital industry in Venezuela, currently representing 25% of the
economy. Estimates by the Economist Intelligence Unit indicate that the oil
sector grew 6.6% in 1996, 6.0% in 1995 and 4.6% in 1994. Oil, gas and petroleum
product exports for 1996 reached $18.5 billion, accounting for almost 78% of
total exports. In addition, such estimates indicate that PdVSA expects oil and
gas product exports to total approximately $16.4 billion in 1997.
PdVSA is one of the largest oil companies in the world based on several factors,
including reserves, production capacity and product sales. At the end of 1996,
PdVSA's proved crude oil reserves were approximately 64.9 BBbls, more reserves
than any other company or country in the Western hemisphere. PdVSA is seeking to
double its current production capacity over the next ten years, with private
investment as a key source of capital to achieve such growth.
In 1992, Venezuela initiated a field re-activation program, which was an
important first step for the reentrance of private investment to the oil and gas
sector. Service contracts for 15 under-developed units were awarded, nine of
which currently produce a total of 186 MBbls per day. Benton-Vinccler currently
provides approximately 22% of this total production. In the beginning of 1996,
Venezuela opened the oil and gas sector for profit sharing contracts. Ten areas
were offered for auction at the end of January, marking the first time that
exploration and production rights had been officially offered to the private
sector since the nationalization of the oil industry in 1976. The Delta Centro
consortium was one of the successful bidders. In 1997, Venezuela offered the
third round of exploration and development projects in 20 areas.
NORTH GUBKINSKOYE, RUSSIA
General
In December 1991, the joint venture agreement forming GEOILBENT among the
Company (34% interest) and two Russian partners, Purneftegasgeologia and
Purneftegas (each having a 33% interest), was registered with the Ministry of
Finance of the USSR. In November 1993, the agreement was registered with the
Russian Agency for International Cooperation and Development. Although GEOILBENT
may only take action through the unanimous vote of the partners, the Company
believes that it has developed a good relationship with its partners and has not
experienced any disagreement with its partners on major operational matters. Mr.
A.E. Benton, Chief Executive Officer of the Company, serves as Chairman of the
Board of GEOILBENT.
Location and Geology
GEOILBENT develops, produces and markets crude oil from the North Gubkinskoye
and the Prisklonovoye Fields in the West Siberia region of Russia, located
approximately 2,000 miles northeast of Moscow. The field, which covers an area
approximately 15 miles long and 4 miles wide, has been delineated with over 60
exploratory wells (which tested 26 separate reservoirs) and is surrounded by
large proven fields. Before commencement of GEOILBENT's operations, the North
Gubkinskoye Field was one of the largest oil and gas fields in the region not
under commercial production. The field is a large anticlinal structure with
36
<PAGE> 37
multiple pay sands. The development to date has focused on the BP 8, 9, 10, 11
and 12 reservoirs. The natural gas which is produced is currently being flared
in accordance with environmental regulations.
Drilling and Development Activity
GEOILBENT commenced initial operations in the field during the third quarter of
1992 with the construction of a 37-mile oil pipeline and installation of
temporary production facilities. During September 1997, approximately 38 wells
were producing an average of approximately 6.9 MBbls of oil per day. The
following table sets forth drilling activity and production information for each
of the quarters presented:
<TABLE>
<CAPTION>
----------------------------------------------
AVERAGE DAILY
PRODUCTION FROM FIELD
WELLS DRILLED (BBLS)
------------- ---------------------------
<S> <C> <C>
1994:
First Quarter 1 1,000
Second Quarter 1 2,400
Third Quarter 2 2,200
Fourth Quarter 5 4,900
1995:
First Quarter 4 4,300
Second Quarter 1 5,600
Third Quarter 9 7,800
Fourth Quarter 11 7,900
1996:
First Quarter 4 8,400
Second Quarter 1 7,200
Third Quarter -- 7,100
Fourth Quarter -- 6,500
1997:
First Quarter 1 6,300
Second Quarter 2 6,800
Third Quarter 1 6,800
</TABLE>
GEOILBENT contracts with third parties for drilling and completion of wells.
Supervised by a joint American and Russian management team, GEOILBENT identifies
drilling locations, then uses Russian drilling rigs, upgraded by certain western
technology and materials including shaker screens, monitoring equipment and
drilling and completion fluids, to drill and complete a well. To date, 12
previously drilled wells have been reactivated and 39 wells have been drilled in
the field, with 38 wells, or 97%, completed and placed on production. Three
drilling rigs are currently working on pads in the field, and once all wells on
the pad have been drilled, each such well will be tested for completion. Each
well is drilled to an average depth of approximately 10,000 feet measured depth
and 8,000 feet true vertical depth.
Once oil is produced from the North Gubkinskoye Field, it is transported to
production facilities constructed and owned by GEOILBENT. Oil is then
transferred to GEOILBENT's 37-mile pipeline which transports the oil from the
North Gubkinskoye Field south to the main Russian oil pipeline network.
The current production facilities are operating at or near capacity and would
need to be expanded to accommodate any increased production. GEOILBENT has
obtained financing for the development of the North Gubkinskoye Field from the
EBRD and IMB. GEOILBENT has a 1998 capital expenditure budget of approximately
$61.0 million, of which $43.0 million would be used to drill approximately 60
wells in the North Gubkinskoye Field and $18.0 million for construction of
production facilities. The initial tranche of $10.2 million has been advanced
from the EBRD Credit Facility and additional borrowing will be based on
achieving certain reserve and production milestones. Additional expenditures in
excess of $10.2 million will be dependent upon increased availability to draw
from the EBRD Credit Facility and cash flow from operations.
Customers and Market Information
GEOILBENT's 37-mile pipeline runs from the field to the main pipeline in the
area where GEOILBENT transfers the oil to Transneft, the state oil pipeline
monopoly. Transneft can transport the oil to the western border of Russia. All
export oil sales are handled by trading companies such as Russoil or NAFTA
Moscow. All export sales have been paid in U.S. dollars into GEOILBENT's account
in Moscow.
37
<PAGE> 38
Employees; Community and Country Relations
Having access to the oilfield labor base in West Siberia, GEOILBENT employs
Russian nationals almost exclusively. Presently, there are five full-time
expatriates working with GEOILBENT and over 250 local employees. The Company
conducts an ongoing community relations program in Russia, providing medical
care, training, equipment and supplies in towns in which GEOILBENT personnel
reside and also for the nomadic indigenous population which resides in the area
of oilfield operations.
Alternatives for Natural Gas Reserves
The Company and GEOILBENT estimate that substantial recoverable associated gas
reserves exist in the North Gubkinskoye Field. In addition, there are
substantial non-associated natural gas reserves in the field. Currently, there
exists no ready market for these reserves, and therefore there are no plans to
produce these gas reserves. Associated gas is flared in allowable amounts under
permits with the Ministry of Fuel and Energy. If no market develops for the gas,
then over time GEOILBENT plans to begin reinjecting gas back into the
reservoirs. GEOILBENT has entered into discussions with Gazprom, the state
natural gas monopoly, for development and production of the solution gas, which
is estimated by the Company to be 550-600 Bcf. Implementation of such a
development plan would include construction of processing facilities and of a
natural gas pipeline from the field area to the main transmission pipeline.
Importance of Russian Oil and Gas Industry
Although estimates vary widely, it is believed that a substantial amount of oil
and natural gas reserves are located in Russia. In 1995, energy and fuels
(including primarily oil, oil products, natural gas, and hard coal) accounted
for approximately 41% of total Russian exports, as reported by the Economist
Intelligence Unit. These fuel and energy exports are important sources of hard
currency. In the last several years, the Russian oil and gas industry has
attracted a notable amount of foreign investment, including that of the Company.
WAB-21, SOUTH CHINA SEA
General
In December 1996, the Company acquired Crestone, a privately held company
headquartered in Denver, Colorado. Crestone's principal asset is a petroleum
contract with CNOOC for the WAB-21 area. The WAB-21 petroleum contract covers
6.2 million acres in the South China Sea, with an option for an additional 1.0
million acres under certain circumstances.
Location and Geology
The WAB-21 Contract Area (the "Contract Area") is located approximately 50 miles
east of the Dai Hung (Big Bear) Oil Field. The Contract Area covers several
similar structural trends each with potential for large hydrocarbon reserves in
possible multiple pay zones.
The Contract Area is located northwest of Zengmu Basin (Offshore Sarawak), where
two Chinese institutions have already conducted geophysical seismic surveys.
Based on the multi-disciplinary data available from Zengmu Basin to the
southeast, East Natuna Basin to the south and southwest, and WAN'AN (Con Son)
Basin to the west and northwest there is substantial evidence of significant
hydrocarbon potential in the Contract Area. Geophysical data indicates several
geologic horizons of complete assemblages of source rocks, reservoir rocks and
cap rocks.
Political Considerations and Risks
China's claim of ownership of the area results from China's discovery and
China's use and historic administration of the area. This claim also includes
third party and official foreign government recognition of China's sovereignty
and jurisdiction over the Contract Area.
The nearby Nansha Islands were formally placed under Chinese administration
during the Ming Dynasty (1368-1644 AD). In 1883, Germans were banned from
geologically surveying the area by the Quing court, based on Chinese sovereignty
over the region. Since the establishment of Chinese government jurisdiction over
the area several hundred years ago, the Nansha Islands have long been recognized
as being Chinese territory. Additionally, Russian and Vietnamese maps have
historically shown this area as Chinese. Significantly, even Vietnam recognized
China's sovereignty of the islands from 1956 until 1975. Vietnam's former
Premier Van Dong acknowledged China's Nansha Island sovereignty in a diplomatic
note in 1958.
In April 1994, a Chinese seismic survey ship contracted by the Company's
predecessor was intercepted by Vietnamese boats in the Contract Area while
attempting to conduct seismic acquisition operations. The Chinese ship returned
to its port without commencing its seismic work program. China subsequently
denounced Vietnam's action.
38
<PAGE> 39
Since 1994 China has maintained publicly that it is willing to discuss the joint
development of the Contract Area with the Vietnamese government. Thus far
Vietnam has not responded favorably. Instead, Vietnam granted exploration and
development rights to parts of the Contract Area to Conoco, a division of DuPont
Corporation. Diplomatic efforts have been conducted to resolve the territorial
dispute but have thus far been unsuccessful and any exploration activities will
be subject to resolution of such dispute. The Company has recorded no reserves
attributable to this petroleum contract.
Drilling and Development Activity
The Company has submitted, and received approval of, an initial seismic program
covering a portion of the Contract Area which anticipates capital expenditures
by the Company of approximately $8.0 million during the first year of activity.
However, until such time as the territorial dispute has been resolved, the
Company does not anticipate making significant capital expenditures for
exploration or development of the Contract Area.
QINGSHUI BLOCK, CHINA
General
In October 1997, the Company signed a farmout agreement with Shell pursuant to
which the Company will acquire a 50% participation interest in Shell's Liaohe
area onshore exploration project in northeast China, subject to approval of such
assignment from the Ministry of Foreign Trade and Economic Cooperation of China.
Shell has entered into a petroleum contract with CNPC to explore and develop the
deep rights in the Qingshui Block, a 563 square kilometer area (approximately
140,000 acres) in the delta of the Liaohe River. The deep rights are below 3,300
and 3,500 meters. The contract requires a three-phase exploration program. Shell
will be the operator of the project.
Pursuant to the petroleum contract, the first exploration period commenced
November 1, 1996. In September 1997, Shell notified CNPC of its intention to
continue with the first exploration phase. Pursuant to the terms of the
contract, this nine month study phase required a work commitment to evaluate the
deep potential of the block, with an expected minimum expenditure of $3.0
million dollars. During the remainder of the first exploration phase and prior
to November 1, 1999, Shell is required to drill and complete one exploratory
well to a depth of 4,500 meters, with a minimum expenditure of $8.0 million
dollars. The second exploration phase must be completed within two years of
commencement of that phase. Phase two requires Shell to drill and complete one
Exploratory Well to 4,500 meters with a minimum expenditure of $8.0 million
dollars. At the commencement of phase two, 10% of the phase one contract area
must be relinquished. The third exploration phase must be completed within two
years of commencement of such phase. Shell is required to drill and complete one
additional exploratory well to 4,500 meters with a minimum expenditure of $8.0
million dollars. At the commencement of the third exploration phase, 30% of the
phase two contract area must be relinquished. At the conclusion of each of the
exploration phases, Shell will elect whether or not to continue to the next
exploration phase. Assuming that Shell and the Company have performed each of
the three phases, the Company's maximum aggregate capital commitment will be
$22.0 million. Following the exploration phase under the contract, the contract
permits production from each oil field identified in the exploration phase for a
period of 15 years. CNPC has the right to retain up to a 51% interest in the
block and will pay none of the costs of the initial three Exploratory Wells.
CNPC will thereafter pay its proportionate share of all development and
operating costs in the block and will receive its proportionate share of all
production from the block, including production from the initial three wells.
Shell and the Company will therefore receive at least an aggregate 49% interest
in the production from the block and will pay its proportionate share of all
development and operating costs.
Pursuant to the farmout agreement between Shell and the Company, the Company
will have 50% of Shell's working interest in the block. The Company is required
to pay to Shell 50% of Shell's costs to date, estimated to be approximately $4.0
million, representing a cost to the Company of $2.0 million. In addition, the
Company agrees to pay 100% of the costs for the phase one exploration period,
with a maximum expenditure of $8.0 million dollars. If the first phase of the
exploration period results in a commercial discovery, the Company agrees to pay
100% of the costs for the second phase of the exploration period, with a maximum
expenditure of $8.0 million dollars. The Company and Shell will be responsible
for costs of the third exploration phase in proportion to their interests.
Location and Geology
The petroleum contract covers the deep rights in the Qingshui Block, a 563
square kilometer area located onshore in northeast China, in the delta area of
the Liaohe River, Liaoning Province. The acreage is situated in a structurally
complex half-graben basin, associated with a deep-seated wrench zone. The
graben-fill consists of a very clastic, lacustrine fill, containing oil prone
source rocks, turbiditic to lacustrine deltaic reservoir sequences and
lacustrine mudstone cap rocks. Shell's evaluation of the block is based on
comprehensive data enhancement and analysis, including core evaluation,
petrophysics and 2-D seismic reprocessing, 3-D seismic mapping and volume
interpretation, charge modelling and dynamic reservoir simulations.
39
<PAGE> 40
Drilling and Development Activity
The farmout agreement is subject to approval of such assignment from the
Ministry of Foreign Trade and Economic Cooperation of China. Provided such
approval is granted, the Company expects to drill up to two wells in the block
through the end of 1998 with an anticipated capital expenditure to the Company
of approximately $20.0 million.
SANTA BARBARA COUNTY, CALIFORNIA
General
In March 1997, the Company acquired a 40% participation interest from Molino
Energy in three California State offshore oil and gas leases. The project area
covers the Molino, the Gaviota and the Caliente fields, located approximately 35
miles west of Santa Barbara, California. Molino Energy holds a 100% working
interest in each of the leases. The Company serves as operator of the project.
In consideration of the 40% participation interest, the Company will pay 53% of
the costs of the first well to be drilled on the block. In addition, the Company
will pay costs associated with the first well in an amount equal to 70% of the
costs incurred by Molino Energy prior to the agreement with the Company,
currently estimated at $2.5 million, representing a cost to the Company of $1.75
million.
Location and Geology
The Company's operating interest covers three known fields, located on three
adjacent state oil and gas leases off the central California coast. Each of
these leases covers approximately 4,000 acres. The Molino, Gaviota and Caliente
Fields have produced an aggregate of 363 Bcf of natural gas from subsea
completion in the Vaqueras formation, and the deeper, Sacate/Matilija formation
has produced 12 Bcf of natural gas from the Molino field. In addition, the
Monterey formation has been penetrated from all of the gas wells, but has never
been produced. The Monterey formation is known as a prolific oil producer in
this area.
Drilling and Development Activity
During the remainder of 1997, the Company expects to drill the first well in the
project on Lease No. 2199 on the Gaviota structure, from an onshore drillsite.
The onshore drill site has immediate access to oil and gas pipelines. The well
is planned to be 14,000 total feet, with true vertical depth of 10,200 feet and
a maximum horizontal displacement of about 6,500 feet. The well will target the
Eocene age Gaviota and Sacate/Matilija formations, which are known
gas/condensate reservoirs in other nearby fields. The Company anticipates that
the first well will cost approximately $4.0 million. During 1998, the Company
intends to drill an additional one to two wells at an anticipated cost to the
Company of $5.0 to $12.0 million.
SIRHAN BLOCK, JORDAN
General
In August 1997, the Company acquired the rights to a production sharing
agreement with the Natural Resources Authority of Jordan ("NRA"), established by
the Hashemite Kingdom of Jordan, to explore, develop, and produce the Sirhan
block in southeastern Jordan.
Under the terms of the production sharing agreement, the Company is obligated to
make certain capital and operating expenditures. The Company is obligated to
spend: $5.1 million in the first exploration phase (2 years) to perform
geological studies and expenses incurred in drilling Exploratory Wells; $8.0
million in the second exploration phase (3 years) for seismic acquisitions,
geological studies, and expenses incurred in drilling Exploratory Wells; and
$10.0 million in the third exploration phase (3 years) for seismic acquisitions,
geological studies, and expenses incurred in drilling Exploratory Wells. If the
Company expends more than the minimum expenditure in one phase, the excess
expenditure will be credited against the Company's minimum expenditure
obligation during the next phase. In addition, the Company will be entitled to
recover all operating costs and expenses incurred.
Location and Geology
The Sirhan block in southeastern Jordan consists of approximately 1.2 million
acres (4,827 square kilometers). This block is located in the Sirhan basin
adjacent to the Jordan-Saudi Arabia border. One existing well on the block
tested light oil at low rates and several additional wells encountered thick
zones with indications of gas that have not been tested.
Drilling and Development Activity
During 1998, the Company expects to reenter, complete, and stimulate two
existing wells using techniques not previously attempted in Jordan. The Company
will begin hydraulic fracturing at the end of 1997, and through February 1998,
will reprocess seismic acquisitions, and will begin drilling in mid 1998. The
Company anticipates capital expenditures of approximately $6.0 to $10.0 million
through 1998 for recompletion and reworking of existing wells and further
development of the block.
40
<PAGE> 41
EVALUATION OF ADDITIONAL OPPORTUNITIES
The Company continues to evaluate and pursue additional international
opportunities which fit within the Company's business strategy. The Company is
currently evaluating certain development and/or acquisition opportunities, but
it is not presently known whether, or on what terms, such evaluations will
result in future agreements or acquisitions.
RESERVES
The following table sets forth information regarding estimates of proved
reserves at December 31, 1996 prepared by the Company and audited by Huddleston
& Co., Inc., independent petroleum engineers:
<TABLE>
<CAPTION>
-----------------------------------------------
CRUDE OIL AND CONDENSATE (MBbl)
-----------------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
Venezuela(1) 47,805 38,271 86,076
Russia(2) 3,417 20,127 23,544
------ ------ ------
Total 51,222 58,398 109,620
====== ====== ======
</TABLE>
- ---------------
(1) Includes 100% of the reserve information, without deduction for minority
interest. All Venezuelan reserves are attributable to an operating service
agreement between Benton-Vinccler and Lagoven, under which all mineral
rights are owned by the Government of Venezuela. See "-- South Monagas Unit,
Venezuela."
(2) Although the Company estimates that there are substantial natural gas
reserves in the North Gubkinskoye Field, no natural gas reserves have been
recorded because of a lack of a ready market.
Estimates of commercially recoverable oil and gas reserves and of the future net
cash flows derived therefrom are based upon a number of variable factors and
assumptions, such as historical production from the subject properties,
comparison with other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future operating costs,
severance and excise taxes, export tariffs, abandonment costs, development costs
and workover and remedial costs, all of which may vary considerably from actual
results. All such estimates are to some degree speculative, and various
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the commercially
recoverable reserves of oil attributable to any particular property or group of
properties, the classification, cost and risk of recovering such reserves and
estimates of the future net cash flows expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The difficulty of making precise estimates is accentuated by the fact that 56%
of the Company's total proved reserves were non-producing as of December 31,
1996. Therefore, the Company's actual production, revenues, severance and excise
taxes, export tariffs, development expenditures, workover and remedial
expenditures, abandonment expenditures and operating expenditures with respect
to its reserves will likely vary from estimates, and such variances may be
material.
In addition, actual future net cash flows will be affected by factors such as
actual production, supply and demand for oil, availability and capacity of
gathering systems and pipelines, changes in governmental regulations or taxation
and the impact of inflation on costs. The timing of actual future net revenue
from proved reserves, and thus their actual present value, can be affected by
the timing of the incurrence of expenditures in connection with development of
oil and gas properties. The 10% discount factor, which is required by the
Commission to be used to calculate present value for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the oil and gas industry.
Discounted present value, no matter what discount rate is used, is materially
affected by assumptions as to the amount and timing of future production, which
may and often do prove to be inaccurate. For the period ending December 31,
1996, the Company reported $537.6 million of discounted future net cash flows
before income taxes from proved reserves based on the Commission's required
calculations.
41
<PAGE> 42
PRODUCTION, PRICES AND LIFTING COST SUMMARY
The following table sets forth by country net production, average sales prices
and average lifting costs of the Company for the years ended December 31, 1994,
1995 and 1996 and for the nine months ended September 30, 1996 and 1997:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
VENEZUELA
Net Crude Oil Production (Bbl) 2,519,514 5,456,473 12,647,987 9,009,983 11,302,893
Average Crude Oil Sales Price ($ per
Bbl) $8.52 $9.01 $10.82 $10.31 $10.11
Average Lifting Costs ($ per Bbl) 1.51 1.19 1.40 1.03 2.14
RUSSIA (1)
Net Crude Oil Production (Bbl) 294,364 490,960 765,137 572,947 667,312
Average Crude Oil Sales Price ($ per
Bbl) $11.93 $12.25 $11.82 $12.11 $11.44
Average Lifting Costs ($ per Bbl) 9.62 5.63 8.19 10.02 8.26
</TABLE>
- ---------------
(1) The financial information related to Russia includes information for the
twelve months ended December 31, 1994, the nine months ended September 30,
1995 and the twelve months ended September 30, 1996, the end of the fiscal
period for GEOILBENT. See Note 15 to the Company's Consolidated Financial
Statements.
REGULATION
General
The Company's operations are affected by political developments and laws and
regulations in the areas in which it operates. In particular, oil and gas
production operations and economics are affected by price controls, tax and
other laws relating to the petroleum industry, by changes in such laws and by
changing administrative regulations and the interpretations and application of
such rules and regulations. In addition, various federal, state, local and
international laws and regulations covering the discharge of materials into the
environment, the disposal of oil and gas wastes, or otherwise relating to the
protection of the environment, may affect the Company's operations and costs.
Oil and gas industry legislation and agency regulation is periodically changed
for a variety of political, economic, environmental and other reasons. Numerous
governmental departments and agencies issue rules and regulations binding on the
oil and gas industry, some of which carry substantial penalties for the failure
to comply. The regulatory burden on the oil and gas industry increases the
Company's cost of doing business.
Venezuela
Venezuela requires environmental and other permits for certain operations
conducted in oil field development, such as site construction, drilling, and
seismic activities. As a contractor to Lagoven, Benton-Vinccler submits capital
and operating budgets to Lagoven for approval. Capital expenditures to comply
with Venezuelan environmental regulations relating to the reinjection of gas in
the field and water disposal are expected to be $12.7 million in 1997 and $8.0
million in 1998, respectively. Benton-Vinccler also submits requests for permits
for drilling, seismic and operating activities to Lagoven, which then obtains
such permits from the Ministry of Energy and Mines and Ministry of Environment,
as required. Benton-Vinccler is also subject to income, municipal and value
added taxes, and must file certain monthly and annual compliance reports to
SENIAT (the national tax administration) and to various municipalities.
Russia
GEOILBENT submits annual production and development plans, which include
information necessary for permits and approvals for its planned drilling,
seismic and operating activities, to local and regional governments and to the
Ministry of Fuel and Energy, Committee of Geology and Ministry of Economy.
GEOILBENT also submits annual production targets and quarterly export
nominations for oil pipeline transportation capacity to the Ministry of Fuel and
Energy. GEOILBENT is subject to customs, value added, and municipal and income
taxes. Various municipalities and regional tax inspectorates are involved in the
assessment and collection of these taxes. GEOILBENT must file operating and
financial compliance reports with several bodies, including the Ministries of
Fuel and Energy, Committee of Geology, Committee for Technical Mining
Monitoring, the Ministry of Ecology, and the State Customs Committee.
DRILLING, ACQUISITION AND FINDING COSTS
During the years ended December 31, 1994, 1995 and 1996, the Company spent
approximately $53 million, $74 million, and $108 million, respectively, for
acquisitions of leases and producing properties, development and exploratory
drilling, production facilities and additional development activities such as
workovers and recompletions.
42
<PAGE> 43
The Company has drilled or participated in the drilling of wells as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEARS ENDED DECEMBER 31
1994 1995 1996
----------------- ----------------- -----------------
GROSS NET GROSS NET GROSS NET
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
WELLS DRILLED:
Exploratory:
Crude oil -- -- 3 1.020 -- --
Natural gas 2 .875 3 .970 1 .375
Dry holes 2 .869 1 .325 -- --
Development:(1)(2)(3)
Crude oil 20 11.860 41 22.680 36 26.500
Natural gas 1 .435 1 .220 -- --
Dry holes -- -- 1 .800 -- --
--- ------ --- ------ --- ------
TOTAL 25 14.039 50 26.065 37 26.875
=== ====== === ====== === ======
AVERAGE DEPTH OF WELLS (FEET) 7,266 7,847 8,008
PRODUCING WELLS (4):
Crude oil 112 46.796 98 44.701 113 74.300
Natural gas 4 .822 8 2.024 0 0
</TABLE>
- ---------------
(1) In addition to the activities set forth in the table, at the West Cote
Blanche Bay Field during the year ended December 31, 1994, the Company
participated in the successful recompletion of 13 gross (4.247 net) oil
wells and one gross (.327 net) gas well. In March 1995, the Company sold
certain of its interests in the field, a result of which was to
substantially eliminate the Company's future participation in recompletion
and redrilling activities and in March 1996, the Company sold the remainder
of its interests in the field.
(2) In addition to the activities set forth in the table, the Company
participated in the successful recompletion of five gross (4.0 net) oil
wells in Venezuela during the year ended December 31, 1994.
(3) In addition to the activities set forth in the table, the Company
participated in the successful reactivation of one gross (.34 net) oil well
in Russia during the year ended December 31, 1995. The Company participated
in the successful reactivation of six gross (2.04 net) oil wells in Russia
during the year ended December 31, 1994.
(4) The information related to producing wells reflects wells the Company
drilled, wells the Company participated in drilling and producing wells the
Company acquired.
At November 30, 1997, the Company was participating in the drilling of one well
in Venezuela and five wells in Russia.
All of the Company's drilling activities are conducted on a contract basis with
independent drilling contractors. The Company does not own any drilling
equipment.
From commencement of operations through December 31, 1996, the Company added,
net of production and property sales, approximately 109.6 MBOE of proved
reserves through purchases of reserves-in-place, discoveries of oil and natural
gas reserves, extensions of existing producing fields and revisions of
previously estimated reserves, for which the finding costs were $1.96 per BOE.
The Company's estimate of future development costs for its undeveloped proved
reserves at December 31, 1996 was $1.90 BOE. The estimated future development
costs are based upon the Company's anticipated cost of developing its
non-producing proved reserves, which costs are calculated using historical costs
for similar activities.
43
<PAGE> 44
ACREAGE
The following table summarizes the developed and undeveloped acreage owned,
leased or under concession as of December 31, 1996.
<TABLE>
<CAPTION>
--------------------------------------------------
DEVELOPED UNDEVELOPED
GROSS NET GROSS NET
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Venezuela 9,950 7,960 673,893 276,114
Russia 16,080 5,467 149,680 50,891
China -- -- 6,200,000 3,100,000
United States 5,002 1,689 10,000 6,862
------ ------ --------- ---------
Total 31,032 15,116 7,033,573 3,433,867
====== ====== ========= =========
</TABLE>
COMPETITION
The Company encounters strong competition from major oil and gas companies and
independent operators in acquiring properties and leases for exploration for
crude oil and natural gas. The principal competitive factors in the acquisition
of such oil and gas properties include the staff and data necessary to identify,
investigate and purchase such leases, and the financial resources necessary to
acquire and develop such leases. Many of the Company's competitors have
financial resources, staffs and facilities substantially greater than those of
the Company.
EMPLOYEES AND CONSULTANTS
At September 30, 1997, the Company had 59 employees augmented from time to time
with independent consultants, as required. Benton-Vinccler had 150 employees and
GEOILBENT had 250 employees.
TITLE TO DEVELOPED AND UNDEVELOPED ACREAGE
All Venezuelan reserves are attributable to an operating service agreement
between Benton-Vinccler and Lagoven, under which all mineral rights are owned by
the Government of Venezuela. With regard to Russian acreage, GEOILBENT has
obtained certain documentation from appropriate regulatory bodies in Russia
which the Company believes is adequate to establish GEOILBENT's right to
develop, produce and market oil and gas from the North Gubkinskoye Field in
Russia.
The WAB-21 petroleum contract covers 6.2 million acres in the South China Sea,
with an option for another one million acres under certain circumstances, and
lies within an area which is the subject of a territorial dispute between the
People's Republic of China and Vietnam. Vietnam has executed an agreement on a
portion of the same offshore acreage with Conoco, a unit of DuPont Corporation.
The territorial dispute has existed for many years, and there has been limited
exploration and no development activity in the area under dispute. It is
uncertain when or how this dispute will be resolved, and under what terms the
various countries and parties to the agreements may participate in the
resolution, although certain proposed economic solutions currently under
discussion would result in the Company's interest being reduced.
At the time of acquisition of undeveloped acreage in the United States, the
Company conducts a limited title investigation. A title opinion from a qualified
law firm is obtained prior to drilling any given U.S. prospect. Title to
presently producing properties is investigated by a qualified law firm prior to
purchase. The Company believes its method of investigating the title to these
domestic properties is consistent with general practices in the oil and gas
industry and is designed to enable the Company to acquire title which is
generally considered to be acceptable in the oil and gas industry.
44
<PAGE> 45
LEGAL PROCEEDINGS
On June 13, 1994, Charles Agnew and other limited partners in several limited
partnerships formed by the Company brought an action in the Superior Court of
California, County of Ventura, against the Company for alleged actions and
omissions of the Company in operating the partnerships and alleged
misrepresentations made by the Company in selling the limited partnership
interests. The claimants seek an unspecified amount of actual and punitive
damages. On May 17, 1995, the Company agreed to a binding arbitration proceeding
with respect to such claims, which is currently in the discovery stage. The
Company will be forced to spend time and financial resources to defend or
resolve these matters. In January 1996, the Company acquired all of the
interests in three of the limited partnerships which are the subject of the
arbitration, in exchange for shares of, and warrants to purchase shares of, the
Company's common stock. In the arbitration proceeding, if any liability is found
to exist, the arbitrator will determine the amount of any damages, and may
consider all distributions made to the partners, including the consideration
received in the exchange offer, in determining the extent of damages, if any.
However, there can be no assurance that an arbitrator will consider such factors
in his or her determination of damages if the allegations are found to be true
and damages are awarded. In the normal course of its business, there are various
legal proceedings outstanding. In the opinion of management, these proceedings
will not have a material adverse effect on the results of operations or
financial condition of the Company.
45
<PAGE> 46
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the Company
is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- -------------------------------------
<S> <C> <C>
A.E. Benton 54 Chairman of the Board, Chief
Executive Officer and Director
Michael B. Wray 61 President, Treasurer and Director
James M. Whipkey 39 Senior Vice President, Chief
Financial Officer
Joseph C. White 67 Vice President -- Operations
E. Sven Hagen 41 Senior Vice President -- Exploration
and Development
Chris C. Hickok 39 Vice President -- Controller and
Chief Accounting Officer
Bruce M. McIntyre 70 Director
Richard W. Fetzner 68 Director
Garrett A. Garrettson 54 Director
</TABLE>
A.E. BENTON
A.E. Benton, founder of the Company, was first elected Chief Executive Officer
and Chairman of the Board of the Company in September 1988. He has served as
director of the Company since September 1988. From 1986 to October 1988, Mr.
Benton was employed as president and director of Benton Petroleum Company. From
1981 to 1986, Mr. Benton was employed by May Petroleum, Inc., becoming its
senior vice president of exploration. From 1979 to 1981, Mr. Benton was employed
by TransOcean Oil Company and, upon TransOcean's acquisition by Mobil Oil
Corporation, he was employed by another subsidiary of Mobil Oil Corporation as
manager of geophysics. He was employed from 1968 to 1979 by Amoco Oil Company in
various positions, including director of applied geophysical research. Mr.
Benton has a B.S. degree in geophysics from California State University. Mr.
Benton serves as a director of First Seismic Corporation.
MICHAEL B. WRAY
Michael B. Wray was first elected President and Chief Financial Officer of the
Company in January, 1996. He has served as director of the Company since
November 1988. From January 1994 to December 1995, Mr. Wray served as a
consultant to the Company. From January 1992 until July 1993, Mr. Wray served as
vice president -- finance and administration of Del Mar Operating, Inc. From
1985 through 1991, Mr. Wray was an independent financial consultant to oil and
gas exploration and production companies. From 1979 to 1985, Mr. Wray served as
a senior financial officer of Guardian Oil Company, Huffco Petroleum Corporation
and May Petroleum, Inc. Prior to that time, Mr. Wray worked for over 15 years in
New York as an investment banker, security analyst and officer in various
investment firms including Donaldson, Lufkin & Jenrette, Inc., Drexel & Co. and
L.F. Rothschild & Co. Mr. Wray began his career as an attorney with Morgan,
Lewis & Bockius in Philadelphia. Mr. Wray holds a B.A. degree from Amherst
College and a law degree from Columbia Law School.
JAMES M. WHIPKEY
James M. Whipkey was first elected Senior Vice President and Chief Financial
Officer of the Company in August 1997. From 1995 to 1997, Mr. Whipkey was
employed by Lehman Brothers Inc. as Senior Equity Analyst in the Oil and Gas
Sector. From 1993 to 1995, he was employed by Kidder, Peabody & Co. as an
investment banker. Mr. Whipkey was an energy derivatives specialist at Phibro
Energy, Inc. from 1989 to 1992, and a futures broker and commercial lender at
First Chicago from 1985 to 1989. He was employed from 1980 to 1985 by Amoco
Production Company as a petroleum engineer. Mr. Whipkey has a B.S. degree in
petroleum and natural gas engineering from the Pennsylvania State University and
an M.B.A. from the University of Chicago.
46
<PAGE> 47
JOSEPH C. WHITE
Joseph C. White was elected Vice President -- Operations of the Company in
February 1993. Previously, Mr. White was president of J.C. White and Associates,
Inc., an independent consulting firm that prepared the Company's independent
reserve reports from 1988 through 1992. Mr. White was employed by Texaco for 30
years in a variety of engineering and management positions. In 1968, he was
appointed assistant to the vice president for Latin America and Trinidad in
Texaco's New York City executive office and in 1971 was appointed assistant to
the senior vice president for Texaco's worldwide producing operations. In 1972,
he was appointed assistant division manager to Texaco's Denver Division in
Colorado. In this position, he was responsible for all engineering and
operational matters for Texaco's operations in the Rocky Mountain area.
E. SVEN HAGEN
E. Sven Hagen was first appointed Gulf Coast Geologist in March 1990 and was
elected Vice President -- Exploration and Development in July 1995 and Senior
Vice President -- Exploration and Development in October 1997. From March 1987
to February 1990, Mr. Hagen was employed by Shell Oil Company as an exploration
geologist responsible for the technical evaluation of the oil and gas potential
of West Africa salt basins including Angola, Congo, Gabon and Namibia. From
December 1985 to February 1987, Mr. Hagen was employed by Standard Oil
Production Company as an Exploration Geologist. Mr. Hagen holds a B.A. degree in
geology from the University of California at Santa Barbara and a Ph.D. in
geology from the University of Wyoming.
CHRIS C. HICKOK
Chris C. Hickok was first appointed Controller in November 1991 and was elected
Vice President -- Controller and Chief Accounting Officer in January 1995. From
March 1979 to September 1991, Mr. Hickok was employed by Mission Resources, Inc.
and held various positions in the accounting and finance department including
financial analyst, assistant controller and controller. Mr. Hickok holds a B.S.
degree in business administration from California State University at Hayward
and is a Certified Management Accountant.
BRUCE M. MCINTYRE
Bruce M. McIntyre has served as director of the Company since November 1988. Mr.
McIntyre is a private investor and a consultant in the oil and gas industry, in
which he has been involved since 1952. He also serves in a management capacity
with several small, private companies in the energy field. He currently serves
as a director of MSC Corp., a private company which manages oil wells in
Illinois. From 1981 to 1984, Mr. McIntyre served as president of Rocky Mountain
Exploration Company, ultimately negotiating its merger into Carmel Energy, Inc.,
on whose board of directors he served until March 1986. Prior to that time, Mr.
McIntyre held various management positions with C&K Petroleum, Inc. (now ENSTAR
Petroleum, Inc.), Jenney Oil Company and Sinclair Oil & Gas Company. Mr.
McIntyre is a graduate of Harvard College and the Harvard University Graduate
School of Business Administration.
RICHARD W. FETZNER
Richard W. Fetzner has served as director of the Company since May 1990. Since
1989, Dr. Fetzner has been an associate professor of business administration at
California Lutheran University in Thousand Oaks, California. From 1984 to 1989,
Dr. Fetzner served in various academic capacities at the University of Singapore
and California Lutheran University and was a consultant to the World Bank. From
1979 to 1984, Dr. Fetzner served as group vice president of Sun Company, Inc.
and president of Sun Exploration and Production Company in Dallas, Texas. From
1958 to 1979, he served in various management and professional positions with
Sun Oil Company and its subsidiaries including president of Sun International,
Inc. and Sun Marine Transport, Inc. Dr. Fetzner holds a B.A. from Augustana
College, an M.S. in geology from the University of Wisconsin, a Ph.D. in geology
and economics from the University of Wisconsin and an M.B.A. from Drexel
University. Dr. Fetzner is the father-in-law of Clarence Cottman, III, an
officer of the Company.
GARRETT A. GARRETTSON
Garrett A. Garrettson has served as director of the Company since January 1996.
In 1996, Mr. Garrettson was elected chief executive officer and president of
Spectrum Corporation, a publicly held company which is a leading independent
supplier of high-power amplifiers to the wireless communications industry. In
1995, Mr. Garrettson was elected as chairman, chief executive officer and
president of Contract Recording Technology, Inc. In addition, since 1993 he has
served as president and chief executive officer of Censtor Corporation. From
1986 to 1989, Mr. Garrettson served as vice president of Imprimis Technology.
Prior to that time, after serving in the United States Navy and Naval Reserves,
Mr. Garrettson held various positions with Hewlett Packard Company, including
laboratory director, department manager, project manager, and research engineer.
Mr. Garrettson graduated from Stanford University with a B.S. and M.S. in
engineering physics, and a Ph.D. in mechanical engineering.
47
<PAGE> 48
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement with the Initial Purchasers, pursuant to which the
Company agreed to use its best efforts to file with the Commission a
registration statement with respect to the exchange of the Old Notes for debt
securities with terms identical in all material respects to the terms of the Old
Notes, except that (i) the offer and sale of the New Notes have been registered
under the Securities Act and therefore the New Notes will not be subject to
certain restrictions on transfer applicable to the Old Notes, will not contain
certain legends relating thereto and will not be entitled to registration and
other rights under the Registration Rights Agreement, and (ii) the New Notes
will not provide for any increase in the interest rate thereon. In that regard,
the Old Notes provide, among other things, that, if the Exchange Offer is not
consummated by March 3, 1998, the interest rate borne by the Old Notes will
increase by 0.25% per annum during the first 90-day period immediately following
the occurrence of a registration default, and the amount of interest will
increase by an additional 0.25% per annum for each subsequent 90-day period
until such registration default is cured, up to a maximum amount of additional
interest of 1.00% per annum. Upon consummation of the Exchange Offer, holders of
Old Notes will not be entitled to any increase in the rate of interest thereon
or any further registration rights under the Registration Rights Agreement. See
"Summary -- Certain Consequences of a Failure to Exchange Old Notes" and
"Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept tenders for
exchange from, holders of Old Notes in any jurisdiction in which the Exchange
Offer or the acceptance thereof would not be in compliance with the securities
or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $105 million aggregate principal amount of New Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not properly withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $105 million of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered. As of the date of this Prospectus $115 million aggregate
principal amount of Old Notes is outstanding, with $10 million aggregate
principal amount of Old Notes held by the Company and not subject to this
Exchange Offer.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but
will not be entitled to any further registration rights under the Registration
Rights Agreement.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof promptly after the Expiration Date.
Holders who tender Old Notes in connection with the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See " -- Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
48
<PAGE> 49
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on February 20,
1998 unless the Exchange Offer is extended by the Company (in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended).
The Company expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) if
the Company determines, in its sole and absolute discretion, that any of the
events or conditions referred to under "-- Certain Conditions to the Exchange
Offer" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all Old Notes tendered pursuant
to the Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes as described under "-- Withdrawal Rights," and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the Company
will exchange, and will issue to the Exchange Agent, New Notes for Old Notes
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under "-- Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depositary Trust Company ("DTC"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will be
deemed to have accepted for exchange, and thereby exchanged, Old Notes validly
tendered and not withdrawn as, if and when the Company gives oral or written
notice to the Exchange Agent of the Company's acceptance of such Old Notes for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Company for the purpose of receiving tenders of Old Notes, Letters of
Transmittal and related documents, and as agent for tendering holders for the
purpose of receiving Old Notes, Letters of Transmittal and related documents and
transmitting New Notes to validly tendering holders. Such exchange will be made
promptly after the Expiration Date. If for any reason whatsoever, acceptance for
exchange or the exchange of any Old Notes tendered pursuant to the Exchange
Offer is delayed (whether before or after the Company's acceptance for exchange
of Old Notes) or the Company extends the Exchange Offer or is unable to accept
for exchange or exchange Old Notes tendered pursuant to the Exchange Offer,
then, without prejudice to the Company's rights set forth herein, the Exchange
Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered Old Notes and such Old Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant and
agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Notes, that the Company will
acquire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Notes tendered pursuant to the Exchange Offer.
49
<PAGE> 50
PROCEDURES FOR TENDERING OLD NOTES
Valid Tender. Except as set forth below, in order for Old Notes to be validly
tendered pursuant to the Exchange Offer, a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must be received by the Exchange
Agent at one of its addresses set forth under "-- Exchange Agent," and either
(i) tendered Old Notes must be received by the Exchange Agent, or (ii) such Old
Notes must be tendered pursuant to the procedures for book-entry transfer set
forth below and a book-entry confirmation must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder should fill
in the amount of Old Notes being tendered in the appropriate box on the Letter
of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY
INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution that is a
participant in DTC's book-entry transfer facility system may make a book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Notes need not be endorsed and
signature guarantees on the Letter of Transmittal are unnecessary unless (a) a
certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Old Notes pursuant to the
Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Old Notes may nevertheless
be tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is received by
the Exchange Agent, as provided below, on or prior to the Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all tendered
Old Notes, in proper form for transfer, together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of such Notice of Guaranteed
Delivery.
50
<PAGE> 51
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Determination of Validity. All questions as to the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered Old Notes will be determined by the Company, in its sole discretion,
whose determination shall be final and binding on all parties. The Company
reserves the absolute right, in its sole and absolute discretion, to reject any
and all tenders determined by it not to be in proper form or the acceptance of
which, or exchange for, may, in the view of counsel to the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "-- Certain
Conditions to the Exchange Offer" or any condition or irregularity in any tender
of Old Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. No tender of Old Notes will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in tenders or incur any liability for failure to give any
such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or any
other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or custodian is
urged to contact such entity promptly if such beneficial holder wishes to
participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Notes in the Exchange Offer and (c)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Notes acquired for
its own account as a result of market-making or other trading activities and
exchanges
51
<PAGE> 52
such Old Notes for New Notes, then such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales of
such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights Agreement,
the Company has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180 days after the
Expiration Date (subject to extension under certain limited circumstances
described below) or, if earlier, when all such New Notes have been disposed of
by such Participating Broker-Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the
52
<PAGE> 53
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Notes tendered for the account of an
Eligible Institution. If Old Notes have been tendered pursuant to the procedures
for book-entry transfer set forth in "-- Procedures for Tendering Old Notes,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described above under "-- Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 9 3/8% per annum from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no interest has been paid or
duly provided for on such Old Note, from November 1, 1997. Interest on the New
Notes will be payable semiannually on May 1 and November 1 of each year,
commencing on the first such date following the original issuance date of the
New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
accrued interest on such Old Notes for any period from and after the last
Interest Payment Date to which interest has been paid or duly provided for on
such Old Notes prior to the original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after November 1, 1997.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension of
the Exchange Offer, the Company will not be required to accept for exchange, or
to exchange, any Old Notes for any New Notes, and, as described below, may
terminate the Exchange Offer (whether or not any Old Notes have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(a) the Exchange Offer, or the making of any exchange by a holder, violates any
applicable law or any applicable interpretation of the staff of the Commission;
(b) any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or enacted
which, in the Company's judgment, would reasonably be expected to impair the
ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States federal or
California or New York state authorities which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United States
over-the-counter market shall have been suspended by order of the Commission or
any other governmental authority which, in the Company's judgment, would
reasonably be expected to impair the ability of the Company to proceed with the
Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement
or proceedings shall have been initiated or, to the knowledge of the Company,
threatened for that purpose.
If the Company determines in its sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
the Company may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) or
may waive any such condition or otherwise amend the terms of the Exchange Offer
in any respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Company
53
<PAGE> 54
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes, and the Company will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
First Trust Company of New York, National Association, has been appointed as
Exchange Agent for the Exchange Offer. Delivery of the Letters of Transmittal
and any other required documents, questions, requests for assistance, and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent as follows:
By Mail:
First Trust National Association
P.O. Box 64485
St. Paul, Minnesota 55164-9549
Attn: Specialized Finance
By Overnight Delivery or Hand:
First Trust of New York, National Association
100 Wall Street
New York, New York 10005
Attn: Cathy Donohue
To Confirm by Telephone or for Information:
(612) 244-1197
Attn: Phyliss Meath
Facsimile Transmissions:
(612) 244-1145
Delivery to other than one of the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling or tendering for their
customers.
Holders who tender their Old Notes for exchange will not be obligated to pay any
transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
54
<PAGE> 55
DESCRIPTION OF OUTSTANDING INDEBTEDNESS
The summaries contained herein of certain provisions of the indebtedness of the
Company do not purport to be complete and, except in the case of the short term
debt, are qualified in their entirety by the provisions of the various
agreements and indentures related thereto.
SENIOR UNSECURED NOTES DUE 2003
In May 1996, the Company issued $125.0 million in senior unsecured notes due May
1, 2003, which bear interest at 11.625% per annum. Interest is payable
semi-annually on May 1 and November 1. The indenture agreement provides for
certain limitations on liens, additional indebtedness, certain investment and
capital expenditures, dividends, mergers and sales of assets. At September 30,
1997 the Company was in compliance with all convenants of the indenture. A
portion of the proceeds from the notes was used to repay certain long term
indebtedness and certain short term obligations, and the remainder has been or
will be used for capital expenditure and working capital purposes.
CREDIT FACILITY
In August 1996, the Company entered into a $50.0 million, 2-year credit facility
with Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., to repay the balance outstanding under a short term credit
facility and to repay certain advances received from the Company. The credit
facility is collateralized in full by a time deposit of the Company and bears
interest at LIBOR plus 6%. The Company will receive interest on its time deposit
and a security fee on the outstanding principal of the loan, for a combined
total of approximately LIBOR plus 5.75%. The loan arrangement contains no
restrictive covenants and no financial ratio covenants.
55
<PAGE> 56
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes will be issued pursuant to an
Indenture (the "Indenture") between the Company and First Trust of New York,
National Association, as trustee (the "Trustee") dated as of November 3, 1997.
The terms of the New Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Old Notes and New Notes are subject to
all such terms, and holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. A copy of the proposed form of Indenture
and the Registration Rights Agreement described below will be made available to
prospective investors upon request. The following summary of certain provisions
of the Indenture and the Registration Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the Indenture and the
Registration Rights Agreement, including the definitions therein of certain
terms used below. The definitions of certain terms used in the following summary
are set forth below under "-- Certain Definitions" or are otherwise defined in
the Indenture.
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders of
the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding debt securities. In
determining whether holders of the requisite percentage in principal amount have
given any notice, consent or waiver or taken any other action permitted under
the Indenture, any Old Notes which remain outstanding after the Exchange Offer
will be aggregated with the New Notes and the holders of such Old Notes and New
Notes will vote together as a single series for all such purposes. Accordingly,
all references herein to specified percentages in aggregate principal amount of
the outstanding Notes shall be deemed to mean, at any time after the Exchange
Offer is consummated, such percentage in aggregate principal amount of the Old
Notes and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as, collectively, the
"Notes" and, individually, a "Note."
The Old Notes and New Notes will mature on November 1, 2007, will be limited to
$115 million aggregate principal amount at maturity and will be unsecured senior
debt obligations of the Company. The principal amount at maturity of each Note
will be $1,000 or any integral multiple thereof. The New Notes will be presented
for registration of transfer or exchange at the office of the registrar, which
initially will be the Trustee. No service charge will be made for any
registration of transfer or exchange of a New Note. However, the Company may
require payment by a holder of a sum sufficient to cover any tax or other
governmental charge payable in connection with the registration of such transfer
or exchange.
Interest on the Notes will be payable semi-annually on May 1 and November 1 to
holders of record on the close of business on the immediately preceding April 15
and October 15. Interest on the Notes will accrue at the rate of 9 3/8% per
annum from the most recent date to which interest has been paid or duly provided
for on the Old Note surrendered in exchange for such New Note or, if no interest
has been paid or duly provided for on such Old Note, from November 1, 1997,
payable semiannually on May 1 and November 1 of each year (each, an "Interest
Payment Date"), commencing with the first Interest Payment Date occurring after
the date of original issuance of such New Note, to the person in whose name such
New Note is registered at the close of business on the April 15 or October 15
next preceding such Interest Payment Date. Any overdue principal, premium, if
any, or interest will bear interest, to the extent lawful, at 9 3/8% per annum.
Interest will be computed on a basis of a 360-day year consisting of twelve
30-day months. Principal and interest will be payable at the office or agency of
the Company maintained for that purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the holders of the New Notes. The New Notes will not provide for any
increase in the interest rate thereon. For a discussion for the circumstances
under which the interest rate on the Old Notes may be temporarily increased, see
"Description of the Old Notes."
RANKING
The New Notes will be senior unsecured debt obligations of the Company and will
rank senior in right of payment to all existing and future Subordinated
Indebtedness and pari passu with all other Senior Indebtedness.
The New Notes are obligations exclusively of the Company. Because the Company's
operations are conducted almost entirely through its Subsidiaries and joint
ventures, the cash flow and the consequent ability of the Company to service its
debt, including the New Notes and Old Notes, are dependent upon the earnings of
the Company's Subsidiaries and joint ventures and the distribution of those
earnings to the Company. The Subsidiaries and joint ventures are separate and
distinct legal entities and
56
<PAGE> 57
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the Notes or to make funds available therefor, whether by dividends, loans or
other payments. In addition, the payment of dividends and the making of loans
and advances to the Company by its Subsidiaries and joint ventures may be
subject to statutory or contractual restrictions and subject to various business
considerations. Currently, the Company only has one operating subsidiary,
Benton-Vinccler, that may be expected to make funds available to the Company to
pay any amounts due pursuant to the Notes.
The New Notes will be effectively subordinated to secured indebtedness of the
Company and all liabilities of the Company's Subsidiaries, including trade
payables and the liquidation value of Preferred Stock, if any, except to the
extent that the Company is itself recognized as a creditor of such Subsidiary,
in which case the claims of the Company would still be subordinate to any
security interest in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. At September 30, 1997, $89.4
million of consolidated indebtedness and trade payables would have been
liabilities of the Company's subsidiaries or secured indebtedness of the Company
and ranked effectively senior to the Notes and the Company would have had $135.4
million of outstanding indebtedness and trade payables that would have ranked
pari passu with the Notes.
OPTIONAL REDEMPTION
Commencing November 1, 2002, the New Notes will be subject to redemption at the
option of the Company, in whole or in part, at any time and from time to time,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed in percentages of the principal amount) set forth below plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning on November 1 of the year indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------ ----------
<S> <C>
2002.................................................. 104.6875%
2003.................................................. 103.1250%
2004.................................................. 101.5625%
2005.................................................. 100.0000%
</TABLE>
No sinking fund is provided for the Notes.
At any time before November 1, 2000, the Company may also redeem up to 33% of
the aggregate principal amount of Notes then outstanding with the proceeds of a
public offering of Capital Stock (other than Disqualified Stock and a public
offering pursuant to a registration statement on Form S-8) of the Company within
90 days of such public offering at a redemption price equal to 109.375% of the
principal amount of such Notes, plus accrued and unpaid interest to the
redemption date; provided that at least $77.0 million in aggregate principal
amount of Notes remain outstanding immediately after giving effect to such
redemption.
If less than all the Notes are to be redeemed, the particular Notes or portions
thereof to be redeemed shall be selected by the Trustee from the outstanding
Notes not previously called for redemption, either pro rata, by lot or by any
other method the Trustee shall deem fair and reasonable, and the aggregate
principal amount to be redeemed must be equal to $1,000 or any integral multiple
thereof.
CERTAIN COVENANTS
The Indenture contains a number of covenants which restrict the ability of the
Company and its Restricted Subsidiaries to engage in certain activities. For
purposes of such covenants and the related definitions, the term Company shall
mean Benton Oil and Gas Company only, and shall not refer to any Subsidiary or
Affiliate of Benton Oil and Gas Company. In addition, whenever such covenants or
related definitions require any calculation of the income, interest expense,
discounted future net revenues attributable to proved oil and gas reserves or
other financial data of the Company or any Restricted Subsidiary, such
calculation shall, except to the extent that such covenants or definitions
provide to the contrary, exclude the income, interest expense, discounted future
net revenues attributable to proved oil and gas reserves or other financial data
of any Unrestricted Subsidiary or Affiliate of the Company (including GEOILBENT)
or such Restricted Subsidiary, as the case may be.
GEOILBENT, which is only 34%-owned by the Company, does not qualify as a
Subsidiary as defined in the Indenture and, consequently, the Indenture does not
restrict the Incurrence of Indebtedness by GEOILBENT. However, Indebtedness of
the Company and its Restricted Subsidiaries includes Indebtedness of any other
person, including GEOILBENT, to the extent that such Indebtedness is guaranteed
by, or secured by the assets of, the Company or any of its Restricted
Subsidiaries and, as a result, the Incurrence of any such guaranteed or secured
Indebtedness by GEOILBENT will, to the extent of the amount so guaranteed or
secured, be subject to the provisions of the Indenture described under
"Limitation on Indebtedness." In the event of any liquidation of GEOILBENT, the
claims of GEOILBENT's creditors would have to be satisfied prior to the
Company's
57
<PAGE> 58
receiving any distributions with respect to its 34% ownership interest in
GEOILBENT. Currently, all debt of GEOILBENT is non-recourse.
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any of
its Restricted Subsidiaries to, Incur any Indebtedness (including any Acquired
Indebtedness) unless (i) no Default or Event of Default under the Indenture
shall have occurred and be continuing at the time or as a consequence of the
Incurrence of such Indebtedness, (ii) after giving effect thereto (including, in
connection with any acquisition being financed through the Incurrence of such
Indebtedness, any Acquired Indebtedness and any proved oil and gas reserves
being acquired in connection therewith) the EBITDA/Interest Ratio would be
greater than 3.0 to 1.0, (iii) in the event such Indebtedness would be Incurred
by the Company but would not be Permitted Company Secured Indebtedness, such
Indebtedness would have an Average Life greater than the Average Life of the
Notes and a stated maturity later than the Stated Maturity of the Notes, and
(iv) in the event such Indebtedness would be Incurred by a Restricted
Subsidiary, such Indebtedness would also qualify as Permitted Restricted
Subsidiary Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may
Incur Permitted Indebtedness if no Default or Event of Default under any other
provision of the Indenture shall have occurred and be continuing at the time or
as a consequence of the Incurrence of such Indebtedness.
For purposes of calculating the amount of any Indebtedness of the Company and
its Restricted Subsidiaries, any Indebtedness of a Restricted Subsidiary that is
fully and unconditionally guaranteed by the Company or secured by a deposit of
cash or Cash Equivalents of the Company shall be deemed to be Indebtedness of
such Restricted Subsidiary.
Limitation on Indebtedness of Unrestricted Subsidiaries. The Company will not
permit any Unrestricted Subsidiary to Incur any Indebtedness (including Acquired
Indebtedness) other than Non-Recourse Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment, if at the time of such Restricted Payment or after giving
effect to such Restricted Payment (i) the Company would not be able to Incur at
least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to the provisions of the Indenture described above under "Limitation on
Indebtedness," and (ii) the aggregate amount expended for all Restricted
Payments (excluding any payments permitted by clauses (ii) through (ix) of the
immediately succeeding paragraph) (the amount of any such Restricted Payment, if
other than cash, as determined by the Board of Directors, whose determination
shall be evidenced by a board resolution) exceeds the sum of:
(a) 50% of the aggregate Consolidated Net Income of the Company and its
Restricted Subsidiaries (or, if such aggregate Consolidated Net Income
shall be a loss, minus 100% of such loss) accrued for the period (taken as
one accounting period) beginning on July 1, 1996 and ending on the last day
of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment, plus
(b) 100% of the aggregate Net Proceeds received by the Company after
June 30, 1996 from the issuance and sale (other than to a Subsidiary of the
Company) of (1) Capital Stock (including options, warrants or other rights
to acquire Capital Stock) other than any such Capital Stock convertible
into or exchangeable for (whether at the option of the Company or the
holder thereof) a security other than Capital Stock and other than any such
Capital Stock issued for any purpose specified in clauses (vi) or (vii) of
the succeeding paragraph and (2) Indebtedness convertible into or
exchangeable for Capital Stock but only to the extent such Indebtedness has
been converted or exchanged, plus
(c) the aggregate amount of any Repaid Investments and Restricted
Subsidiary Investments but only to the extent such amount did not otherwise
increase the amount available for Restricted Payments pursuant to (a) above
or clause (iv) of the immediately succeeding paragraph, plus
(d) $15,000,000.
The foregoing provisions shall not be violated by reason of (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration such payment would comply with the foregoing provision, (ii)
any Investment in the Company by any Restricted Subsidiary and any Investment in
any Restricted Subsidiary or any person which concurrently with such Investment
becomes a Restricted Subsidiary by the Company or another Restricted Subsidiary,
(iii) any dividend payable to the Company by any Restricted Subsidiary or to any
Restricted Subsidiary by another Restricted Subsidiary, (iv) any dividend
payable to a holder (other than the Company or another Restricted Subsidiary) of
Capital Stock (other than Preferred Stock) of a Restricted Subsidiary; provided
that such dividend is paid concurrently with the payment of a dividend by such
Restricted Subsidiary to the Company or another Restricted Subsidiary and the
amount of such dividend does not exceed such holder's pro rata share (based on
such holder's percentage ownership of the outstanding Capital Stock (other than
58
<PAGE> 59
Preferred Stock) of such Restricted Subsidiary) of the aggregate amount of the
dividend payable to all holders of Capital Stock of such Restricted Subsidiary,
(v) any dividend, distribution or other payment on or with respect to Capital
Stock of the Company to the extent payable solely in shares of Capital Stock of
the Company, (vi) any purchase, redemption or other acquisition or retirement
for value or any defeasance of any Subordinated Indebtedness, in exchange for,
by conversion into or from the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock of the Company or
new Subordinated Indebtedness; provided the Average Life of such new
Subordinated Indebtedness is greater than the Average Life of the Notes, the
stated maturity of such new Subordinated Indebtedness is later than the Stated
Maturity of the Notes and the new Subordinated Indebtedness is subordinated to
the Notes to at least the extent that the Subordinated Indebtedness being
purchased, redeemed, acquired, retired or defeased was subordinated to the
Notes, (vii) any purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, by
conversion into or from the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock of the Company,
(viii) any Investment in a person that represents the portion of the
consideration for an Asset Sale that is not, and is not required to be pursuant
to the provisions of the Indenture described below under "Disposition of
Proceeds of Asset Sales," cash or Cash Equivalents and (ix) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture described
below under "Consolidation, Merger, Conveyance, Transfer or Lease"; provided
that, in the case of any of the foregoing, no Default or Event of Default has
occurred and is continuing or shall occur as a consequence thereof.
Limitation on Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) (such a transaction
or series of related transactions, an "Affiliate Transaction") with (i) any
Affiliate of the Company or any Subsidiary or (ii) any officer, director or
employee of the Company or any Subsidiary or any Affiliate thereof unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Subsidiary, as the case may be, than those that would have been
available in a comparable arm's-length transaction with an unaffiliated third
party, and (ii) (a) with respect to any Affiliate Transaction involving
aggregate payments equal to or in excess of $1 million (or, in the case of any
loan or advance to any officer, director or employee of the Company or its
Restricted Subsidiaries, $100,000), but less than $5 million, such Affiliate
Transaction shall have received the approval of a majority of the Disinterested
Directors (as evidenced by a board resolution of such Disinterested Directors)
and (b) with respect to any Affiliate Transaction involving aggregate payments
equal to or greater than $5 million, the Company shall have obtained a written
opinion of an Independent Financial Advisor stating that the terms of such
Affiliate Transaction is fair to the Company or the Subsidiary, as the case may
be, from a financial point of view.
The foregoing limitations shall not apply to (i) any transaction between the
Company and any Restricted Subsidiary or between Restricted Subsidiaries, (ii)
the payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company, (iii) any employment contract to which any
officer, director or employee is a party or stock option plan or grant of any
option thereunder to any officer, director or employee; provided that any such
agreement or arrangement (or series of related agreements or arrangements)
involving aggregate payments (or in the case of any option grant, with an
aggregate exercise price) equal to or in excess of $100,000 shall have received
the approval of the Compensation Committee of the Board of Directors (as
evidenced by a resolution of such Committee) which Committee shall be comprised
of Disinterested Directors, or (iv) any Permitted Investment or any Restricted
Payments not prohibited by the provisions of the Indenture described above under
"Limitation on Restricted Payments."
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (i) such Asset
Sale is for not less than the fair market value of the properties and assets
sold, (ii) at least 85% of the consideration (not including the assumption of
any Indebtedness of the Company or any Restricted Subsidiary (other than
Subordinated Indebtedness)) consists of cash, Cash Equivalents or Publicly
Traded Stock (so long as prior to such Asset Sale the Board of Directors has
made a determination as evidenced by a board resolution, to sell such Publicly
Traded Stock for cash within ten Business Days after the date of such Asset Sale
and such Publicly Traded Stock does not constitute more than 30% of such 85%),
except (a) in the case of an Asset Sale involving oil and gas properties, the
consideration may consist solely or in part of tangible properties or direct or
indirect interests in tangible properties to be used in the Company's or its
Restricted Subsidiaries' Oil and Gas Business ("Tangible Business Properties")
having a fair market value at least equal to the fair market value of the assets
exchanged and (b) the Company and its Restricted Subsidiaries may enter into
farmout transactions consistent with industry standards and otherwise in
accordance with the terms of the Indenture including, but not limited to, the
provisions described above under "Limitation on Transactions with Affiliates"
above, (iii) unless prior to the date of such Asset Sale the Board of Directors
has made a determination, as evidenced by a board resolution, to use all of the
Net Cash Proceeds of such Asset Sale that consist of cash and Cash Equivalents
to permanently repay or prepay Senior Indebtedness or Indebtedness of a
Restricted Subsidiary within thirty days after the date of such Asset Sale, the
Company could Incur an additional $1.00 of
59
<PAGE> 60
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the Indenture described above under "Limitation on Indebtedness," (iv) within
ten Business Days after the date of such Asset Sale, any Publicly Traded Stock
required by a board resolution to be sold for cash, is sold for cash, and (v)
the requirements set forth below are met. For purposes of the foregoing, in the
case of any required fair market value determination with respect to any Asset
Sale or Tangible Business Properties or Publicly Traded Stock acquired in
connection with such Asset Sale having a fair market value in excess of $5
million, such determination shall be made by the Board of Directors as evidenced
by a board resolution.
Subject to clause (iii) above, within twelve months of any Asset Sale, the
Company shall either (x) apply or cause the application of an amount equal to
the Net Cash Proceeds of such Asset Sale, or a portion thereof, to the permanent
repayment or prepayment of Senior Indebtedness or Indebtedness of any Restricted
Subsidiary or (y) invest such Net Cash Proceeds, or a portion thereof, in the
acquisition or development of Tangible Business Properties. The amount of such
Net Cash Proceeds not applied, used or invested as set forth in clause (x) or
(y) above shall constitute "Excess Proceeds."
If the aggregate amount of Excess Proceeds, together with any remaining Excess
Proceeds from any prior Asset Sale, equals or exceeds $25 million, the Company
shall so notify the Trustee in writing and shall offer to purchase from all
holders of the Notes (an "Asset Sale Offer"), and shall purchase from holders
accepting such Asset Sale Offer on the date fixed for such Asset Sale Offer (the
"Asset Sale Offer Date"), the maximum amount (expressed in integral multiples of
aggregate principal amount of $1,000) of Notes that may be purchased out of the
Excess Proceeds, in accordance with the procedures set forth in the Indenture,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Asset Sale Offer Date.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds relating thereto (such shortfall
constituting a "Deficiency"), then the Company may use such Deficiency, or a
portion thereof, for general corporate purposes. Upon completion of an Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Limitation on Liens Securing Indebtedness. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien of any kind upon any of their respective assets or properties now owned
or acquired after the date of the Indenture, or any income or profits therefrom,
securing any Indebtedness of the Company or any Restricted Subsidiary (other
than Permitted Liens) without making provision for all of the Notes to be
equally and ratably secured with (or prior to) such Indebtedness, provided,
however that if such Lien securing such Indebtedness ceases to exist, such equal
and ratable (or prior) Lien for the benefit of the holders of the Notes shall
cease to exist; provided, further, that the Lien securing any Subordinated
Indebtedness shall be subordinated to the Lien securing the Notes to at least
the extent that such Subordinated Indebtedness is subordinated to the Notes.
Limitation on Conduct of Business. The Company will operate and will cause its
Restricted Subsidiaries to be operated in a manner such that their business
activities will be the Oil and Gas Business.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on Capital Stock
of any Restricted Subsidiary or any Redeemable Stock of any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (iii) make any
Investment in the Company or any Restricted Subsidiary or (iv) transfer any of
its property or assets to the Company or any Restricted Subsidiary, except (a)
any encumbrance or restriction pursuant to an agreement in effect on the date of
the Indenture, (b) any encumbrance or restriction with respect to any person
that is not a Restricted Subsidiary on the date of the Indenture, in existence
at the time such person becomes a Restricted Subsidiary and not created in
connection with, or in contemplation of, such person becoming a Restricted
Subsidiary so long as such encumbrance or restriction is not applicable to any
person or the property or assets of any person other than the person becoming a
Restricted Subsidiary, (c) any encumbrance or restriction pursuant to any
agreement that extends, refinances, renews or replaces any agreement containing
any encumbrance or restriction described in the foregoing clauses (a) and (b),
provided, however, that the terms and conditions of any such encumbrance or
restriction are not less favorable to the holders of the Notes than those
contained in the agreement evidencing the restriction or encumbrance so
extended, refinanced, renewed or replaced, (d) any encumbrance or restriction
arising under law and (e) any restriction arising under customary non-assignment
and nonsubletting clauses in leases. Nothing contained in the provisions of the
Indenture described in this paragraph shall prevent the Company or any
Restricted Subsidiary from entering into any agreement permitting the incurrence
of Liens otherwise permitted under the provisions of the Indenture described
above under the "Limitation on Liens Securing Indebtedness."
Limitation on Guarantees. The Company will not permit any Restricted
Subsidiary, directly or indirectly, to assume, guarantee or in any other manner
become liable with respect to the payment of any Indebtedness of the Company
unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a guarantee of the
60
<PAGE> 61
payment of the Notes by such Restricted Subsidiary; provided, however, in the
case of such Restricted Subsidiary's assumption, guarantee, or other liability
with respect to Subordinated Indebtedness, such guarantee, assumption or other
liability shall be subordinated to such Restricted Subsidiary's guarantee of the
Notes to at least the extent that such Subordinated Indebtedness is subordinated
to the Notes; and provided, further, that the provisions of the Indenture
described in this paragraph shall not be applicable to any guarantee, assumption
or other liability with respect to the payment of any Indebtedness of the
Company by any Restricted Subsidiary (i) in existence on the date of the
Indenture, (ii) to the extent such Indebtedness of the Company could be Incurred
by such Restricted Subsidiary as Permitted Restricted Subsidiary Indebtedness,
or (iii) that (x) existed at the time such person became a Restricted Subsidiary
of the Company and (y) was not Incurred in connection with, or in contemplation
of, such person becoming a Restricted Subsidiary. Notwithstanding the foregoing,
any such guarantee of the Notes by a Restricted Subsidiary shall provide by its
terms that it shall be automatically and unconditionally released and discharged
upon the release or discharge of such guarantee of such Indebtedness, other than
a release or discharge by, or as a result of, any payment under such guarantee
by such Restricted Subsidiary.
CHANGE IN CONTROL
If there shall have occurred a Change in Control, Notes shall be purchased by
the Company, at the option of the holder thereof, in whole or in part in
integral multiples of aggregate principal amount of $1,000, on a date that is
not earlier than 45 days nor later than 60 days from the date the Change in
Control Notice is given to holders or such later date as may be necessary for
the Company to comply with requirements under the Exchange Act (such date or
such later date, being the "Change in Control Purchase Date"), at a purchase
price in cash (the "Change in Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to any Change
in Control Purchase Date subject to satisfaction by or on behalf of the holder
of the requirements established pursuant to the Indenture. The Company shall
comply with any applicable tender offer rules then in effect, including Section
14(e) of the Exchange Act and Rule 14e-1 promulgated thereunder (or any
successor provisions), in connection with a Change in Control offer. In the
event of any conflict between such tender offer rules and the provisions set
forth in the Indenture, such tender offer rules shall control.
"Change in Control" of the Company means the occurrence of any of the following:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) (or any
successor provisions) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 (or any successor provisions) under the
Exchange Act) of 50% or more of the total voting power of the Voting Stock of
the Company, (ii) there shall be consummated any consolidation or merger of the
Company (a) in which the Company is not the continuing or surviving corporation
or (b) pursuant to which the outstanding Voting Stock of the Company would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which (1) the outstanding Voting Stock
of the Company is changed into or exchanged for Voting Stock of the continuing
or surviving corporation and (2) the holders of the Company's Voting Stock
immediately prior to the consolidation or merger own, directly or indirectly, at
least a majority of the Voting Stock of the continuing or surviving corporation
immediately after the consolidation or merger, (iii) the Company sells,
transfers or otherwise disposes of all or substantially all of its assets, (iv)
the cessation of Continuing Directors for any reason to constitute a majority of
the Board of Directors then in office, (v) so long as any Indebtedness remains
outstanding under the Convertible Debenture Indenture, a Fundamental Change as
defined therein, (vi) the Company ceases to own on a fully diluted basis,
directly or indirectly through one or more Restricted Subsidiaries that are
Wholly Owned Subsidiaries of the Company, 51% of the outstanding Voting Stock of
Benton-Vinccler, and (vii) Benton-Vinccler sells, transfers or otherwise
disposes of a substantial part of its assets; provided that neither of the
events described in clause (vi) or (vii) will constitute a "Change in Control"
if (x) during the four full fiscal quarters ended immediately prior to the
occurrence of such event, the EBITDA of the Company and its Restricted
Subsidiaries attributable to Benton-Vinccler, as a percentage of the EBITDA of
the Company and its Restricted Subsidiaries, was less than 20% and (y)
immediately prior to such event, the Oil and Gas Reserve Estimate of the Company
and its Restricted Subsidiaries attributable to Benton-Vinccler as a percentage
of the Oil and Gas Reserve Estimate of the Company and its Restricted
Subsidiaries, is less than 20%.
In connection with clause (vii) of the preceding paragraph, a sale, transfer or
other disposition of assets of Benton-Vinccler shall be deemed to be a sale,
transfer or other disposition of a "substantial part" of the assets of
Benton-Vinccler if such assets, when added to all other assets of
Benton-Vinccler sold, transferred or otherwise disposed of (other than the
disposition of hydrocarbons or other mineral products in the ordinary course of
business) during the immediately preceding twelve months either (i) exceed
(based on the book value of all assets so sold, transferred or otherwise
disposed of during such twelve months) 25% of the net tangible assets of
Benton-Vinccler as of the end of its most recently completed full fiscal quarter
for which financial information is available determined in accordance with GAAP
or (ii) contributed more than 25% of the net income of Benton-Vinccler during
its most recently completed four full fiscal quarters for which financial
information is available determined in accordance with GAAP.
61
<PAGE> 62
The Company's ability to repurchase the Notes will be dependent upon the
availability of cash and other financing sources to consummate such a
repurchase. The Company currently expects to incur additional Indebtedness to
finance its capital expenditure requirements and, therefore, the Company's
ability to incur additional Indebtedness to repurchase the Notes may be
adversely affected by what might then be a higher debt to equity ratio. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity." The failure of the Company to
repurchase all Notes tendered will constitute an Event of Default.
The Change in Control provisions of the Indenture may make more difficult or
discourage a takeover of the Company and the removal of incumbent management.
The Change in Control provision is not the result of management's knowledge of
any specific effort to accumulate shares of Common Stock or to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, nor
is it part of a plan by management to adopt an anti-takeover provision.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company may not, without the consent of the holders of all Notes then
outstanding, consolidate with, merge into or convey, sell, transfer, lease,
exchange or otherwise dispose of all of its assets and properties substantially
as an entirety to, any other person unless (i) the successor is a corporation or
partnership organized under the laws of the United States or any political
subdivision thereof or therein, (ii) the successor assumes all obligations of
the Company under the Indenture and the Notes, (iii) after giving effect to such
consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, no Default or Event of Default, shall have occurred and be
continuing, (iv) the successor would have a pro forma Consolidated Net Worth
after giving effect to such consolidation, merger, conveyance, sale, transfer,
lease, exchange or other disposition and prior to any purchase accounting
adjustments at least equal to the Consolidated Net Worth of the Company prior to
such consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, and (v) the Company could Incur, immediately prior to such
consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, and the successor would be able to Incur, after giving effect to
such consolidation, merger, conveyance, sale, transfer, lease, exchange or other
disposition, an additional $1.00 of Indebtedness (excluding Permitted
Indebtedness) pursuant to the provisions of the Indenture described above under
"Certain Covenants -- Limitation on Indebtedness."
Upon any consolidation or merger or any conveyance, sale, transfer, lease,
exchange or other disposition of the properties and assets of the Company
substantially as an entirety to any person in accordance with the provisions
described above, the successor formed by such consolidation or into which the
Company is merged or to which such conveyance, sale, transfer, lease, exchange
or other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture with the same
effect as if such successor had been named as the Company in the Indenture; and
thereafter, except in the case of a conveyance, sale, transfer, lease, exchange
or other disposition of properties to another person, the predecessor person
shall be released from all obligations and covenants under the Indenture and the
Notes.
PROVISION OF FINANCIAL INFORMATION
To the extent permitted under the Exchange Act, whether or not the Company is
required to comply with Section 13(a) or 15(d) (or any successor provision) of
the Exchange Act, the Company will file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) (or any
successor provision) if the Company were so required, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required to file such documents if
the Company were so required. The Company will also in any event (i) within 15
days of each Required Filing Date transmit by mail to all holders of Notes,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) (or any successor provision)
and (ii) if filing such documents by the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request supply copies of
such documents to any holder of Notes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any person, Indebtedness of such
person (i) existing at the time such person becomes a Restricted Subsidiary or
(ii) assumed in connection with the acquisition of assets from another person,
including Indebtedness Incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary or such acquisition, as the case may be.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling, controlled by, or under common control with, such
person, or any other person that owns, directly or indirectly, 5% or more of
such person's Voting Stock or any Affiliate of any such 5% or more owner. For
the purposes of this definition, "control" (including, with correlative
meanings, the
62
<PAGE> 63
terms "controlling", "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, whether through the ownership of Voting Stock, by contract or otherwise.
"Affiliate Transaction" has the meaning provided under "Certain
Covenants -- Limitation on Transactions with Affiliates."
"amount" means, (i) with respect to any Indebtedness outstanding at any time
other than Preferred Stock, the principal amount thereof; provided that the
amount of any such Indebtedness outstanding at any time that was issued at a
price less than the principal amount thereof shall equal the amount of the
liability in respect thereof at such time determined in accordance with GAAP and
(ii) with respect to any Indebtedness outstanding at any time that is Preferred
Stock, the aggregate liquidation value thereof at such time.
"Asset Acquisition" means (i) an Investment by the Company or any Restricted
Subsidiary in any other person pursuant to which such person shall become a
Restricted Subsidiary of the Company or any Restricted Subsidiary or shall be
merged into or consolidated with the Company or any Restricted Subsidiary or
(ii) an acquisition by the Company or any Restricted Subsidiary of the assets of
any person other than the Company or any Restricted Subsidiary that constitute
substantially all of a division or line of business of such person.
"Asset Disposition" means the sale or other disposition by the Company or any
Restricted Subsidiary (other than to the Company or another Restricted
Subsidiary) of (i) all or substantially all of the Capital Stock of any
Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any Restricted
Subsidiary.
"Asset Sale" means any conveyance, transfer, lease or other disposition
(including, without limitation, by way of any merger, consolidation or other
similar transaction), directly or indirectly, in one or a series of related
transactions, of any Capital Stock or Redeemable Stock of any Restricted
Subsidiary (other than the sale and issuance of directors' qualifying shares) or
any other properties or assets of the Company or any Restricted Subsidiary
(other than any such conveyance, transfer, lease or other disposition (i) that
is permitted under the provisions of the Indenture described under
"Consolidation, Merger, Conveyance, Transfer or Lease" above, (ii) that involves
any transfer of Capital Stock, Redeemable Stock or other property or assets of a
Restricted Subsidiary to the Company or any other Restricted Subsidiaries or of
the Company to a Restricted Subsidiary, (iii) of (1) hydrocarbon or other
mineral products or (2) other assets in an amount not to exceed $10 million in
any twelve month period, in each case in the ordinary course of business or (iv)
that involves the abandonment of any lease of non-producing acreage).
"Average Life" means, as of any date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the product of
(i) the number of years from such date of determination to the date of each
successive scheduled principal payment of such Indebtedness and (ii) the amount
of such principal payment by (b) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of such Board.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
such person's capital stock or partnership interests whether now outstanding or
issued after the date of the Indenture, except Redeemable Stock.
"Capitalized Lease Obligation" means, with respect to any person, any obligation
relating to any property (whether real, personal or mixed) of that person as
lessee which, in conformity with GAAP, is required to be accounted for as a
capital lease for financial reporting purposes, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) repurchase obligations for investments of the
type described in clause (i) for which delivery of the investment is made
against payment, (iii) demand or time deposits, bankers' acceptances and
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$300,000,000, and (iv) commercial paper with a maturity of 180 days or less
issued by a corporation (except any Affiliate or Subsidiary of the Company)
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's Corporation and at least
P-1 by Moody's Investors Service, Inc.
"Change in Control" has the meaning provided in "Change in Control."
"Commodity Swap Agreement" means any commodity swap agreement or other similar
agreement or arrangement.
63
<PAGE> 64
"Consolidated Interest Expense" means, for any period, the aggregate amount
(without duplication) of (i) interest expense in accordance with GAAP
(including, in accordance with the following sentence, interest attributable to
Capitalized Lease Obligations and the undischarged balance of production
payments) during such period in respect of all Indebtedness of the Company and
its Restricted Subsidiaries (including (a) amortization of original issue
discount on any Indebtedness, (b) the interest portion of all deferred payment
obligations, calculated in accordance with GAAP, and (c) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptance
financings and Currency Agreements, Interest Rate Agreements and Commodity Swap
Agreements, in each case to the extent attributable to such period), and (ii)
dividend requirements of the Company and its Restricted Subsidiaries with
respect to Redeemable Stock and with respect to all other Preferred Stock of any
Restricted Subsidiaries (in each case whether in cash or otherwise (except
dividends payable solely in shares of Capital Stock of the Company or any
Restricted Subsidiary)) paid, declared, accrued or accumulated during such
period, in each case to the extent attributable to such period and excluding
items eliminated in consolidation. For purposes of this definition, (a) interest
with respect to a Capitalized Lease Obligation or a production payment shall be
deemed to accrue at an interest rate reasonably determined by the Company to be
the rate of interest implicit in such Capitalized Lease Obligation or production
payment in accordance with GAAP and (b) interest expense attributable to any
Indebtedness represented by the guarantee by the Company or a Restricted
Subsidiary of an obligation of another person shall be deemed to be the interest
expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, for any period, the aggregate net income (or
loss) of the Company and its Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided that the
following items shall be excluded from Consolidated Net Income (without
duplication): (i) the net income of any person in which the Company or any of
its Restricted Subsidiaries has an interest (which interest does not cause the
net income of such person to be consolidated with the net income of the Company
in accordance with GAAP) except to the extent of the amount of dividends or
distributions actually paid to the Company or its Restricted Subsidiaries by
such person in such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to the Indenture (and in
such case, except to the extent includible pursuant to the foregoing clause (i)
above), the net income (or loss) of any person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation; and (iv) all
extraordinary gains and losses or gains or losses attributable to Asset Sales.
If the Consolidated Net Income for any fiscal quarter of the Company includes a
ceiling limitation writedown (a "Writedown Quarter") in accordance with the full
cost accounting method rules of the Commission (such writedown, an "Actual
Writedown") but such Actual Writedown would have been less or would not have
been required had such ceiling limitation been calculated using oil and gas
prices in effect on the last day of either of the two fiscal quarters of the
Company immediately succeeding such Writedown Quarter (such Actual Writedown, as
so recalculated, a "Hypothetical Writedown"), then Consolidated Net Income for
such Writedown Quarter, shall be increased by the amount by which such Actual
Writedown exceeds such Hypothetical Writedown; provided that in no event shall
any such increase singly, or in the case of any such increases for both quarters
immediately succeeding such Writedown Quarter, in the aggregate, exceed the
amount of such Actual Writedown).
"Consolidated Net Worth" means, with respect to any person, as at any date of
determination, the consolidated stockholders' equity (or like balance sheet
designation) of such person as determined in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors on the date of
the Indenture, any director elected after the date thereof in any annual meeting
of the stockholders upon the recommendation of the Board of Directors and any
other member of the Board of Directors who is elected to succeed a Continuing
Director by a majority of Continuing Directors who are then members of the Board
of Directors.
"Convertible Debenture Indenture" means the Indenture dated as of May 15, 1992
between the Company and Bank of New York.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Disinterested Director" means, with respect to an Affiliate Transaction, a
member of the Board of Directors who has no direct or indirect financial
interest, and whose employer has no direct or indirect financial interest, in
such Affiliate Transaction.
64
<PAGE> 65
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the Notes mature.
"EBITDA" means, for any period, without duplication, Consolidated Net Income for
such period, increased (to the extent deducted in determining Consolidated Net
Income) by the sum of (i) Consolidated Interest Expense, (ii) income taxes
(other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or gains or losses attributable
to asset sales not in the ordinary course of business), (iii) depreciation and
depletion expense, (iv) amortization expense and (v) all other non-cash items
reducing Consolidated Net Income less all non-cash items increasing Consolidated
Net Income (other than, in each case, minority interests which shall, in all
cases, be excluded from the calculation of EBITDA) all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP.
"EBITDA/Interest Ratio" means the ratio of (i) EBITDA for the Reference Period
immediately prior to the date of the transaction giving rise to the need to
calculate the EBITDA/Interest Ratio (the "Transaction Date") to (ii)
Consolidated Interest Expense for the Reference Period. In making the foregoing
calculation, (a) pro forma effect shall be given to (1) any Indebtedness
Incurred subsequent to the end of such Reference Period, (2) any Indebtedness
Incurred during such Reference Period to the extent such Indebtedness is
outstanding on the Transaction Date and (3) any Indebtedness to be Incurred on
the Transaction Date, in each case as if such Indebtedness had been Incurred on
the first day of such Reference Period and after giving effect to the
application of the proceeds thereof; (b) Consolidated Interest Expense
attributable to interest or dividends on any Indebtedness (whether existing or
being Incurred) computed on a pro forma basis and bearing a floating interest or
dividend rate shall be computed as if the rate in effect on the date of
computation (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months) had been the applicable rate for the entire period; (c) there shall
be excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any amount of Indebtedness that was outstanding during such Reference
Period or thereafter but that is not outstanding or is to be repaid on the
Transaction Date, except for Consolidated Interest Expense accrued (as adjusted
pursuant to clause (b)) during such Reference Period under a revolving credit or
similar arrangement to the extent of the commitment thereunder (or under any
successor revolving credit or similar arrangement) on the Transaction Date; and
(d) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
that occur during such Reference Period or thereafter and on or prior to the
Transaction Date as if they had occurred on the first day of such Reference
Period.
"Event of Default" has the meaning provided in "Events of Default."
"Excess Proceeds" has the meaning provided in "Certain Covenants -- Disposition
of Proceeds of Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means, with respect to any determination pursuant to the terms of the
Indenture, such accounting principles as are generally accepted in the United
States at the time of such determination.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of any part or all of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"Incur" means with respect to any Indebtedness, to incur, create, issue, assume,
guarantee or otherwise become liable for or with respect to or extend the
maturity of or become responsible for, the payment of, contingently or
otherwise, such Indebtedness; provided that neither the accrual of interest
(whether such interest is payable in cash or kind) nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness; provided
further that (i) in the case of any Indebtedness of the Company to any
Restricted Subsidiary, such Indebtedness shall be deemed to have been Incurred
by the Company for purposes of the provisions of the Indenture described under
"Certain Covenants -- Limitation on Indebtedness" at the time such Indebtedness
is sold, transferred or otherwise disposed of by such Restricted Subsidiary or
such Restricted Subsidiary is designated as an Unrestricted Subsidiary or
otherwise ceases to be a Restricted Subsidiary, (ii) in the case of any
Indebtedness of a Restricted Subsidiary to the Company or another Restricted
Subsidiary, such Indebtedness shall be deemed to have been Incurred by such
Restricted Subsidiary for purposes of the provisions of the Indenture described
under "Certain Covenants -- Limitation on Indebtedness" at the time such
Indebtedness is sold, transferred or otherwise disposed of by the Company or
such other Restricted Subsidiary or the Restricted Subsidiary holding such
Indebtedness is designated as an Unrestricted Subsidiary or otherwise ceases to
be a Restricted Subsidiary and (iii) any Indebtedness of an Unrestricted
Subsidiary that ceases to be Non-Recourse Indebtedness shall be deemed to have
been Incurred by such Unrestricted Subsidiary at the time of such cessation.
65
<PAGE> 66
"Indebtedness" means, without duplication, with respect to any person, (i) all
obligations of such person (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), (b) evidenced by bonds, notes, debentures or similar
instruments, (c) representing the balance deferred and unpaid of the purchase
price of any property or services (excluding accounts payable or other
obligations arising in the ordinary course of business), (d) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (e) for
the payment of money relating to a Capitalized Lease Obligation, or (f)
evidenced by a letter of credit or reimbursement obligation of such person with
respect to any letter of credit (regardless of whether such reimbursement
obligation is to the issuer of the letter of credit or another person); (ii) all
net obligations of such person under Interest Rate Agreements, Commodity Swap
Agreements and Currency Agreements; (iii) the undischarged balance of any
production payments as to which such person is obligated or its property is
dedicated; (iv) all liabilities of others of the kind described in the preceding
clause (i), (ii) or (iii) that such person has guaranteed or that are otherwise
its legal liability; (v) Indebtedness (as otherwise defined in this definition)
of others secured by a Lien on any asset of such person, whether or not such
Indebtedness is assumed by such person (provided that if the obligations so
secured have not been assumed in full by such person or are not otherwise such
person's legal liability in full, then such obligations shall be deemed to be in
an amount equal to the greater of (a) the lesser of (1) the full amount of such
obligations, and (2) the fair market value of such asset, as determined in good
faith by the board of directors of such person, which determination shall be
evidenced by a board resolution, and (b) the amount of obligations as have been
assumed by such person or which are otherwise such person's legal liability);
and (vi) the liquidation preference and any mandatory redemption payment
obligations in respect of (a) all Redeemable Stock of such person and its
Subsidiaries and (b) all Preferred Stock of such Subsidiaries.
"Independent Financial Advisor" means a nationally recognized investment banking
firm (i) which does not (and whose directors, officers, employees and Affiliates
do not) have a direct or indirect material financial interest in the Company and
(ii) which, in the sole judgment of the Board of Directors, is otherwise
independent and qualified to perform the task for which such firm is being
engaged.
"Independent Petroleum Engineers" means, with respect to any person, a
nationally recognized petroleum engineering firm (i) which does not (and whose
directors, officers, employees and Affiliates do not) have a direct or indirect
material financial interest in such person and (ii) which, in the sole judgment
of the board of directors of such person, is otherwise independent and qualified
to perform the task for which such firm is being engaged.
"Interest Rate Agreements" means any interest rate swap agreement, interest rate
collar agreement or other similar agreement or arrangement designed to protect
the Company or any of its Restricted Subsidiaries against fluctuations in
interest rates.
"Investment" means, with respect to any person, any investment in another
person, whether by means of a share purchase, capital contribution, loan,
advance (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of such person) or
similar credit extension constituting Indebtedness of such other person and any
guarantee of obligations of any other person.
"Lien" means any mortgage, lien, security interest, charge or encumbrance of any
kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest).
"Material Subsidiary" means, at the time of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) accounted for more than 5%
of (a) the revenues of the Company and its Restricted Subsidiaries, on a
consolidated basis, or (b) EBITDA, in each case for the most recently completed
fiscal year of the Company for which financial information is available or (ii)
owned more than 5% of the assets of the Company and its Restricted Subsidiaries,
on a consolidated basis, as at the end of such fiscal year, all as shown on or
derived from the consolidated financial statements of the Company for such
fiscal year.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof
in the form of cash or Cash Equivalents (including proceeds from the sale of
Publicly Traded Stock and payments in respect of deferred payment obligations
when received in the form of cash or Cash Equivalents), net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is required in connection
with such Asset Sale, (iv) obligations and expenses incurred in connection with
the repatriation to the United States of any proceeds of such Asset Sale, (v) in
the case of any Asset Sale made by a Restricted Subsidiary, any dividend or
distribution of a portion of the proceeds of such Asset Sale to a holder (other
than the Company or another Restricted Subsidiary) of Capital Stock (other than
Preferred Stock) of such Restricted Subsidiary; provided that such dividend is
paid or distribution is made concurrently with the payment of a dividend or
making of a distribution of a portion of such proceeds by such Restricted
Subsidiary to the Company or another Restricted Subsidiary and the amount of
such dividend or distribution does not exceed
66
<PAGE> 67
such holder's pro rata share (based on such holder's percentage ownership of the
outstanding Capital Stock (other than Preferred Stock) of such Restricted
Subsidiary) of the aggregate amount of the proceeds of such Asset Sale being
dividended or distributed and (vi) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Net Proceeds" means, in the case of any sale by the Company of Capital Stock,
the aggregate net cash proceeds received by the Company, after payment of
expenses, commissions, discounts and any other transaction costs incurred in
connection therewith.
"Non-Recourse Indebtedness" means, with respect to any Unrestricted Subsidiary,
Indebtedness of such Unrestricted Subsidiary as to which (i) neither the Company
nor any Restricted Subsidiary (a) provides credit support including any
undertaking, agreement or instrument which would constitute Indebtedness or (b)
is directly or indirectly liable for such Indebtedness and (ii) no default with
respect to such Indebtedness (including any rights which the holders thereof may
have to take enforcement action against such Unrestricted Subsidiary) would
permit (upon notice, lapse of time or both) any holder of any other Indebtedness
of the Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Oil and Gas Business" means the exploration for and the development,
acquisition, production, processing, marketing, storage and transportation of
hydrocarbons and other related energy and natural resources businesses and any
activity necessary, appropriate or incidental to the foregoing.
"Oil and Gas Reserve Estimate" means, as of any date of determination, the
estimated discounted future net revenues attributable to proved oil and gas
reserves of the Company and its Restricted Subsidiaries calculated in accordance
with the Commission's guidelines (before any state or federal income taxes) as
set forth in the most recently prepared reserve report of the Company and its
Restricted Subsidiaries that has been audited by Independent Petroleum Engineers
(which report shall be prepared as of a date no earlier than the end of the most
recently completed fiscal year of the Company for which financial information is
available) (the "Audited Report"), decreased, in the case of clause (i) below,
and increased or decreased, as appropriate, in the case of clauses (ii) and
(iii) below, by the Company's petroleum engineers to reflect, as of such date of
determination, the estimated discounted future net revenues attributable to (i)
the ownership interest of any holder (other than the Company or another
Restricted Subsidiary) of Capital Stock (other than Preferred Stock) of any
Restricted Subsidiary (based on such holder's percentage ownership of such
Capital Stock as of such date of determination), but only to the extent such
ownership interest is not otherwise deducted from the discounted future net
revenues of the Company and its Restricted Subsidiaries set forth in the Audited
Report, (ii) proved oil and gas reserves acquired or disposed of since the date
of the Audited Report and (iii) increases or decreases in proved oil and gas
reserves of the Company and its Restricted Subsidiaries due to exploration,
development or exploitation activities or changes in geological conditions since
the date of the Audited Report; provided that such adjustments are calculated in
accordance with the Commission's guidelines by the Company's petroleum engineers
utilizing the prices utilized in, and on a basis otherwise consistent with, the
Audited Report. Notwithstanding the foregoing, (1) if the estimated discounted
future net revenues from any proved oil and gas reserves acquired since the date
of the Audited Report have been audited by Independent Petroleum Engineers and a
report with respect thereto as of a date no earlier than the end of the most
recently completed fiscal year of the person from whom such reserves were
acquired has been prepared, such report (or, if a more recent audited reserve
report is available, the most recent of such reports) shall be utilized for
purposes of calculating the adjustment to discounted future net revenues of such
person attributable to such acquired reserves, (2) if the estimated discounted
future net revenues of the Company and its Restricted Subsidiaries, as adjusted
pursuant to clauses (ii) and (iii) of the preceding sentence (excluding any
adjustments calculated pursuant to clause (1) of this sentence) would vary by
more than 10% from the discounted future net revenues of the Company and its
Restricted Subsidiaries set forth in the Audited Report, such adjustments shall
be audited by Independent Petroleum Engineers and (3) so long as Benton-Vinccler
is a Restricted Subsidiary, for purposes of calculating the Oil and Gas Reserve
Estimate of the Company and its Restricted Subsidiaries attributable to
Benton-Vinccler as of any date of determination, the proportionate share of the
Company and its Restricted Subsidiaries (based on their percentage ownership
interest of Benton-Vinccler, C.A. as of such date of determination) of the
estimated discounted future net revenues attributable to the proved oil and gas
reserves subject to the operating service agreement dated as of July 31, 1992
with Lagoven, S.A. (as amended or supplemented from time to time and including
any successor agreements or arrangements) shall be included in such Oil and Gas
Reserve Estimate on the same basis as such net revenues would be included if
such proved oil and gas reserves were owned by Benton-Vinccler.
"Performance Letter of Credit" means, with respect to any person, a letter of
credit or bond to secure the performance in any country of any obligations of
such person under any contract entered into in the ordinary course of such
person's Oil and Gas
67
<PAGE> 68
Business; provided that the provision of any such letter of credit or bond is
required by local law or, in the case of any such letter of credit or bond
securing the performance of obligations outside the United States, is
customarily required in connection with contracts relating to the Oil and Gas
Business in such country and, in either case, such letter of credit or bond
requires that any payment thereunder by the issuer thereof be immediately repaid
by such person.
"Permitted Benton-Vinccler Indebtedness" means Indebtedness of Benton-Vinccler
in an aggregate amount not to exceed $25 million at any time outstanding.
"Permitted Commodity Swap Agreements" means Commodity Swap Agreements entered
into in order to protect the Company or its Restricted Subsidiaries against
fluctuations in oil or gas prices with respect to their current or good faith
estimated future oil and gas production irrespective of whether such production
is owned by the Company or a Restricted Subsidiary or is produced by the Company
or a Restricted Subsidiary pursuant to an arrangement under which the Company or
a Restricted Subsidiary acts as a contractor for a third party that owns such
production.
"Permitted Company Secured Indebtedness" means secured Indebtedness of the
Company Incurred after the date of the Indenture in an aggregate amount not to
exceed $50 million outstanding at any time less the aggregate amount of
Permitted Restricted Subsidiary Indebtedness outstanding at such time.
"Permitted GEOILBENT Indebtedness" means Indebtedness of GEOILBENT which is
non-recourse to the Company and its Restricted Subsidiaries except to the extent
of the pledge of equity interests in GEOILBENT.
"Permitted Indebtedness" means (i) the Notes; (ii) Indebtedness of the Company
and its Restricted Subsidiaries (other than Benton-Vinccler) outstanding on the
date of the Indenture; (iii) obligations of the Company and its Restricted
Subsidiaries pursuant to Interest Rate Agreements, Currency Agreements and
Permitted Commodity Swap Agreements and compensation payable thereunder; (iv)
Indebtedness of the Company to a Restricted Subsidiary or of a Restricted
Subsidiary to the Company or another Restricted Subsidiary (but only so long as
such Indebtedness is held or owned by the Company or a Restricted Subsidiary);
(v) Indebtedness of the Company Incurred for the purpose of financing the
working capital requirements of the Company or any Restricted Subsidiary in an
aggregate amount not to exceed the greater of $10 million or 4% of the Oil and
Gas Reserve Estimate, in each case at any time outstanding; (vi) Indebtedness
(excluding Acquired Indebtedness) of the Company in addition to Indebtedness
permitted by clauses (i) through (v) in an aggregate amount not to exceed $20
million at any time outstanding; (vii) (a) Indebtedness of Benton-Vinccler not
in excess of $25 million in aggregate principal amount outstanding which is cash
collateralized and (b) Permitted Benton-Vinccler Indebtedness; (viii) Permitted
GEOILBENT Indebtedness; (ix)(a) Secured Performance Letters of Credit in an
aggregate amount not to exceed $30 million written with respect to which the
account party is the Company or any Restricted Subsidiary; and (b) Performance
Letters of Credit with respect to which the account party is the Company or any
Restricted Subsidiary; provided that the reimbursement obligation of the Company
or such Restricted Subsidiary thereunder is unsecured; (x) unsecured obligations
of the Company or any Restricted Subsidiary to reimburse any other person for
all or a portion of such other person's reimbursement obligations with respect
to any Performance Letter of Credit; provided that such Performance Letter of
Credit secures the performance of obligations of the Company or a Restricted
Subsidiary (in addition to any performance obligations of such other person
which such Performance Letter of Credit may secure) under any contract entered
into by the Company or such Restricted Subsidiary in the ordinary course of its
Oil and Gas Business; and (xi) Indebtedness of the Company or any Restricted
Subsidiary the proceeds of which are used to renew, extend, refinance or
repurchase, or Indebtedness of the Company or any Restricted Subsidiary
exchanged for, Indebtedness permitted by clause (i) or (ii) above so long as (a)
the aggregate amount of such new Indebtedness (or, if such new Indebtedness will
be issued at a price less than the principal amount thereof, the aggregate issue
price thereof) would not be greater than the sum of the aggregate amount of the
Indebtedness being renewed, extended, refinanced, repurchased or exchanged and
any premium, accrued interest expense, commissions and other transaction costs
incurred in connection with such renewal, extension, refinancing, repurchase or
exchange (but only if such costs are of a kind and in an amount that would
customarily be incurred in connection with such types of transactions), (b) if
the Indebtedness being renewed, extended, refinanced, repurchased or exchanged
is Indebtedness of the Company, such new Indebtedness would be Indebtedness of
the Company and, unless the Indebtedness being renewed, extended, refinanced,
repurchased or exchanged is fully secured, such new Indebtedness would have an
Average Life greater than the Average Life of the Notes and a stated maturity
later than the Stated Maturity of the Notes and (c) such new Indebtedness would
be Subordinated Indebtedness if the Indebtedness renewed, extended, refinanced,
repurchased or exchanged is Subordinated Indebtedness and such new Subordinated
Indebtedness would be subordinated to the Notes at least to the extent that the
Subordinated Indebtedness being renewed, extended, refinanced, repurchased or
exchanged is subordinated to the Notes.
"Permitted Investment" means Investments and expenditures made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as means of actively exploiting, exploring for, acquiring,
developing, processing, gathering, marketing or transporting oil and gas through
agreements, transactions, interests or arrangements which permit a
68
<PAGE> 69
person to share risks or costs, comply with regulatory requirements regarding
local ownership or satisfy other objectives customarily achieved through the
conduct of the Oil and Gas Business jointly with third parties, including,
without limitation, (i) ownership interests in oil and gas properties or
gathering systems and (ii) Investments and expenditures in the form of or
pursuant to operating agreements, processing agreements, farm-in agreements,
farmout agreements, development agreements, area of mutual interest agreements,
unitization agreements, pooling arrangements, joint bidding agreements, service
contracts, joint venture agreements, partnership agreements (whether general or
limited), subscription agreements, stock purchase agreements and other similar
agreements with third parties (including Unrestricted Subsidiaries).
"Permitted Liens" means Liens upon any real or tangible personal property
securing (i) any Indebtedness of the Company or any Restricted Subsidiary
existing on the date of the Indenture and any renewals, extensions, refinancings
or exchanges of such Indebtedness permitted under the Indenture; provided that
any such Lien securing any renewed, extended, refinanced or exchanged
Indebtedness shall only attach to the property that secured such Indebtedness
prior to such renewal, extension, refinancing or exchange; (ii) any Permitted
Benton-Vinccler Indebtedness; (iii) any Permitted GEOILBENT Indebtedness,
limited to the non-recourse pledge of equity interests in GEOILBENT; (iv) any
Permitted Restricted Subsidiary Indebtedness; (v) any Permitted Company Secured
Indebtedness; (vi) Permitted Commodity Swap Agreements; (vii) reimbursement
obligations in respect of the letters of credit referred to in clause (ix)(a) of
the definition of Permitted Indebtedness; (viii) Indebtedness of Benton-Vinccler
referred to in clause (vii)(a) of the definition of Permitted Indebtedness,
limited to cash collateral; and (ix) any other Indebtedness of the Company or
any Restricted Subsidiary required by its terms to be secured in the event that
the Notes are required to be secured pursuant to the terms of the Indenture;
provided that (a) if such other Indebtedness is Subordinated Indebtedness, the
Lien securing such other Indebtedness shall be subordinated to the Lien securing
the Notes to at least the extent that such Subordinated Indebtedness is
subordinated to the Notes, (b) in no event shall the Lien securing such other
Indebtedness be prior to the Lien securing the Notes and (c) if the Lien
securing the Notes ceases to exist, the Lien securing such other Indebtedness
shall also cease to exist.
"Permitted Restricted Subsidiary Indebtedness" means Indebtedness of any
Restricted Subsidiary (including Permitted Benton-Vinccler Indebtedness but
excluding Indebtedness of Benton-Vinccler referred to in clause (vii)(a) of the
definition of Permitted Indebtedness) Incurred after the date of the Indenture
(other than pursuant to clause (xi) of the definition of Permitted Indebtedness)
in an aggregate amount for all such Restricted Subsidiaries not to exceed $50
million, in each case outstanding at any time less the aggregate amount of
Permitted Company Secured Indebtedness outstanding at such time.
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof; provided that the term
joint venture shall not include any contractual arrangement between the Company
or any Restricted Subsidiary and one or more third parties pursuant to which the
Company or such Restricted Subsidiary and such third party or parties agree to
share the costs and benefits of exploring and developing oil and gas properties
so long as (i) the interest of the Company or such Restricted Subsidiary in such
properties and the hydrocarbons or other mineral products derived therefrom is
owned directly by the Company or such Restricted Subsidiary, (ii) such
contractual arrangement does not grant any Lien on the Company's or such
Restricted Subsidiary's ownership interest in such properties or products
derived therefrom or permit such third party or parties to restrict in any
manner the ability of the Company or such Restricted Subsidiary to use,
transfer, sell or otherwise dispose of such ownership interest (excluding, in
each case, any agreement to sell such products to such third party or parties so
long as such agreement was negotiated on an arm's-length basis) and (iii) no
independent legal entity is created by such contractual arrangement.
"Preferred Stock" means, with respect to any person, Capital Stock or Redeemable
Stock of such person of any class or classes (however designated) whether now
outstanding or issued after the date of the Indenture, that ranks prior, as to
the payment of dividends or as to the distribution of assets upon any voluntary
or involuntary liquidation of such person, to any other class of Capital Stock
of such person and includes, without limitation, all classes and series of
preferred or preference stock.
"Publicly Traded Stock" means, with respect to any person, Voting Stock of such
person which is registered under Section 12 of the Exchange Act and which is
actively traded on The New York Stock Exchange or American Stock Exchange or in
the Nasdaq -- National Market.
"Redeemable Stock" means, with respect to any person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
such person's capital stock or partnership interests whether now outstanding or
issued after the date of the Indenture that by their terms or otherwise are or
may be required to be redeemed prior to the Stated Maturity of the Notes or are
redeemable at the option of the holder thereof (including, without limitation,
upon the happening of any specified event or with the passage of time) at any
time prior to the Stated Maturity of the Notes; provided that if the only event
that could require redemption of any such securities prior to the Stated
Maturity of the Notes is a change in control of the Company (defined in a manner
substantially identical to the definition of Change in Control in the Indenture)
and such right of redemption is expressly
69
<PAGE> 70
subordinated to the right of the holders of the Notes to require repurchase of
the Notes upon the occurrence of a Change in Control pursuant to the terms of
the Indenture, then such securities shall not be deemed to be Redeemable Stock.
"Reference Period" means, with respect to any determination to be made pursuant
to the terms of the Indenture, the four full fiscal quarters for which financial
information is available immediately preceding any date upon which such
determination is to be made.
"Repaid Investment" means (i) the amount of any Investment in a person (which is
a Restricted Payment) made by the Company or a Restricted Subsidiary after the
date of the Indenture (a) to the extent such amount has been unconditionally
repaid in cash to the Company or such Restricted Subsidiary (including any such
repayment in the form of a dividend but excluding any payments of interest) or
(b) to the extent of the net proceeds received in cash or Cash Equivalents from
the sale thereof and (ii) the amount of any Indebtedness of a person guaranteed
by the Company or a Restricted Subsidiary after the date of the Indenture (which
guarantee is a Restricted Payment) to the extent such amount has been
unconditionally released from such guarantee; provided that in each case such
amount shall not exceed the amount of such Investment as recorded on the books
of the Company or such Restricted Subsidiary in accordance with GAAP at the time
such Investment was made.
"Restricted Payment" means, with respect to any person, (i) the declaration or
payment of any dividend or other distribution in respect of Capital Stock or
Redeemable Stock of such person or any Subsidiary of such person, (ii) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock or Redeemable Stock of such person or any
Subsidiary of such person (including options, warrants or other rights to
acquire such Capital Stock or Redeemable Stock), (iii) any payment on account of
the purchase, redemption or other acquisition or retirement for value of, or any
payment in respect of any amendment of the terms of, or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal or any scheduled sinking fund payment, as the case may
be, of such Subordinated Indebtedness and (iv) any Investment by such person
other than any Investment in Cash Equivalents or any Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary; provided that so long as Benton-Vinccler is a direct or
indirect Subsidiary of the Company it shall remain a Restricted Subsidiary.
"Restricted Subsidiary Investment" means, with respect to any person that
becomes a Restricted Subsidiary, the amount of any Investment in such person
(which is a Restricted Payment) made by the Company or a Restricted Subsidiary
after the date of the Indenture but prior to the time such person becomes a
Restricted Subsidiary; provided that such amount shall not exceed the amount of
such Investment as recorded on the books of the Company or such Restricted
Subsidiary in accordance with GAAP at the time such Investment was made.
"Senior Indebtedness" means any Indebtedness of the Company (whether outstanding
on the date hereof or hereinafter incurred), unless such Indebtedness is
Subordinated Indebtedness.
"Stated Maturity," when used with respect to any Note, means the date specified
in such Note as the fixed date on which the principal of such Note is due and
payable.
"Subordinated Indebtedness" means any Indebtedness (whether outstanding on the
date hereof or hereinafter incurred) which is by its terms expressly subordinate
or junior in right of payment to the Notes.
"Subsidiary" of any person means (i) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such person, by one or
more Subsidiaries of such person or by such person and one or more Subsidiaries
of such person or (ii) any other person (other than a corporation) in which such
person, directly or indirectly, at the date of determination thereof, has (x) at
least a majority ownership interest or (y) the power to elect or direct the
election of a majority of the directors or other governing body of such person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company or of a
Restricted Subsidiary (other than Benton-Vinccler) that is designated as an
Unrestricted Subsidiary by a resolution adopted by the Board of Directors in
accordance with the requirements of the following sentence and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Company may designate any
Subsidiary of the Company or of a Restricted Subsidiary (excluding any
Restricted Subsidiary that had been designated as an Unrestricted Subsidiary
prior to its designation as a Restricted Subsidiary but including a newly
acquired or newly formed Subsidiary of the Company or any Restricted Subsidiary)
to be an Unrestricted Subsidiary by a resolution of the Board of Directors, if
immediately after giving effect to such designation, (i) the Company could Incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the Indenture provisions described under the caption "Certain
Covenants -- Limitation on Indebtedness," (ii) the Company could make an
additional Restricted Payment of $1.00 pursuant to the Indenture provisions
described in the first paragraph under the caption "Limitation on Restricted
Payments," (iii) such Subsidiary does not own or hold any Capital Stock or
Redeemable Stock of, or any Lien on any property of, the Company or any
70
<PAGE> 71
Restricted Subsidiary and (iv) such Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Non-Recourse
Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary
(excluding any Unrestricted Subsidiary that had been a Restricted Subsidiary
prior to its designation as an Unrestricted Subsidiary) to be a Restricted
Subsidiary; provided that, immediately after giving effect to such designation,
the Company could Incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Indenture provisions described under the
caption "Certain Covenants -- Limitation on Indebtedness." Upon any such
designation by the Board of Directors, the Company shall promptly file with the
Trustee a copy of a board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing. As of the date of the Indenture, the Company has no Unrestricted
Subsidiaries.
"Voting Stock" means, with respect to any person, securities of any class or
classes of Capital Stock in such person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such person but not including Capital Stock
having the right to vote thereon solely upon the happening of a contingency
unless and until such contingency has occurred, and then only so long as such
Capital Stock has voting rights with respect thereto.
"Wholly Owned Subsidiary" means, with respect to any person, any Subsidiary of
such person if all of the Capital Stock (excluding Preferred Stock) in such
Subsidiary (other than any director's qualifying shares) is owned directly or
indirectly by such person.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture with respect to the Notes if
any one of the following events occurs:
(a) default in the payment of any installment of interest on the Notes
as and when the same becomes due and payable, and the continuance of such
default for 30 days; or
(b) default in the payment of the principal of the Notes, the amount
payable upon the redemption of any Notes, Change in Control Purchase Price
or Asset Sale Offer Price when the same becomes due and payable as provided
under the Indenture, whether at Stated Maturity, upon redemption, upon
declaration of acceleration, when due for purchase by the Company or
otherwise; or
(c) default in the performance or breach of any covenant or agreement of
the Company under the Indenture (other than a default in the performance or
breach of a covenant or agreement that is specifically dealt with elsewhere
herein), and continuance of such default or breach for a period of 30 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the holders of at least
25% in principal amount of the outstanding Notes a written notice
specifying such default or breach and stating that such notice is a "Notice
of Default" under the Indenture; or
(d) default in the payment of any principal, premium, if any, or
interest when due or after the expiration of any applicable grace period in
respect of any Indebtedness of the Company or any Restricted Subsidiary
(including, without limitation, reimbursement obligations with respect to
Performance Letters of Credit) having an outstanding principal amount (or
with an outstanding reimbursement obligation) of $2.5 million or more
individually or in the aggregate or the acceleration of the maturity of any
such Indebtedness; or
(e) one or more final judgments or orders rendered against the Company
or any Restricted Subsidiary which require the payment in money, either
individually or in an aggregate amount, of more than $500,000 shall remain
unsatisfied or unstayed for 30 consecutive days after any such judgment or
order becomes final and nonappealable; or
(f) the entry of a decree or order by a court having jurisdiction in the
premises (i) for relief in respect of the Company or any Material
Subsidiary in an involuntary case or proceeding under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
(ii) adjudging the Company or any such Material Subsidiary as bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any such Material Subsidiary
under any such law, or (iii) appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company
or any such Material Subsidiary or of any substantial part of any of their
properties, or ordering the winding up or liquidation of any of their
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(g) the institution by the Company or any Material Subsidiary of a
voluntary case or proceeding under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by the Company
or any Material Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Material Subsidiary in any involuntary case
or proceeding under any such law or to the institution of bankruptcy or
insolvency proceedings against the
71
<PAGE> 72
Company or such Material Subsidiary, or the filing by the Company or any
Material Subsidiary of a petition or answer or consent seeking
reorganization or relief under any such law, or the consent by the Company
or any Material Subsidiary to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of any of the
Company or such Material Subsidiary or any substantial part of any of their
properties, or the making by the Company or any Material Subsidiary of an
assignment for the benefit of creditors, or the admission by the Company or
any Material Subsidiary in writing of an inability to pay any of their
debts generally as they become due or the taking of corporate action by the
Company or any Material Subsidiary in furtherance of any such action.
If an Event of Default with respect to the Notes (other than as specified in
clauses (f) and (g) above) occurs and is continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by holders) may, and the Trustee at the request of such holders shall,
declare the Notes and the accrued interest thereon to be immediately due and
payable, as specified below. Upon a declaration of acceleration, such amount
shall be due and payable immediately after receipt by the Company of such
written notice. If an Event of Default specified in clause (f) or (g) above
occurs and is continuing, then the Notes and the accrued interest thereon shall
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder. At any time after such declaration of
acceleration has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee, the holders of a majority in
aggregate principal amount of the Notes outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if: (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and (ii) the amounts payable in respect of any Notes
which have become due otherwise than by such declaration of acceleration and
overdue interest thereon (to the extent of such overdue interest at the rate
borne by the Notes) and (b) the rescission would not conflict with any judgment
or decree and (c) all existing Events of Default, other than the nonpayment of
the principal amount of the Notes which have become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereon provided in
the following paragraph.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes, by notice to the Trustee (and without notice to any other
holder) on behalf of the holders of all the Notes may waive any past default or
Event of Default under the Indenture with respect to such Notes and its
consequences, except (i) an Event of Default described in clause (b) of the
first paragraph under this section or (ii) a default in the payment of interest
on any Notes or in respect of a covenant or provision that under the terms of
the Indenture cannot be modified or amended without the consent of the holder of
each outstanding Note affected thereby. Upon any such waiver, such default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of the Indenture; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereto.
In the Indenture, (i) the Company will covenant that (to the extent that it may
lawfully do so) it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of the Indenture and the Company will expressly
waive (to the extent that it may lawfully do so) all benefit or advantage of any
such law and (ii) the Company will covenant that it will not hinder, delay or
impede the execution of any power granted to the Trustee under the Indenture and
will suffer and permit the execution of every such power as though no such law
had been enacted.
DEFEASANCE; SATISFACTION AND DISCHARGE
The Indenture will provide that (i) the Company may be discharged from any and
all obligations in respect of the outstanding Notes or (ii) the Company may omit
to comply with certain restrictive covenants and that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes in the case
of either clause (i) or (ii) upon irrevocable deposit with the Trustee, in
trust, of money and/or U.S. government obligations which will provide money in
an amount sufficient in the opinion of a nationally recognized firm of
independent certified accountants to pay the principal of and each installment
of interest, if any, on the outstanding Notes. With respect to clause (ii), the
obligations under the Indenture other than with respect to such covenants and
the Events of Default other than the Event of Default relating to such covenants
shall remain in full force and effect. Such trust may only be established if,
among other things (a) with respect to clause (i), the Company has delivered to
the Trustee an Opinion of Counsel stating that the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or there has
been a change in law, and based thereon such Opinion of Counsel confirms that
holders of the Notes will not recognize gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and discharge
had not occurred or, with respect to clause (ii), the Company has delivered to
the
72
<PAGE> 73
Trustee an Opinion of Counsel to the effect that the holders of the Notes will
not recognize gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred; (b) no Event of Default or Default
shall have occurred or be continuing; (c) the Company has delivered to the
Trustee an Opinion of Counsel to the effect that such deposit shall not cause
the Trustee or the trust so created to be subject to the Investment Company Act
of 1940, as amended; and (d) certain other customary conditions precedent are
satisfied.
The Indenture will cease to be of further effect (except as to surviving rights
of registration of transfer or exchange of Notes, substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes, rights of holders to
receive payments of principal and interest and rights of holders of Notes to
funds deposited with the Trustee) as to all outstanding Notes when either (i)
all such Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation, (ii) the Company has paid the principal of and
interest on all Notes outstanding under the Indenture as and when the same shall
have become due and payable, or (iii) all such Notes not theretofore delivered
to the Trustee for cancellation (a) have become due and payable, or (b) will
become due and payable within one year, or (c) are to be called for redemption
within one year, and (x) the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay the entire
indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest to the date of
deposit (if such Notes are then due and payable) or to the applicable maturity
or redemption date (as the case may be), (y) no default or Event of Default
shall have occurred or be continuing and (z) such deposit would not result in a
breach or violation of, or constitute a default under, the Indenture or any
other agreement or instrument to which the Company is a party or by which it is
bound, and the Company has paid all sums payable by it under the Indenture.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York.
MODIFICATION OF INDENTURE
The Indenture contains provisions permitting the Company and the Trustee in
limited circumstances, and otherwise, with the consent of the holders of not
less than a majority in aggregate principal amount of Notes at the time
outstanding, to execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
any supplemental indenture or modifying in any manner the rights of the holders
of the Notes; provided that no such supplemental indenture shall (i) extend the
final maturity of any Note, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption of any Notes or upon an Event of Default, or reduce the
Change in Control Purchase Price of the Asset Sale Offer Price, or impair or
affect the right of any holder to institute suit for the payment thereof without
the consent of the holder of each Note so affected, or (ii) reduce the aforesaid
percentage of Notes, the consent of the holders of which is required for any
supplemental indenture, without the consent of the Holders of all Notes then
outstanding.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
THE GLOBAL NOTES
Upon the issuance of the Regulation S Global Note and the Restricted Global Note
(each a "Global Note" and together the "Global Notes"), DTC or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the accounts
of persons who have accounts with such depositary. Such accounts initially will
be designated by or on behalf of the Initial Purchasers. Ownership of beneficial
interests in a Global Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in a Global Note will be shown on, and the transfer of
that ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Qualified institutional buyers may hold their interests in a Global Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
73
<PAGE> 74
Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. Beginning
40 days after the later of the commencement of the offering and the Closing Date
(but not earlier), investors may also hold such interests through organizations
other than Cedel or Euroclear that are participants in the DTC system. Cedel and
Euroclear will hold interests in the Regulation S Global Note on behalf of their
participants through DTC.
So long as DTC, or its nominee, is the registered owner of holder of a Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the Notes represented by such Global Note for all purposes under
the Indenture and the Notes. No beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with the procedures
provided for under "Notice to Investors," as well as DTC's applicable
procedures, and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, the Global Notes will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. None of
the Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the name of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require such delivery of such Notes or to
pledge such Notes, such holder must transfer its interest in the Global Note in
accordance with the normal procedures of DTC and the procedures set forth in
"Notice to Investors." Transfers between participants in Euroclear and Cedel
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
DTC has advised the Company that it will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
accounts the DTC interests in the Global Notes is credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the Notes, DTC will exchange the
Global Notes for Certificated Notes, which it will distribute to its
participants and which, if representing interests in the Restricted Global Note
or the Temporary Regulation S Global Note, will be legended as set forth under
the heading "Notice to Investors."
DTC has advised the Company as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Notes among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for the
Global Notes and a successor depositary is not appointed by the Company within
90 days, the Company will issue Certificated Notes in exchange for the Global
Notes which, in
74
<PAGE> 75
the case of Notes issued in exchange for the Restricted Global Note will bear
the legend referred to under the heading "Notice to Investors."
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the New
Notes, except that (i) the sale of the Old Notes was not registered under the
Securities Act, therefore the Old Notes are subject to certain restrictions on
transfer, contain certain legends relating thereto and are entitled to certain
registration rights under the Registration Rights Agreement (which rights will
terminate upon consummation of the Exchange Offer); and (ii) the New Notes will
not provide for any increase in the interest rate thereon. In that regard, the
Old Notes provide that, in the event that (a) the registration statement
relating to the Exchange Offer is not filed with the Commission on or prior to
January 2, 1998, (b) the Exchange Offer Registration Statement is not declared
effective by the Commission or a Shelf Registration Statement is not filed on or
prior to February 1, 1998, or (c) the Exchange Offer is not consummated or a
Shelf Registration Statement is not declared effective on or prior to March 3,
1998, then the Company will be required to pay additional interest in addition
to the interest otherwise due on the Notes) to each holder of Notes during the
first 90-day period immediately following the occurrence of each Registration
Default in an amount equal to 0.25% per annum. The amount of interest will
increase by an additional 0.25% per annum for each subsequent 90-day period
until such Registration Default is cured, up to a maximum amount of additional
interest of 1.00% per annum. Upon the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, after March
3, 1998, the interest rate on any Old Notes which remain outstanding will be
reduced, from the date of such consummation or effectiveness, as the case may
be, to 9 3/8% per annum and the Old Notes will not thereafter be entitled to any
increase in the interest rate thereon. The New Notes are not entitled to any
such increase in the interest rate thereon. In addition, the Old Notes and the
New Notes will constitute a single series of debt securities under the
Indenture. See "Description of the New Notes -- General." Accordingly, holders
of Old Notes should review the information set forth under "Summary -- Certain
Consequences of a Failure to Exchange Old Notes" and "Description of the New
Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States Federal income tax
considerations to holders of the New Notes who are subject to U.S. net income
tax with respect to the New Notes ("U.S. persons") and who will hold the New
Notes as capital assets. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of the purchase, ownership
or disposition of the New Notes. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions now in effect, all of which are subject to change. It does
not include any description of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the New Notes or holders thereof. It does not discuss all aspects of U.S.
Federal income taxation that may be relevant to a particular investor in light
of his particular investment circumstances or to certain types of investors
subject to special treatment under the U.S. Federal income tax laws (for
example, dealers in securities or currencies, S corporations, life insurance
companies, tax-exempt organizations, taxpayers subject to the alternative
minimum tax and non-U.S. persons) and also does not discuss New Notes held as a
hedge against currency risks or as part of a straddle with other investments or
as part of a "synthetic security" or other integrated investment (including a
"conversion transaction") comprised of a New Note and one or more other
investments, or situations in which the functional currency of the holders is
not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to holders
for federal income tax purposes. The exchange of Old Notes for the New Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the New Notes should not be considered to
differ materially in kind or extent from the Old Notes. If, however, the
exchange of the Old Notes for the New Notes were treated as an exchange for
federal income tax purposes, such exchange should constitute a recapitalization
for federal income tax purposes. Accordingly, a holder should have the same
adjusted basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
75
<PAGE> 76
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as ordinary interest income
for U.S. Federal income tax purposes interest earned on the New Note in
accordance with the holder's method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note generally will be the holder's purchase
price for the Old Note. Upon the sale, exchange, redemption, retirement or other
disposition of a New Note, a holder will recognize gain or loss equal to the
difference (if any) between the amount realized and the holder's tax basis in
the New Note. Such gain or loss will be long-term capital gain or loss if the
New Note has been held for more than one year (including the period the Old Note
was held) and otherwise will be short-term capital gain or loss (with certain
exceptions to the characterization as capital gain if the New Note was acquired
at a market discount).
BACKUP WITHHOLDING
A holder of a New Note may be subject to backup withholding at the rate of 31%
with respect to interest paid on the New Note and proceeds from the sale,
exchange, redemption or retirement of the New Note, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of a New Note who does not provide the Company with his correct taxpayer
identification number may be subject to penalties imposed by the IRS.
A holder of a New Note who is not a U.S. person will generally be exempt from
backup withholding and information reporting requirements, but may be required
to comply with certification and identification procedures in order to obtain an
exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the holder's
U.S. Federal income tax liability.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. The Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 180 days after the Expiration Date (subject
to extension under certain limited circumstances described herein) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "The Exchange Offer -- Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account in connection with the Exchange Offer and any broker-dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify the holders of Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
76
<PAGE> 77
LEGAL MATTERS
The validity of the issuance of the Notes will be passed upon for the Company by
Kegler, Brown, Hill & Ritter, Co., L.P.A., Columbus, Ohio.
EXPERTS
The financial statements incorporated in this registration statement by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The information appearing herein or incorporated herein with respect to proved
oil and gas reserves of the Company at December 31, 1995 and 1996, to the extent
stated herein, was estimated by the Company and audited by Huddleston & Co.,
Inc., independent petroleum engineers, and is included herein on the authority
of such firm as experts in petroleum engineering.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports and other information with the Commission. Reports,
proxy statements and other information statements filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission, at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the following regional offices of the Commission: 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza Building, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein (i) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996; (ii) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997; (iii) the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997; and (iv) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement or document so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document,
copies of which are available from the Company as described below, each such
statement qualified in all respects by such reference.
The Company undertakes to provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any and all of the documents or
information referred to above that has been or may be incorporated by reference
in this Prospectus (excluding exhibits to such documents unless such exhibits
are specifically incorporated by reference). Requests should be directed to
Benton Oil and Gas Company, 1145 Eugenia Place, Suite 200, Carpinteria,
California 93013 (the principal executive offices of the Company), telephone
(805) 566-5600, Attn.: Corporate Secretary.
77
<PAGE> 78
GLOSSARY
When the following terms are used in the text they have the meanings indicated.
MCF. "Mcf" means thousand cubic feet. "Mmcf" means million cubic feet. "Bcf"
means billion cubic feet. "Tcf" means trillion cubic feet.
BBL. "Bbl" means barrel. "MBbl" means thousand barrels. "MMBbl" means million
barrels. "BBbl" means billion barrels.
BOE. "BOE" means barrels of oil equivalent, which are determined using the
ratio of one barrel of crude oil, condensate or natural gas liquids to six Mcf
of natural gas so that six Mcf of natural gas is referred to as one barrel of
oil equivalent or "BOE". "MBOE" means thousands of barrels of oil equivalent.
"MMBOE" means millions of barrels of oil equivalent.
CAPITAL EXPENDITURES. "Capital Expenditures" means costs associated with
exploratory and development drilling (including exploratory dry holes);
leasehold acquisitions; seismic data acquisitions; geological, geophysical and
land-related overhead expenditures; delay rentals; producing property
acquisitions; and other miscellaneous capital expenditures.
COMPLETION COSTS. "Completion Costs" means, as to any well, all those costs
incurred after the decision to complete the well as a producing well. Generally,
these costs include all costs, liabilities and expenses, whether tangible or
intangible, necessary to complete a well and bring it into production, including
installation of service equipment, tanks, and other materials necessary to
enable the well to deliver production.
DEVELOPMENT WELL. A "Development Well" is a well drilled as an additional well
to the same reservoir as other producing wells on a lease, or drilled on an
offset lease not more than one location away from a well producing from the same
reservoir.
EXPLORATORY WELL. An "Exploratory Well" is a well drilled in search of a new
and as yet undiscovered pool of oil or gas, or to extend the known limits of a
field under development.
FINDING COST. "Finding Cost", expressed in dollars per BOE, is calculated by
dividing the amount of total capital expenditures related to acquisitions,
exploration and development costs (reduced by proceeds for any sale of oil and
gas properties) by the amount of total net reserves added or reduced as a result
of property acquisitions and sales, drilling activities and reserve revisions
during the same period.
FUTURE DEVELOPMENT COST. "Future Development Cost" of proved nonproducing
reserves, expressed in dollars per BOE, is calculated by dividing the amount of
future capital expenditures related to development properties by the amount of
total proved non-producing reserves associated with such activities.
GROSS ACRES OR WELLS. "Gross Acres or Wells" are the total acres or wells, as
the case may be, in which an entity has an interest, either directly or through
an affiliate.
LIFTING COSTS. "Lifting Costs" are the expenses of lifting oil from a producing
formation to the surface, consisting of the costs incurred to operate and
maintain wells and related equipment and facilities, including labor costs,
repair and maintenance, supplies, insurance, production, severance and windfall
profit taxes.
NET ACRES OR WELLS. A party's "Net Acres" or "Net Wells" are calculated by
multiplying the number of gross acres or gross wells in which that party has an
interest by the fractional interest of the party in each such acre or well.
PRODUCING PROPERTIES OR RESERVES. "Producing Reserves" are Proved Developed
Reserves expected to be produced from existing completion intervals now open for
production in existing wells. "Producing Properties" are properties to which
Producing Reserves have been assigned by an independent petroleum engineer.
PROVED DEVELOPED RESERVES. "Proved Developed Reserves" are Proved Reserves
which can be expected to be recovered through existing wells with existing
equipment and operating methods.
PROVED RESERVES. "Proved Reserves" are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known oil and gas reservoirs under existing economic and operating conditions,
that is, on the basis of prices and costs as of the date the estimate is made
and any price changes provided for by existing conditions.
PROVED UNDEVELOPED RESERVES. "Proved Undeveloped Reserves" are Proved Reserves
which can be expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is required for
recompletion.
78
<PAGE> 79
RESERVES. "Reserves" means crude oil and natural gas, condensate and natural
gas liquids, which are net of leasehold burdens, are stated on a net revenue
interest basis, and are found to be commercially recoverable.
ROYALTY INTEREST. A "Royalty Interest" is an interest in an oil and gas
property entitling the owner to a share of oil and gas production (or the
proceeds of the sale thereof) free of the costs of production.
STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS. The "Standardized Measure of
Future Net Cash Flows" is a method of determining the present value of Proved
Reserves. The future net revenues from Proved Reserves are estimated assuming
that oil and gas prices and production costs remain constant. The resulting
stream of revenues is then discounted at the rate of 10% per year to obtain a
present value.
3-D SEISMIC. "3-D Seismic" is the method by which a three dimensional image of
the earth's subsurface is created through the interpretation of seismic data.
3-D surveys allow for a more detailed understanding of the subsurface than do
conventional surveys and contribute significantly to field appraisal,
development and production.
UNDEVELOPED ACREAGE. "Undeveloped Acreage" is oil and gas acreage (including,
in applicable instances, rights in one or more horizons which may be penetrated
by existing wellbores, but which have not been tested) to which Proved Reserves
have not been assigned by independent petroleum engineers.
79
<PAGE> 80
LOGO
<PAGE> 81
LETTER OF TRANSMITTAL
BENTON OIL AND GAS COMPANY
OFFER TO EXCHANGE ITS
9 3/8% SENIOR NOTES DUE 2007
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
9 3/8% SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS
DATED JANUARY 14, 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON FEBRUARY 20, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
By Mail:
First Trust National Association
P.O. Box 64485
St. Paul, Minnesota 55164-9549
Attn: Specialized Finance
To Confirm by Telephone
or for Information:
(612) 244-1197
Attn: Phyliss Meath
By Overnight Delivery or Hand:
First Trust of New York,
National Association
100 Wall Street
New York, New York 10005
Attn: Cathy Donohue
Facsimile Transmissions:
(612) 244-1145
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by
First Trust of New York, National Association (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. SEE INSTRUCTION
1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
1
<PAGE> 82
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF OLD NOTES TENDERED
- ---------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF OLD NOTES
CERTIFICATE PRINCIPAL AMOUNT TENDERED (IF LESS
NUMBER(S) OF OLD NOTES* THAN ALL)**
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL AMOUNT
TENDERED
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
Window Ticket Number (if any)
Date of Execution of Notice of Guaranteed Delivery
Name of Institution which Guaranteed Delivery
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
DTC Account Number
Transaction Code Number
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
2
<PAGE> 83
Ladies and Gentlemen:
The undersigned hereby tenders to Benton Oil and Gas Company, a Delaware
corporation (the "Company"), the above described aggregate principal amount of
the Company's 9 3/8% Senior Notes due 2007 (the "Old Notes") in exchange for a
like aggregate principal amount of the Company's 9 3/8% Senior Notes due 2007
(the "New Notes"), upon the terms and subject to the conditions set forth in the
Prospectus dated January 14, 1998 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer"). The Exchange Offer has been registered under the Securities
Act of 1933, as amended (the "Securities Act").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer -- Procedures for Tendering
Old Notes" in the Prospectus and in the instructions hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Old Notes
not exchanged or not accepted for exchange will be issued to the undersigned or,
in the case of a book-entry transfer of Old Notes, will be credited to the
account indicated above maintained at DTC. Similarly, unless otherwise indicated
under "Special Delivery Instructions," please deliver New Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
3
<PAGE> 84
RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER
OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY
AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE
SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR
A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER
CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN
ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN
THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A
RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL
RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR
SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING
BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY
BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE
SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE
DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after November
1, 1997.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
4
<PAGE> 85
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for the Old Notes hereby tendered or on a security
position listing, or by any person(s) authorized to become the registered
holder(s) by endorsements and documents transmitted herewith (including
such opinions of counsel, certifications and other information as may be
required by the Company or the Trustee for the Old Notes to comply with
the restrictions on transfer applicable to the Old Notes). If signature is
by an attorney-in-fact, executor, administrator, trustee, guardian,
officer of a corporation or another acting in a fiduciary capacity or
representative capacity, please set forth the signer's full title. See
Instruction 5.
--------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date: _______ , 1998
Name(s)
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature
Name
--------------------------------------------------------------------------
(PLEASE PRINT)
Date: _______ , 1998
Capacity or Title
Name of Firm
Address
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- --------------------------------------------------------------------------------
5
<PAGE> 86
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be complete ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:
Name____________________________________________________________________________
(PLEASE PRINT)
Address_________________________________________________________________________
(INCLUDE ZIP CODE)
_________________________________________________________________________
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than the
registered holder of the Old Notes whose name(s) appear(s) above, or to such
registered holder(s) at an address other than that shown above.
Mail New Notes to:
Name____________________________________________________________________________
(PLEASE PRINT)
Address_________________________________________________________________________
(INCLUDE ZIP CODE)
_________________________________________________________________________
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SEE IMPORTANT INSTRUCTIONS
6
<PAGE> 87
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at one of its addresses set forth herein on or
prior to the Expiration Date. Old Notes may be tendered in whole or in part in
the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures
for Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Old Notes, in proper form for transfer, together with
a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within five business days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In
such case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the Old
Note, promptly after the Expiration Date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
7
<PAGE> 88
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if Certificates for Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular.
Certificates for the Old Notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Notes tendered for the account of an Eligible Institution. If
Old Notes have been tendered pursuant to the procedures for book-entry transfer
set forth in "The Exchange Offer -- Procedures for Tendering Old Notes," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer -- Procedures
for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer -- Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange
8
<PAGE> 89
Agent, nor any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF)
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
9
<PAGE> 90
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT
Form W-9 AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number or
Employer Identification
Number
Department of the Treasury Part 2
Internal Revenue Service Awaiting TIN //
</TABLE>
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the number
shown on this form is my correct taxpayer identification number (or I am waiting
for a number to be issued to me), (2) I am not subject to backup withholding
either because (i) I am exempt from backup withholding, (ii) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the IRS has notified me that I am no longer subject to backup withholding,
and (3) any other information provided on this form is true and correct.
<TABLE>
<S> <C>
Payer's Request for Taxpayer SIGNATURE
Identification Number (TIN)
and Certification DATE
</TABLE>
You must cross out item (iii) in Part (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
<TABLE>
<S> <C>
Signature
- -------------------------------------------------- Date ---------------------------------------------
</TABLE>
10
<PAGE> 91
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 3/8% SENIOR NOTES DUE 2007
OF
BENTON OIL AND GAS COMPANY
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 9 3/8% Senior Notes due 2007
(the "Old Notes") are not immediately available, (ii) Old Notes, the Letter of
Transmittal and all other required documents cannot be delivered to First Trust
of New York, National Association (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer -- Procedures for Tendering Old Notes" in the
Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT DELIVERY OR HAND:
First Trust National Association First Trust of New York,
P.O. Box 64485 National Association
St. Paul, Minnesota 55164-9549 100 Wall Street
Attn: Specialized Finance New York, New York 10005
Attn: Cathy Donohue
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(612) 244-1197
Attn: Phyllis Meath
FACSIMILE TRANSMISSIONS:
(612) 244-1145
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF
A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
1
<PAGE> 92
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of Transmittal
and the Old Notes tendered hereby to the Exchange Agent within the time period
set forth above and that failure to do so could result in a financial loss to
the undersigned.
<TABLE>
<S> <C>
Name of
Firm: ------------------------------------------- -------------------------------------------------
(Authorized Signature)
Address: ---------------------------------------- Title: ------------------------------------------
Name: -------------------------------------------
- -------------------------------------------------
(Zip Code) (Please type or print)
Area Code and
Telephone
Number: ----------------------------------------- Date: -------------------------------------------
</TABLE>
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
2
<PAGE> 93
OFFER TO EXCHANGE
9 3/8% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
9 3/8% SENIOR NOTES DUE 2007
OF
BENTON OIL AND GAS COMPANY
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer by
Benton Oil and Gas Company (the "Company"), a Delaware corporation, to exchange
its 9 3/8% Senior Notes due 2007 (the "New Notes"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 9 3/8% Senior Notes
due 2007 (the "Old Notes") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated January 14, 1998, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated January 14, 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer participant from
Owner; and
5. Letter which may be sent to your clients for whose account you hold Old Notes
in your name or in the name of your nominee, to accompany the instruction
form referred to in 4 above, for obtaining such client's instruction with
regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Offer will
expire 5:00 p.m., New York City time, on February 20, 1998, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will represent
to the Company that (i) the holder is not an "affiliate" of the Company, (ii)
any New Notes to be received by the holder are being acquired in the ordinary
course of its business, (iii) the holder has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of New Notes to be received in the Exchange Offer, and (iv) if
the holder is not a broker-dealer, the holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such New Notes. If the tendering holder is a broker-dealer that will receive
New Notes for its own account in exchange for Old Notes, you will represent on
behalf of such broker-dealer that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Act in connection with any
resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such New Notes, such broker-dealer is not deemed to admit that it
is an "underwriter" within the meaning of the Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of the
Old Notes for you to make the foregoing representations.
1
<PAGE> 94
The Company will not pay any fee or commission to any broker or dealer or to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Offer. The Company will pay
or cause to be paid any transfer taxes payable on the transfer of Old Notes to
it, except as otherwise provided in Instruction of the enclosed Letter of
Transmittal.
Additional copies of the enclosed material may be obtained from the undersigned.
Very truly yours,
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF BENTON OIL AND GAS COMPANY OR FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR
BEHALF IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE> 95
OFFER TO EXCHANGE
9 3/8% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
9 3/8% SENIOR NOTES DUE 2007
OF
BENTON OIL AND GAS COMPANY
To Our Clients:
We are enclosing herewith a Prospectus, dated January 14, 1998, of Benton Oil
and Gas Company (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company to exchange its 9 3/8% Senior Notes due 2007 (the "New
Notes"), pursuant to an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 9 3/8% Senior Notes due 2007 (the "Old Notes") upon the terms and
subject to the conditions set forth in the Exchange Offer.
Please note that the Offer will expire at 5:00 p.m., New York City time, on
February 20, 1998, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the book-entry
transfer facility and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the Old
Notes held by us for your account pursuant to the terms and conditions of the
Exchange Offer. We also request that you confirm that we may on your behalf make
the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will represent
to the Company that (i) the holder is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act of 1933, as amended, (ii) any
New Notes to be received by the holder are being acquired in the ordinary course
of its business, (iii) the holder has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of New Notes to be received in the Exchange Offer, and (iv) if the holder
is not a broker-dealer, the holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such New
Notes. If the tendering holder is a broker-dealer (whether or not it is also an
"affiliate") that will receive New Notes for its own account in exchange for Old
Notes, we will represent on behalf of such broker-dealer that the Old Notes to
be exchanged for the New Notes were acquired by it as a result of
marketing-making activities or other trading activities, and acknowledge on
behalf of such broker-dealer that it will deliver a prospectus meeting the
requirements of the Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Act in connection with any resale of such New Notes, such
broker-dealer is not deemed to admit that it is an "underwriter" within the
meaning of the Act.
Very truly yours,
<PAGE> 96
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
BENTON OIL AND GAS COMPANY
9 3/8% SENIOR NOTES DUE 2007
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated January 14,
1998 (the "Prospectus") of Benton Oil and Gas Company, a Delaware corporation
(the "Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of the
undersigned is (fill in amount):
$ ______________ of the 9 3/8% Senior Notes due 2007.
With respect to the Exchange Offer, the undersigned hereby instructs you (check
appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, (if any):
$ ______________ of the 9 3/8% Senior Notes due 2007.
[ ] NOT to TENDER any Old Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representation and warranties contained in the Letter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) the holder is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended, (ii) any New Notes to be received by the
holder are being acquired in the ordinary course of its business, (iii) the
holder has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of New Notes to be
received in the Exchange Offer, and (iv) if the holder is not a broker-dealer,
the holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Notes. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
1
<PAGE> 97
SIGN HERE
Name of beneficial owner(s):____________________________________________________
Signature(s):___________________________________________________________________
Name(s) (please print):_________________________________________________________
Address:________________________________________________________________________
- --------------------------------------------------------------------------------
Telephone Number:_______________________________________________________________
Taxpayer identification or Social Security Number:______________________________
Date:___________________________________________________________________________
2
