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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): November 10, 1999
CHIEFTAIN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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ALBERTA, CANADA 1-10216 NONE
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
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1201 TD TOWER
10088-102 AVENUE
EDMONTON, ALBERTA T5J 2Z1
CANADA
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (780) 425-1950
1201 TORONTO DOMINION TOWER
EDMONTON CENTRE
EDMONTON, ALBERTA
CANADA
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On November 10, 1999, Chieftain International, Inc. (the "Company") entered into
an underwriting agreement (the "Underwriting Agreement") with CIBC World Markets
Corp., Dain Rauscher Incorporated and A.G. Edwards & Sons, Inc., as the
representatives of the several underwriters named in Schedule I thereto, in
connection with the sale (the "Offering") by the Company of an aggregate of
2,500,000 common shares, no par value (the "Common Shares") of the Company (the
"Offered Shares"). An additional 375,000 Common Shares are subject to an
over-allotment option granted to the underwriters in the Underwriting Agreement.
A copy of the Underwriting Agreement is attached hereto as Exhibit 1 and is
incorporated herein by reference. The Offering is scheduled to close on
November 16, 1999.
The Offering is made pursuant to the Company's registration statement on
Form S-3 (File No. 333-88661) (the "Registration Statement") under the
Securities Act of 1933. The Registration Statement provides that the Company
may from time to time offer various of its debt and equity securities with
an aggregate public offering price of up to $300 million.
A copy of the Prospectus Supplement dated November 10, 1999, relating to the
Offered Shares and the accompanying Prospectus dated October 20, 1999, filed
pursuant to Rule 424(b)(2) under the Securities Act of 1933, is incorporated
herein by reference.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits
1 Underwriting Agreement, dated November 10, 1999, among Chieftain
International, Inc. and CIBC World Markets Corp., Dain Rauscher
Incorporated and A.G. Edwards & Sons, Inc., as the representatives
of the several underwriters named in Schedule I thereto.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Independent Petroleum Engineers and Geologists
23.3 Consent of Cravath, Swaine & Moore
23.4 Consent of Bennett Jones
99 Prospectus Supplement dated November 10, 1999, relating to the
sale by Chieftain International, Inc. (the "Company") of an
aggregate of 2,500,000 common shares, no par value, of the Company
(exclusive of underwriters' over-allotment option), and
accompanying Prospectus dated October 20, 1999, filed pursuant to
Rule 424(b)(2) under the Securities Act of 1933.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHIEFTAIN INTERNATIONAL, INC.
(Registrant)
Date: November 16, 1999 By: /s/ Edward L. Hahn
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Edward L. Hahn
Senior Vice President, Finance and Treasurer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Underwriting Agreement, dated November 10, 1999, among the
Chieftain International, Inc. and CIBC World Markets Corp.,
Dain Rauscher Incorporated and A.G. Edwards & Sons, Inc., as
the representatives of the several underwriters named in
Schedule I thereto.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Independent Petroleum Engineers and Geologists
23.3 Consent of Cravath, Swaine & Moore
23.4 Consent of Bennett Jones
99 Prospectus Supplement dated November 10, 1999, relating to the
sale by Chieftain International, Inc. (the "Company") of an
aggregate of 2,500,000 common shares, no par value, of the
Company (exclusive of underwriters' over-allotment option),
and accompanying Prospectus dated October 20, 1999, filed
pursuant to Rule 424(b)(2) under the Securities Act of 1933.
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EXHIBIT 1
2,500,000 SHARES
CHIEFTAIN INTERNATIONAL, INC.
COMMON SHARES
UNDERWRITING AGREEMENT
November 10, 1999
CIBC WORLD MARKETS CORP.
DAIN RAUSCHER INCORPORATED
A.G. EDWARDS & SONS, INC.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
Chieftain International, Inc., a corporation organized under the laws
of the Province of Alberta, Canada (the "Company"), proposes, subject to the
terms and conditions contained herein, to sell to you and the other underwriters
named on Schedule I to this Agreement (the "Underwriters"), for whom you are
acting as Representatives (the "Representatives"), an aggregate of 2,500,000
common shares (the "Firm Shares"), no par value (the "Common Shares"), of the
Company. All of the Firm Shares are to be issued and sold by the Company. The
respective amounts of the Firm Shares to be purchased by each of the several
Underwriters are set forth opposite their names on Schedule I hereto. In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 375,000 Common Shares (the "Option Shares") from it
solely for the purpose of covering over-allotments in connection with the sale
of the Firm Shares. The Firm Shares and the Option Shares are together called
the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
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(a) The Company agrees to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the
Company, at a price of $17.50 per share (the "Initial Price"), the number
of Firm Shares set forth opposite the name of such Underwriter under the
column "Number of Firm Shares to be Purchased" on Schedule I to this
Agreement, subject to adjustment in accordance with Section 10 hereof.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in whole
or in part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined below), and
from time to time thereafter within 30 days after the date of this
Agreement, in each case upon written, facsimile or telegraphic notice, or
verbal or telephonic notice confirmed by written, facsimile or telegraphic
notice, by the Representatives to the Company no later than 12:00 noon, New
York City time, on the business day before the Firm Shares Closing Date or
at least two business days before the Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase.
(c) In consideration of the services to be rendered by the
Underwriters in connection with the distribution of the Shares, the Company
agrees to pay to the Underwriters a fee equal to $0.96 per Share (the
"Underwriting Commission") on the Firm Shares Closing Date (as defined in
Section 2) with respect to each Firm Share and on any Option Shares Closing
Date (as defined in Section 2) with respect to each Option Share.
2. DELIVERY AND PAYMENT. The Shares to be purchased by the
Underwriters pursuant to the terms of this Agreement will be represented by
one or more share certificates. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and
payment of the purchase price therefor in United States dollars by wire
transfer of Federal Funds or similar same day funds to an account designated
in writing by the Company to CIBC World Markets Corp. at least one business
day prior to the Firm Shares Closing Date (as defined below) and payment of
the related Underwriting Commission in United States dollars by wire transfer
of Federal Funds or similar same day funds to an account designated in
writing by CIBC World Markets Corp. at least one business day prior to the
Firm Shares Closing Date to the Company, shall take place at the offices of
Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New
York 10019, at 10:00 a.m., New York City time, on the third (fourth, if
pricing is after 4:30 p.m. Eastern time) trading day following the date of
this Agreement, or at such time on such other date, not later than 10
business days after the date of this Agreement, as shall be
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agreed upon by the Company and the Representatives (such time and date of
delivery and payment is called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares is exercised
in whole or in part on one or more occasions, delivery by the Company of the
Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price therefor in United States dollars
by wire transfer of Federal Funds or similar same day funds to an account
designated in writing by the Company to CIBC World Markets Corp. at least one
business day prior to the Option Shares Closing Date (as defined below) and
payment of the related Underwriting Commission in United States dollars by wire
transfer of Federal Funds or similar same day funds to an account designated in
writing by CIBC World Markets Corp. to the Company at least one business day
prior to the Option Shares Closing Date shall take place at the offices of
Cravath, Swaine & Moore specified above at the time and on the date (which may
be the same date as, but in no event shall be earlier than, the Firm Shares
Closing Date) specified in the notice referred to in Section 1(b) (each such
time and date of delivery and payment is called an "Option Shares Closing
Date"). The Firm Shares Closing Date and any Option Shares Closing Date are
called, individually, a "Closing Date" and, together, the "Closing Dates."
The certificates evidencing the Shares shall be registered in such
names and shall be in such denominations as the Representatives shall request at
least two full business days before the Firm Shares Closing Date or the Option
Shares Closing Date, as applicable, and shall be made available to the
Representatives for checking and packaging, at such place as is designated by
the Representatives, on the full business day before the Firm Shares Closing
Date (or the Option Shares Closing Date in the case of the Option Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING IN THE
UNITED STATES. The Company has prepared and filed in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the published rules and regulations thereunder (the "Rules")
adopted by the Securities and Exchange Commission (the "Commission") a
Registration Statement (as hereinafter defined) on Form S-3 (No. 333-88661)
and pre-effective Amendment No. 1 thereto for the registration of certain of
the Company's securities including the Shares, and the offering thereof from
time to time in accordance with Rule 415 of the Rules, and the Company has
filed such post-effective amendments thereto as may be required to the date
of this Agreement in order to effect the registration and the offering of the
Shares. Such Registration Statement has been declared effective by the
Commission. Copies of such Registration Statement (including all amendments
thereof) have heretofore been delivered by the Company to you. Promptly after
execution and delivery of this Agreement, the Company will prepare and file a
prospectus supplement in accordance with paragraph (b) of Rule 424 ("Rule
424(b)") of the Rules. The information included in a prospectus supplement
filed in respect of such registration statement pursuant to Rule 424(b) is
referred to as "Rule 424(b) Information." The term "Preliminary Prospectus"
means any prospectus or prospectus supplement that omitted the Rule 424(b)
Information that was used after the Registration Statement became effective
and prior to the date of this Agreement. The term "Registration Statement" as
used in this Agreement means the registration
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statement (including all exhibits, financial schedules, information and
documents deemed to be a part of the Registration Statement through
incorporation by reference) as amended at the time and on the date it became
effective (the "Effective Date") including the Rule 424(b) Information. The
term "Prospectus" as used in this Agreement means the final prospectus and
the final prospectus supplement relating to the Shares (including the
information and documents deemed to be a part of the prospectus by
incorporation by reference or otherwise) in the form filed with the
Commission pursuant to Rule 424(b) of the Rules. For purposes of this
Agreement, all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
All references in this Agreement to financial statements and schedules
and other information that is "contained," "included" or "stated" in the
Registration Statement, any Preliminary Prospectus or the Prospectus or other
references of like import, shall be deemed to mean and include all such
financial statements, schedules and other information that is incorporated by
reference in the Registration Statement, any Preliminary Prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any Preliminary
Prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that is incorporated by reference in the Registration Statement,
such Preliminary Prospectus or the Prospectus, as the case may be.
The Company understands that the Underwriters propose to make a public
offering of the Shares in the United States, as set forth in and pursuant to the
Prospectus, as soon after the date of this Agreement as the Representatives deem
advisable. The Company hereby confirms that the Underwriters and dealers have
been authorized to distribute or cause to be distributed each Preliminary
Prospectus and are authorized to distribute the Prospectus (as from time to time
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES.
A. The Company hereby represents and warrants to each Underwriter as
follows:
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act. The Registration Statement has become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued under the Securities Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are threatened by the Commission, and any request
on the part of the Commission for additional information has been complied
with. Each Preliminary Prospectus and Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424(b) of the Rules, complied or will
comply when so filed in all material
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respects with the Rules and each Preliminary Prospectus and the Prospectus
delivered to the Underwriters for use in connection with the offering of
the Shares will, at the time of such delivery, be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T of the
Rules.
(b) As of the Effective Date, as of the date of the Prospectus and as
of each Closing Date, the Registration Statement complied or will comply in
all material respects with the applicable provisions of the Securities Act
and the Rules and did not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and as of the date of the Prospectus and as of each Closing
Date neither the Prospectus, nor any amendment thereof or supplement
thereto, contained or will contain any untrue statement of a material fact
or omitted or will omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. When any related Preliminary Prospectus was
first filed with the Commission and when any amendment thereof or
supplement thereto was first filed with the Commission, such Preliminary
Prospectus as amended or supplemented did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. Notwithstanding the foregoing, none of the representations and
warranties in this paragraph 4A(b) shall apply to statements in, or
omissions from, the Registration Statement, the Preliminary Prospectus or
the Prospectus made in reliance upon, and in conformity with, information
herein or otherwise furnished in writing by the Representatives on behalf
of the several Underwriters for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus. With respect to the preceding
sentence, the Company acknowledges that the only information furnished in
writing by the Representatives on behalf of the several Underwriters for
use in the Registration Statement, the Preliminary Prospectus and the
Prospectus are (i) the paragraph regarding selling concessions and
reallowances, except for the first sentence thereof, (ii) the information
regarding stabilization, and (iii) the paragraph regarding transactions by
the Company with affiliates of CIBC World Markets Corp., all of which are
set forth in the sections captioned "Underwriting" that appear in each of
the Registration Statement, the Preliminary Prospectus and the Prospectus.
(c) The documents incorporated by reference in the Registration
Statement and the Prospectus, at the time they became effective or were
filed with the Commission, as the case may be, complied in all material
respects with the requirements of the Securities Act or the Exchange Act,
as applicable, and the rules and regulations thereunder, and when read
together with the other information in the Registration Statement and the
Prospectus, do not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
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(d) The consolidated financial statements of the Company and its
subsidiaries (including all notes and schedules thereto) included or
incorporated by reference in the Registration Statement and Prospectus
present fairly the financial position, the results of operations, the
statements of cash flows and the statements of shareholders' equity and the
other information purported to be shown therein of the Company and its
subsidiaries at the respective dates and for the respective periods to
which they apply; and, except as may otherwise be disclosed therein or in
the Prospectus, such financial statements have been prepared in conformity
with Canadian generally accepted accounting principles, consistently
applied throughout the periods involved, and, with respect to the unaudited
financial statements, all adjustments necessary for a fair presentation of
the results for such periods have been made. The summary and selected
financial data included in the Prospectus present fairly the information
shown therein as at the respective dates and for the respective periods
specified and the summary and selected financial data have been presented
on a basis consistent with the consolidated financial statements so set
forth in the Prospectus and other financial information. The
reconciliations to United States generally accepted accounting principles
contained in the notes to the financial statements of the Company included
or incorporated by reference in the Registration Statement and Prospectus
comply with the requirements of Item 18 of Form 20-F promulgated by the
Commission.
(e) PricewaterhouseCoopers LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants as
required by the Securities Act and the Rules.
(f) The Company is a corporation duly organized, validly subsisting
and qualified to do business under the laws of the Province of Alberta,
Canada. Each of the Subsidiaries (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and each subsidiary or other
entity controlled directly or indirectly by the Company (collectively,
"Subsidiaries") is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the
business conducted by it or location of the assets or properties owned,
leased or licensed by it requires such qualification, except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets or properties, business, prospects, results of
operations or financial condition of the Company and the Subsidiaries taken
as whole (a "Material Adverse Effect"). Each of the Company and its
Subsidiaries has all requisite corporate power and capacity, and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies
or any other person or entity (collectively, the "Permits"), to own, lease
and license its assets and properties and conduct its business, all of
which are valid and in full force and effect, as described in the
Registration Statement and the Prospectus, except where the lack of such
Permits, individually or in the aggregate, would not have a Material
Adverse Effect. Each of the Company and its Subsidiaries has fulfilled and
performed in all material respects all
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of its material obligations with respect to such Permits and no event has
occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof or would result in any other material
impairment of the rights of the Company thereunder. Except as may be
required under the Securities Act and state and foreign securities laws
(including Canadian provincial securities laws), no other Permits are
required to enter into, deliver and perform this Agreement and to issue and
sell the Shares.
(g) Each of the Company and its Subsidiaries owns or possesses
adequate and enforceable rights to use all trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar rights and proprietary
knowledge (collectively, "Intangibles") described in the Prospectus as
being owned by it necessary for the conduct of its business, except for
those Intangibles which, if not so owned or possessed, would not have a
Material Adverse Effect. Neither the Company nor any of the Subsidiaries
has received any notice of, or is aware of, any infringement of or conflict
with asserted rights of others with respect to any Intangibles, except for
those infringements or conflicts that would not have a Material Adverse
Effect.
(h) Neither the Company nor any of its Subsidiaries owns any real
property (other than oil and gas properties). Each of the Company and its
Subsidiaries has good and marketable title to all personal property
described in the Prospectus as being owned by it. Any real property and
buildings described in the Prospectus as being held under lease by the
Company or any Subsidiary are held by it or such Subsidiary under valid,
existing and enforceable leases, free and clear of all liens, encumbrances,
claims, security interests and defects, except such as are described in the
Registration Statement and the Prospectus or would not have a Material
Adverse Effect. Each of the Company and its Subsidiaries has good and
defensible title to their oil and gas properties free and clear of all
liens, encumbrances and defects, except (a) those described in the
Registration Statement and the Prospectus, (b) liens securing taxes and
other governmental charges, or claims of materialmen, mechanics and similar
persons, not yet due and payable, (c) liens and encumbrances under
operating agreements, unitization and pooling agreements, and gas sales
contracts, securing payment of amounts not yet due and payable and of a
scope and nature customary in the oil and gas industry and (d) liens,
encumbrances and defects that do not in the aggregate materially affect the
value of such oil and gas properties or materially interfere with the use
made or proposed to be made of such properties by the Company and the
Subsidiaries. The oil, gas and mineral leases, options to lease, drilling
concessions or other property interests therein held by the Company and
Subsidiaries are valid, subsisting and enforceable and reflect in all
material respects the right of the Company and the Subsidiaries, as the
case may be, to explore or receive production from the undeveloped
properties described in the Registration Statement and the Prospectus,
and the care taken by the Company and the Subsidiaries with respect to
acquiring or otherwise procuring such leases, options to lease, drilling
concessions and other property interests was generally consistent with
standard industry practices for acquiring or procuring leases and interests
therein to explore such for hydrocarbons. All other leases and subleases of
the
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Company and the Subsidiaries and under which the Company or any of the
Subsidiaries holds properties described in the Registration Statement and
the Prospectus are in full force and effect, except for such leases and
subleases that, if not in full force and effect, would not have a Material
Adverse Effect. Neither the Company nor any of the Subsidiaries has actual
notice of any claim of any sort that has been asserted by anyone adverse to
the rights of the Company or any Subsidiary under any of such leases or
subleases, or affecting or questioning the rights of the Company or any
such Subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease, except for such claims that
would not have a Material Adverse Effect.
(i) There is no litigation or governmental proceeding to which the
Company or the Subsidiaries is subject or which is pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, which, individually or in the aggregate, might have a
Material Adverse Effect, affect the consummation of this Agreement or which
is required to be disclosed in the Registration Statement and the
Prospectus that is not so disclosed.
(j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (a) there has not been any material adverse change with regard to
the assets or properties, business, results of operations or financial
condition of the Company or the Subsidiaries; (b) neither the Company nor
the Subsidiaries has sustained any loss or interference with its assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree which would have a Material Adverse Effect; (c)
since the date of the latest balance sheet included in the Registration
Statement and the Prospectus, except as reflected therein, neither the
Company nor any of the Subsidiaries has (i) issued any securities or
incurred any liability or obligation, direct or contingent, for borrowed
money, except such liabilities or obligations incurred in the ordinary
course of business, or (ii) entered into any transaction not in the
ordinary course of business; and (d) the Company has not declared or paid
any dividend or made any distribution on any of its shares or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or otherwise
acquire any of its shares except pursuant to its share repurchase plan
which expired on November 1, 1999.
(k) There is no document, contract or other agreement of a character
required to be described in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which is not described
or filed as required by the Securities Act or Rules. Each description of a
contract, document or other agreement in the Registration Statement and the
Prospectus accurately reflects in all material respects the terms of the
underlying document, contract or agreement. Neither the Company nor any
Subsidiary, if a Subsidiary is a party, nor, to the knowledge of the
Company, any other party is in default in the observance or performance of
any term or obligation to be performed by it under any
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such agreement, and no event has occurred which with notice or lapse of
time or both would constitute such a default, in any such case which
default or event, individually or in the aggregate, would have a Material
Adverse Effect. No default exists, and no event has occurred which with
notice or lapse of time or both would constitute a default, in the due
performance and observance of any term, covenant or condition, by the
Company or any Subsidiary, if a Subsidiary is a party thereto, of any other
agreement or instrument to which the Company or any Subsidiary is a party
or by which it or any Subsidiary or their properties or business may be
bound or affected which default or event, individually or in the aggregate,
would have a Material Adverse Effect.
(l) Neither the Company nor any of the Subsidiaries is in violation of
any term or provision of its articles or by-laws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation,
where the consequences of such violation, individually or in the aggregate,
would have a Material Adverse Effect.
(m) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation of any of the transactions contemplated
hereby (including, without limitation, the issuance and sale by the Company
of the Shares) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which with
notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or assets
of the Company or the Subsidiaries pursuant to the terms of, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or
any of the Subsidiaries or any of their properties or businesses is bound,
or any franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or any of the Subsidiaries or
violate any provision of the articles or by-laws of the Company or any of
the Subsidiaries, except for such consents or waivers which have already
been obtained and are in full force and effect.
(n) The Company has authorized and outstanding share capital as set
forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the Shares are in proper legal form and have been
duly authorized for issuance by the Company. All of the issued and
outstanding Common Shares have been duly and validly issued and are fully
paid and nonassessable. Except as disclosed in the Prospectus, there are no
statutory preemptive or other similar rights to subscribe for or to
purchase or acquire any Common Shares of the Company or the Subsidiaries or
any such rights pursuant to its articles or by-laws or any agreement or
instrument to or by which the Company or any of the Subsidiaries is a party
or bound. The Shares, when issued and sold pursuant to this Agreement, (i)
will be duly and validly issued, fully paid and nonassessable and none of
them will be issued in violation of any preemptive or other similar right
and (ii) will be issued with an associated common share purchase right
under the Company's Shareholder Rights Plan
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described in the Prospectus. Except (1) as disclosed in the Registration
Statement and the Prospectus and (2) for employee share options
issued after September 30, 1999 pursuant to the share option plans
of the Company described in the Registration Statement and the Prospectus,
there is no outstanding option, warrant or other right calling for the
issuance of, and there is no commitment, plan or arrangement to issue, any
shares of the Company or the Subsidiaries or any security convertible into,
or exercisable or exchangeable for, such shares. The Common Shares and the
Shares conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All outstanding
shares of each Subsidiary have been duly authorized and validly issued, and
are fully paid and nonassessable and all common shares of each Subsidiary
are owned directly by the Company or by another wholly-owned subsidiary of
the Company free and clear of any security interests, liens, encumbrances,
equities or claims, other than those described in the Prospectus.
(o) No holder of any security of the Company has the right to have any
security owned by such holder included in the Registration Statement or to
demand registration of any security owned by such holder.
(p) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly authorized, executed and delivered by
the Company.
(q) Neither the Company nor any of the Subsidiaries is involved in any
labor dispute nor, to the knowledge of the Company, is any such dispute
threatened, which dispute would have a Material Adverse Effect. The Company
is not aware of any existing or imminent labor disturbance by the employees
of any of the principal suppliers or contractors of the Company or the
Subsidiaries that would have a Material Adverse Effect.
(r) No transaction has occurred between or among the Company and any
of its officers or directors or five percent shareholders or any affiliate
or affiliates of any such officer or director or five percent shareholders
that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
the Common Shares to facilitate the sale or resale of any of the Shares.
(t) The Company and the Subsidiaries have filed all federal, state,
local and foreign tax returns which are required to be filed through the
date hereof, or have received extensions thereof, and have paid all taxes
shown on such returns and all assessments
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received by them to the extent that the same are material and have become
due. There are no tax audits pending or, to the knowledge of the Company,
any investigations pending, which if adversely determined would have a
Material Adverse Effect. To the knowledge of the Company, there are no
material proposed additional tax assessments against the Company or any of
the Subsidiaries.
(u) The Shares have been duly authorized for quotation on the American
Stock Exchange, subject to official notice of issuance, and the Shares have
been conditionally approved for listing on The Toronto Stock Exchange,
subject to customary requirements. Registration statements have been filed
with respect to the Common Shares and the associated common share purchase
rights issued pursuant to the Company's Shareholder Rights Plan on Form 8-A
pursuant to Section 12 of the Exchange Act, which registration statements
comply in all material respects with the Exchange Act.
(v) The books, records and accounts of the Company and the
Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and the Subsidiaries. The Company and each of
the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(w) The Company and the Subsidiaries are insured in accordance with
industry standards against such losses and risks and in such amounts as are
customary in the businesses in which they are engaged; all policies of
insurance and fidelity or surety bonds insuring the Company or any of the
Subsidiaries or the Company's or the Subsidiaries' respective businesses,
assets, employees, officers and directors are in full force and effect; the
Company and each of the Subsidiaries are in compliance with the terms of
such policies and instruments in all material respects; and neither the
Company nor any Subsidiary has reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
(x) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed by
the Company (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or may be
necessary to
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<PAGE>
qualify the Shares for public offering in the United States by the
Underwriters under state or foreign securities laws, including Canadian
provincial securities laws) has been obtained or made and is in full force
and effect.
(z) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws (as hereinafter defined) on the
business, operations and properties of the Company and its subsidiaries. In
the course of this review, the Company identifies and evaluates associated
costs and liabilities, including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws, or any permit, license or approval, any
related constraints on operating activities and any potential liabilities
to third parties). On the basis of such review, and except as described in
the Registration Statement and Prospectus and except to the extent that
would not have a Material Adverse Effect (i) each of the Company and its
Subsidiaries is in compliance in all material respects with all rules, laws
and regulation relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment
("Environmental Laws") that are applicable to its business; (ii) neither
the Company nor any of the Subsidiaries has received any notice from any
governmental authority or third party of an asserted claim under
Environmental Laws; (iii) each of the Company and the Subsidiaries has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and is in compliance
with all terms and conditions of any such permit, license or approval; (iv)
to the knowledge of the Company, no facts currently exist that will require
the Company or the Subsidiaries to make future material capital
expenditures to comply with Environmental Laws; (v) no property that is or
has been owned, leased or occupied by the Company or any of the
Subsidiaries has been designated as a Superfund site pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601, et. seq.) ("CERCLA 1980") or
otherwise designated as a contaminated site under applicable state or local
law; and (vi) the Company has reasonably concluded that there are no
unanticipated associated costs and liabilities which would, singly or in
the aggregate, have a Material Adverse Effect.. To the knowledge of the
Company, neither the Company nor any of the Subsidiaries has been named as
a "potentially responsible party" under CERCLA 1980.
(aa) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of proceeds thereof as described in
the Prospectus, will not be an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company
Act").
(bb) Except to the extent that would not have a Material Adverse
Effect, none of the Company, the Subsidiaries or any other person
associated with or acting on behalf of the Company or the Subsidiaries
including, without limitation, any director, officer, agent or employee of
the Company or the Subsidiaries has, directly or indirectly, while acting
on behalf of the Company or any of the Subsidiaries (i) used any corporate
funds for unlawful
12
<PAGE>
contributions, gifts, entertainment or other unlawful expenses
relating to political activity; (ii) made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, to the
extent such statute is applicable to the Company or any of its
Subsidiaries; or (iv) made any other unlawful payment.
(cc) The Company has reviewed its operations and those of the
Subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its Subsidiaries will be affected by any significant
risk that computer hardware or software applications used by the Company
and its Subsidiaries will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in
the case of dates or time periods occurring prior to January 1, 2000 (the
"Year 2000 Problem"); as a result of such review, the Company has no reason
to believe, and does not believe, that (A) there are any issues related to
the Company's preparedness to address the Year 2000 Problem that are of a
character required to be described or referred to in the Registration
Statement or Prospectus that have not been accurately described in the
Registration Statement or Prospectus and (B) the Year 2000 Problem will
have a Material Adverse Effect, or result in any material loss or
interference with the business or operations of the Company and its
subsidiaries, taken as a whole.
(dd) Netherland, Sewell & Associates, Inc., who prepared estimates of
the extent and value of the U.S. proved oil and natural gas reserves of the
Company and the Subsidiaries, are independent with respect to the Company
and the Subsidiaries. The information supplied by the Company to
Netherland, Sewell & Associates, Inc. for purposes of preparing the reserve
reports and estimates of such engineers included in the Registration
Statement and the Prospectus, including, without limitation, production,
costs of operation and development, current prices for production,
agreements relating to current and future operations and sales of
production, was true and correct in all material respects on the date
supplied and was prepared by the Company in accordance with customary
industry practices.
B. Each of the Underwriters, severally and not jointly, hereby
represents and warrants to the Company that such Underwriter understands
and acknowledges that the Shares have not been and will not be qualified
for public distribution under the securities laws of Canada or any province
or territory of Canada and that the Shares may not be offered or sold,
directly or indirectly, in Canada in violation of the securities laws of
Canada or any province or territory of Canada.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each
of the following terms and conditions:
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<PAGE>
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus shall have been or shall be in effect and no
order suspending the effectiveness of the Registration Statement shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the Commission; no order having the effect of ceasing or
suspending the distribution of the Shares shall have been issued and no
proceedings for such purpose shall have been initiated or threatened by the
Commission or any securities regulatory authority in Canada; and any
requests for additional information on the part of the Commission (to be
included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as
if made on such date. The Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this Agreement
required to be performed or satisfied by it on or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
of the chief executive or chief operating officer and the chief financial
officer or chief accounting officer of the Company to the effect that (i)
the signers of such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement, (ii) the representations and
warranties of the Company in this Agreement are true and correct on and as
of such Closing Date with the same effect as if made on such Closing Date
and the Company has performed all covenants and agreements and satisfied
all conditions contained in this Agreement required to be performed or
satisfied by it at or prior to such Closing Date, (iii) no stop order
suspending the effectiveness of the Registration Statement has been issued
and to the best of their knowledge, no proceedings for that purpose have
been instituted or are pending under the Securities Act, and (iv) no order
having the effect of ceasing or suspending the distribution of the Shares
has been issued by any securities regulatory authority in Canada and to the
best of its knowledge, no proceedings for that purpose have been instituted
or are pending.
(e) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date, a signed letter from
PricewaterhouseCoopers LLP, addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and substance reasonably satisfactory to the Representatives.
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<PAGE>
(f) The Representatives shall have received on each Closing Date from
Cravath, Swaine & Moore, U.S. counsel for the Company, an opinion,
addressed to the Representatives and dated such Closing Date, and stating
in effect that:
(i) No consent, approval, authorization or order of any court or
governmental agency or regulatory body is required under United States
federal or New York laws for the execution, delivery or performance of
this Agreement by the Company or the consummation of the transactions
contemplated hereby or thereby, except such as have been obtained
under the Securities Act and such as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters.
(ii) Accurate copies of all contracts and other documents
required to be filed as exhibits to, or described in, the Registration
Statement have been so filed with the Commission or are fairly
described in the Registration Statement, as the case may be.
(iii) The Registration Statement is effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the knowledge of such counsel, are
threatened, pending or contemplated. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under
the Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(iv) The Shares have been approved for listing on the American
Stock Exchange.
(v) The Company is not an "investment company" or an entity
controlled by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(vi) The information set forth in the Prospectus under the
caption "Certain Income Tax Considerations - United States Federal
Income Tax Considerations" to the extent that it constitutes matters
of law or legal conclusions has been reviewed by such counsel and is
correct in all material respects and the opinion of such counsel set
forth therein is confirmed.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials.
In addition, such counsel shall state that such counsel has
participated in conferences with certain officers of, and with the accountants
and Canadian counsel for,
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<PAGE>
the Company concerning the preparation of the Registration Statement and the
Prospectus and, although such counsel cannot and does not assume responsibility
for the accuracy or completeness of the statements made in the Registration
Statement and Prospectus, except insofar as such statements relate to such
counsel, on the basis of the foregoing, such counsel's work in connection with
the Registration Statement and the Prospectus did not disclose any information
that gave such counsel reason to believe that: (i) the Registration Statement,
at the time the Registration Statement became effective, or the Prospectus, as
of its issue date or as of the Closing Date (in each case except for the
financial statements and other information of an accounting or financial nature
included therein, or information relating to oil and gas reserves and future net
cash flows and other information derived therefrom, as to which such counsel
need not express any view), was not appropriately responsive in all material
respects to the requirements of the Securities Act and the Rules, (ii) the
documents incorporated by reference in the Registration Statement and the
Prospectus, as of the dates they became effective or were filed with the
Commission, as the case may be (in each case except for the financial statements
and other information of an accounting or financial nature included therein, or
information relating to oil and gas reserves and future net cash flows and other
information derived therefrom, as to which such counsel need not express any
view), were not appropriately responsive in all material respects to the
requirements of the Exchange Act and the rules promulgated thereunder, and (iii)
the Registration Statement, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its issue date
and at the Closing Date, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (in each case except for the financial statements and other
information of an accounting or financial nature included therein, or
information relating to oil and gas reserves and future net cash flows and other
information derived therefrom, as to which such counsel need not express any
view).
(g) The Representatives shall have received on each Closing Date from
Bennett Jones, Canadian counsel for the Company, an opinion, addressed to the
Representatives and dated such Closing Date, and stating in effect that:
(i) The Company is a corporation duly organized, validly
subsisting and qualified to do business under the laws of the Province
of Alberta, Canada. Each of the Subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. The Company and each of the
Subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of
its assets or properties (owned, leased or licensed) or the nature of
its businesses makes such qualification necessary, except for such
jurisdictions where the failure to so qualify, individually or in
the aggregate, would not have a Material Adverse Effect.
16
<PAGE>
(ii) Each of the Company and its Subsidiaries has all requisite
corporate power and capacity to own, lease and license its assets and
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and with
respect to the Company, to enter into, deliver and perform this
Agreement. The Company has all requisite corporate power and capacity
to issue and sell the Shares.
(iii) The Company has authorized and issued share capital as set
forth in the Registration Statement and the Prospectus under the
caption "Capitalization"; the certificates evidencing the Shares are
in proper legal form and have been duly authorized for issuance by the
Company; all of the outstanding Common Shares have been duly and
validly authorized and issued and are fully paid and nonassessable and
none of them was issued in violation of any preemptive or other
similar right. The Shares when issued and sold pursuant to this
Agreement will be duly and validly issued, outstanding, fully paid and
nonassessable and none of them will have been issued in violation of
any preemptive or other similar right. To the best of such counsel's
knowledge, except as disclosed in the Registration Statement and the
Prospectus, there are no preemptive or other rights to subscribe for
or to purchase or any restriction upon the voting or transfer of any
securities of the Company pursuant to the Company's Articles of
Incorporation or by-laws or other governing documents or any
agreements or other instruments to which the Company is a party or by
which it is bound. To the best of such counsel's knowledge, except as
disclosed in the Registration Statement and the Prospectus, there is
no outstanding option, warrant or other right calling for the issuance
of, and no commitment, plan or arrangement to issue, any shares of the
Company or any security convertible into, exercisable for, or
exchangeable for any Common Shares or preferred shares of the Company.
The Common Shares and the Shares conform in all material respects to
the descriptions thereof contained in the Registration Statement and
the Prospectus. The issued and outstanding shares of capital stock of
each of the Company's Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and all common shares
of each of the Subsidiaries are owned directly by the Company or by
another wholly owned subsidiary of the Company, free and clear of any
perfected security interest or, to the knowledge of such counsel, any
other security interests, liens, encumbrances, equities or claims,
other than those contained in the Registration Statement and the
Prospectus.
(iv) Each of the Lock-Up Agreements as set forth in Section 5(i)
has been duly and validly executed by such persons and constitutes the
legal, valid and binding obligation of each such person enforceable
against each such person in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
17
<PAGE>
affecting the enforcement of creditors' rights generally and by
general equitable principles.
(v) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly authorized, executed and
delivered by the Company. This Agreement constitutes the legal, valid
and binding obligation of the Company enforceable against the Company
in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles and except to the extent that the rights to indemnity and
contribution provided for in this Agreement may be limited by
applicable law or the public policy underlying such law.
(vi) Neither the execution, delivery or performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will, to the best of
such counsel's knowledge, give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or constitute a
default (or any event which with notice or lapse of time, or both,
would constitute a default) under, or require consent or waiver under,
or result in the execution or imposition of any lien, charge, claim,
security interest or encumbrance upon any properties or assets of the
Company or any Subsidiary pursuant to the terms of any indenture,
mortgage, deed trust, note or other agreement or instrument of which
such counsel is aware and to which the Company or any Subsidiary is a
party or by which either the Company or any Subsidiary or any of its
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation of which such
counsel is aware or violate any provision of the articles or by-laws
of the Company or any Subsidiary.
(vii) To the best of such counsel's knowledge, no default exists,
and no event has occurred which with notice or lapse of time, or both,
would constitute a default, in the due performance and observance of
any term, covenant or condition by the Company or any Subsidiary of
any indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company or any Subsidiary is a party or by
which it or any of its assets or properties or businesses may be bound
or affected, where the consequences of such default, individually or
in the aggregate, would have a Material Adverse Effect.
(viii) To the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in violation of any term or
provision of its articles or
18
<PAGE>
by-laws or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of such
violation, individually or in the aggregate, would have a Material
Adverse Effect.
(ix) All necessary consents, approvals, authorizations and orders
have been obtained under the securities laws of the Province of
Alberta to permit the Shares to be issued, sold and delivered to the
Underwriters and offered, sold and delivered by the Underwriters to
purchasers in the United States pursuant to the Prospectus, and no
other consent, approval, authorization, filing with or order of any
Canadian federal or Province of Alberta court or governmental agency
or body is required for the execution, delivery or performance of this
Agreement by the Company or the issuance, sale or delivery of the
Shares to the Underwriters or the offering, sale or delivery of the
Shares by the Underwriters to purchasers in the United States pursuant
to the Prospectus.
(x) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company or the Subsidiaries which would have a Material
Adverse Effect.
(xi) The statements in the Prospectus under the captions
"Description of Share Capital," "Description of Debt Securities,"
"Description of Warrants," "Enforcement of Civil Liabilities,"
"Business and Properties - Litigation," "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," insofar as such statements constitute a
summary of documents referred to therein or matters of law, are fair
summaries in all material respects and accurately present the
information called for with respect to such documents and matters.
(xii) The common share purchase rights issuable under the
Company's Shareholder Rights Plan to which holders of the Shares are
entitled have been duly authorized and will be issued and attached to
the Shares when such Shares are sold and issued in accordance with
this Agreement without further action by the Company.
(xiii) The Shares have been conditionally approved for listing on
The Toronto Stock Exchange.
(xiv) The share capital of the Company conforms in all material
respects to the description thereof contained in the Prospectus under
the caption "Description of Share Capital."
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<PAGE>
(xv) The opinion of Bennett Jones set forth in the Prospectus
under the caption "Certain Income Tax Considerations - Certain
Canadian Federal Income Tax Considerations" has been reviewed by such
counsel and is confirmed.
The opinion of such counsel shall also contain such opinions relating
to conflicts of laws and enforceability of judgments in respect of the
Underwriting Agreement as the Representatives may reasonably request.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
Canada and the provinces of Alberta and Ontario; provided that such counsel
shall state that in their opinion the Underwriters and they are justified in
relying on such other opinions. Copies of such certificates and other opinions
shall be furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, U.S. counsel for the Company, representatives of the Representatives
and representatives of the independent public accountants of the Company, at
which conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), on the basis of the
foregoing, no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective (except with respect to the financial statements and other information
of an accounting or financial nature included therein, or information relating
to oil and gas reserves and future net cash flows and other information derived
therefrom, as to which such counsel need express no belief) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus as amended or supplemented (except with respect to the
financial statements and other information of an accounting or financial nature
included therein, or information relating to oil and gas reserves and future net
cash flows and other information derived therefrom, as to which such counsel
need make no statement) as of its date or as of the Closing Date contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(h) All actions taken in connection with the sale of the Firm Shares
and the Option Shares as herein contemplated shall be reasonably satisfactory in
form and substance to the Representatives and their counsel and the Underwriters
shall have received from Andrews & Kurth L.L.P. a favorable opinion, addressed
to the Representatives and
20
<PAGE>
dated such Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have furnished
to Andrews & Kurth L.L.P. such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters.
(i) The Representatives shall have received a copy of the lock-up
agreement in the form attached to this Agreement (the "Lock-Up Agreement"),
dated as of the date hereof, executed by each of David E. Mitchell, Stanley A.
Milner, Stephen C. Hurley, Edward L. Hahn, Esther S. Ondrack, James B. Lewis, S.
Jay Milner, Ronald J. Stefure, Hugh J. Kelly, John E. Maybin, Louis G. Munin and
Stuart T. Peeler.
(j) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date, a signed letter from Netherland,
Sewell & Associates, Inc., addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in form and
substance reasonably satisfactory to the Representatives.
(k) The Company shall have furnished or caused to be furnished to the
Representatives such further certificates or documents as the Representatives
shall have reasonably requested.
6. COVENANTS.
(a) The Company covenants and agrees as follows:
(i) The Company shall prepare the Prospectus in a form reasonably
approved by the Representatives and file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the Commission's
close of business on the second business day following the execution
and delivery of this Agreement, or, if applicable, such earlier time
as may be required under the Securities Act.
(ii) The Company shall promptly advise the Representatives in
writing (i) when any post-effective amendment to the Registration
Statement shall have become effective, (ii) of any request by the
Commission for any amendment to the Registration Statement or the
Prospectus or for any additional information, (iii) of the prevention
or suspension of the use of any Preliminary Prospectus or the
Prospectus or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding known to the Company for
that purpose, (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding known to the Company for such purpose, and (v) of the
issuance by any securities regulatory authority in Canada or any
stock exchange of any order having
21
<PAGE>
the effect of ceasing or suspending the trading in the Common Shares,
or the initiation or threatening of any proceeding known to the
Company for such purpose. The Company shall not file any amendment to
the Registration Statement or supplement to the Prospectus unless the
Company has furnished the Representatives with a copy for their review
prior to filing and shall not file any such proposed amendment or
supplement to which the Representatives reasonably object. The Company
shall use its best efforts to prevent the issuance of any stop order
and, if issued, to obtain as soon as possible the withdrawal thereof.
(iii) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the Securities Act or the Rules, the Company
promptly shall prepare and file with the Commission, subject to the
second sentence of paragraph (ii) of this Section 6(a), an amendment
or supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
(iv) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at
the end of the fiscal quarter of the Company during which the
Effective Date occurs (or 90 days if such 12-month period coincides
with the Company's fiscal year), an earnings statement (which need not
be audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or Rule
158 of the Rules.
(v) The Company shall furnish to the Representatives and counsel
for the Underwriters, without charge, conformed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments thereof and,
so long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Rules, as many copies of any
Preliminary Prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may reasonably request.
(vi) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and sale
in connection with the offering under the laws of such jurisdictions
in the United States as the Representatives may designate and shall
maintain such qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the
22
<PAGE>
Company shall not be required in connection therewith, as a condition
thereof, to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction or subject itself
to taxation as doing business in any jurisdiction.
(vii) Without the prior written consent of CIBC World Markets
Corp., for a period of 90 days after the date of this Agreement, the
Company shall not issue, sell or register with the Commission (other
than on Form S-8 or on any successor form), or otherwise dispose of,
directly or indirectly, any equity securities of the Company (or any
securities convertible into, exercisable for or exchangeable for
equity securities of the Company), except for (1) the issuance of the
Shares pursuant to the Registration Statement, (2) the granting of
options pursuant to the Company's existing share option plan or bonus
plan as described in the Registration Statement and the Prospectus
(provided that such options shall not be exercisable within such
90-day period), (3) the issuance of Common Shares pursuant to the
exercise of existing options granted under the Company's share option
plan and (4) the issuance of shares pursuant to the exercise of
conversion rights attached to outstanding preferred shares issued by
Chieftain International Funding Corp.
(viii) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and
by the American Stock Exchange and The Toronto Stock Exchange.
(ix) The Company will apply the net proceeds from the offering of
the Shares in a manner consistent with the disclosure under "Use of
Proceeds" in the Prospectus.
(b) Each of the Underwriters covenants and agrees, severally and not
jointly, as follows:
(i) It will not offer or sell the Shares, directly or
indirectly, in Canada in violation of the securities laws of
Canada or any province or territory of Canada.
(ii) It will not offer or sell the Shares, directly or
indirectly, within Canada except pursuant to prospectus exemptions
under the applicable securities laws of Canada or any province or
territory of Canada.
(iii) It will obtain the agreement of any selling group members
to comply with the foregoing provisions of this Section 6(b).
Notwithstanding the foregoing provisions of this Section 6(b), no
Underwriter shall be liable to the Company pursuant to this Section 6(b) as
a result of the violation by another Underwriter or selling group member of
this Section 6(b) if the former Underwriter is not itself in violation.
23
<PAGE>
(c) The Representatives will give prompt written notice to the Company
when, in the opinion of the Representatives, the Underwriters have
completed distribution of the Shares.
(d) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
incident to the public offering in the United States and the previously
proposed private placement of the Shares in Canada and the performance of
the obligations of the Company under this Agreement including those
relating to: (i) the preparation, printing, filing and distribution of the
Registration Statement including all exhibits thereto, each Preliminary
Prospectus, the Prospectus, the preliminary Canadian offering memorandum
dated October 21, 1999 prepared in connection with the previously proposed
private placement of the Shares in Canada (the "Preliminary Canadian
Offering Memorandum"), amendments and supplements to the Registration
Statement and the Prospectus; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the state securities
laws of the various jurisdictions referred to in Section 6(a)(vi); (iv) the
furnishing (including costs of shipping and mailing) to the Representatives
and to the Underwriters of copies of each Preliminary Prospectus, the
Prospectus, the Preliminary Canadian Offering Memorandum and all amendments
or supplements thereto, as may be reasonably requested for use in
connection with the offering and sale of the Shares by the Underwriters or
by dealers to whom Shares may be sold; (v) inclusion of the Shares for
quotation or listing on the American Stock Exchange and The Toronto Stock
Exchange; and (vi) all transfer taxes, if any, with respect to the sale and
delivery of the Shares by the Company to the Underwriters. Subject to the
provisions of Section 9, the Underwriters agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the
Company pursuant to the preceding sentence, including, without limitation,
the fees and disbursements of counsel for the Underwriters.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, its affiliates and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject
under the Securities Act, the Exchange Act or other federal or state law
or regulation, under the Canadian securities laws, at common law or
otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary
24
<PAGE>
Prospectus, the Registration Statement, the Prospectus or the Preliminary
Canadian Offering Memorandum or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided,
however, that such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any
losses, claims, damages or liabilities arising from the sale of the Shares
to any person by such Underwriter if such untrue statement or omission or
alleged untrue statement or omission was made in such Preliminary
Prospectus, the Registration Statement, the Preliminary Canadian Offering
Memorandum or the Prospectus, or such amendment or supplement thereto in
reliance upon and in conformity with information furnished in writing
to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its affiliates and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement, to the same
extent as the foregoing indemnity as set forth in Section 7(a) hereof from
the Company to each Underwriter, but only insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement
or omission or alleged untrue statement or omission which was made in any
Preliminary Prospectus, the Registration Statement, the Preliminary
Canadian Offering Memorandum or the Prospectus, or any amendment thereof or
supplement thereto contained in (i) the paragraph regarding selling
concessions and reallowances, except for the first sentence thereof, (ii)
the stabilization information, and (iii) the paragraph regarding
transactions by the Company with affiliates of CIBC World Markets Corp.,
all of which are set forth under the sections captioned "Underwriting" that
appear in each of the Registration Statement, the Preliminary Prospectus,
the Prospectus and the Preliminary Canadian Offering Memorandum; provided,
however, that the obligation of each Underwriter to indemnify the Company
(including any controlling person, director or officer thereof) shall be
limited to the net proceeds received by the Company from such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 7(a) or 7(b) shall be available
to any party who shall fail to give notice as provided in this Section
7(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by
the failure to give such notice but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not
relieve it from any
25
<PAGE>
liability that it may have to any indemnified party for contribution or
otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, except as provided below and except
for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its counsel in any such action, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in
addition to those available to the indemnifying party (in which case the
indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party) or (iii) the indemnifying
parties shall not have employed counsel to assume the defense of such
action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. An indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claim
effected without its written consent, which consent shall not be
unreasonably withheld or delayed.
8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason
is held to be unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or 7(b), then each indemnifying party shall
contribute to the aggregate losses, claims, damages and liabilities
(including any investigation, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting any contribution
received by any person entitled hereunder to contribution from any person who
may be liable for contribution) to which the indemnified party may be subject
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other
from the offering of the Shares or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the
offering (net of underwriting discounts but before deducting expenses)
received by the Company, as
26
<PAGE>
set forth in the table on the cover page of the Prospectus, bear to (y) the
Underwriting Commissions received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company
or the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact related to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in
no case shall any Underwriter (except as may be provided in the Agreement
Among Underwriters) be liable or responsible for any amount in excess of the
Underwriting Commissions applicable to the Shares purchased by such
Underwriter hereunder; and (ii) the Company shall be liable and responsible
for any amount in excess of such Underwriting Commissions; provided, however,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each affiliate of an Underwriter, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same
rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of the Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, each officer of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to clauses (i) and (ii) of the immediately preceding sentence of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another
party or parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this Section. No party shall
be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent, which consent shall not be
unreasonably withheld or delayed. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. TERMINATION. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company at any time:
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event, act or occurrence has materially disrupted, or in the
opinion of the Representatives will in the future materially disrupt, the
securities markets and such event, act or occurrence makes it in the
judgment of the Representatives, inadvisable to proceed with the offering;
(ii) if there has occurred any new outbreak or material escalation of
hostilities or other calamity or crisis
27
<PAGE>
the effect of which on the financial markets of the United States or
Canada is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (iii) if there shall be such
a material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States or Canada is such as to make it, in the
judgment of the Representatives, inadvisable or impracticable to market
the Shares; (iv) if trading in the Shares has been suspended by the
Commission or any securities commission in Canada or trading generally
on the New York Stock Exchange, Inc., The Toronto Stock Exchange, the
American Stock Exchange, Inc. or the Nasdaq National Market has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission or any securities commission in Canada, the National Association
of Securities Dealers, Inc., or any other governmental or regulatory
authority; (v) if a banking moratorium has been declared by any state or
Federal or Canadian authority; or (vi) if, in the judgment of the
Representatives, there has occurred a Material Adverse Effect, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required
by this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 9) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by
such Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other
arrangements as the Representatives may deem advisable or one or more of the
remaining Underwriters may agree to purchase such Shares in such proportions
as may be approved by the Representatives, in each case upon the terms set
forth in this Agreement. If no such arrangements have been made by the close
of business on the business day following such Closing Date,
28
<PAGE>
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to one additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections 6(d),
7, 8 and 9. The provisions of this Section 10 shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. A substitute underwriter hereunder
shall become an Underwriter for all purposes of this Agreement.
11. JUDGMENT CURRENCY. Unless otherwise specified, references to
dollar amounts in this Agreement are to United States dollars. The Company
agrees to indemnify each Underwriter, its affiliates and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (an "Underwriter
Indemnitee") against any loss incurred by an Underwriter Indemnitee as a
result of any judgment or order being given or made for liability hereunder
and such judgment or order being expressed and paid in a currency (the
"Judgment Currency") other than United States dollars and as a result of any
variation as between (i) the rate of exchange at which the United States
dollar amount is converted into the Judgment Currency for the purpose of such
judgment or order, and (ii) the rate of exchange at which the Underwriter
Indemnitee is able to purchase United States dollars with the amount of the
Judgment Currency actually received by the Underwriter Indemnitee. In
addition, the Underwriters, severally
29
<PAGE>
and not jointly, agree to indemnify the Company, its affiliates and each person,
if any, who controls the Company within the meaning Section 15 of the Securities
Act or Section 20 of the Exchange Act (a "Company Indemnitee") against any loss
incurred by the Company Indemnitee as a result of any judgment or order being
given or made for liability hereunder and such judgment or order being expressed
and paid in a Judgment Currency other than United States dollars and as a result
of any variation as between (i) the rate of exchange at which the United States
dollar amount is converted into the Judgment Currency for the purpose of such
judgment or order, and (ii) the rate of exchange at which the Company Indemnitee
is able to purchase United States dollars with the amount of the Judgment
Currency actually received by the Company Indemnitee. The foregoing indemnities
of each of the Company and the Underwriters shall respectively constitute
separate and independent obligations of the Company and the Underwriters and
shall continue in full force and effect notwithstanding any such judgment or
order as aforesaid. The term "rate of exchange" shall include any premiums and
costs of exchange payable in connection with the purchase of, or conversion
into, the relevant currency.
12. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(d), 7, 8, 9
and 11 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters and the Company, their respective successors and assigns, and, to
the extent expressed herein, for the benefit of affiliates of and persons
controlling any of the Underwriters, or the Company, and directors and officers
of the Company, and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of Shares from any
Underwriter merely because of such purchase.
Unless otherwise specified, all notices and communications
hereunder shall be in writing and mailed or delivered or by telephone,
facsimile or telegraph if subsequently confirmed in writing, (a) if to the
Representatives, c/o CIBC World Markets Corp.,1600 Smith Street, Suite 3100,
Houston, Texas 77002, facsimile no: (713) 650-7670, Attention: Ron Ormond,
with a copy to Andrews & Kurth L.L.P., 600 Travis, Suite 4200, Houston, Texas
77002, facsimile no: (713) 220-4285, Attention: James M. Prince, Esq. and (b)
if to the Company, to Chieftain International, Inc. 1201 T D Tower 10088-102
Avenue, Edmonton, Alberta T5J 2Z1 Canada, facsimile no: (780) 429- 4681, with
copies to John L. Roach, Inc., 4150 Lincoln Plaza, 500 North Akard, Dallas,
Texas 75201, facsimile no: (214) 953-1968, and Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, facsimile no:
(212) 474-3700, Attention: Thomas R. Brome, Esq., and to Bennett Jones, 4500
Bankers Hall East, 855-2nd Street S.W., Calgary, Alberta T2P 4K7 Canada,
facsimile no: (403) 298-3418, Attention: John S. Burns, Q.C.
30
<PAGE>
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
Each party hereto irrevocably submits to the non-exclusive
jurisdiction of any New York state or United States federal court sitting in the
Borough of Manhattan, New York City, New York, U.S.A., and any appellate court
from any thereof (the "Specified Courts"), over any suit, action or proceeding
brought arising out of or based upon this Agreement (a "Related Proceeding").
Each party hereto waives, to the fullest extent permitted by law, any objection
to Related Proceedings in such courts whether on the grounds of venue, residence
or domicile or on the ground that the Related Proceedings have been brought in
an inconvenient forum. The Company consents to process being served in any such
suit, action or proceeding by mailing, certified mail, return receipt requested,
a copy thereof to such party at the address in effect for notices hereunder, and
agrees that such services shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit any
right to serve process in any other manner permitted by law. Notwithstanding the
foregoing, any action based on this Agreement may be instituted by the
Underwriters or by any person who controls the Underwriters in any competent
court in Canada.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
CHIEFTAIN INTERNATIONAL, INC.
By: /s/ S.A. Milner
--------------------------------------------
Name: S.A. Milner
------------------------------------------
Title: Pres & C.E.O.
-----------------------------------------
Confirmed:
CIBC WORLD MARKETS CORP.
DAIN RAUSCHER INCORPORATED
A. G. EDWARDS & SONS, INC.
- -----------------------------------
Acting on behalf of themselves and as
representatives of the several Underwriters
named in Schedule I annexed hereto.
By: CIBC WORLD MARKETS CORP.
By: /s/ Ronald D. Ormand
--------------------------------
Name: Ronald D. Ormand
------------------------------
Title: Managing Director
-----------------------------
32
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Firm
Shares
To Be
Name Purchased
- ---- ----------
<S> <C>
CIBC World Markets Corp....................................................................... 1,062,500
Dain Rauscher Incorporated.................................................................... 531,250
A.G. Edwards & Sons, Inc...................................................................... 531,250
Howard, Weil, Labouisse, Friedrichs Incorporated.............................................. 50,000
Lehman Brothers Inc........................................................................... 50,000
Prudential Securities Incorporated............................................................ 50,000
Petrie Parkman & Co........................................................................... 50,000
J.C. Bradford & Co............................................................................ 25,000
Josephthal & Co. Inc.......................................................................... 25,000
Ladenburg Thalmann & Co. Inc.................................................................. 25,000
McDonald Investments Inc., a KeyCorp Company.................................................. 25,000
ScotiaMcLeod Inc.............................................................................. 25,000
Southcoast Capital L.L.C...................................................................... 25,000
Southwest Securities, Inc..................................................................... 25,000
-------------
Total 2,500,000
-------------
-------------
</TABLE>
<PAGE>
Exhibit 23.1
[Letterhead of PricewaterhouseCoopers]
CONSENT OF INDEPENDENT ACCOUNTANTS
November 15, 1999
We hereby consent to the inclusion of our report dated February 4, 1999
on the consolidated financial statements of Chieftain International, Inc.
(the "Company") for the year ended December 31, 1998, included or
incorporated by reference, in each of (i) the Prospectus Supplement dated
November 10, 1999 relating to the sale by the Company of 2,500,000 of its
common shares (exclusive of over-allotment option) and (ii) the Prospectus
dated October 20, 1999 relating to the sale by the Company, from time to time,
of up to $300,000,000 of its common shares, preferred shares, debt securities
and warrants (the "Prospectus"). We also consent to the references to us under
the headings "Experts" in each of the Prospectus Supplement and the
Prospectus.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
<PAGE>
Exhibit 23.2
[Letterhead of Netherland, Sewell & Associates, Inc.]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the references to our firm, to the references to
our reports to Chieftain International Inc. (the "Company") and to the use
of our reports to the Company, included or incorporated by reference, in each
of (i) the Prospectus Supplement dated November 10, 1999 relating to the sale
by the Company of 2,500,000 of its common shares (exclusive of over-allotment
option) and (ii) the Prospectus dated October 20, 1999 relating to the sale
by the Company, from time to time, of up to $300,000,000 of its common
shares, preferred shares, debt securities and warrants.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Frederic D. Sewell
----------------------------------
Frederic D. Sewell
President
Dallas, Texas
November 15, 1999
<PAGE>
Exhibit 23.3
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
November 15, 1999
Chieftain International, Inc.
-----------------------------
Ladies & Gentlemen:
We have acted as U.S. counsel to Chieftain International, Inc. (the
"Company") in connection with the preparation of each of (i) the Prospectus
Supplement dated November 10, 1999, relating to the sale by the Company of
2,500,000 of its common shares (exclusive of over-allotment option) and (ii)
the Prospectus dated October 20, 1999, relating to the sale by the Company,
from time to time, of up to $300,000,000 of its common shares, preferred
shares, debt securities and warrants (the "Prospectus").
We hereby consent to the use of our name under the caption "Certain
Income Tax Considerations - United States Federal Income Tax Considerations"
contained in the Prospectus Supplement. We also consent to the references to
us under the headings "Legal Matters" that appear in each of the Prospectus
Supplement and the Prospectus.
Very truly yours,
/s/ Cravath, Swaine & Moore
Chieftain International, Inc.
1201 TD Tower
10088-102 Avenue
Edmonton, Alberta T5J 2Z1
CANADA
208A
<PAGE>
Exhibit 23.4
[Letterhead of]
BENNETT JONES
November 15, 1999
Chieftain International, Inc.
-----------------------------
Ladies and Gentlemen:
We have acted as Canadian counsel to Chieftain International, Inc.
(the "Company") in connection with the preparation of each of (i) the
Prospectus Supplement dated November 10, 1999, relating to the sale by the
Company of 2,500,000 of its common shares (exclusive of over-allotment
option) and (ii) the Prospectus dated October 20, 1999, relating to the sale
by the Company, from time to time, of up to $300,000,000 of its common
shares, preferred shares, debt securities and warrants (the "Prospectus").
We hereby consent to the use of our name under the caption "Canadian
Federal Income Tax Considerations for United States Residents" contained in
the Prospectus Supplement. We also consent to the use of our name under the
caption "Enforcement of Civil Liabilities" contained in the Prospectus.
Additionally, we consent to the references to us under the headings "Legal
Matters" that appear in each of the Prospectus Supplement and the Prospectus.
Very truly yours,
BENNETT JONES
By: /s/ John S. Burns
--------------------
John S. Burns, Q.C.
Chieftain International, Inc.
1201 TD Tower
10088-102 Avenue
Edmonton, Alberta T5J 2Z1
CANADA
<PAGE>
Exhibit 99
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED OCTOBER 20, 1999
2,500,000 SHARES
[LOGO]
CHIEFTAIN INTERNATIONAL, INC.
COMMON SHARES
$17.50 PER SHARE
- --------------------------------------------------------------------------
Chieftain International, Inc. is offering 2,500,000 common shares. This is a
firm commitment underwriting.
Our common shares are listed on the American Stock Exchange and The Toronto
Stock Exchange under the symbol "CID." On November 10, 1999, the last reported
sales price of our common shares on the American Stock Exchange was U.S. $17.81
per share and on The Toronto Stock Exchange was Cdn. $26.50 per share.
INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE S-14
OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- --------------
<S> <C> <C>
Price to the public..................... $17.50 $43,750,000
Underwriting discount................... 0.96 2,400,000
Proceeds to Chieftain................... 16.54 41,350,000
</TABLE>
We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 375,000 additional common
shares from us within 30 days following the date of this prospectus supplement
to cover over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC WORLD MARKETS
DAIN RAUSCHER WESSELS
A.G. EDWARDS & SONS, INC.
The date of this prospectus supplement is November 10, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-5
Risk Factors................................................ S-14
Use of Proceeds............................................. S-16
Capitalization.............................................. S-17
Common Share Price Range and Dividend Policy................ S-18
Selected Consolidated Financial Data........................ S-19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-21
Business and Properties..................................... S-27
Management.................................................. S-36
Certain Income Tax Considerations........................... S-39
Underwriting................................................ S-42
Legal Matters............................................... S-44
Experts..................................................... S-45
Transfer Agents and Registrars.............................. S-45
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS
About This Prospectus....................................... 3
Enforcement of Civil Liabilities............................ 3
Where You Can Find More Information......................... 3
Forward-Looking Statements.................................. 4
Chieftain................................................... 5
Risk Factors................................................ 6
Ratios of Earnings to Fixed Charges......................... 8
Use of Proceeds............................................. 9
Description of Share Capital................................ 9
Description of Debt Securities.............................. 14
Description of Warrants..................................... 19
Plan of Distribution........................................ 21
Legal Matters............................................... 22
Experts..................................................... 22
</TABLE>
S-3
<PAGE>
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is the prospectus supplement,
which describes our business and the specific terms of this offering. The second
part, the base prospectus, gives more general information, some of which may not
apply to this offering. Generally, when we refer only to the "prospectus," we
are referring to both parts combined.
IF THE DESCRIPTION OF THE OFFERING VARIES BETWEEN THE PROSPECTUS SUPPLEMENT AND
THE BASE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THE PROSPECTUS
SUPPLEMENT.
----------------------------
CERTAIN DEFINITIONS AND OTHER INFORMATION
As used in this prospectus supplement and the accompanying prospectus, the terms
"Chieftain," "we," "us" and "our" refer to Chieftain International, Inc., a
company organized under the laws of the Province of Alberta, Canada, and its
subsidiaries (unless the context indicates a different meaning), and the term
"common shares" and "shares" means Chieftain's common shares, no par value.
Unless otherwise stated, all information contained in this prospectus supplement
and the accompanying prospectus assumes no exercise of the over-allotment option
granted to the underwriters.
As used in this prospectus supplement, "Bcf" means 1,000,000,000 cubic feet of
natural gas, "Bcfe" means 1,000,000,000 cubic feet of natural gas equivalent,
"MBbls" means 1,000 barrels of crude oil, condensate and natural gas liquids,
"Mcf" means 1,000 cubic feet of natural gas, "Mcfe" means 1,000 cubic feet of
natural gas equivalent using a ratio of 1 barrel = 6,000 cubic feet of natural
gas, "MMcf" means 1,000,000 cubic feet and "MMcfe" means 1,000,000 cubic feet of
natural gas equivalent.
All production numbers set forth in this prospectus supplement, whether amounts,
costs, revenues or otherwise, are reported net of royalties, unless otherwise
indicated.
UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE REQUIRES, ALL DOLLAR AMOUNTS
IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS ARE EXPRESSED IN U.S. DOLLARS.
Our principal executive offices are located at 1201 TD Tower, 10088-102 Avenue,
Edmonton, Alberta, Canada T5J 2Z1 and our telephone number is (780) 425-1950.
----------------------------
THE COMMON SHARES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR PUBLIC
DISTRIBUTION UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY IN
CANADA. THE COMMON SHARES ARE NOT BEING AND MAY NOT BE, OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA IN VIOLATION OF THE SECURITIES LAWS OF CANADA
OR ANY PROVINCE OR TERRITORY OF CANADA.
S-4
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THIS PROSPECTUS SUPPLEMENT SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS
PROSPECTUS SUPPLEMENT BUT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. THIS PROSPECTUS SUPPLEMENT INCLUDES SPECIFIC TERMS OF THE
OFFERING OF OUR COMMON SHARES, INFORMATION ABOUT OUR BUSINESS AND FINANCIAL
DATA. WE ENCOURAGE YOU TO READ THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, INCLUDING THE "RISK FACTORS" SECTIONS IN BOTH OF THESE DOCUMENTS,
AND THE DOCUMENTS WE INCORPORATE BY REFERENCE, BEFORE MAKING AN INVESTMENT
DECISION.
THE COMPANY
Chieftain International, Inc. is an independent energy company engaged in the
exploration, development and production of natural gas and oil. Our producing
properties and exploration acreage are primarily located in the shallow waters
of the U.S. Gulf of Mexico. We also have properties located onshore in
Louisiana, in the Four Corners area of southeast Utah and in the U.K. sector of
the North Sea.
We have assembled a large natural gas and oil lease acreage position in the Gulf
of Mexico. Our lease interests in the Gulf of Mexico include a balanced
portfolio of exploration and development drilling prospects. These prospects
range from high-impact prospects with relatively greater risks, which we believe
have the potential to add substantially to our reserves, to relatively lower
risk development and exploitation projects with lower reserve potential. Our
exploration efforts are supported by an extensive 3-D seismic database covering
most of our leases. We believe that our seismic database and related
technological expertise have contributed to our successful exploration and
development track record. We believe our conservative capital structure provides
us with the financial flexibility to take advantage of our prospects and other
opportunities, including acquisitons of leasehold acreage and producing
properties.
We hold interests in 133 lease blocks located on the continental shelf of the
Gulf of Mexico. We also have interests in ten deep-water blocks. Of these lease
blocks, 94 are held as exploratory acreage and 49 are held by production. We
operate 38 of these blocks. Our average working interest in our Gulf of Mexico
leases is approximately 40%. In the third quarter of 1999, we had net production
of 75.9 MMcfe per day in the Gulf of Mexico, which represented approximately 77%
of our total production.
In addition to our Gulf of Mexico properties, we own various interests in two
large light oil producing units in the Four Corners area of southeast Utah where
we had net production of 1,774 barrels per day in the third quarter of 1999. We
own an interest in approximately 9,600 net acres in the U.K sector of the North
Sea where we had net production of 10.5 MMcfe per day in the third quarter of
1999. We are also active in exploratory activities onshore in Louisiana.
At December 31, 1998, we had estimated proved reserves of 207.9 Bcfe. These
reserves had a present value of net cash flows before income taxes, discounted
at 10%, of $152.5 million using constant natural gas and oil prices in effect on
December 31, 1998, which averaged $2.12 per Mcf for natural gas and $9.72 per
barrel for oil. If our realized natural gas and oil prices in effect at
September 30, 1999 were used in this determination, assuming no other changes,
our estimated proved reserves at December 31, 1998, would have increased to
222.7 Bcfe and the present value of net cash flows before income taxes,
discounted at 10%, would have increased to $279.0 million. Our average realized
prices for our production at September 30, 1999 were $2.58 per Mcf for natural
gas and $20.16 per barrel for oil. At December 31, 1998, approximately 62% of
our proved reserves were natural gas and approximately 70% of our proved
reserves were developed. Our total proved reserves at December 31, 1998 had a
reserves-to-production ratio of approximately 6.8 years.
S-5
<PAGE>
We have experienced substantial growth in proved reserves, production, revenue
and cash flow as demonstrated by the following:
- Since 1994, our overall drilling success rate has been 74% and our drilling
success rate for exploratory wells has been 40%. For the nine months ended
September 30, 1999, our overall drilling success rate was 73% and our
drilling success rate for exploratory wells was 62%.
- Since 1994, we have added proved reserves of 235 Bcfe, of which 127 Bcfe has
been from drilling, 72 Bcfe has been from acquisitions and 36 Bcfe has been
from upward revisions of previous estimates.
- Since 1994, we have replaced 208% of our production.
- We have increased our average daily production 157% to 98.3 MMcfe per day in
the third quarter of 1999 from 38.2 MMcfe per day in 1994.
- We have increased our net production revenue 18% to $53.0 million for the
first nine months of 1999 from $44.9 million for the first nine months of
1998.
- We have increased our EBITDA 24% to $39.2 million for the first nine months
of 1999 from $31.6 million for the first nine months of 1998.
OUR STRENGTHS
We believe that our historical success and future performance are directly
related to the following combination of strengths:
- SUBSTANTIAL INVENTORY OF DRILLING PROJECTS IN THE GULF OF MEXICO. In the
Gulf of Mexico, we have generated an inventory of over 45 drilling locations,
of which 36 are exploratory. Substantially all of these locations have been
evaluated and defined using 3-D seismic data. Our large inventory permits us
to be flexible in project selection and in the timing of drilling. By
identifying new exploration targets and acquiring additional acreage, we
continually add to our drilling inventory.
- PROVEN EXPLORATORY EXPERTISE. Our ability to define and participate in
successful exploratory prospects in the Gulf of Mexico is demonstrated by our
exploratory drilling success rate in the Gulf of Mexico of 83% over the nine
months ended September 30, 1999.
- EXPERIENCED TECHNICAL TEAM. Our technical team is comprised of highly
respected industry professionals with an average of 22 years of industry
experience. We believe our exploration success is a direct result of this
team's engineering and technical analyses.
- FINANCIAL FLEXIBILITY. With the net proceeds of this offering, we will have
the ability to repay substantially all of our outstanding indebtedness,
resulting in approximately $95 million of availability under our revolving
credit facility. We seek to maintain low levels of debt in order to respond
quickly to drilling or acquisition opportunities.
OUR STRATEGY
Our strategy is to increase our reserves, production, revenue and cash flow
through exploration and development drilling and through the acquisition of
leasehold acreage and producing properties. The elements of our strategy include
the following:
- FOCUS ON THE GULF OF MEXICO. We focus our operations on the Gulf of Mexico
where we have acquired a significant exploration acreage position and
assembled a substantial 3-D seismic database. We believe this region combines
significant geological potential, reservoir size, quality
S-6
<PAGE>
and deliverability with favorable commodity pricing and attractive finding,
development and operating costs.
- GROW THROUGH EXPLORATION. We are pursuing an active technology-driven
exploration program that is designed to balance projects with lower risk and
moderate potential with drilling prospects which have higher risk and
substantial potential. We generate exploration prospects through geological
and geophysical analysis of 3-D seismic and other data and also review
prospects generated by others. Currently, we have budgeted approximately
$18.6 million for exploration and development capital expenditures for the
fourth quarter of 1999 and we expect to use $14.9 million of this amount for
exploration activities. We are currently drilling or plan to drill
approximately 15 exploratory and development wells in the Gulf of Mexico and
in the Gulf Coast area during the fourth quarter of 1999. We have budgeted
approximately $86.2 million for exploration and development capital
expenditures for 2000, $50.0 million of which we expect to use for
exploration activities.
- MANAGE DRILLING RISKS THROUGH JOINT VENTURES AND THE USE OF ADVANCED
TECHNOLOGIES. We seek to limit our financial and operating risks in selected
projects by participating in drilling with industry partners and operators.
We believe this strategy limits our risk exposure in high potential
prospects. Additionally, we have increasingly relied on advanced
technologies, including 3-D seismic analysis, to define geologic risks,
thereby enhancing the results of our drilling efforts. We also seek to
operate our projects in order to better control drilling costs and the timing
of drilling.
- EVALUATE AND PURSUE STRATEGIC ACQUISITIONS. We continually review
opportunities to acquire leasehold acreage and producing properties. We seek
to acquire properties that we believe have significant exploration potential
and to increase our working interest in producing lease blocks when available
to us on economically favorable terms.
RECENT DRILLING ACTIVITIES
HIGH ISLAND. In August 1999, we announced that our exploratory well on High
Island Blocks A-510/A-531, located offshore Texas in the Gulf of Mexico,
resulted in an oil and natural gas discovery. This well was drilled to a total
depth of 11,107 feet and encountered more than approximately 260 net feet of
hydrocarbon-bearing pay in multiple zones. We are now drilling an additional
well on Block A-510 and will then design and install production facilities. We
operate, and have a 50% working interest in, this project.
NORTHEAST WRIGHT FIELD. The Broussard No. 1 well located onshore in south
Louisiana in Vermilion Parish was drilled to a measured depth of 18,340 feet in
early October 1999 and production liner has been run to total depth. This well
encountered a significant accumulation of natural gas-bearing high quality
reservoir rock. It was drilled as a delineation well to confirm and extend
natural gas reserves discovered in the D. W. Guidry No. 1 well located
approximately one mile to the north. Completion procedures are in progress and
we expect production from the Broussard No. 1 well to commence during the fourth
quarter of 1999. Production facilities and flow lines in the field are being
expanded to accommodate increased production volumes and additional drilling is
planned to fully develop the field. We own a 50% interest in the Broussard
No. 1 well and approximately 3,100 acres in the Northeast Wright Field.
VERMILION 267. We have a 60% working interest in the Vermilion 267 No. 1
natural gas discovery well located offshore Louisiana in the Gulf of Mexico.
This well reached a total depth of 13,370 feet in early October 1999 and
encountered approximately 52 feet of high quality net effective hydrocarbon-
bearing reservoir rock. This well has been cased for production and the design
of production facilities is in progress. Additional exploratory and development
drilling is planned to fully develop the block.
S-7
<PAGE>
RECENT OPERATING RESULTS
Operating results for the three months ended September 30, 1999 reflect
increases in production volumes and prices for both natural gas and oil compared
with the third quarter of 1998. Our average daily production of natural gas and
oil increased 29% to 98 MMcfe (118 MMcfe before royalties) for the third quarter
of 1999 from 76 MMcfe (94 MMcfe before royalties) for the third quarter of 1998.
Average natural gas prices that we received increased 15% to $2.26 per Mcf for
the third quarter of 1999 from $1.96 per Mcf for the third quarter of 1998.
Average oil prices that we received increased 63% to $19.31 per barrel for the
third quarter of 1999 from $11.86 per barrel for the third quarter of 1998.
Total revenue increased 63% to $22.8 million for the third quarter of 1999 from
$13.9 million for the third quarter of 1998. Higher production, coupled with
higher natural gas and oil prices, resulted in cash flow from operations of
$16.3 million for the third quarter of 1999, compared to $7.3 million for the
third quarter of 1998, and net income of $1.3 million for the third quarter of
1999 compared to a loss of $2.5 million for the third quarter of 1998.
S-8
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares offered........................ 2,500,000 shares
Common shares to be outstanding after the
offering................................... 15,849,059 shares
Use of proceeds.............................. To fund the development of our existing
reserves, to increase our exploration program
and possibly to acquire oil and natural gas
properties. Until funds are required for such
purposes, the proceeds may be used to repay
bank indebtedness or may be invested in
short-term money market instruments. See "Use
of Proceeds."
American Stock Exchange and The Toronto Stock
Exchange symbol............................ CID
</TABLE>
The number of outstanding shares shown above is based on 13,349,059 outstanding
shares at September 30, 1999 and excludes:
- up to 375,000 shares that may be sold to the underwriters upon exercise of
their over-allotment option;
- 1,123,189 shares that may be issued pursuant to share options outstanding as
of September 30, 1999; and
- up to 3,408,375 shares reserved for issuance upon conversion of our
subsidiary's $1.8125 cumulative redeemable preferred shares.
S-9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information below has been derived from our
audited consolidated financial statements for annual and year-end data, and from
our unaudited consolidated condensed financial statements for interim-period
data. Our financial statements are prepared using Canadian generally accepted
accounting principles. Our reporting currency is U.S. dollars. For a discussion
of the effect of the differences between Canadian and U.S. generally accepted
accounting principles, see footnote 2 to the table below, Note 11 to the audited
consolidated financial statements and Note 7 to the unaudited consolidated
condensed financial statements which are included elsewhere in this prospectus
supplement. The results of operations for the nine months ended September 30,
1999 should not be regarded as indicative of results for the full year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ---------- ---------- -------- -------- -------- --------
(UNAUDITED)
(U.S. $ IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Production revenue..................... $ 64,236 $ 54,489 $ 74,861 $ 84,219 $ 72,838 $ 31,733 $ 35,960
Less: royalties...................... 11,282 9,637 13,246 14,592 12,226 5,058 5,841
-------- -------- -------- -------- -------- -------- --------
Production revenue, net of royalties... 52,954 44,852 61,615 69,627 60,612 26,675 30,119
Interest income and other.............. 570 2,613(1) 2,776(1) 2,428 2,487 4,396 4,757
-------- -------- -------- -------- -------- -------- --------
Total................................ 53,524 47,465 64,391 72,055 63,099 31,071 34,876
Costs and expenses:
Production costs....................... 10,985 12,219 16,355 13,325 12,220 9,563 8,839
General and administrative expenses.... 3,354 3,668 4,796 4,308 3,972 3,346 3,402
Interest............................... 1,867 285 437 -- -- -- --
Depletion and amortization(2).......... 38,711 30,096 42,081 36,951 30,920 18,779 21,527
Additional depletion(2)(3)............. 11,393 -- 6,244 -- -- -- 15,434
-------- -------- -------- -------- -------- -------- --------
Total................................ 66,310 46,268 69,913 54,584 47,112 31,688 49,202
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
dividends on preferred shares of a
subsidiary(4).......................... (12,786) 1,197 (5,522) 17,471 15,987 (617) (14,326)
Provision (benefit) for income taxes
Current................................ 8 27 14 7 124 34 46
Deferred............................... (5,416) 1,114 (1,423) 7,304 6,079 124 (4,844)
-------- -------- -------- -------- -------- -------- --------
Total................................ (5,408) 1,141 (1,409) 7,311 6,203 158 (4,798)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before dividends on
preferred shares of a subsidiary....... (7,378) 56 (4,113) 10,160 9,784 (775) (9,528)
Dividends on preferred shares of a
subsidiary(4).......................... 3,707 3,707 4,942 4,942 4,942 4,942 4,942
-------- -------- -------- -------- -------- -------- --------
Income (loss) applicable to common
shares(2).............................. $(11,085) $ (3,651) $ (9,055) $ 5,218 $ 4,842 $ (5,717) $(14,470)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per common share basic
and fully diluted(2)................... $ (0.83) $ (0.27) $ (0.67) $ 0.38 $ 0.37 $ (0.54) $ (1.32)
======== ======== ======== ======== ======== ======== ========
Weighted average number of common shares
outstanding (000's).................... 13,350 13,521 13,480 13,621 13,065 10,633 10,986
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(5)................................ $ 39,185 $ 31,578 $ 43,240 $ 54,422 $ 46,907 $ 18,162 $ 22,635
Cash flow from operations................ 33,603 27,559 37,847 49,473 41,841 13,186 17,647
Net natural gas and oil capital
expenditures........................... 36,187 66,198 92,573 69,453 57,673 100,502 28,059
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.......................... $ 4,709 $ 4,032 $ 2,392 $ 22,676 $ 42,854 $ 11,216 $103,225
Total assets(2).......................... 307,863 300,281 318,584 285,125 267,442 204,555 211,032
Long-term debt........................... 45,000 25,000 40,000 -- -- -- --
Shareholders' equity(2).................. 223,789 240,898 234,946 249,466 244,122 190,534 200,754
</TABLE>
- ---------------------------
(1) Includes a $1.6 million court awarded claim for recovery of past years'
excess transportation charges.
S-10
<PAGE>
(2) The use of U.S. generally accepted accounting principles results in the
following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(U.S. $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Depletion and amortization................. $ 25,589 $ 27,465 $ 37,846 $ 33,774 $ 28,539 $ 16,004 $ 17,691
Additional depletion*...................... 18,497 24,725 95,397 -- -- 6,740 18,245
Net income (loss) applicable to
common shares............................ (6,723) (18,296) (63,963) 7,510 6,202 (7,862) (13,710)
Net income (loss) per common share:
Basic.................................... (0.50) (1.35) (4.75) 0.55 0.47 (0.74) (1.25)
Fully diluted............................ (0.50) (1.35) (4.75) 0.54 0.46 (0.74) (1.25)
Total assets............................... 232,022 261,500 238,675 269,178 245,763 186,682 195,136
Shareholders' equity....................... 98,523 151,533 105,318 174,746 167,110 112,162 124,527
</TABLE>
- ---------------------------
* These amounts reflect non-cash write-downs in accordance with full cost
accounting rules under U.S. generally accepted accounting principles.
(3) These amounts reflect non-cash write-downs of the carrying value of natural
gas and oil properties in accordance with full cost accounting rules under
Canadian generally accepted accounting principles. A write-down of U.S.
property carrying costs, at December 31, 1998, of $16.5 million would have
been required had December 31, 1998 prices ($2.15 per Mcf and $9.72 per
barrel) been used. A write-down of U.S. property carrying costs at
December 31, 1994 of $16.8 million would have been required had
December 31, 1994 prices ($1.62 per Mcf for natural gas and $16.50 per
barrel for oil and natural gas liquids) been used.
(4) In 1992, our subsidiary, Chieftain International Funding Corp., sold
2,726,700 of its $1.8125 cumulative convertible redeemable preferred shares
at $25.00 per share. The preferred shares are redeemable, at the option of
the subsidiary, and are convertible at any time into 1.25 common shares of
Chieftain at the option of the holder.
(5) EBITDA represents income before interest expense, income taxes, depletion
and amortization (including all amounts for additional depletion) and
dividends paid on preferred shares of a subsidiary. We have reported EBITDA
because we believe EBITDA is a measure commonly reported and widely used by
investors as an indicator of a company's operating performance and ability
to incur and service debt. We believe EBITDA assists investors in comparing
a company's performance on a consistent basis without regard to depletion
and amortization, which can vary significantly depending upon accounting
methods or nonoperating factors such as historical cost. EBITDA is not a
calculation based on Canadian or U.S. generally accepted accounting
principles and should not be considered an alternative to net income in
measuring our performance or used as an exclusive measure of cash flow
because it does not consider the impact of working capital growth, capital
expenditures, debt principal reductions and other sources and uses of cash
which are disclosed in our Consolidated Statement of Changes in Financial
Position and Consolidated Condensed Statement of Cash Flows. Investors
should carefully consider the specific items included in our computation of
EBITDA. While EBITDA has been disclosed herein to permit a more complete
comparative analysis of our operating performance and debt servicing ability
relative to other companies, investors should be cautioned that EBITDA as
reported by us may not be comparable in all instances to EBITDA as reported
by other companies. EBITDA amounts may not be fully available for
management's discretionary use, due to certain requirements to conserve
funds for capital expenditures, debt service and other commitments.
S-11
<PAGE>
SUMMARY RESERVES AND PRODUCTION DATA
The following tables set forth certain summary information with respect to
estimates of our oil and natural gas reserves and data about production and
sales of oil and natural gas for the periods indicated. Our estimates of U.S.
oil and natural gas reserves, the future net revenues therefrom and their
discounted present value at a rate of 10%, or PV-10 Value, have been prepared by
Netherland, Sewell & Associates, Inc., independent petroleum engineers. Such
information regarding U.K. reserves has been prepared by our personnel. U.K.
reserves comprise 5% of our total reserves on a Bcfe basis. See "Risk Factors"
in this prospectus supplement and in the accompanying prospectus and "Business
and Properties."
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
ESTIMATED PROVED OIL AND NATURAL GAS RESERVES(1):
Net natural gas reserves (MMcf):
Proved developed.................................... 99,432 89,139 86,997 85,705 33,581
Proved undeveloped.................................. 29,641 35,958 39,804 40,986 25,155
-------- -------- -------- -------- -------
Total............................................. 129,073 125,097 126,801 126,691 58,736
======== ======== ======== ======== =======
Net oil reserves (MBbls):
Proved developed.................................... 7,534 8,397 8,397 7,509 5,588
Proved undeveloped.................................. 5,600 2,916 907 943 797
-------- -------- -------- -------- -------
Total............................................. 13,134 11,313 9,304 8,452 6,385
======== ======== ======== ======== =======
Total proved oil and natural gas reserves
(MMcfe)(2).......................................... 207,877 192,975 182,625 177,403 97,046
======== ======== ======== ======== =======
ESTIMATED PRESENT VALUE OF PROVED RESERVES (U.S. $ IN
THOUSANDS):
Proved developed...................................... $135,867 $187,697 $218,961 $111,608 $43,595
Proved undeveloped.................................... 16,641 50,615 85,335 40,096 19,333
-------- -------- -------- -------- -------
Total PV-10 Value (before income taxes)............. $152,508(3) $238,312 $304,296 $151,704 $62,928
======== ======== ======== ======== =======
Standardized measure of discounted estimated future
net cash flows after income taxes(4).............. $152,508 $199,573 $239,023 $137,494 $60,374
======== ======== ======== ======== =======
PRICES USED IN CALCULATING END OF YEAR PROVED RESERVES:
U.S. natural gas reserves (per Mcf)................... $ 2.15 $ 2.74 $ 3.43 $ 2.06 $ 1.62
U.K. natural gas reserves (per Mcf)................... 1.74 1.76 2.04 0.86 2.25
Oil (per barrel)...................................... 9.72 16.69 24.03 18.48 16.50
OTHER RESERVE DATA(1):
Reserve replacement rate(5)........................... 136% 240% 278% 260% 83%
Natural gas as a percent of total proved
reserves(2)......................................... 62% 65% 69% 71% 61%
Proved developed reserves as a percent of total proved
reserves(2)......................................... 70% 72% 75% 74% 69%
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET AVERAGE DAILY SALES VOLUME:
Natural gas (MMcf per day).......................... 70.0 67.1 64.2 59.8 29.5 28.4
Oil and natural gas liquids (barrels per day)....... 3,995 3,012 2,261 2,005 1,643 1,631
Total production (MMcfe per day)(2)............... 93.9 85.2 77.8 71.8 39.3 38.2
WEIGHTED AVERAGE SALES PRICES:
Natural gas (per Mcf)............................... $ 1.89 $ 1.99 $ 2.33 $ 2.09 $ 1.54 $ 1.97
Oil and natural gas liquids (per barrel)............ 15.62 11.74 18.94 20.99 16.94 15.86
SELECTED DATA PER MCFE:
Production costs.................................... $ 0.43 $ 0.53 $ 0.47 $ 0.46 $ 0.67 $ 0.63
General and administrative expenses................. 0.13 0.15 0.15 0.15 0.23 0.24
</TABLE>
- ---------------------------
(1) All reserve quantities are shown net of royalties.
(2) Oil is converted into natural gas equivalents using a conversion ratio of 6
Mcf of natural gas to 1 barrel of oil.
(3) If our realized prices in effect at September 30, 1999, were used in this
determination, proved reserves would have increased to 222.7 Bcfe and PV-10
Value would have increased to $279.0 million.
(4) At December 31, 1998, no income taxes would be payable at these natural gas
and oil price levels.
(5) Calculated for a three-year period ending with the year presented by
dividing the increase in net reserves, including any revisions of those
reserves, by the production quantities for such period.
S-13
<PAGE>
RISK FACTORS
An investment in our common shares involves significant risks. You should
carefully consider the following risk factors and the information included under
"Risk Factors" in the accompanying prospectus before you decide to buy our
common shares. You should also carefully read and consider all of the
information we have included, or incorporated by reference, in this prospectus
supplement and the accompanying prospectus before you decide to buy our common
shares.
LOW OIL AND NATURAL GAS PRICES ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
CONDITION.
Prices for oil and natural gas are volatile and declined significantly during
the second half of 1998 and early 1999. Natural gas prices affect us more than
oil prices as natural gas was 79% of our 1998 production and 74% of our
production in the first nine months of 1999. In 1998, natural gas prices we
received were 17% lower than in 1997 and oil prices were 38% lower. Primarily
because of lower prices, we recorded ceiling test write-downs in 1994 and in
1998. If prices declined from current levels, we would be negatively affected in
several ways:
- our cash flows would be reduced, decreasing funds available for capital
expenditures to replace reserves or increase production;
- certain reserves could no longer be economic to produce, which would lead to
lower reserves and cash flow;
- our lenders could elect not to extend our credit facility, limiting our
liquidity and possibly requiring mandatory loan repayments; and
- access to other sources of capital, such as equity or long-term debt markets,
could be severely limited or unavailable.
Consequently, our revenues and profitability would suffer. Most of the factors
which affect gas and oil prices are beyond our control, such as demand,
worldwide economic conditions, weather conditions, supply levels, import prices,
political conditions in major oil producing regions, especially the Middle East,
and actions taken by OPEC.
WE MAY INCUR ADDITIONAL WRITE-DOWNS OF THE CARRYING VALUES OF OUR PROPERTIES.
Accounting rules require that we review the carrying value of our oil and
natural gas properties on a periodic basis for possible write-down or
impairment. Under these rules, capitalized costs of proved reserves may not
exceed the value of estimated future net revenues from those proved reserves.
Primarily because of weak oil and natural gas prices, we recorded a
$1.1 million pre-tax ceiling limitation write-down for our U.K. properties in
1998 and we recorded a $9.8 million pre-tax ceiling limitation write-down for
our U.S. properties in 1994. Similarly, the failure to find economic reserves in
Libya and Peru led to a $5.1 million pre-tax impairment of our foreign
investments in Libya in 1998 and a further impairment of $11.4 million in 1999
and an impairment of $5.6 million in Peru in 1994. For a description of the
effect of the differences in ceiling limitation write-downs in the U.S. and
Canada, see Note 11 to the audited consolidated financial statements for the
year ended December 31, 1998 and Note 7 to the unaudited consolidated condensed
financial statements for the period ended September 30, 1999, included elsewhere
in this prospectus supplement.
We may be required to write-down the carrying value of our oil and natural gas
properties in the future if oil and natural gas prices are depressed for even a
short period of time, are unusually volatile or if we have substantial downward
revisions to our proved reserve quantities. Any such ceiling test write-down
would result in a charge to earnings and a reduction of shareholders' equity,
but would not
S-14
<PAGE>
impact our cash flow from operating activities. Once incurred, these write-downs
cannot be reversed at a later date.
Given that full cost accounting rules are applied on a country-by-country basis,
we are currently exposed to the risk of a possible write-down or impairment of
our properties in the U.K. At September 30, 1999, our investment in the U.K.
totaled $7.9 million. Natural gas prices in the U.K. have declined substantially
during the past two years and, barring substantial improvement in U.K. natural
gas prices, we could be required to make a further ceiling limitation write-down
in 1999.
WE RELY ON OUR SENIOR OFFICERS AND OTHER KEY EMPLOYEES.
We rely on key employees and their expertise. If we were to lose several of our
key technical employees or executive officers, our operations could suffer
during their successors' transition periods.
WE AND OUR SUPPLIERS OR PARTNERS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD
RESULT IN DISRUPTION OF OUR OPERATIONS.
Actual effects of the Year 2000 issue are subject to uncertainties. Our Year
2000 program may not completely identify every potential problem that may arise.
Our inability to completely solve all potential problems or address all
potentially affected systems could materially hurt our business. Likewise, our
business suppliers and partners may experience unanticipated Year 2000 problems
which could in turn affect our operations. In addition, we have relied on
representations from third parties that our systems and the systems of third
parties with whom we conduct business are Year 2000 compliant. However, because
of the difficulty in anticipating all effects of the Year 2000 issue, these
representations are not guarantees. If there are Year 2000 related failures in
our critical systems or our business suppliers' and partners' critical systems
that create substantial or prolonged disruptions to our business, the adverse
impact on us could materially affect our financial condition or results of
operations. For a description of our Year 2000 program, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Disclosure."
INCREASED VOLATILITY OF OIL AND NATURAL GAS PRICES CAN CAUSE SUDDEN CHANGES IN
THE MARKET FOR OUR COMMON SHARES.
Our quarterly results of operations may fluctuate significantly as a result of
variations in oil and natural gas prices and production performance. In recent
years, oil and natural gas price volatility has become increasingly severe. You
can expect the market price of our common shares to decline when our quarterly
results decline or when announcements of adverse events regarding us or the
industry are made. Our common share price may decline to a price below the price
you paid to purchase your common shares in this offering.
S-15
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the common shares will be
approximately $40.4 million, after deducting underwriting discounts and
expenses, or approximately $46.6 million if the underwriters fully exercise
their over-allotment option.
The net proceeds will be used to fund the development of our existing reserves,
to increase our exploration program and may be used to acquire oil and natural
gas properties. Until funds are required for such purposes, the proceeds may be
used to repay bank indebtedness or may be invested in short-term money market
instruments. As of September 30, 1999, our revolving credit facility had an
outstanding balance of $45.0 million and its weighted average interest rate was
6.24%. Our credit facility matures June 29, 2000. If we apply the net proceeds
of this offering to reduce our bank debt, we will have repaid substantially all
of the outstanding balance under our credit facility, resulting in a borrowing
base of approximately $95 million.
S-16
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999:
- our historical capitalization; and
- our capitalization as adjusted to show the receipt of the estimated net
proceeds from the sale of our common shares being sold in this offering and
the use of a portion of such proceeds to pay down bank borrowings.
This table should be read in conjunction with the consolidated financial
statements and the related notes thereto included elsewhere in this prospectus
supplement.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
AS ADJUSTED
FOR THIS
HISTORICAL OFFERING
---------- -----------
(U.S. $ IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 597 $ 997
======== =========
Long term debt:
Bank borrowings........................................... $ 45,000 $ 5,000
-------- ---------
Shareholders' equity:
Preferred shares of subsidiary, $1.00 par value,
10,000,000 shares authorized, 2,726,700
outstanding(1).......................................... 63,403 63,403
Common shares, no par value, unlimited shares authorized,
13,349,059 shares and 15,849,059 shares issued and
outstanding, respectively, as adjusted for the common
share offering.......................................... 189,010 229,410
Contributed surplus....................................... 26 26
Deficit................................................... (28,650) (28,650)
-------- ---------
Total shareholders' equity.............................. 223,789 264,189
-------- ---------
Total capitalization.................................... $268,789 $ 269,189
======== =========
</TABLE>
- ---------------------
(1) In 1992, our subsidiary, Chieftain International Funding Corp., sold
2,726,700 of its $1.8125 cumulative convertible redeemable preferred shares
at $25.00 per share. The preferred shares are redeemable, at the option of
the subsidiary, and each preferred share is convertible at any time into
1.25 shares of our common shares at the option of the holder.
This table does not reflect:
- up to 375,000 shares that may be sold to the underwriters upon exercise of
their over-allotment option;
- 1,123,189 shares that may be issued pursuant to share options outstanding as
of September 30, 1999; and
- up to 3,408,375 shares reserved for issuance upon conversion of the $1.8125
cumulative redeemable preferred shares issued by our subsidiary, Chieftain
International Funding Corp.
S-17
<PAGE>
COMMON SHARE PRICE RANGE AND DIVIDEND POLICY
Our common shares are traded on the American Stock Exchange and The Toronto
Stock Exchange under the symbol "CID." The following table sets forth the range
of high and low sale prices per share of our common shares as reported by the
American Stock Exchange and The Toronto Stock Exchange for the periods
indicated.
<TABLE>
<CAPTION>
AMERICAN STOCK EXCHANGE THE TORONTO STOCK EXCHANGE
------------------------------- -------------------------------
TRADING TRADING
HIGH LOW VOLUME HIGH LOW VOLUME
-------- -------- --------- -------- -------- ---------
(U.S.$) (CDN.$)
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.................... $25.88 $18.63 3,286,000 $35.40 $26.00 581,442
Second Quarter................... 23.13 18.00 2,921,200 32.00 25.00 395,424
Third Quarter.................... 27.37 20.50 2,375,100 37.65 28.35 722,436
Fourth Quarter................... 28.13 20.13 2,492,900 38.50 29.00 302,748
1998
First Quarter.................... 24.75 17.94 2,383,200 30.35 25.60 524,607
Second Quarter................... 24.75 20.25 1,896,700 35.35 30.10 265,873
Third Quarter.................... 23.75 13.94 3,297,200 34.45 21.60 1,158,000
Fourth Quarter................... 20.25 14.38 2,212,500 30.70 22.75 1,065,825
1999
First Quarter.................... 15.50 9.56 3,702,800 23.00 14.50 911,056
Second Quarter................... 18.63 12.25 2,959,100 26.95 19.25 719,569
Third Quarter.................... 22.75 17.44 1,872,300 34.00 25.90 412,641
Fourth Quarter................... 20.38 17.00 1,234,200 30.25 24.80 163,699
(through November 10th)
</TABLE>
On November 10, 1999, the last sale price of our common shares was U.S. $17.81
per share as reported by the American Stock Exchange and Cdn. $26.50 per share
as reported by The Toronto Stock Exchange.
We have not paid cash dividends on our common shares in the past. Our current
policy, which is to pay no dividends on our common shares, is subject to
periodic review and may change depending on our earnings, financial condition
and capital requirements. Dividends may be paid on our common shares provided
that all dividends on the preferred shares of Chieftain International Funding
Corp. and on any preferred shares that we may issue have been paid. See
"Description of Share Capital" in the prospectus for more information.
S-18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for each of the five years
ended December 31, 1998 has been derived from our audited consolidated financial
statements. The selected consolidated financial data as of and for each of the
nine month periods ended September 30, 1999 and 1998 has been derived from our
unaudited consolidated condensed financial statements. In the opinion of our
management, the selected consolidated financial data as of and for each of the
nine month periods ended September 30, 1999 and 1998 include all normal
recurring adjustments necessary to present this information fairly. Our
financial statements are prepared using Canadian generally accepted accounting
principles. Our reporting currency is U.S. dollars. For a discussion of the
effect of the differences between Canadian and U.S. generally accepted
accounting principles, see Note 11 to the audited consolidated financial
statements and Note 7 to the unaudited consolidated condensed financial
statements which are included elsewhere in this prospectus supplement, and
footnote 2 below. The results of operations for the nine month periods ended
September 30, 1999 should not be regarded as indicative of results for the full
year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ---------- ---------- -------- --------- -------- --------
(UNAUDITED)
(U.S. $ IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Production revenue........... $ 64,236 $ 54,489 $ 74,861 $ 84,219 $ 72,838 $ 31,733 $ 35,960
Less: royalties............ 11,282 9,637 13,246 14,592 12,226 5,058 5,841
-------- ---------- ---------- -------- --------- -------- --------
Production revenue, net of
royalties.................. 52,954 44,852 61,615 69,627 60,612 26,675 30,119
Interest income and other.... 570 2,613 (1) 2,776 (1) 2,428 2,487 4,396 4,757
-------- ---------- ---------- -------- --------- -------- --------
Total...................... 53,524 47,465 64,391 72,055 63,099 31,071 34,876
Costs and expenses:
Production costs............. 10,985 12,219 16,355 13,325 12,220 9,563 8,839
General and administrative
expenses................... 3,354 3,668 4,796 4,308 3,972 3,346 3,402
Interest..................... 1,867 285 437 -- -- -- --
Depletion and
amortization(2)............ 38,711 30,096 42,081 36,951 30,920 18,779 21,527
Additional depletion(2)(3)... 11,393 -- 6,244 -- -- -- 15,434
-------- ---------- ---------- -------- --------- -------- --------
Total...................... 66,310 46,268 69,913 54,584 47,112 31,688 49,202
-------- ---------- ---------- -------- --------- -------- --------
Income (loss) before income
taxes and dividends on
preferred shares of a
subsidiary(4)................ (12,786) 1,197 (5,522) 17,471 15,987 (617) (14,326)
Provision (benefit) for income
taxes
Current...................... 8 27 14 7 124 34 46
Deferred..................... (5,416) 1,114 (1,423) 7,304 6,079 124 (4,844)
-------- ---------- ---------- -------- --------- -------- --------
Total...................... (5,408) 1,141 (1,409) 7,311 6,203 158 (4,798)
-------- ---------- ---------- -------- --------- -------- --------
Income (loss) before dividends
on preferred shares of a
subsidiary................... (7,378) 56 (4,113) 10,160 9,784 (775) (9,528)
Dividends on preferred shares
of a subsidiary(4)........... 3,707 3,707 4,942 4,942 4,942 4,942 4,942
-------- ---------- ---------- -------- --------- -------- --------
Income (loss) applicable to
common shares(2)............. $(11,085) $ (3,651) $ (9,055) $ 5,218 $ 4,842 $ (5,717) $(14,470)
======== ========== ========== ======== ========= ======== ========
Earnings (loss) per common
share:
Basic and fully diluted(2)... $ (0.83) $ (0.27) $ (0.67) $ 0.38 $ 0.37 $ (0.54) $ (1.32)
======== ========== ========== ======== ========= ======== ========
Weighted average number of
common shares
outstanding (000's).......... 13,350 13,521 13,480 13,621 13,065 10,633 10,986
======== ========== ========== ======== ========= ======== ========
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- ---------- ---------- -------- --------- -------- --------
(UNAUDITED)
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(5)...................... $ 39,185 $ 31,578 $ 43,240 $ 54,422 $ 46,907 $ 18,162 $ 22,635
Cash flow from operations...... 33,603 27,559 37,847 49,473 41,841 13,186 17,647
Net natural gas and oil
capital expenditures......... 36,187 66,198 92,573 69,453 57,673 100,502 28,059
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $ 4,709 $ 4,032 $ 2,392 $ 22,676 $ 42,854 $ 11,216 $103,225
Total assets(2)................ 307,863 300,281 318,584 285,125 267,442 204,555 211,032
Long-term debt................. 45,000 25,000 40,000 -- -- -- --
Shareholders' equity(2)........ 223,789 240,898 234,946 249,466 244,122 190,534 200,754
</TABLE>
- ---------------------------
(1) Includes a $1.6 million court awarded claim for recovery of past years'
excess transportation charges.
(2) The use of U.S. generally accepted accounting principles results in the
following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(U.S. $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Depletion and amortization....... $ 25,589 $ 27,465 $ 37,846 $ 33,774 $ 28,539 $ 16,004 $ 17,691
Additional depletion*............ 18,497 24,725 95,397 -- -- 6,740 18,245
Net income (loss) applicable to
common shares.................. (6,723) (18,296) (63,963) 7,510 6,202 (7,862) (13,710)
Net income (loss) per common
share:
Basic.......................... (0.50) (1.35) (4.75) 0.55 0.47 (0.74) (1.25)
Fully diluted.................. (0.50) (1.35) (4.75) 0.54 0.46 (0.74) (1.25)
Total assets..................... 232,022 261,500 238,675 269,178 245,763 186,682 195,136
Shareholders' equity............. 98,523 151,533 105,318 174,746 167,110 112,162 124,527
</TABLE>
- ---------------------------
* These amounts reflect non-cash write-downs in accordance with full cost
accounting rules under U.S. generally accepted accounting principles.
(3) These amounts reflect non-cash write-downs of the carrying value of natural
gas and oil properties in accordance with full cost accounting rules under
Canadian generally accepted accounting principles. A write-down of U.S.
property carrying costs, at December 31, 1998, of $16.5 million would have
been required had December 31, 1998 prices, $2.15 per Mcf and $9.72 per
barrel, been used. A write-down of U.S. property carrying costs at
December 31, 1994, of $16.8 million would have been required had
December 31, 1994 prices, $1.62 per Mcf for natural gas and $16.50 per
barrel for oil and natural gas liquids, been used.
(4) In 1992, our subsidiary, Chieftain International Funding Corp., sold
2,726,700 of its $1.8125 cumulative convertible redeemable preferred shares
at $25.00 per share. The preferred shares are redeemable, at the option of
the subsidiary, and are convertible at any time into 1.25 common shares of
Chieftain at the option of the holder.
(5) EBITDA represents income before interest expense, income taxes, depletion
and amortization (including all amounts for additional depletion) and
dividends paid on preferred shares of a subsidiary. We have reported EBITDA
because we believe EBITDA is a measure commonly reported and widely used by
investors as an indicator of a company's operating performance and ability
to incur and service debt. We believe EBITDA assists investors in comparing
a company's performance on a consistent basis without regard to depletion
and amortization, which can vary significantly depending upon accounting
methods or nonoperating factors such as historical cost. EBITDA is not a
calculation based on Canadian or U.S. generally accepted accounting
principles and should not be considered an alternative to net income in
measuring our performance or used as an exclusive measure of cash flow
because it does not consider the impact of working capital growth, capital
expenditures, debt principal reductions and other sources and uses of cash
which are disclosed in our Consolidated Statement of Changes in Financial
Position and Consolidated Condensed Statement of Cash Flows. Investors
should carefully consider the specific items included in our computation of
EBITDA. While EBITDA has been disclosed herein to permit a more complete
comparative analysis of our operating performance and debt servicing ability
relative to other companies, investors should be cautioned that EBITDA as
reported by us may not be comparable in all instances to EBITDA as reported
by other companies. EBITDA amounts may not be fully available for
management's discretionary use, due to certain requirements to conserve
funds for capital expenditures, debt service and other commitments.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our
audited consolidated financial statements and our unaudited consolidated
condensed financial statements included in this prospectus supplement. The
following information contains forward-looking statements. See "Forward-Looking
Statements" in the accompanying prospectus.
We produce and sell natural gas and oil acquired through exploration and
development or through the purchase of producing properties. Our properties are
located offshore in the United States Gulf of Mexico, onshore in Utah and
Louisiana and also in the U.K. sector of the North Sea. The majority of our
attention and resources is focused on the U.S. Gulf of Mexico area where we hold
interests in 143 offshore lease blocks.
Our financial statements and information are reported in U.S. dollars.
Substantially all of our revenues and a significant portion of our operating
expenses are realized or incurred in U.S. dollars.
Our financial statements are prepared based upon Canadian generally accepted
accounting principles. For a discussion of the effect of differences in
generally accepted accounting principles in Canada and the United States on our
financial statements, see Note 11 to our audited consolidated financial
statements and Note 7 to our unaudited consolidated condensed financial
statements which are included elsewhere in this prospectus supplement.
OPERATING RESULTS
FIRST NINE MONTHS 1999 COMPARED TO FIRST NINE MONTHS 1998
PRODUCTION AND PRICING. Our average daily combined natural gas and oil
production increased 15% to 93.9 MMcfe (113.7 MMcfe before royalties) for the
first nine months of 1999 from 81.4 MMcfe (98.6 MMcfe before royalties) for the
corresponding period in 1998. Natural gas comprised 74% of our production for
the first nine months of 1999 and 79% of our production for the corresponding
period in 1998. For the first nine months of 1999, our natural gas production
increased 9% to 19.1 Bcf (23.3 Bcf before royalties) compared to 17.5 Bcf (21.4
Bcf before royalties) for the corresponding period in 1998. For the first nine
months of 1999, our oil and natural gas liquids production increased 38% to
1,091 MBbls (1,285 MBbls before royalties) compared to 792 MBbls (912 MBbls
before royalties) for the corresponding period in 1998. Natural gas prices
averaged $1.89 per Mcf for the first nine months of 1999 compared to $2.02 per
Mcf for the corresponding period in 1998. Oil and natural gas liquids prices
averaged $15.62 per barrel for the first nine months of 1999 compared to $12.39
per barrel for the corresponding period in 1998.
PRODUCTION REVENUES. For the first nine months of 1999, our combined natural
gas and oil production volumes increased 15% from the corresponding period in
1998. A 26% recovery in oil prices was partially offset by a 6% decrease in
natural gas prices. As a result, our production revenues for the first nine
months of 1999 increased 18% ($8.1 million) to $53.0 million from the
corresponding period in 1998.
Eighty-four percent of our natural gas production for the first nine months of
1999 resulted from our interests in 92 wells in the Gulf of Mexico. Our natural
gas production increased 9% in the first nine months of 1999 over the
corresponding period in 1998. This increase in production resulted primarily
from the commencement of production from South Marsh Island 39 at the end of the
first quarter of 1999 and from the commencement of initial natural gas
production from Main Pass 250 B during the latter half of the second quarter of
1999. We expect to add production in the fourth quarter of 1999
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<PAGE>
from a discovery made at South Marsh Island 39 during the third quarter of 1999
and from Main Pass 225 D.
At September 30, 1999, we were producing 68.6 MMcf per day of natural gas (82.9
MMcf per day before royalties), of which 57.9 MMcf per day (72.2 MMcf per day
before royalties) was from the U.S. and 10.7 MMcf per day (before and after
royalties) was from the North Sea. At September 30, 1999, oil production was
4,301 barrels per day (5,089 barrels per day before royalties) of which 1,770
barrels per day (2,027 barrels per day before royalties) was from the Aneth and
Ratherford Units in Utah and 2,493 barrels per day (3,022 barrels per day before
royalties) was from the Gulf of Mexico.
PRODUCTION COSTS. Our production costs for the first nine months of 1999
decreased 10% from the corresponding period in 1998. This decrease primarily
reflects significant pipeline repair costs in the South Pass area during the
first quarter of 1998 and a succession of weather induced evacuations of manned
facilities in the Gulf of Mexico in the third quarter of 1998. Production costs
on a per unit basis decreased to $0.43 per Mcfe ($0.35 per Mcfe before
royalties), down 22% from the first nine months' average for 1998 of $0.55 per
Mcfe ($0.45 per Mcfe before royalties).
For the first nine months of 1999, production costs were $0.30 per Mcfe ($0.24
per Mcfe before royalties) for Gulf of Mexico area properties, $1.36 per Mcfe
($1.19 per Mcfe before royalties) for the Utah oil producing properties where
secondary and tertiary recovery methods are being used, and $0.08 per Mcfe
(before and after royalties) for the United Kingdom properties.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
for the first nine months of 1999 decreased 9% from the corresponding period in
1998. This decrease reflects higher performance-based compensation payments made
during the first quarter of 1998 than during the corresponding period in 1999.
General and administrative costs for the first nine months of 1999, on a per
unit basis, decreased 21% to $0.13 per Mcfe ($0.11 per Mcfe before royalties)
compared to $0.17 per Mcfe ($0.14 per Mcfe before royalties) for the
corresponding period of 1998.
INTEREST EXPENSE. Our interest expense for the first nine months of 1999
increased compared to the corresponding period in 1998 due to greater credit
facility utilization. Our weighted average debt outstanding for the nine months
ended September 30, 1999 was $43.3 million compared to $6.1 million for the
corresponding period in 1998. The effective interest rate on our outstanding
debt for the nine months ended September 30, 1999 was 5.76% compared to 6.19%
for the corresponding period in 1998. The weighted average interest rate on our
debt at September 30, 1999 was 6.24%.
DEPLETION AND AMORTIZATION. Our depletion and amortization expense for the
first nine months of 1999 increased 29% from the corresponding period in 1998 as
a result of a 15% increase in our production and an 11% increase in our average
depletion rate to $1.51 per Mcfe ($1.25 per Mcfe before royalties). The
significant downward revision in our proved reserves at December 31, 1998 that
resulted from the low oil prices on that date is primarily responsible for the
increase in our effective depletion rate in the first nine months of 1999
compared to the corresponding period in 1998.
In Libya, Chieftain and its partners concluded that a multi-year exploration
program and production test is not commercial under the terms of the concession
and will therefore terminate the program. As a result, additional depletion of
$11.4 million was recorded in the second quarter of 1999 to eliminate this
investment, resulting in a charge to operations, net of income taxes, of
$6.3 million.
1998 COMPARED TO 1997
PRODUCTION AND PRICING. Our average daily production increased 10% to 85.2
MMcfe (103.2 MMcfe before royalties) in 1998 from 77.8 MMcfe (93.4 MMcfe before
royalties) in 1997. Natural gas comprised 79% of our production in 1998 and 83%
in 1997. In 1998, our natural gas production increased 5% to 24.5 Bcf (30.0 Bcf
before royalties) compared to 23.4 Bcf (28.3 Bcf before royalties) in
S-22
<PAGE>
1997. In 1998, our oil and natural gas liquids production increased 33% to 1,100
MBbls (1,271 MBbls before royalties) compared to 825 MBbls (962 MBbls before
royalties) in 1997. We received an average price of $1.99 per Mcf in 1998
compared to $2.33 per Mcf in 1997 and we received an average price of $11.74 per
barrel in 1998 compared to $18.94 per barrel in 1997.
The combination of economic problems in Asia, the mild North American winter and
aggressive international competition for market share caused crude oil prices to
fall sharply during 1998, bringing the average price that we received for oil
and natural gas liquids to $11.74 per barrel, down 38% from the 1997 average.
The mild North American winter of 1997-98 had a significant downward effect on
natural gas prices. Prices during the fourth quarter of 1998 were down 33% from
the corresponding quarter in 1997. The average price received for our 1998 U.S.
natural gas production declined by 17% to an average of $2.06 per Mcf. In 1998,
natural gas production contributed 79% of our revenue.
PRODUCTION REVENUES. In 1998, growth in our combined natural gas and oil
production volumes was more than offset by decreases in natural gas and oil
prices. As a result, 1998 production revenues decreased 12% to $61.6 million
($74.9 million before royalties).
Eighty-six percent of our 1998 natural gas production came from our interests in
105 wells in the Gulf of Mexico. Our natural gas production in the Gulf of
Mexico was up 6% in 1998 from 1997, with increases coming from the Main Pass,
Mustang Island, Eugene Island, East Cameron, High Island and Vermilion areas.
Comparing 1998 and 1997, the primary contributors to growth in our production
volumes were the East Cameron and Main Pass areas in the Gulf of Mexico and the
Aneth and Ratherford Units in southeast Utah. During 1998, 64% of our oil
production came from our interests in 269 wells in the Aneth and Ratherford
Units and 26% of our oil production came from the Gulf of Mexico.
At year-end 1998, we were producing 78.2 MMcf per day of natural gas (95.5 MMcf
per day before royalties), of which 67.9 MMcf per day (85.2 MMcf per day before
royalties) was from the U.S. and 10.3 MMcf per day (before and after royalties)
was from the North Sea. Our year-end 1998 oil production was 3,453 barrels per
day (4,030 barrels per day before royalties) of which 1,893 barrels per day
(2,170 barrels per day before royalties) was from the Aneth and Ratherford Units
in Utah and 1,280 barrels per day (1,550 barrels per day before royalties) was
from the Gulf of Mexico. An additional 220 barrels per day (before and after
royalties) was contributed by our interests in two wells in Libya's Sirte Basin.
OTHER REVENUE. Interest and other revenue received by us in 1998 included a
non-recurring court award of $1.6 million pursuant to a successful claim for
recovery of excess transportation charges incurred from 1990 through 1997.
PRODUCTION COSTS. Our production costs in 1998 increased 23% from 1997
primarily as a result of several weather-induced evacuations of manned
facilities in the Gulf of Mexico during the third quarter of 1998, the
commencement of production at East Cameron 349 and significant pipeline repair
costs in the South Pass area. Our production costs in 1998 increased to $0.53
per Mcfe ($0.43 per Mcfe before royalties), up 12% from the 1997 rate of $0.47
per Mcfe ($0.39 per Mcfe before royalties). Our higher level of oil production,
compared to our gas production, was also responsible for our higher 1998
production costs. Higher lifting costs are associated with oil production and
oil production comprised 21% of our production volumes in 1998 compared to 17%
in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
increased 11% for 1998 compared to 1997. This increase reflects
performance-based compensation payments, made during the first quarter, which
were higher in 1998 than in 1997. Our general and administrative costs remained
constant at $0.15 per Mcfe ($0.13 per Mcfe before royalties) in both 1998 and
1997.
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<PAGE>
INTEREST EXPENSE. Our interest expense in 1998 increased compared to 1997 due
to initial credit facility utilization. Our weighted average debt outstanding
for 1998 was $12.3 million and the effective interest rate on our outstanding
debt for 1998 was 6.19%. The weighted average interest rate on our debt at
December 31, 1998 was 5.65%.
DEPLETION AND AMORTIZATION. Our depletion and amortization expense in 1998
increased 14% compared to 1997 as a result of a 10% increase in production and a
4% increase in the average depletion rate to $1.35 per Mcfe ($1.12 per Mcfe
before royalties).
1997 COMPARED TO 1996
PRODUCTION AND PRICING. Our average daily production increased 8% to 77.8 MMcfe
(93.4 MMcfe before royalties) in 1997 from 71.8 MMcfe (85.8 MMcfe before
royalties) in 1996. Natural gas comprised 83% of our production in 1997 and
1996. In 1997, our natural gas production increased 7% to 23.4 Bcf (28.3 Bcf
before royalties) compared to 21.9 Bcf (26.3 Bcf before royalties) in 1996. In
1997, our oil and natural gas liquids production increased 12% to 825 MBbls (962
MBbls before royalties) compared to 734 MBbls (857 MBbls before royalties) in
1996. The natural gas prices we received in 1997 averaged $2.33 per Mcf compared
to $2.09 per Mcf in 1996. The oil prices we received in 1997 averaged $18.94 per
barrel compared to $20.99 per barrel in 1996.
Exceptionally strong prices for natural gas in North America prevailed during
the winter months at the start of 1997 and also during the period from August to
November of 1997. Natural gas prices weakened at year-end due to warm weather
and higher than normal deliveries from storage which reduced demand for natural
gas.
PRODUCTION REVENUES. Despite the fall in oil prices in 1997, growth in both our
natural gas and oil production volumes, combined with a rise in natural gas
prices, increased our production revenues 15% ($9 million) to $69.6 million
compared to 1996.
Our natural gas production was up 7% in 1997 over 1996, with increases in
production coming from the Matagorda Island, East Cameron and Main Pass areas.
Eighty-two percent of our 1997 natural gas production came from our interests in
99 natural gas wells in the Gulf of Mexico.
Our production of oil and natural gas liquids increased by 12% in 1997 over
1996. During 1997, 73% of our oil production was from interests in 268 wells in
the Aneth and Ratherford Units and 23% was from the Gulf of Mexico.
At 1997 year-end, we were producing 64.1 MMcf per day of natural gas (76.5 MMcf
per day before royalties). 50.3 MMcf per day (62.7 MMcf per day before
royalties) of this production came from our interests in the U.S. and 13.8 MMcf
per day (before and after royalties) came from our interests in the North Sea.
Our 1997 year-end oil production was 2,779 barrels per day (3,196 barrels per
day before royalties) of which 1,738 barrels per day (2,000 barrels per day
before royalties) was from the Aneth and Ratherford Units in Utah and 650
barrels per day (800 barrels per day before royalties) was from the Gulf of
Mexico.
PRODUCTION COSTS. Our production costs in 1997 increased 9% from 1996 primarily
as a result of the 8% increase in our production volumes. Our production costs
were $0.47 per Mcfe ($0.39 per Mcfe before royalties), compared to the 1996 rate
of $0.46 per Mcfe ($0.39 per Mcfe before royalties).
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
increased 8% in 1997 compared to 1996. Our general and administrative costs were
$0.15 per Mcfe ($0.13 per Mcfe before royalties) in 1997, unchanged from $0.15
per Mcfe ($0.13 per Mcfe before royalties) in 1996.
S-24
<PAGE>
DEPLETION AND AMORTIZATION. Our depletion and amortization expense in 1997
increased 20% as a result of an 8% increase in our production and an 11%
increase in our average depletion rate to $1.30 per Mcfe ($1.08 per Mcfe before
royalties).
CAPITAL RESOURCES AND LIQUIDITY
Our primary sources of cash are funds generated from our operations and
financing activities. Our primary cash outflows are for exploration and
development activities.
Discretionary cash flow, a frequently used measure of performance for
exploration and production companies, is derived by adjusting net income (loss)
attributable to common shares to eliminate the effects of depletion and
amortization, additional depletion and deferred income taxes. We generated
discretionary cash flow of $33.6 million during the first nine months of 1999
compared to $27.5 million for the corresponding period in 1998. This 22%
increase is primarily a result of our higher operating revenues.
Our financing activities in the first nine months of 1999 provided $4.9 million
of cash, the net result of the drawdown of $5 million of our revolving credit
facility, the exercise of employee stock options and the purchase for
cancellation of 7,500 common shares under our share repurchase program, which
expired on November 1, 1999. Financing activities during the corresponding
period in 1998 provided $20.1 million of cash, which was the net result of:
- the drawdown of $25 million of our revolving credit facility;
- the exercise of employee share options for $0.4 million; and
- the purchase for cancellation of 264,600 common shares at the cost of
$5.3 million under our share repurchase program.
Cash used in investing activities decreased 38% to $42.2 million for the first
nine months of 1999 from $67.8 million for the corresponding period in 1998. Our
capital expenditures during the first nine months of 1999 totaled
$36.2 million. Of this amount, $1.8 million was expended on development
drilling, $23.0 million on exploratory drilling, $4.7 million on capital field
development and the balance was expended on leasehold, seismic and geological
costs. Of the 15 wells in which we participated in 1999, ten were in the Gulf of
Mexico (four of which were still being drilled at September 30, 1999), three
were onshore in the U.S. and two were in Libya. Five additional wells were
drilled on our Gulf of Mexico acreage at no cost to us, one of which resulted in
a natural gas well and four of which were unsuccessful. We are currently
drilling or plan to drill approximately 15 exploratory and development wells in
the Gulf of Mexico and the Gulf Coast area during the fourth quarter of 1999.
Our September 30, 1999 cash balance of $0.6 million was down $5.5 million from
the balance at September 30, 1998. We had outstanding borrowings of $45 million
on our $100 million revolving credit facility at September 30, 1999. The
weighted average interest rate on our borrowings for the first nine months of
1999 was 5.76%. If we apply the net proceeds of this offering to reduce our bank
debt, we will have repaid substantially all of the outstanding balance under our
revolving credit facility, resulting in a borrowing base of approximately
$95 million.
OUTLOOK
Currently, we have budgeted approximately $18.6 million for exploration and
development capital expenditures for the fourth quarter of 1999. Our preliminary
2000 capital expenditure budget is estimated at $86 million. We expect to fund
most of these expenditures from our operational cash flow. These capital
expenditures can vary significantly as a result of exploration success,
availability of equipment and services and opportunities. We will monitor
capital spending and adjust investment
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<PAGE>
levels based on cash flow projections. We will continue to focus on natural gas
production in the Gulf of Mexico.
YEAR 2000 DISCLOSURE
We have completed our assessment of our internal Year 2000 issues and have made
the changes and employed the testing procedures that we deemed necessary. At
this time, we are confident that no internal issues remain that could have a
material effect on our financial condition or results of operations. We
substantially completed our assessment of the readiness of third parties by the
end of the second quarter of 1999. We continue to monitor the readiness of
significant third parties in order to obtain assurances that interruptions, if
any, will be held to a minimum. We do not consider the costs that we have
incurred to date and which we expect to incur in the future to be material.
We have interests in a substantial number of offshore oil and natural gas
production facilities that are operated by others. We are required to rely on
assessments by others as to Year 2000 readiness of such facilities. Production
volumes are transported through pipelines and processed through facilities that
are also operated by others. Computers are used extensively to control and
operate such pipelines and facilities in the oil and natural gas industry and it
is reasonably likely that one or more of these facilities will experience a
computer related event which could result in the shutdown of production,
transportation or processing facilities for such time as is required to effect
alternative controls. We cannot reasonably quantify the estimated lost revenue,
if any, which would result from such an interruption. To mitigate the effect of
any interruptions, we intend to continue our review of contingency plans
prepared by our various operating partners. See "Risk Factors--We and our
suppliers or partners may not be Year 2000 compliant, which could result in
disruption of our operations."
S-26
<PAGE>
BUSINESS AND PROPERTIES
Chieftain is an independent energy company engaged in the exploration,
development and production of natural gas and oil. Our producing properties and
exploration acreage are primarily located in the shallow waters of the U.S. Gulf
of Mexico. We also have properties located onshore in Louisiana, in the Four
Corners area of southeast Utah and in the U.K. sector of the North Sea. We were
incorporated under the Business Corporations Act (Alberta) in 1988 and commenced
operations upon the closing of our initial public offering on April 20, 1989.
We have assembled a large natural gas and oil lease acreage position in the Gulf
of Mexico. Our lease interests in the Gulf of Mexico include a balanced
portfolio of exploration and development drilling prospects. These prospects
range from high-impact prospects with relatively greater risks, which we believe
have the potential to add substantially to our reserves, to relatively lower
risk development and exploitation projects with lower reserve potential. Our
exploration efforts are supported by an extensive 3-D seismic database covering
most of our leases. We believe that our seismic database and related
technological expertise have contributed to our successful exploration and
development track record. We believe our conservative capital structure provides
us with the financial flexibility to take advantage of our prospects and other
opportunities, including acquisitions of leasehold acreage and producing
properties.
We hold interests in 133 lease blocks located on the continental shelf of the
Gulf of Mexico. We also have interests in ten deep-water blocks. Of these lease
blocks, 94 are held as exploratory acreage and 49 are held by production. We
operate 38 of these blocks. Our average working interest in our Gulf of Mexico
leases is approximately 40%. In the third quarter of 1999, we had net production
of 75.9 MMcfe per day in the Gulf of Mexico, which represented approximately 77%
of our total production.
In addition to our Gulf of Mexico properties, we own various interests in two
large light oil producing units in the Four Corners area of southeast Utah where
we had net production of 1,774 barrels per day in the third quarter of 1999. We
own an interest in approximately 9,600 net acres in the U.K. sector of the North
Sea where we had net production of 10.5 MMcfe per day in the third quarter of
1999. We are also active in exploratory activities onshore in Louisiana.
At December 31, 1998, we had estimated proved reserves of 207.9 Bcfe. These
reserves had a present value of net cash flows before income taxes, discounted
at 10%, of $152.5 million using constant natural gas and oil prices in effect on
December 31, 1998, which averaged $2.12 per Mcf for natural gas and $9.72 per
barrel for oil. If our realized natural gas and oil prices in effect at
September 30, 1999 were used in this determination, assuming no other changes,
our estimated proved reserves at December 31, 1998, would have increased to
222.7 Bcfe and the present value of net cash flows before income taxes,
discounted at 10%, would have increased to $279.0 million. Our average realized
prices for our production at September 30, 1999 were $2.58 per Mcf for natural
gas and $20.16 per barrel for oil. At December 31, 1998, approximately 62% of
our proved reserves were natural gas and approximately 70% of our proved
reserves were developed. Our total proved reserves at December 31, 1998 had a
reserves-to-production ratio of approximately 6.8 years.
We have experienced substantial growth in proved reserves, production, revenue
and cash flow as demonstrated by the following:
- Since 1994, our overall drilling success rate has been 74% and our drilling
success rate for exploratory wells has been 40%. For the nine months ended
September 30, 1999, our overall drilling success rate was 73% and our
drilling success rate for exploratory wells was 62%.
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<PAGE>
- Since 1994, we have added proved reserves of 235 Bcfe, of which 127 Bcfe has
been from drilling, 72 Bcfe has been from acquisitions and 36 Bcfe has been
from upward revisions of previous estimates.
- Since 1994, we have replaced 208% of our production.
- We have increased our average daily production 157% to 98.3 MMcfe per day in
the third quarter of 1999 from 38.2 MMcfe per day in 1994.
- We have increased our net production revenues 18% to $53.0 million for the
first nine months of 1999 from $44.9 million for the first nine months of
1998.
- We have increased our EBITDA 24% to $39.2 million for the first nine months
of 1999 from $31.6 million for the first nine months of 1998.
OUR STRENGTHS
We believe that our historical success and future performance are directly
related to the following combination of strengths:
- SUBSTANTIAL INVENTORY OF DRILLING PROJECTS IN THE GULF OF MEXICO. In the
Gulf of Mexico, we have generated an inventory of over 45 drilling locations,
of which 36 are exploratory. Substantially all of these locations have been
evaluated and defined using 3-D seismic data. Our large inventory permits us
to be flexible in project selection and in the timing of drilling. By
identifying new exploration targets and acquiring additional acreage, we
continually add to our drilling inventory.
- PROVEN EXPLORATORY EXPERTISE. Our ability to define and participate in
successful exploratory prospects in the Gulf of Mexico is demonstrated by our
exploratory drilling success rate in the Gulf of Mexico of 88% over the nine
months ended September 30, 1999.
- EXPERIENCED TECHNICAL TEAM. Our technical team is comprised of highly
respected industry professionals with an average of 22 years of industry
experience. We believe our exploration success is a direct result of this
team's engineering and technical analyses.
- FINANCIAL FLEXIBILITY. With the net proceeds of this offering, we will have
the ability to repay substantially all of our outstanding indebtedness,
resulting in approximately $95 million of availability under our revolving
credit facility. We seek to maintain low levels of debt in order to respond
quickly to drilling or acquisition opportunities.
BUSINESS STRATEGY
Our strategy is to increase our reserves, production, revenue and cash flow
through exploration and development drilling and through the acquisition of
leasehold acreage and producing properties. The elements of our strategy include
the following:
- FOCUS ON THE GULF OF MEXICO. We focus our operations on the Gulf of Mexico
where we have acquired a significant exploration acreage position and
assembled a substantial 3-D seismic database. We believe this region combines
significant geological potential, reservoir size, quality and deliverability
with favorable commodity pricing and attractive finding, development and
operating costs.
- GROW THROUGH EXPLORATION. We are pursuing an active technology-driven
exploration program that is designed to balance projects with lower risk and
moderate potential with drilling prospects which have higher risk and
substantial potential. We generate exploration prospects through geological
and geophysical analysis of 3-D seismic and other data and also review
prospects generated by others. Currently, we have budgeted approximately
$18.6 million for exploration and
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development capital expenditures for the fourth quarter of 1999 and we expect
to use $14.9 million of this amount for exploration activities. We are
currently drilling or plan to drill approximately 15 exploratory and
development wells in the Gulf of Mexico and in the Gulf Coast area during the
fourth quarter of 1999. We have budgeted approximately $86.2 million for
exploration and development capital expenditures for 2000, $50.0 million of
which we expect to use for exploration activities.
- MANAGE DRILLING RISKS THROUGH JOINT VENTURES AND THE USE OF ADVANCED
TECHNOLOGIES. We seek to limit our financial and operating risks in selected
projects by participating in drilling with industry partners and operators.
We believe this strategy limits our risk exposure in high potential
prospects. Additionally, we have increasingly relied on advanced
technologies, including 3-D seismic analysis, to define geologic risks,
thereby enhancing the results of our drilling efforts. We also seek to
operate our projects in order to better control drilling costs and the timing
of drilling.
- EVALUATE AND PURSUE STRATEGIC ACQUISITIONS. We continually review
opportunities to acquire leasehold acreage and producing properties. We seek
to acquire properties that we believe have significant exploration potential
and to increase our working interest in producing lease blocks when available
to us on economically favorable terms.
PROPERTIES
Our principal natural gas and oil properties are concentrated in the U.S. Gulf
of Mexico and, to a lesser extent, onshore Louisiana, Utah and other parts of
the U.S. and in the U.K. sector of the North Sea.
The following table summarizes our estimated proved reserves by major operating
area and the estimated present value of net cash flows before income taxes,
discounted at 10%, of these reserves at December 31, 1998:
<TABLE>
<CAPTION>
PROVED RESERVES
------------------------------ ESTIMATED PRESENT
OIL AND VALUE BEFORE
NATURAL INCOME TAXES OF
NATURAL GAS PROVED RESERVES
GAS LIQUIDS TOTAL (U.S.$ IN
(MMCF) (MBBLS) (MMCFE) THOUSANDS)
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Gulf of Mexico............................ 96,774 3,865 119,965 $ 121,090
Onshore Louisiana......................... 20,672 79 21,145 19,422
Utah and Other Onshore.................... 1,517 9,163 56,496 2,991
------- ------ ------- -----------------
Total U.S............................. 118,963 13,107 197,606 143,503
U.K. (North Sea).......................... 10,110 27 10,271 9,005
------- ------ ------- -----------------
Total(1).............................. 129,073 13,134 207,877 $ 152,508
======= ====== ======= =================
</TABLE>
- ---------------------
(1) If our realized prices in effect at September 30, 1999 were used in this
determination, assuming no other changes, proved reserves would have
increased to 222.7 Bcfe and PV-10 Value would have increased to
$279.0 million.
GULF OF MEXICO
We concentrate our exploration and development activities in, and devote
substantial managerial and financial resources to, the offshore U.S. Gulf of
Mexico. The Gulf of Mexico contains a prolific oil and natural gas basin. This
area is more than 600 miles long and 100 miles wide and extends from the State
of Texas to the State of Florida. We primarily focus our exploration and
development activities in the
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shallow waters (less than 600 feet deep) of the Gulf of Mexico continental
shelf. The continental shelf is a low cost operating environment for which
technical and analytical data, including 3-D seismic data, are readily
available. The vast network of gathering systems and pipelines in the shallow
waters of the basin provides excellent access to markets. The Gulf of Mexico's
geology is generally characterized by multiple productive horizons and good
permeability which is conducive to high initial production and relatively rapid
capital payback.
We maintain a large acreage position in the Gulf of Mexico. With an average
interest of 40% in 143 blocks, we rank as the sixteenth largest leaseholder and
the ninth largest independent producer on the continental shelf. Of these lease
blocks, 133 are shallow water blocks and ten are deep-water blocks. We acquired
three blocks covering 15,000 acres at the March 1999 Central Gulf of Mexico
lease sale. We participated in high bids for three blocks, covering
approximately 17,000 acres, at the Western Gulf of Mexico lease sale in late
August 1999. Our acreage in the Gulf of Mexico covered 684,495 gross (268,386
net) acres at September 30, 1999. We operate 38 blocks in the Gulf of Mexico.
Described below are the areas of our current exploration and development
activity in the Gulf of Mexico. Of these properties, we operate High Island
Blocks A-510, A-530 and A-531 and West Cameron Blocks 300 and 386.
HIGH ISLAND. In August 1999, we announced that our exploratory well on High
Island Blocks A-510/A-531, located offshore Texas, resulted in an oil and
natural gas discovery. This well was drilled to a total depth of 11,107 feet and
encountered more than 260 net feet of hydrocarbon-bearing pay in multiple zones.
We are now drilling an additional well on Block A-510 and will then design and
install production facilities. We operate, and have a 50% working interest in,
this project.
VERMILION 267. We have a 60% working interest in the Vermilion 267 No. 1
natural gas discovery well located offshore Louisiana. This well reached a total
depth of 13,370 feet in early October 1999 and encountered 52 feet of high
quality net effective hydrocarbon-bearing reservoir rock. This well has been
cased for production and the design of production facilities is in progress.
Additional exploratory and development drilling is planned to fully develop the
block.
SOUTH MARSH ISLAND. In March 1999, we commenced production of oil and natural
gas from two wells on South Marsh Island Block 39 in which we have a 50% working
interest. We commenced additional production in the third quarter of 1999 from
two successful exploratory wells drilled into separate fault blocks during the
first quarter of 1999. In the third quarter of 1999, we drilled a successful
well to test geological zones below then-productive formations which commenced
production in late August 1999. A total of six successful wells have been
drilled on the block. Our share of production from this block averaged 7.6 MMcf
per day of natural gas and 1,500 barrels per day of light oil in the third
quarter of 1999 and was the principal contributor to our increased production
during this period.
MAIN PASS. Our share of natural gas and natural gas liquids production from
Main Pass averaged 14.0 MMcfe per day during the third quarter of 1999. We are
continuing drilling and development activity on this property. Production from a
new platform is scheduled to commence in the fourth quarter of 1999.
EUGENE ISLAND. Design of production facilities is under way for Eugene Island
Block 189 where two successful oil and natural gas discoveries were drilled on
separate fault blocks in 1997. A third well is planned after the production
platform has been installed. New production is anticipated in early 2000.
OTHER OFFSHORE AREAS. At South Timbalier Block 196, production from a 1999
first-quarter multiple zone oil and natural gas discovery, in which we have a
50% working interest, is expected to commence in early 2000.
S-30
<PAGE>
Exploratory drilling is under way, or is planned to commence prior to the
1999 year-end, on High Island Block A-530, in which we have a 75% interest, West
Cameron Block 300, in which we have a 35% interest, West Cameron Block 386, in
which we have an 80% interest, Grand Isle Block 103, in which we have a 20%
interest, West Cameron Block 613, in which we have a 25% interest, Matagorda
Island Block 704, in which we have a 25% interest, and High Island Block A-510,
in which we have a 50% interest.
ONSHORE LOUISIANA
Currently, we are actively exploring three onshore prospects in Louisiana. These
prospects are described below.
VERMILION PARISH--NORTHEAST WRIGHT FIELD. In the second quarter of 1999,
drilling commenced to follow up a 1998 discovery well, D.W. Guidry No. 1. The
Guidry well discovered 150-feet of net natural gas pay below 17,000 feet. Our
interest in this well is subject to a recovery penalty on a portion of well
costs. The follow-up well, Broussard No. 1, was drilled as a delineation well to
confirm and extend natural gas reserves discovered in the Guidry well. The
Broussard No. 1 well was drilled to a measured depth of 18,340 feet in early
October 1999 and production liner has been run to total depth. This well
encountered a significant accumulation of natural gas-bearing high quality
reservoir rock. Completion procedures are in progress and we expect production
from the Broussard No. 1 well to commence during the fourth quarter of 1999.
Production facilities and flow lines in the field are being expanded to
accommodate increased production volumes and additional drilling is planned to
fully develop the field. We own a 50% interest in the Broussard No. 1 well and
approximately 3,100 acres in the Northeast Wright Field.
LAFOURCHE PARISH--NORTHEAST CHACAHOULA PROSPECT. We are participating, with a
50% interest, in a 17,280-foot exploratory well, Levert No. 1, on the 850-acre
Northeast Chacahoula Prospect, which is prospective for both natural gas and
oil.
IBERIA PARISH--BAYOU PIGEON PROSPECT. In September 1999, we commenced drilling
of a 15,500-foot exploratory well, Williams Land Co. No. 1. We have a 50%
interest in the 1,973-acre Bayou Pigeon Prospect.
UTAH AND OTHER ONSHORE
In the Four Corners area of Utah, we have a 13.4% interest in the Aneth Unit and
a 21.4% interest in the Ratherford Unit, both of which produce light oil. During
1998, we drilled 30 multi-lateral horizontal development wells in these fields.
We currently have a carbon dioxide tertiary recovery pilot project at the Aneth
Unit and we are planning a field-wide tertiary recovery project at the
Ratherford Unit. Due to higher operating costs, economic recovery of the
reserves in these units is more sensitive to low oil prices than our other
properties. For the nine months ended September 30, 1999, our share of
production from these fields averaged 1,794 barrels per day. In addition, we
also have onshore interests in Montana, North Dakota, Pennsylvania and Texas.
Production from these interests during the nine months ended September 30, 1999
was minimal.
UNITED KINGDOM (NORTH SEA)
In the North Sea, we produce natural gas from two fields in the southern basin
of the U.K. sector in which we have a 17% average interest. Our production
averaged 9.7 MMcf per day in the nine months ended September 30, 1999 and
amounted to 14% of our total natural gas production and 7% of our total natural
gas revenue for this period. We plan to participate in a 3-D seismic program on
a portion of our North Sea acreage.
S-31
<PAGE>
RESERVES
The following table sets forth certain summary information with respect to
estimates of our oil and natural gas reserves for the periods indicated.
Estimates of our U.S. oil and natural gas reserves, the future net revenues
therefrom and their discounted present value at a rate of 10%, or PV-10 Value,
have been prepared by Netherland, Sewell & Associates, Inc., independent
petroleum engineers. Estimates of our U.K. reserves and related information have
been prepared by our personnel. U.K. reserves comprise 5% of our total reserves
on a Bcfe basis.
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
ESTIMATED PROVED OIL AND NATURAL GAS RESERVES:
Natural gas reserves--before royalties (MMcf):
Proved developed............................... 122,164 105,990 102,017 99,709 40,624
Proved undeveloped............................. 36,900 43,453 48,597 50,225 26,107
----------- -------- -------- -------- --------
Total........................................ 159,064 149,443 150,614 149,934 66,731
=========== ======== ======== ======== ========
Natural gas reserves--net of royalties (MMcf):
Proved developed............................... 99,432 89,139 86,997 85,705 33,581
Proved undeveloped............................. 29,641 35,958 39,804 40,986 25,155
----------- -------- -------- -------- --------
Total........................................ 129,073 125,097 126,801 126,691 58,736
=========== ======== ======== ======== ========
Oil reserves--before royalties (MBbls):
Proved developed............................... 8,786 9,591 9,482 8,501 6,317
Proved undeveloped............................. 6,441 3,415 1,087 1,101 956
----------- -------- -------- -------- --------
Total........................................ 15,227 13,006 10,569 9,602 7,273
=========== ======== ======== ======== ========
Oil reserves--net of royalties (MBbls):
Proved developed............................... 7,534 8,397 8,397 7,509 5,588
Proved undeveloped............................. 5,600 2,916 907 943 797
----------- -------- -------- -------- --------
Total........................................ 13,134 11,313 9,304 8,452 6,385
=========== ======== ======== ======== ========
Total proved oil and natural gas
reserves--before royalties (MMcfe)(1)........ 250,426 227,479 214,028 207,546 110,370
=========== ======== ======== ======== ========
Total proved oil and natural gas reserves--net
of royalties (MMcfe)(1)...................... 207,877 192,975 182,625 177,403 97,046
=========== ======== ======== ======== ========
ESTIMATED PRESENT VALUE OF PROVED RESERVES (U.S. $
IN THOUSANDS):
Proved developed............................... $ 135,867 $187,697 $218,961 $111,608 $ 43,595
Proved undeveloped............................. 16,641 50,615 85,335 40,096 19,333
----------- -------- -------- -------- --------
Total PV-10 Value (before income taxes)........ $ 152,508(2) $238,312 $304,296 $151,704 $ 62,928
=========== ======== ======== ======== ========
Standardized measure of discounted estimated
future net cash flows after income
taxes(3)..................................... $ 152,508 $199,573 $239,023 $137,494 $ 60,374
=========== ======== ======== ======== ========
PRICES USED IN CALCULATING END OF YEAR PROVED
RESERVES:
U.S. natural gas reserves (per Mcf).............. $ 2.15 $ 2.74 $ 3.43 $ 2.06 $ 1.62
U.K. natural gas reserves (per Mcf).............. 1.74 1.76 2.04 0.86 2.25
Oil (per barrel)................................. 9.72 16.69 24.03 18.48 16.50
</TABLE>
- ---------------------------
(1) Oil is converted into natural gas equivalents using a conversion ratio of 6
Mcf of natural gas to 1 barrel of oil.
(2) If our realized prices in effect at September 30, 1999 were used in this
determination, proved reserves would have increased to 222.7 Bcfe and their
PV-10 Value would have increased to $279.0 million.
(3) At December 31, 1998, no income taxes would be payable at these natural gas
and oil price levels.
S-32
<PAGE>
ACREAGE
The following table summarizes our acreage held as at September 30, 1999. Where
applicable, interests that are not working interests (none of which is material)
have been converted to working interest equivalents.
<TABLE>
<CAPTION>
GROSS ACRES NET ACRES
----------- ---------
<S> <C> <C>
United States
Offshore Gulf of Mexico
Louisiana............................................... 315,414 110,119
Texas................................................... 369,081 158,267
----------- ---------
Total Offshore Gulf of Mexico......................... 684,495 268,386
----------- ---------
Onshore
Louisiana............................................... 6,478 3,025
Montana................................................. 3,240 3,240
North Dakota............................................ 2,277 415
Pennsylvania............................................ 324 36
Utah.................................................... 30,980 5,626
----------- ---------
Total Onshore......................................... 43,299 12,342
----------- ---------
Total United States......................................... 727,794 280,728
----------- ---------
United Kingdom
North Sea................................................. 60,273 9,644
----------- ---------
Total, all areas...................................... 788,067 290,372
=========== =========
</TABLE>
DRILLING ACTIVITY
During the nine months ended September 30, 1999, we participated in drilling
nine wells in the Gulf of Mexico area, of which eight were successful for an 89%
success rate. We accelerated our drilling activity in the Gulf of Mexico region
during the third quarter in response to higher natural gas and oil prices. We
are currently drilling or plan to drill approximately 15 exploratory and
development wells in the Gulf of Mexico and the Gulf Coast area during the
fourth quarter of 1999.
The following table summarizes the results of our drilling activities during
each of the three years ended December 31, 1998 and the nine months ended
September 30, 1999.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
--------------------------------- --------------------------------
PERIOD TYPE OF WELL DRY SUCCESSFUL TOTAL DRY SUCCESSFUL TOTAL
- -------------------- -------------------- --------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Nine months ended Exploratory......... 3 5 8 0.45 2.50 2.95
September 30, 1999 Development......... -- 3 3 -- 1.04 1.04
Year ended Exploratory......... 8 7 15 3.45 2.24 5.69
December 31, 1998 Development......... -- 35 35 -- 6.58 6.58
Year ended Exploratory......... 9 8 17 2.99 3.32 6.31
December 31, 1997 Development......... 1 43 44 0.50 7.92 8.42
Year ended Exploratory......... 8 7 15 2.26 1.72 3.98
December 31, 1996 Development......... 2 28 30 0.67 5.00 5.67
</TABLE>
S-33
<PAGE>
WELLS
Our productive natural gas and oil wells as at December 31, 1996, 1997 and 1998
and as at September 30, 1999 are listed in the following table.
<TABLE>
<CAPTION>
NATURAL
GAS WELLS OIL WELLS TOTAL WELLS
--------- --------- -----------
<S> <C> <C> <C>
September 30, 1999
Gross..................................................... 100 290 390
Net....................................................... 20.85 51.29 72.14
December 31, 1998
Gross..................................................... 100 287 387
Net....................................................... 20.44 49.86 70.30
December 31, 1997
Gross..................................................... 118 287 405
Net....................................................... 29.06 49.66 78.72
December 31, 1996
Gross..................................................... 93 295 388
Net....................................................... 21.28 50.79 72.07
</TABLE>
PRODUCTION
The commencement of production from South Marsh Island Block 39 and new
production from Main Pass Block 250 were the principal contributors to our
increased production in the first nine months of 1999. During the third quarter
of 1999, we increased our production of oil and natural gas liquids by 56% from
the third quarter of 1998 to a record level of 4,394 barrels per day. The
average price that we received for oil and natural gas liquids in the third
quarter of 1999 was $19.31 per barrel, an increase of 63% from the third quarter
of 1998. Our natural gas production increased by 21% from the third quarter of
1998 to 72 MMcf per day. The average price that we received for U.S. natural gas
production in the third quarter was $2.46 per Mcf, an increase of 25% from the
third quarter of 1998. The average price that we received for North Sea natural
gas production was $0.81 per Mcf, a decrease of 32% from the third quarter of
1998.
The following table summarizes our production volume and weighted average sales
prices for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES VOLUME:
Natural gas--before royalties (MMcf)............ 23,327 21,433 30,048 28,316 26,277 12,954 12,604
Oil and natural gas liquids--before
royalties (MBbls)............................. 1,285 912 1,271 962 857 693 691
Total production--before royalties
(MMcfe)(1).................................... 31,035 26,906 37,674 34,088 31,416 17,111 16,753
Natural gas--net of royalties (MMcf)............ 19,098 17,470 24,504 23,431 21,894 10,754 10,382
Oil and natural gas liquids--net of
royalties (MBbls)............................. 1,091 792 1,100 825 734 600 595
Total production--net of royalties
(MMcfe)(2).................................... 25,642 22,223 31,102 28,383 26,296 14,351 13,953
WEIGHTED AVERAGE SALES PRICES:
Natural gas (per Mcf)........................... $ 1.89 $ 2.02 $ 1.99 $ 2.33 $ 2.09 $ 1.54 $ 1.97
Oil and natural gas liquids (per barrel)........ 15.62 12.39 11.74 18.94 20.99 16.94 15.86
</TABLE>
- ---------------------------
(1) Oil is converted into natural gas equivalents using a conversion ratio of
6 Mcf of natural gas to 1 barrel of oil.
S-34
<PAGE>
MARKETING
Most of our natural gas reserves are located in the U.S. Gulf of Mexico area
where ready deliverability of natural gas through numerous large capacity
pipelines and auxiliary feeder pipelines provides flexibility in marketing our
natural gas production in the U.S. spot market. Natural gas prices in the U.S.
and in the British North Sea are largely determined by competitive market
forces.
Most of the natural gas we have produced has been marketed since 1989 by
Highland Energy Company, an aggregator for several U.S. natural gas producers,
at prices based on spot market prices. Highland Energy Company also assists us
in arranging for the marketing of our U.K. natural gas production.
We have sold our oil production from the Aneth and Ratherford Units in the Four
Corners area of Utah under successive term contracts to a regional refiner since
1989. Due to the quantity and quality of this oil, we have obtained premiums
over locally posted prices for this production. Most of our Gulf of Mexico oil
and natural gas liquids production is marketed by Highland Energy Company.
We believe that alternative marketing arrangements would be readily available
for our natural gas, oil and natural gas liquids production although any
alternative arrangement could be less advantageous to us.
PRICE RISK MANAGEMENT
Market prices of oil and natural gas fluctuate and can adversely affect our
operating results. To mitigate some of this risk, from time to time, we may
enter into forward contracts for a portion of our production so as to lock in a
firm natural gas price for a specific volume and delivery period. We sell most
of our gas under short term contractual arrangements and do not engage in
speculative forward selling of volumes that cannot be physically delivered.
LITIGATION
We are, in the ordinary course of business, party to various legal proceedings.
In the opinion of our management, none of these proceedings, either individually
or in the aggregate, is material.
EMPLOYEES
At September 30, 1999, we employed 40 persons. None of our employees is
represented by a union. We consider relations with our employees to be
excellent.
S-35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages as of the date of this
prospectus supplement are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
David E. Mitchell, O.C. ............. 73 Director and Chairman of the Board
of Directors
Stanley A. Milner.................... 70 Director, President and Chief
Executive Officer
Stephen C. Hurley.................... 49 Director, Senior Vice President and
Chief Operating Officer
Edward L. Hahn....................... 62 Senior Vice President, Finance and
Treasurer
Esther S. Ondrack.................... 59 Director, Senior Vice President and
Secretary
James B. Lewis....................... 49 Senior Vice President, Operations
S. Jay Milner........................ 41 Vice President, Drilling and
Production
Ronald J. Stefure.................... 52 Vice President and Controller
Hugh J. Kelly........................ 74 Director
John E. Maybin....................... 74 Director
Louis G. Munin....................... 65 Director
Stuart T. Peeler..................... 70 Director
</TABLE>
Our Board of Directors consists of eight members. Each member of the Board is
elected for a term of three years and their terms are staggered. At our last
annual meeting of shareholders, held in May 1999, Messrs. Kelly, Munin and
Peeler were re-elected to serve until 2002. The terms of Messrs. Hurley and
Maybin and of Mrs. Ondrack expire in 2000. The terms of Messrs. Milner and
Mitchell expire in 2001. All of our Directors are also Directors of our
subsidiary, Chieftain International Funding Corp.
DAVID E. MITCHELL, O.C., who is Chairman Emeritus of Alberta Energy
Company Ltd., has been Chairman of the Board of Directors of Chieftain since
February 1989. A graduate in engineering of the University of Oklahoma, he was
President and Chief Executive Officer and a director of Alberta Energy from 1974
until 1993 and chairman of its Board of Directors from 1993 to 1999.
Mr. Mitchell is also a former director of Air Canada, The Bank of Nova Scotia,
Hudson's Bay Company, Lafarge Corporation, Noranda Mines Ltd. and Pan-Alberta
Gas Ltd. He has been awarded the Order of Canada and he is a former president of
the Independent Petroleum Association of Canada. Mr. Mitchell is Stanley A.
Milner's first cousin.
STANLEY A. MILNER has been President and Chief Executive Officer and a Director
of Chieftain since Chieftain's incorporation in 1988. Mr. Milner served in the
same capacities with Chieftain Development Co. Ltd., which he founded in
June 1964. A graduate of the University of Alberta and a member of the
S-36
<PAGE>
Engineering Institute of Canada, he is chairman of the Board of Directors of
Alberta Energy Company Ltd. and a former director of Canadian Imperial Bank of
Commerce and Canadian Pacific Limited. He is a former president of the
Independent Petroleum Association of Canada, a former alderman of the City of
Edmonton and a former chairman of the Board of Governors of the University of
Alberta. Mr. Milner is S. J. Milner's father and David E. Mitchell's first
cousin.
STEPHEN C. HURLEY has been Senior Vice President, Chief Operating Officer and a
Director of Chieftain since 1997. He joined Chieftain in 1995 as Senior Vice
President, Exploration and Chief Operating Officer. From 1991 to 1995, he was
employed by Murphy Exploration and Production Company as Vice President,
Exploration and Production responsible for worldwide exploration. Mr. Hurley was
employed by Ocean Drilling & Exploration Company, a subsidiary of Murphy
Exploration and Production, as Vice President, Exploration from 1987 to 1991,
General Manager, Exploration from 1984 to 1987 and Senior Geologist from 1980 to
1984. From 1975 to 1980 he was employed by Exxon Company USA. Mr. Hurley
graduated in 1975 from the University of Arkansas with a Master of Science
degree in geology. He is a member of the American Association of Petroleum
Geologists, the New Orleans Geological Society, the Society of Exploration
Geophysicists and the American Petroleum Institute.
EDWARD L. HAHN has been Senior Vice President, Finance and Treasurer of
Chieftain since 1995. From the time of Chieftain's incorporation in 1988 to
1995, he was Vice President, Finance and Treasurer. Prior to 1988, Mr. Hahn was
Senior Vice President, Finance and Treasurer of Chieftain Development Co. Ltd. A
chartered accountant, Mr. Hahn joined Chieftain Development as Controller in
1976 with 15 years experience in public accounting and seven years of experience
in oil field manufacturing.
ESTHER S. ONDRACK has been Senior Vice President, Secretary and a Director of
Chieftain since 1995. From the time of Chieftain's incorporation in 1988 to
1995, she was Vice President, Secretary and a Director. Prior to 1988,
Mrs. Ondrack was Senior Vice President, Administration, Corporate Secretary and
a director of Chieftain Development Co. Ltd. A graduate of the University of
Alberta, Mrs. Ondrack joined Chieftain Development in 1964. Mrs. Ondrack is a
former director of TELUS Corporation and has also served as a public governor of
the Canadian Institute of Chartered Accountants.
JAMES B. LEWIS was appointed Senior Vice President, Operations of Chieftain on
October 1, 1999. Mr. Lewis was a consultant to Chieftain from May 1998 until
September 1999. He was employed by Enron Oil & Gas Company as Vice President and
General Manager, Offshore Division from 1992 to April 1998 and Offshore
Operations Manager from 1984 to 1992. Prior to joining Enron, he was Vice
President, Acquisitions for Conquest Petroleum for two years and, prior to his
employment with Conquest, he was employed by Tenneco Oil Company in various
engineering capacities. Mr. Lewis holds a degree from Louisiana State University
in petroleum engineering. He is a registered engineer in Texas and Louisiana and
is a member of the Society of Petroleum Engineers.
S. JAY MILNER has been Vice President, Drilling and Production of Chieftain
since 1995. From the time of Chieftain's incorporation in 1988 to 1995, he held
the position of Manager, Drilling and Production. Prior to 1988, Mr. Milner was
Manager, Drilling and Production of Chieftain Development Co. Ltd. Before
joining Chieftain Development, he was employed by Dome Petroleum Limited as a
drilling engineer. Mr. Milner holds a degree in engineering from the University
of Alberta. Mr. Milner is Stanley A. Milner's son.
RONALD J. STEFURE has been Vice President and Controller of Chieftain since
1995. From October 1989 to 1995, he was Chieftain's Controller. Prior to that
date, Mr. Stefure was Accounting Manager with Chieftain Development Co. Ltd.
HUGH J. KELLY, an energy consultant, has been a Director of Chieftain since
July 1989. Mr. Kelly joined Ocean Drilling & Exploration Company ("ODECO") in
1958. He became President and a Director of ODECO in 1974 and, in addition, was
Chief Executive Officer from 1977 until 1989. He was associated
S-37
<PAGE>
with Chevron Oil Company for seven years before joining Ocean Drilling.
Mr. Kelly is a director of Tidewater Inc. and Gulf Island Fabrication Inc. and a
former director of Baroid Corporation, Central Louisiana Electric Co., and
Hibernia National Bank. He is also a former chairman of Mid-Continent Oil and
Gas Association and the National Ocean Industries Association. Mr. Kelly is a
graduate of Louisiana State University Law School.
JOHN E. MAYBIN, who is a consultant, has been a Director of Chieftain since
June 1991. He has held executive positions with various companies, including
Canadian Utilities Limited and petroleum-related organizations. Mr. Maybin is a
director of Colmac Energy, Inc. and is a former director of Alberta Energy
Company Ltd., International Mill Services Limited and Majestic Contractors
Limited. He is also a former chairman of the Canadian Gas Association.
Mr. Maybin is a graduate of the University of Alberta and Princeton University.
LOUIS G. MUNIN, a financial consultant, has been a Director of Chieftain since
February 1989. A graduate of DePaul University and a certified public
accountant, Mr. Munin was engaged in public accounting with the firm of Arthur
Andersen from 1955 until 1966. After leaving Arthur Andersen, he held various
executive positions with General Portland Cement Company and its successor,
Lafarge Corporation, through 1988. He is a director of Lafarge Canada Inc. and
Walden Residential Properties, Inc. and also serves as a member of the Finance
Committee of the Board of Directors of Lafarge Corporation.
STUART T. PEELER, a petroleum industry consultant, has been a Director of
Chieftain since February 1989. A graduate of Stanford University Law,
Mr. Peeler practiced law with the firm of Musick, Peeler & Garrett from 1953
until 1973 and held senior executive positions with independent energy
companies. He was Vice Chairman of Supron Energy Corporation from 1978 to 1982,
Senior Vice President and a director of Santa Fe International Corporation from
1975 to 1981 and Chairman and Chief Executive Officer of Statex Petroleum, Inc.
from 1982 to 1989. Mr. Peeler is a director of Homestake Mining Company and a
former director of CalMat Co. (formerly California Portland Cement Company) and
Homestake Gold of Australia, Ltd. He is a trustee of the Grand Canyon National
Park Foundation and Trustee Emeritus of The J. Paul Getty Trust.
S-38
<PAGE>
CHIEFTAIN INTERNATIONAL, INC.
AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Audited Consolidated Financial Statements
Auditors' Report.......................................... F-2
Consolidated Balance Sheet................................ F-3
Consolidated Statement of Income (Loss) and Deficit....... F-4
Consolidated Statement of Changes in Financial Position... F-5
Notes to Consolidated Financial Statements................ F-6
Unaudited Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheet...................... F-24
Consolidated Condensed Statement of Income (Loss)......... F-25
Consolidated Condensed Statement of Cash Flows............ F-26
Notes to Consolidated Condensed Financial Statements...... F-27
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
We have audited the consolidated balance sheets of Chieftain
International, Inc. as at December 31, 1998 and 1997 and the consolidated
statements of income (loss) and deficit and changes in financial position for
each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1998
in accordance with generally accepted accounting principles in Canada.
PricewaterhouseCoopers LLP
Chartered Accountants
Edmonton, Alberta
February 4, 1999
F-2
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(U.S. $ IN THOUSANDS EXCEPT SHARE DATA)
(Full Cost Method of Accounting)
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits.............................. $ 10,613 $ 26,925
Accounts receivable....................................... 14,030 10,862
Other..................................................... 282 606
--------- ---------
24,925 38,393
--------- ---------
Capital assets, at cost:
Natural resource properties including exploration and
development thereon (Note(1)(e))........................ 552,380 459,807
Other capital assets...................................... 2,119 2,047
--------- ---------
554,499 461,854
Less: Accumulated depletion and amortization.............. 266,022 218,564
--------- ---------
288,477 243,290
--------- ---------
Deferred income taxes....................................... 5,182 3,442
--------- ---------
$ 318,584 $ 285,125
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued.............................. $ 22,533 $ 15,717
Long-term debt (Note 2)..................................... 40,000 --
Abandonment cost accrual.................................... 7,421 6,575
Deferred income taxes....................................... 13,684 13,367
Shareholders' equity:
Preferred shares of a subsidiary (Note 3)................. 63,403 63,403
Share capital (Note 4)--
Authorized--an unlimited number of--
First preferred shares
Second preferred shares
Common shares
Issued--
13,355,891 common shares (1997--13,622,375)........... 189,108 192,845
Contributed surplus....................................... -- 307
Deficit................................................... (17,565) (7,089)
--------- ---------
234,946 249,466
--------- ---------
$ 318,584 $ 285,125
========= =========
</TABLE>
Approved by the Board
<TABLE>
<S> <C>
/s/ S. A. Milner /s/ L. G. Munin
- -------------------------------------------- --------------------------------------------
S. A. Milner, Director L. G. Munin, Director
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(LOSS) AND DEFICIT
(U.S. $ IN THOUSANDS EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Production revenue....................................... $ 74,861 $ 84,219 $ 72,838
Less: Royalties........................................ 13,246 14,592 12,226
---------- ---------- ----------
Production revenue, net of royalties..................... 61,615 69,627 60,612
Interest and other revenue (Note 5)...................... 2,776 2,428 2,487
---------- ---------- ----------
64,391 72,055 63,099
---------- ---------- ----------
Production costs......................................... 16,355 13,325 12,220
General and administrative expenses...................... 4,796 4,308 3,972
Interest................................................. 437 -- --
Depletion and amortization............................... 42,081 36,951 30,920
Additional depletion: Libyan properties................. 5,144 -- --
UK properties...................... 1,100 -- --
---------- ---------- ----------
69,913 54,584 47,112
---------- ---------- ----------
Income (loss) before income taxes and dividends on
preferred shares of a subsidiary....................... (5,522) 17,471 15,987
Income taxes (Note 6):
Current................................................ 14 7 124
Deferred............................................... (1,423) 7,304 6,079
---------- ---------- ----------
(1,409) 7,311 6,203
---------- ---------- ----------
Income (loss) before dividends on preferred shares of a
subsidiary............................................. (4,113) 10,160 9,784
Dividends paid on preferred shares of a subsidiary....... 4,942 4,942 4,942
---------- ---------- ----------
Net income (loss) applicable to common shares............ (9,055) 5,218 4,842
Deficit, beginning of year............................... (7,089) (12,307) (17,149)
Cost of purchase of common shares in excess of stated
capital (Note 4)....................................... (1,421) -- --
---------- ---------- ----------
Deficit, end of year..................................... $ (17,565) $ (7,089) $ (12,307)
========== ========== ==========
Net income (loss) per common share (Note 7).............. $ (0.67) $ 0.38 $ 0.37
========== ========== ==========
Weighted average number of common shares outstanding..... 13,480,067 13,620,728 13,065,414
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF
CHANGES IN FINANCIAL POSITION
(U.S. $ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss) applicable to common shares............. $ (9,055) $ 5,218 $ 4,842
Items not requiring a current cash outlay:
Depletion and amortization.............................. 48,325 36,951 30,920
Deferred income taxes................................... (1,423) 7,304 6,079
-------- -------- --------
Cash flow from operations................................. 37,847 49,473 41,841
Change in non-cash operating working capital:
Accounts receivable..................................... (3,168) 337 (2,936)
Other current assets.................................... 324 (313) 199
Accounts payable and accrued............................ 164 992 (901)
Dividend payable........................................ -- -- (1,236)
-------- -------- --------
35,167 50,489 36,967
-------- -------- --------
Financing activities:
Issue of common shares.................................. 437 975 50,097
Purchase of common shares for cancellation.............. (5,902) (849) --
Increase in long-term debt.............................. 40,000 -- --
Financing costs......................................... -- -- (2,440)
-------- -------- --------
34,535 126 47,657
-------- -------- --------
Investing activities:
Lease acquisition, exploration and development costs.... (91,690) (69,453) (56,636)
Purchase of producing natural gas and oil properties.... (883) -- (2,077)
Sale of producing properties............................ -- -- 1,040
-------- -------- --------
(92,573) (69,453) (57,673)
Purchase of other capital assets........................ (93) (324) (187)
Change in investing accounts payable and accrued........ 6,652 3,638 5,110
-------- -------- --------
(86,014) (66,139) (52,750)
-------- -------- --------
Change in cash and short-term deposits.................... (16,312) (15,524) 31,874
Cash and short-term deposits, beginning of year........... 26,925 42,449 10,575
-------- -------- --------
Cash and short-term deposits, end of year................. $ 10,613 $ 26,925 $ 42,449
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
The Company is engaged in natural gas and oil exploration, development and
production primarily in the United States and also in the UK sector of the North
Sea and in Libya. The Consolidated Financial Statements are expressed in United
States currency as most of the Company's assets and operations are denominated
in US dollars.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ACCOUNTING PRINCIPLES
The Company's financial statements are prepared in conformity with Canadian
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make informed judgements and estimates. Actual results may differ
from those estimates. Material differences between Canadian and US accounting
principles that affect the Company are referred to in Note 11, which provides
the effects of the differences on earnings and balance sheet accounts.
(B) PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company
and its subsidiary companies, all of which are wholly-owned except for Chieftain
International Funding Corp., a US subsidiary which in 1992 issued 2,726,700
preferred shares to the public. These preferred shares are convertible into
common shares of Chieftain International, Inc. See Note 3.
Acquisitions of subsidiaries and businesses have been accounted for by the
purchase method and accordingly only income or losses since date of acquisition
are included in the Consolidated Statement of Income.
(C) FOREIGN CURRENCY TRANSLATION
Canadian and other foreign currency amounts have been translated into US
currency on the following bases: monetary assets and liabilities at the year-end
rates of exchange; non-monetary assets and liabilities at historical exchange
rates; and revenue and expenses at monthly average exchange rates during the
year. Translation gains or losses are reflected in the Consolidated Statement of
Income.
(D) FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments that are included in the Consolidated
Balance Sheet are comprised of cash and short-term deposits, accounts
receivable, all current liabilities and long-term debt, the fair values of which
approximate their carrying amounts due to their short-term or current rate
nature. Cash and short-term deposits include minimum risk certificates
guaranteed by a major Canadian bank and are purchased three months or less from
maturity. Accounts receivable are subject to normal oil and natural gas industry
credit risks. Long-term debt is subject to normal floating interest rate risk.
(E) NATURAL RESOURCE PROPERTIES
The Company accounts for natural gas and oil properties in accordance with
Canadian guidelines on full cost accounting.
F-6
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under this method, all costs associated with the acquisition, exploration and
development of natural gas and oil properties are capitalized in cost centers on
a country-by-country basis. Depletion is calculated using the unit-of-production
method based on gross proved reserves before royalties and combining oil and
natural gas on an energy equivalent basis. Future well abandonment and site
restoration costs are included in the calculation of depletion expense and are
based on current engineering estimates in accordance with current regulations
and industry practices. Actual costs, when incurred, are charged against the
abandonment cost accrual.
A ceiling test is applied to ensure that capitalized costs do not exceed
estimated future net revenues less certain applicable costs. There is
uncertainty as to the prices at which natural gas and oil produced by the
Company may be sold. The application of such ceiling test to US property
carrying costs at December 31, 1998, using the $12.27 average oil and natural
gas liquids ("ngls") price received by the Company during the year and the $2.15
December 31, 1998 natural gas price, required no write-down. A write-down of
$10,614,000, after providing for tax recoveries of $5,842,000, would have been
required had December 31, 1998 prices, $2.15 for natural gas and $9.72 for oil
and ngls, been used. An impairment provision of $2,849,000, after providing for
tax recoveries of $2,295,000, was recorded in respect of one of the Libyan
concessions; and a write-down of $609,000, after providing for tax recoveries of
$491,000, was recorded in respect of the UK properties.
The following weighted average field prices were used in the determination of
the Company's US future net revenues for purposes of the ceiling test:
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Oil--per barrel..................................... $12.35 $16.92 $24.29
====== ====== ======
Ngls--per barrel.................................... $10.19 $15.14 $21.66
====== ====== ======
Oil & ngls--per barrel.............................. $12.27 $16.69 $24.03
====== ====== ======
Natural gas--per thousand cubic feet ("Mcf")........ $ 2.15 $ 2.74 $ 3.43
====== ====== ======
</TABLE>
A field price of $1.74 (1997--$1.76; 1996--$2.04) per thousand cubic feet was
used in the determination of the Company's UK future net revenues for purposes
of the ceiling test.
Depletion rates per physical unit of US production are as follows:
<TABLE>
<CAPTION>
NATURAL GAS CRUDE OIL & NGLS
(PER MCF) (PER BARREL)
----------- ----------------
<S> <C> <C>
Year ended December 31, 1996...................... $1.03 $6.16
===== =====
Year ended December 31, 1997...................... $1.11 $6.68
===== =====
Year ended December 31, 1998...................... $1.16 $6.97
===== =====
</TABLE>
The depletion rate per physical unit of UK natural gas production was $0.81 per
Mcf for the year ended December 31, 1998 (1997--$0.81; 1996--$0.56).
F-7
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
General and administrative costs relating directly to lease acquisition,
exploration and development activities have been capitalized as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
Lease acquisition................................ $ 857 $ 694 $ 837
Exploration...................................... 1,740 1,470 1,547
Development...................................... 1,715 1,387 1,254
------- ------- -------
$ 4,312 $ 3,551 $ 3,638
======= ======= =======
</TABLE>
At December 31, 1998, Libyan property carrying costs of $9.9 million
(1997--$14.6 million) were excluded from depletion calculations pending
evaluation.
(F) LAND, BUILDINGS AND OTHER EQUIPMENT
Amortization is provided as follows:
<TABLE>
<CAPTION>
RATE PER
ANNUM METHOD
-------- -------------
<S> <C> <C>
Buildings............................................. 5% Straight-line
Furniture, office equipment and leasehold
improvements........................................ 10-20% Straight-line
</TABLE>
Expenditures for renewals and betterments which materially increase the
estimated useful life of buildings and equipment are capitalized; expenditures
for repairs and maintenance are charged to income. Costs and accumulated
amortization of assets retired or sold are removed from the asset and related
accumulated amortization accounts; losses and gains thereon are included in the
Consolidated Statement of Income as depletion and amortization.
(G) INCOME TAXES
The Company follows the tax allocation method of accounting for the tax
effect of all timing differences between taxable income and accounting income.
Thus, provision is made currently for taxes deferred as a result of claiming for
tax purposes deductions in excess of amounts charged to income in the books,
principally natural resource lease acquisition costs, intangible exploration,
development and drilling costs and costs of tangible capital assets.
(H) COMPARATIVE FIGURES
Certain 1997 information has been reclassified to conform to the 1998
presentation.
2. REVOLVING CREDIT AND TERM LOAN ARRANGEMENTS
In 1997 the Company arranged an unsecured revolving credit facility with a
syndicate of banks. The facility, in the amount of $100 million or the Canadian
dollar equivalent, is fully revolving for 364 day periods with extensions at the
option of the lenders upon notice from the Company. If not
F-8
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
2. REVOLVING CREDIT AND TERM LOAN ARRANGEMENTS (CONTINUED)
extended, the facility converts to term loans repayable over a period not
exceeding four years. Advances under the facility bear interest at Canadian
prime or US base rate, or at bankers' acceptance rates or LIBOR plus applicable
margins. Certain financial tests are required to be met quarterly. Under this
facility, $40 million was utilized at December 31, 1998, carrying a weighted
average interest rate of 5.65%.
3. PREFERRED SHARES OF A SUBSIDIARY
Chieftain International Funding Corp. ("Funding"), a subsidiary of Chieftain
International (U.S.) Inc., sold 2,726,700 shares of $1.8125 cumulative
convertible redeemable preferred shares at $25.00 per share in a 1992 public
offering in the United States. The preferred shares are redeemable, at the
option of Funding, at $25.6042 per share during 1999, declining to $25.00 per
share after December 31, 2001, plus accumulated and unpaid dividends. Each
preferred share has a liquidation preference of $25.00 and is convertible at any
time into 1.25 Common Shares of Chieftain International, Inc. at the option of
the holder.
4. SHARE CAPITAL
(A) COMMON SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
NUMBER SHARE NUMBER SHARE NUMBER SHARE
OF CAPITAL OF CAPITAL OF CAPITAL
SHARES ACCOUNT SHARES ACCOUNT SHARES ACCOUNT
---------- --------- ---------- --------- ---------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year...... 13,622,375 $ 192,845 13,591,763 $ 192,381 10,546,100 $ 143,635
Share options exercised......... 28,216 437 66,912 975 75,663 1,092
Shares purchased and
cancelled*.................... (294,700) (4,174) (36,300) (511) -- --
Shares issued for cash**........ -- -- -- -- 2,970,000 47,654
---------- --------- ---------- --------- ---------- ---------
Balance, end of year............ 13,355,891 $ 189,108 13,622,375 $ 192,845 13,591,763 $ 192,381
========== ========= ========== ========= ========== =========
</TABLE>
- ------------------------
* Pursuant to normal course issuer bid.
** Reduced by costs of issue of $2,440, less related deferred taxes of $1,089.
In the first quarter of 1996, the Company sold 2,970,000 common shares, by way
of a public offering in the United States and Canada, at $16.50 per share
(C$22.75).
(B) COMMON SHARES RESERVED
At December 31, 1998, 1,130,875 (1997--1,159,091; 1996--1,226,003) of the
authorized but unissued common shares of the Company were reserved for issuance
under the Share Option Plan. See Note 4(d).
The Company has reserved 3,408,375 common shares for issuance pursuant to the
conversion provisions of the preferred shares of a subsidiary. See Note 3.
F-9
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
4. SHARE CAPITAL (CONTINUED)
(C) CONTRIBUTED SURPLUS
Contributed surplus represented the excess of original net issue price over
purchase price of shares purchased and cancelled pursuant to issuer bids in
1995, 1997 and 1998.
(D) SHARE OPTION PLAN (THE "PLAN")
The Plan provides for the granting of options to employees, directors and
consultants to purchase common shares of the Company. Each option expires not
later than ten years from the date it was granted. Options are exercisable as to
one-third of the granted amount on or after each of the first three
anniversaries of the date of grant or over such longer period as may be
determined by the directors. The option price for shares in respect of which an
option is granted under the Plan is not less than the market price on the date
of grant. At December 31, 1998, options were outstanding to 47 participants in
the Plan.
The following is a summary of activity related to the Plan for the years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTION OF OPTION OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 1,057,673 $16.47 909,253 $15.10 980,250 $14.90
Granted............................. 65,000 21.08 228,000 21.35 15,000 23.75
Exercised........................... (28,216) 15.49 (66,912) 14.47 (75,663) 14.22
Forfeited........................... (10,600) 20.07 (12,668) 16.06 (10,334) 15.39
--------- --------- -------
Outstanding at end of year.......... 1,083,857 16.74 1,057,673 16.47 909,253 15.10
========= ========= =======
Options exercisable at year end..... 869,858 707,738 558,319
========= ========= =======
</TABLE>
F-10
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
4. SHARE CAPITAL (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF CONTRACTUAL OPTION OF OPTION
OPTION PRICES SHARES LIFE PRICE SHARES PRICE
- --------------------- --------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$13.50 to $15.63 694,523 4.9 years $14.37 694,523 $14.37
18.00 to 20.87 118,334 4.6 years 19.16 93,334 19.47
21.23 to 23.75 271,000 8.5 years 21.75 82,001 21.67
--------- -------
1,083,857 869,858
========= =======
</TABLE>
5. INTEREST AND OTHER REVENUE
Interest and other revenue for the first quarter of 1998 included
$1.6 million awarded by the courts pursuant to a successful claim for recovery
of excess transportation charges incurred from 1990 through 1997. The award
comprises transportation charges, legal fees and judgment interest in the
amounts of $1,129,000, $282,000 and $189,000, respectively.
6. INCOME TAXES
Income tax expense is made up of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
CANADA US CANADA US CANADA US
-------- -------- -------- -------- -------- --------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes and
dividends on
preferred shares of
a subsidiary....... $ (6,829) $ 1,307 $ 2,072 $ 15,399 $ 1,461 $ 14,526
======== ======= ======== ======== ======== ========
Income taxes
(recovery)
Current............ $ 14 $ -- $ 7 $ -- $ 124 $ --
Deferred........... (1,740) 317 2,007 5,297 912 5,167
-------- ------- -------- -------- -------- --------
$ (1,726) $ 317 $ 2,014 $ 5,297 $ 1,036 $ 5,167
======== ======= ======== ======== ======== ========
</TABLE>
F-11
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
6. INCOME TAXES (CONTINUED)
Deferred income tax expense results from timing differences between the
recognition of expenses for tax and financial statement purposes as explained in
Note 1(g). The sources of these differences are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
CANADA US CANADA US CANADA US
-------- -------- -------- -------- -------- --------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amortization of
buildings and
equipment.......... $ (27) $ 18 $ (112) $ (275) $ 3 $ 340
Depletion of natural
resource
properties......... (2,073) 6,104 (68) 6,011 805 5,898
Financing costs...... 243 -- 338 -- 348 --
Tax loss carry
forward............ 154 (5,839) 1,846 (430) (230) (1,143)
Other................ (37) 34 3 (9) (14) 72
-------- -------- ------- ------- ------ --------
$ (1,740) $ 317 $ 2,007 $ 5,297 $ 912 $ 5,167
======== ======== ======= ======= ====== ========
</TABLE>
The actual tax rate differs from the expected tax rate for the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate of 44.62%
(Combined Canadian federal and provincial
rate)...................................... $ (2,465) $ 7,796 $ 7,133
Add (deduct) the effect of:
Lower income tax rate on earnings of US
subsidiaries............................... (81) (1,373) (1,263)
Canadian income tax on exchange loss (gain)
which is eliminated upon consolidation..... 511 362 (56)
Other........................................ 626 526 389
-------- -------- --------
Tax at effective rate.......................... $ (1,409) $ 7,311 $ 6,203
======== ======== ========
Effective tax rate............................. 25.5% 41.8% 38.8%
======== ======== ========
</TABLE>
7. PER SHARE AMOUNTS
Net income (loss) per common share is computed by dividing net income (loss)
applicable to common shares by the weighted average number of common shares
outstanding during the year.
In the calculation of fully diluted earnings per share, shares outstanding are
adjusted for share options and shares issuable on conversion of preferred
shares. Earnings are adjusted by the amount of imputed interest on share option
proceeds and preferred share dividends. Earnings were not diluted during the
periods shown.
F-12
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
8. PENSION COSTS AND OBLIGATIONS
The Company contributed $145,300, $144,254 and $103,455 for 1998, 1997 and
1996, respectively, to defined contribution plans. Under a supplementary defined
contribution plan established in 1991, costs of $198,294, $162,384 and $127,358
for 1998, 1997 and 1996, respectively, and the related liability are recorded in
the accounts.
The Company has established no other retirement benefit plans.
9. DISAGGREGATED INFORMATION
The Company has only a single reportable segment with activities as
explained in the preamble to the Notes. Production revenue, net of royalties,
all of which arises from external customers, is attributed to the country in
which the underlying production occurred. Most of the US natural gas, oil and
ngls produced by the Company are marketed by a single aggregator. Production
revenues, net of royalties, associated with the aggregator were $46,340,000
(1997--$50,250,000; 1996--$43,611,000). The Company's oil production from the
Aneth and Ratherford Units in the Four Corners area of Utah is sold under
successive term contracts to a regional refiner. Production revenues, net of
royalties, associated with sales to the regional refiner were $8,207,000
(1997--$10,880,000; 1996--$10,641,000). The Company believes that alternative
marketing arrangements would be readily available for its natural gas, oil and
liquids.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
Production revenue, net of royalties
United States............................ $ 56,199 $ 63,227 $ 56,457
United Kingdom........................... 4,411 6,231 4,155
Libya.................................... 1,005 169 --
--------- --------- ---------
Total production revenues, net of
royalties................................ 61,615 69,627 60,612
Interest and other revenue................. 2,776 2,428 2,487
--------- --------- ---------
$ 64,391 $ 72,055 $ 63,099
========= ========= =========
Net capital assets
United States............................ $ 267,020 $ 213,856 $ 176,672
United Kingdom........................... 11,337 14,733 17,778
Libya.................................... 9,835 14,373 13,297
Canada and other......................... 285 328 305
--------- --------- ---------
$ 288,477 $ 243,290 $ 208,052
========= ========= =========
</TABLE>
10. UNCERTAINTY DUE TO THE YEAR 2000
During the past three years the Company has made changes to its computer
systems in order that date related information can be processed correctly after
December 31, 1999 and the Company believes that such capability will be attained
with respect to its internal systems.
F-13
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
10. UNCERTAINTY DUE TO THE YEAR 2000 (CONTINUED)
Despite these efforts, it is not possible to be certain that all aspects of the
year 2000 issue affecting the Company, including those related to the provision
of goods and services by third parties, will be fully resolved before the year
2000.
11. UNITED STATES ACCOUNTING PRINCIPLES
(A) FULL COST ACCOUNTING
US full cost accounting rules differ materially from the Canadian full cost
accounting guidelines followed by the Company. In determining the limitation on
carrying values, US rules require the discounting of future net revenues at 10%,
and Canadian guidelines require the use of undiscounted future net revenues and
the deduction of estimated future administrative and financing costs. During
1998 an impairment adjustment would have been required under US accounting
rules. The quarterly test required by US accounting rules, using December 31 US
natural gas and oil prices of $2.15 per Mcf and $9.72 per barrel, and June 30 US
natural gas and oil prices of $2.09 per Mcf and $12.40 per barrel to determine
future net revenues, would have resulted in a write-down of US property carrying
costs of $42.6 million, after providing for tax recoveries of $22.9 million, at
December 31; and $16.1 million, after providing for tax recoveries of
$8.6 million, at June 30. Under Canadian guidelines the test resulted in a
write-down of UK property carrying costs of $0.6 million, after providing for
tax recoveries of $0.5 million; no corresponding write-down was required under
US accounting rules. Such write-downs will result in reduced depletion expense,
under US rules, for subsequent periods.
(B) INCOME TAXES
US accounting principles require corporations to account for deferred income
taxes by the liability method. The effect on the Company of the application of
such method is not material.
(C) EARNINGS PER SHARE
US accounting principles require share options to be included in fully
diluted earnings (loss) per common share, where dilutive, assuming that the
share options are exercised using the treasury stock method.
F-14
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
11. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(D) EFFECT ON EARNINGS
The effect on consolidated earnings of the differences between Canadian and
US accounting principles is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
(U.S. $ IN THOUSANDS
EXCEPT SHARES AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) applicable to
common shares, as reported....... $ (9,055) $ 5,218 $ 4,842
Additional depletion............... (89,153) -- --
------------ ------------ ------------
(98,208) 5,218 4,842
Reduction in depletion expense..... 4,235 3,177 2,381
Reduction (increase) in deferred
tax provision.................... 30,010 (885) (1,021)
------------ ------------ ------------
Net income (loss) applicable to
common shares under US accounting
principles....................... $ (63,963) $ 7,510 $ 6,202
============ ============ ============
Net income (loss) per common share
under US accounting principles:
Basic............................ $ (4.75) $ 0.55 $ 0.47
============ ============ ============
Fully diluted.................... $ (4.75) $ 0.54 $ 0.46
============ ============ ============
Fully diluted number of common
shares outstanding............... 13,480,067 13,858,593 13,446,684
============ ============ ============
</TABLE>
(E) EFFECT ON BALANCE SHEET
The effect on the Consolidated Balance Sheet of the differences between
Canadian and US accounting principles is as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
UNDER US UNDER US
AS ACCOUNTING AS ACCOUNTING
REPORTED PRINCIPLES REPORTED PRINCIPLES
-------- ---------- -------- ----------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C>
Net capital assets.................. $288,477 $185,517 $243,290 $225,248
Deferred tax--asset................. $ 5,182 $ 28,233 $ 3,442 $ 5,537
Deferred tax--liability............. $ 13,684 $ -- $ 13,367 $ 8,737
Deficit............................. $(17,565) $(83,790) $ (7,089) $(18,406)
</TABLE>
Additionally for US reporting purposes, the preferred shares shown as
shareholders' equity in these consolidated financial statements would be shown
outside the equity section.
F-15
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
11. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(F) INCOME TAX DISCLOSURES
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
------------------------
1998 1997
--------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Depletion and amortization........................ $ 6,971 $ 3,413
Financing costs................................... 390 633
Loss carry forwards............................... 20,593 14,908
Other............................................. 382 346
--------- ---------
28,336 19,300
Deferred tax liabilities
Depletion and amortization........................ -- (22,431)
Other............................................. (103) (69)
--------- ---------
(103) (22,500)
--------- ---------
Net deferred tax assets (liabilities)............... $ 28,233 $ (3,200)
========= =========
</TABLE>
At December 31, 1998, the Company's US net operating tax losses carried forward
amounted to $55,218,000 of which $6,119,000, $2,835,000, $6,139,000,
$18,007,000, $3,773,000, $2,090,000 and $16,255,000 expire in the years 2005,
2007, 2009, 2010, 2011, 2012 and 2018, respectively. Canadian net operating tax
losses carried forward amounted to $2,231,000 of which $1,998,000 and $233,000
expire in the years 2003 and 2005, respectively. The Company is of the opinion
that the tax benefit of these tax losses will be realized.
Provisions for deferred income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
--------------------- ------------------- -------------------
CANADA US CANADA US CANADA US
--------- --------- -------- -------- -------- --------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes and dividends on
preferred shares of a
subsidiary................... $ (5,002) $ (85,440) $ 3,019 $ 17,629 $ 1,962 $ 16,406
========= ========= ======== ======== ======== ========
Provision for deferred income
taxes........................ $ (921) $ (30,512) $ 2,122 $ 6,067 $ 1,239 $ 5,861
========= ========= ======== ======== ======== ========
</TABLE>
F-16
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
11. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The provision for income taxes differs from the amount of income tax determined
by applying the Canadian statutory rate to pre-tax income before dividends paid
on preferred shares of a subsidiary, as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory Canadian rate of 44.6%..... $ (40,355) $ 9,213 $ 8,196
Lower income tax rate on earnings of
US subsidiaries........................... 7,830 (1,617) (1,428)
Canadian income tax on exchange loss (gain)
which is eliminated upon consolidation.... 511 362 (56)
Other....................................... 595 238 512
--------- --------- ---------
Tax at effective rate....................... $ (31,419) $ 8,196 $ 7,224
========= ========= =========
Effective tax rate.......................... 34.7% 39.7% 39.3%
========= ========= =========
</TABLE>
(G) STOCK-BASED COMPENSATION
The Company applies the intrinsic value method prescribed by APB Opinion 25
and related interpretations in accounting for share option transactions.
Accordingly, no compensation cost is recognized in the accounts. US accounting
principles require disclosure of the impact on earnings and earnings per share
of the value of options granted after 1994, calculated in accordance with
FAS 123. Such impact, calculated using the Black-Scholes option pricing model
and resulting in option fair values of $10.61, $11.49 and $12.54, applying
risk-free interest rates of 5.64%, 6.85% and 6.51% for options granted in 1998,
1997 and 1996, respectively, and assuming ten year expected option lives, no
dividend yields and expected volatilities of 25%, 24% and 24% on a weighted
average basis, would amount to a net of tax charge to income (loss) of
$1,502,000 (1997--$1,348,000; 1996--$872,000). After reflecting this charge, pro
forma net income (loss) applicable to common shares under US accounting
principles would be $(65,465,000), (1997--$6,162,000; 1996--$5,330,000); pro
forma net income (loss) per common share under US accounting principles would be
$(4.86) (1997--$0.45; 1996--$0.41); and pro forma fully diluted earnings (loss)
per common share under US accounting principles would be $(4.86) (1997--$0.45;
1996--$0.40). These effects are not necessarily indicative of those to be
expected in future years.
(H) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash outflows for income taxes for the years 1998, 1997 and 1996 were
$14,000, $141,000 and $26,000, respectively. Cash outflows for long-term debt
interest were $628,000 in 1998.
F-17
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
RESERVE INFORMATION
Reports prepared by Netherland, Sewell & Associates, Inc., as to the
Company's US reserves, and by the Company, as to the UK reserves, estimate the
total proved and proved developed producing reserves owned by the Company,
before and after royalty deductions, as follows:
TOTAL PROVED RESERVES BEFORE ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
CRUDE OIL &
NATURAL GAS--MMCF NGLS--
------------------------------------ BARRELS*
UNITED STATES NORTH SEA TOTAL UNITED STATES
------------- --------- -------- -------------
<S> <C> <C> <C> <C>
December 31, 1996................................ 127,250 23,364 150,614 10,518,800
Purchase of producing properties............. -- -- -- --
Revision of previous estimates............... 7,029 (1,037) 5,992 1,317,800
Extensions, discoveries and other
additions.................................. 21,153 -- 21,153 2,046,400
Sale of proved properties.................... -- -- -- --
Production................................... (24,306) (4,010) (28,316) (936,300)
------- ------ ------- -----------
December 31, 1997................................ 131,126 18,317 149,443 12,946,700
Purchase of producing properties............. 4,745 -- 4,745 18,600
Revision of previous estimates............... 10,683 (5,119) 5,564 (1,478,900)
Extensions, discoveries and other
additions.................................. 29,360 -- 29,360 4,871,800
Sale of proved properties.................... -- -- -- --
Production................................... (26,960) (3,088) (30,048) (1,158,100)
------- ------ ------- -----------
December 31, 1998................................ 148,954 10,110 159,064 15,200,100
======= ====== ======= ===========
</TABLE>
TOTAL PROVED RESERVES AFTER ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
CRUDE OIL &
NATURAL GAS--MMCF NGLS--
------------------------------------ BARRELS*
UNITED STATES NORTH SEA TOTAL UNITED STATES
------------- --------- -------- -------------
<S> <C> <C> <C> <C>
December 31, 1996................................ 103,437 23,364 126,801 9,252,900
Purchase of producing properties............. -- -- -- --
Revision of previous estimates............... 5,136 (1,037) 4,099 1,102,800
Extensions, discoveries and other
additions.................................. 17,628 -- 17,628 1,697,600
Sale of proved properties.................... -- -- -- --
Production................................... (19,421) (4,010) (23,431) (799,500)
------- ------ ------- -----------
December 31, 1997................................ 106,780 18,317 125,097 11,253,800
Purchase of producing properties............. 3,512 -- 3,512 13,800
Revision of previous estimates............... 7,819 (5,119) 2,700 (1,316,000)
Extensions, discoveries and other
additions.................................. 22,268 -- 22,268 4,142,300
Sale of proved properties.................... -- -- -- --
Production................................... (21,416) (3,088) (24,504) (986,800)
------- ------ ------- -----------
December 31, 1998................................ 118,963 10,110 129,073 13,107,100
======= ====== ======= ===========
</TABLE>
- ------------------------
* 26,800 (1997--58,900) barrels of natural gas liquids, before and after
royalty deductions, associated with the UK natural gas reserves are not
included in this table.
F-18
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
PROVED DEVELOPED PRODUCING RESERVES BEFORE ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
NATURAL GAS--MMCF
------------------------------ CRUDE OIL & NGLS--BARRELS
UNITED UNITED UNITED
STATES KINGDOM TOTAL STATES
-------- -------- -------- -------------------------
<S> <C> <C> <C> <C>
December 31, 1996............................. 53,400 23,364 76,764 9,175,900
====== ====== ====== =========
December 31, 1997............................. 55,013 18,317 73,330 8,209,000
====== ====== ====== =========
December 31, 1998............................. 70,082 10,108 80,190 5,430,000
====== ====== ====== =========
</TABLE>
PROVED DEVELOPED PRODUCING RESERVES AFTER ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
NATURAL GAS--MMCF
------------------------------ CRUDE OIL & NGLS--BARRELS
UNITED UNITED UNITED
STATES KINGDOM TOTAL STATES
-------- -------- -------- -------------------------
<S> <C> <C> <C> <C>
December 31, 1996............................. 43,000 23,364 66,364 8,138,000
====== ====== ====== =========
December 31, 1997............................. 43,979 18,317 62,296 7,241,300
====== ====== ====== =========
December 31, 1998............................. 55,418 10,108 65,526 4,739,000
====== ====== ====== =========
</TABLE>
RESULTS OF OPERATIONS FOR NATURAL GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C>
United States
Revenue--net of royalties............................... $ 56,199 $ 63,227 $ 56,457
Production costs........................................ (15,675) (14,901) (13,291)
Depletion and amortization.............................. (39,460) (33,414) (28,976)
-------- -------- --------
Results of operations from producing activities before
income taxes.......................................... 1,064 14,912 14,190
Income tax expense...................................... (333) (5,223) (5,146)
-------- -------- --------
Results of operations from producing activities after
income taxes........................................ $ 731 $ 9,689 $ 9,044
======== ======== ========
United Kingdom
Revenue--net of royalties............................... $ 4,411 $ 6,231 $ 4,155
Production costs........................................ (964) (1,064) (904)
Depletion and amortization.............................. (3,646) (3,319) (1,861)
-------- -------- --------
Results of operations from producing activities before
income taxes.......................................... (199) 1,848 1,390
Income tax expense...................................... 117 (787) (600)
-------- -------- --------
Results of operations from producing activities after
income taxes.......................................... $ (82) $ 1,061 $ 790
======== ======== ========
</TABLE>
F-19
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
-------- -------- --------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C>
Libya
Revenue--net of royalties............................... $ 1,005 $ 169 $ --
Production costs........................................ (1,041) (38)
Depletion and amortization.............................. (5,144) (131) --
-------- -------- --------
Results of operations from producing activities before
income taxes.......................................... (5,180) -- --
Income tax expense...................................... 2,312 -- --
-------- -------- --------
Results of operations from producing activities after
income taxes.......................................... $ (2,868) $ -- $ --
======== ======== ========
Total
Revenue--net of royalties............................... $ 61,615 $ 69,627 $ 60,612
Production costs........................................ (17,680) (16,003) (14,195)
Depletion and amortization.............................. (48,250) (36,864) (30,837)
-------- -------- --------
Results of operations from producing activities before
income taxes.......................................... (4,315) 16,760 15,580
Income tax expense...................................... 2,096 (6,010) (5,746)
-------- -------- --------
Results of operations from producing activities after
income taxes.......................................... $ (2,219) $ 10,750 $ 9,834
======== ======== ========
</TABLE>
CAPITALIZED COSTS RELATING TO NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
ACTIVITIES
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C>
Proved natural gas and oil properties.................. $ 475,902 $ 402,885 $ 337,538
Unproved natural gas and oil properties................ 76,478 56,922 52,816
--------- --------- ---------
552,380 459,807 390,354
Accumulated depletion.................................. 266,066 224,154 187,403
--------- --------- ---------
Net capitalized costs.................................. $ 286,314 $ 235,653 $ 202,951
========= ========= =========
</TABLE>
F-20
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
COSTS INCURRED IN NATURAL GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs:
United States........................................... $ 7,903 $ 9,164 $ 13,954
United Kingdom.......................................... 115 137 722
Other Foreign........................................... -- -- 68
-------- -------- --------
8,018 9,301 14,744
-------- -------- --------
Purchase of producing properties:
United States........................................... 883 -- 2,077
-------- -------- --------
Sale of producing properties:
United States........................................... -- -- (1,040)
-------- -------- --------
Exploration costs:
United States........................................... 43,317 35,540 17,453
United Kingdom.......................................... 72 115 --
Other Foreign........................................... 606 1,207 434
-------- -------- --------
43,995 36,862 17,887
-------- -------- --------
Development costs:
United States........................................... 39,606 23,260 22,131
United Kingdom.......................................... 71 30 1,874
-------- -------- --------
39,677 23,290 24,005
-------- -------- --------
$ 92,573 $ 69,453 $ 57,673
======== ======== ========
</TABLE>
F-21
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
(Unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL, NATURAL GAS LIQUIDS AND NATURAL GAS RESERVES
The following standardized measure of discounted future net cash flow was
computed in accordance with Financial Accounting Standards Board Statement #69
using year-end prices and costs, and year-end statutory tax rates. Royalty
deductions were based on laws, regulations and contracts existing at the end of
each period. No values are given to unproved properties or to probable reserves
that may be recovered from proved properties.
The inexactness associated with estimating reserve quantities, future production
streams and future development and production expenditures, together with the
assumptions applied in valuing future production, substantially diminish the
reliability of this data. The values so derived are not considered to be
estimates of fair market value. THE COMPANY THEREFORE CAUTIONS AGAINST
SIMPLISTIC USE OF THIS INFORMATION.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
United States
Future cash inflows....................................... $ 382,771 $ 480,669 $ 577,313
Future production costs................................... (116,976) (121,380) (148,061)
Future development costs.................................. (60,203) (57,208) (39,375)
Future income tax expense................................. -- (46,742) (85,464)
--------- --------- ---------
Future net cash flows..................................... 205,592 255,339 304,413
Ten percent annual discount for estimated timing of cash
flows................................................... (62,089) (70,844) (89,292)
--------- --------- ---------
Standardized measure of discounted future net cash
flows................................................... 143,503 184,495 215,121
--------- --------- ---------
United Kingdom
Future cash inflows....................................... 19,349 32,774 48,392
Future production costs................................... (7,483) (5,734) (8,045)
Future development costs.................................. (1,457) (1,450) (1,603)
Future income tax expense................................. -- (6,340) (6,601)
--------- --------- ---------
Future net cash flows..................................... 10,409 19,250 32,143
Ten percent annual discount for estimated timing of cash
flows................................................... (1,404) (4,172) (8,241)
--------- --------- ---------
Standardized measure of discounted future net cash
flows................................................... 9,005 15,078 23,902
--------- --------- ---------
Total
Future cash inflows....................................... 402,120 513,443 625,705
Future production costs................................... (124,459) (127,114) (156,106)
Future development costs.................................. (61,660) (58,658) (40,978)
Future income tax expense................................. -- (53,082) (92,065)
--------- --------- ---------
Future net cash flows..................................... 216,001 274,589 336,556
Ten percent annual discount for estimated timing of cash
flows................................................... (63,493) (75,016) (97,533)
--------- --------- ---------
Standardized measure of discounted future net cash
flows................................................... $ 152,508 $ 199,573 $ 239,023
========= ========= =========
</TABLE>
F-22
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES (CONTINUED)
(UNAUDITED)
The following table sets out principal sources of change in the standardized
measure of discounted future net cash flows during the respective periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(U.S. $ IN THOUSANDS)
<S> <C> <C> <C>
Sales of oil, ngls and natural gas produced, net of
production costs.......................................... $ (45,231) $ (56,061) $ (48,233)
Net change in prices and production costs................... (79,471) (73,047) 120,858
Extensions and discoveries, less related costs.............. 30,159 28,219 50,995
Purchase of producing properties............................ 2,793 -- 10,638
Sales of producing properties............................... -- -- (436)
Development costs incurred during the period................ 23,131 10,096 15,026
Revisions of previous quantity estimates.................... (17,191) 22,388 (4,462)
Accretion of discount....................................... 19,958 23,902 15,457
Net change in income taxes.................................. 38,739 26,534 (51,064)
Changes in estimated future development costs............... (16,421) (12,551) (13,950)
Other....................................................... (3,531) (8,930) 6,700
--------- --------- ---------
Net increase (decrease)..................................... (47,065) (39,450) 101,529
Beginning of year........................................... 199,573 239,023 137,494
--------- --------- ---------
End of year................................................. $ 152,508 $ 199,573 $ 239,023
========= ========= =========
</TABLE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
GROSS INCOME PER COMMON
QUARTER ENDED REVENUE PROFIT (LOSS) SHARE
- ------------- -------- -------- -------- ----------
(U.S. $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
March 31, 1998................................ $ 18,718 $ 2,884 $ 556 $ 0.04
June 30, 1998................................. 14,804 (342) (1,735) (0.13)
September 30, 1998............................ 13,943 (1,345) (2,472) (0.18)
December 31, 1998............................. 16,926 (6,719) (5,404) (0.40)
March 31, 1997................................ $ 22,563 $ 8,444 $ 3,924 $ 0.29
June 30, 1997................................. 14,807 1,271 (470) (0.04)
September 30, 1997............................ 14,891 1,949 36 0.01
December 31, 1997............................. 19,794 5,807 1,728 0.12
</TABLE>
F-23
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEET
(U.S. $ IN THOUSANDS)
(Full Cost Method of Accounting)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits.............................. $ 597 $ 10,613
Accounts receivable....................................... 20,111 14,030
Other..................................................... 792 282
--------- ---------
21,500 24,925
Capital assets--net......................................... 275,471 288,477
Deferred income taxes....................................... 10,892 5,182
--------- ---------
$ 307,863 $ 318,584
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued.............................. $ 16,791 $ 22,533
Long-term debt.............................................. 45,000 40,000
Abandonment cost accrual.................................... 8,305 7,421
Deferred income taxes....................................... 13,978 13,684
Shareholders' equity:
Preferred shares of a subsidiary.......................... 63,403 63,403
Common shares............................................. 189,010 189,108
Contributed surplus....................................... 26 --
Deficit................................................... (28,650) (17,565)
--------- ---------
223,789 234,946
--------- ---------
$ 307,863 $ 318,584
========= =========
</TABLE>
See Notes to the Consolidated Condensed Financial Statements.
F-24
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (LOSS)
(U.S. $ IN THOUSANDS EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30,
-----------------------------------------------------
NINE MONTHS THREE MONTHS
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Production revenue, net of royalties...... $ 52,954 $ 44,852 $ 22,569 $ 13,822
Interest and other revenue (Note 2)....... 570 2,613 194 121
----------- ----------- ----------- -----------
53,524 47,465 22,763 13,943
Production costs.......................... 10,985 12,219 3,623 4,206
General and administrative expenses....... 3,354 3,668 981 917
Interest.................................. 1,867 285 666 260
Depletion and amortization................ 38,711 30,096 13,619 9,905
Additional depletion: Libyan properties
(Note 3)................................ 11,393 -- -- --
----------- ----------- ----------- -----------
66,310 46,268 18,889 15,288
----------- ----------- ----------- -----------
Income (loss) before income taxes and
dividends on a preferred shares of a
subsidiary.............................. (12,786) 1,197 3,874 (1,345)
Income taxes (Note 4)..................... (5,408) 1,141 1,356 (109)
----------- ----------- ----------- -----------
Income (loss) before dividends on
preferred shares of a subsidiary........ (7,378) 56 2,518 (1,236)
Dividends on preferred shares of
a subsidiary............................ 3,707 3,707 1,236 1,236
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shares........................... $ (11,085) $ (3,651) $ 1,282 $ (2,472)
=========== =========== =========== ===========
Net income (loss) per common share
(Note 5):
--Basic............................... $ (0.83) $ (0.27) $ 0.10 $ (0.18)
=========== =========== =========== ===========
--Fully diluted....................... $ (0.83) $ (0.27) $ 0.10 $ (0.18)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding:
--Basic............................... 13,350,383 13,520,786 13,348,645 13,438,005
=========== =========== =========== ===========
--Fully diluted....................... 13,350,383 13,520,786 13,348,645 13,438,005
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-25
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS
(U.S. $ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) applicable to common shares............. $ (11,085) $ (3,651)
Items not requiring a current cash outlay................. 44,688 31,210
--------- ---------
33,603 27,559
Net change in non-cash operating working capital (Note
6)...................................................... (6,358) (713)
--------- ---------
27,245 26,846
Financing activities:
Increase in long-term debt................................ 5,000 25,000
Purchase of common shares for cancellation................ (80) (5,355)
Issue of common shares.................................... 9 437
--------- ---------
4,929 20,082
Investing activities:
Lease acquisition, exploration and drilling costs......... (30,270) (55,847)
Pipelines and production equipment acquired............... (6,072) (10,351)
Sale of producing properties.............................. 155 --
--------- ---------
(36,187) (66,198)
Purchase of other capital assets.......................... (28) (87)
Change in investing accounts payable and accrued.......... (5,975) (1,465)
--------- ---------
(42,190) (67,750)
--------- ---------
Change in cash and short-term deposits.................... (10,016) (20,822)
Beginning cash and short-term deposits.................... 10,613 26,925
--------- ---------
Ending cash and short-term deposits....................... $ 597 $ 6,103
========= =========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-26
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of Chieftain International, Inc. (the "Company" and together
with its subsidiaries "Chieftain"), the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
at September 30, 1999 and December 31, 1998 and the results of operations and
cash flows for the nine month periods ended September 30, 1999 and 1998. Certain
information and notes normally included in Chieftain's financial statements
prepared in conformity with Canadian generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These consolidated condensed financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in Chieftain's Annual Report on
Form 10-K for the year ended December 31, 1998.
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make informed judgements and
estimates. Actual results may differ from those estimates.
The results of operations and cash flows for the nine month period ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
Material differences between Canadian and US accounting principles that affect
Chieftain are referred to in Note 7, which provides the effects of such
differences on earnings and balance sheet accounts.
2. INTEREST AND OTHER REVENUE
Interest and other revenue for the first quarter of 1998 included
$1.6 million awarded by the courts pursuant to a successful claim for recovery
of excess transportation charges incurred from 1990 through 1997. The award
comprises transportation charges, legal fees and judgment interest in the
amounts of $1,129,000, $282,000 and $189,000, respectively.
3. ADDITIONAL DEPLETION
Additional depletion of $11.4 million arises from the termination of an
exploration program and production test in Libya.
F-27
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
4. INCOME TAXES
The provision for income taxes differs from the amount of income tax
determined by applying the Canadian statutory rate to pre-tax income (loss)
before dividends paid on preferred shares of a subsidiary as a result of the
following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at statutory Canadian rate
44.62%............................. $ (5,705) $ 534 $ 1,729 $ (603)
Lower income tax rate on earnings of
US subsidiaries.................... (76) (144) (407) 95
Canadian income tax on exchange loss
(gain) which is eliminated upon
consolidation...................... 634 220 41 47
Prior years' tax reassessments....... -- 208 -- 208
Exchange revaluation of Canadian
deferred tax assets................ (289) 222 (9) 105
Other................................ 28 101 2 39
-------- -------- -------- --------
Tax at effective rate................ $ (5,408) $ 1,141 $ 1,356 $ (109)
======== ======== ======== ========
Effective tax rate................... 42.3% 95.3% 35.0% 8.1%
======== ======== ======== ========
</TABLE>
5. PER SHARE AMOUNTS
Net income (loss) per common share is computed by dividing net income (loss)
applicable to common shares by the weighted average number of common shares
outstanding during the period.
In the calculation of fully diluted earnings per share, shares outstanding are
adjusted for share options and shares issuable on conversion of preferred shares
were dilutive. Earnings are adjusted by the amount of imputed interest on share
option proceeds and preferred share dividends.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash outflows for (inflows from) income taxes during the 1999 third quarter
were $(29,000) (year-to-date--$(12,000)) (1998--third quarter--$14,000;
year-to-date--$41,000). Cash outflows for long-term debt interest during the
1999 third quarter were $653,000 (year-to-date--$1,804,000) (1988--
third-quarter--$156,000; year-to-date--$156,000).
F-28
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
7. UNITED STATES ACCOUNTING PRINCIPLES
(A) FULL COST ACCOUNTING
US full cost accounting rules differ materially from the Canadian full cost
accounting guidelines followed by Chieftain. The US rules require an impairment
test to be conducted quarterly whereas the Canadian guidelines require this test
only at year-end. In determining the limitation on carrying values, US rules
require the discounting of future net revenues at 10%, and Canadian guidelines
require the use of undiscounted future net revenues and the deduction of
estimated future administrative and financing costs. The quarterly test required
by US accounting rules, using a March 31, 1999 UK natural gas price of $0.84 per
mcf to determine future net revenues, would have resulted in a write-down of UK
property carrying costs at March 31, 1999 of $7.1 million and, after providing
for tax recoveries of $3.1 million, a net charge to operations of $4.0 million.
Using June 30, 1998 US gas and oil prices of $2.09 per mcf and $12.40 per barrel
to determine future net revenues would have resulted in a write-down of US
property carrying costs at June 30, 1998 of $24.7 million and, after providing
for tax recoveries of $8.6 million, a net charge to operations of
$16.1 million.
(B) EFFECT ON EARNINGS
The effect on consolidated earnings of these differences is summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1999 1998
-------------- --------------
(U.S. $ IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) applicable to common shares as
reported...................................... $ (11,085) $ (3,651)
Additional depletion............................ (7,104) (24,725)
----------- -----------
(18,189) (28,376)
Add reduction in depletion expense.............. 13,122 2,631
Decrease (increase) in deferred tax provision... (1,656) 7,449
----------- -----------
Net income (loss) applicable to common shares
under US accounting principles................ $ (6,723) $ (18,296)
=========== ===========
Net income (loss) per common share under
US accounting principles:
--Basic................................... $ (0.50) $ (1.35)
=========== ===========
--Fully diluted........................... $ (0.50) $ (1.35)
=========== ===========
Fully diluted number of common shares
outstanding................................... 13,350,383 13,520,786
=========== ===========
</TABLE>
F-29
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------------
1999 1998
-------------- --------------
(U.S. $ IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C>
Net income (loss) applicable to common shares as
reported...................................... $ 1,282 $ (2,472)
----------- -----------
Add reduction in depletion expense.............. 4,926 1,212
Decrease (increase) in deferred tax provision... (1,830) (708)
----------- -----------
Net income (loss) applicable to common shares
under US accounting principles................ $ 4,378 $ (1,968)
=========== ===========
Net income (loss) per common share under
US accounting principles:
--Basic................................... $ 0.33 $ (0.15)
=========== ===========
--Fully diluted........................... $ 0.32 $ (0.15)
=========== ===========
Fully diluted number of common shares
outstanding................................... 13,493,458 13,438,005
=========== ===========
</TABLE>
(C) EFFECT ON BALANCE SHEET
The effect on the Consolidated Condensed Balance Sheet of the differences
between Canadian and US accounting principles is as follows:
<TABLE>
<CAPTION>
AS AT AS AT
SEPTEMBER 30, 1999 DECEMBER 31, 1998
----------------------- -----------------------
UNDER US UNDER US
AS ACCOUNTING AS ACCOUNTING
REPORTED PRINCIPLES REPORTED PRINCIPLES
---------- ---------- ---------- ----------
(U.S.$ IN THOUSANDS)
<S> <C> <C> <C> <C>
Net capital assets............ $ 275,471 $ 178,529 $ 288,477 $ 185,517
Deferred tax--asset........... $ 10,892 $ 31,993 $ 5,182 $ 28,233
Deferred tax--liability....... $ 13,978 $ -- $ 13,684 $ --
Deficit....................... $ (28,650) $ (90,513) $ (17,565) $ (83,790)
</TABLE>
Additionally for U.S. reporting purposes, the preferred shares shown as
shareholders' equity in these consolidated condensed financial statements would
be shown outside the equity section.
F-30
<PAGE>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
(D) STOCK-BASED COMPENSATION
The Company applies the intrinsic value method prescribed by APB Opinion 25 and
related interpretations in accounting for share option transactions.
Accordingly, no compensation cost is recognized in the accounts. US accounting
principles require disclosure of the impact on earnings and earnings per share
of the value of options granted after 1994, calculated in accordance with
FAS 123. For the nine months ended September 30, 1999 such impact would amount
to a net of tax charge to income (loss) of $946,000 (1998--$1,270,000) and for
the three months ended September 30, such impact would amount to a net of tax
charge to income (loss) of $355,000 (1998--$397,000). Under US accounting
principles after reflecting this charge, for the nine months ended
September 30, pro forma net income (loss) applicable to common shares would be
$(7,669,000) (1998--($19,566,000)); net income (loss) per common share would be
$(0.57) (1998--$(1.45)); and pro forma fully diluted earnings (loss) per common
share would be $(0.57) (1998--$(1.45)). For the three months ended
September 30, pro forma net income (loss) applicable to common shares under US
accounting principles would be $4,023,000 (1998--$(2,365,000)); pro forma net
income (loss) per common share would be $0.30 (1998--$(0.18)); and pro forma
fully diluted earnings (loss) per common share would be $0.30 (1998--$(0.18)).
These effects are not necessarily indicative of those to be expected in future
periods.
F-31
<PAGE>
PROSPECTUS
$300,000,000
[LOGO]
CHIEFTAIN INTERNATIONAL, INC.
COMMON SHARES, PREFERRED SHARES,
DEBT SECURITIES AND WARRANTS
- --------------------------------------------------------------------------------
We will offer and sell from time to time Chieftain common shares, preferred
shares, debt securities, or warrants. We will provide specific terms of these
securities in supplements to this prospectus. The terms of the securities will
include the initial offering price, aggregate amount of the offering, listing on
any securities exchange or quotation system, risk factors and the agents,
dealers or underwriters, if any, to be used in connection with the sale of these
securities. You should read this prospectus and any supplement together with any
and all documents incorporated by reference herein and in any supplement
carefully before you invest.
Our common shares are listed on the American Stock Exchange and The Toronto
Stock Exchange under the symbol "CID."
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 20, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
About This Prospectus....................................... 3
Enforcement of Civil Liabilities............................ 3
Where You Can Find More Information......................... 3
Forward-Looking Statements.................................. 4
Chieftain................................................... 5
Risk Factors................................................ 6
Ratios of Earnings to Fixed Charges......................... 8
Use of Proceeds............................................. 9
Description of Share Capital................................ 9
Description of Debt Securities.............................. 14
Description of Warrants..................................... 19
Plan of Distribution........................................ 21
Legal Matters............................................... 22
Experts..................................................... 22
</TABLE>
----------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ADDITIONAL OR DIFFERENT INFORMATION. IF YOU RECEIVE ANY UNAUTHORIZED
INFORMATION, YOU MUST NOT RELY ON IT. WE ARE OFFERING TO SELL THE SECURITIES
ONLY IN JURISDICTIONS WHERE SALES ARE PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION WE HAVE INCLUDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE OF THIS PROSPECTUS OR THAT ANY INFORMATION WE HAVE INCORPORATED BY
REFERENCE IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THE DOCUMENT
INCORPORATED BY REFERENCE.
2
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the SEC
using a "shelf" registration process. Under the shelf registration process, we
may sell any combination of the securities described in this prospectus in one
or more offerings up to a total dollar amount of $300,000,000. This prospectus
provides you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement,
together with additional information described under the heading "Where You Can
Find More Information."
As used in this prospectus, "Chieftain," "we," "us" and "our" refer to Chieftain
International, Inc., a company organized under the laws of the Province of
Alberta, Canada, and its subsidiaries.
ENFORCEMENT OF CIVIL LIABILITIES
We are a corporation organized in Canada under the Business Corporations Act
(Alberta). Most of our directors and officers are not residents of the United
States, and all or a substantial portion of the assets of our directors and
officers are located outside of the United States. As a result, it may be
difficult for holders of our securities to effect service of process within the
United States upon those directors and officers who do not reside in the U.S. or
to enforce against them in the U.S. courts judgments obtained in U.S. courts
predicated upon the civil liability provisions under U.S. federal securities
laws. We have been advised by our Canadian counsel, Bennett Jones, that there is
doubt as to whether, in original actions or actions for enforcement of judgments
of U.S. courts, liabilities predicated solely upon U.S. federal securities laws
are enforceable in Canada against us or any of our directors or officers or the
experts named herein, who are not residents of the United States.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934, which requires us to file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document that we file at the Public Reference Room of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of its public reference room. You may also
inspect our filings at the regional offices of the SEC located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, New York, New York 10048 or over the Internet at the SEC's web
site at http://www.sec.gov.
This prospectus constitutes part of a registration statement on Form S-3 filed
with the SEC under the Securities Act of 1933. It omits some of the information
contained in the registration statement, and reference is made to the
registration statement for further information with respect to us and the
securities we are offering. Any statement contained in this prospectus
concerning the provisions of any document filed as an exhibit to the
registration statement or otherwise filed with the SEC is not necessarily
complete, and in each instance reference is made to the copy of the filed
document.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information that we file with the SEC
will automatically update and supersede this information and the information in
the
3
<PAGE>
prospectus. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Act of 1934:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998.
2. Our Proxy Statement dated March 11, 1999 filed with the SEC on April 7,
1999.
3. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
June 30 and September 30, 1999.
4. The description of our common shares contained in our registration statement
on Form 8-A, dated April 7, 1989, as amended on April 12, 1989, and any
subsequent amendment or report filed before or after the date of this
prospectus for the purpose of updating the description.
5. The description of our Shareholder Rights Plan Agreement contained in our
registration statement on Form 8-A, dated October 20, 1999, and any
subsequent amendment or report filed on or after the date of this prospectus
for the purpose of updating the description.
You may request a copy of these filings at no cost, by writing or telephoning
Esther S. Ondrack, Senior Vice President and Secretary, Chieftain
International, Inc., 1201 TD Tower, 10088 - 102 Avenue, Edmonton, Alberta,
Canada T5J 2Z1, telephone number (780) 425-1950.
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus and in the documents we have
incorporated by reference contains, and any prospectus supplement may contain,
forward-looking statements. Forward-looking statements use forward-looking terms
such as "believe," "may," "intend," "will," "project," "budget," "should" or
"anticipate" or other similar words. These statements discuss "forward-looking"
information such as:
- anticipated capital expenditures and budgets;
- future cash flows and borrowings; and
- pursuit of potential future acquisition or drilling opportunities.
These forward-looking statements are based on assumptions that we believe are
reasonable, but they are open to a wide range of uncertainties and business
risks, including the following:
- fluctuations of the prices received or demand for oil and natural gas;
- uncertainty of drilling results, reserve estimates and reserve replacement;
- operating hazards;
- acquisition risks;
- unexpected substantial variances in capital requirements;
- environmental matters;
- Year 2000 computer-related interruptions; and
- general economic conditions.
Other factors that could cause actual results to differ materially from those
anticipated are discussed in our periodic filings with the SEC.
When considering these forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus, in any
prospectus supplement and in the documents we have
4
<PAGE>
incorporated by reference. We will not update these forward-looking statements
unless the securities laws require us to do so.
CHIEFTAIN
Chieftain International, Inc. is an independent energy company engaged in the
exploration, development and production of natural gas and oil. Our producing
properties and exploration acreage are primarily located in the shallow waters
of the U.S. Gulf of Mexico. We also have properties located onshore in
Louisiana, in the Four Corners area of southeast Utah and the U.K. sector of the
North Sea.
We have assembled a large natural gas and oil lease acreage position in the Gulf
of Mexico. Our lease interests in the Gulf of Mexico include a balanced
portfolio of exploration and development drilling prospects. These prospects
range from high-impact prospects with relatively greater risks, which we believe
have the potential to add substantially to our reserves, to relatively lower
risk development and exploitation projects with lower reserve potential. Our
exploration efforts are supported by an extensive 3-D seismic database covering
most of our leases. We believe that our seismic database and related
technological expertise have contributed to our successful exploration and
development track record. We believe our conservative capital structure provides
us with the financial flexibility to take advantage of our prospects and other
opportunities, including acquisitions of leasehold acreage and producing
properties.
5
<PAGE>
RISK FACTORS
An investment in our securities involves significant risks. You should carefully
consider the following risk factors before you decide to buy any of our
securities. You should also carefully read and consider all of the information
we have included, or incorporated by reference, in this prospectus before you
decide to buy any of our securities.
IF WE CANNOT REPLACE OUR RESERVES, OUR PRODUCTION AND FINANCIAL CONDITION WILL
SUFFER.
Unless we successfully replace our reserves, our production will decline,
resulting in lower revenues and cash flow. Replacing our reserves is
particularly important because most of our reserves are in the Gulf of Mexico
where wells normally have steeper rates of decline than onshore wells. Reduced
reserves may also make borrowing and raising equity more difficult. In response
to lower oil and natural gas prices, our capital expenditures in 1999 are
expected to be $55 million, compared to $92.6 million in 1998. At this level of
capital expenditures, it is more difficult to replace our reserves. Furthermore,
for the reasons discussed below, even if capital is spent on drilling or to make
acquisitions, such efforts have a risk of being unsuccessful.
DRILLING WELLS IS SPECULATIVE AND CAPITAL INTENSIVE.
Exploring for oil and natural gas and developing oil and natural gas properties
require significant capital expenditures and involve a high degree of financial
risk. The budgeted costs of drilling, completing and operating wells are often
exceeded and can increase significantly when drilling costs rise and supply
tightens. Drilling may be unsuccessful for many reasons, including weather, cost
overruns, equipment shortages and mechanical difficulties. Moreover, the
successful drilling of an oil or gas well does not ensure a profit on
investment. Exploratory wells bear a much greater risk of loss than development
wells. A variety of factors, both geological and market-related, can cause a
well to become uneconomic or only marginally economic. In addition to their
costs, unsuccessful wells can hurt our efforts to replace reserves.
RESERVES ON PROPERTIES WE BUY MAY NOT MEET OUR EXPECTATIONS AND COULD CHANGE THE
NATURE OF OUR BUSINESS.
Property acquisition decisions are based on various assumptions and subjective
judgments that are speculative. Although available geological and geophysical
information can provide information about the potential of a property, it is
impossible to predict accurately a property's production and profitability.
In addition, we may have difficulty integrating future acquisitions into our
operations, and they may not achieve our desired profitability objectives.
Likewise, as is customary in the industry, we generally acquire oil and gas
acreage without any warranty of title except through the transferor. In some
instances, title opinions are not obtained if, in our judgment, it would be
uneconomical or impractical to do so. Losses may result from title defects or
from defects in the assignment of leasehold rights. While our current operations
are primarily in shallow waters of the U.S. Gulf of Mexico (offshore Texas and
Louisiana), we may pursue acquisitions or properties located in other geographic
areas, which would decrease our geographical concentration.
ESTIMATES OF OUR PROVED RESERVES ARE UNCERTAIN AND OUR REVENUES FROM PRODUCTION
MAY VARY SIGNIFICANTLY FROM ESTIMATED AMOUNTS.
The quantities and values of our proved reserves included in this prospectus are
only estimates and are subject to numerous uncertainties. Estimates by other
engineers might differ materially. The accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
6
<PAGE>
interpretation. These estimates depend on assumptions regarding quantities and
production rates of recoverable oil and natural gas reserves, future prices for
oil and natural gas, timing and amounts of development expenditures and
operating expenses, all of which will vary from those assumed in our estimates.
These variances may be significant.
Any significant variance from the assumptions used could result in the actual
amounts of oil and natural gas ultimately recovered and future net cash flows
being materially different from the estimates in our reserve reports. In
addition, results of drilling, testing, production and changes in prices after
the date of the estimate may result in substantial downward revisions. These
estimates may not accurately predict the present value of net cash flows from
oil and natural gas reserves.
At December 31, 1998, approximately 30% of our estimated proved reserves were
undeveloped. Recovery of undeveloped reserves generally requires additional
capital expenditures and successful drilling operations. The reserve data
assumes that we can and will make these expenditures and conduct these
operations successfully, which may not occur.
WE DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY
UNEXPECTED LIABILITIES.
Exploration for and production of oil and natural gas can be hazardous,
involving natural disasters and other unforeseen occurrences such as blowouts,
cratering, fires and loss of well control, which can damage or destroy wells or
production facilities, injure or kill people, and damage property and the
environment. Because third party drilling contractors are used to drill our
wells, we may not realize the full benefit of worker's compensation laws in
dealing with their employees. We maintain insurance against many potential
losses and liabilities arising from our operations. However, in accordance with
customary industry practice, we may not be fully insured against these risks,
nor may all such risks be insurable.
GOVERNMENTAL REGULATIONS ARE COSTLY AND COMPLEX, ESPECIALLY REGULATIONS RELATING
TO ENVIRONMENTAL PROTECTION.
Our U.S. exploration, production and marketing operations are regulated
extensively at the federal, state and local levels. These regulations affect the
costs, manner and feasibility of our operations. As an owner and operator of oil
and gas properties, we are subject to federal, state and local regulation of
discharge of materials into, and protection of, the environment. We have made
and will continue to make significant expenditures in our efforts to comply with
the requirements of these environmental regulations, which may impose liability
on us for the cost of pollution clean-up resulting from operations, subject us
to liability for pollution damage and require suspension or cessation of
operations in affected areas. Changes in, or additions to, regulations regarding
the protection of the environment could increase our compliance costs and may
negatively impact our business.
We are subject to state and local regulations that impose permitting,
reclamation, land use, conservation and other restrictions on our ability to
drill and produce. These laws and regulations can require well and facility
sites to be closed and reclaimed. We buy and sell interests in properties that
have been operated in the past, and, as a result of these transactions, we may
retain or assume clean-up or reclamation obligations for our own operations or
those of third parties.
U.S. offshore oil and gas operations are subject to regulations of the United
States Department of the Interior, which currently impose absolute liability
upon the lessee under a federal lease for the cost of pollution clean-up
resulting from the lessee's operations, and could subject the lessee to possible
liability for pollution damage. In the event of a serious incident of pollution,
a lessee under a federal lease may be required to suspend or cease operations in
the affected area.
In the U.K., deposits of substances or articles at sea from offshore oil and gas
operations are subject to the licensing control of the Ministry of Agriculture,
Fisheries and Food. The breach of a license will
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result in criminal liability and possible civil liability for the cost of any
resulting pollution clean-up. In the event of a serious incident of pollution,
the Ministry may vary or revoke a license.
WE MAY HAVE DIFFICULTY COMPETING FOR OIL AND GAS PROPERTIES OR SUPPLIES.
We operate in a highly competitive environment, competing with major integrated
and independent energy companies for desirable oil and gas properties, as well
as for the equipment, labor and materials required to develop and operate those
properties. Many of these competitors have financial resources substantially
greater than ours. We may incur higher costs or be unable to acquire and develop
desirable properties at costs we consider reasonable because of this
competition.
OUR SHAREHOLDER RIGHTS PLAN AND BY-LAWS DISCOURAGE UNSOLICITED TAKEOVER
PROPOSALS AND COULD PREVENT YOU FROM REALIZING A PREMIUM FOR YOUR COMMON SHARES.
We have a shareholder rights plan that may have the effect of discouraging
unsolicited takeover proposals. The rights issued under the shareholder rights
plan would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our board of directors. In
addition, our articles of incorporation and by-laws contain provisions that may
discourage unsolicited takeover proposals that shareholders may consider to be
in their best interests which include:
- provisions that members of the board of directors are elected and retire in
rotation; and
- the ability of the board of directors to designate the terms of, and to issue
new series of, preferred shares.
Together, these provisions and our shareholder rights plan may discourage
transactions that otherwise could involve payment to you of a premium over
prevailing market prices for your common shares.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to fixed
charges or the deficiency of our consolidated earnings to cover fixed charges
for each period indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED --------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
------------- -------- ------- ------- -------- --------
(U.S. $ IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C>
CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES:
Ratio of Earnings to Fixed Charges...... -- -- 2.1 2.0 -- --
Deficiency of Earnings to Cover Fixed
Charges............................... $20,820 $12,157 -- -- $ 4,551 $21,757
U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (1):
Ratio of Earnings to Fixed Charges...... -- -- 2.5 2.3 -- --
Deficiency of Earnings to Cover Fixed
Charges............................... $20,026 $98,013 -- -- $12,337 $20,798
</TABLE>
- ---------------------
(1) See Note 11 to the audited consolidated financial statements for the year
ended December 31, 1998 that appear in our Annual Report on Form 10-K for
the year ended December 31, 1998 and Note 7 to the unaudited consolidated
condensed financial statements for the period ended June 30, 1999 that
appear in our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1999.
For purposes of computing the ratios of earnings to fixed charges, earnings
represent income (loss) before income taxes and fixed charges. Fixed charges
consist of interest expense and preferred share dividend requirements of our
consolidated subsidiary, Chieftain International Funding Corp.
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USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we will use
the net proceeds from the sale of the securities for our general corporate
purposes, which may include repaying indebtedness and funding capital
expenditures, acquisitions and working capital.
DESCRIPTION OF SHARE CAPITAL
The following description of our share capital is based upon our articles of
incorporation, our by-laws and applicable provisions of law. The following
description is qualified in its entirety by reference to such articles of
incorporation and by-laws, which have been filed as exhibits to earlier
registration statements filed by us with the SEC. See "Where You Can Find More
Information."
Certain provisions of our articles of incorporation and by-laws summarized in
the following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interests, including those attempts that might result
in a premium over the market price for shares held.
AUTHORIZED AND OUTSTANDING SHARE CAPITAL
Our authorized share capital consists of an unlimited number of common shares,
an unlimited number of First Preferred shares and an unlimited number of Second
Preferred shares. As of September 30, 1999 there were 13,349,059 common shares
outstanding and no First Preferred shares or Second Preferred shares
outstanding.
COMMON SHARES
VOTING RIGHTS
Pursuant to our articles of incorporation and by-laws, the holders of our common
shares are entitled to one vote for each common share held at all meetings of
shareholders other than meetings of another class or series of shares. However,
pursuant to the subordinated guarantee agreement that we entered into in 1992
when our subsidiary, Chieftain International Funding Corp., issued its $1.8125
Convertible Redeemable Preferred shares, we have agreed to use our best efforts,
subject to applicable law, to nominate and cause to be elected to our board of
directors two persons designated by the holders of a majority of the outstanding
Chieftain International Funding Corp. $1.8125 Convertible Redeemable Preferred
shares if Chieftain International Funding Corp. shall have failed to declare and
pay dividends on its $1.8125 Convertible Redeemable Preferred shares in the
manner required for any six or more quarterly dividend payments and until all
such accumulated and unpaid dividends are paid in full.
DIVIDENDS AND LIQUIDATION RIGHTS
The holders of our common shares are entitled to any dividends as may be
declared by the board of directors, subject to the preferential rights attaching
to the First Preferred shares and the Second Preferred shares and any other of
our shares ranking in priority to the common shares. In addition, pursuant to
the subordinated guarantee agreement that we entered into in 1992 when our
subsidiary, Chieftain International Funding Corp., issued its $1.8125
Convertible Redeemable Preferred shares, we have agreed that we will not declare
or pay or set apart for payment any dividend on any of our share capital and
that no other distribution shall be paid or declared and set apart for payment
and no other distribution shall be made upon any of our share capital unless
(a) the full cumulative dividends on all outstanding $1.8125 Convertible
Redeemable Preferred shares have been paid, (b) sufficient funds have been set
apart for the payment of dividends for the then current period on the $1.8125
Convertible
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Redeemable Preferred shares and (c) the full redemption price for the $1.8125
Convertible Redeemable Preferred shares which have been called for redemption
has been paid or set apart for payment in accordance with the certificate of
designation for the $1.8125 Convertible Redeemable Preferred shares.
In the event of our liquidation, dissolution or winding up, the holders of our
common shares are entitled, subject to the rights of the holders of our shares
ranking in priority to the common shares, to participate ratably among
themselves, and ratably with the holders of any shares ranking on a parity with
the common shares, in any distribution of our assets remaining after the payment
of all our liabilities.
OTHER PROVISIONS
There are no preemptive rights to subscribe for any additional securities which
we may issue and there are no redemption provisions or sinking fund provisions
applicable to the common shares. All outstanding common shares are legally
issued, fully paid and nonassessable.
TRANSFER AGENTS AND REGISTRARS
The transfer agent and registrar for our common shares in Canada is the CIBC
Mellon Trust Company at its principal office located in each of the cities of
Calgary and Toronto. The transfer agent and registrar for our common shares in
the United States is ChaseMellon Shareholder Services of New York at its
principal office located in the City of New York.
PREFERRED SHARES
Pursuant to our articles of incorporation and by-laws, we are authorized to
issue one or more series of First Preferred shares and Second Preferred shares.
The First Preferred shares and the Second Preferred shares are alike in all
respects except that any First Preferred shares have a preference over the
Second Preferred shares upon our liquidation, dissolution or winding up or in
respect of payment of any dividends thereon.
Either the First Preferred shares or the Second Preferred shares may be issued
in one or more series. Each series may consist of the number of shares as may be
determined by our board of directors. Our board of directors may, by resolution,
fix the designation, rights, privileges, restrictions and conditions attaching
to the preferred shares of each series including:
- the rate of preferential dividends;
- the dates of payment of dividends;
- the terms and conditions of redemption, purchase or conversion, if any; and
- any sinking fund or other provisions.
The holders of preferred shares are not entitled, as such, to receive notice of
or to vote at any meeting of our common shareholders except as may be required
by law.
The preferred shares of each series will rank on a parity with the preferred
shares of every other series of the same class. They will be entitled to
preference over our common shares and any other shares ranking junior to them
with respect to priority in payment of dividends and to the distribution of
assets or return of capital in the event of our liquidation, dissolution or
winding up, or any other distribution of the assets or return of capital among
our shareholders for the purpose of winding up our affairs. However, pursuant to
the subordinated guarantee agreement that we entered into in 1992 when our
subsidiary, Chieftain International Funding Corp., issued its $1.8125
Convertible Redeemable Preferred shares, we may not pay dividends on our
preferred shares until the payment of dividends on the
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$1.8125 Convertible Redeemable Preferred shares has been provided for. See
"Common Shares--Dividends and Liquidation Rights" for more information. In the
event of our liquidation, dissolution, winding up or other distribution of our
assets or return of capital, the holders of the preferred shares will be
entitled to receive, in priority to the holders of our common shares and any
other shares ranking junior to the preferred shares, the amount paid up on the
preferred shares and all accrued and unpaid dividends. The holders of the
preferred shares will not be entitled to share in any further distribution of
our property or assets.
The applicable prospectus supplement will describe the terms of any series of
preferred shares being offered, including:
- the number of shares and designation or title of the shares;
- any liquidation preference per share;
- any redemption, repayment or sinking fund provisions;
- any dividend rate or rates and the dates of payment (or the method for
determining the dividend rates or dates of payment);
- any voting rights;
- the currency or currencies, including composite currencies in which the
preferred shares are denominated and/or in which payments will or may be
payable;
- the method by which amounts in respect of the preferred shares may be
calculated and any commodities, currencies or indices, or value, rate or
price, relevant to such calculation;
- whether the preferred shares are convertible or exchangeable and, if so, the
securities or rights into which the preferred shares are convertible or
exchangeable, and the terms and conditions of conversion or exchange;
- the place or places where dividends and other payments on the preferred
shares will be payable;
- any conditions or restrictions on the creation and the issuance of any
additional shares; and
- any additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and restrictions.
The transfer agent for each series of preferred shares will be described in the
applicable prospectus supplement.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BY-LAWS
Our articles of incorporation and by-laws provide that our directors shall be
elected and retire in rotation. Directors are elected to three year terms and
only one-third of the directors stands for election in a given year. In
addition, our board of directors has the ability to designate the terms of, and
to issue new series of, preferred shares. These provisions may have the effect
of discouraging unsolicited takeover proposals that our common shareholders
might consider to be in their best interests and that otherwise could involve
payment to our common shareholders of a premium over prevailing market prices
for their common shares.
OUR RIGHTS PLAN
Pursuant to our shareholder rights plan, one right to purchase additional common
shares attaches to each of our common shares. In addition, one convertible right
attaches to each $1.8125 Convertible Redeemable Preferred share of Chieftain
International Funding Corp. Each convertible right entitles its
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<PAGE>
holder to receive one right to purchase additional common shares for each whole
common share issued upon conversion of such convertible preferred share into our
common shares. The rights and the convertible rights trade automatically with
their respective shares and become exercisable under the circumstances described
below. Until a right is exercised, the holder of the right, as such, will have
no rights as a shareholder, including the right to vote or receive dividends.
CERTAIN EFFECTS OF OUR RIGHTS PLAN
Our rights plan is designed to protect our shareholders in the event of
unsolicited offers to acquire us and other coercive takeover tactics. The
primary purpose of our rights plan is to ensure that any bid for our common
shares, in the context of a takeover, will be made for all our common shares, at
the same price, and with sufficient time for our common shareholders to fully
consider the bid. The provisions of our rights plan may render an unsolicited
takeover of us more difficult or less likely to occur or might prevent such a
takeover, even though such a takeover may offer our common shareholders the
opportunity to sell their common shares at a price above the prevailing market
rate and may be favored by a majority of our common shareholders. See "Risk
Factors--Our shareholder rights plan and by-laws discourage unsolicited takeover
proposals and could prevent you from realizing a premium for your common
shares."
SUMMARY OF PRINCIPAL ATTRIBUTES OF OUR RIGHTS PLAN
The following is a general summary of the terms of our rights plan, which is
qualified in its entirety by reference to the text of the rights plan agreement.
(a) One right to purchase common shares on the terms and conditions set forth in
the rights plan agreement is issued at no cost and attaches to each
outstanding common share.
(b) One convertible right entitling the holder to receive one right for each
whole common share issued on conversion of a $1.8125 Convertible Redeemable
Preferred share of Chieftain International Funding Corp., which is
convertible into our common shares, is issued at no cost and attaches to
each such outstanding convertible preferred share.
(c) Until the "separation time" (the eighth trading day following the earlier of
(1) the date on which a person or group of people acquire beneficial
ownership (as defined in the rights plan) of 25% or more of our common
shares (an "acquiring person") and (2) the commencement date of a takeover
bid which is not a Permitted Bid (as defined below)), rights trade with the
common shares to which they are attached, have no value and may not be
exercised.
(d) At the separation time, rights separate and trade separately from the common
shares and, promptly following the separation time, separate certificates
evidencing the rights are mailed to holders of record of our common shares
and, as applicable, to the holders of record of the $1.8125 Convertible
Redeemable Preferred shares of Chieftain International Funding Corp. as of
the separation time. In addition, after the separation time, each right
(other than any rights held by the acquiring person) may be exercised to
acquire, on payment of the exercise price, common shares having an aggregate
market value equal to twice the exercise price. The initial exercise price
of a right is Cdn. $80 or the U.S.$ equivalent thereof (the "exercise
price") and is subject to certain adjustments. Where a takeover bid that is
not a Permitted Bid or a Competing Permitted Bid (as defined below) is
withdrawn after the separation time, our board of directors may elect to
redeem all the outstanding rights at a price of Cdn. $0.001 each. Upon such
redemption, the rights plan will continue in effect as if the separation
time had never occurred.
(e) A Permitted Bid is an offer:
- that is open for a minimum of 75 days;
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- that is made to acquire all of our outstanding common shares;
- that is made by an offeror holding not more than 10% of our common
shares;
- pursuant to which the offeror agrees not to acquire any additional
common shares unless 50% or more of the shares not held by the offeror
are tendered, failing which the offer will cease to be a Permitted Bid;
and
- which, if successful, allows shareholders who have not already tendered
their shares a further 15 business days in which to do so.
(f) A Competing Permitted Bid has the same requirements as a Permitted Bid
except that a Competing Permitted Bid must remain open for the greater of
21 days and the time then remaining under the outstanding Permitted Bid. The
reduction in the acceptance time for a Competing Permitted Bid is intended
to allow, to the extent possible, all takeover bids to be considered by our
common shareholders within the same time period.
(g) The shareholder rights plan has a term of 10 years from February 23, 1994.
GENERAL IMPACT OF OUR RIGHTS PLAN
Our rights plan should not deter a person from acquiring control of us if that
person is prepared to make a takeover bid pursuant to the Permitted Bid or
Competing Permitted Bid requirements. However, if an acquiring person makes a
bid to acquire 25% or more of our common shares, other than by a Permitted Bid
or Competing Permitted Bid, holders of rights, other than the acquiring person,
may acquire additional common shares at a 50% discount to the then prevailing
market price. As a result, it is unlikely that any person will acquire 25% or
more of our outstanding common shares other than by way of a Permitted Bid or a
Competing Permitted Bid.
The proxy mechanism of the Business Corporations Act (Alberta) is not affected
by our rights plan, and a shareholder may use his statutory rights thereunder to
promote a change in our management or direction. Under the Business Corporations
Act (Alberta), shareholders holding not less than 5% of a company's outstanding
shares that carry the right to vote at a meeting may requisition the board of
directors of that company to call a meeting of shareholders.
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DESCRIPTION OF DEBT SECURITIES
This section describes the general terms and provisions of the debt securities
that we may issue under the shelf registration statement. The prospectus
supplement will describe the specific terms of the debt securities offered by
that prospectus supplement.
We may issue debt securities either separately or together with, or upon the
conversion of, or in exchange for, other securities. The debt securities are to
be either our senior obligations, issued in one or more series and referred to
herein as the "senior debt securities," or subordinated obligations issued in
one or more series and referred to herein as the "subordinated debt securities."
The senior debt securities and the subordinated debt securities are collectively
referred to as the "debt securities." We will issue each series of debt
securities under an "indenture" to be entered into by us and a "trustee,"
qualified under the Trust Indenture Act of 1939. The name of the trustee will be
set forth in the applicable prospectus supplement.
The indenture will be subject to and governed by the Trust Indenture Act of
1939.
SPECIFIC TERMS OF EACH SERIES OF DEBT SECURITIES IN THE PROSPECTUS SUPPLEMENT
The applicable prospectus supplement will describe the terms of any debt
securities being offered, including:
- the designation, aggregate principal amount and authorized denominations;
- whether the debt securities are senior debt securities or subordinated debt
securities;
- the maturity date;
- the interest rate, if any, and the method for calculating the interest rate;
- the interest payment dates and the record dates for the interest payments;
- any mandatory or optional redemption terms or prepayment, conversion, sinking
fund or exchangeability or convertibility provisions;
- the places where the principal and interest will be payable;
- if other than denominations of $1,000 or multiples of $1,000, the
denominations the debt securities will be issued in;
- whether the debt securities will be issued in the form of global securities
or certificates;
- additional provisions, if any, relating to the defeasance and covenant
defeasance of the debt securities;
- whether the debt securities will be issuable in registered form or bearer
form or both and, if bearer securities are issuable, any restrictions
applicable to the exchange of one form for another and the offer, sale and
delivery of bearer securities;
- any applicable material federal tax consequences;
- the dates on which a premium, if any, will be payable;
- our right, if any, to defer payment of interest and the maximum length of
such deferral period;
- any listing on a securities exchange;
- if convertible into common shares or preferred shares, the terms on which
such debt securities are convertible;
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- the terms, if any, of any guarantee of the payment of principal of, and
premium, if any, and interest on debt securities of the series and any
corresponding changes to the provisions of the indenture as currently in
effect;
- the terms, if any, of the transfer, mortgage, pledge, or assignment as
security for the debt securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether certain
provisions of the Trust Indenture Act are applicable, and any corresponding
changes to provisions of the indenture as currently in effect;
- if the purchase price of any debt securities is payable in a currency other
than U.S. dollars or if principal of, or premium, if any, or interest on any
of the debt securities is payable in any currency other than U.S. dollars,
the specific terms and other information with respect to such debt securities
and such foreign currency;
- the initial public offering price; and
- other specific terms, including covenants and the events of default provided
for with respect to the debt securities.
Debt securities may be issued with original issue discount to be sold at a
substantial discount below their principal amount. They may include "zero
coupon" securities that do not pay any cash interest for the entire term of the
securities. In the event of an acceleration of the maturity of any original
issue discount security, the amount payable to the holder thereof upon such
acceleration will be determined in the manner described in the applicable
prospectus supplement. Conditions pursuant to which payment of the principal of
the subordinated debt securities may be accelerated will be set forth in the
applicable prospectus supplement. Material federal income tax and other
considerations applicable to original issue discount securities will be
described in the applicable prospectus supplement.
COVENANTS
Under the indenture, we will be required to:
- pay the principal, interest and any premium on the debt securities when due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year reviewing our
obligations under the indenture; and
- deposit sufficient funds with any paying agent on or before the due date for
any principal, interest or any premium.
Any particular series of debt securities may contain covenants limiting:
- the incurrence of additional debt (including guarantees) by us and our
subsidiaries;
- the making of certain payments by us and our subsidiaries;
- our business activities and those of our subsidiaries;
- the issuance of other securities by our subsidiaries;
- asset dispositions;
- transactions with our subsidiaries and other affiliates;
- a change of control;
- the incurrence of liens; and
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- certain mergers and consolidations involving us and our subsidiaries.
Any additional covenants will be described in the applicable prospectus
supplement.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in a prospectus supplement, each series of debt
securities will be issued in registered form only, without coupons. The
indenture, however, will provide that we may also issue debt securities in
bearer form only, or in both registered and bearer form. Bearer securities will
not be offered, sold, resold or delivered in connection with their original
issuance in the United States or to any United States person other than offices
located outside the United States of certain United States financial
institutions.
Principal, interest and any premium on fully registered securities will be paid
at the office of the paying agent that we may designate. We will make payment by
check mailed to persons in whose names the debt securities are registered on
days specified in the indenture or any prospectus supplement. Debt security
payments in other forms will be paid at a place designated by us and specified
in a prospectus supplement.
Fully registered securities may be transferred or exchanged at the corporate
trust office of the trustee or at any other office or agency maintained by us
for these purposes, without payment of any service charge, except for any tax or
governmental charge.
RANKING OF DEBT SECURITIES
The senior debt securities will be our unsubordinated obligations and will rank
equally in right of payment with all of our other unsubordinated indebtedness.
The subordinated debt securities will be subordinated in right of payment to all
existing and future senior indebtedness as set forth in the applicable
prospectus supplement.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the form of
one or more global securities that will be deposited with, or on behalf of, a
"depositary" identified in the prospectus supplement relating to such series.
Unless and until it is exchanged in whole or in part for individual certificates
evidencing debt securities, a global debt security may not be transferred except
as a whole (1) by the depositary to a nominee of such depositary, (2) by a
nominee of such depositary to such depositary or another nominee of such
depositary or (3) by such depositary or any such nominee to a successor of such
depositary or a nominee of such successor. See "Book-Entry, Delivery and Form"
below for additional information.
To the extent not described in this prospectus, the terms of the depositary
arrangement with respect to a series of global debt securities and certain
limitations and restrictions relating to a series of global bearer securities
will be described in the prospectus supplement.
DISCHARGING OUR OBLIGATIONS
Except as may otherwise be set forth in any prospectus supplement, we may choose
to either discharge our obligations on the debt securities of any series in a
legal defeasance or release ourselves from our covenant restrictions on the debt
securities of any series in a covenant defeasance. We may do so at
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any time prior to the stated maturity or redemption of the debt securities of
the series if, among other conditions:
- we deposit with the trustee sufficient cash or U.S. government securities to
pay the principal, interest, any premium and any other sums due to the stated
maturity date or redemption date of the debt securities of the series; and
- we provide an opinion of our counsel that holders of the debt securities will
not be affected for U.S. federal income tax purposes by the defeasance.
If we choose the legal defeasance option, holders of the debt securities of that
series will not be entitled to the benefits of the indenture except for
registration of transfer and exchange of debt securities, replacement of lost,
stolen or mutilated debt securities, any required conversion or exchange of debt
securities, any required sinking fund payments and receipt of principal and
interest on the original stated due dates or specified redemption dates.
BOOK-ENTRY, DELIVERY AND FORM
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Book-entry debt
securities of a series will be issued in the form of a global debt security that
will be deposited with DTC. This means that we will not issue certificates to
each holder. One global debt security will be issued to DTC who will keep a
computerized record of its participants (for example, your broker) whose clients
have purchased the debt securities. The participant will then keep a record of
its clients who purchased the debt securities. Unless it is exchanged in whole
or in part for a certificated debt security, a global debt security may not be
transferred; except that DTC, its nominees and their successors may transfer a
global debt security as a whole to one another.
Beneficial interests in global debt securities will be shown on, and transfers
of global debt securities will be made only through, records maintained by DTC
and its participants.
DTC has provided us with the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and some other
organizations.
DTC's book-entry system is also used by other organizations such as securities
brokers and dealers, banks and trust companies that work through a Direct
Participant. The rules that apply to DTC and its participants are on file with
the SEC.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., The American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
trustee will treat DTC's nominee as the owner of the global debt securities for
all purposes. Accordingly, we, the trustee and any paying agent will have no
direct responsibility or liability to pay amounts due on the global debt
securities to owners of beneficial interests in the global debt securities.
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It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global debt
securities as shown on DTC's records. In addition, it is DTC's current practice
to assign any consenting or voting rights to Direct Participants whose accounts
are credited with debt securities on a record date, by using an omnibus proxy.
Payments by participants to owners of beneficial interests in the global debt
securities, and voting by participants, will be governed by the customary
practices between the participants and owners of beneficial interests, as is the
case with debt securities held for the account of customers registered in
"street name." However, payments will be the responsibility of the participants
and not of DTC, the trustee or us.
Debt securities represented by a global debt security will be exchangeable for
certificated debt securities with the same terms in authorized denominations
only if:
- DTC notifies us that it is unwilling or unable to continue as depositary or
if DTC ceases to be a clearing agency registered under applicable law and a
successor depositary is not appointed by us within 90 days; or
- We determine not to require all of the debt securities of a series to be
represented by a global debt security and notify the trustee of our decision.
MODIFICATION OF INDENTURE
Under the indenture, generally we and the trustee will be able to modify our
rights and obligations and the rights of the holders with the consent of the
holders of a specified percentage of the outstanding holders of each series of
debt affected by the modification. No modification of the principal or interest
payment terms, and no modification reducing the percentage required for
modifications, will be effective against any holder without its consent. In
addition, we and the trustee will be able to amend the indenture without the
consent of any holder of the debt securities to make technical changes.
THE TRUSTEES
The Trust Indenture Act contains limitations on the rights of a trustee, should
it become a creditor of ours, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. Each trustee will be permitted to engage in other
transactions with us and our subsidiaries from time to time, provided that if
such Trustee should acquire any conflicting interest it must eliminate such
conflict upon the occurrence of an event of default under the relevant
indenture, or else resign.
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DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of debt securities, preferred shares or
common shares. Warrants may be issued independently or together with debt
securities, preferred shares or common shares offered by any prospectus
supplement and may be attached to or separate from any such offered securities.
Each series of warrants will be issued under a separate warrant agreement to be
entered into between us and a bank or trust company, as warrant agent. The
warrant agent will act solely as our agent in connection with the warrants and
will not assume any obligation or relationship of agency or trust for or with
any holders or beneficial owners of warrants. The following summary of certain
provisions of the warrants does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the warrant
agreement that will be filed with the SEC in connection with the offering of
such warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of debt warrants will
describe the terms of such debt warrants, including the following:
- the title of such debt warrants;
- the offering price for such debt warrants, if any;
- the aggregate number of such debt warrants;
- the designation and terms of the debt securities that may be purchased upon
exercise of such debt warrants;
- if applicable, the designation and terms of the debt securities with which
such debt warrants are issued and the number of such debt warrants issued
with each such debt security;
- if applicable, the date from and after which such debt warrants and any debt
securities issued therewith will be separately transferable;
- the principal amount of debt securities that may be purchased upon exercise
of a debt warrant and the price at which such principal amount of debt
securities may be purchased upon exercise (which price may be payable in
cash, securities, or other property);
- the date on which the right to exercise such debt warrants shall commence and
the date on which such right shall expire;
- if applicable, the minimum or maximum amount of such debt warrants that may
be exercised at any one time;
- whether the debt warrants represented by the debt warrant certificates or
debt securities that may be issued upon exercise of the debt warrants will be
issued in registered or bearer form;
- information with respect to book-entry procedures, if any;
- the currency or currency units in which the offering price, if any, and the
exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- the antidilution provisions of such debt warrants, if any;
- the redemption or call provisions, if any, applicable to such debt warrants;
and
- any additional terms of such debt warrants, including terms, procedures, and
limitations relating to the exchange and exercise of such debt warrants.
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SHARE WARRANTS
The prospectus supplement relating to any particular issue of preferred share
warrants or common share warrants will describe the terms of such warrants,
including the following:
- the title of such warrants;
- the offering price for such warrants, if any;
- the aggregate number of such warrants;
- the designation and terms of the common shares or preferred shares that may
be purchased upon exercise of such warrants;
- if applicable, the designation and terms of the offered securities with which
such warrants are issued and the number of such warrants issued with each
such offered security;
- if applicable, the date from and after which such warrants and any offered
securities issued therewith will be separately transferable;
- the number of common shares or preferred shares that may be purchased upon
exercise of a warrant and the price at which such shares may be purchased
upon exercise;
- the date on which the right to exercise such warrants shall commence and the
date on which such right shall expire;
- if applicable, the minimum or maximum amount of such warrants that may be
exercised at any one time;
- the currency or currency units in which the offering price, if any, and the
exercise price are payable;
- if applicable, a discussion of material United States federal income tax
considerations;
- the antidilution provisions of such warrants, if any;
- the redemption or call provisions, if any, applicable to such warrants; and
- any additional terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
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PLAN OF DISTRIBUTION
The distribution of the securities may be effected from time to time in one or
more transactions at a fixed price or prices (which may be changed from time to
time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each prospectus
supplement will describe the method of distribution of the securities offered
therein.
Chieftain may sell securities directly, through agents designated from time to
time, through underwriting syndicates led by one or more managing underwriters
or through one or more underwriters acting alone. Each prospectus supplement
will describe the terms of the securities to which such prospectus supplement
relates, the name or names of any underwriters or agents with whom we have
entered into arrangements with respect to the sale of such securities, the
public offering or purchase price of such securities and the net proceeds we
will receive from such sale. In addition, each prospectus supplement will
describe any underwriting discounts and other items constituting underwriters'
compensation, any discounts and commissions allowed or paid to dealers, if any,
any commissions allowed or paid to agents, and the securities exchange or
exchanges, if any, on which such securities will be listed. Dealer trading may
take place in certain of the securities, including securities not listed on any
securities exchange.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or agents to solicit offers from certain institutions to purchase
securities from us pursuant to delayed delivery contracts providing for payment
and delivery at a future date. Institutions with which such contracts may be
made include, among others:
- commercial and savings banks;
- insurance companies;
- pension funds;
- investment companies; and
- educational and charitable institutions.
In all cases, such institutions must be approved by us. Unless otherwise set
forth in the applicable prospectus supplement, the obligations of any purchaser
under any such contract will not be subject to any conditions except that
(a) the purchase of the securities will not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is subject
and (b) if the securities are also being sold to underwriters acting as
principals for their own account, the underwriters will have purchased such
securities not sold for delayed delivery. The underwriters and such other
persons will not have any responsibility in respect of the validity or
performance of such contracts.
Any underwriter or agent participating in the distribution of the securities may
be deemed to be an underwriter, as that term is defined in the Securities Act,
of the securities so offered and sold and any discounts or commission received
by them, and any profit realized by them on the sale or resale of the securities
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Certain of any such underwriters and agents, including their associates, may
engage in transactions with and perform services for us and our subsidiaries in
the ordinary course of business. One or more of our affiliates may from time to
time act as an agent or underwriter in connection with the sale of the
securities to the extent permitted by applicable law. The participation of any
such affiliate in the offer and sale of the securities will comply with
Rule 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc. regarding the offer and sale of securities of an affiliate.
Except as indicated in the applicable prospectus supplement, the securities are
not expected to be listed on a securities exchange, except for the common
shares, which are listed on the American Stock
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Exchange and The Toronto Stock Exchange, and any underwriters or dealers will
not be obligated to make a market in securities. We cannot predict the activity
or liquidity of any trading in the securities.
LEGAL MATTERS
The validity of the securities in respect of which this prospectus is being
delivered will be passed on for us by Bennett Jones, Calgary, Alberta. Certain
other legal matters in connection with the securities will be passed on for us
by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The audited financial statements incorporated by reference in this prospectus
have been audited by PricewaterhouseCoopers LLP, as indicated in their report
with respect to such audited financial statements, and are incorporated by
reference in reliance upon the authority of such firm as experts in giving such
reports. PricewaterhouseCoopers LLP is located at 1501 TD Tower, 10088 - 102
Avenue, Edmonton, Alberta, Canada, T5J 2Z1. The reserve estimates relating to
our U.S. reserves, of Netherland, Sewell & Associates, Inc. incorporated by
reference in this prospectus, have been incorporated by reference in reliance
upon the authority of such firm as experts in petroleum engineering.
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[LOGO]
CHIEFTAIN INTERNATIONAL, INC.
CIBC WORLD MARKETS
2,500,000 SHARES
COMMON SHARES
------------------------------ DAIN RAUSCHER WESSELS
PROSPECTUS SUPPLEMENT
------------------------------
November 10, 1999 A.G. EDWARDS & SONS, INC.
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT INFORMATION.
IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION, YOU MUST NOT RELY ON IT. WE ARE
OFFERING TO SELL THE SECURITIES ONLY IN JURISDICTIONS WHERE SALES ARE PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION WE HAVE INCLUDED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THAT ANY INFORMATION WE HAVE
INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THE
DOCUMENT INCORPORATED BY REFERENCE.
