<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
----------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
MAY 20, 1998
NUEVO ENERGY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-10537 76-0304436
(STATE OR OTHER (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1331 LAMAR, SUITE 1650
HOUSTON, TEXAS 77010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 652-0706
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not applicable
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS
Not applicable
ITEM 5. OTHER EVENTS
Effective January 1, 1998, Nuevo Energy Company (the Company) elected to
convert from the full cost method to the successful efforts method of
accounting for its investments in oil and gas properties. The Company believes
that the successful efforts method of accounting is preferable, as it will
provide a fair presentation of the Company's development activities in its
core California business and the drilling success of its selective exploration
activities, and reflect an impairment in the carrying value of its oil and gas
properties only when there has been a permanent decline in their fair value.
Accordingly, the financial statements and footnotes included in Item 8 of the
Company's 1997 Form 10-K have been restated to conform with successful efforts
accounting. The effect, after tax, of the change in accounting method as of
December 31, 1997, was a reduction to retained earnings of $64.1 million,
primarily attributable to a decrease in net property and equipment and
deferred tax liability of $99.2 million and $38.0 million, respectively. The
change in accounting method resulted in a decrease in net income of $32.5
million ($1.64 per common share), $0.4 million ($0.02 per common share) and
$4.9 million ($0.44 per common share) during 1997, 1996, and 1995,
respectively. Had the Company not converted to the successful efforts method,
the results of operations for the three months ended March 31, 1998 would have
included a pre-tax full cost ceiling test write-down of approximately $250.0
million. The impact of this change in accounting method in 1998 is not
practicable to determine.
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report............................................ 4
Financial Statements:
Restated Consolidated Balance Sheets as of December 31, 1997 and 1996... 5
Restated Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................................... 6
Restated Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1997, 1996 and 1995....................... 7
Restated Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................................... 8
Restated Notes to Consolidated Financial Statements..................... 9
</TABLE>
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nuevo Energy Company:
We have audited the accompanying consolidated balance sheets of Nuevo Energy
Company and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nuevo
Energy Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the Company
has given retroactive effect to the change in accounting for oil and gas
properties from the full cost method to the successful efforts method.
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
May 12, 1998
4
<PAGE>
NUEVO ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
ASSETS 1997* 1996*
------ ---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 9,208 $ 13,636
Accounts receivable................................... 38,196 43,204
Product inventory..................................... 1,627 2,731
Prepaid expenses and other............................ 9,829 4,067
---------- ---------
Total current assets................................ 58,860 63,638
---------- ---------
PROPERTY AND EQUIPMENT, at cost:
Land.................................................. 49,469 49,696
Buildings and improvements............................ 5,469 5,304
Oil and gas properties (successful efforts method).... 984,273 810,598
Pipeline and other facilities......................... 4,304 46,887
Gas plant facilities.................................. 15,500 41,694
---------- ---------
1,059,015 954,179
Accumulated depreciation, depletion and amortization.... (324,904) (218,678)
---------- ---------
734,111 735,501
---------- ---------
OTHER ASSETS............................................ 11,315 18,504
---------- ---------
$ 804,286 $ 817,643
========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable...................................... $ 17,062 $ 20,674
Accrued interest...................................... 4,285 4,736
Accrued drilling costs................................ 12,781 7,795
Accrued lease operating costs......................... 8,891 2,281
Other accrued liabilities............................. 2,868 406
Current maturities of long-term debt.................. 3,716 5,408
---------- ---------
Total current liabilities........................... 49,603 41,300
---------- ---------
OTHER LONG-TERM LIABILITIES............................. 4,018 8,692
LONG-TERM DEBT, NET OF CURRENT MATURITIES............... 305,940 287,038
DEFERRED TAXES.......................................... 4,986 19,470
MINORITY INTEREST....................................... -- 704
COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF NUEVO FINANCING I.............. 115,000 115,000
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000 shares
authorized; 7% Cumulative Convertible Preferred
Stock, none issued and outstanding at December 31,
1997 and 1996........................................ -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,237,537 and 19,852,478 shares issued
at December 31, 1997 and 1996, respectively.......... 202 199
Additional paid-in capital............................ 354,296 340,126
Treasury stock, at cost, 497,372 shares............... (19,929) --
Stock held by benefit trust, 45,119 shares............ (1,244) --
Retained earnings (deficit)........................... (8,586) 5,114
---------- ---------
Total stockholders' equity.......................... 324,739 345,439
---------- ---------
$ 804,286 $ 817,643
========== =========
</TABLE>
- --------
* Restated
See Notes to Consolidated Financial Statements.
5
<PAGE>
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997* 1996* 1995*
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Oil and gas revenues............................ $335,202 $279,859 $102,455
Gas plant revenues.............................. 11,597 34,802 27,183
Pipeline and other revenues..................... 5,772 6,774 7,222
Gain on sale of assets, net..................... 1,372 6,008 --
Interest and other income....................... 3,335 1,614 1,106
-------- -------- --------
357,278 329,057 137,966
-------- -------- --------
COSTS AND EXPENSES:
Lease operating expenses........................ 123,178 93,062 28,873
Gas plant operating expenses.................... 10,220 29,311 22,667
Pipeline and other operating costs.............. 5,243 6,105 4,726
Exploration costs............................... 11,082 4,571 2,357
Provision for impairment on assets held for
sale........................................... 23,942 -- --
Provision for impairment of oil and gas
properties..................................... 30,000 -- --
General and administrative expenses............. 19,822 14,880 5,444
Outsourcing fees................................ 11,984 10,249 5,857
Depreciation, depletion and amortization........ 102,158 75,664 45,233
Interest expense................................ 27,357 36,009 15,389
Loss on sale of assets, net..................... -- -- 645
Dividends on Guaranteed Preferred Beneficial
Interests in Company's Convertible Debentures
(TECONS)....................................... 6,613 165 --
Other expense................................... 3,019 1,069 45
-------- -------- --------
374,618 271,085 131,236
-------- -------- --------
(Loss) income before income taxes, minority
interest and extraordinary item.................. (17,340) 57,972 6,730
Income tax (benefit) expense...................... (6,656) 23,965 2,582
Minority interest in (loss) earnings of
subsidiary....................................... (8) (271) 16
-------- -------- --------
(Loss) income before extraordinary item........... (10,676) 34,278 4,132
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $2,037........ 3,024 -- --
-------- -------- --------
Net (loss) income................................. (13,700) 34,278 4,132
Dividends on preferred stock...................... -- 939 1,472
-------- -------- --------
(Loss) earnings available to common stockholders.. $(13,700) $ 33,339 $ 2,660
======== ======== ========
(Loss) earnings per Common share--Basic:
(Loss) income before extraordinary item (net of
dividends on preferred stock).................. $ (0.54) $ 1.99 $ 0.24
Extraordinary loss on early extinguishment of
debt, net of income tax benefit................ (0.15) -- --
-------- -------- --------
Net (loss) income............................... $ (0.69) $ 1.99 $ 0.24
======== ======== ========
Weighted average Common shares outstanding........ 19,796 16,755 11,057
======== ======== ========
(Loss) earnings per Common share--Diluted:
(Loss) income before extraordinary item......... $ (0.54) $ 1.84 $ 0.23
Extraordinary loss on early extinguishment of
debt, net of income tax benefit................ (0.15) -- --
-------- -------- --------
Net (loss) income............................... $ (0.69) $ 1.84 $ 0.23
======== ======== ========
Weighted average Common and dilutive potential
Common shares outstanding........................ 19,796 18,596 11,355
======== ======== ========
</TABLE>
- --------
* Restated
See Notes to Consolidated Financial Statements.
6
<PAGE>
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK ADDITIONAL RETAINED STOCK HELD TOTAL
------------- ------------- PAID-IN EARNINGS TREASURY BY BENEFIT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK TRUST EQUITY
------ ------ ------ ------ ---------- --------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995......... 10,768 $108 25 $ 25 $148,309 $ (4,504) $ -- $ -- $143,938
Cumulative effect of
change in accounting
principle, as
retroactively applied.. -- -- -- -- -- (26,381) -- -- (26,381)
Exercise of stock
options and related tax
benefit................ 189 1 -- -- 3,123 -- -- -- 3,124
Conversion of Preferred
Stock.................. 760 8 (10) (10) 10 -- -- -- 8
Preferred Stock
dividends.............. -- -- -- -- -- (1,472) -- -- (1,472)
Net income*............. -- -- -- -- -- 4,132 -- -- 4,132
------ ---- --- ---- -------- -------- -------- ------- --------
December 31, 1995*...... 11,717 117 15 15 151,442 (28,225) -- -- 123,349
====== ==== === ==== ======== ======== ======== ======= ========
Issuance of Common
Stock.................. 6,384 64 -- -- 172,147 -- -- -- 172,211
Exercise of stock
options and related tax
benefit................ 587 6 -- -- 14,718 -- -- -- 14,724
Issuance of non-employee
stock options.......... -- -- -- -- 244 -- -- -- 244
Issuance of warrants.... -- -- -- -- 1,575 -- -- -- 1,575
Conversion of Preferred
Stock.................. 1,164 12 (15) (15) -- -- -- -- (3)
Preferred Stock
dividends.............. -- -- -- -- -- (939) -- -- (939)
Net income*............. -- -- -- -- -- 34,278 -- -- 34,278
------ ---- --- ---- -------- -------- -------- ------- --------
December 31, 1996*...... 19,852 199 -- -- 340,126 5,114 -- -- 345,439
====== ==== === ==== ======== ======== ======== ======= ========
Exercise of stock
options and related tax
benefit................ 386 3 -- -- 11,332 -- -- -- 11,335
Stock put options....... -- -- -- -- 1,630 -- -- -- 1,630
Employee stock awards... -- -- -- -- 1,208 -- -- -- 1,208
Purchase of Treasury
Shares................. -- -- -- -- -- -- (21,173) -- (21,173)
Stock held by benefit
trust.................. -- -- -- -- -- -- 1,244 (1,244) --
Net loss*............... -- -- -- -- -- (13,700) -- -- (13,700)
------ ---- --- ---- -------- -------- -------- ------- --------
December 31, 1997*...... 20,238 $202 -- $ -- $354,296 $ (8,586) $(19,929) $(1,244) $324,739
====== ==== === ==== ======== ======== ======== ======= ========
</TABLE>
- --------
* Restated
See Notes to Consolidated Financial Statements.
7
<PAGE>
NUEVO ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997* 1996* 1995*
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................. $ (13,700) $ 34,278 $ 4,132
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation, depletion and amortization..... 102,158 75,664 45,233
Dry hole costs............................... 9,311 3,145 579
Amortization of debt financing costs......... 1,513 1,370 365
Amortization of deferred revenue............. (3,203) (4,104) (5,955)
Provision for impairment on assets held for
sale........................................ 23,942 -- --
Provision for impairment of oil and gas
properties.................................. 30,000 -- --
(Gain) loss on sale of assets, net........... (1,372) (6,008) 645
Loss on early extinguishment of debt......... 5,061 -- --
Employee stock awards........................ 1,208 -- --
Deferred taxes............................... (9,249) 22,465 2,566
Minority interest............................ (8) (271) 16
--------- --------- --------
145,661 126,539 47,581
Changes in assets and liabilities, net of
acquisition effects:
Accounts receivable.......................... 578 (21,086) (2,383)
Gas imbalances............................... 20 (198) 225
Accounts payable............................. 1,663 14,574 (3,025)
Accrued liabilities.......................... 13,719 11,316 (3,852)
Other........................................ 3,821 (4,224) (1,352)
--------- --------- --------
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES................................ 165,462 126,921 37,194
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to land............................. -- (49,696) --
Additions to buildings and improvements....... -- (5,304) --
Additions to oil and gas properties........... (195,108) (515,985) (39,028)
Proceeds from sale of gas plant............... 24,992 -- --
Proceeds from sales of properties............. 2,385 42,700 5,257
Additions to gas plant, pipelines and other
facilities................................... (1,747) (17,717) (1,022)
Acquisition of Amoco Congo Production Company,
net of cash acquired......................... -- -- (639)
Other......................................... -- -- 2,850
--------- --------- --------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES................................ (169,478) (546,002) (32,582)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings...................... 234,000 408,000 17,813
Deferred financing costs...................... -- (10,920) --
Net proceeds from issuance of common stock.... -- 138,327 --
Payments of long-term debt.................... (217,503) (232,359) (20,847)
Preferred stock dividends..................... -- (939) (1,472)
Proceeds from exercise of stock options....... 6,074 10,003 2,462
Proceeds from issuance of Company-Obligated
Mandatorily Redeemable Convertible Preferred
Securities of Nuevo Financing I.............. -- 115,000 --
Premium on early extinguishment of debt....... (3,440) -- --
Proceeds from sale of stock put options....... 1,630 -- --
Purchase of treasury shares................... (21,173) -- --
Cash distribution to minority interest........ -- (160) (250)
--------- --------- --------
NET CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES...................... (412) 426,952 (2,294)
--------- --------- --------
Net (decrease) increase in cash and cash
equivalents................................... (4,428) 7,871 2,318
Cash and cash equivalents at beginning of year. 13,636 5,765 3,447
--------- --------- --------
Cash and cash equivalents at end of year....... $ 9,208 $ 13,636 $ 5,765
========= ========= ========
</TABLE>
- --------
* Restated
See Notes to Consolidated Financial Statements
8
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Nuevo Energy Company ("Nuevo") was formed as a Delaware corporation on March
2, 1990, to acquire the businesses of certain public and private partnerships
(collectively "Predecessor Partnerships"). On July 9, 1990, the plan of
consolidation ("Plan of Consolidation") was approved by limited partners
owning a majority of units of limited partner interests in the partnerships
whereby the net assets of the Predecessor Partnerships, which were subject to
such Plan of Consolidation, were exchanged for common stock of Nuevo ("Common
Stock"). All references to the "Company" include Nuevo and its majority and
wholly-owned subsidiaries, unless otherwise indicated or the context indicates
otherwise.
The Company is primarily engaged in the exploration for, and the
acquisition, exploitation, development and production of crude oil and natural
gas. The Company's principal oil and gas properties are located domestically
onshore and offshore California, in East Texas and the onshore Gulf Coast
region; and internationally offshore West Africa. The Company also owns and
operates gas plants, pipeline facilities and other oil and gas related assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Nuevo and its
majority and wholly-owned subsidiaries. NuStar Joint Venture and its 66.7%
investment in the Benedum Plant System, of which the Company owned a 95%
interest, was pro rata consolidated through May 2, 1997, at which time the
Company's interest was sold. The Company's 48.5% general partner interest in
Richfield Gas Storage Partnership also has been pro rata consolidated. The
consolidated financial statements also include Bright Star Gathering, Inc.,
which is 80% owned by the Company; minority interests have been deducted from
results of operations and stockholders' equity in the appropriate periods. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Change in Accounting Method
Effective January 1, 1998, the Company elected to convert from the full cost
method to the successful efforts method of accounting for its investments in
oil and gas properties. The Company believes that the successful efforts
method of accounting is preferable, as it will provide a fair presentation of
the Company's development activities in its core California business and the
drilling success of its selective exploration activities, and reflect an
impairment in the carrying value of its oil and gas properties only when there
has been a permanent decline in their fair value. Accordingly, all prior year
financial statements have been restated to conform with successful efforts
accounting. The effect, after tax, of the change in accounting method as of
December 31, 1997, was a reduction to retained earnings of $64.1 million,
primarily attributable to a decrease in net property and equipment and
deferred tax liability of $99.2 million and $38.0 million, respectively. The
change in accounting method resulted in a decrease in net income of $32.5
million ($1.64 per share), $0.4 million ($0.02 per share) and $4.9 million
($0.44 per share) during 1997, 1996 and 1995, respectively.
Oil and Gas Properties
The Company utilizes the successful efforts method of accounting for its
investments in oil and gas properties. Under successful efforts, oil and gas
lease acquisition costs and intangible drilling costs associated with
exploration efforts that result in the discovery of proved reserves and costs
associated with development drilling, whether or not successful, are
capitalized when incurred. When a proved property is sold, ceases to produce
or is abandoned, a gain or loss is recognized. When an entire interest in an
unproved property is sold for cash or cash equivalent, gain or loss is
recognized, taking into consideration any recorded impairment. When a partial
interest in an unproved property is sold, the amount received is treated as a
reduction of the cost of the interest retained.
9
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unproved leasehold costs are capitalized pending the results of exploration
efforts. Significant unproved leasehold costs are reviewed periodically and a
loss is recognized to the extent, if any, that the cost of the property has
been impaired. Exploration costs, including geological and geophysical
expenses, exploratory dry holes and delay rentals, are charged to expense as
incurred.
Costs of productive wells, development dry holes and productive leases are
capitalized and depleted on a unit-of-production basis over the life of the
remaining proved reserves. Capitalized drilling costs are depleted on a unit-
of-production basis over the life of the remaining proved developed reserves.
Estimated costs (net of salvage value) of site remediation are computed by the
Company's independent reserve engineers and included when calculating
depreciation and depletion using the unit-of-production method.
The Company reviews proved oil and gas properties on a depletable unit basis
whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. For each depletable unit determined to be
impaired, an impairment loss equal to the difference between the carrying
value and the fair value of the depletable unit is recognized. Fair value, on
a depletable unit basis, is estimated to be the present value of the expected
future net revenues computed by application of estimated future oil and gas
prices, production, and expenses, as determined by management, to estimated
future production of oil and gas reserves over the economic life of the
reserves. An impairment of $30.0 million was recognized as of December 31,
1997; no such impairment was recognized during 1996 or 1995.
Prior to the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996, the Company
determined the impairment of proved oil and gas properties on a world-wide
basis. Using the world-wide basis, if the net capitalized costs exceeded the
estimated undiscounted future net cash flows from proved oil and gas reserves
using period-end pricing, such excess costs would be charged to expense. No
impairment was recognized during 1995 and the impact of implementing SFAS
No.121 was immaterial.
Interest costs associated with non-producing leases and exploration and
development projects are capitalized only for the period that activities are
in progress to bring these projects to their intended use. The capitalization
rates are based on the Company's weighted average cost of funds used to
finance expenditures.
Any reference to oil and gas reserve information in the Notes to
Consolidated Financial Statements is unaudited.
Environmental Liabilities
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and do not contribute to current
or future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or clean-ups are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with
the Company's commitment to a formal plan of action.
Gas Plant, Pipelines and Other Facilities
Gas plant, pipelines and other facilities include the costs to acquire
certain gas plant, pipelines and other facilities and to secure rights-of-way.
Capitalized costs associated with gas plant, pipelines and other facilities
are amortized primarily over the estimated useful lives of the various
components of the facilities utilizing the straight-line method. The estimated
useful lives of such assets range from three to thirty years. The Company
applies SFAS No. 121, which requires the Company to review these assets for
impairment whenever events or
10
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
changes in circumstances indicate that their carrying amounts may not be
recoverable. Refer to Note 4 for further discussion on these assets.
Recent Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", was issued by the Financial
Accounting Standards Board ("FASB") in June 1997. This Statement establishes
standards for the reporting and display of comprehensive income and its
components. Comprehensive income includes net income and all changes in an
enterprise's other comprehensive income including, among other things, foreign
currency translation adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. Also in June 1997, the FASB issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement establishes standards for reporting information
about operating segments in annual financial statements, and requires that an
enterprise report selected information about operating segments in interim
reports issued to shareholders. Both of these Statements are effective for
fiscal periods beginning after December 15, 1997. The Company does not expect
the adoption of these statements to have a material impact on its financial
condition or results of operations.
Gas Balancing Positions
The Company uses the entitlement method for recording sales of natural gas.
Under the entitlement method, revenue is recorded based on the Company's net
revenue interest in production. Deliveries of natural gas in excess of the
Company's revenue interests are recorded as liabilities and under-deliveries
are recorded as assets. Production imbalances are recorded at the lower of the
sales price in effect at the time of production or the current market value.
At December 31, 1997, the Company's liability due to gas sales in excess of
its entitled share was approximately $.3 million, and the receivable for gas
sales less than the Company's entitled share was approximately $.7 million.
Substantially all such amounts are anticipated to be settled with production
in future periods.
Derivative Financial Instruments
The Company periodically uses derivative financial instruments to manage its
oil and gas price risk. Settlements of gains and losses on price hedge
contracts are generally based upon the difference between the contract price
and the average closing New York Mercantile Exchange ("NYMEX") price and are
reported as a component of oil and gas revenues. In order to qualify as a
hedge, price movements in the underlying commodity derivative must be
sufficiently correlated with the hedged commodity. Settlement of gains and
losses on price swap contracts are realized monthly, generally based upon the
difference between the contract price and the average closing NYMEX price and
are reported as a component of oil and gas revenues and operating cash flows
in the period realized.
Gains and losses on derivative financial instruments that qualify as a hedge
of firmly committed or anticipated purchases and sales of oil and gas
commodities are deferred on the balance sheet and recognized in income and
operating cash flows when the related hedged transaction occurs. Premiums paid
on option contracts are deferred in other assets and amortized into oil and
gas revenues over the terms of the respective option contracts. Gains or
losses attributable to the termination of a derivative financial instrument
are deferred on the balance sheet and recognized in revenue when the hedged
crude oil and natural gas is sold. There were no such deferred gains or losses
at December 31, 1997 or 1996. The changes in the fair value of a derivative
financial instrument must be highly correlated to the underlying hedged
commodity to qualify for hedge accounting. Gains or losses on derivative
financial instruments that do not qualify as a hedge are recognized in income
currently.
11
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of such hedging transactions, oil and gas revenues were reduced
by $6.0 million, $2.5 million and $.1 million in 1997, 1996 and 1995,
respectively.
Earnings per Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share", which was issued by the FASB in February 1997. This statement
simplifies the standards for computing earnings per share ("EPS") and makes
them comparable to international EPS standards. SFAS No. 128 replaces primary
EPS with basic EPS, which is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Additionally, SFAS No. 128 replaces fully diluted EPS with diluted
EPS. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. For the years ended December 31,
1997, 1996 and 1995, the Company's dilutive securities included dilutive stock
options. Potential dilution may also occur in future periods due to the
Company-obligated Mandatorily Redeemable Convertible Preferred Securities of
Nuevo Financing I ("TECONS"). The assumed conversion of the 7% Cumulative
Convertible Preferred Stock ("7% Preferred Stock") was anti-dilutive in 1995.
SFAS No. 128 also requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted
EPS computation. The Company's reconciliation is included in Note 8. In
accordance with SFAS No. 128, the Company retroactively restated all prior
period EPS data (including interim EPS) included in these financial statements
and footnotes.
Stock-Based Compensation
The Company applies the intrinsic value method for accounting for stock and
stock-based compensation described by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Had the Company applied the
fair value method described by SFAS No. 123, "Accounting for Stock-Based
Compensation", it would have incurred compensation expense for stock-based
compensation in 1997, 1996 and 1995. (See Note 8 for the SFAS No. 123 pro
forma effects on income and earnings per share.)
Income Taxes
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period the change occurs.
Statements of Cash Flows
For cash flow presentation purposes, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less
to be cash equivalents. Interest paid in cash, net of amounts capitalized, for
1997, 1996 and 1995 was $28.2 million, $30.6 million and $14.4 million,
respectively. Net amounts paid (refunded) in cash for income taxes for 1997,
1996 and 1995 were ($45,000), $1,500,000 and ($909,000), respectively.
12
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Product Inventory
Inventory relating to quantities of processed fuel oil (Congo) and natural
gas liquids in storage as of the balance sheet date is carried at current
market pricing. The Company recognizes revenue for Congo fuel oil sales when
the sale is completed and risk of loss transfers to a third party purchaser.
Fuel oil in inventory is stated at year end market prices less transportation
costs; the Company recognizes changes in the market value of inventory from
one period to the next as oil revenues.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities, as well as reserve information, which
affects the depletion calculation. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
3. ACQUISITIONS
In July 1996, the Company completed the acquisition of certain East Texas
oil and gas properties for a net purchase price of $9.3 million in cash. The
acquisition of these properties was effective as of December 1, 1995, and the
purchase price was reduced by the net cash flows from production between such
date and closing. In December 1996, the holders of the preferential rights on
these properties exercised such rights for a cash payment of $8.0 million,
acquiring properties constituting approximately half of the estimated proved
reserves related to this acquisition.
In April 1996, the Company consummated the acquisition of (i) certain
upstream oil and gas properties located onshore and offshore California
("Unocal Properties") of Union Oil Company of California ("Unocal") for an
adjusted purchase price of $490.2 million in cash and (ii) certain California
oil properties ("Point Pedernales Properties", and together with the Unocal
Properties, the "California Properties") from Torch Energy Advisors
Incorporated ("Torch") and certain of its wholly-owned subsidiaries for a net
adjusted purchase price of $35.7 million in Common Stock of the Company. The
acquisition of the California Properties was effective as of October 1, 1995,
and the purchase price was reduced by the net cash flows from production
between such date and closing. The acquisition was recorded using the purchase
method, effective April 1, 1996 for accounting purposes.
A subsidiary of Nuevo, the Nuevo Congo Company ("NCC"), along with a third
party, acquired all of the capital stock of Amoco Congo Production Company
("ACPC"), and Amoco Congo Exploration Company (collectively, the "Congo
Companies") in February 1995, for a cash purchase price of $10.8 million. The
primary asset acquired by the Company is an 18.75% interest in the Yombo field
in the Republic of Congo in West Africa ("Congo"). Through an interpurchaser
agreement, Nuevo and the third party have agreed to share the combined net
operating revenues and expenses of the Congo Companies evenly.
NCC is a U.S. corporation with foreign branch operations in the Congo. The
functional currency of NCC is the U.S. Dollar and its income is taxed in the
United States. The Company's Congo investment involves risks typically
associated with investments in emerging markets such as an uncertain
political, economic, legal and tax environment, and expropriation and
nationalization of assets. The Company's investment is insured through
political risk insurance provided by the Overseas Private Investment
Corporation ("OPIC").
13
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash consideration of approximately $10.8 million was paid to Amoco using
Company funds and loan proceeds prior to purchase price adjustments. The
purchase price was based on an economic effective date of December 1, 1993.
The fair value of the net assets acquired follows:
<TABLE>
<S> <C>
Working capital, primarily cash................................... $11,536
Oil and gas property.............................................. 639
-------
Total purchase price, including acquisition costs............... $12,175
=======
</TABLE>
4. DIVESTITURES
In December 1997, the Company announced its intention to dispose of the
remainder of its non-core gas gathering, pipeline and storage assets during
1998. Such assets include the Company's 48.5% interest in the Richfield Gas
Storage facility, an 80% interest in Bright Star Gathering, Inc. and the
Illini pipeline, and are reflected as other current assets in the amount of
$7.0 million in the December 31, 1997 balance sheet. The Company recorded a
non-cash, pre-tax charge to fourth quarter 1997 earnings of $23.9 million,
reflecting the estimated loss on the disposition of these assets. The
Company's results of operations will include the operating results from these
assets through the disposition date; however, these assets will no longer be
depreciated. The Company will retain its California gas plants, as these
plants are strategic assets for the Company's oil and gas activities in
California.
On May 2, 1997, Nuevo Liquids, a wholly-owned subsidiary of the Company,
sold its 95% interest in NuStar Joint Venture, which held the Company's
investment in the Benedum Plant System, for proceeds of $25.0 million. The
effective date of the sale was January 1, 1997. Proceeds from the sale were
used to reduce outstanding debt under the Company's revolving credit facility,
as well as project debt related to the Benedum Gas Plant in the amount of $5.9
million. The Company recorded a pre-tax gain of $2.3 million relating to the
sale.
During the first quarter of 1997, the Company sold its interest in the
Second Bayou field in Cameron Parish, Louisiana and recorded a gain of $1.4
million. During the third quarter of 1997, the Company recognized a loss of
$1.6 million on the sale of South Timbalier Block 8. In addition, the Company
disposed of several non-core properties at a combined net loss of $679,000.
In June 1996, the Company sold 177 producing wells and the majority of its
acreage in the Giddings field and East Texas Austin Chalk holdings for $27.3
million recognizing a gain of $9.2 million. The Company retained ownership of
seven wells and surrounding acreage in the Turkey Creek prospect area of the
Austin Chalk trend. The Company also sold several non-core properties at a
combined loss of $3.2 million.
In the fourth quarter of 1995, the Company had one non-core disposition
resulting in a loss of $645,000.
5. PRODUCTION PAYMENTS
In April 1994, the Company entered into a four-year commitment for a $30.0
million volumetric production payment for the development of certain infill
drilling locations in the Oak Hill field. The proceeds from this agreement
financed the capital expenditures for well drilling, fracturing and completing
and for surface facility installations. Each advance under the production
payment obligates the Company to deliver a fixed volume of natural gas, based
upon prevailing market conditions at the time of the advance. During 1994, the
Company received $18.4 million, committing the Company to deliver 10.7 BCF of
natural gas through December 1998. As of December 31, 1997, the Company had
delivered 9.7 BCF under this commitment. The cash advances are
14
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
reflected as deferred revenues on the Company's consolidated balance sheets
and are amortized into revenue as the natural gas volumes are delivered. No
such advances were received in 1997, 1996 or 1995.
6. OUTSOURCING SERVICES
On July 9, 1990, the Company entered into an agreement with Torch (the
"Torch Agreement") whereby Torch administers certain business activities of
the Company for a monthly fee. Torch is primarily in the business of providing
management and advisory services relating to oil and gas assets for
institutional and public investors and maintains a large technical, operating,
accounting and administrative staff. The Torch Agreement requires Torch to
administer the business activities of the Company for a monthly fee equal to
the sum of one-twelfth of 2% on the first $250 million of assets and one-
twelfth of 1% on assets in excess of $250 million, excluding certain gas plant
facilities and cash, plus 2% of monthly operating cash flows (as defined)
during the period in which the services are rendered. In addition, the Torch
Agreement contains a provision whereby 20% of the overhead fees on Torch
operated properties are credited against the monthly fee paid to Torch, as
well as a provision whereby the monthly fee is credited for one-twelfth of
$900,000. The Torch Agreement was amended effective January 1, 1996, with an
initial term of three years, automatically renewable for successive one-year
periods, unless terminated earlier. If the Company terminates the amended
Torch Agreement prior to the end of its first, second, or third year, it will
be required to pay Torch a break-up fee of $30.0 million, $25.0 million and
$20.0 million, respectively unless such termination is caused by the
bankruptcy, insolvency or dissolution of Torch, breach of the agreement by
Torch or a change in control of Torch. For the years ended December 31, 1997,
1996 and 1995, outsourcing fees paid to Torch amounted to $12.0 million, $10.2
million and $5.9 million, respectively.
A subsidiary of Torch markets oil, natural gas and natural gas liquids from
certain oil and gas properties and gas plants in which the Company owns an
interest. In 1997, 1996 and 1995, such marketing fees were $2.9 million, $2.8
million and $.8 million, respectively.
Torch operates certain oil and gas interests owned by the Company. The
Company is charged, on the same basis as other third parties, for all
customary expenses and cost reimbursements associated with these activities.
Operator's overhead charged for these activities for the years ended December
31, 1997, 1996 and 1995, was $24.8 million, $8.8 million and $2.0 million,
respectively.
In consideration of the services rendered by Torch in connection with the
origination of the 1996 acquisition of the Unocal Properties, the Company
agreed to pay Torch $10.0 million in twelve equal monthly installments after
the closing of the acquisition.
7. RELATED PARTY TRANSACTIONS
A broker's fee of 30,000 warrants was granted to a company, of which a
director of the Company is a partner, for services associated with the
acquisition of the Unocal Properties. These warrants were exercised in the
first quarter of 1997.
Included in general and administrative expenses for 1997 was a $1.7 million
severance payment to the Company's former President and Chief Executive
Officer.
8. STOCKHOLDERS' EQUITY
Common and Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock, the terms, preferences, rights and restrictions of which
15
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are established by the Board of Directors of the Company. All shares of Common
Stock have equal voting rights of one vote per share on all matters to be
voted upon by stockholders. Cumulative voting for the election of directors is
not permitted. Certain restrictions contained in the Company's loan agreements
limit the amount of dividends which may be declared. Under the terms of the 9
1/2% Senior Subordinated Notes described in Note 10, $43.3 million of Nuevo's
consolidated stockholders' equity was available for the payment of dividends
at December 31, 1997. There is no present plan to pay dividends on Common
Stock as the Company intends to reinvest its cash flows for the expansion of
its business and operations.
On December 23, 1996, the Company and United Investors Management Company
("United") and The 1818 Fund, L.P. ("The 1818 Fund") closed the offering of
2,138,605 shares of Common Stock (the "Shares"). United sold 1,275,000 Shares
and The 1818 Fund sold 863,605 shares. The price to the public of the Shares
was $47.50 per share. All of the Shares sold by United were outstanding and
112 of the Shares sold by The 1818 Fund were outstanding prior to the
offering. The remaining 863,493 of the Shares sold by The 1818 Fund were
issued upon conversion of the remaining 11,220 shares of 7% Preferred Stock of
the Company. The Company did not receive any proceeds from the issuance of
these shares. As a result of this conversion by The 1818 Fund of its shares of
7% Preferred Stock, there are no longer any shares of the 7% Preferred Stock
outstanding.
During April 1996, the Company partially financed the acquisition of the
Unocal Properties with the proceeds from the sale to the public of 5,109,200
shares of Common Stock (the "Common Stock Offering"). The purchase of the
Point Pedernales Properties was financed by the issuance to Torch of 1,275,000
shares of the Company's Common Stock valued at the public offering price of
$28.00 per share in the Common Stock Offering.
During the third quarter of 1995, the Company consummated the sale of
2,225,000 shares of Common Stock at an offering price of $24.25 per share. Of
the shares sold, 760,399 were newly-issued by the Company upon the conversion
of approximately 40% of the Company's 7% Preferred Stock. The remaining
1,464,601 shares were sold by Energy Assets International Corporation, a
wholly-owned subsidiary of Torch. The Company did not receive any proceeds
from the sale of the shares.
EPS Computation
SFAS No. 128 (see Note 2) requires a reconciliation of the numerator
(income) and denominator (shares) of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In 1997, weighted
average potential dilutive common shares of 670,000 are not included in the
calculation of diluted loss per share due to their anti-dilutive effect. The
Company's reconciliation is as follows (amounts in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1997* 1996* 1995*
---------------- --------------- ---------------
LOSS SHARES INCOME SHARES INCOME SHARES
-------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
(Loss) income before
extraordinary item........... $(10,676) $34,278 $ 4,132
Less: Dividends on Preferred
Stock........................ -- (939) (1,472)
-------- ------- -------
(Loss) earnings per Common
share--Basic................. (10,676) 19,796 33,339 16,755 2,660 11,057
Effect of dilutive securities:
Convertible Preferred Stock... -- -- 939 -- -- --
Stock options................. -- -- -- 1,841 -- 298
-------- ------ ------- ------ ------- ------
(Loss) earnings per Common
share--Diluted............... $(10,676) 19,796 $34,278 18,596 $ 2,660 11,355
======== ====== ======= ====== ======= ======
</TABLE>
- --------
* Restated
16
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Treasury Stock Repurchases
In March 1997, the Board of Directors of the Company authorized the open
market repurchase of up to one million shares of outstanding Common Stock
during 1997, at times and prices deemed attractive by management. During April
1997, the Company repurchased 500,000 shares of Common Stock in open market
transactions, at an average purchase price of $38.94 per share, plus 42,491
shares acquired from the cancellation of warrants issued during 1996. In
December 1997, the Board of Directors authorized the open market repurchase of
an additional 500,000 shares of Common Stock during 1998.
Put Options
In May 1997, the Company sold put options on its Common Stock to a third
party. The options gave the purchaser the right to sell to the Company 500,000
shares of its Common Stock at prices ranging from $40.26 to $41.04 per share
through December 31, 1997. The contract gave the Company the choice of net
cash, net share, or physical settlement. Any repurchased shares would have
been treated as Treasury Stock. The Company generated $1.6 million in option
premium from these transactions, which is reflected in additional paid-in
capital on the balance sheet. As of December 31, 1997, 400,000 of these
options had expired with the Company's share prices above the strike price,
and 100,000 of these options were settled on December 31, 1997, for a nominal
amount of net cash.
Shareholder Rights Plan
In March 1997, the Company adopted a Shareholder Rights Plan to protect the
Company's shareholders from coercive or unfair takeover tactics. Under the
Shareholder Rights Plan, each outstanding share and each share of subsequently
issued Common Stock has attached to it one Right. Generally, in the event a
person or group ("Acquiring Person") acquires or announces an intention to
acquire beneficial ownership of 15% or more of the outstanding shares of
Common Stock without the prior consent of the Company, or the Company is
acquired in a merger or other business combination, or 50% or more of its
assets or earning power is sold, each holder of a Right will have the right to
receive, upon exercise of the Right, that number of shares of common stock of
the acquiring company, which at the time of such transaction will have a
market price of two times the exercise price of the Right. The Company may
redeem the Right for $.01 at any time before a person or group becomes an
Acquiring Person without prior approval. The Rights will expire on March 21,
2007, subject to earlier redemption by the Board of Directors of the Company.
Executive Compensation Plan
During July 1997, the Board of Directors of the Company adopted a plan to
encourage senior executives to personally invest in the shares of the Company,
and to regularly review executives' ownership versus targeted ownership
objectives. These incentives include a deferred compensation plan (the "Plan")
that gives key executives the ability to defer all or a portion of their
salaries and bonuses and invest in Common Stock of the Company at a discount
to market prices. Stock acquired at a discount will be held in a benefit trust
and restricted for a two-year period, and the Plan does not permit investment
in a diversified equity portfolio until and unless targeted levels of Common
Stock ownership in the Company are achieved and maintained. Target levels of
ownership will be based on multiples of base salary and will be administered
by the Compensation Committee of the Board of Directors. Initially, the Plan
will apply to all executives at a level of Vice-President and above.
Stock Incentive Plan
In 1990, the Company established its 1990 Stock Option Plan (the "Stock
Option Plan"), with respect to its Common Stock, and in 1993, the Board of
Directors adopted the Nuevo Energy Company 1993 Stock
17
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incentive Plan ("Stock Incentive Plan"). The purpose of the Stock Option Plan
and the Stock Incentive Plan is to provide directors and key employees of the
Company and its subsidiaries performance incentives and to provide a means of
encouraging stock ownership in the Company by such persons.
The maximum number of shares subject to options under the Stock Incentive
Plan is 2,500,000 shares. Options are granted under the Stock Incentive Plan
on the basis of the optionee's contribution to the Company. No option may
exceed a term of more than ten years. Options granted under the Stock
Incentive Plan may be either incentive stock options or options that do not
qualify as incentive stock options. The Company's compensation committee is
authorized to designate the recipients of options, the dates of grants, the
number of shares subject to options, the option price, the terms of payment
upon exercise of the options, and the time during which the options may be
exercised. Options granted are exercisable, in full, six months following the
date of grant.
A summary of activity in the stock option plans during the three years ended
1997 is set forth below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995................ 1,633,900 $16.92
Granted..................................... 394,750 $20.07
Exercised................................... (188,288) $13.11
Canceled.................................... (4,525) $21.75
---------
Outstanding at December 31, 1995.............. 1,835,837 $17.97
Granted..................................... 518,100 $38.10
Exercised................................... (587,799) $17.03
---------
Outstanding at December 31, 1996.............. 1,766,138 $24.24
Granted..................................... 652,875 $41.89
Exercised................................... (328,550) $18.59
Canceled.................................... (1,000) $47.88
---------
Outstanding at December 31, 1997.............. 2,089,463 $30.61
=========
</TABLE>
The Company had 1,493,088 options and 1,505,538 options exercisable at
December 31, 1997 and 1996, respectively. Detail of stock options outstanding
and options exercisable at December 31, 1997 follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES NUMBER LIFE (YEARS) PRICE NUMBER PRICE
------------------------ --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$11.00 to $16.88........... 270,000 4.75 $15.62 270,000 $15.62
$17.63 to $20.88........... 626,013 4.43 $19.84 626,013 $19.84
$21.75 to $30.63........... 280,975 6.07 $26.99 280,975 $26.99
$32.00 to $57.63........... 912,475 8.64 $43.60 316,100 $46.97
--------- ---------
Total.................... 2,089,463 1,493,088
========= =========
</TABLE>
The weighted-average fair value of options granted during 1997, 1996 and
1995 was $12.89, $11.52 and $6.21, respectively. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: expected stock price
volatility of 35.2% in 1997 and 33.6% in 1996 and 1995; risk free interest
rate of 5.75% in 1997 and 6% in 1996 and 1995, and average expected option
lives of 3 years. Had compensation expense for stock-based compensation been
18
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined based on the fair value at the date of grant, the Company's net
income, earnings available to Common Stockholders and earnings per share would
have been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997* 1996* 1995*
-------- ------- ------
<S> <C> <C> <C> <C>
Net (loss) income......................... As reported $(13,700) $34,278 $4,132
Pro forma $(16,315) $32,028 $2,454
(Loss) earnings available to Common Stock-
holders.................................. As reported $(13,700) $33,339 $2,660
Pro forma $(16,315) $31,089 $ 982
(Loss) earnings per Common share--Basic... As reported $ (.69) $ 1.99 $ .24
Pro forma $ (.82) $ 1.86 $ .09
(Loss) earnings per Common share--Diluted. As reported $ (.69) $ 1.84 $ .24
Pro forma $ (.82) $ 1.72 $ .09
</TABLE>
- --------
* Restated
9. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF NUEVO FINANCING I
On December 23, 1996, the Company and Nuevo Financing I, a statutory
business trust formed under the laws of the state of Delaware, (the "Trust"),
closed the offering of 2,300,000 Term Convertible Securities, Series A,
("TECONS") on behalf of the Trust. The price to the public of the TECONS was
$50.00 per TECONS. Distributions on the TECONS began to accumulate from
December 23, 1996, are payable quarterly on March 15, June 15, September 15,
and December 15, at an annual rate of $2.875 per TECONS. Each TECONS is
convertible at any time prior to the close of business on December 15, 2026,
at the option of the holder into shares of Common Stock at the rate of .8421
shares of Common Stock for each TECONS, subject to adjustment. The sole asset
of the Trust as the obligor on the TECONS is $115.0 million aggregate
principal amount of 5.75% Convertible Subordinated Debentures of the Company
due December 15, 2026.
10. LONG-TERM DEBT
Long-term debt is comprised of the following at December 31, 1997 and 1996
(amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
12 1/2% Senior Subordinated Notes, net of discount (a)..... $ -- $ 74,288
9 1/2% Senior Subordinated Notes (b)....................... 160,000 160,000
OPIC credit facility (at 6.04% and 6.09% at December 31,
1997 and 1996, respectively, plus a guaranty fee of 2.75%)
(c)....................................................... 7,605 11,309
Bank credit facility (at 6.125%
at December 31, 1997 and 1996)(d).......................... 142,000 40,000
NuStar Credit Agreement (e)................................ -- 5,872
Other...................................................... 51 977
-------- --------
Total debt............................................... 309,656 292,446
Less current maturities.................................... (3,716) (5,408)
-------- --------
Long-term debt............................................. $305,940 $287,038
======== ========
</TABLE>
- --------
(a) On June 16, 1997, the Company redeemed its 12 1/2% Senior Subordinated
Notes at a total cost of $78.0 million, representing $75.0 million face
value of the debt plus a 4% premium of $3.0 million. In addition to
19
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the premium, the Company wrote off approximately $2.0 million of
unamortized discount and deferred financing costs. The redemption resulted
in an extraordinary loss on early extinguishment of debt in the amount of
$3.0 million, net of the related tax benefit of $2.0 million. The Company
used proceeds from its bank facility to fund the redemption.
(b) In April 1996, the Company financed a portion of the purchase price of the
Unocal Properties with proceeds from the sale to the public of a principal
amount of $160.0 million, 9 1/2% Senior Subordinated Notes due April 15,
2006 (the "9 1/2% Notes"). Interest on the 9 1/2% Notes accrues at the
rate of 9 1/2% per annum and is payable semi-annually in arrears on April
15 and October 15. The 9 1/2% Notes are redeemable, in whole or in part,
at the option of the Company, on or after April 15, 2001, under certain
conditions. The Company is not required to make mandatory redemption or
sinking fund payments with respect to the 9 1/2% Notes. The indenture
contains covenants that, among other things, limit the Company's ability
to incur additional indebtedness, limits restricted payments, limit
issuances and sales of capital stock by restricted subsidiaries, limit
dispositions of proceeds of asset sales, limit dividends and other payment
restrictions affecting restricted subsidiaries, and restricts mergers,
consolidations or sales of assets. The 9 1/2% Notes were guaranteed by
certain of Nuevo's subsidiaries until February 1998, at which time such
subsidiaries were released as guarantors. The 9 1/2% Notes are unsecured
general obligations of the Company, and are subordinated in right of
payment to all existing and future senior indebtedness of the Company. In
the event of a defined change in control, the Company will be required to
make an offer to repurchase all outstanding 9 1/2% Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
redemption.
(c) In February 1995, in connection with the purchase of the stock of ACPC,
the Company negotiated with OPIC and an agent bank for a non-recourse
credit facility in the amount of $25.0 million. The security for such
facility is the assets and stock of NCC. The initial drawdown on the
facility was $8.8 million to finance a portion of the purchase price. The
remaining funds under the credit facility will be used to finance 75% of a
development drilling program in the Congo. A portion of the remaining
outstanding commitment, $6.0 million, was drawn down in January 1996 to
fund the first phase of the development drilling program in the Congo. The
interest rate associated with such credit facility is the London Interbank
Offered Rate ("LIBOR") plus 20 basis points and a guaranty fee of 2.75% of
the outstanding loan balance, payable quarterly. At December 31, 1997, the
interest rate was 6.04%, plus the guarantee fee of 2.75%. The loan
agreement requires a sixteen-quarter repayment period.
(d) In April 1996, the Company negotiated a commitment from a bank group led
by NationsBank of Texas, N.A. (which merged into NationsBank, N.A.
effective May 1998) to extend to the Company a $385.0 million credit
facility (the "Credit Facility") maturing on May 17, 2001. The Credit
Facility was amended in February 1998. This amendment increased the line
of credit under the Credit Facility to $400.0 million and extended the
maturity date to April 1, 2003. The maximum borrowings that may be
outstanding under the Credit Facility may not exceed a borrowing base
("Borrowing Base") based on the present value of the Company's oil and gas
reserves based on assumptions regarding prices, production and costs
approved by the bank group. The Borrowing Base, $289.0 million at December
31, 1997, was increased to $330.0 million in February 1998, and further
increased to $380.0 million in May 1998; the Borrowing Base will be reset
annually. Sales of assets in excess of $10.0 million will trigger a
requirement to re-calculate the Borrowing Base. If amounts outstanding
under the Credit Facility exceed the Borrowing Base, as redetermined from
time to time, the Company will be required to repay such excess, and may
be required to sell assets to make such repayments. Amounts outstanding
under the Credit Facility bear interest at a rate equal to the London
Interbank Offered Rate ("LIBOR") plus a number of basis points which
increases as the senior indebtedness of the Company as a percent of the
Borrowing Base increases. At December 31, 1997, the Company's interest
rate under the Credit Facility was LIBOR plus .5%, or 6.125%. The Credit
Facility has customary covenants including, but not limited to, covenants
with respect to the following matters: (i) limitation on restricted
payments and investments; (ii) limitation on guarantees and indebtedness;
(iii)
20
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
limitation on prepayments of subordinated indebtedness; (iv) limitation on
prepayments of additional indebtedness; (v) limitation on mergers and
issuances of securities; (vi) limitation on liens; (vii) limitation on sales
of property; (viii) limitation on transactions with affiliates; (ix)
limitation on derivative contracts; (x) limitation on acquisitions, new
businesses and margin stock; (xi) limitation with respect to certain
prohibited types of contracts and multi-employer ERISA plans; and (xii)
limitation with respect to unrestricted subsidiaries. The Company is also
required to maintain certain financial ratios and conditions, including
without limitation an EBITDA (earnings before interest, taxes, depreciation
and amortization) to fixed charge coverage ratio, a net worth requirement
and a funded debt to capitalization ratio. The proceeds were used to finance
a portion of the purchase price of the Unocal Properties as well as retire
the borrowings under an existing credit facility in the amount of $27.0
million.
(e) In connection with the sale of its interest in NuStar Joint Venture, the
Company used a portion of the proceeds from the sale, $5.9 million, to
repay the project financing associated with the Benedum Gas Plant.
The amount of scheduled debt maturities during the next five years and
thereafter is as follows (amounts in thousands):
<TABLE>
<S> <C>
1998............................................................. $ 3,716
1999............................................................. 3,716
2000............................................................. 212
2001............................................................. 12
2002............................................................. --
Thereafter....................................................... 302,000
--------
Total debt..................................................... $309,656
========
</TABLE>
Based upon the quoted market price, the fair value of the 9 1/2% Notes is
estimated to be $170.3 million and $167.4 million at December 31, 1997 and
1996, respectively. For the OPIC credit facility and other debt, for which
no quoted prices are available, management believes the carrying value of
the debt materially represents the fair value of the debt at December 31,
1997 and 1996.
21
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The OPIC credit facility, discussed in Note 10, requires the Company to
provide consolidating financial statements that separately show NCC. These
condensed consolidating financial statements are presented below.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* ELIMINATIONS* CONSOLIDATED*
-------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Total current assets.............. $182,668 $ 7,542 $(131,350) $ 58,860
Net property and equipment........ 701,000 33,111 -- 734,111
Total other assets................ 16,949 95 (5,729) 11,315
-------- ------- --------- --------
Total assets.................... $900,617 $40,748 $(137,079) $804,286
======== ======= ========= ========
Total current liabilities......... $ 44,177 $ 5,426 $ -- $ 49,603
Long-term debt.................... 417,600 3,902 (115,562) 305,940
Deferred taxes.................... 4,771 215 -- 4,986
Other long-term liabilities....... 10,146 9,660 (15,788) 4,018
Mandatorily Redeemable Convertible
Preferred Securities of Nuevo Fi-
nancing I........................ 115,000 -- -- 115,000
Total stockholders' equity........ 308,923 21,545 (5,729) 324,739
-------- ------- --------- --------
Total liabilities and
stockholders' equity........... $900,617 $40,748 $(137,079) $804,286
======== ======= ========= ========
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* ELIMINATIONS* CONSOLIDATED*
-------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Total current assets............. $169,026 $10,174 $(115,562) $ 63,638
Net property and equipment....... 711,853 23,648 -- 735,501
Total other assets............... 24,061 172 (5,729) 18,504
-------- ------- --------- --------
Total assets................... $904,940 $33,994 $(121,291) $817,643
======== ======= ========= ========
Total current liabilities........ $ 30,369 $10,931 $ -- $ 41,300
Long-term debt................... 394,994 7,605 (115,561) 287,038
Deferred taxes................... 19,482 (12) -- 19,470
Other long-term liabilities...... 9,396 -- -- 9,396
Mandatorily Redeemable Convert-
ible Preferred Securities of
Nuevo Financing I............... 115,000 -- -- 115,000
Total stockholders' equity....... 335,699 15,470 (5,730) 345,439
-------- ------- --------- --------
Total liabilities and
stockholders' equity.......... $904,940 $33,994 $(121,291) $817,643
======== ======= ========= ========
</TABLE>
- --------
* Restated
22
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
-------- ------- -------------
<S> <C> <C> <C>
Revenues....................................... $334,446 $22,832 $357,278
Expenses....................................... 358,079 16,531 374,610
-------- ------- --------
(Loss) income before income taxes and
extraordinary item............................ (23,633) 6,301 (17,332)
Income tax (benefit) expense................... (6,883) 227 (6,656)
-------- ------- --------
(Loss) income before extraordinary item........ (16,750) 6,074 (10,676)
Extraordinary loss on early extinguishment of
debt, net of tax benefit...................... 3,024 -- 3,024
-------- ------- --------
Net (loss) income.............................. $(19,774) $ 6,074 $(13,700)
======== ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
-------- ------- -------------
<S> <C> <C> <C>
Revenues........................................ $308,380 $20,677 $329,057
Expenses........................................ 256,568 14,246 270,814
-------- ------- --------
Income before income taxes...................... 51,812 6,431 58,243
Income taxes.................................... 23,969 (4) 23,965
-------- ------- --------
Net income...................................... 27,843 6,435 34,278
Dividends on Preferred Stock.................... 939 -- 939
-------- ------- --------
Net earnings available to Common Stockholders... $ 26,904 $ 6,435 $ 33,339
======== ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
-------- ------- -------------
<S> <C> <C> <C>
Revenues....................................... $120,450 $17,516 $137,966
Expenses....................................... 120,592 10,660 131,252
-------- ------- --------
(Loss) income before income taxes.............. (142) 6,856 6,714
Income taxes................................... 2,590 (8) 2,582
-------- ------- --------
Net (loss) income.............................. (2,732) 6,864 4,132
Dividends on Preferred Stock................... 1,472 -- 1,472
-------- ------- --------
Net (loss) earnings
available to Common
Stockholders.................................. $ (4,204) $ 6,864 $ 2,660
======== ======= ========
</TABLE>
- --------
* Restated
23
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- -------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ (19,774) $ 6,074 $ (13,700)
Non-cash adjustments...................... 155,749 3,612 159,361
Change in assets and liabilities.......... 12,846 6,955 19,801
--------- -------- ---------
Net cash provided by operating
activities............................. 148,821 16,641 165,462
--------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....... (182,261) (12,847) (195,108)
Proceeds from sale of properties.......... 27,377 -- 27,377
Additions to other properties and other... (1,747) -- (1,747)
--------- -------- ---------
Net cash used in investing activities... (156,631) (12,847) (169,478)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................. 234,000 -- 234,000
Payments of long-term debt................ (213,800) (3,703) (217,503)
Other..................................... (16,909) -- (16,909)
--------- -------- ---------
Net cash provided by (used in) financing
activities............................. 3,291 (3,703) (412)
--------- -------- ---------
Net (decrease) increase in cash & cash
equivalents................................ (4,519) 91 (4,428)
Cash and cash equivalents at beginning of
year....................................... 11,936 1,700 13,636
--------- -------- ---------
Cash and cash equivalents at end of year.... $ 7,417 $ 1,791 $ 9,208
========= ======== =========
</TABLE>
- --------
* Restated
24
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
--------- -------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 27,843 $ 6,435 $ 34,278
Non-cash adjustments...................... 89,792 2,469 92,261
Change in assets and liabilities.......... (6,483) 6,865 382
--------- -------- ---------
Net cash provided by operating
activities............................. 111,152 15,769 126,921
--------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....... (496,516) (19,469) (515,985)
Proceeds from sale of properties.......... 42,700 -- 42,700
Additions to other properties and other... (72,717) -- (72,717)
--------- -------- ---------
Net cash used in investing activities... (526,533) (19,469) (546,002)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from borrowings.................. 402,000 6,000 408,000
Proceeds from issuance of Company-
Obligated Mandatorily Redeemable
Convertible Preferred Securities of
Nuevo Financing I........................ 115,000 -- 115,000
Payments of long-term debt................ (229,406) (2,953) (232,359)
Other..................................... 136,311 -- 136,311
--------- -------- ---------
Net cash provided by financing
activities............................. 423,905 3,047 426,952
--------- -------- ---------
Net increase (decrease) in cash & cash
equivalents.............................. 8,524 (653) 7,871
Cash and cash equivalents at beginning of
year..................................... 3,412 2,353 5,765
--------- -------- ---------
Cash and cash equivalents at end of year.. $ 11,936 $ 1,700 $ 13,636
========= ======== =========
</TABLE>
- --------
* Restated
25
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NUEVO* NCC* CONSOLIDATED*
-------- ------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ (2,732) $ 6,864 $ 4,132
Non-cash adjustments........................ 42,937 512 43,449
Change in assets and liabilities............ (4,179) (6,208) (10,387)
-------- ------- --------
Net cash provided by operating activities. 36,026 1,168 37,194
-------- ------- --------
Cash flows from investing activities:
Additions to oil and gas properties......... (32,590) (6,438) (39,028)
Proceeds from sale of properties............ 5,257 -- 5,257
Acquisition of ACPC......................... -- (639) (639)
Additions to other properties and other..... 1,828 -- 1,828
-------- ------- --------
Net cash used in investing activities..... (25,505) (7,077) (32,582)
-------- ------- --------
Cash flows from financing activities:
Proceeds from borrowings.................... 9,000 8,813 17,813
Payments of long-term debt.................. (20,296) (551) (20,847)
Other....................................... 740 -- 740
-------- ------- --------
Net cash (used in) provided by financing
activities............................... (10,556) 8,262 (2,294)
-------- ------- --------
Net (decrease) increase in cash & cash
equivalents.................................. (35) 2,353 2,318
Cash and cash equivalents at beginning of
year......................................... 3,447 -- 3,447
-------- ------- --------
Cash and cash equivalents
at end of year............................... $ 3,412 $ 2,353 $ 5,765
======== ======= ========
</TABLE>
12. INCOME TAXES
Income tax (benefit) expense is summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-----------------------
1997* 1996* 1995*
------- ------- ------
<S> <C> <C> <C>
Current
Federal........................................ $ 135 $ 1,200 $ 16
State.......................................... 421 300 --
------- ------- ------
556 1,500 16
------- ------- ------
Deferred
Federal........................................ (7,449) 17,465 1,986
State.......................................... (1,800) 5,000 580
------- ------- ------
(9,249) 22,465 2,566
------- ------- ------
Total income tax (benefit) expense........... $(8,693) $23,965 $2,582
======= ======= ======
</TABLE>
A deferred tax benefit related to the exercise of employee stock options of
approximately $5.3 million, $4.7 million and $.7 million was allocated
directly to additional paid-in capital in 1997, 1996 and 1995, respectively. A
current tax benefit of $2.0 million was allocated to the extraordinary loss in
1997.
- --------
* Restated
26
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax (benefit) expense differs from the amount computed by
applying the Federal income tax rate to (loss) income before income taxes,
minority interest and extraordinary item. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997* 1996* 1995*
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate (35.0)% 35.0% 35.0%
Increase in tax rate resulting from:
State income taxes, net of Federal benefit............... (4.0) 5.9 2.6
Non-realization of tax benefits related to provision for
impairment on assets held for sale...................... 3.6 -- --
Nondeductible travel and entertainment and other......... (3.4) .4 0.8
----- ---- ----
(38.8)% 41.3% 38.4%
===== ==== ====
</TABLE>
The tax effects of temporary differences that result in significant portions
of the deferred income tax assets and liabilities and a description of the
financial statement items creating these differences are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
------------------
1997* 1996*
-------- --------
<S> <C> <C>
Net operating loss carryforwards........................... $ 10,267 $ 6,372
Alternative minimum tax credit carryforwards............... 1,337 1,437
Capital loss carryforwards................................. 700 --
-------- --------
Total deferred income tax assets......................... 12,304 7,809
Less: valuation allowance.................................. (700) --
-------- --------
Net deferred income tax assets............................. 11,604 7,809
-------- --------
Property and equipment..................................... (12,694) (21,014)
State income taxes......................................... (3,896) (6,265)
-------- --------
Total deferred income tax liabilities.................... (16,590) (27,279)
-------- --------
Net deferred income tax liability.......................... $ (4,986) $(19,470)
======== ========
</TABLE>
At December 31, 1997, the Company had a net operating loss carryforward for
regular tax of approximately $29.3 million, which will expire in future years
beginning in 2005 through 2011. The alternative minimum tax credit
carryforward of $1.3 million does not expire and may be applied to reduce
regular income tax to an amount not less than the alternative minimum tax
payable in any one year. Management believes that it is more likely than not
that the deferred income tax assets (excluding the capital loss carryforward),
comprised primarily of the net operating loss carryforward, will be realized
in future years through the reversal of taxable temporary differences and the
annual election to capitalize intangible drilling costs during the
carryforward period.
* Restated
27
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. INDUSTRY SEGMENT INFORMATION
The Company's operations are concentrated primarily in two segments:
--Exploration and production of oil and natural gas
--Gas plant, pipelines and other facilities
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR
ENDED DECEMBER 31,
---------------------------
1997* 1996* 1995*
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and gas--domestic............................. $312,408 $259,191 $ 85,083
Oil and gas--foreign.............................. 22,794 20,668 17,372
Gas plant, pipelines and other facilities......... 17,369 41,576 34,405
-------- -------- --------
Total sales..................................... 352,571 321,435 136,860
Other revenues................................ 4,707 7,622 1,106
-------- -------- --------
Total revenues.................................. $357,278 $329,057 $137,966
======== ======== ========
Operating (loss) profit before income taxes:
Oil and gas--domestic............................. $ 65,207 $109,708 $ 21,362
Oil and gas--foreign.............................. 6,172 7,247 7,558
Gas plant, pipelines and other facilities(2)...... (22,571) 2,619 3,585
-------- -------- --------
48,808 119,574 32,505
Unallocated corporate expenses.................... 32,170 25,157 10,402
Interest expense.................................. 27,357 36,009 15,389
Dividends on TECONS............................... 6,613 165 --
-------- -------- --------
Operating (loss) profit before income taxes....... $(17,332) $ 58,243 $ 6,714
======== ======== ========
Identifiable assets:
Oil and gas--domestic (1)......................... $671,603 $682,995 $166,382
Oil and gas--foreign.............................. 40,139 33,147 12,496
Gas plant, pipelines and other facilities......... 17,387 66,329 61,446
-------- -------- --------
729,129 782,471 240,324
Corporate assets and investments.................. 75,157 35,172 18,745
-------- -------- --------
Total........................................... $804,286 $817,643 $259,069
======== ======== ========
Capital expenditures:
Oil and gas--domestic (1)......................... $181,784 $562,739 $ 34,368
Oil and gas--foreign.............................. 14,111 19,607 7,077
Gas plant, pipelines and other facilities......... 1,747 2,717 1,022
-------- -------- --------
$197,642 $585,063 $ 42,467
======== ======== ========
Depreciation, depletion and amortization
Oil and gas--domestic............................. $ 95,263 $ 68,806 $ 41,140
Oil and gas--foreign.............................. 3,385 2,473 520
Gas plant, pipelines and other facilities......... 2,830 3,812 3,411
-------- -------- --------
$101,478 $ 75,091 $ 45,071
======== ======== ========
</TABLE>
- --------
*Restated
- --------
(1) Identifiable assets and capital expenditures for 1996 include $15.0
million in costs associated with gas plant facilities in California, which
process immaterial amounts of third party gas, and whose revenues from the
sale of these liquids are included in oil and gas revenues.
28
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) Gas plant, pipelines and other facilities operations for 1997 include a
charge for $23.9 million to record an impairment on assets held for sale
and a $2.3 million gain on sale. See Note 4.
In 1997 and 1996, the Company had one customer that accounted for 62% and
52% of revenues, respectively. In 1995, the Company had two customers that
accounted for 31% of total revenues.
14. CONTINGENCIES
The Company has been named as a defendant in the lawsuit Gloria Garcia Lopez
and Husband, Hector S. Lopez, Individually, and as successors to Galo Land &
Cattle Company v. Mobil Producing Texas & New Mexico, et al. currently pending
in the 79th Judicial District Court of Brooks County, Texas. The plaintiffs
allege: (i) underpayment of royalties and claim damages, on a gross basis
against all working interest owners, of $27.7 million plus $26.2 million in
interest for the period from 1985 to date; (ii) that their production was
improperly commingled with gas produced from an adjoining lease, resulting in
damages, including interest of $40.8 million (gross); and (iii) numerous other
claims that may result in unspecified damages. Nuevo's working interest in
these properties is 20%. The Company, along with the other defendants in this
case, denies these allegations and is vigorously contesting these claims.
Management does not believe that the outcome of this matter will have a
material adverse impact on the Company's operating results, financial
condition or liquidity.
The Company has been named as a defendant in certain other lawsuits
incidental to its business. Management does not believe that the outcome of
such litigation will have a material adverse impact on the Company's operating
results or financial condition. However, these actions and claims in the
aggregate seek substantial damages against the Company and are subject to the
inherent uncertainties in any litigation. The Company is defending itself
vigorously in all such matters.
On September 28, 1997, there was a spill of crude oil into the Santa Barbara
Channel from a pipeline that connects the Company's Point Pedernales field
with shore-based processing facilities. The volume of the spill was estimated
to be 163 barrels of oil. Torch, which operates the platform and pipeline for
the Company, responded immediately by shutting down the pipeline and notified
the National Response Center and all appropriate federal, state, and local
authorities, as well as petroleum industry environmental response consortia.
Cost of the clean up is expected to be covered by general liability insurance
held by the Company, less the related deductible of $40,000 net to the
Company. Total cost of the repair of the pipeline is currently estimated to be
approximately $3.0 million ($2.4 million net to the Company), and is expected
to be covered by insurance less the Company's deductible of $80,000. At the
time of the spill, the Point Pedernales field was producing 7,300 barrels per
day, net to the Company's interest. Production from the field was halted until
the pipeline was repaired and the Company received all required permits from
regulatory bodies. Repairs were completed by the end of 1997, and production
recommenced on December 12, 1997. Additionally, the Company has exposure to
certain costs that may not be recoverable by insurance, including fines,
penalties, and damages. Such costs are not quantifiable at this time, but are
not expected to be material to the Company's operating results, financial
condition or liquidity.
The Company's international investments involve risks typically associated
with investments in emerging markets such as an uncertain political, economic,
legal and tax environment and expropriation and nationalization of assets. In
addition, if a dispute arises in its foreign operations, the Company may be
subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of the United
States. The Company attempts to conduct its business and financial affairs so
as to protect against political and economic risks applicable to operations in
the various countries where it operates, but there can be no assurance that
the Company will be successful in so protecting itself. A portion of the
Company's investment in the Congo is insured through political risk insurance
provided by OPIC. The Company is currently investigating its options for
political risk insurance in Ghana.
29
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with their respective acquisitions of two subsidiaries (each a
"Congo subsidiary") owning interests in the Yombo field offshore West Africa,
the Company and a wholly-owned subsidiary of CMS NOMECO Oil & Gas Co. ("CMS")
agreed with the seller of the subsidiaries not to claim certain tax losses
("dual consolidated losses") incurred by such subsidiaries prior to the
acquisitions. Pursuant to the agreement, the Company and CMS may be liable to
the seller for the recapture of dual consolidated losses utilized by the
seller in years prior to the acquisitions if certain triggering events occur,
including (i) a disposition by either the Company or CMS of its respective
Congo subsidiary, (ii) either Congo subsidiary's sale of its interest in the
Yombo field, (iii) the acquisition of the Company or CMS by another
consolidated group or (iv) the failure of the Company or CMS's Congo
subsidiary to continue as a member of its respective consolidated group. A
triggering event will not occur, however, if a subsequent purchaser enters
into certain agreements specified in the consolidated return regulations
intended to ensure that such dual consolidated losses will not be claimed. The
Company and CMS have agreed among themselves that the party responsible for
the triggering event shall indemnify the other for any liability to the seller
as a result of such triggering event. The Company's potential direct liability
could be as much as $50.0 million if a triggering event with respect to the
Company occurs, and the Company believes that CMS's liability (for which the
Company would be jointly liable with an indemnification right against CMS)
could be as much as $67.0 million. The Company does not expect a triggering
event to occur with respect to it or CMS and does not believe the agreement
will have a material adverse effect upon the Company.
During the third quarter of 1997, a civil war erupted in the Congo resulting
in a new government being put in place. The operator of the properties
temporarily moved its field offices to Gabon, but is currently in the process
of re-establishing its offices in the Congo. The Company's Congo production is
approximately 30 miles offshore and flows into a floating production, storage
and off-loading vessel for direct shipment to western markets. The Company
experienced no production interruption as a result of the conflict.
15. FINANCIAL INSTRUMENTS
The Company periodically uses derivative financial instruments to manage oil
and natural gas price risk. For 1998, the Company is a party to several
commodity price and basis swap agreements, hedging an aggregate of 16.0 Bcf of
gas, at prices ranging from $2.13 to $2.41 per MMBtu. These energy swap
agreements expose the Company to counterparty credit risk to the extent the
counterparty is unable to meet its monthly settlement commitment to the
Company.
30
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Determination of Fair Values of Financial Instruments
Fair value for cash, short-term investments, receivables and payables
approximates carrying value. The following table details the carrying values
and approximate fair values of the Company's other investments, derivative
financial instruments and long-term debt at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
CARRYING APPROXIMATE CARRYING APPROXIMATE
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ----------- -------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Other investments..................... $ 434 $ 553 $ 1,673 $ 2,558
Derivative Assets:
Futures contracts................... -- -- 1,000 599
Natural gas commodity price swaps... -- 506 -- --
Long-term debt (See Note 10).......... 305,940 316,228 287,038 300,526
TECONS................................ 115,000 112,700 115,000 123,349
</TABLE>
16. SUPPLEMENTAL INFORMATION--(UNAUDITED)
Oil and Gas Producing Activities:
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on
estimates of year-end oil and gas reserve quantities and estimates of future
development costs and production schedules. Reserve quantities and future
production as of December 31, 1997 are based primarily on reserve reports
prepared by the independent petroleum engineering firm of Ryder Scott Company.
Reserve quantities and future production for previous years are based
primarily upon reserve reports prepared by the independent petroleum
engineering firms of Miller and Lents, Ltd., S.A. Holditch and Associates,
Inc., Ryder Scott Company, D.O.R. Engineering Inc., and Poco Oil Company.
These estimates are inherently imprecise and subject to substantial revision.
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and natural gas liquids ("NGL") were made in accordance with SFAS
No. 69, "Disclosures about Oil and Gas Producing Activities." The estimates
are based on realized prices at year-end, of $13.44 per BBL of oil and $2.21
per MCF of gas. Estimated future cash inflows are reduced by estimated future
development and production costs based on year-end cost levels, assuming
continuation of existing economic conditions, and by estimated future income
tax expense. Tax expense is calculated by applying the existing statutory tax
rates, including any known future changes, to the pre-tax net cash flows, less
depreciation of the tax basis of the properties and depletion allowances
applicable to the gas, oil, condensate and NGL production. Because the
disclosure requirements are standardized, significant changes can occur in
these estimates based upon oil and gas prices currently in effect. The results
of these disclosures should not be construed to represent the fair market
value of the Company's oil and gas properties. A market value determination
would include many additional factors including: (i) anticipated future
increases or decreases in oil and gas prices and production and development
costs; (ii) an allowance for return on investment; (iii) the value of
additional reserves, not considered proved at the present, which may be
recovered as a result of further exploration and development activities; and
(iv) other business risks.
31
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs incurred (amounts in thousands)--
The following table sets forth the costs incurred in property acquisition
and development activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997* 1996* 1995*
-------- -------- -------
<S> <C> <C> <C>
DOMESTIC
Property acquisition:
Proved properties(2)................................ $ 10,206 $452,603 $ --
Unproved properties................................. -- 40,000 --
Exploration........................................... 18,474 7,289 8,387
Development(1)........................................ 153,104 62,847 25,981
-------- -------- -------
$181,784 $562,739 $34,368
======== ======== =======
FOREIGN
Property acquisition:
Proved properties..................................... $ -- $ -- $ 639
Exploration........................................... 10,887 8,844 --
Development........................................... 3,224 10,763 6,438
-------- -------- -------
$ 14,111 $ 19,607 $ 7,077
======== ======== =======
TOTAL
Property acquisition:
Proved properties................................... $ 10,206 $452,603 $ 639
Unproved properties................................. -- 40,000 --
Exploration........................................... 29,361 16,133 8,387
Development........................................... 156,328 73,610 32,419
-------- -------- -------
$195,895 $582,346 $41,445
======== ======== =======
</TABLE>
- --------
(1) Includes capitalized interest directly related to development activities
of $2.4 million in 1997.
(2) The acquisition of domestic proved properties for 1996 includes $15.0
million in costs associated with gas plant facilities in California.
* Restated
32
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capitalized costs (amounts in thousands)--
The following table sets forth the capitalized costs relating to oil and gas
activities and the associated accumulated depreciation, depletion and
amortization:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997* 1996* 1995*
--------- --------- ---------
<S> <C> <C> <C>
DOMESTIC
Proved properties............................. $ 903,096 $ 739,260 $ 324,691
Unproved properties........................... 41,661 44,661 12,414
--------- --------- ---------
Total capitalized costs..................... 944,757 783,921 337,105
Accumulated depreciation, depletion and
amortization............................... (315,038) (198,024) (184,039)
--------- --------- ---------
Net capitalized costs..................... $ 629,719 $ 585,897 $ 153,066
========= ========= =========
FOREIGN
Proved properties............................. $ 39,516 $ 26,677 $ 7,177
--------- --------- ---------
Total capitalized costs..................... 39,516 26,677 7,177
Accumulated depreciation, depletion and
amortization............................... (6,378) (2,993) (520)
--------- --------- ---------
Net capitalized costs..................... $ 33,138 $ 23,684 $ 6,657
========= ========= =========
TOTAL
Proved properties............................. $ 942,612 $ 765,937 $ 331,868
Unproved properties........................... 41,661 44,661 12,414
--------- --------- ---------
Total capitalized costs..................... 984,273 810,598 344,282
Accumulated depreciation, depletion and
amortization............................... (321,416) (201,017) (184,559)
--------- --------- ---------
Net capitalized costs..................... $ 662,857 $ 609,581 $ 159,723
========= ========= =========
</TABLE>
- --------
* Restated
33
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Results of operations for producing activities (amounts in thousands)--
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997* 1996* 1995*
-------- -------- --------
<S> <C> <C> <C>
DOMESTIC
Revenues from oil and gas producing activities... $312,408 $259,191 $ 85,083
Production costs................................. (111,210) (82,119) (19,569)
Exploration costs................................ (9,813) (4,566) (2,356)
Depreciation, depletion and amortization......... (95,263) (68,806) (41,140)
Provision for impairment of oil and gas proper-
ties............................................ (30,000) -- --
Income tax provision............................. (26,449) (42,828) (8,455)
-------- -------- --------
Results of operations from producing activities
(excluding corporate overhead and interest
costs).......................................... $ 39,673 $ 60,872 $ 13,563
======== ======== ========
FOREIGN
Revenues from oil and gas producing activities... $ 22,794 $ 20,668 $ 17,372
Production costs................................. (11,968) (10,943) (9,304)
Exploration costs................................ (1,269) (5) (1)
Depreciation, depletion and amortization......... (3,385) (2,473) (520)
Income tax provision............................. (2,469) (2,993) (2,898)
-------- -------- --------
Results of operations from producing activities
(excluding corporate overhead and interest
costs).......................................... $ 3,703 $ 4,254 $ 4,649
======== ======== ========
TOTAL
Revenues from oil and gas producing activities $335,202 $279,859 $102,455
Production costs................................. (123,178) (93,062) (28,873)
Exploration costs................................ (11,082) (4,571) (2,357)
Depreciation, depletion and amortization......... (98,648) (71,279) (41,660)
Provision for impairment of oil and gas proper-
ties............................................ (30,000) -- --
Income tax provision............................. (28,918) (45,821) (11,353)
-------- -------- --------
Results of operations from producing activities
(excluding corporate overhead and interest
costs).......................................... $ 43,376 $ 65,126 $ 18,212
======== ======== ========
</TABLE>
- --------
* Restated
Per unit sales prices and costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
DOMESTIC
Average sales price:
Oil (per barrel)........................................ $14.88 $15.99 $14.66
Gas (per MCF)........................................... $ 2.06 $ 2.08 $ 1.55
Average production cost per equivalent barrel............. $ 5.10 $ 4.63 $ 2.61
FOREIGN
Average sales price:
Oil (per barrel).......................................... $14.66 $14.56 $13.66
Average production cost per equivalent barrel............. $ 7.70 $ 7.71 $ 7.31
TOTAL
Average sales price:
Oil (per barrel)........................................ $14.86 $15.84 $14.34
Gas (per MCF)........................................... $ 2.06 2.08 $ 1.55
Average production cost per equivalent barrel............. $ 5.28 $ 4.86 $ 3.29
</TABLE>
34
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's estimated total proved and proved developed reserves of oil and
gas
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
DESCRIPTION 1997 1996 1995
----------- ---------------- ---------------- ---------------
OIL* GAS OIL* GAS OIL* GAS
(MBBL) (MMCF) (MBBL) (MMCF) (MBBL) (MMCF)
------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
DOMESTIC
Proved reserves at
beginning of year........ 165,839 394,630 9,700 301,311 10,852 261,115
Revisions of previous
estimates................ 10,177 (5,105) 5,581 (1,388) (472) 18,419
Extensions and
discoveries.............. 39,911 35,682 3,615 18,291 2,456 58,463
Production................ (15,854) (35,625) (11,924) (34,775) (2,675) (28,913)
Sales of reserves in-
place.................... (15) (675) (2,506) (30,588) (461) (7,773)
Purchase of reserves in-
place.................... 2,713 1,784 161,373 141,779 -- --
------- ------- ------- ------- ------ -------
Proved reserves at end of
year..................... 202,771 390,691 165,839 394,630 9,700 301,311
======= ======= ======= ======= ====== =======
Proved developed
reserves--
Beginning of year....... 122,088 236,013 8,289 142,012 8,692 164,183
======= ======= ======= ======= ====== =======
End of year ............ 143,486 266,179 122,088 236,013 8,289 142,012
======= ======= ======= ======= ====== =======
FOREIGN
Proved reserves at
beginning of year........ 20,214 -- 20,826 -- -- --
Revisions of previous
estimates................ (1,313) -- (107) -- 4,096 --
Extensions and
discoveries.............. 7,147 -- 915 -- -- --
Production................ (1,555) -- (1,420) -- (1,272) --
Sales of reserves in-
place.................... -- -- -- -- -- --
Purchase of reserves in-
place.................... -- -- -- -- 18,002 --
------- ------- ------- ------- ------ -------
Proved reserves at end of
year..................... 24,493 -- 20,214 -- 20,826 --
======= ======= ======= ======= ====== =======
Proved developed
reserves--
Beginning of year....... 16,727 -- 14,787 -- -- --
======= ======= ======= ======= ====== =======
End of year ............ 9,526 -- 16,727 -- 14,787 --
======= ======= ======= ======= ====== =======
TOTAL
Proved reserves at
beginning of year........ 186,053 394,630 30,526 301,311 10,852 261,115
Revisions of previous
estimates................ 8,864 (5,105) 5,474 (1,388) 3,624 18,419
Extensions and
discoveries.............. 47,058 35,682 4,530 18,291 2,456 58,463
Production................ (17,409) (35,625) (13,344) (34,775) (3,947) (28,913)
Sales of reserves in-
place.................... (15) (675) (2,506) (30,588) (461) (7,773)
Purchase of reserves in-
place.................... 2,713 1,784 161,373 141,779 18,002 --
------- ------- ------- ------- ------ -------
Proved reserves at end of
year..................... 227,264 390,691 186,053 394,630 30,526 301,311
======= ======= ======= ======= ====== =======
Proved developed
reserves--
Beginning of year....... 138,815 236,013 23,076 142,012 8,692 164,183
======= ======= ======= ======= ====== =======
End of year ............ 153,012 266,179 138,815 236,013 23,076 142,012
======= ======= ======= ======= ====== =======
</TABLE>
- --------
(*) Includes estimated NGL reserves.
35
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Discounted future net cash flows (amounts in thousands)--
The standardized measure of discounted future net cash flows and changes
therein are shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
DOMESTIC
Future cash inflows...................... $ 3,566,450 $ 4,476,523 $ 850,521
Future production costs.................. (1,643,774) (1,739,219) (311,452)
Future development costs(1).............. (329,997) (309,365) (81,102)
----------- ----------- ----------
Future net inflows before income tax..... 1,592,679 2,427,939 457,967
Future income taxes...................... (427,618) (736,788) (96,829)
----------- ----------- ----------
Future net cash flows.................... 1,165,061 1,691,151 361,138
10% discount factor...................... (454,023) (702,996) (124,218)
----------- ----------- ----------
Standardized measure of discounted future
net cash flows.......................... $ 711,038 $ 988,155 $ 236,920
=========== =========== ==========
FOREIGN
Future cash inflows...................... $ 360,959 $ 414,383 $ 364,444
Future production costs.................. (171,331) (248,222) (192,934)
Future development costs................. (59,985) (2,625) (6,278)
----------- ----------- ----------
Future net inflows before income tax..... 129,643 163,536 165,232
Future income taxes...................... (39,243) (55,083) (57,869)
----------- ----------- ----------
Future net cash flows.................... 90,400 108,453 107,363
10% discount factor...................... (36,653) (33,659) (33,197)
----------- ----------- ----------
Standardized measure of discounted future
net cash flows.......................... $ 53,747 $ 74,794 $ 74,166
=========== =========== ==========
TOTAL
Future cash inflows...................... $ 3,927,409 $ 4,890,906 $1,214,965
Future production costs.................. (1,815,105) (1,987,441) (504,386)
Future development costs................. (389,982) (311,990) (87,380)
----------- ----------- ----------
Future net inflows before income tax..... 1,722,322 2,591,475 623,199
Future income taxes...................... (466,861) (791,871) (154,698)
----------- ----------- ----------
Future net cash flows.................... 1,255,461 1,799,604 468,501
10% discount factor...................... (490,676) (736,655) (157,415)
----------- ----------- ----------
Standardized measure of discounted future
net cash flows.......................... $ 764,785 $ 1,062,949 $ 311,086
=========== =========== ==========
</TABLE>
- --------
(1) Includes $10.7 million of environmental and site-remediation liabilities.
36
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
DOMESTIC
Standardized measure--beginning of year ....... $ 988,155 $ 236,920 $183,205
Sales, net of production costs................. (201,198) (177,072) (65,514)
Purchases of reserves in-place................. 18,293 605,210 --
Net change in prices and production costs...... (581,640) 505,108 58,184
Extensions, discoveries and improved recovery,
net of future production and development
costs......................................... 180,146 38,572 51,265
Net changes in estimated future development
costs......................................... 87,606 10,151 14,906
Revisions of quantity estimates................ 33,358 79,185 14,030
Accretion of discount.......................... 125,138 26,207 18,321
Net change in income taxes..................... 141,452 (238,071) (25,151)
Sales of reserves in-place..................... (1,598) (41,969) (4,691)
Changes in production rates and other.......... (78,674) (56,086) (7,635)
--------- --------- --------
Standardized measure--end of year.............. $ 711,038 $ 988,155 $236,920
========= ========= ========
FOREIGN
Standardized measure--beginning of year........ $ 74,794 $ 74,166 $ --
Sales, net of production costs................. (10,826) (9,725) (8,068)
Purchases of reserves in-place................. -- -- 64,524
Net change in prices and production costs...... (22,193) (1,557) 35,476
Extensions, discoveries and improved recovery,
net of future production and development
costs......................................... 5,486 4,930 --
Net changes in estimated future development
costs......................................... (6,212) 3,892 2,253
Revisions of quantity estimates................ (5,609) (598) 24,483
Accretion of discount.......................... 10,720 11,288 --
Net change in income taxes..................... 17,857 6,304 (38,713)
Changes in production rates and other.......... (10,270) (13,906) (5,789)
--------- --------- --------
Standardized measure--end of year.............. $ 53,747 $ 74,794 $ 74,166
========= ========= ========
</TABLE>
37
<PAGE>
NUEVO ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
TOTAL
Standardized measure--beginning of year...... $1,062,949 $ 311,086 $183,205
Sales, net of production costs............... (212,024) (186,797) (73,582)
Purchases of reserves in-place............... 18,293 605,210 64,524
Net change in prices and production costs.... (603,833) 503,551 93,660
Extensions, discoveries and improved
recovery, net of future production and
development costs........................... 185,632 43,502 51,265
Net changes in estimated future development
costs....................................... 81,394 14,043 17,159
Revisions of quantity estimates.............. 27,749 78,587 38,513
Accretion of discount........................ 135,858 37,495 18,321
Net change in income taxes................... 159,309 (231,767) (63,864)
Sales of reserves in-place................... (1,598) (41,969) (4,691)
Changes in production rates and other........ (88,944) (69,992) (13,424)
---------- ---------- --------
Standardized measure--end of year............ $ 764,785 $1,062,949 $311,086
========== ========== ========
</TABLE>
Selected quarterly financial data (amounts in thousands, except per share
data)(unaudited):
<TABLE>
<CAPTION>
QUARTER ENDED (4)(5)
-------------------------------------------
JUNE
MARCH 30, SEPTEMBER 30, DECEMBER 31,
31, 1997 1997 1997 1997
-------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues........................... $102,410 $85,976 $82,120 $ 86,772
Operating earnings (loss)(2)....... $ 39,872 $26,204 $17,410 $(34,688)
Net income (loss)(2)(3)............ $ 14,609 $ 2,964 $ 352 $(31,625)
Earnings (loss) per Common Share--
Basic(1).......................... $ .73 $ .15 $ .02 $ (1.60)
Earnings (loss) per Common Share--
Diluted(1)........................ $ .70 $ .15 $ .02 $ (1.60)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED(4)(5)
--------------------------------------------
JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $33,866 $94,740 $90,285 $110,166
Operating earnings................ $11,441 $32,196 $28,474 $ 46,315
Net income........................ $ 2,707 $ 7,988 $ 7,106 $ 16,477
Earnings available to Common
Stockholders..................... $ 2,442 $ 7,724 $ 6,869 $ 16,304
Earnings per Common Share--Ba-
sic(1)........................... $ .21 $ .44 $ .37 $ .85
Earnings per Common Share--Diluted
(1).............................. $ .21 $ .41 $ .35 $ .79
</TABLE>
- --------
(1) Retroactively restated to reflect the adoption of SFAS No. 128 (see Note
2).
(2) Includes fourth quarter charges for $23.9 million to record an impairment
on assets held for sale and $30.0 million to record an impairment on oil
and gas properties and a second quarter gain on sale of $3.0 million that
was adjusted downward by $752,000 in the third quarter (see Note 4).
(3) Includes an extraordinary loss on early extinguishment of debt of $3.0
million, net of income tax benefit, in the second quarter.
(4) Certain reclassifications of prior period amounts have been made to
conform with current reporting practices.
(5) Restated
38
<PAGE>
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Not applicable
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Not applicable
(c) Exhibits
EX-23 Independent Auditors' Consent
EX-27.1--EX-27.4 Restated Financial Data Schedules (1997)
EX-27.5--EX-27.8 Restated Financial Data Schedules (1996)
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
Not applicable
39
<PAGE>
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.
NUEVO ENERGY COMPANY
May 20, 1998 /s/ Robert M. King
By:__________________________________
Robert M. King
Senior Vice President & Chief
Financial Officer
40
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Nuevo Energy Company:
We consent to incorporation by reference in the registration statement (No.
33-43329) on Form S-8, registration statement (No. 33-70108) on Form S-8,
registration statement (No. 333-21063) on Form S-8, registration statement
(No. 333-51211) on Form S-8, registration statement (No. 333-51217) on Form S-
8, registration statement (No. 333-51231) on Form S-8, and registration
statement (No. 333-16231) on Form S-3 of Nuevo Energy Company of our report
dated May 12, 1998, relating to the consolidated balance sheets of Nuevo
Energy Company and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, which report appears in the report on Form 8-K dated May
20, 1998 to restate the consolidated financial statements included in the
December 31, 1997 annual report on Form 10-K of Nuevo Energy Company, to
reflect the retroactive effect of the change in accounting for oil and gas
properties from the full cost method to the successful efforts method.
/S/ KPMG PEAT MARWICK LLP
Houston, Texas
May 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,208
<SECURITIES> 0
<RECEIVABLES> 38,196
<ALLOWANCES> 0
<INVENTORY> 1,627
<CURRENT-ASSETS> 58,860
<PP&E> 1,059,015
<DEPRECIATION> (324,904)
<TOTAL-ASSETS> 804,286
<CURRENT-LIABILITIES> 49,603
<BONDS> 305,940
115,000
0
<COMMON> 202
<OTHER-SE> 324,537
<TOTAL-LIABILITY-AND-EQUITY> 804,286
<SALES> 352,571
<TOTAL-REVENUES> 357,278
<CGS> 149,723
<TOTAL-COSTS> 251,881
<OTHER-EXPENSES> 34,825
<LOSS-PROVISION> 53,942
<INTEREST-EXPENSE> 33,970
<INCOME-PRETAX> (17,340)
<INCOME-TAX> (6,656)
<INCOME-CONTINUING> (10,676)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,024)
<CHANGES> 0
<NET-INCOME> (13,700)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 6,704 0
<SECURITIES> 0 0
<RECEIVABLES> 42,520 0
<ALLOWANCES> 0 0
<INVENTORY> 2,527 0
<CURRENT-ASSETS> 55,120 0
<PP&E> 1,059,352 0
<DEPRECIATION> (283,045) 0
<TOTAL-ASSETS> 847,733 0
<CURRENT-LIABILITIES> 54,092 0
<BONDS> 293,866 0
115,000 0
0 0
<COMMON> 202 0
<OTHER-SE> 350,832 0
<TOTAL-LIABILITY-AND-EQUITY> 847,733 0
<SALES> 83,771 266,815
<TOTAL-REVENUES> 82,120 270,506
<CGS> 36,176 109,685
<TOTAL-COSTS> 64,265 185,973
<OTHER-EXPENSES> 9,005 24,071
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,274 25,552
<INCOME-PRETAX> 576 34,909
<INCOME-TAX> 227 13,968
<INCOME-CONTINUING> 352 20,949
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 3,024
<CHANGES> 0 0
<NET-INCOME> 352 17,925
<EPS-PRIMARY> .02 .90
<EPS-DILUTED> .02 .87
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 4,874 0
<SECURITIES> 0 0
<RECEIVABLES> 40,660 0
<ALLOWANCES> 0 0
<INVENTORY> 2,824 0
<CURRENT-ASSETS> 51,195 0
<PP&E> 1,024,311 0
<DEPRECIATION> (263,828) 0
<TOTAL-ASSETS> 827,799 0
<CURRENT-LIABILITIES> 36,490 0
<BONDS> 294,292 0
115,000 0
0 0
<COMMON> 202 0
<OTHER-SE> 349,322 0
<TOTAL-LIABILITY-AND-EQUITY> 827,799 0
<SALES> 82,586 183,044
<TOTAL-REVENUES> 85,976 188,386
<CGS> 32,753 73,509
<TOTAL-COSTS> 59,591 121,708
<OTHER-EXPENSES> 7,558 15,066
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,918 17,278
<INCOME-PRETAX> 9,908 34,333
<INCOME-TAX> 3,911 13,741
<INCOME-CONTINUING> 5,988 20,597
<DISCONTINUED> 0 0
<EXTRAORDINARY> 3,024 3,024
<CHANGES> 0 0
<NET-INCOME> 2,964 17,573
<EPS-PRIMARY> .15 .88
<EPS-DILUTED> .15 .85
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,685
<SECURITIES> 0
<RECEIVABLES> 51,178
<ALLOWANCES> 0
<INVENTORY> 2,139
<CURRENT-ASSETS> 66,255
<PP&E> 1,002,800
<DEPRECIATION> (243,225)
<TOTAL-ASSETS> 843,977
<CURRENT-LIABILITIES> 65,601
<BONDS> 264,476
115,000
0
<COMMON> 202
<OTHER-SE> 365,840
<TOTAL-LIABILITY-AND-EQUITY> 843,977
<SALES> 100,458
<TOTAL-REVENUES> 102,410
<CGS> 40,756
<TOTAL-COSTS> 62,117
<OTHER-EXPENSES> 7,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,360
<INCOME-PRETAX> 24,425
<INCOME-TAX> 9,830
<INCOME-CONTINUING> 14,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,609
<EPS-PRIMARY> .73
<EPS-DILUTED> .70
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,636
<SECURITIES> 0
<RECEIVABLES> 43,204
<ALLOWANCES> 0
<INVENTORY> 2,731
<CURRENT-ASSETS> 63,638
<PP&E> 954,179
<DEPRECIATION> (218,678)
<TOTAL-ASSETS> 817,643
<CURRENT-LIABILITIES> 41,300
<BONDS> 287,038
115,000
0
<COMMON> 199
<OTHER-SE> 345,240
<TOTAL-LIABILITY-AND-EQUITY> 817,643
<SALES> 321,435
<TOTAL-REVENUES> 329,057
<CGS> 133,049
<TOTAL-COSTS> 208,713
<OTHER-EXPENSES> 26,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,174
<INCOME-PRETAX> 57,972
<INCOME-TAX> 23,965
<INCOME-CONTINUING> 34,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,278
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.84
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 3,595 0
<SECURITIES> 0 0
<RECEIVABLES> 46,386 0
<ALLOWANCES> 0 0
<INVENTORY> 3,690 0
<CURRENT-ASSETS> 56,271 0
<PP&E> 946,833 0
<DEPRECIATION> (206,390) 0
<TOTAL-ASSETS> 813,019 0
<CURRENT-LIABILITIES> 54,215 0
<BONDS> 405,480 0
0 0
11 0
<COMMON> 189 0
<OTHER-SE> 326,942 0
<TOTAL-LIABILITY-AND-EQUITY> 813,019 0
<SALES> 89,585 215,465
<TOTAL-REVENUES> 90,285 218,891
<CGS> 38,763 92,247
<TOTAL-COSTS> 61,433 145,742
<OTHER-EXPENSES> 7,102 17,055
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,642 25,825
<INCOME-PRETAX> 12,108 30,269
<INCOME-TAX> 5,005 12,512
<INCOME-CONTINUING> 7,106 17,801
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,106 17,801
<EPS-PRIMARY> $.37 $1.07
<EPS-DILUTED> $.35 $1.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 10,681 0
<SECURITIES> 0 0
<RECEIVABLES> 64,902 0
<ALLOWANCES> 0 0
<INVENTORY> 527 0
<CURRENT-ASSETS> 79,420 0
<PP&E> 914,187 0
<DEPRECIATION> (177,958) 0
<TOTAL-ASSETS> 832,485 0
<CURRENT-LIABILITIES> 58,177 0
<BONDS> 444,932 0
0 0
15 0
<COMMON> 182 0
<OTHER-SE> 312,051 0
<TOTAL-LIABILITY-AND-EQUITY> 832,485 0
<SALES> 92,128 125,880
<TOTAL-REVENUES> 94,740 128,606
<CGS> 39,068 53,484
<TOTAL-COSTS> 61,964 84,309
<OTHER-EXPENSES> 6,760 9,953
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,445 16,183
<INCOME-PRETAX> 13,571 18,161
<INCOME-TAX> 5,610 7,507
<INCOME-CONTINUING> 7,988 10,695
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,988 10,695
<EPS-PRIMARY> $.44 $.69
<EPS-DILUTED> $.41 $.64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,538
<SECURITIES> 0
<RECEIVABLES> 21,001
<ALLOWANCES> 0
<INVENTORY> 3,063
<CURRENT-ASSETS> 34,582
<PP&E> 437,720
<DEPRECIATION> (209,165)
<TOTAL-ASSETS> 273,628
<CURRENT-LIABILITIES> 19,621
<BONDS> 118,561
0
15
<COMMON> 118
<OTHER-SE> 126,605
<TOTAL-LIABILITY-AND-EQUITY> 273,628
<SALES> 33,752
<TOTAL-REVENUES> 33,866
<CGS> 14,416
<TOTAL-COSTS> 22,345
<OTHER-EXPENSES> 3,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,738
<INCOME-PRETAX> 4,590
<INCOME-TAX> 1,897
<INCOME-CONTINUING> 2,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,707
<EPS-PRIMARY> $.21
<EPS-DILUTED> $.21
</TABLE>
