<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-00753
PROSPECTUS
7,920,297 SHARES
SANTA FE ENERGY RESOURCES, INC.
COMMON STOCK
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This Prospectus relates to the offer and sale of 7,920,297 shares (the
"Shares") of common stock, par value $0.01 per share (the "Common Stock"), of
Santa Fe Energy Resources, Inc., a Delaware corporation (the "Company"), by
Minorco (U.S.A.) Inc. (the "Selling Stockholder"). The Company will not receive
any part of the proceeds from the sale of the Shares. See "Selling Stockholder."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "SFR." The closing sales price of the Common Stock as reported
by the NYSE on March 4, 1996 was $9.00 per share.
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
<TABLE>
=====================================================================================================
UNDERWRITING PROCEEDS TO
DISCOUNT AND SELLING
PRICE TO PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $8.750 $0.459 $8.291
- -----------------------------------------------------------------------------------------------------
Total(3).......................................... $69,302,598 $3,635,416 $65,667,182
=====================================================================================================
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Expenses payable by the Company are estimated at $152,000.
(3) The Selling Stockholder has granted the Underwriters an option for 30 days
to purchase up to an additional 792,030 shares at the initial price to
public per share, less the underwriting discount and commissions, solely to
cover over-allotments. If such option is exercised in full, the total
initial price to public, underwriting discount and commissions and proceeds
to Selling Stockholder will be $76,232,861, $3,998,958 and $72,233,903,
respectively. See "Underwriting."
-----------------------
The Shares are offered, subject to prior sale, when, as and if delivered to
and accepted by the Underwriters, subject to approval of certain matters by
counsel for the Underwriters and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that the Shares will be ready for delivery
in New York, New York on or about March 8, 1996.
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
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THE DATE OF THIS PROSPECTUS IS MARCH 4, 1996.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621;
and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Company's
Common Stock, its Convertible Preferred Stock, Series 7% and its $.732 Series A
Convertible Preferred Stock are listed for trading on the NYSE. The Company's
registration statements, reports, proxy statements and other information may
also be inspected at the offices of the NYSE, 20 Broad Street, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Securities
and Exchange Commission (the "Commission") pursuant to Section 13 of the
Exchange Act are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1995; and (ii) the
description of the Common Stock contained in the Company's Registration
Statement on Form 8-A (File No. 1-7667) filed on February 21, 1990. All
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the offered Shares shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Any person receiving a copy of this Prospectus may obtain without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (unless such
exhibits are specifically incorporated by reference into such documents).
Requests should be addressed to the Company at its principal executive offices
at Santa Fe Energy Resources, Inc., 1616 South Voss Road, Suite 1000, Houston,
Texas 77057 (telephone (713) 507-5000); Attention: Mark A. Older, Associate
General Counsel and Secretary.
2
<PAGE> 3
PROSPECTUS SUMMARY
The following information is a summary of the more detailed information and
financial statements incorporated by reference in this Prospectus and is
qualified in its entirety by reference thereto. Unless otherwise indicated or
required by the context, references to "Santa Fe" and the "Company" include its
consolidated subsidiaries. As used herein, gas is converted into a barrel of oil
equivalent ("BOE") at the ratio of six thousand cubic feet ("Mcf") of natural
gas to one barrel of oil ("Bbl").
THE COMPANY
GENERAL
Santa Fe Energy Resources, Inc. is an independent oil and gas company
engaged in the exploration, development and production of oil and natural gas in
the continental United States and in certain foreign areas. At December 31,
1995, the Company had estimated worldwide proved reserves of oil and natural gas
totaling 320.1 million barrels of oil equivalent ("MMBOE," consisting of
approximately 279.2 million barrels of oil ("MMBbls") and approximately 245.1
billion cubic feet of natural gas ("Bcf")), of which approximately 92% were
domestic reserves and approximately 8% were foreign reserves. During 1995, the
Company's worldwide production aggregated approximately 33.3 MMBOE, of which
approximately 72% was crude oil and approximately 28% was natural gas. The
Company's three domestic core areas are the San Joaquin Valley of California
(the "Western Division"), the Permian Basin in Texas and New Mexico (the
"Central Division") and the offshore Gulf of Mexico (the "Gulf of Mexico
Division"), and its two international core areas are in Argentina and Indonesia.
The address and telephone number of the Company's principal executive offices
are 1616 South Voss Road, Suite 1000, Houston, Texas 77057, (713) 507-5000.
Most of the Company's domestic crude oil production is located in
California and Texas, while its domestic natural gas production comes primarily
from the Gulf of Mexico, New Mexico and Texas. A substantial portion of the
Company's domestic oil production is in long-lived fields with well-established
production histories and where enhanced oil recovery ("EOR") methods are
employed. As of December 31, 1995, approximately 65% of the Company's domestic
proved crude oil and liquids reserves and 53% of its 1995 average daily domestic
production of crude oil and liquids were attributable to the Midway-Sunset field
in the San Joaquin Valley of California. Nearly all of the reserves in this
field are heavy oil (i.e., low gravity, high viscosity crude oil).
The Company's foreign production is located in the El Tordillo and Sierra
Chata fields in Argentina and in the Salawati Basin and Salawati Island area of
Indonesia. Production from the Argentine operations averaged 2,600 Bbls per day
in 1995 and 11.9 million cubic feet ("MMcf") per day of natural gas (which gas
production did not commence until the latter part of the second quarter of
1995). Production from the Indonesian operations averaged 5,200 Bbls of oil per
day in 1995. In addition, the Company has recently announced discoveries at
Mudi, Geragai and Betara in Indonesia and a discovery at Tchatamba in waters
offshore Gabon, all of which are in various stages of delineation.
In 1993, the Company embarked upon a comprehensive restructuring program
that was completed in 1994. The restructuring resulted in an improved capital
structure, greater liquidity and financial flexibility (as a result of a
significant reduction in indebtedness and the sale of the Company's non-core
assets), as well as a reduction in the Company's cost structure (which was
achieved through the sale of its higher cost, non-core properties, the reduction
in the salaried work force by approximately 20%, an improvement in the
efficiency of its information systems and reductions in other general and
administrative costs). In 1995, the Company increased its capital spending by
approximately 58% to an annual level of approximately $205 million to exploit
more fully its inventory of domestic projects and to continue the expansion of
its international operations. Oil production for 1995 averaged 66.3 thousand
barrels of oil ("MBbls") per day, up from 65.7 MBbls per day in 1994, and
natural gas production in 1995 averaged 150.0 MMcf per day compared with 136.6
MMcf per day the previous year. During the fourth quarter of 1995, average daily
production rates grew to 68.4 MBbls of oil and 160.2 MMcf of natural gas as
compared to 64.8 MBbls of oil and 125.1 MMcf of natural gas in the fourth
quarter of 1994. At the end of 1995, the Company's efforts had added more than
54 MMBOE of proved reserves, or approximately 164% of its 1995 production, at an
average replacement cost of approximately $4.18 per BOE.
3
<PAGE> 4
OPERATING STRATEGY
The Company's operating strategy in 1996 is to continue increasing its cash flow
and earnings through the sustained growth of its oil and gas reserves and
production. This operating strategy is designed to permit the Company to take
advantage of the balance sheet strength and reduced cost structure per BOE of
production that were achieved in its 1994 restructuring as it more fully
exploits its inventory of domestic and international drilling projects. The key
components of this strategy are discussed below.
o Capital Spending. A key component of the Company's strategy is to
continue in 1996 the increased level of capital spending that it
initiated last year. In 1995, the Company spent $168.7 million and $35.9
million on development and exploration, respectively, and in 1996 it
intends to spend $162.2 million on development and $38.3 million on
exploration. The Company believes that the increased 1995 capital
spending was a principal factor contributing to the Company's sustained
production growth throughout last year and that the 1996 capital spending
levels can lead to further growth.
o Domestic Project Inventory. A second component of the Company's strategy
is its extensive inventory of identified drilling projects in its
domestic core areas to be exploited in 1996. In the Western Division, the
Company successfully drilled and completed 224 development wells during
1995 (for a 100% success rate) and added estimated proved reserves of
23.8 MMBbls as of December 31, 1995. The Company intends to drill 197
development wells in this Division during 1996. In the Gulf of Mexico
Division, the Company successfully completed all 8 development wells
drilled during 1995 and 9 of the 12 exploration wells drilled during such
period, resulting in 9.6 MMBOE of estimated proved reserve additions at
December 31, 1995. The success of last year's drilling program has added
to the Company's inventory in this Division, and in 1996 it plans to
drill 8 development and 13 exploration wells in this Division. In the
Central Division, the Company successfully completed 52 of the 56
development wells drilled during 1995 and 13 of the 15 exploratory wells
drilled last year. In addition, during 1995 the Company took advantage of
selected property acquisition opportunities available in this Division,
resulting in total estimated proved reserve additions from drilling and
acquisition activities of 15.5 MMBOE at December 31, 1995. In 1996, the
Company plans to drill 70 development and 20 exploratory wells in the
Central Division and to consider additional property acquisitions.
o International Project Inventory. In addition to its domestic inventory,
the Company has built a significant inventory of international projects,
predominantly due to its exploration activities conducted since 1993. In
1995, the Company spent $25.4 million on development projects and $8.9
million on exploration projects. The major portion of the development
capital related to the Company's 1993 natural gas discovery in the Sierra
Chata field, where facilities were installed and production commenced in
1995. The balance of the 1995 international development expenditures were
principally incurred in the El Tordillo field in Argentina and in the
Mudi field in Indonesia (discovered by the Company in 1994). The 1995
international exploration expenditures resulted in the successful
completion of 5 of the 8 wells drilled with discoveries announced at
Geragai and Betara in Indonesia and at Tchatamba offshore Gabon. In 1996,
the Company plans to spend $22.8 million for international development
expenditures and $12.7 million for international exploration
expenditures. The planned development expenditures include funds for 28
development wells, including 23 wells in Argentina, 4 wells in Indonesia
and one well in Gabon. The planned exploration expenditures include funds
for 11 exploratory wells, including 2 wells in Argentina, 6 wells in
Indonesia, 2 wells in Ecuador and one well in Gabon.
The discussion of operating strategy set forth above includes forward-looking
statements that are based upon numerous assumptions with respect to the volume
of the Company's production, the oil and gas prices to be received for its
production, the future results of its drilling activities and other factors
affecting the Company's business that are beyond the Company's control. Many of
such factors are discussed herein under the caption "Risk Factors." Any changes
in such factors could produce significantly different results. As used herein,
(i) capital expenditures include expenditures for exploration, development and
property acquisitions, (ii) expenditures related to the acquisition of proved
properties are treated as development expenditures and (iii) in all cases the
number of wells refers to gross wells.
4
<PAGE> 5
THE OFFERING
The Selling Stockholder is Minorco (U.S.A.) Inc., an indirect wholly owned
subsidiary of Minorco, a Luxembourg societe anonyme ("Minorco"). The Shares were
originally acquired by the Selling Stockholder in 1992 in connection with the
acquisition by the Company of Adobe Resources Corporation, of which the Selling
Stockholder was a stockholder at the time of such acquisition.
<TABLE>
<S> <C>
Shares offered hereby....................................... 8,712,327(a)
Shares outstanding before and after the offering............ 90,329,311(b)
Use of proceeds............................................. The Company will not receive any
of the proceeds from the sale of
the Shares.
NYSE Trading Symbol......................................... SFR
</TABLE>
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(a) Assumes that the Underwriters' over-allotment option to purchase 792,030
shares of Common Stock from the Selling Stockholder is exercised in full.
See "Underwriting."
(b) Based on the number of shares outstanding as of February 1, 1996, which
excludes a total of 14,456,500 shares of Common Stock subject to issuance
upon conversion of the outstanding shares of the Company's Series A
Convertible Preferred Stock and its Convertible Preferred Stock, Series 7%,
and a total of 4,431,548 shares of Common Stock subject to issuance under
stock options outstanding as of such date.
5
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
The following table presents summary historical financial information for
the periods presented and should be read in conjunction with the historical
consolidated financial statements, including the notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which is incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
----------- -------- -------- -------- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $ 442.0 $ 391.4 $ 436.9 $ 427.5 $379.8
Production and operating expenses...... 154.9 150.0 163.8 153.4 134.6
Exploration expenses................... 23.4 20.4 31.0 25.5 18.7
General and administrative............. 26.9 27.3 32.3 30.9 27.8
Depreciation, depletion and
amortization......................... 133.2 121.3 152.7 146.3 106.6
Impairment of oil and gas properties... 30.2(a) -- 99.3(a) -- --
Restructuring charges.................. -- 7.0(b) 38.6(c) -- --
Income (loss) from operations.......... 53.9 48.2 (113.0) 57.5 64.4
Interest expense(d).................... 32.5 27.5 45.8 55.6 47.3
Net income (loss)...................... 26.6 17.1 (77.1) (1.4) 18.5
Earnings (loss) to common stock........ 11.8 5.4 (84.1) (5.7) 18.5
Earnings (loss) per share of common
stock................................ $ 0.13 $ 0.06 $ (0.94) $ (0.07) $ 0.29
Weighted average number of shares of
common stock outstanding............. 90.2 89.9 89.7 79.0 63.8
CASH FLOW DATA:
Net cash provided by operating
activities........................... $ 174.5 $ 124.5 $ 160.2 $ 141.5 $128.4
Capital expenditures, including
acquisitions......................... 223.2 138.8 159.7 102.9 136.6
Preferred dividends.................... 14.8 11.7 7.0 4.3 --
BALANCE SHEET DATA (AT END OF PERIOD):
Properties and equipment, net.......... $ 889.5 $ 843.0 $ 832.7 $1,101.8 $797.4
Total assets........................... 1,064.8 1,071.4 1,076.9 1,337.2 911.9
Long-term debt......................... 344.4 350.4 405.4 492.8 440.8
Convertible Preferred Stock, Series
7%................................... 80.0 80.0 80.0 80.0 --
Shareholders' equity................... 437.7 423.3 323.6 416.6 225.1
</TABLE>
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(a) Reflects a non-cash charge of $30.2 million recorded in 1995, for the
impairment of oil and gas properties associated with the adoption of FAS No.
121, a new accounting standard, and $99.3 million recorded in 1993 for the
impairment of oil and gas properties. For further description of the
impairments recorded in 1995 and 1993, see Note 1 of the Notes to the
historical consolidated financial statements incorporated herein by
reference.
(b) Reflects non-recurring charges relating to the Company's restructuring
program of $7.0 million recorded in the first quarter of 1994 comprised of
severance, benefits and relocation expenses.
(c) Reflects non-recurring charges relating to implementation of the Company's
restructuring program of $38.6 million recorded in 1993, comprised of (i)
losses on property dispositions of $27.8 million; (ii) long-term debt
prepayment penalties of $8.6 million; and (iii) accruals for certain
personnel benefits and related costs of $2.2 million.
(d) Includes capitalized interest of $5.8 million, $3.6 million, $4.3 million,
$4.9 million and $7.7 million for the years 1995, 1994, 1993, 1992 and 1991,
respectively.
6
<PAGE> 7
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
DAILY PRODUCTION:
Oil (MBbls per day)(a)..................... 66.3 65.7 66.7(i) 62.5 55.5
Natural gas (MMcf per day)(a).............. 150.0 136.6 165.4(i) 126.3 95.2
Oil equivalent (MBOE per day)(a)........... 91.3 88.5 94.3(i) 83.6 71.4
AVERAGE SALES PRICE:
Oil (per Bbl)(b)........................... $14.15 $12.41 $12.93 $14.96 $16.16
Natural gas (per Mcf)(b)................... $ 1.43 $ 1.73 $ 1.89 $ 1.70 $ 1.49
COSTS PER BOE:
Production costs(c)........................ $ 5.15 $ 5.30 $ 5.39 $ 5.66 $ 6.06
Exploration costs, including dry hole
costs................................... $ 0.70 $ 0.63 $ 0.90 $ 0.84 $ 0.72
General and administrative costs........... $ 0.81 $ 0.85 $ 0.94 $ 1.01 $ 1.07
Depletion, depreciation and
amortization(d)......................... $ 3.96 $ 3.76 $ 4.44 $ 4.79 $ 4.09
Interest, net(e)........................... $ 0.93 $ 1.08 $ 1.30 $ 1.58 $ 1.43
FIVE-YEAR AVERAGE REPLACEMENT COSTS PER
BOE(F)..................................... $ 4.89 $ 4.97 $ 4.80 $ 4.05 $ 3.66
ANNUAL RESERVE REPLACEMENT RATIO(G).......... 164% 126% 121% 262% 127%
ESTIMATED RESERVE LIFE (IN YEARS)(H)......... 9.6 9.2 8.5(i) 9.9 9.9
</TABLE>
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(a) Includes production attributable to certain net profits interests sold by
the Company to unaffiliated persons, which interests burden the Company's
working or royalty interests held in certain properties.
(b) Includes revenues and expenses realized in connection with the Company's
hedging program. As of December 31, 1995, the Company had hedged for 1996
an average of approximately 15,000 Bbls of oil per day from January through
April at a New York Mercantile Exchange ("NYMEX") West Texas Intermediate
("WTI") price of $18.52 per Bbl, and, provided that if the WTI price is
greater than $16.80 per barrel, up to an additional 15,000 barrels of oil
per day is hedged for the period January through March at a NYMEX WTI price
of $18.65 per barrel. For its 1996 natural gas production, the Company has
hedged for the entire year an average of 55 MMcf per day of its Gulf Coast
natural gas production at an average NYMEX price of $1.82 per Mcf and 30
MMcf per day of its Permian Basin production at an average index price of
$1.53 per Mcf. Due to its location, the Company's Permian Basin natural gas
traditionally sells at a discount to its Gulf Coast gas. Based upon
prevailing NYMEX futures prices and other index prices for oil and natural
gas as of February 5, 1996, the Company estimates it would realize hedging
expenses of approximately $4.5 million for the quarter ending March 31,
1996. Actual hedging expenses realized could vary significantly from such
estimates if prices vary significantly from those used in calculating the
estimates.
(c) Includes related production, severance and ad valorem taxes.
(d) Excludes effect of unproved property writedown of $0.03 per BOE in 1995.
(e) Excludes effects of the (i) benefit of federal income tax audit refund of
$0.25 per BOE in 1995; (ii) benefit of an adjustment to certain financing
costs recorded in a prior period of $0.05 per BOE in 1995; (iii) benefit of
adjustments to provisions for potential state income tax obligations of
$0.15 per BOE in 1995 and $0.36 per BOE in 1994; (iv) benefit of adjustment
to provisions made in prior periods with respect to interest on certain
federal income tax audit adjustments of $0.07 per BOE in 1994; and (v)
benefit of federal income tax audit refund and revised tax sharing
agreement with the Company's former parent of $0.36 per BOE in 1993.
(f) Reflects the average replacement cost per BOE during the five years ended
December 31 as of the year reflected in the column.
(g) The annual reserve replacement ratio is a fraction, of which the numerator
is the estimated number of reserves added during a year through additions
of estimated proved reserves from exploratory and development drilling,
acquisitions of proved properties, improved recovery techniques and
revisions of previous estimates, and of which the denominator is the oil
and natural gas produced during that year.
(h) Based upon a fraction, of which the numerator is estimated proved reserves
at year end and of which the denominator is annual production during that
year.
(i) Includes production attributable to properties sold in 1993 and other
properties sold in 1994. Production attributable to such properties during
the year ended December 31, 1993 totaled approximately 4.1 MBbls of oil and
21.7 MMcf of natural gas per day (7.7 MBOE per day).
7
<PAGE> 8
SUMMARY OIL AND GAS RESERVE INFORMATION
The following table sets forth summary information with respect to the
Company's proved oil and gas reserves estimated by Ryder Scott Company,
independent petroleum engineers, as of the dates indicated.
<TABLE>
<CAPTION>
NET PROVED RESERVES AS OF DECEMBER 31,(A)
-----------------------------------------------------
1995 1994 1993(B) 1992 1991
-------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Crude oil, condensate and natural gas liquids
(MMBbls)................................... 279.2 258.3 248.2 255.1 229.2
Natural gas (Bcf)............................ 245.1 242.4 263.0 277.5 170.8
Proved reserves (MMBOE)...................... 320.1 298.7 292.0 301.5 257.7
Total proved developed reserves (MMBOE)...... 253.6 224.5 225.5 248.4 210.3
Present value pre-tax future net cash flows
(in millions)(c)........................... $1,257.2 $970.8 $567.8 $915.2 $602.6
</TABLE>
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(a) Includes estimated proved reserves attributable to certain net profits
interests sold by the Company to unaffiliated persons, which interests
burden the Company's working or royalty interests held in certain
properties.
(b) The estimates set forth in this table for 1993 give effect to the sale by
the Company of approximately 8.0 MMBOE of proved reserves, which sale closed
in April 1994.
(c) Represents the present value (discounted at 10%) of the future net cash
flows estimated to result from production of the Company's estimated proved
reserves using estimated sales prices and estimates of production costs, ad
valorem and production taxes and future development costs necessary to
produce such reserves. The sales prices used in the determination of proved
reserves and of estimated future net cash flows are based on the prices in
effect at year end, which at December 31, 1995 averaged $14.87 for oil and
$1.79 for natural gas. The average sales prices realized by the Company for
its production during 1995 were $14.15 ($14.05 unhedged) per barrel for oil
and $1.43 ($1.44 unhedged) per Mcf for natural gas.
8
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider all of the information
contained in and incorporated by reference in this Prospectus, and in particular
the investment considerations described in the following paragraphs.
VOLATILITY OF OIL AND NATURAL GAS PRICES
The Company's profitability is dependent upon prevailing prices for oil and
natural gas. Prices for oil and natural gas have been subject to wide
fluctuations, which continue to reflect imbalances in supply and demand as well
as other market conditions and the world political situation as it affects OPEC,
the Middle East (including the current embargo of Iraqi crude oil from worldwide
markets), the former Soviet Union and other producing countries. Moreover, the
price of oil and natural gas may be affected by the price and availability of
alternative sources of energy, weather conditions and the general state of the
economy. Even relatively modest changes in oil and natural gas prices may
significantly change the Company's revenues, results of operations, cash flows
and proved reserves. Since the Company is primarily an oil producer, a change in
the price paid for its oil production more significantly affects its results of
operations than a change in natural gas prices.
EFFECTS OF HEAVY OIL PRODUCTION
A substantial portion of the Company's oil production consists of heavy oil
produced from the Midway-Sunset Field. The market for such heavy crude oil
production differs substantially from the remainder of the domestic crude oil
market, due principally to the transportation and refining requirements
associated with heavy crude. As a result, the profit margin realized from the
sale of heavy crude oil is generally lower than that realized from the sale of
light crude oil, because the costs of producing heavy oil are generally higher,
and the sales price realized for heavy crude oil is generally lower, than the
comparable costs and prices paid for light crude oils.
POSSIBLE IMPAIRMENT OF OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for its oil
and natural gas exploration and production activities. Under this method, costs
(both tangible and intangible) of productive wells and development dry holes, as
well as the costs of prospective acreage, are capitalized. The costs of drilling
and equipping exploratory wells which do not result in proved reserves are
expensed upon the determination that the well does not justify commercial
development. Other exploratory costs, including geological and geophysical costs
and delay rentals, are charged to expense as incurred.
The Company periodically reviews individual proved properties to determine
if the carrying value of the field as reflected in its accounting records
exceeds the estimated undiscounted future net revenues from oil and natural gas
reserves attributable to the field. Based on this review and the continuing
evaluation of development plans, economics and other factors, if appropriate,
the Company records impairments (additional depletion and depreciation) pursuant
to Statement of Financial Accounting Standards No. 121 to the extent that the
net book values of its properties exceed the expected discounted future net
revenues. Such impairments constitute a charge to earnings which does not impact
the Company's cash flow from operating activities. However, such writedowns
impact the amount of the Company's shareholders' equity. The risk that the
Company will be required to write down the carrying value of its oil and natural
gas properties increases when oil and natural gas prices are depressed. The
Company recorded impairments of $30.2 million in 1995 associated with the
adoption of FAS No. 121. No assurance can be given that the Company will not
record additional impairments in the future.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's activities are subject to various federal, state and local
laws and regulations covering the discharge of material into the environment or
otherwise relating to protection of the environment. In particular, the
Company's oil and natural gas exploration, development, production and enhanced
oil recovery
9
<PAGE> 10
operations, its activities in connection with storage and transportation of
liquid hydrocarbons and its use of facilities for treating, processing,
recovering or otherwise handling hydrocarbons and waste therefrom are subject to
stringent environmental regulation by governmental authorities. Such regulations
have increased the costs of planning, designing, drilling, installing, operating
and abandoning the Company's oil and natural gas wells and other facilities.
The Company has expended significant resources, both financial and
managerial, to comply with environmental regulations and permitting requirements
and anticipates that it will continue to do so in the future. Although the
Company believes that its operations and facilities are in general compliance
with applicable environmental regulations, risks of substantial costs and
liabilities are inherent in oil and gas operations, and there can be no
assurance that significant costs and liabilities will not be incurred in the
future. Moreover, it is possible that other developments, such as increasingly
strict environmental laws, regulations and enforcement policies thereunder, and
claims for damages to property, employees, other persons and the environment
resulting from the Company's operations, could result in substantial costs and
liabilities in the future.
UNCERTAINTIES IN ESTIMATES OF PROVED RESERVES
Proved reserves of crude oil and natural gas are estimated quantities that
geological and engineering data demonstrate with reasonable certainty to be
economically producible under existing conditions. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development expenditures.
All reserve estimates are based on various assumptions and are, therefore,
inherently speculative, and various classifications of reserves only constitute
attempts to define the degree of speculation involved. The accuracy of any
reserve estimate is a function of the quality of available data and engineering
and geological interpretation and judgment and the assumptions used regarding
quantities of recoverable oil and natural gas reserves and prices for crude oil,
natural gas liquids and natural gas. Actual prices, production, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves will vary from those assumed in the estimates, and such variances
may be significant. Any significant variance from the assumptions could result
in the actual quantity of the Company's reserves and future net cash flow
therefrom being materially different from the estimates set forth in this
Prospectus. In addition, results of drilling, testing and production and changes
in crude oil, natural gas liquids and natural gas prices after the date of the
estimate may require substantial upward or downward revisions. Although a
substantial portion of the Company's proved oil reserves is in long-lived fields
with well-established production histories where enhanced oil recovery and other
development projects are employed to produce such reserves, the external factors
discussed above will directly affect the Company's determination to proceed with
any of such projects and, therefore, the quantity of reserves in these fields
classified as proved. The reserve estimates incorporated by reference in this
Prospectus were prepared as of a date prior to the date of this Prospectus and
could be materially different from the quantities of crude oil, natural gas
liquids and natural gas that ultimately will be recovered from the Company's
properties.
In addition, actual future net cash flows from production of the Company's
reserves will be affected by factors such as actual production, supply and
demand for oil and natural gas, curtailments or increases in consumption by
natural gas purchasers, changes in governmental regulations or taxation and the
impact of inflation on costs. The timing of actual future net revenues from
proved reserves, and thus their actual present value, can be affected by the
timing of the incurrence of expenditures in connection with development of oil
and natural gas properties. The 10% discount factor, which is required by the
Commission to be used to calculate present value for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the oil and natural gas
industry. Discounted present value, no matter what discount rate is used, is
materially affected by assumptions as to the amount and timing of future
production, which may and often do prove to be inaccurate.
INDUSTRY CONSIDERATIONS; COMPETITION; OPERATING RISKS
The Company's business is the exploration for, and the development and
production of, oil and natural gas. Exploration for oil and natural gas involves
many risks, which even a combination of experience, knowledge and careful
evaluation may not be able to overcome. In addition, there is strong competition
10
<PAGE> 11
relating to all aspects of the oil and natural gas industry, and in particular
in the exploration and development of new oil and natural gas reserves. The
Company must compete with a substantial number of other oil and natural gas
companies, many of which have significantly greater financial and other
resources than the Company.
All of the Company's oil and natural gas activities are subject to the
risks normally incident to exploration for and production of oil and gas,
including blowouts, cratering, watering out, spillage and fires, the occurrence
of any of which could result in substantial losses to the Company. Offshore
operations are subject to usual marine perils, including hurricanes and other
adverse weather conditions, and governmental regulations as well as interruption
or termination by governmental authorities based on environmental and other
considerations. In accordance with customary industry practices, the Company
carries insurance against some, but not all, of the risks associated with the
Company's business. Accordingly, the Company may be subject to liability or
losses due to events that are not insured.
Other risks inherent in the oil and gas industry are the risks that a well
will be a dry hole or will not be sufficiently productive to provide an economic
return on the capital expended to drill the well or to repay the entire cost of
drilling, testing, completing and equipping the well. Crude oil and natural gas
are depleting assets, and the Company's producing properties are characterized
by a high initial production rate, followed by a steep decline in production. As
a result, the Company must locate and develop or acquire new oil and natural gas
reserves to replace those being depleted by production. Without successful
exploration or acquisition activities, the Company's reserves and revenues will
decline over time. There can be no assurance that the Company's future
exploration and development wells will be financially successful. In addition,
the continuing development of reserves will require significant capital
expenditures. If the Company's cash flow from operations is not sufficient for
that purpose, there can be no assurance that additional debt or equity financing
will be available to the Company.
INTERNATIONAL OPERATIONS
Foreign properties, operations or investment may be adversely affected by
local political and economic developments, exchange controls, currency
fluctuations, royalty and tax increases, retroactive tax claims, expropriation,
import and export regulations and other foreign laws or policies as well as by
laws and policies of the United States affecting foreign trade, taxation and
investment. In addition, in the event of a dispute arising from 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 courts in the United States. The Company may also be hindered or
prevented from enforcing its rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has not paid dividends on its Common Stock since the third
quarter of 1993 and does not expect to pay dividends to holders of Common Stock
in the foreseeable future. In addition, certain of the Company's credit
agreements restrict the payment of dividends to the holders of the Company's
capital stock, including the Common Stock. Under the most restrictive covenant,
dividends on the Common Stock are limited to generally (i) the sum of (a) $50
million plus (b) 50% (or minus 50% in the case of a deficit) of the Company's
consolidated net earnings for the period commencing on April 1, 1994 and ending
as of the most recent quarter preceding the date of determination plus (c) the
net cash proceeds from certain sales of capital stock less (ii) the sum of all
restricted investments and restricted payments previously made. For a
description of the aggregate amount that the Company could pay as a dividend on
the Common Stock as of a recent date, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" most recently incorporated
herein by reference. In addition, the terms of the Company's outstanding
Preferred Stock restrict any dividend payment by the Company to holders of
Common Stock unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid, or declared and a sum sufficient for the payment
thereof set apart. Annual dividends payable on the shares of Preferred Stock
outstanding as of December 31, 1995 total approximately $14.8 million per year,
none of which are currently in arrears. The determination of the amount of
future cash dividends, if any, to be declared and paid is in the sole discretion
of the Company's
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<PAGE> 12
Board of Directors and will depend on dividend requirements with respect to the
Company's Preferred Stock, the Company's financial condition, earnings and funds
from operations, the level of its capital and exploration expenditures, dividend
restrictions in its financing agreements, its future business prospects and
other matters as the Company's Board of Directors deems relevant.
USE OF PROCEEDS
The Selling Stockholder will receive the net proceeds from the sale of the
Shares, and none of such proceeds will be available for use by the Company or
otherwise for the Company's benefit.
SELLING STOCKHOLDER
The Selling Stockholder, a Colorado corporation, is an indirect wholly
owned subsidiary of Minorco. The Selling Stockholder acquired 8,712,327 shares
of Common Stock in 1992 in connection with the acquisition by the Company of
Adobe Resources Corporation. This Prospectus relates to the registration and
offering of 8,712,327 shares of Common Stock (including shares subject to the
Underwriters' over-allotment option), which represented approximately 9.6% of
the shares of Common Stock outstanding as of February 1, 1996. The shares
offered hereby constitute all of the shares of Common Stock owned by the Selling
Stockholder and Minorco.
Pursuant to the terms of a Stock Ownership and Registration Rights
Agreement dated December 10, 1991, among the Company, the Selling Stockholder
and Minorco, the Selling Stockholder is currently entitled to have one designee
appointed to the Board of Directors of the Company. Reuben F. Richards, the
Chairman, President and Chief Executive Officer of the Selling Stockholder,
currently serves as a designee of the Selling Stockholder on the Company's Board
of Directors for a term expiring in 1996. The right of the Selling Stockholder
to have one designee appointed to the Board of Directors will terminate
automatically upon consummation of this offering. Mr. Richards has agreed to
remain as a director of the Company after consummation of this offering.
The following table provides certain information with respect to the
Selling Stockholder and the number of shares of Common Stock currently owned,
offered hereby and to be owned by the Selling Stockholder after this offering,
assuming the Underwriters' over-allotment option is exercised in full.
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES TO BE OWNED
NAME AND ADDRESS OF OWNED PRIOR TO TO BE SOLD IN AFTER
SELLING STOCKHOLDER THE OFFERING(1) THE OFFERING(2) THE OFFERING
- -------------------------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Minorco (U.S.A.) Inc........................ 8,712,327 8,712,327 0
30 Rockefeller Plaza
Suite 4212
New York, NY 10112
</TABLE>
- ---------------
(1) The Selling Stockholder shares voting and investment powers concerning the
Shares with its parent, Minorco.
(2) Assumes the Underwriters' over-allotment option to purchase 792,030 shares
of Common Stock from the Selling Stockholder is exercised in full. See
"Underwriting."
12
<PAGE> 13
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement), among the Company, the Selling Stockholder and each of
the Underwriters named below (the "Underwriters"), for whom Lazard Freres & Co.
LLC, Morgan Stanley & Co. Incorporated and Salomon Brothers Inc are acting as
representatives (the "Representatives"), each of the Underwriters has severally
agreed to purchase, and the Selling Stockholder has agreed to sell, the
respective number of Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Lazard Freres & Co. LLC........................................... 1,840,099
Morgan Stanley & Co. Incorporated................................. 1,840,099
Salomon Brothers Inc.............................................. 1,840,099
Bear, Stearns & Co. Inc. ......................................... 120,000
CS First Boston Corporation....................................... 120,000
Alex. Brown & Sons Incorporated................................... 120,000
Chemical Securities Inc. ......................................... 120,000
Dean Witter Reynolds Inc.......................................... 120,000
Dillon, Read & Co. Inc. .......................................... 120,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 120,000
Goldman, Sachs & Co. ............................................. 120,000
Hambrecht & Quist LLC............................................. 120,000
Lehman Brothers Inc. ............................................. 120,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................ 120,000
Oppenheimer & Co., Inc. .......................................... 120,000
PaineWebber Incorporated.......................................... 120,000
Schroder Wertheim & Co. Incorporated.............................. 120,000
Smith Barney Inc. ................................................ 120,000
Petrie Parkman & Co. ............................................. 120,000
Allen & Company Incorporated...................................... 60,000
Fahnestock & Co. Inc. ............................................ 60,000
Jefferies & Company............................................... 60,000
McDonald & Company Securities, Inc. .............................. 60,000
Rauscher Pierce Refsnes, Inc. .................................... 60,000
Raymond James & Associates, Inc. ................................. 60,000
Rodman & Renshaw, Inc. ........................................... 60,000
Southcoast Capital Corp. ......................................... 60,000
---------
Total........................................................ 7,920,297
=========
</TABLE>
The Selling Stockholder has been advised by the Representatives that the
several Underwriters propose to offer the Shares offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.27 per share. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $0.10 per share to certain other dealers. After the
offering, the public offering price and such concessions may be changed.
The Selling Shareholder has granted the Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase, at the initial price
to public less the underwriting discount, as set forth on the cover page of this
Prospectus, up to an aggregate of 792,030 additional shares of Common Stock to
cover over-allotments, if any.
13
<PAGE> 14
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill") may be
deemed to be an affiliate (as defined in Schedule E ("Schedule E") of the
By-laws of the National Association of Securities Dealer, Inc.) of the Company.
Accordingly, the offering of the Shares will be conducted in compliance with the
requirements of Schedule E. In addition, in accordance with Schedule E, Merrill
will not make sales to accounts over which they exercise discretionary authority
without the prior specific written approval of the customer.
The Company and the Selling Stockholder have agreed with the Underwriters
not to publicly offer, sell or otherwise dispose of any shares of Common Stock
(or securities convertible into or exercisable or exchangeable for Common Stock
or any rights to purchase or acquire Common Stock) for a period of 90 days after
the date of this Prospectus without the prior written consent of Lazard Freres &
Co. LLC except pursuant to employee benefit plans described in (or descriptions
of which are incorporated by reference in) this Prospectus.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Lazard Freres & Co. LLC and Salomon Brothers Inc served as financial
advisors to the Company during 1995 for which they were paid customary fees by
the Company. In addition, certain Underwriters and their affiliates have from
time to time provided, and may in the future provide, investment banking and
commercial banking services to the Company in the ordinary course of business,
for which they received or will receive customary fees.
LEGAL OPINIONS
The validity of the Common Stock and certain other legal matters will be
passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. Certain
legal matters will be passed upon for (i) the Selling Stockholder by Ben L.
Keisler, General Counsel for the Selling Stockholder, and (ii) the Underwriters
by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1995, have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
Certain information incorporated in this Prospectus by reference regarding
the estimated quantities of reserves of the oil and natural gas properties owned
by the Company, the future net revenues from such reserves and the present value
thereof is based on estimates of such reserves and present values prepared by
Ryder Scott Company, independent petroleum engineers.
14
<PAGE> 15
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Documents Incorporated by Reference... 2
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 12
Selling Stockholder................... 12
Underwriting.......................... 13
Legal Opinions........................ 14
Experts............................... 14
</TABLE>
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[SANTA FE LOGO]
7,920,297 SHARES
SANTA FE ENERGY
RESOURCES, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
LAZARD FRERES & CO. LLC
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
MARCH 4, 1996
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