<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____to____
Commission File No. 0-23934
DEEPTECH INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0289338
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
600 Travis Street
Suite 7500
Houston, Texas 77002
(Address of principal executive offices, including zip code)
(713) 224-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ------
As of November 13, 1996, there were outstanding 17,508,235 shares of
common stock, par value $0.01 per share, of the Registrant.
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of September 30, 1996 (unaudited) and June 30, 1996 . . . . . . . . . 3
Unaudited Consolidated Statement of Operations for the Three Months
Ended September 30, 1996 and 1995, respectively . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Consolidated Statement of Cash Flows for the Three Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity for the Three Months
Ended September 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Legal Proceedings
Changes in Securities
Defaults Upon Senior Securities
Submission of Matters to a Vote of Security Holders
Other Information
Exhibits and Reports on Form 8-K
</TABLE>
2
<PAGE> 3
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,914 $ 10,102
Restricted cash 32,256 --
Accounts receivable 8,510 7,014
Accounts receivable from affiliates 429 155
Notes receivable from affiliates 2,134 2,134
Other current assets 26 28
------------ ----------
Total current assets 49,269 19,433
------------ ----------
Property and equipment 71,500 26,572
Less: Accumulated depreciation and amortization 743 705
------------ ----------
Property and equipment, net 70,757 25,867
------------ ----------
Equity investments 5,256 4,586
Receivables from affiliates 60,000 100,490
Deferred income taxes 1,993 2,451
Debt issue costs, net and other 6,737 3,606
------------ ----------
Total assets $ 194,012 $ 156,433
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,645 $ 7,347
Accounts payable to affiliates 8,107 6,782
Notes payable 1,000 23,327
Notes payable to affiliates 6,640 6,640
Interest payable 2,925 546
Accrued liabilities 233 1,233
------------ ----------
Total current liabilities 21,550 45,875
Long-term debt 155,664 97,534
Accumulated losses of equity investee in excess of investment 437 196
Other noncurrent liabilities 406 360
------------ ----------
Total liabilities 178,057 143,965
------------ ----------
Minority interests in consolidated subsidiaries 425 186
------------ ----------
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.01 par, 10,000,000 shares authorized -- --
Common stock, $.01 par, 100,000,000 shares authorized
as of September 30, 1996 and June 30, 1996, 17,508,235
and 17,016,510 shares issued and outstanding as of
September 30, 1996 and June 30, 1996, respectively 175 171
Additional paid-in capital 20,180 17,579
Accumulated deficit (4,825) (5,468)
------------ ----------
15,530 12,282
------------ ----------
Total liabilities and stockholders' equity $ 194,012 $ 156,433
============ ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------------
1996 1995
<S> <C> <C>
Revenue:
Oil and gas sales $ 23,100 $ 2,463
Equity in earnings 3,097 4,106
Other 5 168
------------ -------------
26,202 6,737
------------ -------------
Costs and expenses:
Oil and gas purchases 22,865 2,256
Operating expenses -- 165
Losses of equity investees 296 32
Depreciation and amortization 37 69
General and administrative expenses 485 1,596
------------ -------------
23,683 4,118
------------ -------------
Operating income 2,519 2,619
Gain on sale of asset -- 562
Interest and other income 3,080 4,445
Interest and other financing costs (4,173) (3,228)
------------ -------------
Income before minority interests and income taxes 1,426 4,398
Minority interests in consolidated subsidiaries (325) (151)
------------ -------------
Income before income taxes 1,101 4,247
Income tax expense 458 1,506
------------ -------------
Net income $ 643 $ 2,741
============ =============
Net income per share $ 0.03 $ 0.17
============ =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
------------------------------
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 643 $ 2,741
Adjustments to reconcile net income to net cash used in
operating activities:
Minority interests in consolidated subsidiaries 325 151
Depreciation and amortization 37 69
Amortization of debt issue costs 801 221
Equity in earnings (3,097) (4,106)
Losses of equity investees 296 32
Distributions from equity investments 2,471 2,037
Gain on sale of assets -- (562)
Deferred income taxes and other 755 1,822
Changes in operating working capital:
Increase in marketable securities -- (14,708)
(Increase) decrease in accounts receivable (1,441) 125
Increase in accounts receivable from affiliates (372) (3,843)
Decrease (increase) in other current assets 2 (578)
Decrease in accounts payable and accrued liabilities (5,702) (3,560)
Increase in accounts payable to affiliates 1,423 1,165
Increase in interest payable 2,379 2,460
Increase in interest payable to affiliates -- 177
------------ ------------
Net cash used in operating activities (1,480) (16,357)
------------ ------------
Cash flows from investing activities:
Repayment of advances to affiliates 1,751 14,315
Advances to affiliates (1,317) --
Additions to property and equipment (5,036) --
Other (15) --
------------ ------------
Net cash (used in) provided by investing activities (4,617) 14,315
------------ ------------
Cash flows from financing activities:
Restricted cash (32,256) --
Proceeds from notes payable 65,992 --
Repayments of notes payable (30,250) (2,927)
Debt issue costs (3,621) --
Proceeds from issuance of common stock 2,365 --
Dividends on subsidiary common stock (321) (95)
------------ ------------
Net cash provided by (used in) financing activities 1,909 (3,022)
------------ ------------
Net decrease in cash and cash equivalents (4,188) (5,064)
Cash and cash equivalents at beginning of year 10,102 6,787
------------ ------------
Cash and cash equivalents at end of period $ 5,914 $ 1,723
============ ============
Cash paid for interest, net of amounts capitalized $ 994 $ 370
Cash paid for income taxes $ 1,000 $ 1,700
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE> 6
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional
Number of Par paid - in Accumulated
shares value capital deficit Total
---------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 17,017 $ 171 $ 17,579 $ (5,468) $ 12,282
Issuance of common stock (unaudited) 491 4 2,601 -- 2,605
Net income for the three months
ended September 30, 1996 (unaudited) -- -- -- 643 643
---------- -------- -------- ---------- ---------
Balance, September 30, 1996
(unaudited) 17,508 $ 175 $ 20,180 $ (4,825) $ 15,530
========= ======== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE> 7
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - ORGANIZATION:
DeepTech International Inc. ("DeepTech") is a diversified energy company
engaged, through its operating subsidiaries, in offshore contract drilling
services and the acquisition, development, production, processing,
transportation and marketing of, and the exploration for, oil and gas located
offshore the United States in the Gulf of Mexico (the "Gulf"). DeepTech's
activities are concentrated primarily in the Flextrend (water depths of 600 to
1,500 feet) and Deepwater (water depths greater than 1,500 feet) areas of the
Gulf.
Transportation Services
Leviathan Gas Pipeline Partners, L.P. (the "Partnership") is a publicly held
Delaware limited partnership primarily engaged in the gathering and
transportation of natural gas and crude oil through its pipeline systems
located in the Gulf. The Partnership commenced operations in February 1993.
The Partnership's assets include interests in (i) eight natural gas pipeline
systems, (ii) a crude oil pipeline system, (iii) five strategically located
multi-purpose platforms, (iv) three producing oil and gas properties, (v) an
overriding royalty interest and (vi) a dehydration facility. Leviathan Gas
Pipeline Company ("Leviathan"), a wholly-owned subsidiary of Leviathan Holdings
Company ("Leviathan Holdings"), an 85%-owned subsidiary of DeepTech, is the
general partner and performs all management and operating functions of the
Partnership and its subsidiaries. Leviathan owned an effective 27.3% interest
in the Partnership as of September 30, 1996 and June 30, 1996 giving DeepTech
an effective 23.2% interest therein.
Exploration, Development and Production
Tatham Offshore, Inc. ("Tatham Offshore"), an approximately 38%-owned
subsidiary of DeepTech, is an independent energy company engaged in the
development, exploration and production of oil and gas reserves located
primarily offshore the United States in the Gulf. Flextrend Development
Company, L.L.C. ("Flextrend Development"), a subsidiary of the Partnership,
acquired Tatham Offshore's working interests, subject to certain reversionary
rights, in three oil and gas properties on June 30, 1995 and is currently
engaged in the development and production of the oil and gas reserves
underlying these properties.
Marine Services
DeepFlex Production Services, Inc. ("DeepFlex"), a wholly-owned subsidiary of
DeepTech, through its subsidiaries and equity interests, focuses on the
acquisition and deployment of semisubmersible drilling rigs for contract
drilling services. In March 1995, DeepFlex entered into a partnership agreement
with an affiliate of Coflexip Stena Offshore Inc. ("Coflexip") to form DeepFlex
Production Partners, L.P. ("DeepFlex Partners"). DeepFlex Partners,
effectively owned 50% by DeepFlex and 50% by Coflexip, operated the FPS Laffit
Pincay, a second generation semisubmersible drilling rig, through September 30,
1996.
In December 1995, DeepFlex entered into an agreement with Highwood Partners,
L.P. ("Highwood Partners") to form Deepwater Drillers, L.L.C. ("Deepwater
Drillers") to exercise an option assigned from the Company to acquire the FPS
Bill Shoemaker (formerly named the Treasure Searcher), a second generation
semisubmersible drilling rig. At inception, Deepwater Drillers was owned 50%
by a wholly-owned subsidiary of DeepFlex and 50% by Highwood Partners.
Effective June 30, 1996, FPS V, Inc. ("FPS V"), a wholly-owned subsidiary of
DeepTech, acquired Highwood Partners' 50% interest.
On September 30, 1996, Deepwater Drillers was merged with and into RIGCO North
America, L.L.C. ("RIGCO"), a newly formed wholly-owned indirect subsidiary of
DeepFlex. RIGCO also acquired the FPS Laffit Pincay from DeepFlex Partners in
exchange for payment-in-kind indebtedness ("PIK Notes") (See Note 4).
7
<PAGE> 8
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
(unaudited)
Marketing
Offshore Gas Marketing, Inc. ("Offshore Marketing"), an 80%-owned subsidiary of
DeepTech, markets oil and gas production from the Partnership, Tatham Offshore
and third-party producers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
DeepTech and those 50% or more owned subsidiaries controlled by DeepTech
(collectively referred to as the "Company"). The Company uses the equity
method to account for its investments in unconsolidated entities in which the
Company owns more than 20% of the voting interests. Losses of equity investees
in excess of DeepTech's investment are recognized to the extent indebtedness of
the equity investee is outstanding to DeepTech.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of operations for the periods covered by such
statements. These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996.
Earnings per share
Earnings per share is computed by dividing common equity in net income by the
weighted average number of common shares and common stock equivalents
outstanding during the period. The weighted average number of common shares
and common stock equivalents outstanding for the three months ended September
30, 1996 and 1995 was 20,345,747 shares and 15,759,907 shares, respectively.
Other
Statement of Financial Accounting Standard ("SFAS") No. 123 "Accounting for
Stock Based Compensation" was adopted by the Company effective July 1, 1996.
The adoption of SFAS No. 123 did not have a material adverse effect on the
Company's financial position or results of operations. The Company did not
issue any warrants or options during the three months ended September 30, 1996.
8
<PAGE> 9
DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
(unaudited)
NOTE 3 - EQUITY INVESTMENTS:
The summarized financial information for the Company's investments which are
accounted for using the equity method is as follows:
SUMMARIZED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
Leviathan Gas DeepFlex Production
Pipeline Partners, L.P. Tatham Offshore, Inc. Partners, L.P.
------------------------ ------------------------ ------------------------
September 30, June 30, September 30, June 30, September 30, June 30,
1996 1996 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 27,102 $ 25,867 $ 15,133 $ 20,636 $ 632 $ 659
Noncurrent assets 422,601 399,373 77,344 76,494 2,645 42,403(a)
Current liabilities 44,832 35,961 6,448 9,489 175 57
Long-term debt 198,118 182,412 60,000 60,000 -- 40,490(a)
Other noncurrent
liabilities 13,816 15,242 8,861 8,779 -- --
</TABLE>
- -----------------
(a) Effective September 30, 1996, RIGCO acquired the FPS Laffit Pincay from
DeepFlex Partners for the assumption of all PIK Notes then outstanding of
$40.1 million. Accordingly, at September 30, 1996, the FPS Laffit Pincay
is included in property and equipment on the Company's consolidated balance
sheet.
SUMMARIZED HISTORICAL OPERATING RESULTS
(In thousands)
<TABLE>
<CAPTION>
For the Three Months
For the Three Months Ended September 30, 1996 Ended September 30, 1995
--------------------------------------------------- ---------------------------------------------
DeepFlex Tatham DeepFlex Tatham
Partnership Partners Other Total Offshore Partnership Partners Total Offshore
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $24,214 $ 4,448 $ 4,500 $12,266 $ -- $ 1,527
Other income 486 478 154 201 5,074 11,354
Operating expenses (4,752) (2,639) (3,275) (3,161) (44) (8,155)
Depreciation (8,692) (504) (956) (1,895) -- (105)
Other expenses (1,250) (1,195) (2,117) (156) (850) (2,075)
------- -------- ------- ------- ------- -------
Net earnings (loss) 10,006 588 (1,694) 7,255 4,180 2,546
Preferred stock
dividends -- -- (997) -- -- --
------- -------- ------- ------- ------- -------
Net earnings (loss)
available to
common shareholders 10,006 588 (2,691) 7,255 4,180 2,546
Effective ownership
percentage 27.3% 50% 38.1% 27.3% 50% 40%
------- -------- ------- ------- ------- -------
2,732 294 (1,025) 1,981 2,090 1,018
Intercompany profit (a) -- -- 168 -- -- (1,050)
Preferred stock
dividends (b) -- -- 210 -- -- --
Other 35 -- 351(c) 35 -- --
------- -------- -------- ------- ------- ------- ------- ------- -------
Equity in earnings
(losses) $ 2,767 $ 294 $ 36 $ 3,097 $ (296) $ 2,016 $ 2,090 $ 4,106 $ (32)
======= ======== ======== ======= ======= ======= ======= ======= =======
Distributions from
equity investments $ 2,471 $ -- $ -- $ 2,471 $ -- $ 2,037 $ -- $ 2,037 $ --
======= ======== ======== ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------------
(a) Represents the effect of the elimination of a portion of profit generated
from the sale of three oil and gas properties by Tatham Offshore to
Flextrend Development in June 1995, both of which are equity investees of
DeepTech. The profit is recognized as the oil and gas reserves are
produced.
(b) The Company's share of Tatham Offshore's Series A cumulative preferred stock
dividends.
(c) Includes the effect of a change during the period in the ownership
percentage of Tatham Offshore's common equity.
The Partnership and its subsidiaries distribute 100% of available cash, as
defined, on a quarterly basis to the holders of the Preference Units and to
Leviathan, as general partner and holder of the Common Units.
9
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
NOTE 4 - INDEBTEDNESS:
Outstanding indebtedness is comprised of the following:
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
---------------------- ----------------------
Current Long-term Current Long-term
(in thousands)
<S> <C> <C> <C> <C>
Notes payable:
Highwood Notes $ -- $ -- $ 17,258 $ --
Term Loan -- -- 6,069 5,931
RIGCO Credit Facility 1,000 64,000 -- --
Senior Notes -- 80,664 -- 80,603
Wilrig AS promissory notes -- 11,000 -- 11,000
Notes payable to affiliates:
Subordinated Promissory Notes, bearing interest at
15% per annum, payable quarterly, principal due
January 15, 1997 6,640 -- 6,640 --
</TABLE>
Highwood Notes
In December 1995 and June 1996, the Company issued promissory notes to Highwood
Partners (the "Highwood Notes") for an aggregate principal amount of $17.3
million for the purchase of 100% interest in the FPS Bill Shoemaker. In July
1996, the Company borrowed an additional $1.0 million for refurbishment costs
bringing the total amount of outstanding Highwood Notes to $18.3 million. The
Company retired the Highwood Notes in connection with obtaining the RIGCO
Credit Facility discussed below. The Company capitalized interest related to
the Highwood Notes of $0.6 million for the three months ended September 30,
1996.
Term Loan
In February 1996, DeepFlex entered into a term loan agreement to borrow $12.0
million (the "Term Loan") from a syndicate of commercial lenders. The Company
retired the Term Loan in connection with obtaining the RIGCO Credit Facility
discussed below. For the three months ended September 30, 1996, interest
expense related to the Term Loan totaled $0.4 million and debt issue costs
amortized in connection with the repayment of the Term Loan totaled $0.5
million.
RIGCO Credit Facility
On September 30, 1996, RIGCO entered into a $65.0 million senior secured credit
facility with a syndicate of lenders (the "RIGCO Credit Facility"). Proceeds
from the credit facility were used to acquire the FPS Bill Shoemaker as well as
to retire the Highwood Notes and the Term Loan. The remaining proceeds of
$32.3 million are currently maintained in a construction fund collateral
account, shown as restricted cash on the accompanying consolidated balance
sheet, and are available to fund significant upgrades to the FPS Bill
Shoemaker. RIGCO also acquired the FPS Laffit Pincay from DeepFlex Partners
for the assumption of all of the then outstanding PIK Notes. The credit
facility (i) matures on September 30, 1998, (ii) bears interest at the prime
rate plus 3% per annum, payable quarterly, (iii) is secured by all tangible and
intangible assets of RIGCO including the two semisubmersible drilling rigs and
(iv) requires a quarterly principal payment of excess cash flow as defined in
the credit agreement with a minimum principal amortization of $250,000 per
quarter beginning on December 31, 1996. Debt issue costs related to the RIGCO
Credit Facility of $3.9 million were capitalized and will be amortized over the
two-year life of the credit facility. In connection with providing the RIGCO
Credit Facility, lending syndicate members were issued warrants to purchase an
aggregate of 5% of RIGCO's outstanding equity.
10
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
Senior Notes
In 1994, DeepTech completed a public offering of $82.0 million of 12% senior
secured notes (the "Senior Notes") due December 15, 2000. Interest on the
Senior Notes is payable semi-annually in arrears on June 15 and December 15 of
each year at a rate of 12% per annum. Interest and amortization of debt issue
costs and bond discounts related to the Senior Notes totaled $2.7 million for
the three months ended September 30, 1996.
Wilrig AS promissory notes
In November 1994, the Company issued to Wilrig AS (i) promissory notes in the
aggregate principal amount of $11.0 million due December 1997 and (ii) warrants
which grant Wilrig the right to exchange the principal and interest outstanding
under the promissory notes for common stock of DeepTech at the rate of $10.00
per share up to a maximum of 1,100,000 shares. Interest expense related to this
debt is payable quarterly at 10% per annum and totaled $275,000 for the three
months ended September 30, 1996.
NOTE 5 - STOCKHOLDERS' EQUITY:
Under various agreements and arrangements, DeepTech has authorized the issuance
of stock warrants to noteholders, employees, directors and financial
institutions. During the three months ended September 30, 1996, DeepTech
issued 18,752 shares of common stock pursuant to the exercise of outstanding
warrants and options. In addition, Westgate International, L.P. ("Westgate")
exercised warrants to acquire 472,973 shares of DeepTech common stock at $5.00
per share on September 30, 1996. Highwood Partners acquired these warrants in
December 1995 in connection with DeepTech's financing of the acquisition of the
FPS Bill Shoemaker and subsequently assigned such warrants to Westgate.
DeepTech has agreed to register the shares of common stock acquired by Westgate
pursuant to the warrant agreement. A registration statement will be filed
shortly to register the common stock acquired by Westgate and, at such time,
holders of certain of DeepTech's other common stock and warrants may exercise
piggyback rights which will require the registration of such stock. At
September 30, 1996, DeepTech had outstanding warrants and options to acquire
10,784,208 shares of common stock.
NOTE 6 - RELATED PARTY TRANSACTIONS:
DeepTech has entered into management agreements with certain of its
subsidiaries, including Leviathan and Tatham Offshore, pursuant to which each
affiliate is charged an annual management fee in exchange for operational,
financial, accounting and administrative services. Leviathan, as general
partner of the Partnership, is entitled to reimbursement of all reasonable
expenses incurred by it or its affiliates for or on behalf of the Partnership
including amounts payable by Leviathan to DeepTech under a management
agreement. Effective July 1, 1996, the management agreements with Leviathan
and Tatham Offshore were amended to provide for an annual management fee of 54%
and 24%, respectively, of DeepTech's overhead expenses. During the three months
ended September 30, 1996, the Partnership and Tatham Offshore were charged $1.6
million and $0.7 million, respectively, under their respective agreements.
On August 14, 1996, Leviathan Holdings paid dividends of $2.1 million to its
common stockholders, which included DeepTech as a result of its 85% ownership
interest in Leviathan Holdings.
As of September 30, 1996, DeepTech holds an aggregate principal amount of $60.0
million of Tatham Offshore subordinated convertible promissory notes (the
"Subordinated Notes"). Interest income related to these notes totaled $1.8
million for the three months ended September 30, 1996.
During the three months ended September 30, 1996, substantially all of Offshore
Marketing's oil and gas purchases were derived from purchases from Tatham
Offshore and the Partnership.
In February 1996, DeepFlex Partners' FPS Laffit Pincay began providing contract
drilling services to Flextrend Development, which will extend until Flextrend
Development completes the drilling of the Garden Banks Block 117 #2 well.
During the three months ended September 30, 1996, DeepFlex Partners reported
operating revenue totaling $4.4
11
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DEEPTECH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(unaudited)
million related to these services. Net proceeds from the contract drilling
services have been used to pay interest and principal to DeepFlex on the PIK
Notes.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Certain of DeepTech's affiliated companies will need substantial additional
capital in order to implement their business strategies and to meet their debt
service requirements and other long-term obligations. There can be no
assurances, however, that DeepTech or these subsidiaries will be able to raise
capital on terms it deems acceptable, if at all. Further, DeepTech's Senior
Note Indenture contains covenants that among other things, requires DeepTech to
meet certain collateral coverage tests and restricts the ability of DeepTech to
incur additional indebtedness, effect certain asset sales and engage in certain
mergers or similar transactions.
Tatham Offshore has substantial future capital expenditures associated with the
full development of its oil and gas properties. Realization of the full
potential of Tatham Offshore's properties is dependent upon its ability to
obtain sufficient additional capital or project financing.
In the ordinary course of business, the Company is subject to various laws and
regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or the results of
operations of the Company. Various legal actions which have arisen in the
ordinary course of business are pending with respect to the assets of the
Company. Management believes that the ultimate disposition of these actions,
either individually or in the aggregate, will not have a material adverse
effect on the consolidated financial position or operations of the Company.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in Part I of the
quarterly report.
GENERAL
Overview. DeepTech is a diversified energy company engaged, through its
operating subsidiaries (the "Subsidiaries"), in offshore contract drilling
services and the acquisition, development, production, processing,
transportation and marketing of, and the exploration for, oil and gas located
primarily offshore the United States in the Gulf, with principal focus in the
Flextrend and Deepwater areas. As a holding company whose material assets
consist primarily of stock of the Subsidiaries, DeepTech is, and expects to
continue to be, dependent upon management fees, dividends funded by
distributions from the Partnership and interest on and repayment of principal
under borrowings by the Subsidiaries to pay its operating expenses, service its
debt and satisfy its other obligations.
The following discussion is intended to assist in the understanding of the
Company's financial position and results of operations for the three months
ended September 30, 1996.
Leviathan and the Partnership. Leviathan serves as the general partner of the
Partnership and currently owns a 27.3% effective interest in the Partnership
(23.2% effective interest net to DeepTech's interest). The Partnership's
operations consist primarily of the gathering and transportation of natural gas
and crude oil through its pipelines and the development and production of oil
and gas reserves from three offshore leases.
Tatham Offshore. Tatham Offshore is an independent energy company engaged in
the development and production of, and the exploration for, offshore oil and
gas reserves, with activities concentrated in the Flextrend and Deepwater areas
of the Gulf. As of September 30, 1996, DeepTech owns approximately 38% of
Tatham Offshore's outstanding common stock. In addition, DeepTech owns, through
DeepFlex Services, 4.7 million shares of Series A Preferred Stock and 5.3
million warrants of Tatham Offshore and the Partnership owns 7,500 shares of
Senior Preferred Stock of Tatham Offshore.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995
Oil and gas sales totaled $23.1 million for the three months ended September
30, 1996 as compared with $2.5 million for the three months ended September
30, 1995. During the three months ended September 30, 1996 and 1995, the
Company derived its oil and gas revenue by marketing oil and gas production
from the Partnership, Tatham Offshore and third-party producers. In December
1995, the Company began marketing Flextrend Development's gas production.
During the three months ended September 30, 1996, the Company sold 7,733
million cubic feet ("MMcf") of gas and 307,203 barrels of oil at average prices
of $2.12 per thousand cubic feet ("Mcf") and $21.95 per barrel, respectively.
During the same period in 1995, the Company sold 500 MMcf of gas and 96,700
barrels of oil at average prices of $1.47 per Mcf and $17.97 per barrel,
respectively.
Equity in earnings totaled $3.1 million for the three months ended September
30, 1996 as compared with $4.1 million for the same period in 1995. Equity in
earnings for the three months ended September 30, 1996 primarily included
equity earnings of the Partnership and DeepFlex Partners of $2.8 million and
$0.3 million, respectively, whereas equity in earnings for the three months
ended September 30, 1995 included equity earnings of the Partnership and
DeepFlex Partners of $2.0 million and $2.1 million, respectively. During the
three months ended September 30, 1996, the Partnership had total revenue of
$24.2 million as compared with total Partnership revenue of $12.3 million for
the three months ended September 30, 1995. For the three months ended
September 30, 1996, the total gas throughput, net to the Partnership, was 259
billion cubic feet ("Bcf") as compared with 213 Bcf for the three months ended
September 30, 1995. In addition, the Partnership sold 4,166 MMcf of gas and
168,766 barrels of oil at average prices of $1.93 per Mcf and $22.25 per
barrel, respectively, during the three months ended September 30, 1996.
DeepFlex Partners recorded net income of $0.6 million and $4.2 million for the
three months ended September 30, 1996 and 1995, respectively. Net
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income for the three months ended September 30, 1995 included a gain of $5.1
million related to the sale of the FPS Eddie Delahoussaye.
Oil and gas purchases for the three months ended September 30, 1996 totaled
$22.9 million as compared with $2.3 million for the three months ended
September 30, 1995. The activity for both periods represented the cost of oil
and gas purchased from the Partnership, Tatham Offshore and third parties for
resale. During the three months ended September 30, 1996, the Company
purchased 7,739 MMcf of gas and 307,203 barrels of oil at average prices of
$2.10 per Mcf and $21.51 per barrel, respectively. During the three months
ended September 30, 1995, the Company purchased 500 MMcf of gas and 96,700
barrels of oil at average prices of $1.37 per Mcf and $16.15 per barrel,
respectively.
Operating expenses for the three months ended September 30, 1995 totaled $0.2
million and included costs to operate the Company's multi-purpose service
vessel. The Company terminated the related charter agreement effective October
1, 1995.
Losses of equity investees for the three months ended September 30, 1996
totaled $0.3 million as compared with $32,000 for the three months ended
September 30, 1995 and related primarily to equity losses of Tatham Offshore.
During the three months ended September 30, 1996, Tatham Offshore had total
operating revenue of $4.5 million and nonoperating income of $0.2 million.
During the three months ended September 30, 1996, Tatham Offshore sold 1,475
MMcf of gas and 60,640 barrels of oil at average prices of $2.15 per Mcf and
$21.87 per barrel, respectively. Tatham Offshore's depreciation and operating
expenses totaled $4.2 million and other expenses totaled $2.1 million for the
three months ended September 30, 1996. During the three months ended September
30, 1995, Tatham Offshore had total operating revenue of $1.5 million and
nonoperating income of $11.4 million which was primarily related to the sale of
three properties to Flextrend Development. For the three months ended
September 30, 1995, Tatham Offshore sold 236 MMcf of gas and 72,500 barrels of
oil at average prices of $1.54 per Mcf and $16.02 per barrel, respectively.
Tatham Offshore's depreciation and operating expenses totaled $8.3 million and
other expenses totaled $2.1 million for the three months ended September 30,
1995.
General and administrative expenses for the three months ended September 30,
1996 totaled $0.5 million as compared with $1.6 million for the three months
ended September 30, 1995. The decrease in general and administrative expenses
was primarily attributable to decreases in salary and related expenses due to a
reduction in personnel and the restructuring of certain compensation
arrangements.
Operating income for the three months ended September 30, 1996 totaled $2.5
million as compared with operating income of $2.6 million for the three months
ended September 30, 1995. The change in operating income primarily represented
the net effect of the items discussed above.
Interest and other income for the three months ended September 30, 1996 totaled
$3.1 million as compared with $5.0 million for the three months ended September
30, 1995. Interest and other income for the three months ended September 30,
1996 included interest income derived from (i) the Subordinated Notes of $1.8
million, (ii) the PIK Notes of $1.2 million and (iii) other affiliate debt and
available cash of $0.1 million. Interest and other income for the three months
ended September 30, 1995 included interest income derived from (i) the
Subordinated Notes of $1.8 million, (ii) the PIK Notes of $2.5 million, (iii)
interest earned on available cash of $0.1 million and (iv) other of $0.6
million.
Interest and other financing costs for the three months ended September 30,
1996 totaled $4.2 million as compared with $3.2 million for the three months
ended September 30, 1995. Interest and other financing costs for the three
months ended September 30, 1996 included (i) interest and amortization of debt
issue costs and discounts related to the Senior Notes of $2.7 million, (ii)
interest and amortization of debt issue costs related to the Term Loan of $0.9
million, (iii) interest related to the Wilrig AS promissory notes of $0.3
million and (iv) interest related to other debt of $0.3 million. Interest and
other financing costs for the three months ended September 30, 1995 included
interest and amortization of debt issue costs and discounts related to the
Senior Notes of $2.7 million and $0.5 million of interest expense related to
other debt.
During the three months ended September 30, 1996, the Company recorded income
tax expense of $0.5 million as compared with $1.5 million for the three months
ended September 30, 1995.
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After taking into account a $0.3 million loss resulting from minority interests
in consolidated subsidiaries, the Company's net income for the three months
ended September 30, 1996 totaled $0.6 million. For the three months ended
September 30, 1995, the Company reported net income of $2.7 million after
taking into account a $0.2 million loss resulting from minority interests in
consolidated subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
DeepTech
Sources of cash. As a holding company whose material assets consist primarily
of stock of the Subsidiaries, DeepTech is, and expects to continue to be,
dependent upon management fees, dividends funded by distributions from the
Partnership and interest on and repayment of principal under borrowings by the
Subsidiaries (principally the Subordinated Notes issued by Tatham Offshore) to
pay its operating expenses, service its debt and satisfy its other obligations.
DeepTech has entered into management agreements with each of the Subsidiaries.
The management fees charged to the Subsidiaries are intended to approximate the
amount of resources allocated by DeepTech to each such Subsidiary for
operational, financial, accounting and administrative services. Each of the
management agreements has an initial term expiring on June 30, 1997, and may be
terminated thereafter upon 90 days' notice by either party thereto.
Historically, management fees payable by each Subsidiary during its development
stage have been funded through advances by DeepTech to each such Subsidiary,
thereby reducing cash available to DeepTech.
Effective July 1, 1996, DeepTech amended its management agreements with each
Subsidiary and began charging Leviathan, Tatham Offshore, DeepFlex Services and
Offshore Marketing a management fee equal to 54%, 24%, 18% and 4%,
respectively, of DeepTech's overhead expenses. Prior to July 1, 1996, DeepTech
charged Leviathan, Tatham Offshore, DeepFlex Services and Offshore Marketing
45.3%, 27.4%, 18.8% and 8.5%, respectively, of DeepTech's overhead expenses.
For the three months ended September 30, 1996, Leviathan, Tatham Offshore and
Offshore Marketing made their required cash payments to DeepTech for their
management fees. Leviathan was reimbursed by the Partnership for management
fees relating to the conduct and business of the Partnership. DeepFlex
Services, which is currently charged 18% of DeepTech's general and
administrative overhead costs, did not make payments of management fees to
DeepTech during such period.
In addition to management fees, DeepTech receives, through dividends from
Leviathan Holdings, an 85%-owned subsidiary of DeepTech, its proportionate
share of distributions paid by the Partnership to Leviathan in respect of
Leviathan's general partner interest, limited partner interest evidenced by
Common Units and interest in certain subsidiaries of the Partnership.
Commencing in the third calendar quarter of 1993, the Partnership increased the
quarterly distribution to $0.60 per Preference Unit and Common Unit from $0.55
per Preference Unit and Common Unit. Beginning with the quarter ending March
31, 1996, the Partnership increased the quarterly distribution to $0.65 per
Unit. For the quarter ending June 30, 1996, the Partnership increased the
quarterly distribution to $0.70 per Unit. For the quarter ending September 30,
1996, the Partnership increased the quarterly distribution to $0.75 per Unit.
As a result, DeepTech's proportionate share of the aggregate distributions paid
to Leviathan for the three months ended September 30, 1996 was approximately
$1.8 million. Leviathan is also required to reimburse DeepTech for certain tax
liabilities DeepTech incurs in connection with certain matters relating to the
operations of the Partnership.
DeepTech currently holds Subordinated Notes issued by Tatham Offshore with an
aggregate principal amount of $60.0 million. The Subordinated Notes bear
interest at a rate of 11 3/4% per annum, payable quarterly in arrears (an
aggregate of approximately $7.1 million per year); provided, however, effective
July 1, 1997, interest shall accrue at a rate of 13% per annum. For the three
months ended September 30, 1996, interest income under the Subordinated Notes
totaled $1.8 million. The principal amount of the Subordinated Notes is
payable in seven equal annual installments commencing August 1, 1999.
In connection with the issuance of the Highwood Notes, DeepTech granted
Highwood Partners warrants to acquire 472,973 shares of DeepTech common stock
at $5.00 per share which warrants were subsequently assigned to Westgate.
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On September 30, 1996, Westgate exercised these warrants resulting in $2.4
million of proceeds to DeepTech. DeepTech has agreed to register the shares of
common stock acquired by Westgate pursuant to the warrant agreement. A
registration statement will be filed shortly to register the common stock
acquired by Westgate and, at such time, holders of certain of DeepTech's other
common stock and warrants may exercise piggyback rights which will require the
registration of such stock.
On September 30, 1996, RIGCO entered into the RIGCO Credit Facility for $65.0
million. Proceeds from the credit facility were used to acquire the FPS Bill
Shoemaker and to perform significant upgrades to the rig as well as to retire
the Highwood Notes and the Term Loan. RIGCO also acquired the FPS Laffit
Pincay from DeepFlex Partners for the assumption of all of the then outstanding
PIK Notes. The credit facility (i) is secured by the FPS Laffit Pincay and the
FPS Bill Shoemaker, (ii) bears interest at the prime rate plus 3% per annum,
payable quarterly, (iii) matures September 30, 1998 and (iv) requires a
quarterly principal payment of excess cash flow as defined in the credit
agreement with a minimum principal amortization of $250,000 per quarter
beginning December 31, 1996. RIGCO incurred and capitalized debt issue costs
related to the RIGCO Credit Facility of $3.9 million which will be amortized
over the two-year life of the credit facility. In connection with providing the
RIGCO Credit Facility, syndicate members were issued warrants to purchase an
aggregate of 5% of RIGCO's outstanding equity.
In February 1996, DeepFlex Partners' FPS Laffit Pincay began providing contract
drilling services to Flextrend Development, which will continue until Flextrend
Development completes the drilling of its Garden Banks Block 117 #2 well.
During the three months ended September 30, 1996, DeepFlex Partners provided
services totaling $1.8 million under this agreement. Net proceeds from the
contract drilling services through September 30, 1996 were used to pay interest
and principal to DeepFlex Services on the PIK Notes. The RIGCO Credit Facility
does not permit payments on the PIK Notes until the credit facility has been
repaid.
Uses of Cash. Management expects that the Company's expenditures through
September 30, 1997 will include (i) scheduled payments of interest on the
Senior Notes of $4.9 million on June 15 and December 15 of each year, or $9.8
million on an annual basis, (ii) scheduled interest payments on the RIGCO Credit
Facility of $1.8 million per quarter or $7.3 million on an annual basis and
scheduled principal payments equal to excess cash flow as defined in the credit
agreement with a minimum principal amortization of $250,000 per quarter, (iii)
scheduled interest payments on the Wilrig Promissory Notes of $275,000 per
quarter, or $1.1 million on an annual basis, (iv) scheduled payments of interest
on affiliate indebtedness of $249,000 per quarter and principal of $6.6 million
due in January 1997 and (v) amounts necessary to pay general and administrative
and other operational expenses.
In addition, the Company anticipates that its capital expenditures for the year
ending September 30, 1997 will include additional investments in its contract
drilling services business, consisting of capital expenditures necessary to
perform an extensive upgrade, repair and refurbishment program on the FPS Bill
Shoemaker to enable it to perform contract drilling services, and may include
amounts necessary to exercise DeepFlex Services' 5,329,043 Tatham Offshore
warrants to acquire shares of Tatham Offshore convertible exchangeable preferred
stock. As of October 31, 1996, the Company has incurred $5.0 million related to
the upgrade, repair and refurbishment program on the FPS Bill Shoemaker. The
Company anticipates that the remaining capital requirements necessary to
complete the upgrades on the FPS Bill Shoemaker will be funded with proceeds
from the RIGCO Credit Facility. The Company has not yet determined when, or if,
it will exercise its 5,329,043 Tatham Offshore warrants. Any Tatham Offshore
warrants remaining unexercised on January 1, 1997 will be automatically
converted into shares of Mandatory Redeemable Preferred Stock of Tatham
Offshore. See "-- Tatham Offshore."
Liquidity Outlook. DeepTech intends to satisfy its capital requirements and
other working capital needs primarily from cash on hand and cash provided from
management fees, dividends funded by distributions from the Partnership,
interest on the Subordinated Notes and funds provided from the RIGCO Credit
Facility. As of September 30, 1996, the Company had $38.2 million of funds
available, including $32.3 million currently restricted for capital
expenditures related to the FPS Bill Shoemaker. DeepTech is and expects to
continue to be dependent upon payments from the Subsidiaries to service its
debt, pay its operating expenses and satisfy its other obligations. In
addition, DeepTech will seek to refinance all or a portion of the $6.6 million
of affiliate indebtedness which is due in January 1997.
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Based on current projections which assume (i) that approximately $6.6 million of
affiliate indebtedness that is due in January 1997 is refinanced and (ii) the
Company receives interest payments on the Subordinated Notes when due, DeepTech
believes that it will have sufficient funds to meet its anticipated capital
needs including scheduled payments on indebtedness through at least June 30,
1997 and to complete the make ready expenditures on the FPS Bill Shoemaker.
DeepTech anticipates that it will need significant additional funds from
outside sources to fund its financial obligations which mature in late 1997 and
beyond. These obligations include the repayment by DeepFlex Services of its
$11.0 million note to Wilrig AS which is due in November 1997, the repayment by
RIGCO of the remaining balance of the RIGCO Credit Facility which is due is
September 1998 and the principal balance of $82.0 million under DeepTech's
Senior Notes which are due in December 2000. The Company contemplates raising
such funds through (i) the issuance of additional debt or debt refinancing at
the DeepTech or subsidiary level, (ii) the sale of equity securities at the
subsidiary level, (iii) a repayment of amounts due DeepTech from Tatham
Offshore and/or DeepFlex Services and/or (iv) the exercise of outstanding
warrants to acquire DeepTech common stock. However, there can be no assurance
that the Company will be able to raise capital on terms it deems acceptable on
a timely basis. Further, the Senior Note Indenture contains covenants that,
among other things, require DeepTech to meet certain collateral coverage tests
and restrict the ability of DeepTech to incur additional indebtedness, effect
certain asset sales and engage in certain mergers or similar transactions. The
failure to obtain additional capital would have a material adverse effect on
DeepTech's financial condition and results of operations.
LEVIATHAN/THE PARTNERSHIP
Sources of Cash. The Partnership intends to satisfy its capital requirements
and other working capital needs primarily from cash on hand, cash from
continuing operations and borrowings under the Partnership Credit Facility
(discussed below). Net cash provided by operating activities for the nine
months ended September 30, 1996 totaled $30.6 million. At September 30, 1996,
the Partnership had cash and cash equivalents of $9.2 million.
Cash from continuing operations is derived from (i) payments for transporting
gas through the 100% owned pipelines, (ii) cash distributions from the
Partnership's equity investees which include Stingray Pipeline Company
("Stingray"), High Island Offshore System ("HIOS"), U-T Offshore System
("UTOS"), Viosca Knoll Gathering System ("Viosca Knoll"), Poseidon Oil Pipeline
Company, L.L.C. ("POPCO") and West Cameron Dehydration Company ("West Cameron
Dehy"), (iii) platform access and processing fees and (iv) the sale of oil and
gas attributable to the Partnership's interest in certain producing wells.
Stingray, HIOS, UTOS and Viosca Knoll are partnerships and POPCO and West
Cameron Dehy are limited liability companies in which the Partnership owns an
interest. The Partnership's cash flows from operations will be affected by the
ability of such entities to make distributions. Distributions from such
entities are also subject to the discretion of their respective management
committees. Further, each of Stingray and POPCO is party to a credit agreement
under which it has outstanding obligations that may restrict the payments of
distributions to its owners. In December 1995, Stingray amended an existing
term loan agreement to provide for aggregate outstanding borrowings of up to
$29.0 million in principal amount. The agreement requires the payment of
principal by Stingray of $1.45 million per quarter. As of September 30, 1996,
interest accrued at the rate of approximately 6.4% per annum and is payable
quarterly. As of September 30, 1996, Stingray had $24.65 million outstanding
under its term loan agreement.
In April 1996, POPCO entered into a revolving credit facility (the "POPCO
Credit Facility") with a group of commercial banks to provide up to $150.0
million for the construction of the second phase of the Poseidon Oil Pipeline
and for other working capital needs of POPCO. As of September 30, 1996, POPCO
had $77.5 million outstanding under the POPCO Credit Facility bearing interest
at 6.7% per annum. POPCO's ability to
borrow money under the facility is subject to certain customary terms and
conditions, including borrowing base limitations. The POPCO Credit Facility is
secured by a substantial portion of POPCO's assets and matures on April 30,
2001.
Flextrend Development has initiated production from the each of its oil and gas
properties. The Viosca Knoll Block 817 project is currently producing a total
of approximately 100 MMcf of gas per day. Flextrend Development owns a 75%
working interest in this property, subject to certain reversionary rights. The
Garden Banks Block 72 lease, which began producing in May 1996, is currently
producing an average of 4,100 barrels of oil and 14.5 MMcf of gas per day. The
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Garden Banks Block 117 #1 well, which began producing in July 1996, is
currently producing an average of approximately 2,100 barrels of oil, 3.5 MMcf
of gas and 3,100 barrels of water per day. Flextrend Development owns a 50%
working interest in each of these properties, subject to certain reversionary
rights.
Tatham Offshore was obligated to make demand charge payments to the Partnership
pursuant to certain transportation agreements. Production problems at Ship
Shoal Block 331 and reduced oil production from the Ewing Bank 914 #2 well have
adversely affected Tatham Offshore's ability to pay demand charges under these
agreements. Effective February 1, 1996, the Partnership agreed to release
Tatham Offshore from all remaining demand charge payments under certain
transportation agreements, a total of $17.8 million. Under these agreements,
the Partnership was entitled to receive demand charges of $8.1 million in 1996,
$6.0 million in 1997, $3.0 million in 1998 and $0.7 million in 1999. In
exchange, the Partnership received 7,500 shares of Tatham Offshore Senior
Preferred Stock. Each share of the Senior Preferred Stock has a liquidation
preference of $1,000 per share, is senior in liquidation preference to all
other classes of Tatham Offshore stock and has a 9% cumulative dividend,
payable quarterly. Commencing on October 1, 1998 and for a period of 90 days
thereafter, the Partnership has the option to exchange the remaining
liquidation preference amount and accrued but unpaid dividends for shares of
Tatham Offshore's Convertible Exchangeable Preferred Stock with an equivalent
market value. Further, the Partnership has made an irrevocable offer to Tatham
Offshore to sell all or any portion of the Senior Preferred Stock to Tatham
Offshore or its designee at a price equal to $1,000 per share, plus interest
thereon at 9% per annum less the sum of any dividends paid thereon. The
Convertible Exchangeable Preferred Stock is convertible into Tatham Offshore
common stock based on a fraction, the numerator of which is the liquidation
preference value plus all accrued but unpaid dividends and the denominator of
which is $0.653 per share. In addition, the sum of $7.5 million was added to
the Payout Amount under the purchase and sale agreement between Flextrend
Development and Tatham Offshore. By adding $7.5 million to the Payout Amount,
the Partnership is entitled to an additional $7.5 million plus interest at the
rate of 15% per annum from revenue attributable to the Assigned Properties
prior to reconveying any interest in the Assigned Properties to Tatham
Offshore. Tatham Offshore waived its remaining option to prepay the
then-existing Payout Amount and receive a reassignment of its working interest.
Tatham Offshore and the Partnership also agreed that in the event Tatham
Offshore furnishes the Partnership with a financing commitment from a lender
with a credit rating of BBB- or better covering 100% of the then outstanding
Payout Amount, the interest rate utilized to compute the Payout Amount shall be
adjusted from and after the date of such commitment to the interest rate
specified in such commitment, whether utilized or not. Tatham Offshore also
agreed to grant the Partnership the right to utilize the Ship Shoal Block 331
platform and related facilities at a rental rate of $1.00 per annum for such
period as the platform is owned by Tatham Offshore and located on Ship Shoal
Block 331, provided such use does not interfere with lease operations or other
activities of Tatham Offshore. In addition, Tatham Offshore granted the
Partnership a right of first refusal relative to a sale of the platform.
Tatham Offshore remains obligated to pay the commodity charges under these
agreements as well as all platform access and processing fees associated with
the Viosca Knoll Block 817 lease. For the year ending December 31, 1996,
Tatham Offshore is obligated to pay $1.6 million in platform access fees.
The Partnership Credit Facility, as amended and restated on March 26, 1996, is
a revolving and term credit facility providing for up to $220.0 million of
available credit in the form of a $145.0 million revolving credit facility and
$75.0 million term loan facility. Proceeds from the revolving credit facility
are available to the Partnership for general partnership purposes, including
financing of capital expenditures, for working capital, and subject to certain
limitations, for paying the Minimum Quarterly Distribution, as defined in the
Partnership Agreement. The revolving credit facility can also be utilized to
issue letters of credit as may be required from time to time. As of September
30, 1996, borrowings totaled $75.0 million under the term facility and $138.0
million under the revolving credit facility. As of November 12, 1996,
borrowings totaled $75.0 million under the term facility and $141.5 million
under the revolving credit facility. There are no letters of credit currently
outstanding under the revolving credit facility.
Uses of Cash. The Partnership's capital requirements consist primarily of (i)
quarterly distributions to holders of Preference Units and Common Units and to
Leviathan as general partner, (ii) expenditures for the maintenance of the
pipelines and related infrastructure and the construction of additional
pipelines and related facilities for the transportation and processing of gas
and oil in the Gulf, including the second phase of the Poseidon Oil Pipeline,
(iii) management fees and other operating expenses and (iv) debt service on its
outstanding debt. In addition, Flextrend Development's future capital
requirements will consist of expenditures related to the continued development
of the Garden Banks Block 72 and Garden Banks Block 117 leases.
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For every full quarter since its inception, the Partnership has declared and
subsequently paid a cash distribution to holders of Preference Units and Common
Units in an amount equal to or exceeding the Minimum Quarterly Distribution of
$0.55 per Unit per quarter ($2.20 per Unit on an annualized basis). Commencing
in the third quarter of 1993, the Partnership increased the quarterly
distribution to $0.60 per Unit. Beginning with the quarter ending March 31,
1996, the Partnership increased the quarterly distribution to $0.65 per Unit.
For the quarter ending June 30, 1996, the Partnership increased the quarterly
distribution to $0.70 per Unit. For the quarter ending September 30, 1996, the
Partnership increased the quarterly distribution to $0.75 per Unit. This
distribution will be paid on November 14, 1996 to Unitholders of record as of
October 31, 1996. At the current distribution rate of $0.75 per Unit, the
Partnership anticipates making quarterly Partnership distributions of $9.5
million in respect of the Preference Units, Common Units and general partner
interest ($38.1 million on an annual basis). The Partnership believes that it
will be able to continue to pay at least the current quarterly distribution of
$0.75 per Preference Unit for the foreseeable future.
In February 1996, Poseidon Pipeline Company, L.L.C. ("Poseidon LLC"), a
subsidiary of the Partnership, and Texaco Trading and Transportation Inc.
("Texaco Trading") formed POPCO to construct, own and operate the Poseidon Oil
Pipeline. Pursuant to the terms of the organizational documents, Poseidon LLC
initially contributed assets, at net book value, related to the construction of
the initial phase of the Poseidon Oil Pipeline as well as certain dedication
agreements and Texaco Trading initially contributed an equivalent amount of
cash as well as its rights under certain agreements. The Partnership has fully
funded its portion of the capital requirements of POPCO for the construction of
the first phase of the Poseidon Oil Pipeline. In July 1996, Marathon Oil
Company ("Marathon") joined POPCO by contributing its interest in 58 miles of
nearby crude oil pipelines and dedicating its portion of oil reserves attached
to such pipelines to the Poseidon Oil Pipeline for transportation. As a
result, each of the Partnership and Texaco Trading now owns a 36% interest in
POPCO and Marathon owns the remaining 28% interest. The Partnership
anticipates that POPCO's future capital requirements, including amounts
necessary to complete the second phase of the system, will be funded by
borrowings under the POPCO Credit Facility.
On July 8, 1996, the Partnership and affiliates of Marathon and Shell Oil
Company ("Shell") announced plans to build and operate an interstate natural
gas pipeline system and a connecting gathering system to serve growing
production areas in the Green Canyon area of the Gulf. The total cost of the
two systems, including the Manta Ray System currently owned by the Partnership,
is approximately $270.0 million. The new jurisdictional interstate pipeline
segment of the project, to be named "Nautilus", will consist of a 30-inch line
downstream from Ship Shoal Block 207 connecting to the Exxon Company USA
operated Garden City gas processing plant. Upstream of the Ship Shoal 207
terminal, the Manta Ray System will be extended into a broader gathering system
that would serve shelf and deepwater production around Ewing Bank Block 873 to
the east and Green Canyon Block 65 to the west. Marathon and Shell have
significant deep water acreage positions in the area, including the recently
announced Troika field (Green Canyon Block 244), and would provide the majority
of the capital funding for the new construction. The Partnership would provide
some funding along with the contribution of the Manta Ray System. The
consummation of this joint venture is subject to the negotiation and execution
of definitive documents.
The Partnership anticipates that capital expenditures in connection with the
maintenance and enhancement of the service capabilities of the Ewing Bank and
Green Canyon systems will aggregate approximately $0.5 million per year
although the actual level of these capital expenditures may change from time to
time for many reasons, some of which may be beyond the control of the
Partnership. Total capital expenditures and equity investments for 1995 were
$173.6 million. The Partnership anticipates that its total capital expenditures
for 1996 will relate to continuing construction and drilling activities. The
Partnership anticipates funding such costs primarily with available cash flow
and borrowings under the Partnership Credit Facility. Capital expenditures of
POPCO are anticipated to be funded by borrowings under the POPCO Credit
Facility.
Interest and other financing costs, net of capitalized interest, related to the
Partnership's credit facilities totaled $2.0 million for the nine months ended
September 30, 1996. Such amount included commitment fees and amortization of
debt issue costs of $0.5 million. During the nine months ended September 30,
1996, the Partnership capitalized $11.2 million of interest costs in connection
with construction projects and drilling activities in progress during the
period.
19
<PAGE> 20
TATHAM OFFSHORE
Sources of Cash. Tatham Offshore intends to satisfy its immediate capital
requirements and other working capital needs primarily from cash on hand, cash
generated from continuing operations and proceeds from the exercise of
outstanding warrants. At September 30, 1996, Tatham Offshore had $11.9 million
of cash and cash equivalents.
Cash from continuing operations is derived primarily from production from
Tatham Offshore's Viosca Knoll Block 817 project which is currently producing a
total of approximately 100 MMcf per day. Tatham Offshore currently owns a 25%
working interest in the Viosca Knoll Block 817 project which interest is
subject to a production payment equal to 25% of the net operating cash flow
from such working interest.
Tatham Offshore also has producing wells at Ewing Bank 914 and at its Silent
Beauty project at West Delta Block 35 which contribute to cash from continuing
operations. Tatham Offshore owns a 100% working interest in the Ewing Bank 914
#2 well and a 38% working interest in the Silent Beauty project. The Ewing
Bank 914 #2 well is currently producing at a rate of approximately 725 barrels
of oil, 1.9 MMcf of gas and 2,050 barrels of water per day.
As a result of a rights offering in February 1996, Tatham Offshore received
$12.6 million in gross proceeds ($11.3 million in net proceeds) pursuant to the
exercise of Rights to purchase 25,120,948 Warrants at $.50 per warrant. As of
October 1, 1996, a total of 18,791,409 Warrants had been exercised to purchase
an equivalent number of shares of Series A and B Preferred Stock at $1.00 per
share which generated an additional $18.8 million in proceeds to Tatham
Offshore.
As of October 1, 1996, there were 6,329,539 Warrants outstanding. Each of the
remaining Warrants may be exercised to purchase one share of Series C Preferred
Stock, which has a liquidation preference of $.50 per share, at any time prior
to 5:00 p.m. New York time on January 1, 1997 at the purchase price of $1.00
per share. Each Warrant remaining unexercised at 5:00 p.m. New York time on
January 1, 1997 shall be automatically converted, without any action on the
part of the holder thereof, into one share of Mandatory Redeemable Preferred
Stock, which shall have a liquidation preference of $0.50 per share and shall
be mandatorily redeemable by Tatham Offshore under certain circumstances. At
any time from July 1, 1996 until December 31, 1998, each share of Series A, B
or C Preferred Stock may be exchanged for four Exchange Warrants each of which
shall entitle the holder thereof to purchase one share of Tatham Offshore
common stock at $0.653 per share. The Exchange Warrants will expire July 1,
1999. Alternatively, at any time after July 1, 1996, the holder of any shares
of Series A, B or C Preferred Stock will have the right, at the holder's
option, to convert the liquidation value of such stock and accrued and unpaid
dividends into shares of Tatham Offshore common stock at $0.653 per share. On
and after July 1, 1997, the Convertible Exchangeable Preferred Stock will be
redeemable at the option of Tatham Offshore. Through October 31, 1996, a total
of 320,864 shares of Series A Preferred Stock had been converted into 737,986
shares of Tatham Offshore common stock.
Uses of Cash. Tatham Offshore's primary uses of cash consist of (i) amounts due
under the Subordinated Notes, (ii) expenses associated with operating its
producing properties, including its production payment and leasehold
abandonment liabilities, (iii) capital expenditures necessary to fund its
portion of the development costs attributable to its working interests
including its obligations under the Drilling Arrangement discussed below, (iv)
platform access fees and processing and commodity charges payable to the
Partnership and (v) payments due under the management agreement with DeepTech.
As of September 30, 1996, Tatham Offshore had $60.0 million aggregate principal
amount of Subordinated Notes outstanding, the maximum principal amount of
Subordinated Notes issueable, all of which were held by DeepTech. The
Subordinated Notes bear interest at a rate of 11 3/4% per annum, payable in
arrears (approximately $1.8 million per quarter); provided, however, that
effective July 1, 1997, interest shall accrue at a rate of 13% per annum. The
principal amount of the Subordinated Notes is payable in seven equal annual
installments of approximately $8.6 million each commencing August 1, 1999. For
the three months ended September 30, 1996, Tatham Offshore paid DeepTech $1.8
million in interest on the Subordinated Notes.
During the year ended June 30, 1996, Tatham Offshore began incurring
abandonment costs related to its West Cameron 436 property, in which it owns a
47% working interest. The West Cameron 436 property ceased production in 1994.
The total estimated abandonment obligation, net to Tatham Offshore's working
interest, of $1.2 million was fully
20
<PAGE> 21
accrued as of June 30, 1995. Through September 30, 1996, Tatham Offshore has
incurred $0.9 million of the estimated abandonment costs.
Tatham Offshore is obligated to pay to the Partnership commodity charges, based
on the volume of oil and gas transported or processed, under certain
transportation agreements. Also, Tatham Offshore is obligated to pay to the
Partnership $1.6 million in platform access fees annually relative to its 25%
working interest in its Phar Lap property.
The management fee agreement between Tatham Offshore and DeepTech provides for
an annual management fee which is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to Tatham Offshore. Effective July 1, 1996, the management
agreement was amended to provide for an annual management fee of 24% of
DeepTech's overhead expenses. For the three months ended September 30, 1996,
Tatham Offshore was charged $0.7 million in management fees pursuant to this
agreement.
Liquidity Outlook. During the year ended June 30, 1995 and the first six
months of fiscal 1996, Tatham Offshore experienced liquidity problems resulting
primarily from substantial negative cash flow from operations. In order to
improve liquidity and partially address its capital requirements, Tatham
Offshore (i) sold, subject to certain reversionary rights, all of its
then-existing working interests in its Viosca Knoll Block 817, Garden Banks
Block 72 and Garden Bank Block 117 properties (the "Assigned Properties") to
Flextrend Development for $30 million, (ii) raised additional equity through
the sale of Warrants and Series A and B Preferred Stock, (iii) prepaid certain
of its demand charge obligations through the assignment of certain assets
pursuant to an agreement with the Partnership and (iv) reduced its overhead by
lowering the levels of services required under its management agreement with
DeepTech.
Flextrend Development has initiated production from each of the Assigned
Properties. As discussed above, the Phar Lap property is currently producing
approximately 100 MMcf per day. In addition to four producing wells on Garden
Banks Block 72 (Spectacular Bid), which are currently producing approximately
4,100 barrels of oil and 14.5 MMcf of gas per day, an additional well is
currently being drilled. The Garden Banks Block 117 (Spend A Buck) property is
currently producing approximately 2,100 barrels of oil, 3.5 MMcf of gas and
3,100 barrels of water per day from one well. Flextrend Development is
currently drilling a second well at Garden Banks Block 117.
Tatham Offshore is entitled to receive a reassignment of the Assigned
Properties, subject to reduction and conditions as discussed below, after
Flextrend Development has received net revenues equal to the Payout Amount. As
of September 30, 1996, the Payout Amount was $90.4 million comprised of (a) the
sum of (i) initial acquisition and transaction costs of $32.1 million, (ii)
development and operating costs of $70.8 million, (iii) prepaid demand charges
of $7.5 million and (iv) interest of $10.1 million reduced by (b) net revenue
of $30.1 million. Tatham Offshore and the Partnership have agreed that in the
event Tatham Offshore furnishes the Partnership with a financing commitment
from a lender with a credit rating of BBB- or better covering 100% of the then
outstanding Payout Amount, the interest rate utilized to compute the Payout
Amount shall be adjusted from and after the date of such commitment to the
interest rate specified in such commitment, whether utilized or not. At any
time prior to December 10, 1996, Flextrend Development may exercise either of
the following options: (i) to permanently retain 50% of the assigned working
interest in either the Phar Lap property or the Spectacular Bid/Spend A Buck
properties or (ii) to permanently retain 50% of the assigned working interest
in all three of the Assigned Properties in exchange for forgiving 25% in the
case of option (i) or 50% in the case of option (ii) of the then-existing
Payout Amount exclusive of the $7.5 million plus interest added to the Payout
Amount in connection with the restructuring of certain transportation
agreements with the Partnership. In the event Flextrend Development elects to
reduce the Payout Amount, it will become obligated to fund any further
development costs attributable to Tatham Offshore's portion of the working
interests, such costs to be added to the Payout Amount. Otherwise, any further
development costs will be funded by Flextrend Development on a discretionary
basis, such costs to be added to the Payout Amount. Further, in the event
Flextrend Development forgoes its right to permanently retain a working
interest in all or a portion of the Assigned Properties, it will be entitled to
recover from working interest revenues in respect of the Assigned Properties
all future demand charges payable for platform access and processing, in their
inverse order of maturity, prior to any reassignment to Tatham Offshore. If
however, Tatham Offshore (i) satisfies in full the future demand charges
payable for platform access and processing, (ii) delivers evidence that it has
received a rating of BBB-, or better, from at least two reputable rating
agencies or (iii) delivers evidence that an entity with a rating of BBB-, or
better, has agreed to guarantee, assume or, to the reasonable satisfaction of
the Partnership, otherwise
21
<PAGE> 22
become responsible for such future demand charges payable, then Tatham Offshore
would receive a reassignment of the Assigned Properties upon satisfaction of the
Payout Amount. In the event the Payout Amount has been satisfied but none of the
above conditions have been met, Tatham Offshore is entitled to receive one-third
(1/3) of the revenues, net of operating expenses and platform access and
processing fees, until such time as one of the above conditions is met.
In September 1996, Tatham Offshore entered into a drilling arrangement (the
"Drilling Arrangement") with Sedco Forex Division of Schlumberger Technology
Corporation ("Sedco Forex"). The Drilling Arrangement includes the use of
either the semisubmersible drilling rig, the FPS Bill Shoemaker, or a
substitute rig capable of drilling in up to 1,500 feet of water. The Drilling
Arrangement will become effective upon the mobilization of a rig to Tatham
Offshore's initial location. The initial contract term of the Drilling
Arrangement is for 90 days or, if sooner, the completion of Tatham Offshore's
initial drilling operation and the mobilization of the rig to another location.
Tatham Offshore may, at its option, extend the initial contract term through
(i) three successive one well options or (ii) two successive one year terms.
Under the terms of the Drilling Arrangement, Tatham Offshore has committed to
pay Sedco Forex a drilling rate of $70,000 per day with a standby rate of
$66,700 per day. As security for its obligations under the Drilling
Arrangement, Tatham Offshore is required to post an irrevocable letter of
credit or cash collateral of $6.3 million, which amount is equal to the
aggregate operating day rate for the contract term. In the event that Tatham
Offshore exercises it option to extend the Drilling Arrangement, Tatham
Offshore and Sedco Forex must agree upon additional security for the extension
period. During the term of the Drilling Arrangement, Tatham Offshore has the
right to sub-contract the rig to other operators. If the rig is sub-contracted
to another operator, Tatham Offshore will receive the difference between the
sub-contract rate and the above agreed upon rates, if any. The FPS Bill
Shoemaker is owned by an affiliate of DeepTech and is operated by Sedco Forex
under a charter agreement. Sedco Forex has the right to substitute a similar
drilling rig for the FPS Bill Shoemaker in the event the FPS Bill Shoemaker is
unavailable due to a previously submitted bid for work offshore Canada. In the
event Sedco Forex elects to carry out such rig substitution, Tatham Offshore
has (i) an option to use the FPS Bill Shoemaker in the Newfoundland Grand Banks
Area rather than the substitute rig to complete the initial contract term prior
to the use by the third party, subject to availability, and subject to higher
contract rates to account for the additional costs incurred by Sedco Forex as a
result of operations offshore Canada and (ii) an additional option, upon
completion of the third party work and subject to the use of the rig for
certain other projects, to contract to use the rig for the drilling of one well
at the then prevailing contract price.
Tatham Offshore currently intends to fund its operations with cash on hand and
cash from continuing operations through at least June 30, 1997. Although the
restructuring of Tatham Offshore's existing demand charge obligations with the
Partnership, the reduction of its overhead and the initiation of production
from the Viosca Knoll Block 817 field have significantly reduced Tatham
Offshore's cash flow deficit, Tatham Offshore does not anticipate generating
positive cash flow prior to the first to occur of (i) obtaining a refinancing
commitment which could allow Tatham Offshore to reacquire all or a portion of
the Assigned Properties from Flextrend Development, (ii) actual payout of the
Payout Amount and the resulting reversion of all or a portion of the Assigned
Properties which Tatham Offshore anticipates will occur no sooner than the end
of fiscal 1998 or (iii) the initial production from Tatham Offshore's Sunday
Silence field. In order to initiate production from the Sunday Silence field,
Tatham Offshore will require substantial additional capital to install a
production facility and drill additional development wells. There can be no
assurance, however, that Tatham Offshore will be able to obtain additional
financing on terms that are acceptable to Tatham Offshore.
To meet these additional capital needs, Tatham Offshore will continue to pursue
the implementation of its business strategy which will focus primarily on (i)
attempting to develop and initiate production from Tatham Offshore's Sunday
Silence field under a farmout or financing arrangement with an industry partner
or financial institution, (ii) analyzing the results of drilling operations on
the Assigned Properties in an effort to maximize the value of its reversionary
interest and attempting to obtain a financing commitment to reacquire the
properties or, at a minimum, to cause a reduction in the interest rate utilized
in the calculation of the Payout Amount, (iii) attempting to sell or farmout
interests in its other properties, (iv) attempting to reinitiate production at
Genuine Risk (Ship Shoal Block 331) under a farmout arrangement with an
industry partner or, alternatively, selling the property or salvaging the
platform and equipment located at Genuine Risk for sale to a third party or
redeployment on another property, (v) seeking to acquire interests in producing
properties on a carried or financed basis and (vi) pursuing the possible merger
of Tatham Offshore with an industry partner with sufficient capital resources
available to meet the capital requirements for the development of the combined
entity's properties.
22
<PAGE> 23
The ability of Tatham Offshore to satisfy its capital needs beyond those funded
with the proceeds from the sale of the equity securities offered pursuant to
the rights offering will depend upon its success in implementing its business
strategy, particularly its ability to develop and initiate production from the
Sunday Silence field. Although Tatham Offshore has pursued farmout and outside
financing arrangements for its Sunday Silence project, as of this date, Tatham
Offshore has not been able to obtain an acceptable farmout arrangement with an
industry partner or develop a financing arrangement under the current economic
conditions. On November 28, 1995, a federal law was enacted that offers
deepwater royalty relief for certain federal leases located in 200 meters or
greater of water depth in the Gulf. For federal leases acquired prior to
November 20, 1995, an applicant must demonstrate that the proposed new
production for which the royalty relief is sought would not be economic to
develop absent the royalty relief. Proposed interim regulations regarding
application procedures were published by the Minerals Management Service
("MMS") in May 1996. Tatham Offshore submitted an application under the
published interim regulation in October 1996 and such application is currently
being considered. Under federal law, the MMS has up to 180 days to respond to
such application. Under the new legislation, a minimum of the first 52.5
million equivalent barrels of oil production from the Sunday Silence project
would be exempt from federal royalties if such relief is granted. Tatham
Offshore believes that if the requested royalty abatement is granted, the
resulting improved economics for the project will be sufficient to obtain
development financing or an industry farmout arrangement. However, there can be
no assurance that Tatham Offshore will be able to obtain the requested royalty
abatement, enter into a farmout or financing arrangement on favorable terms,
that the Sunday Silence field will be successfully developed or that production
will be initiated therefrom on a timely basis, if at all.
Tatham Offshore has never paid dividends on its common or preferred stock.
Tatham Offshore expects to retain all available earnings generated by its
operations for the growth and development of its business.
23
<PAGE> 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
24
<PAGE> 25
SIGNATURE
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 thereunto duly authorized.
DEEPTECH INTERNATIONAL INC.
Date: November 12, 1996 /s/ JANET E. SIKES
------------------------------------
Janet E. Sikes
Treasurer and Secretary
(Principal Accounting Officer)
Date: November 12, 1996 /s/ DENNIS A. KUNETKA
------------------------------------
Dennis A. Kunetka
Senior Vice President - Corporate Finance
25
<PAGE> 26
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATINO EXTRACTED FROM (A) DEEPTECH
INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AT
SEPTEMBER 30, 1996 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED SEPTMEBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 38,170
<SECURITIES> 0
<RECEIVABLES> 11,073
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,269
<PP&E> 71,500
<DEPRECIATION> 743
<TOTAL-ASSETS> 194,012
<CURRENT-LIABILITIES> 21,550
<BONDS> 155,664
175
0
<COMMON> 0
<OTHER-SE> 15,355
<TOTAL-LIABILITY-AND-EQUITY> 194,012
<SALES> 23,100
<TOTAL-REVENUES> 26,202
<CGS> 22,865
<TOTAL-COSTS> 22,865
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,173
<INCOME-PRETAX> 1,101
<INCOME-TAX> 458
<INCOME-CONTINUING> 643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
