<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
Commission File number 33-51630:
CHIEFTAIN INTERNATIONAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
NEVADA 98-0127391
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
---------------
1201 TORONTO DOMINION TOWER, EDMONTON CENTRE,
EDMONTON, ALBERTA, CANADA T5J 2Z1
(Address of Registrant's principal executive offices) (Postal code)
Registrant's telephone number, including area code: (403) 425-1950
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
$1.8125 Convertible Redeemable Preferred Stock American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 12 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 / /
<PAGE> 2
CHIEFTAIN INTERNATIONAL FUNDING CORP.
1997 FORM 10-K ANNUAL REPORT
<TABLE>
<CAPTION>
Table of Contents
Page
PART I
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 3
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters. . 4
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . .. . . . . 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 6
PART III
Item 10. Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . 6
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . 8
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 9
PART IV
Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 9
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
Chieftain International Funding Corp. ("Funding Corp." or the "Company") is a
Nevada subsidiary of Chieftain International (U.S.) Inc. ("Chieftain U.S."), a
Nevada corporation which is, in turn, a wholly-owned subsidiary of Chieftain
International, Inc., an Alberta, Canada corporation. The primary purpose of
Funding Corp. is to finance business operations of Chieftain U.S.
On each of August 28, 1992 and November 5, 1992, Funding Corp. issued 100,000
common shares to Chieftain U.S. for total cash proceeds of $15.0 million.
Funding Corp. commenced operations on November 6, 1992 with the initial public
offering of 2,400,000 $1.8125 Convertible Redeemable Preferred Shares
("Preferred Shares"). An additional 326,700 Preferred Shares were issued
pursuant to the underwriter's exercise of an over-allotment option. Proceeds of
the issuance of Preferred Shares, net of offering costs of $4.7 million, were
$63.4 million. The Preferred Shares are redeemable at the option of the
Company at $25.8056 per share during 1998 declining to $25.00 per share after
December 31, 2001 plus accumulated and unpaid dividends. Each preferred share is
convertible at any time at the option of the holder into 1.25 common shares of
Chieftain International, Inc. (the ultimate parent company). Dividends on the
Preferred Shares are paid quarterly at the annual rate of $1.8125 per share.
On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares of Chieftain U.S., its parent company, at $25.00 per share,
and subsequently purchased an additional 300,000 of such shares to hold a total
of 3,140,000 such shares. Funding Corp. receives quarterly dividends on such
shares at the annual rate of $1.8125 per share. The shares are redeemable at the
option of the issuer at $25.8056 per share during 1998 declining to $25.00
during 2002 and thereafter.
Since December 31, 1992, Funding Corp. has, from time to time, purchased
short-term notes, payable by Chieftain U.S., with funds in excess of working
capital requirements. Such notes bear interest at competitive money market
rates.
Chieftain U.S. is engaged in the acquisition of gas and oil reserves through
purchase and through exploration and development and in gas and oil production
and sales in the United States. Its principal properties are located in the U.S.
federal waters of the Gulf of Mexico and in southeast Utah. Reference is made to
the information describing United States properties and operations in the Form
10-K Annual Report of Chieftain International, Inc. for the year ended December
31, 1997, which is attached as Exhibit 28 hereto. Chieftain International, Inc.
has guaranteed dividend, conversion and redemption obligations of Funding Corp.
with respect to the Preferred Shares.
EMPLOYEES
At December 31, 1997, Funding Corp. had no employees. Management services are
provided by Chieftain International, Inc.
ITEM 2. PROPERTIES
Funding Corp. owns no physical properties. Its assets consist of investments in
and advances to Chieftain U.S., its parent company.
ITEM 3. LEGAL PROCEEDINGS
Funding Corp. is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 1997.
3
<PAGE> 4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The high and low prices of the Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares (the "Preferred Shares") during each
quarter since December 31, 1995 are shown below.
Price History of Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares on the American Stock Exchange
<TABLE>
<CAPTION>
(U.S. dollars) High Low
-----------------------------------------------------------
<S> <C> <C>
1996
First quarter $ 27.25 $ 25.13
Second quarter 27.63 25.00
Third Quarter 29.63 26.00
Fourth Quarter 33.00 27.75
1997
First quarter 32.50 27.13
Second quarter 30.88 26.88
Third quarter 34.50 29.50
Fourth quarter 35.00 28.00
1998
January 29.00 26.75
February 30.25 28.63
March 1 to March 13 31.25 30.00
</TABLE>
All of the Company's issued common shares are owned by its parent, Chieftain
International (U.S.) Inc. The Preferred Shares were held by 53 shareholders of
record on December 31, 1997.
The Company has made timely payment of quarterly dividends on the Preferred
Shares, amounting to $0.453125 per share, for each quarter since the shares were
issued in 1992.
4
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for each of the five years in the period ended
December 31, 1997 has been derived from the financial statements of Funding
Corp. and should be read in conjunction with such financial statements and the
related notes.
<TABLE>
<CAPTION>
CHIEFTAIN INTERNATIONAL FUNDING CORP.
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(in thousands except shares and per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue ................................... $ 5,867 $ 5,826 $ 5,792 $ 5,736 $ 5,704
General and administrative expenses ....... 77 46 44 44 49
Income before dividends on preferred shares 5,755 5,748 5,748 5,692 5,668
Dividends on preferred shares ............. 4,942 4,942 4,942 4,942 4,942
Net income applicable to common shares .... 813 806 806 750 726
Net income per common share ............... 4.07 4.03 4.03 3.75 3.63
Number of common shares outstanding ....... 200,000 200,000 200,000 200,000 200,000
OTHER DATA:
Cash provided from operating activities ... $ 815 $ 993 $ 617 $ 748 $ 261
BALANCE SHEET DATA (at end of period):
Working capital ........................... $ 3,920 $ 3,106 $ 2,300 $ 1,494 $ 745
Total assets .............................. $ 82,425 $ 81,610 $ 82,040 $ 80,000 $ 79,252
Preferred shares issued ................... $ 63,403 $ 63,403 $ 63,403 $ 63,403 $ 63,403
Common shareholder's equity ............... $ 19,017 $ 18,203 $ 17,398 $ 16,592 $ 15,842
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Funding Corp., a special purpose subsidiary of Chieftain International (U.S.)
Inc., was formed in 1992 for the primary purpose of financing the U.S. business
operations of its parent.
ANALYSIS OF OPERATING RESULTS
Funding Corp.'s income is derived from dividends on preferred shares and
interest on short-term notes, all of which are issued by its parent company,
Chieftain International (U.S.) Inc.
Dividends received on 3,140,000 redeemable Class B preferred shares amounted to
$5,691,250 in each of the years 1997 and 1996. In addition to such dividend
income, interest of $175,599 and $134,272 in 1997 and 1996,respectively, was
earned on short-term investments.
Dividend income is expected to remain the same for 1997 while interest income is
expected to increase, reflecting the larger amount of short-term investments
held.
Dividends in the amount of $4,942,144 were paid in 1997, unchanged from 1996.
CAPITAL RESOURCES AND LIQUIDITY
Funding Corp. is dependent upon the dividend income from its investment in
preferred shares of its parent company to provide funds for payment of dividends
on its publicly-held preferred shares.
Funds provided from operations decreased to $815,049 in 1997 compared with
$992,999 in 1996. Most of these funds were invested in short-term notes issued
and payable by the parent company. Cash balances at December 31, 1997 and 1996
were $45,351 and $80,857 respectively.
5
<PAGE> 6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of Chieftain International Funding Corp. are
included in Part IV of this report.
Auditors' Report
Balance Sheet as at December 31, 1997 and 1996
Statement of Income and Retained Earnings for the years ended December 31,
1997, 1996 and 1995
Statement of Changes in Financial Position for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Funding Corp. and Funding Corp.'s
auditors on accounting or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company consists of not less than three nor more
than ten directors. The number of directors within these limits is fixed from
time to time by resolution of the Board of Directors and is currently eight.
Directors are elected annually by the common stockholder to hold office until
the close of the next ensuing annual meeting.
Information is presented below with respect to the directors of the Company. The
information includes age as of the date hereof, present position with the
Company and other business experience during the past five years. Except as
noted, all of the directors of the Company have served as such since the
Company's formation in November, 1992 and all are also directors of Chieftain
International (U.S.) Inc., the immediate parent of the Company and Chieftain
International, Inc., the ultimate parent of the Company. S.C. Hurley became a
director of each of such companies in 1997. Also presented is information with
respect to directors' ownership of securities of the Company and its ultimate
parent, and the ownership of such securities by the directors and executive
officers as a group. A director need not be a shareholder of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED AND PERCENT OF CLASS (1)
AS AT FEBRUARY 27, 1998
----------------------------------------------------
COMMON SHARES PREFERRED SHARES
OF OF
CHIEFTAIN INTERNATIONAL, INC. CHIEFTAIN FUNDING (2)
----------------------------- ---------------------
<S> <C> <C> <C> <C>
STEPHEN C. HURLEY, 48, Director
Senior Vice President and Chief Operating Officer of
Chieftain International, Inc. 52,271(3) -- -- --
HUGH J. KELLY, 72, Director
Corporate Director and
Energy Consultant. (4) 27,666(5) -- 10,000 --
JOHN E. MAYBIN, 73, Director
Corporate Director 27,666(6) -- -- --
STANLEY A. MILNER, A.O.E.,LL.D., 69, Director
President and Chief Executive Officer of
Chieftain International, Inc. (7) 661,636(8) 4.83% 39,000 1.43%
DAVID E. MITCHELL, O.C., 71,
Chairman of the Board
Chairman of Alberta Energy Company Ltd. (9) 36,666(5) -- -- --
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED AND PERCENT OF CLASS (1)
AS AT FEBRUARY 27, 1998
----------------------------------------------------
COMMON SHARES PREFERRED SHARES
OF OF
CHIEFTAIN INTERNATIONAL, INC. CHIEFTAIN FUNDING (2)
----------------------------- ---------------------
<S> <C> <C> <C> <C>
LOUIS G. MUNIN, 64, Director
Corporate Director and
Financial Consultant (10) 30,666(5) -- 2,000 --
ESTHER S. ONDRACK, 57, Director
Senior Vice President and Secretary of
Chieftain International, Inc. 97,708(11) -- -- --
STUART T. PEELER, 68, Director
Corporate Director and
Petroleum Industry Consultant. (12) 26,667(13) -- 21,500 --
DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP 1,146,456(14) 8.14% 72,500 2.66%
</TABLE>
(1) Percentages of less than one are omitted.
(2) Each $1.8125 Convertible Redeemable Preferred Share of Chieftain
International Funding Corp. is convertible into 1.25 common shares of
Chieftain International, Inc.
(3) Includes options, exercisable within 60 days, to purchase 50,000 shares.
(4) H.J. Kelly is a director of Baroid Corporation, Central Louisiana Electric
Company Inc., Hibernia National Bank and Tidewater Inc.
(5) Includes options, exercisable within 60 days, to purchase 26,666 shares.
(6) Includes options, exercisable within 60 days, to purchase 26,166 shares.
(7) S.A. Milner is a director of Alberta Energy Company Ltd., Canadian Imperial
Bank of Commerce and Canadian Pacific Limited.
(8) Includes options, exercisable within 60 days, to purchase 115,000 shares.
In addition, an associate of Mr. Milner owns 15,000 common shares.
(9) D.E. Mitchell is a director of Alberta Energy Company Ltd. and Air Canada.
(10) L.G. Munin is a director of Lafarge Canada Inc. and Walden Residential
Properties, Inc.
(11) Includes options, exercisable within 60 days, to purchase 75,833 shares.
(12) S.T. Peeler is a director of Calmat Co. and Homestake Mining Company.
(13) Includes options, exercisable within 60 days, to purchase 14,167 shares.
(14) Includes options, exercisable within 60 days, to purchase 495,328 shares.
7
<PAGE> 8
EXECUTIVE OFFICERS
The following table lists the name and age of each Executive Officer and all
positions and offices with the Company held by each such person. The officers
are appointed each year at the directors' meeting immediately following the
annual meeting of the shareholder. The next such meeting will be held on May 14,
1998.
<TABLE>
<CAPTION>
NAME AGE POSITION/OFFICE
- ---- --- ---------------
<S> <C> <C>
S.A. Milner, A.O.E.,LL.D 69 Director, President and Chief Executive Officer
S.C. Hurley 48 Director, Senior Vice President and Chief Operating Officer
E.L. Hahn 60 Senior Vice President, Finance and Treasurer
E.S. Ondrack 57 Director, Senior Vice President and Secretary
R.A. McDougall 62 Vice President, Land
S.J. Milner 40 Vice President, Drilling and Production
R.J. Stefure 50 Controller
</TABLE>
With the following exceptions all of the officers have held positions as
officers of the Company since its incorporation in 1992 and each officer
presently holds and has held for more than five years positions as officers of
Chieftain International, Inc. and Chieftain International (U.S.) Inc., the
former, in each case, being his or her principal occupation. S.C. Hurley joined
Chieftain in September, 1995 prior to which time he was the Vice President
Exploration of a U.S. based integrated oil company. S.J. Milner and R.J. Stefure
were appointed officers of the Company in June, 1995 and prior thereto held
management positions with the Company and its immediate and ultimate parents.
There are no family relationships among the executive officers and directors
except between S.A. Milner and D.E. Mitchell, O.C. who are first cousins and
between S.A. Milner and S.J. Milner who are father and son.
ITEM 11. EXECUTIVE COMPENSATION
The directors and officers, including the chief executive officer, receive no
compensation in their capacities as directors and officers of Funding Corp. All
of the officers are employees of and receive remuneration from Chieftain
International, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the share ownership in the voting securities of the
Company of each person or company beneficially owning, or exercising control or
direction over, more than five per cent of the outstanding shares of the
Company.
<TABLE>
<CAPTION>
Class Number of shares Percent of
Name and address of beneficial owner of shares beneficially owned class owned
- ------------------------------------ --------- ------------------ -----------
<S> <C> <C> <C>
Chieftain International (U.S.) Inc.
1201 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta, Canada
T5J 2Z1 Common 200,000 100%
</TABLE>
Information with respect to shares beneficially owned in the registrant and its
ultimate parent, Chieftain International, Inc., by directors and executive
officers of the Company, is presented in Item 10, "Directors and Executive
Officers".
8
<PAGE> 9
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of an informal understanding between the Company and Chieftain
International, Inc.("Chieftain Canada"), Chieftain Canada provides management
services as required to enable the Company to carry on its business.
Chieftain Canada has unconditionally guaranteed certain obligations of the
Company with respect to the Preferred Shares. The Preferred Shares are
redeemable, at the option of the Company, at $25.8056 per share during 1998,
declining to $25.00 per share after December 31, 2001 plus accumulated and
unpaid dividends. Each Preferred Share has a liquidation preference of $25.00
and is convertible at any time into 1.25 common shares of Chieftain Canada at
the option of the holder. Reference is made to Exhibits 4(a), "Form of
Certificate of Designation of Preferred Stock of Funding Corp.", and 4(b), "Form
of Subordinated Guarantee Agreement of Chieftain International, Inc.".
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
The following is a listing of the financial statements which are included in
this Form 10-K report.
FINANCIAL STATEMENTS
Reference is made to the list of financial statements on page 6 of this report.
EXHIBITS
Reference is made to the Index to Exhibits on page 17 of this report.
REPORTS ON FORM 8-K
The registrant filed no reports on Form 8-K during the fourth quarter of the
year ended December 31, 1997.
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<PAGE> 10
AUDITORS' REPORT
To the Shareholders of
Chieftain International Funding Corp.
We have audited the balance sheets of Chieftain International Funding Corp. as
at December 31, 1997 and 1996 and the statements of income and retained earnings
and changes in financial position for each of the years in the three-year period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1997 and 1996
and the results of its operations and the changes in its financial position for
each of the years in the three-year period ended December 31, 1997 in accordance
with generally accepted accounting principles.
PRICE WATERHOUSE
Chartered Accountants
Edmonton, Alberta
February 4, 1998
10
<PAGE> 11
CHIEFTAIN INTERNATIONAL FUNDING CORP.
(a subsidiary of Chieftain International (U.S.) Inc.)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1997 1996
----------- -----------
(U.S. $)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 45,351 $ 80,857
Due from affiliated companies 3,879,982 3,029,427
----------- -----------
3,925,333 3,110,284
Investment in preferred shares of Chieftain International (U.S.) Inc.
at cost (Note 2) 78,500,000 78,500,000
----------- -----------
$82,425,333 $81,610,284
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 5,776 $ 4,100
Preferred shares issued (Note 3) 63,402,903 63,402,903
Common shareholder's equity:
Share capital (Note 4)
Authorized
10,000,000 common shares, par value $0.01 each
Issued
200,000 common shares 2,000 2,000
Additional paid in capital 14,998,000 14,998,000
Retained earnings 4,016,654 3,203,281
----------- -----------
19,016,654 18,203,281
----------- -----------
$82,425,333 $81,610,284
=========== ===========
</TABLE>
APPROVED BY THE BOARD
/s/ S.A. Milner Director
/S/ L.G. Munin Director
11
<PAGE> 12
CHIEFTAIN INTERNATIONAL FUNDING CORP.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
----------- ----------- -----------
(U.S. $)
<S> <C> <C> <C>
Revenue
Dividends $ 5,691,250 $ 5,691,250 $ 5,691,250
Interest 175,599 134,272 100,690
----------- ----------- -----------
5,866,849 5,825,522 5,791,940
General and administrative expenses 76,553 46,081 44,260
----------- ----------- -----------
Income before income taxes and dividends on preferred shares 5,790,296 5,779,441 5,747,680
Income taxes (Note 5) 34,779 31,600 --
----------- ----------- -----------
Income before dividends on preferred shares 5,755,517 5,747,841 5,747,680
Dividends on preferred shares (4,942,144) (4,942,144) (4,942,144)
----------- ----------- -----------
Net income applicable to common shares 813,373 805,697 805,536
Retained earnings, beginning of period 3,203,281 2,397,584 1,592,048
----------- ----------- -----------
Retained earnings, end of period $ 4,016,654 $ 3,203,281 $ 2,397,584
=========== =========== ===========
Net income per common share $ 4.07 $ 4.03 $ 4.03
=========== =========== ===========
</TABLE>
12
<PAGE> 13
CHIEFTAIN INTERNATIONAL FUNDING CORP.
STATEMENT OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
--------- ----------- -----------
(U.S. $)
<S> <C> <C> <C>
Operating activities:
Net income applicable to common shares $ 813,373 $ 805,697 $ 805,536
Change in non-cash working capital
Dividend receivable -- 1,422,813 (1,422,813)
Current liabilities 1,676 (1,235,511) 1,234,511
--------- ----------- -----------
815,049 992,999 617,234
Investing activities:
Advances to affiliated companies (850,555) (1,008,390) (563,638)
--------- ----------- -----------
Change in cash (35,506) (15,391) 53,596
Cash, beginning of year 80,857 96,248 42,652
--------- ----------- -----------
Cash, end of year $ 45,351 $ 80,857 $ 96,248
========= =========== ===========
</TABLE>
13
<PAGE> 14
CHIEFTAIN INTERNATIONAL FUNDING CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
Chieftain International Funding Corp. ("Funding Corp."), a special purpose
subsidiary of Chieftain International (U.S.) Inc., was formed in 1992 for the
primary purpose of financing the U.S. business operations of its parent. Funding
Corp.'s income is derived from dividends on preferred shares and interest on
short-term notes, all of which are issued by its parent company, Chieftain
International (U.S.) Inc. The financial statements are expressed in U.S.
currency since the assets and operations of Funding Corp. are denominated in
U.S. dollars.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING POLICIES
The financial statements of Funding Corp. are prepared in conformity with
Canadian generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make informed judgements and estimates. Actual results may differ
from those estimates. Material differences between Canadian and U.S. accounting
principles which affect Funding Corp. are specifically referred to in these
Notes to Financial Statements.
FINANCIAL ASSETS AND LIABILITIES
Funding Corp.'s financial instruments that are included in the Balance Sheet are
comprised of cash, intercompany receivables, all current liabilities and
preferred shares issued, the fair values of which, other than the preferred
shares issued (see Note 3), approximate their carrying amounts due to their
short-term or demand nature.
INCOME TAXES
Funding Corp. and its parent company file corporate income tax returns on a
consolidated basis. As a result, income taxes payable have been offset by the
parent company's tax losses and are reflected in the amount due from the parent
company.
Funding Corp. follows the tax allocation method of accounting for the tax effect
of all timing differences between taxable income and accounting income.
U.S. accounting principles require corporations to account for deferred income
taxes using the liability method. The effect on Funding Corp. of the application
of such method is not material.
2. INVESTMENT IN PREFERRED SHARES OF PARENT
On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares at $25.00 per share of Chieftain International (U.S.) Inc.,
its parent company. Subsequent to that date, FundingCorp. purchased an
additional 300,000 of such shares to hold a total of 3,140,000 shares. The
shares pay quarterly dividends at the annual rate of $1.8125 per share. The
shares are redeemable at the option of the parent company at $25.8056 during
1998 declining to $25.00 per share after December 31, 2001, plus accumulated and
unpaid dividends.
14
<PAGE> 15
3. PREFERRED SHARES
The Articles of Funding Corp. authorize the issue of a maximum of 10,000,000
preferred shares with a par value $1.00 each.
On November 6, 1992, Funding Corp. sold 2,400,000 shares of $1.8125 convertible
redeemable preferred stock at $25.00 per share through an underwritten public
offering in the United States. On December 2, 1992, Funding Corp. sold an
additional 326,700 preferred shares pursuant to an over-allotment option granted
to the underwriters, resulting in a total issuance of 2,726,700 shares. Proceeds
of the issuance of preferred shares, net of offering costs of $4.7 million, were
$63.4 million. The preferred shares are redeemable, at the option of Funding
Corp., at $25.8056 per share during 1998, declining to $25.00 per share after
December 31, 2001 plus accumulated and unpaid dividends. Each preferred share
has a liquidation preference of $25.00 and is convertible at any time at the
option of the holder into 1.25 common shares of Chieftain International, Inc.
(the ultimate parent company). Chieftain International, Inc. has guaranteed
dividend, conversion and redemption obligations of Funding Corp. with respect to
the preferred shares.
Canadian generally accepted accounting principles require the disclosure of the
fair value of a financial instrument of this nature and define the fair value as
the amount at which the instrument could be exchanged in a current transaction
between willing parties. The estimated fair value of Funding Corp.'s preferred
shares at December 31, 1997 is $72,427,969 (1996 - $88,617,750) which is the
market value of the securities into which these shares are convertible.
4. SHARE CAPITAL
On August 28, 1992, Funding Corp. issued 100,000 common shares, par value $0.01
each, for net cash proceeds of $1,000 and, on November 5, 1992 issued 100,000
common shares, par value $0.01 each, to its parent for net cash proceeds of
$14,999,000.
5. INCOME TAXES
The actual tax rate differed from the expected tax rate for the following
reason:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected percentage 35.5% 35.8% 35.5%
Deduct the effect of dividends from the parent received by
the company on a "tax-free" basis 34.9 35.3 35.5
---- ---- ----
Actual percentage of income tax expense on pre-tax income 0.6% 0.5% 0.0%
==== ==== ====
</TABLE>
6. TRANSACTIONS WITH AFFILIATES
All dividend and interest income of Funding Corp. is received from Chieftain
International (U.S.) Inc. Certain administrative services are provided to
Funding Corp. by Chieftain International, Inc.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CHIEFTAIN INTERNATIONAL FUNDING CORP.
<TABLE>
<S> <C>
by: /s/ STANLEY A. MILNER by: /s/ EDWARD L. HAHN
------------------------- ------------------------
Stanley A. Milner, A.O.E., LL.D. Edward L. Hahn
President and Senior Vice President, Finance and Treasurer
Chief Executive Officer and Chief Financial Officer
</TABLE>
Dated: March 20, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ D.E. MITCHELL Director March 20, 1998
- --------------------------
D.E. Mitchell O.C
/s/ S.A. MILNER President, Chief Executive Officer and March 20, 1998
- -------------------------- Director
S.A. Milner, A.O.E., LL.D
/s/ S.C. HURLEY Director March 20, 1998
- --------------------------
S.C. Hurley
/s/ H.J. KELLY Director March 20, 1998
- --------------------------
H.J. Kelly
/s/ J.E. MAYBIN Director March 20, 1998
- --------------------------
J.E. Maybin
/s/ L.G. MUNIN Director March 20, 1998
- --------------------------
L.G. Munin
/s/ E.S. ONDRACK Director March 20, 1998
- --------------------------
E.S. Ondrack
/s/ S.T. PEELER Director March 20, 1998
- --------------------------
S.T. Peeler
/s/ E.L. HAHN Senior Vice President, Finance and Treasurer March 20, 1998
- -------------------------- and Chief Financial Officer
E.L. Hahn
/s/ R.J. STEFURE Controller and Chief Accounting Officer March 20, 1998
- --------------------------
R.J. Stefure
</TABLE>
16
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- --------- -------
** 3(e) Articles of Incorporation of Funding Corp.
** 3(f) Amended Articles of Incorporation of Funding Corp.
** 3(g) Bylaws of Funding Corp.
** 4(a) Form of Certificate of Designation of Preferred Stock of Funding
Corp.
** 4(b) Form of Subordinated Guarantee Agreement of Chieftain
International, Inc.
**** 24 Consent of Price Waterhouse.
27 Financial Data Schedule.
**** 28 Form 10-K of Chieftain International, Inc. for the year ended
December 31, 1997.
** Previously filed as an exhibit to the Registration Statement of the
registrant on Form S-1/S-3, File No. 33-51630.
**** Filed herewith.
17
<PAGE> 1
Exhibit 24
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the inclusion in the Annual Report on Form 10-K of our
report dated February 4, 1998 on the financial statements of Chieftain
International Funding Corp. for the year ended December 31, 1997.
/s/ Price Waterhouse
Chartered Accountants
Edmonton, Alberta, Canada
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 BALANCE SHEET AND THE STATEMENT OF INCOME AND RETAINED EARNINGS FOR
YEAR ENDED DECEMBER 31, 1997 INCLUDED IN THE COMPANY'S DECEMBER 31, 1997 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 45,351
<SECURITIES> 0
<RECEIVABLES> 3,879,982<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,925,333
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,425,333<F2>
<CURRENT-LIABILITIES> 5,776
<BONDS> 0
0
2,726,700
<COMMON> 2,000
<OTHER-SE> 79,690,857<F3>
<TOTAL-LIABILITY-AND-EQUITY> 82,425,333
<SALES> 0
<TOTAL-REVENUES> 5,866,849<F4>
<CGS> 0
<TOTAL-COSTS> 76,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,790,296
<INCOME-TAX> 34,779
<INCOME-CONTINUING> 5,755,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,755,517
<EPS-PRIMARY> 4.07
<EPS-DILUTED> 4.07
<FN>
<F1>Receivables are due from affiliated companies.
<F2>An investment in preferred shares of Chieftain International (U.S.) Inc., at
cost, is $78,500,000, has been included in total assets.
<F3>Additional paid-in capital of $14,998,000 (attributable to common stock) and
$60,676,203 (attributable to preferred stock) has been added to retained
earnings of $4,016,654 in calculating other stockholders' equity.
<F4>Revenues are earned exclusively form transactions with parent company.
</FN>
</TABLE>
<PAGE> 1
Exhibit 28
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
Commission File number 1-10216:
CHIEFTAIN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
ALBERTA, CANADA NONE
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1201 TORONTO DOMINION TOWER, EDMONTON CENTRE,
EDMONTON, ALBERTA, CANADA T5J 2Z1
(Address of Registrant's principal executive offices) (Postal code)
Registrant's telephone number, including area code: (403) 425-1950
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Shares, no par value, of
Chieftain International, Inc. American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 12 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 [ ]
The aggregate market value of the voting stock of Chieftain International, Inc.
held by non-affiliates of said registrant on March 13, 1998 was
U.S.$306,126,520.
The number of shares outstanding of the common stock of Chieftain International,
Inc. on March 13,1998 was 13,576,675.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Chieftain International, Inc. Information Circular dated March
20, 1998 for its annual meeting of shareholders to be held on May 14, 1998, are
incorporated by reference into Part III hereof, to the extent indicated herein.
The Exhibits Index can be found on page 41 of this document.
<PAGE> 2
CHIEFTAIN INTERNATIONAL, INC.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Page
PART I
<S> <C>
Item 1. Business ................................................................................. 3
Segment Information .................................................................... 3
Principal Properties ................................................................... 3
Acreage ................................................................................ 8
Gas and Oil Capital Expenditures ....................................................... 9
Drilling Activity ...................................................................... 9
Wells .................................................................................. 10
Reserves ............................................................................... 10
Production Volumes, Prices and Costs ................................................... 10
Marketing .............................................................................. 11
Competition ............................................................................ 11
Environmental Regulation ............................................................... 11
Regulation and Political Risk .......................................................... 11
Concentration of Gas Production ........................................................ 12
Development of Additional Reserves ..................................................... 12
Exploration and Production Risks ....................................................... 12
Price Uncertainty ...................................................................... 12
Employees .............................................................................. 12
Glossary ............................................................................... 13
Item 2. Properties ............................................................................... 15
Item 3. Legal Proceedings ........................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 15
Executive Officers of the Registrant ................................................... 15
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters ................... 16
Item 6. Selected Consolidated Financial Data ..................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 18
Item 8. Financial Statements and Supplementary Data .............................................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 40
PART III
Item 10. Directors and Executive Officers ......................................................... 40
Item 11. Executive Compensation ................................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... 40
Item 13. Certain Relationships and Related Transactions ........................................... 40
PART IV
Item 14. Exhibits and Reports on Form 8-K ......................................................... 40
Signatures ........................................................................................... 42
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
Chieftain International, Inc. was incorporated under the Business Corporations
Act (Alberta) on November 23, 1988 and amalgamated on February 22, 1989 with a
wholly-owned subsidiary. *
The Company commenced operations on April 20, 1989 with the successful initial
public offering of 9,487,500 Common Shares which generated net proceeds of
$121.7 million. Upon the closing of the offering, the Company purchased assets
consisting primarily of natural gas and oil properties in the United States.
Chieftain is engaged directly and indirectly through subsidiary companies in gas
and oil exploration and production, primarily in the United States and also in
the U.K. sector of the North Sea. In addition, Chieftain is participating in an
exploration venture in the Sirte Basin of Libya.
The Company employs an experienced geological and geophysical staff which
generates exploration prospects utilizing advanced technology to process and
interpret 3-D seismic and other data.
In the United States, Chieftain's principal producing properties are located in
the federal waters of the Gulf of Mexico and in southeast Utah. Chieftain's
exploration acreage is located primarily in the federal waters of the Gulf of
Mexico. Minor interests are held onshore in Texas and in other areas of the
United States.
In the Gulf of Mexico, Chieftain holds interests in 149 offshore blocks of which
93 are exploratory and 56 are productive.
SEGMENT INFORMATION
Reference is made to page 39 hereof for financial information with respect to
the geographic segments of Chieftain for the years ended December 31, 1997, 1996
and 1995.
PRINCIPAL PROPERTIES
Chieftain's principal gas producing properties are located in U.S. federal
waters in the Gulf of Mexico and in the U.K. sector of the North Sea. Its
principal oil producing properties are located in the Paradox Basin of southeast
Utah, also referred to as the Four Corners area.
UNITED STATES GULF OF MEXICO AREA -- OFFSHORE
Chieftain concentrates its exploration and development activities in, and
devotes substantial managerial and financial resources to, the offshore Gulf of
Mexico area which accounted for most of Chieftain's gas production in 1997.
Activity in this area during 1997 was devoted to both exploration for and
development of reserves. Sixteen exploratory wells were drilled, of which eight
were successful, and ten development wells were drilled, of which nine were
successful.
- -----------------------------
* Unless the context otherwise requires, reference to "Chieftain" or the
"Company" or the"Corporation" are to Chieftain International, Inc. and its
subsidiaries. For definitions of certain terms used throughout this report, see
"Glossary".
The Company's accounts are maintained, and all dollar amounts herein are stated,
in United States dollars unless otherwise indicated.
3
<PAGE> 4
Substantial additions were made to Chieftain's acreage position in the Gulf of
Mexico during 1997. Interests in 13 federal blocks were acquired at competitive
lease sales and interests in six blocks were acquired through joint venture
operations. Holdings in the offshore Gulf of Mexico amounted to 701,764 gross
(260,232 net) acres at year-end compared to 606,581 gross (211,388 net) acres at
December 31, 1996. Ongoing acquisition of three-dimensional seismic data
continues to support the Company's exploration efforts.
Described below are the principal areas of Chieftain's activity in the Gulf of
Mexico. Production volumes shown are net to Chieftain, before royalties.
WESTERN GULF (OFFSHORE TEXAS)
MATAGORDA ISLAND:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
9 47,610 16,635 34.9% 21.3 mmcfd
</TABLE>
This area has been a major source of the Company's production since 1989. Three
development wells were drilled during 1997, including two horizontal wells
drilled to delineate the 1996 discovery on Block 633 (Chieftain 25%). The third
well, also successful, was drilled on a separate fault block on 634 (Chieftain
24.1%). These wells contributed to a one-third increase in the Company's
production from the area. The reservoir underlying 634 is believed to extend to
the northeast where a drilling location has been selected. Three-dimensional
seismic data has been used to identify a deep prospect beneath the producing
reservoir on 634, and an exploratory well commenced drilling in early 1998.
Block 625 (Chieftain 25%), immediately north of Block 633, has been acquired to
protect the northern extension of the reservoir.
MUSTANG ISLAND:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
8 39,176 14,875 38% 4.6 mmcfd
</TABLE>
Detailed seismic work and a 21,000-foot well are planned for 1998 on Block A-51
(Chieftain 25%) which was acquired at the August 1997 lease sale.
HIGH ISLAND:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- --------------------
<S> <C> <C> <C> <C>
34 141,252 58,882 41.7% 9.5 mmcfd and 119 bd
</TABLE>
On Block 207 (Chieftain 50%), a platform will be installed for production to
commence in late 1998 from a 1996 gas discovery. The platform will also be used
to drill an exploratory prospect in the northeast corner of the block.
In the High Island South Addition area, eight blocks have been acquired in the
past two years. Active exploration of these holdings will begin with an
exploratory well on Block A-510 (Chieftain 50%) where drilling by a previous
leaseholder established pay in three wells which did not produce due to lack of
pipeline transportation. Access to pipelines is now readily available and
additional wells are planned for 1998.
4
<PAGE> 5
CENTRAL GULF (OFFSHORE LOUISIANA)
EAST CAMERON:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
14 61,479 19,827 32.3% 1 mmcfd and 99 bd
</TABLE>
Major development work during 1997 resulted in the commencement of production,
in the fourth quarter of 1997, from Blocks 349, 350 and 356 (Chieftain 25%).
Production from four wells reached over 8 mmcfd and 700 bd, net to Chieftain,
prior to year-end. In late December this field was temporarily shut in for
repairs to a third-party pipeline. A fifth productive well was completed in
early 1998. Exploratory drilling is planned for Block 329 (Chieftain 33.3%).
VERMILION:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
6 20,806 13,447 64.6% 0.4 mmcfd
</TABLE>
Production commenced in mid-year from a discovery well on Block 23 at
approximately one mmcfd, net to Chieftain's 25% interest. A successful follow-up
development well was drilled later in the year and will commence production in
early 1998. Exploratory wells are planned for Blocks 267, 368 and 16 (Chieftain
60%, 15% and 40%, respectively).
SOUTH MARSH ISLAND:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
3 15,000 7,000 46.7% --
</TABLE>
A discovery well drilled on Block 39 (Chieftain 50%) at mid-year was followed up
by a second successful well late in 1997. New three-dimensional seismic data and
new interpretation techniques were utilized to identify prospects previously
shielded by a salt dome. The first well encountered 100 feet of sand containing
gas condensate. In the second well, the sand thickened to 245 feet of oil pay.
Short term production tests from the thicker pay section in the second well
flowed 850 bd of light gravity crude oil and associated gas. Potentially
productive deeper zones have not been tested. A third follow-up well was
drilling early in 1998. Additional exploratory follow-up wells are planned and
production is expected to commence in the last quarter of 1998. When fully
delineated, this field will likely prove to be Chieftain's largest 1997
discovery.
EUGENE ISLAND:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
5 21,250 6,438 30.3% --
</TABLE>
On Block 83, Chieftain (40%) participated in a natural gas discovery.
Installation of a production platform was completed within four months and
production commenced early in 1998 at 4 mmcfd and 40 bd net to Chieftain.
On Block 189 (Chieftain 75%), two successful oil and gas discoveries were
drilled on separate fault blocks. A follow-up well will be drilled on one of
these fault blocks and a third fault block remains to be drilled. Production is
expected to commence in late 1998.
5
<PAGE> 6
EASTERN GULF
MISSISSIPPI CANYON:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
5 28,800 6,480 22.5% 0.1 mmcfd
</TABLE>
Early in 1998, drilling commenced on a deep water oil prospect on Block 29
(Chieftain 33.3%). The 7,500-foot well, on the flank of a salt dome, is being
drilled in 2,500 feet of water. Two other prospects have been identified on the
block and may be drilled after the first well. This acreage is in the deep water
Flex Trend adjacent to the Pompano oil field.
MAIN PASS:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ---------------------
<S> <C> <C> <C> <C>
12 47,608 7,394 15.5% 10.5 mmcfd and 177 bd
</TABLE>
The two fields at Main Pass 223 (Chieftain 10%) and 225 (Chieftain 7%) were
among the largest industry discoveries on the Continental Shelf in 1995.
Subsequent drilling success added reserves and deliverability that surpassed the
capacity of the original pipeline to the area. Additional pipeline capacity is
being installed, necessitating the temporary shut-in of production. Production
from Block 217 (Chieftain 20%) is expected to commence in the second quarter of
1998. A new field was discovered in 1997 in the southern portion of Main Pass
250, in which Chieftain increased its interest from 7.5% to 20%. This field will
begin to produce by mid-1998. Three development wells are planned for Blocks 223
(Chieftain 10%) and 250 (Chieftain 20%).
MOBILE BAY:
<TABLE>
<CAPTION>
Blocks Gross Acres Net Acres Average Interest Average Production
------ ----------- --------- ---------------- ------------------
<S> <C> <C> <C> <C>
3 17,138 6,409 37.4% 8.2 mmcfd
</TABLE>
A deep well to test a Norphlet sandstone gas prospect on Block 914 (Chieftain
18.75%) began drilling late in 1997. This well is being drilled at reduced cost
to Chieftain under a farm-out agreement with a major company. Total depth of
24,000 feet is expected to be reached during the second quarter of 1998.
PARADOX BASIN, UTAH
ANETH UNIT:
<TABLE>
<CAPTION>
Gross Acres Net Acres Average Interest Average Production
----------- --------- ---------------- ---------------------
<S> <C> <C> <C>
18,070 3,066 13.4% 0.23 mmcfd and 672 bd
</TABLE>
RATHERFORD UNIT:
<TABLE>
<CAPTION>
Gross Acres Net Acres Average Interest Average Production
----------- --------- ---------------- ----------------------
<S> <C> <C> <C>
12,910 2,560 21.4% 0.4 mmcfd and 1,230 bd
</TABLE>
In the Four Corners area of southeastern Utah, Chieftain has interests in two
unitized oil fields, Aneth and Ratherford, where horizontal drilling has
improved the effectiveness of the waterflood enhanced recovery program,
resulting in cost-effective increases in recoverable reserves and production.
During 1997, oil production increased 7% in the Aneth Unit and 20% in the
Ratherford Unit. A total of 34 multi-lateral horizontal development wells were
drilled. In addition, a tertiary enhanced recovery pilot project is about to
commence at the Aneth Unit to further increase recoverability and production. A
similar
6
<PAGE> 7
project is being considered for the Ratherford Unit. The horizontal drilling
program will continue with some 30 wells planned for the Units in 1998.
NORTH SEA - UNITED KINGDOM SECTOR
<TABLE>
<CAPTION>
Gross Acres Net Acres Average Interest Average Production
----------- --------- ---------------- ------------------
<S> <C> <C> <C>
73,993 12,731 17.2% 11 mmcfd and 41 bd
</TABLE>
Production during the fourth quarter from the Galahad (Chieftain 17.8%) and
Mordred (Chieftain 5.3%) fields averaged 15.5 mmcfd, net to Chieftain.
Production was shut in for several weeks at mid-year for maintenance work and in
the month of August, sales were suspended in response to low prices. Currently,
all of the gas, which is royalty free, flows to the United Kingdom. The U.K. is
Europe's largest gas market and recent deregulation has resulted in weak prices,
a situation which is expected to be temporary. The Interconnector pipeline from
England to Belgium is scheduled to be operational for the 1998-99 winter heating
season and will provide access for some North Sea production to higher priced
markets on the continent. The pipeline will have the capacity to supply 6% of
European demand.
SIRTE BASIN
<TABLE>
<CAPTION>
Gross Acres Net Acres Average Interest Average Production
----------- --------- ---------------- ------------------
<S> <C> <C> <C>
3,888,550 486,068 12.5% --
</TABLE>
A long term production test of three wells on NC-171 Block 5 in Libya began in
December 1997. Production was approximately 500 bd net to Chieftain's interest
in January 1998. The light, 31 degree gravity oil will be sold to European
refineries. If the production test determines commerciality, additional
development drilling and production facility upgrades will follow. Reserves have
not been booked as continuity of the reservoir will not be established until six
to twelve months of production testing has been completed. At that time, after
the recovery of certain costs, Chieftain's interest in the production will be
reduced. Under the terms of the concession agreement, Chieftain will participate
in two further exploratory wells.
7
<PAGE> 8
ACREAGE
The following table summarizes the developed and undeveloped acreage held by
Chieftain as at December 31, 1997. Where applicable, interests which are not
working interests (none of which is material) have been converted to working
interest equivalents.
<TABLE>
<CAPTION>
Developed Acres Undeveloped Acres
Area Gross Net Gross Net
- ----------------------------- ------ ------ --------- -------
<S> <C> <C> <C> <C>
United States
Offshore Gulf of Mexico
Louisiana 21,909 6,744 313,577 101,557
Texas 14,082 3,883 343,424 145,478
Texas State 300 22 8,472 2,548
------ ------ --------- -------
Total Offshore Gulf of Mexico 36,291 10,649 665,473 249,583
------ ------ --------- -------
Onshore
Louisiana 573 72 -- --
Montana -- -- 3,240 3,240
North Dakota 997 227 3,185 188
Pennsylvania 324 36 -- --
Texas -- -- 13,357 3,339
Utah 29,860 4,895 1,120 731
------ ------ --------- -------
Total Onshore 31,754 5,230 20,902 7,498
------ ------ --------- -------
Total United States 68,045 15,879 686,375 257,081
====== ====== ========= =======
United Kingdom
North Sea 7,584 1,348 66,409 11,383
====== ====== ========= =======
Libya
Sirte Basin -- -- 3,888,550 486,068
====== ====== ========= =======
Total, all areas 75,629 17,227 4,641,334 754,532
====== ====== ========= =======
</TABLE>
Chieftain's developed and undeveloped acreage in all areas covered 4,716,963
gross (771,759 net) acres at December 31, 1997.
The undeveloped acreage has not been independently evaluated. The cost to
Chieftain thereof is approximately $41 million.
8
<PAGE> 9
GAS AND OIL CAPITAL EXPENDITURES
The following table summarizes Chieftain's net capital expenditures for the
years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
- ----------------------- ------- --------
<S> <C> <C>
(in thousands)
Property acquisition costs:
United States $ 9,164 $ 13,954
United Kingdom 137 722
Other foreign -- 68
------- --------
9,301 14,744
------- --------
Purchase of producing properties:
United States -- 2,077
------- --------
Sale of producing properties:
United States -- (1,040)
------- --------
Exploration costs:
United States 35,540 17,453
United Kingdom 115 --
Other foreign 1,207 434
------- --------
36,862 17,887
------- --------
Development costs:
United States 23,260 22,131
United Kingdom 30 1,874
------- --------
23,290 24,005
------- --------
$69,453 $ 57,673
======= ========
</TABLE>
DRILLING ACTIVITY
The following table summarizes the results of Chieftain's drilling activities
during the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
EXPLORATORY WELLS - Year ended December 31, 1997 1996
Gross Net Gross Net
----- ---- ----- ----
<S> <C> <C> <C> <C>
Gas 7 2.82 6 1.47
Oil -- -- -- --
Oil/Gas 1 0.50 1 0.25
Evaluating -- -- -- --
Drilling at end of year 3 0.94 -- --
Abandoned 9 2.99 8 2.26
----- ---- ----- ----
20 7.25 15 3.98
===== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
DEVELOPMENT WELLS - Year ended December 31, 1997 1996
Gross Net Gross Net
----- ---- ----- ----
<S> <C> <C> <C> <C>
Gas 9 1.77 8 2.00
Oil 34 6.15 20 3.00
Oil/Gas -- -- -- --
Evaluating -- -- -- --
Drilling at end of year 4 0.81 5 0.80
Abandoned 1 0.50 2 0.67
----- ---- ----- ----
48 9.23 35 6.47
===== ==== ===== ====
</TABLE>
9
<PAGE> 10
WELLS
Chieftain's productive gas and oil wells as at December 31, 1997 are listed in
the following table. Any interests which are not working interests (none of
which is material) have been converted to working interest equivalents.
<TABLE>
<CAPTION>
Gas Wells Oil Wells
---------------- ----------------
Gross Net Gross Net
----- ----- ----- -----
<S> <C> <C> <C> <C>
North Dakota -- -- 2 0.47
Pennsylvania 5 0.93 -- --
Utah -- -- 270 44.74
Louisiana 1 0.13 -- --
U.S. Gulf of Mexico 109 27.59 15 4.45
United Kingdom 3 0.41 -- --
----- ----- ----- -----
118 29.06 287 49.66
===== ===== ===== =====
</TABLE>
In addition, Chieftain has interests in three (0.37 net) oil wells and one
suspended well in Libya. Three wells are currently undergoing production testing
to evaluate the feasibility of development.
RESERVES
Chieftain's gas and oil reserves have been evaluated by Netherland, Sewell &
Associates, Inc. ("NS&A") as to the U.S. reserves and by the Company as to the
U.K. reserves.
For estimates of the Company's proved and proved developed reserves see
"Supplementary Financial Information".
PRODUCTION VOLUMES, PRICES AND COSTS
Chieftain's net production of gas and oil (computed after royalty deductions but
before production taxes) for the years ended December 31, 1997 and 1996 is
listed below. Also listed are average sales prices and average production costs
during such periods.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
----------------------- ------ ------
<S> <C> <C>
Total Net Production:
Gas (mmcf) 23,431 21,894
Oil and liquids (mb) 825 734
Gas equivalent (mmcf) 28,383 26,296
Average Daily Net Production:
Gas (mmcf) 64.2 59.8
Oil and liquids (b) * 2,261 2,005
Gas equivalent (mmcf) 77.8 71.8
Average Sales Price:
Gas (per mcf) $ 2.33 $ 2.09
Oil and liquids (per b) $18.94 $20.99
Average Production Cost:
Gas (per mcf) $ 0.27 $ 0.25
Oil and liquids (per b) $ 5.81 $ 6.57
</TABLE>
* Oil comprised approximately 83% of the oil and liquids over the periods shown.
10
<PAGE> 11
MARKETING
Most of Chieftain's gas reserves are located in the Gulf of Mexico area of the
United States, where ready deliverability of gas through numerous large capacity
pipelines and auxiliary feeder pipelines provides flexibility in marketing
Chieftain's gas reserves in the U.S. spot market. Gas prices in the U.S. and in
the U.K. North Sea are largely determined by competitive market forces.
Most of the gas produced by Chieftain has been marketed since 1989 by Highland
Energy Company, an aggregator for several U.S. gas producers, at prices based on
spot market prices. Highland Energy Company has also represented Chieftain in
relation to the marketing of Chieftain's U.K. gas production.
Chieftain's oil production from the Aneth and Ratherford Units in the Four
Corners area of Utah has been sold under successive term contracts to a regional
refiner since 1989. The quantity and quality of this oil has obtained for
Chieftain premiums over locally posted prices. Most of Chieftain's Gulf of
Mexico oil and ngls production is marketed by Highland Energy Company.
Chieftain believes that alternative marketing arrangements would be readily
available for its gas,oil and liquids although no assurance can be given that
any alternative would not be less advantageous to Chieftain.
COMPETITION
There is competition in all aspects of the gas and oil industry, particularly
with respect to the marketing and sale of natural gas and oil production. There
is also competition for desirable exploratory, development and acquisition
prospects and for investment capital. Chieftain's competitors include the major
integrated oil companies as well as numerous independent gas and oil companies,
integrated gas production and transmission companies and other producers and
marketers of energy sources and fuels.
ENVIRONMENTAL REGULATION
Various laws and regulations covering the discharge of materials into the
environment, or otherwise relating to the protection of the environment, may
affect Chieftain's operations and costs. At present, Chieftain believes that its
properties are being operated in compliance with applicable environmental laws
and regulations. Chieftain does not anticipate that it will be required in the
foreseeable future to expend amounts that are unusual, in relation to customary
industry experience, by reason of environmental laws and regulations, but it is
unable to quantify the ultimate cost of compliance.
U.S. offshore oil and gas operations are subject to regulations of the United
States Department of the Interior which currently imposes absolute liability
upon the lessee under a federal lease for the cost of pollution clean-up
resulting from the lessee's operations, and could subject the lessee to possible
liability for pollution damages. In the event of a serious incident of
pollution, a lessee under a federal lease may be required to suspend or cease
operations in the affected area.
In the U.K., deposits of substances or articles at sea from offshore oil and gas
operations are subject to the licensing control of the Ministry of Agriculture,
Fisheries and Food. The breach of a license will result in criminal liability
and possible civil liability for the cost of any resulting pollution clean-up.
In the event of a serious incident of pollution, the Ministry may vary or revoke
a license.
REGULATION AND POLITICAL RISK
The gas and oil business is regulated by certain federal, state and local laws
and regulations relating to the development, marketing and transmission of gas
and oil, as well as taxation, environmental and safety matters. International
gas and oil operations, such as Chieftain's operations in the United Kingdom and
Libya, may also be subject to various regulatory,
11
<PAGE> 12
political and economic factors. Political developments (especially in the Middle
East) and the decisions of OPEC (the Organization of Petroleum Exporting
Countries) can particularly affect world oil supply and oil prices. There is no
assurance that laws and regulations enacted in the future will not adversely
affect Chieftain's exploration for, or its production and marketing of, gas and
oil.
CONCENTRATION OF GAS PRODUCTION
Most of Chieftain's gas reserves and production are located offshore in the U.S.
Gulf of Mexico and could be adversely affected by natural disasters or market
conditions affecting this area.
DEVELOPMENT OF ADDITIONAL RESERVES
Chieftain's future success, as is generally the case in the industry, depends on
its ability to find or acquire additional gas oil reserves that are economically
recoverable. Except to the extent that Chieftain conducts successful exploration
or development activities or acquires properties containing proved reserves,
Chieftain's proved reserves will generally decline as reserves are produced.
There can be no assurance that Chieftain will be able to discover additional
commercial quantities of gas and oil or continue to acquire additional proved
properties.
EXPLORATION AND PRODUCTION RISKS
Gas and oil exploration involves a high degree of risk, which even a combination
of experience, knowledge and careful evaluation may not be able to overcome.
Chieftain's operations are subject to all of the risks normally incident to the
operation and development of gas and oil properties and the drilling of gas and
oil wells, including blowouts, cratering and fires and encountering unexpected
formations or pressures, which could result in personal injury,loss of life and
damage property of Chieftain and others. Offshore operations are subject to a
variety of special operating risks, such as hurricanes or other adverse weather
conditions, more extensive governmental regulation, including certain
regulations that may, in certain circumstances, impose absolute liability for
pollution damage, and interruption or termination by government authorities
based upon environmental or other considerations. In accordance with customary
industry practice, Chieftain may not be fully insured against these risks, nor
may all such risks be insurable.
PRICE UNCERTAINTY
There is uncertainty as to the prices at which gas and oil produced by Chieftain
may be sold, and it is possible that under some market conditions the production
of gas and oil from some of Chieftain's properties may not be commercially
feasible. The availability of a ready market for gas and oil as produced and the
price obtained for such gas and oil depend upon numerous factors beyond the
control of Chieftain, including market considerations, the proximity and
capacity of gas and oil pipelines and processing equipment and governmental
regulation. In recent years, markets for gas in the United States been
characterized by periods of oversupply relative to demand. There have been
significant fluctuations in prices for both gas and oil in recent years and
there can be no assurance that prices for gas or oil would not decrease in the
future.
EMPLOYEES
At December 31, 1997, Chieftain had 40 full-time equivalent employees. In
addition, Chieftain engages the services of consultants as required.
12
<PAGE> 13
GLOSSARY
The following are defined terms used herein:
BARREL (b) means 34.972 Imperial gallons or 42 U.S. gallons.
BCF means 1,000,000,000 cubic feet.
BCFE means 1,000,000,000 cubic feet of gas equivalent.
BD means barrels per day.
BLOCK refers to an offshore Gulf Of Mexico gas and oil lease.
DEVELOPED ACREAGE refers to the number of acres assignable to productive wells.
DEVELOPMENT WELLS are wells drilled within the proved area of a gas or oil
reservoir to the depth of a stratigraphic horizon known to be productive.
DRY WELLS means wells found to be incapable of producing either gas or oil in
sufficient quantities to justify completion as gas or oil wells.
EXPLORATORY WELLS are wells drilled to find and produce gas or oil in an
unproved area, to find a new reservoir in a field previously found to be
productive of gas or oil in another reservoir, or to extend a known reservoir.
GAS means natural gas. Natural gas reserves are reported at a base pressure of
14.65 psia and a base temperature of 60 degrees Fahrenheit.
GAS EQUIVALENT is determined by using the approximate energy equivalent ratio of
6 mcf of gas to 1 b of oil and liquids.
GROSS ACRES means the total number of acres in which an interest is owned by
Chieftain.
GROSS WELLS means the total number of wells in which an interest is owned by
Chieftain.
LIQUIDS means natural gas liquids.
MB means 1,000 barrels.
MCF means 1,000 cubic feet.
MCFD means 1,000 cubic feet per day.
MMCF means 1,000,000 cubic feet.
MMCFD means 1,000,000 cubic feet per day.
MMCFE means 1,000,000 cubic feet of gas equivalent.
NET ACRES refers to the sum of the fractional interests owned in gross acres.
NET WELLS refers to the sum of the fractional interests owned in gross wells.
NGLS means natural gas liquids.
OIL OR OIL AND LIQUIDS means crude oil and natural gas liquids.
PRODUCTIVE WELLS are producing wells and wells capable of producing.
13
<PAGE> 14
PROVED DEVELOPED PRODUCING RESERVES are those reserves which are expected to be
produced from existing completion intervals now open for production in existing
wells.
PROVED DEVELOPED NON-PRODUCING RESERVES are (1) those reserves expected to be
produced from existing completion intervals in existing wells, but due to
pending pipeline connections or other mechanical or contractual requirements
hydrocarbon sales have not yet commenced, and (2) other non-producing reserves
which exist behind the casing of existing wells, or at minor depths below the
present bottom of such wells, which are expected to be produced through these
wells in the predictable future, where the cost of making such oil and gas
available for production should be relatively small compared to the cost of a
new well.
PROVED RESERVES are the estimated quantities of natural gas, crude oil and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved reserves are limited to
those quantities of gas and oil which can be expected, with little doubt, to be
recoverable commercially at current prices and costs under existing regulatory
practices and with existing conventional equipment and operating methods.
PROVED UNDEVELOPED RESERVES are those reserves which are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion. Proved reserves on
undrilled acreage are limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled.
UNDEVELOPED ACREAGE is acreage on which wells have not been drilled or completed
to a point that would permit the production of commercial quantities of gas and
oil regardless of whether or not such acreage contains proved reserves.
WORKING INTEREST refers to the net interest held by Chieftain in an oil or gas
lease or other disposition which interest bears its proportionate share of the
costs of exploration, development and operations and any royalties or other
production burdens.
14
<PAGE> 15
ITEM 2. PROPERTIES
Reference is made to Item 1, "Business", for information concerning the
materially important physical properties of Chieftain. In addition, Chieftain
leases office space.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not party to, and none of its properties is
the subject of, any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name and age of each Executive Officer and all
positions and offices with the Company held by each such person. The officers
are appointed each year at the directors' meeting immediately following the
annual meeting of the shareholders. The next such meeting will be held on
May 14, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION/OFFICE
- ---- --- ---------------
<S> <C> <C>
S.A. Milner, A.O.E.,LL.D. 69 Director, President and Chief Executive Officer
S.C. Hurley 48 Director, Senior Vice President and Chief Operating Officer
E.L. Hahn 60 Senior Vice President, Finance and Treasurer
E.S. Ondrack 57 Director, Senior Vice President and Secretary
R.A. McDougall 62 Vice President, Land
S.J. Milner 40 Vice President, Drilling and Production
R.J. Stefure 50 Controller
</TABLE>
With the following exceptions all of the officers have held positions as
officers of the Company since its incorporation in 1988, such position being his
or her principal occupation. S.C. Hurley joined Chieftain in September, 1995
prior to which time he was the Vice President Exploration of a U.S. based
integrated oil company. S.J. Milner and R.J. Stefure were appointed officers of
the Company in June, 1995 and prior thereto held management positions with the
Company.
There are no family relationships among the executive officers and directors
except between S.A. Milner and D.E. Mitchell, O.C. who are first cousins and
between S.A. Milner and S.J. Milner who are father and son.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The principal United States market in which the Common Shares of the Company are
traded is the American Stock Exchange. The Common Shares are also traded on the
Toronto Stock Exchange. The high and low prices of the Chieftain International,
Inc. Common Shares (the "Common Shares") during each quarter since December 31,
1995 are shown below.
<TABLE>
<CAPTION>
Price History of Chieftain International, Inc. Common Shares
American Stock Exchange The Toronto Stock Exchange
(U.S. dollars) (Cdn. dollars)
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
First quarter $19.25 $15.75 $26.25 $21.25
Second quarter 20.25 16.88 27.60 22.75
Third Quarter 22.63 18.38 31.00 25.00
Fourth Quarter 26.25 20.88 36.00 28.20
1997
First quarter 25.88 18.63 35.40 26.00
Second quarter 23.13 18.00 32.00 25.00
Third quarter 27.37 20.50 37.65 28.35
Fourth quarter 28.13 20.13 38.50 29.00
1998
January 21.38 17.94 30.25 25.60
February 23.25 19.88 33.25 28.75
March 1 to March 13 23.94 21.81 33.90 31.00
</TABLE>
The Common Shares were held by 116 shareholders of record on December 31, 1997.
The Company estimates that investment dealers and other nominees hold Common
Shares for approximately 2,300 beneficial holders.
At the present time it is not the Company's policy to declare regular dividends
on the Common Shares. This policy is under periodic review by the Board of
Directors and is subject to change at any time depending on the earnings of the
Company and its financial requirements. Dividends may be paid on the Common
Shares provided that all dividends on the preferred shares of Chieftain
International Funding Corp. have been paid.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial and operating data for each of the five
years ended December 31, 1997 has been derived from the consolidated financial
statements of the Company included herein and should be read in conjunction with
such consolidated financial statements and the related notes.
16
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995 1994 1993
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands except shares, per share amounts and
operating data)
INCOME STATEMENT DATA:
Revenue $ 72,055 $ 63,099 $ 31,071 $ 34,876 $ 43,270
Direct expenses 11,569 10,707 8,181 7,443 7,149
Production taxes 1,756 1,513 1,382 1,396 1,305
General and administrative expenses 4,308 3,972 3,346 3,402 2,921
Depletion and amortization (1) 36,951 30,920 18,779 21,527 23,855
Additional depletion (2) -- -- -- 15,434 --
Income (loss) from operations, before dividends
on preferred shares of a subsidiary 10,160 9,784 (775) (9,528) 4,883
Dividends on preferred shares of a subsidiary 4,942 4,942 4,942 4,942 4,942
Net income (loss) applicable to common shares (1) 5,218 4,842 (5,717) (14,470) (59)
Net income (loss) per common share (1) 0.38 0.37 (0.54) (1.32) (0.01)
Weighted average number of common shares outstanding 13,620,728 13,065,414 10,633,142 10,986,116 10,991,045
OTHER DATA:
Cash flow from operations $ 49,473 $ 41,841 $ 13,186 $ 17,647 $ 26,894
Net gas and oil capital expenditures $ 69,453 $ 57,673 $ 100,502 $ 28,059 $ 28,779
BALANCE SHEET DATA (at end of period):
Working capital $ 22,676 $ 42,854 $ 11,216 $ 103,225 $ 115,065
Total assets (1) $ 278,550 $ 263,279 $ 201,552 $ 208,516 $ 226,738
Long-term debt -- -- -- -- --
Shareholders' equity (1) $ 186,063 $ 180,719 $ 127,131 $ 137,351 $ 152,754
OPERATING DATA:
Average Daily Net Production:
Gas (mmcf) 64.2 59.8 29.5 28.4 40.0
Oil and liquids (b) 2,261 2,005 1,643 1,631 1,576
Gas equivalent (mmcf) 77.8 71.8 39.3 38.2 49.5
Average Sales Price:
Gas (per mcf) $ 2.33 $ 2.09 $ 1.54 $ 1.97 $ 2.05
Oil and liquids (per b) 18.94 20.99 16.94 15.86 16.68
Average Production Cost:
Gas (per mcf) $ 0.27 $ 0.25 $ 0.35 $ 0.34 $ 0.23
Oil and liquids (per b) 5.81 6.57 7.31 6.79 6.56
</TABLE>
Notes:
(1) Reference is made to Note 9 of the Notes to Consolidated Financial
Statements which describes the impact of United States accounting
principles.
(2) This amount reflects write-downs in the carrying value of U.S. and
Peruvian gas and oil properties in 1994 in accordance with full cost
accounting rules under Canadian GAAP.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
To be read in conjunction with the 1997 audited consolidated financial
statements.
(Comparisons are with 1996 amounts unless otherwise stated)
The Company produces and sells natural gas and oil acquired through exploration
and development or through the purchase of producing properties. Producing
properties are held in the United States in the Gulf of Mexico and Utah; in the
British sector of the North Sea and in Libya. Exploration continues in these
areas.
In August 1995, the Company acquired 50% of the interests held by Santa Fe
Minerals, Inc. and affiliates in 57 offshore Gulf of Mexico blocks,
significantly increasing reserves, production and exploration acreage in this
area.
The Company continues to dedicate the majority of its attention and resources to
the U.S. Gulf of Mexico area and currently holds interests in 149 offshore lease
blocks upon which exploration or production operations are conducted.
Exploration offices in Dallas and New Orleans employ highly skilled technical
staff and leading-edge technology in the identification and delineation of gas
and oil prospects.
The Company's reporting currency is the U.S. dollar.
ANALYSIS OF OPERATING RESULTS
The 16% increase in production revenue resulted from an 11% increase in average
price received for natural gas to $2.33 per mcf, a 10% decrease in average oil
price received to $18.94 per barrel, an 8% increase in natural gas production
volumes to 28 bcf and a 12% increase in oil production volume to 962,000
barrels.
A $0.10 per mcf change in the average natural gas price received in 1997 would
have resulted in a change in revenue, cash flow and pre-tax income of $2.3
million. A $1.00 per barrel change in the average oil price would have resulted
in a change in revenue of $0.8 million and a change in cash flow and pre-tax
income of a slightly lesser amount.
U.S. production volumes of both oil and gas, particularly in late 1997, were
measurably constricted by delays in new pipeline construction. Such
constrictions continued through January 1998 and will affect first quarter
1998 accordingly. In Libya, production commenced in December 1997 from three
wells in the Sirte Basin. Six to twelve months of production testing is needed
to determine reserve quantities and the economics of additional drilling.
PRODUCTION AND PRICING
During 1997, Chieftain's production mix, on an energy equivalent basis, was 83%
natural gas and 17% oil and ngls. On a geographic basis, 88% of energy
equivalent production came from the United States. This ratio is expected to
remain fairly constant in 1998.
Chieftain has interests in 99 wells in the Gulf of Mexico of which 84 produce
gas and ngls and 15 produce oil. The largest increases in production during 1997
came from the Main Pass, Matagorda Island and East Cameron areas. In the North
Sea, three wells, one of which has two laterals, produce natural gas and ngls.
Oil production in 1997 came primarily from interests in 268 wells in the Aneth
and Ratherford Units located in southeast Utah. In 1998, growth in oil
production is expected to occur at the East Cameron 349 Field in the Gulf and
from production testing in the Sirte Basin in Libya. Oil is expected to comprise
approximately 25% of production on an energy equivalent basis in 1998.
18
<PAGE> 19
At year-end, Chieftain was producing, before royalties, 62 mmcfd in the U.S., 14
mmcfd in the North Sea, 2000 bd from the Aneth and Ratherford Units in Utah and
800 bd from the Gulf. Gas production is expected to increase by over 10 mmcfd by
the end of the first quarter of 1998 as various production constraints are
alleviated. A production test of three wells in the Sirte Basin began at
year-end and by early January, the Company's share of production, until recovery
of certain costs, was approximately 500 bd with further increases expected
before production stabilizes.
Average annual gas prices were higher in 1997 than in the prior year.
Exceptionally strong pricing for gas from the Gulf of Mexico prevailed during
the winter months at the start of the year, and again in the August to November
period. The run up in prices during late summer was unexpected, but
deliverability data shows that there is very little excess gas supply in
Chieftain's primary markets. Gas prices in North America weakened at year-end
due to warm weather and higher than normal deliveries from storage which reduced
the spot demand for natural gas. Gas production contributed 76% of Company
revenue.
While the bulk of Chieftain's production is sold on a spot basis, some gas is
occasionally sold forward for near months. The Company has a positive view of
future prices, is reluctant to limit exposure to favorable price moves, and
therefore does not generally sell forward large quantities for extended periods
of time. In all cases, buyers take delivery. Chieftain does not engage in
speculative forward selling of volumes that cannot be physically delivered.
Higher rates of production are anticipated during 1998 as newly developed fields
are brought on stream.
Direct expenses and production taxes increased 8% and 16%, respectively,
generally in line with levels of production. During 1997, cost increases in the
Gulf reflected the high level of activity experienced by contractors. Direct
expenses, combined with production taxes, were maintained at the 1996 level of
$0.39 per mcfe. New volumes are, in many cases, being produced through existing
infrastructure, thereby contributing to overall efficiency and enhancing cash
flow and earnings. Chieftain's strategy is to concentrate its exploration
efforts in areas with nearby infrastructure, keeping facility costs low and
allowing early production.
General and administrative expense, up 8%, was also reflective of increased
production volumes.
Depletion and amortization expense increased 20%, the result of a 9% increase in
units of production and a 10% increase in average depletion rate to $1.08 per
gas equivalent unit.
CAPITAL RESOURCES AND LIQUIDITY
The table on this page summarizes cash provided from operating, financing and
investing activities for each of the past two years.
Cash generated from operating activities increased 37% primarily as a result of
higher operating revenue.
Financing activities in 1997 provided $0.1 million of cash, the net result of
the exercise of employee stock options for $1.0 million and the purchase of
36,300 common shares for cancellation for $0.9 million. In October 1997, the
Company announced a normal course issuer bid for up to 500,000 common shares. In
1996, the Company sold 2.97 million common shares for $46.6 million net of
issue costs and realized a further $1.1 million from the exercise of employee
stock options.
SOURCE AND USE OF CASH (US$ IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996
- ----------------------- ---- ----
<S> <C> <C>
Cash provided from (used in):
Operating activities $ 50,489 $ 36,967
Financing activities 126 47,657
Investing activities (66,139) (52,750)
-------- --------
Increase (decrease) in cash $(15,524) $ 31,874
======== ========
</TABLE>
19
<PAGE> 20
Cash used in investing activities increased 25% to $66.1 million in 1997. The
Company participated in 68 wells of which seven were still drilling at year-end.
All of the 1997 wells were in the U.S. In 1996, the Company participated in 50
wells, 49 in the U.S. and one in the U.K. Industry activity levels were at a
peak in 1997, particularly in the Gulf of Mexico. Similarly high levels of
demand for drilling and services have resulted in cost increases and delays in
exploration and development programs. Recent declines in gas and oil prices are
expected to reduce such demand.
The December 31, 1997 cash balance of $26.9 million was down $15.5 million from
a year earlier. The Company has arranged a $100,000,000 revolving credit
facility with a syndicate of banks. Such facility was not drawn upon at December
31, 1997 and the Company remains debt-free.
OUTLOOK
While post-1997 price declines for natural gas and oil from year-earlier levels
indicate the possibility of lower average prices for 1998, higher production
volumes are anticipated which should result in steadily increasing cash flow
from operations.
The Board of Directors authorized an $85 million capital expenditure program for
1998 which is expected to be funded by cash flow from operations and working
capital. Such capital expenditures can be varied significantly with respect to
timing and priority dependent upon exploration success, availability of
equipment and services and current opportunities.
All of the Company's computer systems are year 2000 compliant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Chieftain International, Inc.
and the management's and auditors' reports thereon are included herein. The
financial statements are in U.S. dollars.
Management's Report
Auditors' Report
Consolidated Balance Sheet as at December 31, 1997 and 1996
Consolidated Statement of Income and Deficit for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the years
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplementary Financial Information (Unaudited)
20
<PAGE> 21
MANAGEMENT'S REPORT
February 4, 1998
The accompanying consolidated financial statements and all information in this
annual report are the responsibility of management. The financial statements
have been prepared by management in accordance with Canadian generally accepted
accounting principles. The financial information contained elsewhere in this
annual report is consistent with the consolidated financial statements in all
material respects.
The Company maintains accounting systems and internal controls to provide
reasonable assurance that its financial information is reliable and accurate,
and that its assets are adequately safeguarded. Where necessary, management has
made informed judgments and estimates in the preparation of the financial
statements.
Independent auditors, appointed by the shareholders, have examined the
consolidated financial statements. The Audit Committee of the Board of Directors
meets periodically with management and the independent auditors to review audit,
internal control, accounting policy and financial reporting matters.
The annual consolidated financial statements are approved by the Board of
Directors on the recommendation of the Audit Committee.
/s/ S.A. Milner /s/ E.L. Hahn
- ------------------------------------ -----------------------------------------
S.A. Milner E.L. Hahn
President and Senior Vice President,
Chief Executive Officer Finance and Treasurer
AUDITORS' REPORT
To the Shareholders of Chieftain International, Inc.
We have audited the consolidated balance sheets of Chieftain International, Inc.
as at December 31, 1997 and 1996 and the consolidated statements of income and
deficit and changes in financial position for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1997
in accordance with generally accepted accounting principles.
PRICE WATERHOUSE
- --------------------------------
Chartered Accountants
Edmonton, Alberta
February 4, 1998
21
<PAGE> 22
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
(Full Cost Method of Accounting)
as at December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
(US$ in thousands)
ASSETS
Current assets:
Cash and short-term deposits $ 26,925 $ 42,449
Accounts receivable 10,862 11,199
Other 606 293
--------- ---------
38,393 53,941
--------- ---------
Capital assets, at cost:
Natural resource properties including exploration and development thereon 459,807 390,354
Land and buildings 200 200
Other equipment 1,847 1,589
--------- ---------
461,854 392,143
Less: Accumulated depletion and amortization 225,139 188,254
--------- ---------
236,715 203,889
--------- ---------
Deferred income taxes 3,442 5,449
--------- ---------
$ 278,550 $ 263,279
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued $ 15,717 $ 11,087
Deferred income taxes 13,367 8,070
Preferred shares of a subsidiary (Note 3) 63,403 63,403
Shareholders' equity (Note 4):
Share capital --
Authorized -- an unlimited number of --
First preferred shares
Second preferred shares
Common shares
Issued --
13,622,375 common shares (1996 -- 13,591,763) 192,845 192,381
Contributed surplus 307 645
Deficit (7,089) (12,307)
--------- ---------
186,063 180,719
--------- ---------
$ 278,550 $ 263,279
========= =========
</TABLE>
Approved by the Board:
/s/ S.A. Milner /s/ L.G. Munin
- ----------------------- ------------------------------
S.A. Milner, Director L.G. Munin, Director
22
<PAGE> 23
CONSOLIDATED STATEMENT OF INCOME AND DEFICIT
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(US$ in thousands except shares and per share amounts)
Production revenue $ 84,219 $ 72,838 $ 31,733
Less: Royalties 14,592 12,226 5,058
------------ ------------ ------------
Production revenue, net of royalties 69,627 60,612 26,675
Interest and other revenue 2,428 2,487 4,396
------------ ------------ ------------
72,055 63,099 31,071
------------ ------------ ------------
Direct expenses 11,569 10,707 8,181
Production taxes 1,756 1,513 1,382
General and administrative expenses 4,308 3,972 3,346
Depletion and amortization 36,951 30,920 18,779
------------ ------------ ------------
54,584 47,112 31,688
------------ ------------ ------------
Income (loss) before income taxes and dividends on
preferred shares of a subsidiary 17,471 15,987 (617)
Income taxes (Note 5):
Current 7 124 34
Deferred 7,304 6,079 124
------------ ------------ ------------
7,311 6,203 158
------------ ------------ ------------
Income (loss) before dividends on preferred shares
of a subsidiary 10,160 9,784 (775)
Dividends paid on preferred shares of a subsidiary 4,942 4,942 4,942
------------ ------------ ------------
Net income (loss) applicable to common shares 5,218 4,842 (5,717)
Deficit, beginning of year (12,307) (17,149) (11,432)
------------ ------------ ------------
Deficit, end of year $ (7,089) $ (12,307) $ (17,149)
============ ============ ============
Net income (loss) per common share (Note 6) $ 0.38 $ 0.37 $ (0.54)
============ ============ ============
Weighted average number of common shares outstanding 13,620,728 13,065,414 10,633,142
============ ============ ============
</TABLE>
23
<PAGE> 24
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(US$ in thousands)
Operating activities:
Net income (loss) applicable to common shares $ 5,218 $ 4,842 $ (5,717)
Items not requiring a current cash outlay:
Depletion and amortization 36,951 30,920 18,779
Deferred income taxes 7,304 6,079 124
-------- --------- ---------
Cash flow from operations 49,473 41,841 13,186
Change in non-cash operating working capital
Accounts receivable 337 (2,936) (2,879)
Other current assets (313) 199 (112)
Accounts payable and accrued 992 (901) 921
Dividend payable -- (1,236) 1,236
-------- --------- ---------
50,489 36,967 12,352
-------- --------- ---------
Financing activities:
Issue of common shares 975 50,097 40
Purchase of common shares for cancellation (849) -- (4,543)
Financing costs -- (2,440) --
-------- --------- ---------
126 47,657 (4,503)
-------- --------- ---------
Investing activities:
Lease acquisition, exploration and development costs (69,453) (56,636) (45,824)
Purchase of producing gas and oil properties -- (2,077) (54,678)
Sale of producing properties -- 1,040 --
-------- --------- ---------
(69,453) (57,673) (100,502)
Purchase of other capital assets (324) (187) (190)
Change in investing accounts payable and accrued 3,638 5,110 1,267
-------- --------- ---------
(66,139) (52,750) (99,425)
-------- --------- ---------
Change in cash and short-term deposits (15,524) 31,874 (91,576)
Cash and short-term deposits, beginning of year 42,449 10,575 102,151
-------- --------- ---------
Cash and short-term deposits, end of year $ 26,925 $ 42,449 $ 10,575
======== ========= =========
</TABLE>
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DECEMBER 31, 1997, 1996 AND 1995)
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
The Company is engaged in gas and oil exploration, development and production
primarily in the United States and also in the U.K. sector of the North Sea and
in Libya. The Consolidated Financial Statements are expressed in United States
currency as most of the Company's assets and operations are denominated in U.S.
dollars.
1. Summary of Significant Accounting Policies
(a) ACCOUNTING PRINCIPLES
The Company's financial statements are prepared in conformity with
Canadian generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make informed judgements and estimates.
Actual results may differ from those estimates. Material differences
between Canadian and U.S. accounting principles that affect the Company
are referred to in Note 9, which provides details of the effect of such
differences on earnings and balance sheet accounts.
(b) PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company
and its subsidiary companies, all of which are wholly-owned except for
Chieftain International Funding Corp., a U.S. subsidiary which in
1992 issued 2,726,700 preferred shares to the public. These preferred
shares are convertible into common shares of Chieftain International,
Inc. See Note 3.
Acquisitions of subsidiaries and businesses have been accounted for by
the purchase method and accordingly only income or losses since date of
acquisition are included in the Consolidated Statement of Income.
(c) FOREIGN CURRENCY TRANSLATION
Canadian and other foreign currency amounts have been translated into
U.S. currency on the following bases: monetary assets and liabilities at
the year-end rates of exchange; non-monetary assets and liabilities at
historical exchange rates; and revenue and expenses at monthly average
exchange rates during the year. Translation gains or losses are reflected
in the Consolidated Statement of Income.
(d) FINANCIAL ASSETS AND LIABILITIES
The Company's financial instruments that are included in the Consolidated
Balance Sheet are comprised of cash and short-term deposits, accounts
receivable and all current liabilities, the fair values of which
approximate their carrying amounts due to their short-term nature. Cash
and short-term deposits include minimum risk certificates guaranteed by a
major Canadian bank and are purchased three months or less from maturity.
Accounts receivable are subject to normal oil and gas industry credit
risks.
25
<PAGE> 26
(e) NATURAL RESOURCE PROPERTIES
The Company accounts for gas and oil properties in accordance with
Canadian guidelines on full cost accounting.
Under this method, all costs associated with the acquisition, exploration
and development of gas and oil properties are capitalized in cost centers
on a country-by-country basis. A ceiling test is applied to ensure that
capitalized costs do not exceed estimated future net revenues less
applicable costs. Depletion is calculated using the unit-of-production
method based on gross proved reserves before royalties and combining oil
and natural gas on an energy equivalent basis. Future well abandonment
and site restoration costs are included in the calculation of depletion
expense.
The following weighted average field prices were used in the
determination of the Company's U.S. future net revenues for purposes of
the ceiling test:
<TABLE>
<CAPTION>
As at December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Oil - per barrel $16.92 $24.29 $18.71
==========================
Ngls - per barrel $15.14 $21.66 $16.64
==========================
Oil & ngls - per barrel $16.69 $24.03 $18.48
==========================
Natural gas - per thousand cubic feet ("mcf") $ 2.74 $ 3.43 $ 2.06
==========================
</TABLE>
A field price of $1.76 (1996 - $2.04; 1995 - $0.86) per thousand cubic
feet was used in the determination of the Company's U.K. future net
revenues for purposes of the ceiling test.
Depletion rates per physical unit of U.S. production are as follows:
<TABLE>
<S> <C> <C>
Year ended December 31, 1995 $ 1.10 $ 6.57
======================
Year ended December 31, 1996 $ 1.03 $ 6.16
======================
Year ended December 31, 1997 $ 1.11 $ 6.68
======================
</TABLE>
The depletion rate per physical unit of U.K. natural gas production was
$0.81 per mcf for the year ended December 31, 1997 (1996 - $0.56; 1995 -
$0.53).
Libyan property carrying costs of $14.6 million at December 31, 1997 are
excluded from depletion calculations pending determination of reserves.
General and administrative costs relating directly to lease acquisition,
exploration and development activities have been capitalized as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Lease acquisition $ 694 $ 837 $ 538
Exploration 1,470 1,547 1,909
Development 1,387 1,254 928
--------------------------
$3,551 $3,638 $3,375
==========================
</TABLE>
26
<PAGE> 27
(f) LAND, BUILDINGS AND OTHER EQUIPMENT
Amortization is provided as follows:
<TABLE>
<CAPTION>
Rate per
annum Method
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Buildings 5% Straight-line
Furniture, office equipment and leasehold improvements 10 - 20% Straight-line
</TABLE>
Expenditures for renewals and betterments which materially increase the
estimated useful life of buildings and equipment are capitalized;
expenditures for repairs and maintenance are charged to income. Costs and
accumulated amortization of assets retired or sold are removed from the
asset and related accumulated amortization accounts; losses and gains
thereon are included in the Consolidated Statement of Income as depletion
and amortization.
(g) INCOME TAXES
The Company follows the tax allocation method of accounting for the tax
effect of all timing differences between taxable income and accounting
income. Thus, provision is made currently for taxes deferred as a result
of claiming for tax purposes deductions in excess of amounts charged to
income in the books, principally natural resource lease acquisition
costs, intangible exploration, development and drilling costs and costs
of tangible capital assets.
2. Revolving Credit and Term Loan Arrangements
In 1997 the Company arranged an unsecured revolving credit facility with a
syndicate of banks. The facility, in the amount of U.S. $100 million or
Canadian dollar equivalents, is fully revolving for 364 day periods with
extensions at the option of the lenders upon notice from the Company. If not
extended, the facility converts to term loans repayable over a period not
exceeding four years. Advances under the facility bear interest at Canadian
prime or U.S. base rate, or at Bankers' Acceptance rates or LIBOR plus
applicable margins. No amounts had been advanced under this facility at
December 31, 1997.
3. Preferred Shares of a Subsidiary
Chieftain International Funding Corp. ("Funding"), a subsidiary of Chieftain
International (U.S.) Inc., sold 2,726,700 shares of $1.8125 cumulative
convertible redeemable preferred shares at $25.00 per share in a 1992
public offering in the United States. The preferred shares are redeemable, at
the option of Funding, at $25.8056 per share during 1998, declining to $25.00
per share after December 31, 2001, plus accumulated and unpaid dividends.
Each preferred share has a liquidation preference of $25.00 and is
convertible at any time into 1.25 Common Shares of Chieftain International,
Inc. at the option of the holder.
27
<PAGE> 28
4. Shareholders' Equity
(a) COMMON SHARES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Number Share Number Share Number Share
of Capital of Capital of Capital
shares Account shares Account shares Account
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 13,591,763 $ 192,381 10,546,100 $143,635 10,912,100 $ 148,621
Share options exercised 66,912 975 75,663 1,092 3,000 40
Shares purchased and cancelled* (36,300) (511) -- -- (369,000) (5,026)
Shares issued for cash -- -- 2,970,000 47,654** -- --
--------------------------------------------------------------------------------------
Balance, end of year 13,622,375 $ 192,845 13,591,763 $192,381 10,546,100 $ 143,635
======================================================================================
</TABLE>
* Pursuant to normal course issuer bid.
** Reduced by costs of issue of $2,440, less related deferred taxes of $1,089.
In the first quarter of 1996, the Company sold 2,970,000 common shares,
by way of a public offering in the United States and Canada, at $16.50
per share (C$22.75).
(b) COMMON SHARES RESERVED
At December 31, 1997 a total of 1,159,091 (1996 - 1,226,003; 1995 -
1,046,250) of the authorized but unissued common shares of the Company
were reserved for issuance under the Share Option Plan. See Note 4(d).
The Company has reserved 3,408,375 common shares for issuance pursuant to
the conversion provisions of the preferred shares of a subsidiary. See
Note 3.
(c) CONTRIBUTED SURPLUS
Contributed surplus represents the excess of original net issue price
over purchase price of shares purchased and cancelled pursuant to issuer
bids in 1995 and 1997.
(d) SHARE OPTION PLAN (THE "PLAN")
The Plan provides for the granting of options to employees, directors and
consultants to purchase common shares of the Company. In 1996, the number
of shares reserved for issuance under the plan was increased by 255,416
(1995 - 154,250). Each option expires not later than ten years from the
date it was granted. The exercise of options granted under the Plan is
contingent upon continued service except that options which are
exercisable may be exercised after termination of service under certain
conditions. Options granted are exercisable as to one-third of the
granted amount on or after each of the first three anniversaries of the
date of grant or over such longer period as may be determined by the
directors. Exercisability of options accelerates in certain events. The
option price for shares in respect of which an option is granted under
the Plan is not less than the market price on the date of grant.
28
<PAGE> 29
At December 31, 1997 the following options were outstanding to 50 participants
in the Plan:
<TABLE>
<CAPTION>
Option Price Per
Shares Share Year of Expiry
- ---------------------------------------------------
<S> <C> <C>
125,000 $13.50 1999
15,000 14.50 -- 16.10 1999
70,000 19.00 2001
30,334 20.12 -- 20.87 2003
230,534 15.38 2004
347,805 13.63 -- 15.63 2005
15,000 23.75 2006
224,000 19.87 -- 22.50 2007
</TABLE>
The following is a summary of activity related to the Plan for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Number
of Minimum Option Price Market Value at Date Granted
Shares Per Share Total Per Share Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding December 31, 1994 607,250 $13.50 -- 20.87 $ 9,404,075 $13.50 -- 20.87 $ 9,456,875
Year ended December 31,1995
Granted 384,000 13.63 -- 15.63 5,365,420 13.63 -- 15.63 5,365,420
Exercised (3,000) 13.50 (40,500) 13.50 (40,500)
Forfeited (8,000) 15.38 (123,040) 15.38 (123,040)
-------- ----------- ----------
Outstanding December 31, 1995 980,250 14,605,955 14,658,755
Year ended December 31,1996
Granted 15,000 23.75 356,250 23.75 356,250
Exercised (75,663) 13.50 -- 16.25 (1,075,572) 13.50 -- 16.25 (1,097,972)
Forfeited (10,334) 13.63 -- 20.12 (159,079) 13.63 -- 20.12 (159,079)
-------- ----------- -----------
Outstanding December 31, 1996 909,253 13,727,554 13,757,954
Year ended December 31,1997
Granted 228,000 19.87 -- 22.50 4,866,690 19.87 -- 22.50 4,866,690
Exercised (66,912) 13.50 -- 20.87 (968,548) 13.50 -- 20.87 (974,948)
Forfeited (12,668) 13.63 -- 21.32 (203,425) 13.63 -- 21.32 (203,425)
--------- ------------ ------------
Outstanding December 31, 1997 1,057,673 $ 17,422,271 $ 17,446,271
========= ============ ============
Exercisable at December 31, 1995 404,583 $13.50 -- 20.87 $ 6,227,813
========== ============
Exercisable at December 31, 1996 558,319 $13.50 -- 20.87 $ 8,548,461
========== ============
Exercisable at December 31, 1997 707,738 $13.50 -- 23.75 $ 10,777,986
========== ============
</TABLE>
29
<PAGE> 30
5. Income Taxes
Income tax expense is made up of the following components:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
(in thousands) Canada U.S. Canada U.S. Canada U.S.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and dividends
on preferred shares of a subsidiary $2,072 $15,399 $1,461 $14,526 $(324) $(293)
------ ------- ------ ------- ----- -----
Income taxes (recovery)
Current 7 -- 124 -- 34 --
Deferred 2,007 5,297 912 5,167 292 (168)
------ ------- ------ ------- ----- -----
$2,014 $ 5,297 $1,036 $ 5,167 $ 326 $(168)
====== ======= ====== ======= ===== =====
</TABLE>
Deferred income tax expense results from timing differences between the
recognition of expenses for tax and financial statement purposes as explained in
Note 1(g). The sources of these differences are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(in thousands) Canada U.S. Canada U.S. Canada U.S.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortization of buildings and equipment $ (112) $ (275) $ 3 $ 340 $ 136 $ 11
Depletion of natural resource properties (68) 6,011 805 5,898 1,289 6,567
Financing costs 338 -- 348 -- 129 --
Tax loss carry forward 1,846 (430) (230) (1,143) (1,206) (6,746)
Other 3 (9) (14) 72 (56) --
------- ------- ------- ------- ------- -------
$ 2,007 $ 5,297 $ 912 $ 5,167 $ 292 $ (168)
======= ======= ======= ======= ======= =======
</TABLE>
The actual tax rate differs from the expected tax rate for the following
reasons:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected percentage on pre-tax income (loss)
(Combined Canadian federal and provincial rate) 44.6% 44.6% 44.6%
Add (deduct) the effect of:
Lower income tax rate on earnings of U.S. subsidiaries (7.9) (7.9) (7.4)
Canadian income tax on exchange loss (gain) which is
eliminated upon consolidation 2.1 (0.3) (63.8)
Other 3.0 2.4 1.0
---- ---- -----
Actual percentage of income tax on pre-tax income (loss) 41.8% 38.8% (25.6)%
==== ==== =====
</TABLE>
30
<PAGE> 31
6. Per Share Amounts
Net income (loss) per common share is computed by dividing net income (loss)
applicable to common shares by the weighted average number of common shares
outstanding during the year.
In the calculation of fully diluted earnings per share, shares outstanding
are adjusted for share options and shares issuable on conversion of preferred
shares. Earnings are adjusted by the amount of imputed interest on share
option proceeds and preferred share dividends. Earnings were not diluted
during the periods shown.
7. Pension Costs and Obligations
The Company contributed $144,254, $103,455 and $73,230 for 1997, 1996 and
1995, respectively, to defined contribution plans. Under a supplementary
defined contribution plan established in 1991, costs of $162,384, $127,358
and $97,299 for 1997, 1996 and 1995, respectively, and the related liability
are recorded in the accounts but are not currently funded.
The Company has established no other retirement benefit plans.
8. Segment Information
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Industry segments --
The company operates in one industry segment.
Production revenues included below are net
of royalties.
Geographic segments --
Revenue:
United States $ 63,498 $ 56,827 $ 26,674
United Kingdom 6,231 4,155 552
Corporate and other 2,326 2,117 3,845
--------- --------- ---------
$ 72,055 $ 63,099 $ 31,071
========= ========= =========
Income (loss) before income taxes and
dividends on preferred shares of a subsidiary
United States $ 14,569 $ 14,173 $ (3,461)
United Kingdom 1,613 1,102 129
Peru (14) (19) (225)
Corporate and other 1,303 731 2,940
--------- --------- ---------
$ 17,471 $ 15,987 $ (617)
========= ========= =========
Identifiable assets:
United States $ 227,461 $ 185,974 $ 159,564
United Kingdom 15,324 18,613 17,048
Libya 14,642 13,322 13,107
Corporate and other 21,123 45,370 11,833
--------- --------- ---------
$ 278,550 $ 263,279 $ 201,552
========= ========= =========
</TABLE>
31
<PAGE> 32
9. United States Accounting Principles
U.S. full cost accounting rules differ materially from the Canadian full cost
accounting guidelines followed by the Company. In determining the limitation
on carrying values, U.S. rules require the discounting of future net revenues
at 10%, and Canadian guidelines require the use of undiscounted future net
revenues and the deduction of estimated future administrative costs. During
1995 an impairment adjustment would have been required under U.S. accounting
rules. The test required by U.S. accounting rules, using a December 31, 1995
U.K. gas price of $0.86 per mcf to determine future net revenues, would have
resulted in a write-down of U.K. property carrying costs of $3.8 million,
after providing for tax recoveries of $2.9 million, at December 31, 1995.
The effect on the Consolidated Balance Sheet of the differences between
Canadian and U.S. accounting principles is as follows:
<TABLE>
<CAPTION>
As at December 31, 1997 1996
- -----------------------------------------------------------------------------------
(in thousands)
Under U.S. Under U.S.
Accounting Accounting
As Reported Principles As Reported Principles
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net capital assets $ 236,715 $ 218,673 $ 203,889 $ 182,670
Deferred tax -- asset $ 3,442 $ 5,537 $ 5,449 $ 7,660
Deferred tax -- liability $ 13,367 $ 8,737 $ 8,070 $ 2,671
Deficit $ (7,089) $ (18,406) $ (12,307) $ (25,916)
</TABLE>
The effect on consolidated earnings of these differences is summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands except shares and per share amounts)
Net income (loss) applicable to common shares, as reported $ 5,218 $ 4,842 $ (5,717)
Additional depletion -- -- (6,740)
------------ ------------ -------------
5,218 4,842 (12,457)
Reduction in depletion expense 3,177 2,381 2,775
Reduction (increase) in deferred tax provision (885) (1,021) 1,820
------------ ------------ -------------
Net income (loss) applicable to common shares under U.S. accounting principles $ 7,510 $ 6,202 $ (7,862)
============ ============ =============
Net income (loss) per common share under U.S. accounting principles:
Basic $ 0.55 $ 0.47 $ (0.74)
============ ============ =============
Fully diluted $ 0.54 $ 0.46 $ (0.74)
============ ============ =============
Fully diluted number of common shares outstanding 13,858,593 13,446,684 10,633,142
============ ============ =============
</TABLE>
32
<PAGE> 33
Effective for 1997, U.S. accounting principles exclude common share equivalents
in determining basic earnings per common share. Share options are included in
fully diluted earnings (loss) per common share, where dilutive, assuming all
share options are exercised using the treasury stock method. The comparative per
share amounts have been restated to reflect the revised accounting principles.
The Company applies the intrinsic value method prescribed by APB opinion 25 and
related interpretations in accounting for share option transactions.
Accordingly, no compensation cost is recognized in the accounts. U.S. accounting
principles require disclosure of the impact on earnings and earnings per share
of the value of options granted after 1994, calculated in accordance with FAS
123. Such impact, calculated using the Black-Scholes option pricing model,
applying risk-free interest rates of 6.85% for 1997, 6.51% for 1996 and 6.40%
for 1995 and assuming ten year expected option lives, no dividend yields and
expected volatilities of 24% for all three years on a weighted average basis,
would amount to a net of tax charge to income (loss) of $1,348,000 (1996 -
$872,000; 1995 - $270,000). After reflecting this charge, pro forma net income
(loss) applicable to common shares under U.S. accounting principles would be
$6,162,000, (1996 - $5,330,000; 1995 - $(8,132,000)); pro forma net income
(loss) per common share under U.S. accounting principles would be $0.45 (1996 -
$0.41; 1995 - $(0.76)); and pro forma fully diluted earnings (loss) per common
share under U.S. accounting principles would be $0.45 (1996 - $0.40; 1995 -
$(0.76)). These effects are not necessarily indicative of those to be expected
in future years.
U.S. accounting principles require corporations to account for deferred income
taxes by the liability method. The effect on the Company of the application of
such method is not material.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
As at December 31, 1997 1996
- ---------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets
Depletion and amortization $ 3,413 $ 3,735
Financing costs 633 965
Loss carry forwards 14,908 16,092
Other 346 261
---------------------
19,300 21,053
Deferred tax liabilities
Depletion and amortization (22,431) (16,064)
Other (69) --
---------------------
(22,500) (16,064)
---------------------
Net deferred tax assets (liabilities) $ (3,200) $ 4,989
=====================
</TABLE>
33
<PAGE> 34
At December 31, 1997 the Company's U.S. net operating tax losses carried forward
amounted to $38,769,000 of which $6,119,000, $2,835,000, $6,139,000,
$18,007,000, $3,773,000 and $1,896,000 expire in the years 2005, 2007, 2009,
2010, 2011 and 2012, respectively. Canadian net operating tax losses carried
forward amounted to $2,605,000 which expire in the year 2003. The Company is of
the opinion that the tax benefit of these tax losses will be realized.
Provisions for deferred income taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
U.S. Federal and State $6,067 $ 5,861 $ 567
Canada 2,122 1,239 (2,263)
--------------------------------
$8,189 $ 7,100 $(1,696)
================================
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the Canadian statutory rate to pre-tax income before dividends paid
on preferred shares of a subsidiary, as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Tax at statutory Canadian rate of 44.6% $ 9,213 $ 8,196 $(2,043)
Lower income tax rate on earnings of U.S.
subsidiaries (1,617) (1,428) (150)
Canadian income tax on exchange loss (gain)
which is eliminated upon consolidation 362 (56) 394
Other 238 512 137
-----------------------------------
Tax at effective rate $ 8,196 $ 7,224 $(1,662)
===================================
Effective tax rate 39.7% 39.3% 36.3%
===================================
</TABLE>
Cash payments for income taxes for the years 1997, 1996 and 1995 were $141,000,
$26,000 and $44,000, respectively.
34
<PAGE> 35
SUPPLEMENTARY FINANCIAL INFORMATION
CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES
DECEMBER 31, 1997
(Unaudited)
RESERVE INFORMATION
Reports prepared by Netherland, Sewell & Associates, Inc. as to the Company's
total U.S. reserves and by the Company as to the U.K. reserves, estimate the
total proved and proved developed producing reserves owned by the Company,
before and after royalty deductions, as follows:
TOTAL PROVED RESERVES BEFORE ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
Natural Gas -- mmcf Crude Oil & Ngls -- barrels *
United North United
States Sea Total States
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 124,166 25,768 149,934 9,561,700
Purchase of producing properties 6,512 -- 6,512 21,200
Revision of previous estimates (2,539) (127) (2,666) 736,900
Extensions, discoveries and other additions 22,512 1,003 23,515 1,073,300
Sale of proved properties (404) -- (404) (24,200)
Production (22,997) (3,280) (26,277) (850,100)
----------------------------------------------------------
December 31, 1996 127,250 23,364 150,614 10,518,800
PURCHASE OF PRODUCING PROPERTIES -- -- -- --
REVISION OF PREVIOUS ESTIMATES 7,029 (1,037) 5,992 1,317,800
EXTENSIONS, DISCOVERIES AND OTHER ADDITIONS 21,153 -- 21,153 2,046,400
SALE OF PROVED PROPERTIES -- -- -- --
PRODUCTION (24,306) (4,010) (28,316) (936,300)
----------------------------------------------------------
DECEMBER 31, 1997 131,126 18,317 149,443 12,946,700
==========================================================
</TABLE>
TOTAL PROVED RESERVES AFTER ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
Natural Gas -- mmcf Crude Oil & Ngls -- barrels *
United North United
States Sea Total States
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995 100,923 25,768 126,691 8,410,900
Purchase of producing properties 5,171 -- 5,171 17,400
Revision of previous estimates (2,459) (127) (2,586) 648,300
Extensions, discoveries and other additions 18,720 1,003 19,723 921,500
Sale of proved properties (303) -- (303) (18,200)
Production (18,615) (3,280) (21,895) (727,000)
----------------------------------------------------------
December 31, 1996 103,437 23,364 126,801 9,252,900
PURCHASE OF PRODUCING PROPERTIES -- -- -- --
REVISION OF PREVIOUS ESTIMATES 5,136 (1,037) 4,099 1,102,800
EXTENSIONS, DISCOVERIES AND OTHER ADDITIONS 17,628 -- 17,628 1,697,600
SALE OF PROVED PROPERTIES -- -- -- --
PRODUCTION (19,421) (4,010) (23,431) (799,500)
----------------------------------------------------------
DECEMBER 31, 1997 106,780 18,317 125,097 11,253,800
==========================================================
</TABLE>
* 58,900 (1996 - 50,600) barrels of natural gas liquids, before and after
royalty deductions, associated with the U.K. gas reserves are not included
in this table.
35
<PAGE> 36
(Unaudited)
PROVED DEVELOPED PRODUCING RESERVES BEFORE ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
Natural Gas -- mmcf Crude Oil & Ngls -- barrels
United States United States
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1995 51,200 7,568,700
December 31, 1996 53,400 9,175,900
DECEMBER 31, 1997 55,013 8,209,000
</TABLE>
PROVED DEVELOPED PRODUCING RESERVES AFTER ROYALTY DEDUCTIONS:
<TABLE>
<CAPTION>
Natural Gas -- mmcf Crude Oil & Ngls -- barrels
United States United States
- --------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1995 41,300 6,747,400
December 31, 1996 43,000 8,138,000
DECEMBER 31, 1997 43,979 7,241,300
</TABLE>
RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
United States
Revenue -- net of royalties $ 63,227 $ 56,457 $ 26,122
Production costs (14,901) (13,291) (11,676)
Depletion and amortization (33,414) (28,976) (18,116)
-------- -------- --------
Results of operations from producing activities before income taxes 14,912 14,190 (3,670)
Income tax expense (5,223) (5,146) 1,128
-------- -------- --------
Results of operations from producing activities after income taxes $ 9,689 $ 9,044 $ (2,542)
======== ======== ========
United Kingdom
Revenue -- net of royalties $ 6,231 $ 4,155 $ 552
Production costs (1,064) (904) (79)
Depletion and amortization (3,319) (1,861) (344)
-------- -------- --------
Results of operations from producing activities before income taxes 1,848 1,390 129
Income tax expense (787) (600) (56)
-------- -------- --------
Results of operations from producing activities after income taxes $ 1,061 $ 790 $ 73
======== ======== ========
Libya
Revenue -- net of royalties $ 169 $ -- $ --
Production costs (38) -- --
Depletion and amortization (131) -- --
-------- -------- --------
Results of operations from producing activities before income taxes -- -- --
Income tax expense -- -- --
-------- -------- --------
Results of operations from producing activities after income taxes $ -- $ -- $ --
======== ======== ========
Total
Revenue -- net of royalties $ 69,627 $ 60,612 $ 26,674
Production costs (16,003) (14,195) (11,755)
Depletion and amortization (36,864) (30,837) (18,460)
-------- -------- --------
Results of operations from producing activities before income taxes 16,760 15,580 (3,541)
Income tax expense (6,010) (5,746) 1,072
-------- -------- --------
Results of operations from producing activities after income taxes $ 10,750 $ 9,834 $ (2,469)
======== ======== ========
</TABLE>
36
<PAGE> 37
(Unaudited)
CAPITALIZED COSTS RELATING TO GAS AND OIL EXPLORATION AND PRODUCTION ACTIVITIES
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Proved gas and oil properties $402,885 $337,538 $286,950
Unproved gas and oil properties 56,922 52,816 45,731
--------------------------------
459,807 390,354 332,681
Accumulated depletion 224,154 187,403 151,826
--------------------------------
Net capitalized costs $235,653 $202,951 $180,855
================================
</TABLE>
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Property acquisition costs:
United States $ 9,164 $ 13,954 $ 2,873
United Kingdom 137 722 842
Other Foreign -- 68 87
-------------------------------------
9,301 14,744 3,802
-------------------------------------
Purchase of producing properties:
United States -- 2,077 54,678
-------------------------------------
Sale of producing properties:
United States -- (1,040) (21)
-------------------------------------
Exploration costs:
United States 35,540 17,453 13,837
United Kingdom 115 -- 2
Other Foreign 1,207 434 2,255
-------------------------------------
36,862 17,887 16,094
-------------------------------------
Development costs:
United States 23,260 22,131 15,206
United Kingdom 30 1,874 10,743
-------------------------------------
23,290 24,005 25,949
-------------------------------------
$69,453 $ 57,673 $ 100,502
=====================================
</TABLE>
37
<PAGE> 38
(Unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL, NATURAL GAS LIQUIDS AND NATURAL GAS RESERVES
The following standardized measure of discounted future net cash flow was
computed in accordance with Financial Accounting Standards Board Statement #69
using year-end prices and costs, and year-end statutory tax rates. Royalty
deductions were based on laws, regulations and contracts existing at the end of
each period. No values are given to unproved properties or to probable reserves
that may be recovered from proved properties.
The inexactness associated with estimating reserve quantities, future production
streams and future development and production expenditures, together with the
assumptions applied in valuing future production, substantially diminish the
reliability of this data. The values so derived are not considered to be
estimates of fair market value. THE COMPANY THEREFORE CAUTIONS AGAINST
SIMPLISTIC USE OF THIS INFORMATION.
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
United States
Future cash inflows $ 480,669 $ 577,313 $ 363,275
Future production costs (121,380) (148,061) (121,601)
Future development costs (57,208) (39,375) (45,073)
Future income tax expense (46,742) (85,464) (19,846)
---------------------------------------
Future net cash flows 255,339 304,413 176,755
Ten percent annual discount for estimated timing of cash flows (70,844) (89,292) (50,194)
---------------------------------------
Standardized measure of discounted future net cash flows 184,495 215,121 126,561
---------------------------------------
United Kingdom
Future cash inflows 32,774 48,392 22,495
Future production costs (5,734) (8,045) (5,562)
Future development costs (1,450) (1,603) (1,338)
Future income tax expense (6,340) (6,601) --
---------------------------------------
Future net cash flows 19,250 32,143 15,595
Ten percent annual discount for estimated timing of cash flows (4,172) (8,241) (4,662)
---------------------------------------
Standardized measure of discounted future net cash flows 15,078 23,902 10,933
---------------------------------------
Total
Future cash inflows 513,443 625,705 385,770
Future production costs (127,114) (156,106) (127,163)
Future development costs (58,658) (40,978) (46,411)
Future income tax expense (53,082) (92,065) (19,846)
---------------------------------------
Future net cash flows 274,589 336,556 192,350
Ten percent annual discount for estimated timing of cash flows (75,016) (97,533) (54,856)
---------------------------------------
Standardized measure of discounted future net cash flows $ 199,573 $ 239,023 $ 137,494
=======================================
</TABLE>
38
<PAGE> 39
(Unaudited)
The following table sets out principal sources of change in the standardized
measure of discounted future net cash flows during the respective periods.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Sales of oil, ngls and natural gas produced,
net of production costs $ (56,061) $ (48,233) $ (17,111)
Net change in prices and production costs (73,047) 120,858 (5,809)
Extensions and discoveries, less related costs 28,219 50,995 21,866
Purchase of producing properties -- 10,638 65,975
Sales of producing properties -- (436) (33)
Development costs incurred during the period 10,096 15,026 17,275
Revisions of previous quantity estimates 22,388 (4,462) 4,566
Accretion of discount 23,902 15,457 6,038
Net change in income taxes 26,534 (51,064) (11,656)
Changes in estimated future development costs (12,551) (13,950) 495
Other (8,930) 6,700 (4,486)
--------- --------- ---------
Net increase (decrease) (39,450) 101,529 77,120
Beginning of year 239,023 137,494 60,374
--------- --------- ---------
End of year $ 199,573 $ 239,023 $ 137,494
========= ========= =========
</TABLE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Per
Gross Income Common
Quarter Ended Revenue Profit (loss) Share
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands except per share amounts)
MARCH 31, 1997 $22,563 $8,444 $ 3,924 $ 0.29
JUNE 30, 1997 14,807 1,271 (470) (0.04)
SEPTEMBER 30, 1997 14,891 1,949 36 0.01
DECEMBER 31, 1997 19,794 5,807 1,728 0.12
March 31, 1996 $13,057 $1,632 $ (157) $ (0.01)
June 30, 1996 14,941 3,534 1,019 0.08
September 30, 1996 14,610 2,989 693 0.05
December 31, 1996 20,491 7,832 3,287 0.25
</TABLE>
39
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between Chieftain and Chieftain's auditors on
accounting or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Additional information relating to directors of the Company is incorporated
herein by reference from page 4 of the Company's Information Circular dated
March 20, 1998 for the annual meeting of shareholders on May 14, 1998.
ITEM 11. EXECUTIVE COMPENSATION
"Executive Compensation" on pages 5 to 9 of the Company's Information Circular
dated March 20, 1998 for the annual meeting of shareholders on May 14, 1998 is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Voting Shares" and "Share Ownership" on pages 2 and 3 of the Company's
Information Circular dated March 20, 1998 for the annual meeting of shareholders
on May 14, 1998 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
The following is a listing of the financial statements and financial statement
schedules which are included in this Form 10-K report.
FINANCIAL STATEMENTS
Reference is made to the list of financial statements on page 20 of this report.
EXHIBITS
Reference is made to the Index to Exhibits on page 41 of this report.
40
<PAGE> 41
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
<S> <C>
* 3 (a) Articles of Incorporation of the Company.
* 3 (b) Articles of Amendment of the Company.
* 3 (c) Articles of Amalgamation of the Company.
* 3 (d) By-laws number 1 and number 2 of the Company.
** 4 (a) Form of Subordinated Guarantee Agreement of the Company.
*** 4 (b) Shareholder Rights Plan adopted April 23, 1994.
**** 10 (a)(i) Chieftain International, Inc. Retirement Plan as amended May 15, 1997.
**** 10 (a)(ii) Chieftain International, Inc. Supplementary Retirement Plan as amended March 20, 1997.
**** 10 (b) Chieftain International, Inc. Share Option Plan as amended March 15, 1996.
* 10 (c) Chieftain International, Inc. Savings Plan.
* 10 (d) Form of indemnification agreement between the Company and each of the officers and directors
of the Company.
**** 21 Information Circular dated March 20, 1998 relating to the Company's annual meeting of shareholders
to be held on May 14, 1998.
***** 22 Subsidiaries of the Company.
**** 24 (a) Consent of Netherland, Sewell & Associates, Inc.
**** 24 (b) Consent of Price Waterhouse.
27 Financial Data Schedule.
* Previously filed as an exhibit to the Registration Statement on Form S-1, File No. 33-27254.
** Previously filed as an exhibit to the Registration Statement on Form S-1/S-3, File No. 33-51630.
*** Previously filed as an exhibit to Form 8-K dated March 1, 1994.
**** Filed herewith.
***** Previously filed as an exhibit to Form 10-K dated March 17, 1994.
</TABLE>
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CHIEFTAIN INTERNATIONAL, INC.
<TABLE>
<S> <C> <C> <C>
by: /s/ STANLEY A. MILNER by: /s/ EDWARD L. HAHN
------------------------------------ ----------------------------------------------
Stanley A. Milner, A.O.E., LL.D. Edward L. Hahn
President and Senior Vice President, Finance and Treasurer
Chief Executive Officer and Chief Financial Officer
</TABLE>
Dated: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ D.E. MITCHELL Director March 20, 1998
- ----------------------------
D.E. Mitchell O.C.
/s/ S.A. MILNER President, Chief Executive Officer and March 20, 1998
- ----------------------------
S.A. Milner, A.O.E., LL.D. Director
/s/ S.C. HURLEY Director March 20, 1998
- ----------------------------
S.C.Hurley
/s/ H.J. KELLY Director March 20, 1998
- ----------------------------
H.J. Kelly
/s/ J.E. MAYBIN Director March 20, 1998
- ----------------------------
J.E. Maybin
/s/ L.G. MUNIN Director March 20, 1998
- ----------------------------
L.G. Munin
/s/ E.S. ONDRACK Director March 20, 1998
- ----------------------------
E.S. Ondrack
/s/ S.T. PEELER Director March 20, 1998
- ----------------------------
S.T. Peeler
/s/ E.L. HAHN Senior Vice President, Finance and Treasurer March 20, 1998
- ----------------------------
E.L. Hahn and Chief Financial Officer
/s/ R.J. STEFURE Controller and Chief Accounting Officer March 20, 1998
- ----------------------------
R.J. Stefure
</TABLE>
42
<PAGE> 43
EXHIBIT 10(a)(i)
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN
AS AMENDED MAY 15, 1997
<PAGE> 44
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 2
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Section 1 - Interpretation ..............................................3
Section 2 - Establishment of the Plan ....................................7
Section 3 - Participation in the Plan ...................................7
Section 4 - Contributions ...............................................9
Section 5 - Establishment of Accounts ..................................11
Section 6 - Retirement..................................................12
Section 7 - Forms of Retirement Benefits ...............................13
Section 8 - Death Prior to Retirement ..................................14
Section 9 - Termination of Service ......................................16
Section 10 - Administration of the Plan .................................17
Section 11 - Retirement Trust Fund .....................................18
Section 12 - Amendment or Termination of the Plan ......................18
Section 13- General Conditions .........................................19
<PAGE> 45
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 3
- --------------------------------------------------------------------------------
SECTION 1 - INTERPRETATION
1.01 WORDS AND PHRASES
For the purposes of this Plan, as the context may
require, the expressions set out in this Section 1 shall have the meanings
ATTRIBUTED THERETO.
1.02 BENEFICIARY has the meaning ascribed thereto in Section 8.05.
1.03 CANADA PENSION PLAN means the Canada Pension Plan, RSC 1985 c. C-8, or as
thereafter amended, or any successor or similar legislation or plan
instituted by the Government of Canada or a province of Canada.
1.04 COMPANY means Chieftain International, Inc. acting through its Board of
Directors or such person or persons authorized by the Board of Directors
so to act for the purposes of the Plan.
1.05 CONTINUOUS SERVICE means service with the Employer rendered by an Employee
from the Employee's date of last employment with the Employer to the date
of his termination of service, whether by death, Retirement, or otherwise.
Continuous Service shall also include service rendered with Chieftain
Development Co. Ltd. or Alberta Energy Company Ltd. which immediately
precedes a period of Continuous Service with the Employer. Continuous
Service shall not be broken by:
(1) any leave of absence of an Employee from his duties with
the consent of the Employer providing such leave is with
pay;
(2) any approved sickness, accident, maternity, or
educational leave of an Employee from his duties,
provided the Employee returns to work at the expiry
thereof;
(3) any period of Disability during which the Employer is
making contributions on behalf of the Employee under
Section 4.03; or
(4) temporary absence for any reason which does not exceed
twenty-six (26) weeks duration, provided the Employee
returns to work at the expiry thereof, unless service
continuity has been broken in accordance with the
Employer's service continuity policy as it may be in
effect from time to time.
Service occurring before a break in Continuous Service shall not
constitute Continuous Service.
1.06 DISABILITY means the complete inability, as certified in writing by a
qualified medical practitioner, of a disabled Participant because of
accidental bodily injury, illness or disease to engage in any occupation
or employment for remuneration or profit for which he is reasonably suited
by reason of education, training or experience; provided, however, that a
disabled Participant shall not be considered to have suffered Disability
if his state of disablement exists on account of:
(1) an accidental bodily injury arising out of or in the
course of any employment for
<PAGE> 46
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 4
- --------------------------------------------------------------------------------
remuneration or profit other than with the Employer;
(2) accidental bodily injury, illness or disease which is the result of
war, declared or undeclared;
(3) intentionally self-inflicted bodily injury, illness or disease; or
(4) accidental bodily injury, illness or disease
(a) for which the disabled Participant is not continuously under the
regular care and attendance of a physician, and
(b) if the illness or disease is due to a mental or emotional disorder
of any type, for which the disabled Participant is not receiving
continuing treatment from a physician who is certified in
psychiatry;
(5) an illness or a disease due to alcoholism, drug addiction or the use
of any hallucinogenic or stimulating agent taken voluntarily unless
the illness or disease is specifically documented as being an organic
condition.
1.07 EFFECTIVE DATE means 1 January 1989.
1.08 EMPLOYEE means any person employed by the Employer.
1.09 EMPLOYER means the Company and any other company which is a subsidiary or
affiliate of the Company, and which the Company has designated as a
participating employer in this Plan.
1.10 EMPLOYER'S FORFEITURE ACCOUNT means the account to which is credited the
amount in a Participant's Employer Account pursuant to Section 9.01.
1.11 EMPLOYMENT PENSION PLANS ACT means the Employment Pension Plans Act, S.A.
1986 C.E-10.05 and the Regulations thereunder, as amended or replaced from
time to time.
1.12 FULL TIME EMPLOYEE means an Employee who is employed on a basis considered
by the Employer to be a full time permanent basis.
1.13 FUND means all funds at the pertinent time held by the Trustee under the
Trust Agreement.
1.14 INCOME TAX ACT means the Income Tax Act, S.C. 1970-1971 c. 63 and the
Regulations thereunder, and where applicable includes the provisions of
Information Circular 72-13R8 issued by the Department of National Revenue,
as amended or replaced from time to time.
1.15 INVESTMENT OPTION means any of the pooled investment funds in which the
Fund may be invested as provided for in the Trust Agreement.
1.16 LOCKED-IN RETIREMENT ACCOUNT means an R.R.S.P. or any registered
investment account which is eligible for receipt of locked-in retirement
funds under the Employment Pension Plans Act and the Income Tax Act.
<PAGE> 47
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 5
- --------------------------------------------------------------------------------
1.17 MONEY PURCHASE LIMIT for a year means the maximum permissible contribution
for an individual for that year under the Income Tax Act.
1.18 MONTHLY EARNINGS shall mean a Participant's regular earnings in a month as
determined from time to time by the Employer, excluding premium pay,
bonuses, and all payments which are not made on a regular monthly basis.
1.19 NORMAL RETIREMENT DATE means the first day of the month coincident with or
first following the date on which the Participant attains, or would
attain, age sixty-five (65).
1.20 PART TIME EMPLOYEE means any Employee who is not a Full Time Employee.
1.21 Participant means any Employee who fulfils the eligibility requirements
set forth in Section 3 hereof and whose application for participation has
been accepted and recorded by the Company, and includes a former Employee
who continues to be entitled to benefits or rights under the Plan.
1.22 PARTICIPANT'S ACCOUNTS means the Participant's Employee Account and the
Participant's Employer Account.
1.23 PARTICIPANT'S EMPLOYEE ACCOUNT means the account to which contributions
made by the Participant are credited.
1.24 PARTICIPANT'S EMPLOYER ACCOUNT means the account to which contributions
made by the Employer in respect of the Participant are credited.
1.25 PARTICIPANT'S VOLUNTARY ACCOUNT means the account to which funds
transferred from the Prior Plan were allocated under Section 2.02(2)(a),
and to which contributions made under Section 4.07 are credited.
1.26 PLAN means the Chieftain International, Inc. Retirement Plan established
hereunder as amended from time to time.
1.27 PLAN YEAR means the calendar year.
1.28 PRIOR PLAN means the Chieftain Development Co. Ltd. Executive Retirement
Plan established effective January 1 1972, and the Chieftain Development
Co. Ltd. Retirement Plan established effective January 1 1971.
1.29 REGISTERED PENSION PLAN, REGISTERED SAVINGS PLAN and R.R.S.P. bear the
meaning attributed thereto under the Income Tax Act.
1.30 REMUNERATION means all salary, wages, bonuses, vacation pay, honoraria,
directors' fees, commissions, taxable allowances, the value of taxable
benefits, and any other payments for service during the year as an
Employee of the Employer.
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1.31 RETIREMENT means the commencement of a Participant's pension benefits in
accordance with Section 6.
1.32 RETIREMENT COMMITTEE means the committee whose appointment, duties, and
responsibilities are set forth in Section 10 of the Plan.
1.33 SPOUSE means, in relation to a Participant
(1) a person of the opposite sex who at the relevant time was married to
that other person and was not living separate and apart from him, or
(2) if there is no person to whom Section 1.33(1) applies, a person of the
opposite sex who lived with the Participant for the three (3) year
period immediately preceding the relevant time and was during
that period held out by the Participant in the community in which they
lived as his consort.
1.34 SUPERINTENDENT means the Superintendent of Pensions for the Province of
Alberta, appointed pursuant to the Employment Pension Plans Act.
1.35 TRUST AGREEMENT means the agreement, including any additional or successor
agreements, as provided for in Section 11 of the Plan.
1.36 TRUSTEE means the trustee or trustees as specified in the Trust Agreement.
1.37 VALUATION DATE means the date upon which the Trustee causes a valuation to
be made of the assets held under a particular Investment Option, and gains
and losses thereunder to be allocated to the beneficial owners, which
shall occur not less frequently than monthly.
1.38 VESTED RIGHT means the nonforfeitable right of a Participant, or the
surviving Spouse of a Participant, to a pension benefit under the Plan.
1.39 YEAR'S MAXIMUM PENSIONABLE EARNINGS or YMPE shall have the meaning
ascribed thereto in the Canada Pension Plan.
1.40 NUMBER AND GENDER
Whenever used in the Plan, words importing the masculine gender include
the feminine unless the context requires otherwise. Words importing the
singular number may be construed to extend to and include the plural and
vice versa.
1.41 CAPTIONS AND HEADINGS
Section headings used in this Plan are for convenient reference only and
shall not be deemed to be a part of the substance of this instrument or in
any way to enlarge or limit the contents of any Section.
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SECTION 2 - ESTABLISHMENT OF THE PLAN
2.01 This Plan is intended to constitute an employees' pension plan
qualified for registration under the Employment Pension Plans Act
and the Income Tax Act. The Company established the Plan effective 1
January 1989 for the provision of retirement pensions to Employees
of the Employer subject to
(1) obtaining and retaining such registration of the Plan
with the relevant tax authorities as may be necessary to
establish that Participants and Employers are entitled
to deduct the amount of their contributions from their
taxable income under the Income Tax Act as Registered
Pension Plan contributions, and
(2) obtaining and retaining such registration of the Plan as
may be necessary under the Employment Pension Plans Act.
2.02 (1) Prior to the Effective Date certain Employees of the
Employer were members of the Prior Plan, which was
terminated and replaced by this Plan. The value of the
benefit of each Participant thereunder was transferred
to this Plan, except for any value which was used at the
Participant's direction to purchase a deferred life
annuity.
(2) The amounts transferred from the Prior Plan were
allocated to the respective Participants' Accounts, as
follows:
(a) any amounts transferred from the Prior Plan
which were "excess contributions" within the
meaning of the Employment Pension Plans Act
were allocated to the respective
Participant's Voluntary Account; and
(b) all other amounts were allocated to the
respective Participant's Employee Account.
2.03 Effective January 1, 1992 the Plan is hereby amended and restated to
incorporate:
(1) changes required under the Employment Pension Plans Act,
as amended July 1992; and
(2) changes required under the Income Tax Act effective
January 1, 1992.
2.04 Unless stated otherwise, the terms of the Plan apply to Participants
who retire, terminate employment or die on and after January 1, 1992
and the benefits of Participants who retired, terminated employment,
or died prior to this date shall be determined by the terms of the
Plan in effect at the time of that event.
SECTION 3 - PARTICIPATION IN THE PLAN
3.01 MEMBERS OF PRIOR PLAN
Each Employee who was a member of the Prior Plan shall
become a Participant of the Plan on the Effective Date.
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3.02 OTHER FULL-TIME EMPLOYEES
Each other Full Time Employee shall be eligible to participate in
the Plan on the first day of the month coincident with or first
following the completion of one (1) year of Continuous Service.
Participation for each such Full Time Employee shall be compulsory.
3.03 OTHER PART-TIME EMPLOYEES
Each other Part Time Employee shall be eligible to participate in
the Plan on the first day of any month coincident with or following
the 1 January which is first preceded by two (2) consecutive
calendar years in each of which the Employee's Remuneration was not
less than thirty-five percent (35%) of the YMPE for such year.
Participation for each such Part Time Employee shall be voluntary.
3.04 PRIOR MEMBERS OF AEC PLANS
Any Employee who, immediately prior to his employment with the
Employer, was employed by Alberta Energy Company Ltd. and was a
member of any registered pension plan of Alberta Energy Company
Ltd., shall immediately become a Participant in the Plan on his date
of employment with the Employer.
3.05 ENROLLMENT
Each eligible Employee, in becoming a Participant, must sign and
deliver to the Company a written application for participation on a
form or forms approved and provided by the Company. Such application
shall include the agreement by the Employee to be bound by all terms
of the Plan.
3.06 WRITTEN SUMMARY
Each Participant and prospective Participant shall receive a written
explanation of the terms and conditions of the Plan and of any
amendments thereto which apply to him, together with an explanation
of the rights and duties with respect to benefits available to him
under the Plan. A copy of the Plan and of the Trust Agreement shall
be available at the Head Office of the Company to be read by any
Participant upon request.
3.07 WITHDRAWAL FROM PLAN PROHIBITED
A Participant shall not be allowed to withdraw from the Plan while
he remains in the employment of the Employer.
3.08 BREAK IN CONTINUOUS SERVICE
If a Participant has a break in Continuous Service, his
participation in this Plan, except to the extent that he may have
acquired a Vested Right, shall cease as of his date of termination
of service. If such Participant is subsequently re-employed by the
Employer, he shall be considered for all purposes of the Plan as a
new Employee and if such Participant had previously acquired a
Vested Right, such Vested Right shall not be affected by his
subsequent re-employment with the Employer.
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3.09 WAIVER OF ELIGIBILITY PROVISIONS
Notwithstanding Sections 3.02 and 3.03, the Company in its sole
discretion may waive the eligibility requirements in respect of any
Employee.
3.10 ANNUAL STATEMENT TO PARTICIPANTS
Each Participant shall receive an annual written statement
containing the information prescribed under the Employment Pension
Plans Act in respect of the Participant's benefits under the Plan.
3.11 STATEMENT ON TERMINATION
A Participant who terminates employment or otherwise ceases to be a
Participant or any other person who becomes entitled to a benefit
under the Plan, shall receive a written statement setting out the
information prescribed under the Employment Pension Plans Act in
respect of the benefits of the Participant or other person.
SECTION 4 - CONTRIBUTIONS
4.01 PARTICIPANT'S CONTRIBUTIONS
Each Participant, throughout his participation in the Plan, shall be
required to contribute monthly to the Fund, through payroll
deductions, five percent (5%) of his Monthly Earnings, provided that
a Participant's contributions in any year shall not exceed one-half
(1/2) of the Money Purchase Limit for that year.
4.02 EMPLOYER'S CONTRIBUTIONS
The Employer will contribute monthly to the Fund on behalf of each
Participant an amount equal to such Participant's contributions
under Section 4.01.
4.03 CONTRIBUTIONS DURING DISABILITY
The Employer will contribute monthly to the Fund, on behalf of a
Participant who suffers a Disability, during the period such
Participant is in receipt of disability benefits from the Employer
sponsored Long Term Disability Plan. The amount of such contribution
shall be five percent (5%) of such Participant's Monthly Earnings
immediately preceding his date of Disability and the amount
(1) shall be limited to the amount which the Employer would
have otherwise contributed if the Participant had, in
the absence of his Disability, continued in active
employment with the Employer with no change in his rate
of Monthly Earnings, and
(2) shall be inclusive of any Employer contribution required
under Section 4.02 hereof resulting from Monthly
Earnings paid to the Participant during his Disability.
4.04 ADDITIONAL DISCRETIONARY CONTRIBUTIONS
The Employer may in its absolute discretion make additional
contributions in respect of the Participants, provided that:
(1) the additional contributions must, subject to the
following limits, represent a
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RETIREMENT PLAN PAGE 10
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percentage of the Participants' Monthly Earnings which
is uniform for all members of a class of Participants,
as prescribed under the Employment Pension Plans Act;
(2) the total contributions made by the Employer in respect
of any Participant in any Plan Year, must not exceed one
half (1/2) of the Money Purchase Limit for that year;
and
(3) the total contributions by or in respect of any
individual Participant in any Plan Year shall not exceed
eighteen percent (18%) of the Participant's Remuneration
for that year.
4.05 USE OF FORFEITURES
In any month, the Employer may apply all or a portion of the amount
in the Employer's Forfeiture Account to make Employer Contributions
under Section 4.02, 4.03 and 4.04, in which case the Employer's
Forfeiture Account shall be reduced by the amount of such reduction
in contributions. In any event, any amount in the Employer's
Forfeiture Account which has not been applied under this Section
4.05 to reduce the Employer contributions to the Plan by the end of
the calendar year following the year in which the amount was
credited to the Employer's Forfeiture Account shall be refunded to
the Employer at the end of that subsequent year pursuant to Section
4.06.
4.06 REFUND OF FORFEITURES
The Employer may, subject to the advance approval of the
Superintendent, receive a refund of all or a portion of the amount
in the Employer's Forfeiture Account, in which case the Employer's
Forfeiture Account shall be reduced by the amount so refunded.
4.07 PARTICIPANT'S ADDITIONAL VOLUNTARY CONTRIBUTIONS
In addition to his contributions under Section 4.01, a Participant
may make additional voluntary contributions to the Plan provided
that the total of all contributions made to the Plan by or in
respect of the Participant during that year shall not exceed the
lesser of:
(1) eighteen percent (18%) of the Participant's
Remuneration for that year, and
(2) the Money Purchase Limit for the year.
4.08 OTHER CONTRIBUTIONS PROHIBITED
No contributions shall be permitted to be made to the Plan except as
provided for in this Section 4.
4.09 REMITTANCE OF CONTRIBUTIONS
All contributions made by the Participants and the Employer shall be
transmitted by the Employer for deposit in the Fund within the
period prescribed under the Employment Pension Plans Act.
4.10 REVERSAL OF ERRONEOUS CONTRIBUTIONS
Where any person has made a contribution to this Plan, whether in
error or otherwise, which would cause registration of the Plan under
the Income Tax Act to be
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revoked, then such contribution (or such portion thereof as may be
sufficient to avoid such revocation) shall be returned to the
contributor, and thereafter the Plan shall be administered as if
such contribution had never been made. The application of this
Section 4.10 shall be subject to such notification and documentation
as the Superintendent may require.
SECTION 5 - ESTABLISHMENT OF ACCOUNTS
5.01 INVESTMENT OPTIONS
(1) Upon enrolling in the Plan, each Participant shall file
with the Company written instructions as to which of the
Investment Options the Participant's Accounts and
Participant's Voluntary Account shall be invested in,
and in what proportion. Thereafter, the Participant may
from time to time file with the Company written
instructions changing the Investment Options in which
future contributions to the Participant's Accounts and
Participant's Voluntary Account shall be invested or
directing that transfers be made from one Investment
Option to another or both.
(2) All such written instructions shall be made on forms
provided by the Company for such purposes, and shall be
subject to such restrictions as the Company shall
establish in consultation with the Trustee.
5.02 ALLOCATION OF CONTRIBUTIONS
(1) The Trustee shall maintain records and accounts which
reflect the interest of each Participant in the Fund.
(2) Required contributions made to the Plan by a Participant
under Section 4.01 shall be allocated to the
Participant's Employee Account.
(3) Contributions made to the Plan by an Employer in respect
of a Participant shall be allocated to the Participant's
Employer Account.
(4) Voluntary contributions made to the Plan by a
Participant under Section 4.07 shall be allocated to the
Participant's Voluntary Account.
(5) Allocations required under this Section 5.02 shall be
made forthwith upon receipt by the Trustee of the amount
contributed, and the funds invested in accordance with
the Participant's instructions under Section 5.01.
5.03 ALLOCATION OF GAINS AND LOSSES
In respect of each Investment Option and as of each Valuation Date,
the Trustee shall determine the net income and any realized and
unrealized gains or losses of that portion of the Fund invested in
such Investment Option since the last Valuation Date. Such amounts
shall be allocated, as of the Valuation Date, to the Accounts in the
proportion that the amount in the individual Account which was
invested in the particular Investment Option as of the previous
Valuation Date bears to the aggregate of all such amounts.
<PAGE> 54
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SECTION 6 - RETIREMENT
6.01 NORMAL OR POSTPONED RETIREMENT
(1) A Participant may elect Retirement on his Normal
Retirement Date, or on the first day of any month
thereafter, but not later than the first day of December
in the year in which he attains age sixty-nine (69)
(2) Where a Participant remains in employment beyond his
Normal Retirement Date and elects Retirement while such
employment continues, then he shall cease accruing
benefits under the Plan as of his date of Retirement.
6.02 EARLY RETIREMENT
A Participant who has completed two (2) years of Continuous Service
and whose Continuous Service is terminated on or before his date of
Retirement, may elect Retirement on the first day of any month prior
to his Normal Retirement Date, provided that the amount in the
Participant's Account is sufficient to provide an annual pension
benefit in the normal form of at least two percent (2%) of the YMPE
in the year of his Retirement.
6.03 RETIREMENT BENEFIT
Subject to Section 6.04, the pension benefit payable to a
Participant on Retirement shall be the amount payable from an
annuity in the form determined under Section 7 which can be
purchased by the amount in the Participant's Accounts from any party
authorized under the laws of Canada or a province to carry on an
annuities business in Canada. Such a purchase shall serve as a full
discharge of the Company, the Fund and the Plan with respect to the
provision of pension benefits under this Plan.
Notwithstanding the above, a Participant at Retirement may transfer
the value of his Participant's Accounts to his Locked-In Retirement
Account or any other prescribed retirement arrangement as permitted
under the Employment Pension Plans Act.
6.04 COMMUTATION OF SMALL BENEFITS
If the annual pension benefit payable in the normal form at a
Participant's Retirement is less than two percent (2%) of the YMPE
in that year, or if the total value of the Participant's Accounts is
less than four percent (4%) of the YMPE in that year, then the value
of the Participant's Accounts shall be paid to the Participant upon
his Retirement in full and final satisfaction of his benefits under
the Plan. Such payment shall be made either to the Participant in
cash, or by way of transfer to his R.R.S.P., as the Participant
shall direct.
6.05 APPLICATION FOR RETIREMENT
A Participant must apply in writing, in the form and manner
prescribed by the Company, prior to any retirement benefit becoming
payable. Such application must be accompanied by proof of the
Participant's date of birth and that of his joint annuitant, if
applicable, and by a declaration of the Participant's marital
status, both in a form acceptable to the Company.
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6.06 TREATMENT OF PARTICIPANT'S VOLUNTARY ACCOUNT
Upon the retirement of a Participant, the Participant shall elect
that the value of his Participant's Voluntary Account shall be paid
to him in cash, transferred to his R.R.S.P. or included within his
Participant's Accounts, and used to provide a benefit in accordance
with this Plan. Failing such election the Participant shall be
conclusively deemed to have elected to receive the benefit in cash.
SECTION 7 - FORMS OF RETIREMENT BENEFITS
7.01 NORMAL FORM
The normal form of retirement benefit (hereinafter referred to as
the "normal form") shall be payable in equal monthly installments,
due on the last day of each month, for the life of the Participant,
with the first payment due for the month in which Retirement
occurred. Upon the death of the retired Participant, benefits in the
normal form shall be payable:
(1) if the Participant has a Spouse at Retirement, and that
Spouse survives him, to the Spouse for the life of the
Spouse in equal monthly installments of an amount equal
to sixty percent (60%) of the monthly amount payable to
the Participant during his lifetime; or
(2) if the Participant does not have a Spouse at Retirement,
and the Participant dies prior to having received one
hundred and twenty (120) monthly payments, the balance
of the one hundred and twenty (120) monthly payments
shall be payable to the Beneficiary or estate of the
Participant.
7.02 OPTIONAL FORMS
Subject to Sections 7.03 and 7.04, a Participant may elect an
optional form of retirement benefit provided that:
(1) the Company agrees to such option, and
(2) such option provides for at least the payment of
retirement benefits during the Participant's lifetime,
and
(3) such other option is permissible under the Income Tax
Act and the Employment Pension Plans Act.
7.03 ELECTION OF OPTIONAL FORMS
A Participant who wishes his retirement benefit to be paid in an
optional form pursuant to Section 7.02 must submit his written
election to the Company at least thirty (30) days prior to his date
of Retirement in a form acceptable to the Company. An election under
Section 7.02 may be revoked by the Participant, provided written
notice of such revocation is received by the Company at least thirty
(30) days prior to his date of Retirement. Should the Participant's
joint annuitant die before the commencement of retirement benefits,
the Participant's election of the joint and survivor annuity
optional form shall be void and his retirement benefits shall be
paid in accordance with Section 7.01.
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7.04 RESTRICTION FOR MARRIED PARTICIPANTS
Notwithstanding Section 7.02 and 7.03, a Participant who has a
Spouse at Retirement shall not be entitled to elect an optional form
of benefit under Section 7.02 if such form provides the Spouse with
a survivor benefit of less than sixty percent of the monthly amount
payable to the Participant, unless the Participant's Spouse has
filed with the Company a statement of waiver in the form and manner
required under the Employment Pension Plans Act.
7.05 BENEFITS CEASING ON DEATH
The portion of any benefit which is payable for the lifetime of any
person shall cease with the last payment due on the last day of the
month preceding the month in which such person's death occurs.
SECTION 8 - DEATH PRIOR TO RETIREMENT
8.01 DEATH WITH SPOUSE AS SURVIVOR
(1) If the Participant dies prior to Retirement and is
survived by his Spouse, the combined value of the
Participant's Accounts shall be payable for the benefit
of his Spouse. The Spouse shall elect that the benefit
shall be transferred to the Spouse's Locked-in
Retirement Account, or paid as a pension for life under
Section 8.03.
(2) If the combined value of the Participant's Accounts is
less than four percent (4%) of the YMPE or the annual
pension benefit payable to the surviving Spouse in the
normal form at the Spouse's Normal Retirement Date,
interpreted as if the Spouse were a Participant, would
be less than two percent (2%) of the YMPE, each measured
as of the year of the Participant's death, the benefit
may be paid to the Spouse in cash, or transferred to his
R.R.S.P.
8.02 DEATH WITHOUT A SPOUSE
If a Participant dies prior to Retirement and is not survived by his
Spouse, the value of the Participant's Accounts shall be payable to
his Beneficiary. The benefit shall be paid in cash unless the
Beneficiary, if eligible under the Income Tax Act, elects, within
ninety (90) days of being informed of his entitlements under the
Plan, that the benefit be transferred to his R.R.S.P.
8.03 BENEFITS FOR SURVIVING SPOUSE
The benefit payable to the Spouse under Section 8.01 shall be
determined in accordance with Sections 8.04 through 8.07 below.
8.04 ELECTION OF BENEFIT FOR LIFE
The Spouse may elect to receive the benefit payable under Section
8.01 in the form of a pension for life, provided that the resulting
annual pension amount is not less than two percent (2%) of the YMPE
in the year of the Participant's death. Such election must be
accompanied by proof acceptable to the Company of the Spouse's date
of birth, and must be filed with the Company not later than ninety
(90) days after
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his having been informed of his entitlements under the Plan.
8.05 GUARANTEED PERIOD
The Spouse may elect the pension for life under Section 8.04 with or
without a guaranteed period; provided that the guaranteed period
shall not exceed fifteen (15) years.
8.06 PENSION IN EQUAL MONTHLY INSTALLMENTS
The Spouse's pension for life shall be payable in equal monthly
installments payable on the last day of each month, with the first
such payment being made as soon as practicable after the
Participant's death, in the amount that is payable from an annuity
purchased pursuant to Section 8.07 with the value of the
Participant's Accounts.
8.07 PURCHASE OF ANNUITY
The Fund shall provide for the payment of the pension for life by
the purchase of a life annuity from any party authorized by the laws
of Canada or a province to carry on an annuities business in Canada.
The purchase of such annuity by the Fund shall serve as a full
discharge of the obligations of the Company, the Fund, and the Plan
with respect to the provision of benefits to the surviving Spouse.
8.08 DISTRIBUTION OF PARTICIPANT'S VOLUNTARY ACCOUNT
If a Participant dies prior to Retirement, his Spouse or, if there
is no Spouse, his Beneficiary, shall elect that the value of the
Participant's Voluntary Account shall be paid to him in cash,
transferred to his R.R.S.P. or included with the Participant's
Accounts, and used to provide a benefit in accordance with this
Plan. Failing such election, the Spouse shall be conclusively deemed
to have elected the cash payment.
8.09 DESIGNATION OF BENEFICIARY
A Participant may designate a Beneficiary to receive the benefits
payable under the Plan in the event of the Participant's death, and
may also by written notice, given to the Company during such
Participant's lifetime, alter or revoke such designation from time
to time, subject to any applicable law. Any designation or written
notice shall be in such form and executed in such manner as the
Company may require.
8.10 DESIGNATION BY SURVIVING SPOUSE
If a Spouse is entitled to receive a benefit under this Section 8,
then such Spouse shall have the same rights as those ascribed to a
Participant in Section 8.09 in respect of benefits payable after
such Spouse's death.
8.11 FAILURE OF BENEFICIARY
If at the death of a Participant the person designated as the
Beneficiary shall not then be living or if no person has been
designated by the Participant, such amount as may be payable on or
after the Participant's death shall be paid to the estate of the
Participant.
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8.12 DOCUMENTATION OF CLAIM
The Company may require the execution or delivery of such documents
as it may deem appropriate to be assured that the payment of death
payments is properly made and is made to the proper party entitled
thereto.
8.13 PAYMENT OF LUMP SUM IN LIEU OF PERIODIC BENEFITS
Notwithstanding anything in this Plan to the contrary, if any
benefits would, in the absence of this provision, be payable to an
estate as a series of monthly or other periodic payments, the
actuarial present value thereof shall be paid to such estate in a
lump sum in lieu thereof.
8.14 BENEFITS ON DEATH OF BENEFICIARY
If, as a result of a Participant's death, a Beneficiary is entitled
to payments under the Plan, and if the Beneficiary dies before
receiving any or all payments to him, the remainder of the payments
will be paid in a lump sum to the estate of the Beneficiary.
8.15 DEATH BENEFIT TO SPOUSE'S BENEFICIARY
If the Participant should predecease his Spouse and the Spouse dies
without having elected or become entitled to make the transfers
under Section 8.01, an amount equal to the sum of the Participant's
Accounts plus the Participant's Voluntary Account, if any, shall be
payable to the Spouse's designated beneficiary or if there is no
such person living, the Spouse's estate.
8.16 DEATH BENEFITS FOLLOWING RETIREMENT
Any death benefit payable upon the death of a Participant who has
commenced to receive his pension shall be determined in accordance
with the form of the pension being paid to the Participant pursuant
to Section 7.
SECTION 9 - TERMINATION OF SERVICE
9.01 TERMINATION PRIOR TO VESTING
If the Continuous Service of a Participant terminates, for any
reason other than death, prior to his electing Retirement and prior
to his having completed two (2) years of Continuous Service, he will
receive the value in his Participant's Employee Account, either in
cash or by way of transfer to his R.R.S.P., as the Participant may
elect. If the Participant does not make an election within ninety
(90) days of being informed of his entitlements under the Plan (or
his date of termination, if later), the benefit shall be paid in
cash. The value of the Participant's Employer Account shall be
forfeited and credited to the Employer's Forfeiture Account.
9.02 TERMINATION SUBSEQUENT TO VESTING
If the Continuous Service of a Participant terminates, for any
reason other than death, prior to his electing Retirement but after
his having completed two (2) years of Continuous Service, he shall
be entitled to elect either:
(1) to transfer the value of his Participant's Accounts to
his Locked-In Retirement Account; or
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(2) subject to Section 9.04, to leave his Participant's
Accounts in the Fund and receive a pension benefit upon
Retirement, in accordance with Section 6.
9.03 DISCRETION TO WAIVE VESTING PERIOD
Notwithstanding Section 9.01, if the Continuous Service of a
Participant shall terminate prior to his having completed at least
two (2) years of Continuous Service, the Company, in its sole and
absolute discretion, may deem that the Plan shall be interpreted as
if that Participant had completed two (2) years of Continuous
Service.
9.04 MANDATORY TRANSFER OF SMALL BENEFITS
If the value of the Participant's Accounts is less than ten percent
(10%) of the YMPE in the year the Participant's employment
terminates, the Company may require the Participant to make the
transfer provided for in Section 9.02(1).
9.05 COMMUTATION OF SMALL BENEFITS
If the annual pension benefit payable in the normal form at a
Participant's termination is less than two percent (2%) of the YMPE
in that year, or if the total value of the Participant's Accounts is
less than four percent (4%) of the YMPE in that year, then the value
of the Participant's Accounts shall be paid to the Participant upon
his termination in full and final satisfaction of his benefits under
the Plan. Such payment shall be made either to the Participant in
cash, or by way of transfer to his R.R.P. as the Participant shall
direct.
9.06 TIME LIMIT FOR ELECTIONS
The election referred to in Section 9.02 must be made by the
Participant in writing no later than ninety (90) days after having
been informed of his entitlements under the Plan (or his termination
of Continuous Service, if later). If no such election is filed with
the Company within the prescribed period, the Participant shall be
deemed to have elected the option provided in Section 9.02(2). The
Company may, however, in its discretion, extend the time limits for
the filing of such election.
9.07 DISTRIBUTION OF PARTICIPANT'S VOLUNTARY ACCOUNT
Upon the termination of a Participant's Continuous Service, for any
reason other than death, prior to his electing Retirement, the
Participant shall elect that the value of his Participant's
Voluntary Account shall be paid to him in cash, transferred to his
R.R.S.P. or included with his Participant's Accounts, and used to
provide a benefit in accordance with this Plan. Failing such
election the Participant shall be conclusively deemed to have
elected to receive the benefit in cash.
SECTION 10 -ADMINISTRATION OF THE PLAN
10.01 COMPANY RESPONSIBLE FOR PLAN
While the Plan remains in force the Company shall have the sole
responsibility for and the sole control of its operation and
administration, and shall have the power and duty to take all action
and to make all decisions and interpretations which shall be
necessary or appropriate in order to administer and carry out the
Plan including the
<PAGE> 60
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 18
- --------------------------------------------------------------------------------
power to make and enforce such rules and regulations as it shall
deem necessary. The Company may however delegate all or a portion of
its duties pursuant to the administration of the Plan to a
Retirement Committee consisting of not less than two (2) members to
be appointed by and serving at the pleasure of the Company. The
majority of such members must be residents in Canada. The Company
shall fill all vacancies on the Committee occurring by death or
resignation or removal of members thereof. The Company may from time
to time remove any member of the Committee with or without cause,
and shall appoint a successor. Any member of the Retirement
Committee may resign at any time. Any expenses properly incurred by
the Retirement Committee or any member thereof shall be reimbursed
from the Fund unless paid by the Company.
10.02 RETENTION OF PROFESSIONALS
The Company or the Retirement Committee may from time to time retain
such independent counsel, accountants, actuaries, and other parties
or advisors (hereinafter referred to as "Professionals") as it may
require in carrying out its responsibilities referred to under
Section 10.01. Upon direction of the Company, the fees and expenses
of such Professionals, to the extent that they may be reasonably
associated with the operation and administration of the Plan, shall
be paid from the Fund unless paid by the Company.
SECTION 11 - RETIREMENT TRUST FUND
11.01 COMPANY TO ENTER TRUST AGREEMENT
The Company shall enter into a Trust Agreement with the Trustees who
shall be appointed by the Company. The contributions of the Employer
under this Plan will be received, held, invested, and administered
as a Trust Fund in accordance with the terms of the Trust Agreement,
the Plan, the Income Tax Act, and the Employment Pension Plans Act
in order to provide for the payment of benefits in accordance with
the Plan. The Company may remove any or all Trustees at any time
upon reasonable notice, and, upon such removal or upon resignation
of any or all of the Trustees, the Company shall appoint successor
Trustees.
11.02 FISCAL YEAR OF FUND
The fiscal year of the Fund shall be the calendar year.
11.03 LOANS FROM PLAN PROHIBITED
The Plan will not permit loan privileges to any Participant.
SECTION 12 - AMENDMENT OR TERMINATION OF THE PLAN
12.01 RIGHT TO AMEND OR TERMINATE RESERVED
The Company retains the right to amend or terminate the Plan in
whole or in part at any time and from time to time and in such
manner and to such extent as it may deem advisable, provided that:
(1) no amendment shall have the effect of reducing the then
existing value of any
<PAGE> 61
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 19
- --------------------------------------------------------------------------------
Participant's Account, except by the provision of
benefits of equal value;
(2) each amendment to the Plan shall be in writing and shall
be executed and acknowledged on behalf of the Company by
its President or a Senior Vice President and attested to
by its Corporate Secretary or an Assistant Corporate
Secretary and sealed with its Corporate Seal; and
(3) termination of the Plan shall be accomplished only by
appropriate resolution of the Company, and a copy of
such resolution shall be provided to all affected
Participants.
12.02 AUTOMATIC VESTING ON PLAN TERMINATION
(1) Upon termination of the Plan, in whole or in part, each affected
Participant shall be deemed to have terminated his service with the
Employer on the date of Plan's termination and to have completed at
least two (2) years of Continuous Service, and his entitlements
shall be determined in accordance with Section 9.02.
(2) If the Plan is terminated, the Trustees and the Retirement
Committee shall continue to function as such for such period of time
as may be necessary for the winding up of the Plan.
SECTION 13 -GENERAL CONDITIONS
13.01 PLAN NOT A CONTRACT OF EMPLOYMENT
The adoption and maintenance of the Plan shall not be deemed to
constitute a contract of employment between the Employer and any
Employee or Participant. Nothing contained herein shall be deemed to
give to any Employee the right to be retained in the service of the
Employer or to interfere with the right of the Employer to terminate
the service of any Employee or Participant at any time.
13.02 BENEFITS INALIENABLE
(1) All payments made to a Participant, Beneficiary, Spouse,
or a joint annuitant pursuant to the Plan are for the
support and maintenance of such Participant,
Beneficiary, Spouse, or joint annuitant and may not be
assigned, alienated, sold, transferred, pledged,
encumbered, anticipated, charged, surrendered, or given
as security and to the extent permitted by law shall not
be subject to attachment or otherwise to the claims of
creditors of the Participant, Beneficiary, Spouse, or
joint annuitant.
(2) Subject to the Employment Pension Plans Act, the
entitlement of any person to receive a benefit under
this Plan is subject to entitlements arising under a
matrimonial property order, within the meaning of the
Matrimonial Property Act, or a similar order enforceable
in Alberta.
13.03 TIME LIMIT FOR TRANSFERS
If a person becomes entitled to receive benefits under the Plan, the
payment shall be made within sixty (60) days after the event giving
rise to the payment or the completion and filing of all documents
required to authorize the making of the payment.
<PAGE> 62
CHIEFTAIN INTERNATIONAL, INC.
RETIREMENT PLAN PAGE 20
- --------------------------------------------------------------------------------
13.04 LIMITATION OF LIABILITY
Neither the Company, any Employer, the Trustees, nor any individual
or committee selected by the Company to perform services or render
advice in connection with this Plan, shall be liable to anyone in
connection with the Plan except for his own gross neglect or willful
misconduct, and no committee member shall be liable for the act or
omission of any other committee member.
13.05 SEVERABILITY
If any provision of this Plan is held to be invalid or unenforceable
by a court of competent jurisdiction, its invalidity or
unenforceability shall not affect any other provision of the Plan
and the Plan shall be construed and enforced as if such provision
had not been included therein.
13.06 PLAN TEXT PREVAILS OVER TRUST AGREEMENT
Any provision of the Trust Agreement that is inconsistent with the
terms of the Plan shall, to the extent of the inconsistency, be of
no force or effect.
13.07 PLAN UNDER ALBERTA LAW
This Plan shall be governed and construed in accordance with the law
of the Province of Alberta.
<PAGE> 63
EXHIBIT 10(a)(ii)
CHIEFTAIN INTERNATIONAL, INC.
SUPPLEMENTARY EMPLOYEE RETIREMENT PLAN
MARCH 20, 1997
<PAGE> 64
TABLE OF CONTENTS
Article Page
- ------- ----
I Definitions and Interpretation 1
II Establishment of the SERP 3
III Eligibility and Participation 4
IV Establishment of Accounts 5
V Accumulation of Benefits 6
VI Payment of Benefits 7
VII Amendment or Termination of the SERP 9
VIII Corporate Reorganization, Change of Control, etc. 10
IX General Conditions 11
MARCH 20, 1997
<PAGE> 65
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 The following words and phrases shall have the meanings set forth
below, unless the context requires a different meaning:
CHIEFTAIN means the Company and such of its subsidiaries as the
Company shall from time to time designate including, with effect from
January 1, 1996 Chieftain International (U.S.) Inc.
COMPANY means Chieftain International, Inc. acting through its Board
of Directors or such person or persons authorized by the Board of
Directors so to act for the purposes of the SERP.
PARTICIPANT means an employee who is participating in the SERP in
accordance with Article III and who continues to be entitled to
benefits or rights under the SERP.
PARTICIPANT'S SERP ACCOUNT means the account maintained by the
Company or a subsidiary thereof or a Participant in the SERP.
RETIREMENT means retirement under a Retirement Plan of Chieftain.
RETIREMENT DATE means a Participant's early, normal, or postponed
retirement date under the terms of a Retirement Plan.
RETIREMENT PLAN means the Chieftain International, Inc. Retirement
Plan, which was effective January 1, 1989, or any other retirement
plan established for employees of Chieftain as amended from time to
time.
SERP means the Supplementary Employee Retirement Plan. established by
the Company effective January 1, 1991 including any changes therein,
amendments thereto, or modifications thereof from time to time made
by the Company.
TERMINATION DATE means a Participant's Retirement Date or, if
earlier, the date his employment ceases for any reason other than
death.
MARCH 20, 1997
<PAGE> 66
1.2 Unless the context requires otherwise, references in the SERP to the
male gender will include the female gender and vice versa; and words
importing the singular number may be construed to extend to and
include the plural number.
1.3 Unless otherwise stated, references to Articles and Sections refer to
Articles and Sections of the SERP.
MARCH 20, 1997
<PAGE> 67
ARTICLE II
ESTABLISHMENT OF THE SERP
2.1 Chieftain International, Inc. hereby amends, effective January 1,
1996 the SERP established effective January 1, 1991 for the payment
of supplementary retirement benefits to Participants.
MARCH 20, 1997
<PAGE> 68
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 As at each December 31, the Company shall identify each employee who,
on that date is actively employed by Chieftain and on behalf of whom
contributions during the year then ended have been made to a
Retirement Plan in the maximum dollar amount permitted by income tax
regulations.
Each Retirement Plan Participant who is so identified shall have the
right to participate in the SERP with effect from the January 1
preceding the December 31 on which he is so identified or such later
date as he commences employment with Chieftain.
Previous participation in the SERP notwithstanding, an employee shall
not receive an allocation under the SERP during any year in which he
has not been identified by the Company pursuant to this Section 3.1.
3.2 Each Participant shall receive a copy of the SERP.
3.3 A Participant's SERP Account may not be used for any purpose other
than the payment of benefits as required by the SERP.
MARCH 20, 1997
<PAGE> 69
ARTICLE IV
ESTABLISHMENT OF ACCOUNTS
4.1 The Company, or such subsidiary of the Company as the Company shall
designate, shall maintain records and accounts which reflect the
interest of each Participant in the SERP. Allocations under the SERP
shall be recorded in the Participant's SERP Account forthwith upon
determination by the Company of the amount to be allocated.
4.2 Each Participant shall be advised annually of the amount allocated to
his SERP Account and the total amount of his SERP Account at that time.
MARCH 20, 1997
<PAGE> 70
ARTICLE V
ACCUMULATION OF BENEFITS
5.1 Participants shall not contribute to the SERP.
5.2 Once each year, the Company, or such subsidiary of the Company as the
Company shall designate, shall allocate to the Participant's SERP
Account such amount, if any, as the Company shall determine.
5.3 Once each year, the Company or such subsidiary of the Company as the
Company shall designate shall allocate to each Participant's SERP
Account an amount of interest, calculated in respect of Canadian
participants at not less than the average of the Mid Term Bond Yields
as published by ScotiaMcLeod Inc. at the end of each calendar quarter
for the period from the date of the previous allocation of interest
to the date of the within allocation of interest and calculated, in
respect of other participants, at not less than a comparable average
bond yield.
MARCH 20, 1997
<PAGE> 71
ARTICLE VI
PAYMENT OF BENEFITS
6.1 The Company or such subsidiary of the Company as the Company shall
designate will provide for payment of benefits, the form and timing
of which shall be determined by the Company and the Participant.
6.2 If, within 90 days of an event requiring payment of SERP benefits,
the Participant and the Company have been unable to agree on the form
and timing of SERP benefit payments, the benefit payments shall be
made in such manner as the Company shall determine.
6.3 RETIREMENT. A Participant's Retirement under the SERP shall be
simultaneous with his Retirement under a Retirement Plan and he shall
at that time receive the amount in his Participant's SERP Account in
accordance with Sections 6.1 and 6.2 hereof.
6.4 DEATH PRIOR TO RETIREMENT. In the event of the death prior to
Retirement of a Participant, the amount in the Participant's SERP
Account shall be paid to the Participant's Beneficiary in the manner
determined by the Company and the Beneficiary or, if no Beneficiary
has been named, by the Company and a representative of the
Participant's estate.
A Participant may designate a person ("the Beneficiary") to receive
the benefits payable under the SERP in the event of the Participant's
death, and may also by written notice, given to the Company during
such Participant's lifetime alter or revoke such designation from
time to time, subject to applicable law. Any designation or written
notice shall be in such form as the Company may require.
If at the death of a Participant the person designated as the
Beneficiary shall not then be living or if no person has been
designated by the Participant, such amount as may be payable on or
after the Participant's death shall be paid to the estate of the
Participant.
If, within 90 days of the Participant's death, there has been no
agreement on the form and timing of benefit payments, the benefit
shall be paid in such manner as the Company shall determine.
6.5 TERMINATION OF SERVICE. In the event that a Participant's Termination
Date precedes his Retirement Date, his participation in the SERP
shall cease on his Termination Date and he shall, at that time,
receive the amount in his SERP Account in accordance with the
provisions of Sections 6.1 and 6.2 hereof.
MARCH 20, 1997
<PAGE> 72
ARTICLE VII
AMENDMENT OR TERMINATION OF THE SERP
7.1 The Company retains the right to amend, modify, or terminate the SERP
in whole or in part at any time and from time to time, without the
consent of any Participant, in such manner and to such extent as it
may deem desirable. No amendment shall have the effect of reducing
any Participant's retirement benefits under the terms of the SERP in
respect of his participation prior to the date of such amendment.
7.2 In the event of termination of the SERP, each Participant's
entitlement shall be calculated as if the Participant's Termination
Date occurred on the date of termination of the SERP.
MARCH 20, 1997
<PAGE> 73
ARTICLE VIII
CORPORATE REORGANIZATION, CHANGE OF CONTROL, ETC.
8.1 In the event of:
(a) the making of an offer for such number of Common Shares of
the Company as would, if successful, result, in the
opinion of the Board, in a change of control; or
(b) any event which, in the opinion of the Board, warrants
same,
the Company shall, within 30 days of the Board's determination that any such
event has occurred, pay such amount as is recorded in the Participant's SERP
Account to or for the benefit of the Participant, in accordance with the
provisions of Sections 6.1 and 6.2 hereof.
MARCH 20, 1997
<PAGE> 74
ARTICLE IX
GENERAL CONDITIONS
9.1 The adoption and maintenance of the SERP shall not be deemed to
constitute a contract of employment between the Company or any
subsidiary of the Company and any Participant. Nothing contained
herein shall be deemed to give to any Participant the right to be
retained in the service of the Company or any subsidiary of the
Company or to interfere with the right of the Company or any
subsidiary of the Company to terminate any Participant at any time.
9.2 No individual, committee, or agent of the Company, or any subsidiary
thereof, shall incur any liability under the terms of the SERP.
9.3 Article headings are for convenience of reference only and shall not
be deemed to be part of the substance of this instrument or in any
way to enlarge or limit the contents of any Article or Section.
9.4 The SERP and all rights thereunder shall be governed, construed, and
administered in accordance with the laws of Alberta.
9.5 The Company is solely responsible for the administration and
interpretation of the SERP but reserves the right to assign all or
any part of such responsibility in such manner as the Company sees
fit.
MARCH 20, 1997
<PAGE> 75
EXHIBIT (10)(b)
CHIEFTAIN INTERNATIONAL, INC.
SHARE OPTION PLAN
MARCH 15, 1996
<PAGE> 76
CHIEFTAIN INTERNATIONAL, INC.
SHARE OPTION PLAN
1. PURPOSE
The purpose of the Plan is to encourage present and future directors,
key employees and consultants to promote the growth and development of
Chieftain International, Inc. (the "Company") by providing such
directors, employees and consultants with the opportunity, through
share options, to purchase shares in the Company and to recognize the
contributions of directors, key employees and consultants to the
success of the Company by granting them share options.
2. ADMINISTRATION
The Plan shall be administered and interpreted by the Board of
Directors (the "Board") of the Company. The Board may delegate to the
Compensation Committee (the "Committee") full power and authority to
take any action required or permitted to be taken by the Board under
the Plan including the full power and authority to administer the Plan,
but excluding the power to amend or terminate the Plan. Any decision on
Plan interpretation made by the Board shall be final and nothing
contained herein shall restrict or limit or be deemed to restrict or
limit the rights or powers of the Board.
3. ELIGIBILITY
Such directors and employees of and consultants to the Company and its
subsidiaries as are designated by the Board upon the advice of the
President shall be eligible to receive options under the Plan.
4. SHARES SUBJECT TO PLAN
Shares subject to the Plan shall be such number of unissued common
shares of the Company as has been reserved for purposes of the Plan by
resolution of the Board, subject to such regulatory approval as may
apply. Shares in respect of which options have terminated without
exercise shall be available for subsequent options.
The number of shares reserved for grants under the Plan shall be
limited to 1,300,000 shares subject to the provisions of Section 10,
"Alterations in Shares".
<PAGE> 77
CHIEFTAIN INTERNATIONAL, INC. SHARE OPTION PLAN
MARCH 15, 1996 2
- --------------------------------------------------------------------------------
5. GRANTING OF OPTIONS
The Board upon the advice of the President may from time to time grant,
to eligible directors, employees and consultants options to purchase
shares of the Company in such amounts as the Board may determine,
except that at no time will an optionee hold options to purchase more
than 5% of the issued and outstanding common shares of the Company.
6. OPTION PRICE
The option price shall be fixed by the Board when an option is granted
at not less than the market price of the final board lot of the common
shares traded on the American Stock Exchange on the trading day
preceding the day on which the option is granted during which at least
500 common shares traded.
7. MATURITY OF OPTIONS
Each option will mature and be exercisable as to one-third (1/3) of the
shares subject thereto immediately following the end of each of the
first three years of the term and may be exercised at any time in whole
or in part only after maturity and prior to the end of the full term.
8. OPTION AGREEMENTS
Each option granted hereunder shall be evidenced by a written option
agreement between the Company and the optionee and shall contain such
terms and conditions as may be provided by the Board upon the advice of
the President. The terms and conditions of option agreements need not
be identical. The option agreements shall include provisions as to:
(a) the number of shares under option,
(b) the option price,
(c) any restrictions on exercise of the option, and
(d) the expiry date of the option.
9. EXERCISE OF OPTION
An option, or any portion thereof, may be exercised by delivering to
the Company a written notice of exercise specifying the number of
shares with respect to which the option is being exercised and
accompanied by payment in full of the purchase price of the shares.
The Company, in the sole discretion of the Board, may, in lieu of
delivering common shares upon exercise of a stock option, pay the
optionee the amount of the difference between the fair market value and
the option price, fair market value being the weighted average trading
price for the common shares on the American Stock Exchange during the
five trading days immediately preceding the exercise date.
<PAGE> 78
CHIEFTAIN INTERNATIONAL, INC. SHARE OPTION PLAN
MARCH 15, 1996 3
- --------------------------------------------------------------------------------
10. ALTERATIONS IN SHARES
Appropriate adjustments in the number of shares subject to option and
in the option price per share shall be made by the Board to give effect
to adjustments in the number of common shares of the Company resulting
from subdivision, consolidation or reclassification of the common
shares of the Company, or the reconstruction, reorganization or
recapitalization of the Company or other relevant changes in the
capital of the Company.
11. CHANGE OF CONTROL
Clause 7 hereof notwithstanding, in the event of (i) the making of an
offer for such number of common shares of the Company as would, if
successful, result, in the opinion of the Board, in a change of
control; or (ii) any event which, in the opinion of the Board, warrants
same, the option shall be exercisable in full and the optionee may
exercise the option for a period of 60 days following the date of such
event, or such shorter period of time as the Board shall fix, having
regard to the nature of the event.
12. EXPIRY OF OPTIONS
An option granted under the Plan shall, unless otherwise prescribed by
the Board, expire on the tenth anniversary of the date the option was
granted, provided the optionee remains in the service of the Company.
Notwithstanding the provisions of Clause 7, in the event of termination
of service as a result of:
(a) retirement of an employee under a retirement plan or early
retirement policy of the Company after at least five years of
service, or
(b) conclusion of service of a director or consultant after at
least five years of service as a director or consultant
the option shall be exercisable and the optionee or the legal heirs of
the optionee, as the case may be, may exercise the option for a period
of 5 years or until the normal expiry date of such option, if earlier.
Also notwithstanding the provisions of Clause 7, in the event of
termination of service as a result of:
(a) disability, or
(b) death,
the option shall be exercisable and the optionee or the legal heirs of
the optionee, as the case may be, may exercise the option for a period
of 18 months unless a longer period, ending no later than the normal
expiry date of the option, is fixed by the Board.
<PAGE> 79
CHIEFTAIN INTERNATIONAL, INC. SHARE OPTION PLAN
MARCH 15, 1996 4
- --------------------------------------------------------------------------------
In the case of termination of service for any other reason and unless
the Board determines otherwise, the optionee may continue to exercise
his option, to the extent it was exercisable on the date of
termination, for 60 days following such termination or until the normal
expiry date of such option, if earlier.
13. CASH PREMIUMS
The Company will provide to the optionee a cash payment approximately
equal to the income tax payable as a result of the optionee having
exercised his option, in whole or in part, subject to the following
conditions:
(a) cash premiums will be paid only in respect of the exercise of
his option no earlier than four years from the date of grant,
(b) cash premiums will be paid only with respect to shares
retained in the manner prescribed herein, and
(c) the maximum marginal tax rate used to calculate such cash
premiums will be 50%.
To be eligible to receive a cash premium, the optionee will place in
escrow with the Company for a period of two years shares obtained
through exercise of his option under the Plan. To remove the shares
from escrow prior to the end of the two years, the optionee must
reimburse the Company twenty-five percent of the cash premium for each
six month period or part thereof that remains in the 24 month escrow
period.
In the event of the death or permanent disability of an optionee or
retirement under a Company retirement plan, the Company may, at its
sole discretion, waive the requirement for reimbursement of the cash
premium.
14. NON ASSIGNABILITY OF OPTIONS
The interest of an optionee shall not be transferable or alienable by
the optionee either by assignment or in any other manner during the
optionee's lifetime but shall enure to the benefit of the legal heirs
of the optionee.
15. RIGHTS AS A SHAREHOLDER
The optionee shall have no rights whatsoever as a shareholder in
respect of his option until and to the extent that the optionee
exercises his option to purchase shares in accordance with clause 9.
16. DIVIDENDS
Dividends will not be paid on shares which are subject to an option
until the option to purchase shares in accordance with clause 9 is
exercised and then only in respect of the shares so purchased.
<PAGE> 80
CHIEFTAIN INTERNATIONAL, INC. SHARE OPTION PLAN
MARCH 15, 1996 5
- --------------------------------------------------------------------------------
17. AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may amend the plan at any time, and from time to time but no
such amendment may impair any option previously granted to an optionee
without written consent of that optionee.
<PAGE> 81
Exhibit 21
CHIEFTAIN
INTERNATIONAL, INC.
1201 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta, Canada
T5J 2Z1
Telephone (403) 425-1950
Facsimile (403) 429-4681
Notice of Annual Meeting of Shareholders
to be held on Thursday, May 14, 1998
The annual meeting of the shareholders of Chieftain International, Inc. ("the
Company") will be held in the Marlboro Room of The Westin Hotel, 10135 - 100
Street, Edmonton, Alberta, Canada on Thursday, May 14, 1998 at 10:30 a.m.
(Edmonton time) to receive and consider the annual report, the financial
statements and the report of the auditors on the financial statements, and in
addition for the following purposes:
1. to elect two directors;
2. to appoint auditors of the Company until the close of the next annual
meeting;
3. to transact all such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on the 6th day of April,
1998 as the record date for the determination of shareholders who are entitled
to notice of and to vote at the annual meeting. The share transfer books will
not be closed.
Please complete, date and sign the enclosed form of proxy and mail it promptly
in the enclosed postage-paid envelope.
By order of the Board of Directors
Esther S. Ondrack
March 20, 1998 Senior Vice President and Secretary
<PAGE> 82
[LOGO] CHIEFTAIN
INTERNATIONAL, INC.
1201 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta, Canada
T5J 2Z1
Telephone (403) 425-1950
Facsimile (403) 429-4681
INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This Information Circular and the accompanying Notice of Meeting and form of
proxy are being mailed to shareholders on or about March 27, 1998 in connection
with the solicitation of proxies by the management of Chieftain International,
Inc. (hereinafter called the "Company") to be voted at the annual meeting of
shareholders (the "meeting") to be held at 10:30 a.m., Edmonton time, in the
Marlboro Room of The Westin Hotel, 10135 - 100 Street, Edmonton, Alberta, Canada
on Thursday, May 14, 1998. Proxy soliciting material will also be mailed to
those who become shareholders of record after the date of first mailing and on
or before the record date. The Directors have fixed the close of business on
April 6, 1998 as the record date for the determination of shareholders who are
entitled to notice of and to vote at the meeting. The solicitation will be
primarily by mail and the cost will be borne by the Company. In addition, the
Company will reimburse banks, brokerage houses and other custodians, nominees or
fiduciaries for reasonable expenses incurred by them in forwarding proxy
material to their principals to obtain authorization for the execution of
proxies.
All shares represented by proxy will be voted, provided that instruments of
proxy are received by CIBC Mellon Trust Company, registrar and transfer agent,
at its office at 600, 333 - 7th Avenue S.W., Calgary, Alberta, Canada, T2P 2Z1,
or by the Company at its principal office at 1201 Toronto Dominion Tower,
Edmonton Centre, Edmonton, Alberta, Canada, T5J 2Z1, no later than 10:30 a.m.,
May 13, 1998.
The Company's accounts are maintained, and all dollar amounts herein are stated,
in United States dollars. The average rates of exchange for Canadian dollars per
U.S.$1.00 during 1996, 1997 and during the period January 1 to February 27,
1998, were $1.3636, $1.3843 and $1.4375, respectively. The rates on December 31,
1996, December 31, 1997, and February 27, 1998 were $1.3696, $1.4291 and
$1.4235, respectively.
APPOINTMENT AND REVOCATION OF PROXIES
THE ENCLOSED PROXY IS SOLICITED BY AND ON BEHALF OF THE MANAGEMENT OF THE
COMPANY. THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY ARE DIRECTORS
AND OFFICERS OF THE COMPANY. A SHAREHOLDER HAS THE RIGHT TO APPOINT SOME OTHER
PERSON, WHO NEED NOT BE A SHAREHOLDER, TO REPRESENT HIM OR HER AT THE MEETING
AND HE OR SHE MAY EXERCISE THIS RIGHT BY INSERTING SUCH OTHER PERSON'S NAME IN
THE BLANK SPACE PROVIDED IN THE FORM OF PROXY.
The instrument appointing a proxy shall be in writing and signed by the
shareholder or the shareholder's attorney authorized in writing. If the
shareholder is a corporation, the document must carry the signature of a duly
authorized officer or attorney thereof.
1
<PAGE> 83
A shareholder who has given a proxy in the accompanying form has the power to
revoke it. A proxy may be revoked by instrument in writing executed by the
shareholder or by his or her attorney authorized in writing or, if the
shareholder is a corporation, by a duly authorized officer or attorney thereof,
and deposited either at the head office of the Company at any time up to and
including the last business day preceding the day of the meeting, or any
adjournment thereof, at which the proxy is to be used, or with the chairman of
such meeting on the day of the meeting or adjournment thereof, and upon either
of such deposits the proxy is revoked. In addition, a proxy may be revoked in
any other manner permitted by law.
EXERCISE OF DISCRETION BY PROXY
The person named in the enclosed proxy will vote the shares in respect of which
he or she is appointed in accordance with the direction of the shareholder
appointing him or her. In the absence of specific direction, such shares will be
voted in favor of the election of the directors and the appointment of the
auditors named in this information circular. If any amendments or variations in
the matters identified in the notice of meeting or if any other matters properly
come before the meeting or any adjournment or adjournments thereof, the proxy
confers discretionary authority upon the shareholder's nominee to vote on such
amendments or variations or such other matters in accordance with his or her
best judgment. Proxies will not be voted with respect to any material amendment
or any material variation of the matters which come before the meeting. At the
date of the notice of meeting, management knows of no such amendment or
variation or other matter to come before the meeting.
VOTING SHARES
The registered holders of the outstanding common shares of the Company of record
at the close of business on April 6, 1998 are entitled to notice of and to vote
at the meeting. The number of common shares outstanding on December 31, 1997 was
13,622,375 and on February 27, 1998 was 13,589,975. Each common share entitles
the registered holder thereof to one vote, which may be given in person or by
proxy. Approval of each matter to come before the annual meeting requires an
affirmative vote by the holders of a majority of the shares represented at the
meeting, whether in person or by proxy. The quorum for the meeting is two
persons present and holding or representing by proxy at least one-third of the
issued shares of the Company for the time being having voting rights.
SHARE OWNERSHIP
The following table describes those shareholders which, to the knowledge of the
Company, own beneficially, as at February 27, 1998, more than 5 percent of the
outstanding common shares of the Company:
<TABLE>
<CAPTION>
------------------------------------------------------ ------------------------------ ------------------------------
Name and Address Amount and Nature of
Of Beneficial Owner Beneficial Percent of Class
Ownership of Common Shares
------------------------------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
Guardian Life Insurance Company of America
201 Park Avenue 1,107,000(1) 8.1
New York, N.Y. 10003
------------------------------------------------------ ------------------------------ ------------------------------
Stanley A. Milner
President and Chief Executive Officer of the Company 710,386(2) 5.2
1201 Toronto Dominion Tower, Edmonton Centre
Edmonton, Alberta, Canada T5J 2Z1
------------------------------------------------------ ------------------------------ ------------------------------
</TABLE>
(1) The information is based on Schedule 13-G filings with the Securities and
Exchange Commission. The beneficial owner is believed to have sole
dispositive and voting power with respect to 406,200 common shares and
shared dispositive and voting power with respect to 128,800 common shares.
(2) Includes 115,000 shares issuable upon exercise of options exercisable
within 60 days and 48,750 shares issuable upon conversion of Chieftain
International Funding Corp. $1.8125 Convertible Redeemable Preferred
shares.
2
<PAGE> 84
The table below indicates the number of the Company's common shares and the
Chieftain International Funding Corp. $1.8125 Convertible Redeemable Preferred
Shares (the "Preferred Shares") owned by the directors, including those
nominated for election; the Named Executive Officers as defined on page 5; and
all directors and officers as a group. All of the common shares shown as
issuable upon exercise of options are issuable within 60 days.
Each Preferred Share is convertible into 1.25 common shares of the Company.
<TABLE>
<CAPTION>
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
SHARES BENEFICIALLY OWNED AS AT FEBRUARY 27, 1998
Common Shares Percent of Class(1) Preferred Shares Percent of Class
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
<S> <C> <C> <C> <C>
Stephen C. Hurley 52,271(2) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Hugh J. Kelly 27,666(3) - 10,000 -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
John E. Maybin 27,666(4) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Stanley A. Milner 661,636(5) 4.83 39,000 1.43
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
David E. Mitchell 36,666(3) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Louis G. Munin 30,666(3) - 2,000 -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Esther S. Ondrack 97,708(6) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Stuart T. Peeler 26,667(7) - 21,500 -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Edward L. Hahn (8) 32,234(9) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
Ronald J. Stefure (10) 32,405(11) - - -
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
All directors and officers as a group 1,146,456(12) 8.14 72,500 2.66
- --------------------------------------- ------------------- ------------------ ---------------------- -------------------
</TABLE>
(1) Percentages of less than one are omitted.
(2) Includes 50,000 shares issuable upon exercise of options.
(3) Includes 26,666 shares issuable upon exercise of options.
(4) Includes 26,166 shares issuable upon exercise of options.
(5) Includes 115,000 shares issuable upon exercise of options. In addition, an
associate of S. A. Milner owns 15,000 shares.
(6) Includes 75,833 shares issuable upon exercise of options.
(7) Includes 14,167 shares issuable upon exercise of options.
(8) E.L. Hahn is Senior Vice President, Finance and Treasurer of the Company.
(9) Includes 24,166 shares issuable upon exercise of options.
(10) R. J. Stefure is Controller of the Company.
(11) Includes 31,666 shares issuable upon exercise of options.
(12) Includes 495,328 shares issuable upon exercise of options.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held five regularly scheduled or special meetings during
the year ended December 31, 1997. Each member of the Board of Directors
including those nominated for election attended all of the meetings of the Board
of Directors and of the committees on which he served during 1997. The Company
has standing Audit, Nominating and Corporate Governance, Compensation and
Pension Committees of the Board of Directors. The members of the committees are
appointed by the full Board upon recommendation of the Nominating and Corporate
Governance Committee.
AUDIT COMMITTEE
The Audit Committee, which during 1997 consisted of L.G. Munin as Chairman and
J.E. Maybin, D.E. Mitchell and S.T. Peeler, all non-employee directors, held
four meetings during 1997. The primary function of the Audit Committee is to
assist the Board of Directors in providing corporate oversight in the areas of
financial reporting, internal control and the audit process. In connection with
these reviews it meets alone with Company personnel and with the independent
auditors who have access to the Committee at any time. The Committee recommends
to the Board for its approval the annual appointment of external auditors.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee is comprised of J.E. Maybin as
Chairman, and D.E. Mitchell, L.G. Munin and S.T. Peeler. This Committee assists
the Board by reviewing corporate governance and Board nomination matters and
making recommendations to the Board as appropriate. The Committee met once
during 1997 to consider the size and composition of the Board of Directors,
nominees for the election of directors at the 1997 annual meeting and corporate
governance practices.
3
<PAGE> 85
COMPENSATION COMMITTEE
The Compensation Committee is comprised of S.T. Peeler as Chairman and H.J.
Kelly, J.E. Maybin and D.E. Mitchell, none of whom are, with the exception of D.
E. Mitchell, who is the non-executive Chairman of the Board, officers of the
Company. The primary function of the Compensation Committee is to assist the
Board of Directors by reviewing compensation matters and making recommendations
to the Board with respect to compensation arrangements and benefit plans for
officers of the Company and with respect to the Company's Share Option Plan and
by reviewing and approving compensation budgets, benefits plans and policies,
salaries of certain non-officer employees, and succession planning. The
Compensation Committee met four times in 1997.
PENSION COMMITTEE
The Pension Committee is comprised of H.J. Kelly as Chairman, E.L. Hahn, J.E.
Maybin, D.E. Mitchell and S.T. Peeler. This Committee reviews generally and
makes recommendations to the Board of Directors with regard to the Company's
retirement plans, related agreements and the appointment and performance of
retirement fund investment managers. This committee met once during 1997.
ELECTION OF DIRECTORS
The Articles of the Company provide that directors are elected and retire in
rotation. Directors are elected to hold office until the close of the third
ensuing annual meeting and at each annual meeting approximately one-third of the
board is elected. Effective upon the termination of the forthcoming annual
meeting, the terms of Stanley A. Milner and David E. Mitchell will expire. It is
proposed that two directors be elected for the ensuing three years. Management
will place before the annual meeting as nominees Stanley A. Milner and David E.
Mitchell and PROXIES GIVEN PURSUANT TO THIS SOLICITATION BY MANAGEMENT WILL BE
VOTED FOR THE ELECTION OF SAID NOMINEES UNLESS INDICATED OTHERWISE. While
management knows of no reason why the said nominees will be unable or unwilling
to serve as directors, if for any reason they shall be unable or unwilling to
serve, it is intended that proxies given pursuant to this solicitation by
management will be voted for substitute nominees selected by management.
Information is given below with respect to the nominees and the directors whose
terms of office as directors will continue after the meeting.
<TABLE>
<CAPTION>
---------------------------------------------------------------- ----------------- ------------
SERVED AS TERM
NAME AND PRINCIPAL OCCUPATION DIRECTOR SINCE EXPIRES
---------------------------------------------------------------- ----------------- ------------
<S> <C> <C>
STEPHEN C. HURLEY, Dallas, Texas
Senior Vice President and Chief Operating Officer of the 1997 2000
Company (1)
---------------------------------------------------------------- ----------------- ------------
HUGH J. KELLY, Mandeville, Louisiana
Corporate Director and Consultant 1989 1999
---------------------------------------------------------------- ----------------- ------------
JOHN E. MAYBIN, Calgary, Alberta
Corporate Director 1991 2000
---------------------------------------------------------------- ----------------- ------------
STANLEY A. MILNER, A.O.E., LL.D., Edmonton, Alberta
President and Chief Executive Officer of the Company 1988 2001(2)
---------------------------------------------------------------- ----------------- ------------
DAVID E. MITCHELL, O.C., Calgary, Alberta
Chairman of Alberta Energy Company Ltd. 1989 2001(2)
---------------------------------------------------------------- ----------------- ------------
LOUIS G. MUNIN, Dallas, Texas
Corporate Director and Financial Consultant 1989 1999
---------------------------------------------------------------- ----------------- ------------
ESTHER S. ONDRACK, Edmonton, Alberta
Senior Vice President and Secretary of the Company (3) 1988 2000
---------------------------------------------------------------- ----------------- ------------
STUART T. PEELER, Tucson, Arizona
Corporate Director and Petroleum Industry Consultant 1989 1999
---------------------------------------------------------------- ----------------- ------------
</TABLE>
(1) Mr. Hurley joined the Company as Senior Vice President and Chief Operating
Officer in September, 1995. From 1987 until 1991 he was Vice President,
Exploration of Ocean Drilling & Exploration Company and from 1991 to 1995
he was Vice President, Exploration of Murphy Exploration and Production
Company.
(2) Date when proposed term of office will expire.
(3) Mrs. Ondrack was Vice President and Secretary of the Company until June,
1995.
4
<PAGE> 86
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the compensation
during each of the Company's three most recently completed fiscal years of the
Chief Executive Officer and the Company's next four most highly compensated
executive officers, collectively "Named Executive Officers".
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
(U.S. $)
- ---------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long - Term Compensation
-------------------------------------------------------------------
Awards Payouts
-------------------------------
Securities Restricted
Under Shares
Name and Other Options or
Principal Annual and SARs Restricted LTIP All Other
Position Year Salary Bonus Compensation Granted Share Units Payouts Compensation(1)
($) ($) ($) (#) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley A. Milner 1997 320,273 250,000 (2) 25,000 -- -- 83,568
President and 1996 293,592 150,000 (2) -- -- -- 76,475
Chief Executive Officer 1995 267,117 100,000 (2) 60,000 -- -- 55,790
- ---------------------------------------------------------------------------------------------------------------------------
Stephen C. Hurley 1997 245,946 185,000 (2) 25,000 -- -- 52,317
Senior Vice President and 1996 226,689 100,000 (2) -- -- -- 45,414
Chief Operating Officer 1995 57,981(3) -- (2) 100,000(4) -- -- 3,723
- ---------------------------------------------------------------------------------------------------------------------------
Edward L. Hahn 1997 136,176 40,000 (2) 10,000 -- -- 34,755
Senior Vice President, 1996 130,078 35,000 (2) -- -- -- 33,102
Finance and Treasurer 1995 125,464 50,000 (2) 10,000 -- -- 25,968
- ---------------------------------------------------------------------------------------------------------------------------
Esther S. Ondrack 1997 122,157 40,000 (2) 15,000 -- -- 30,517
Senior Vice President 1996 116,246 35,000 (2) -- -- -- 28,979
and Secretary 1995 112,127 50,000 (2) 20,000 -- -- 22,900
- ---------------------------------------------------------------------------------------------------------------------------
Ronald J. Stefure 1997 95,570 35,000 (2) 9,000(5) -- -- 21,063
Controller 1996 78,293 20,000 (2) -- -- -- 13,619
1995 70,048(6) 33,333 (2) 10,000 -- -- 10,906
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The amounts in this column represent Company contributions to the defined
contribution retirement plans, the savings plan and the life insurance plan
in which plans the Named Executive Officers participate on the same basis
as all other employees. Such amounts do not include directors fees paid to
S.A. Milner ($34,500 in 1995, $30,000 in 1996, and $24,000 in 1997), E.S.
Ondrack ($30,900 in 1995, $30,000 in 1996, and $24,000 in 1997), and S.C.
Hurley ($9,423 in 1997) or a relocation allowance of $358,100 paid to S.C.
Hurley in 1996.
(2) The value of perquisites and benefits for each of the Named Executive
Officers is not greater than the lesser of Cdn.$50,000 and 10% of total
annual salary and bonus.
(3) Mr. Hurley joined the Company in September, 1995.
(4) Includes 25,000 Share Appreciation Rights ("SARs") and 75,000 share
options.
(5) Includes 4,000 SARs and 5,000 share options
(6) Mr. Stefure was appointed Controller in June, 1995.
The following table sets forth information regarding grants of share options and
Share Appreciation Rights ("SARs") to the Named Executive Officers during the
financial year ended December 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
OPTION AND SAR GRANTS DURING 1997
- ----------------------------------------------------------------------------------------------------------------------------
Number of Shares % of Total Options Exercise Potential Realizable Value at Assumed
Under Options or SARs Granted or Base Annual Rates of Stock Price Expiration
Name and SARs Granted in 1997 Price ($)(2) Appreciation for Option Term Date
5% 10%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stanley A. Milner 25,000 11% 21.32 332,250 845,000 May 15, 2007
Stephen C. Hurley 25,000 11% 21.32 332,250 845,000 May 15, 2007
Edward L. Hahn 10,000 4% 21.32 132,900 338,000 May 15, 2007
Esther S. Ondrack 15,000 7% 21.32 199,350 507,000 May 15, 2007
Ronald J. Stefure 5,000 2% 21.32 66,450 169,000 May 15, 2007
4,000(1) 6% 19.87 17,120 36,880 Mar. 20, 2001
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Share Appreciation Rights
(2) Market value of shares underlying options or SARs on the date of grant
5
<PAGE> 87
The options are exercisable as to one-third of the granted amount on and after
each of the first three anniversaries of the date of grant. Exercisability of
options accelerates in certain events, including death, disability, retirement
and change in control. The exercisability of options is contingent upon
continued service except that options exercisable on the date of termination of
employment may be exercised thereafter under certain conditions.
No options were exercised by the Named Executive Officers in 1997. The following
table shows the value, on December 31, 1997, of the unexercised options held by
the Named Executive Officers.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHARE OPTION EXERCISES IN 1997 AND YEAR-END 1997 SHARE OPTION VALUES
- ---------------------------------------------------------------------------------------------------------------------------
Unexercised Options held on Value of Unexercised in-the-Money
Securities Acquired Aggregate Value December 31, 1997 Options on December 31, 1997
-------------------------------------------------------------
Name on Exercise Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stanley A. Milner - - 115,000 45,000 $784,050 $152,400
Stephen C. Hurley - - 50,000 50,000 300,000 150,000
Edward L. Hahn - - 24,166 13,334 158,219 25,405
Esther S. Ondrack - - 75,833 21,667 483,972 50,802
Ronald J. Stefure - - 31,666 8,334 186,744 25,405
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CHANGE IN CONTROL AGREEMENTS
The Company has agreements with senior personnel, including the Named Executive
Officers, that provide for the payment of certain benefits under certain
circumstances following a change in control of the Company. If, following a
change in control, the employment of a Named Executive Officer is terminated by
the Company other than for cause, by disability, retirement or death, or by the
individual for good reason, the Named Executive Officer will receive a severance
payment equal to two times the individual's average annual base salary during
the previous three years and certain benefits for a two year period following
termination of employment.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
reviewing compensation policies and practices of the Company, both generally and
in specific relation to the appointment and compensation of the officers and
certain members of senior management. The Compensation Committee makes
recommendations to the Board of Directors with respect thereto and with respect
to benefit plans including the Share Option Plan and grants thereunder.
Compensation of the Company's employees, including officers and senior
management, is comprised of salary, periodic bonuses for outstanding effort and
results, various benefit plans, including a retirement plan and a savings plan,
and stock options. Compensation plans are designed to provide competitive levels
of compensation which will attract and retain competent, motivated personnel who
will perform to their potential to increase the value of the Company for the
benefit of the shareholders.
Salaries are reviewed annually in relation to the achievement of both corporate
and individual performance objectives and with a view to achieving and
maintaining external competitiveness and internal equity. Grants are made under
the Share Option Plan in the discretion of the Board of Directors on the advice
of the Compensation Committee and vary as to timing and amount with the
responsibilities and performance of the individual.
The compensation of the President and Chief Executive Officer of the Company,
Mr. Stanley A. Milner, is comprised of the same components and is determined in
the same manner as that of the other executive officers.
<TABLE>
<S> <C> <C>
Submitted on behalf of the Compensation Committee: Stuart T. Peeler, Chairman John E. Maybin
Hugh J. Kelly David E. Mitchell
</TABLE>
The Board of Directors has accepted all recommendations of the Compensation
Committee.
6
<PAGE> 88
PERFORMANCE GRAPHS
The graphs which follow assume that C$100 and US$100, respectively, were
invested on April 30, 1989, when the Company commenced operations, and December
31, 1992 in the Company's common shares, The Toronto Stock Exchange (TSE) 300
Composite Index, the TSE Oil and Gas Producers Index and the American Stock
Exchange (AMEX) Market Value Index. The graphs on page 8 also assume that US$100
was invested on December 31, 1995 in the American Stock Exchange Natural
Resources Index which was reformulated by AMEX during 1997 with effect from
December 31, 1995. Reinvestment of dividends is assumed in all cases. The graphs
were plotted using the data shown below each graph.
Cumulative Value of C$100 Invested on April 30, 1989
[LINE GRAPH]
<TABLE>
<CAPTION>
- ----------- --------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- --------- ---------- --------
Apr. 30 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Mar. 13
1989 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ----------- --------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CII Cdn.$ 100 144 137 101 137 135 91 149 224 189 208
- ----------- --------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- --------- ---------- --------
TSE 300 100 112 96 107 106 140 140 160 205 236 262
- ----------- --------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- --------- ---------- --------
TSE O&GP 100 113 102 87 93 129 117 136 187 167 159
- ----------- --------- ---------- ---------- ----------- ---------- ------------ ----------- ---------- --------- ---------- --------
</TABLE>
Cumulative Value of C$100 Invested on December 31, 1992
[LINE GRAPH]
<TABLE>
<CAPTION>
------------- ------------- --------------- ---------------- ----------------- ---------------- ---------------- -------------
Dec. 31, Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997 Mar. 13, 1998
1992
------------- ------------- --------------- ---------------- ----------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CII Cdn. $ 100 99 66 109 164 138 152
------------- ------------- --------------- ---------------- ----------------- ---------------- ---------------- -------------
TSE 300 100 133 132 152 194 224 248
------------- ------------- --------------- ---------------- ----------------- ---------------- ---------------- -------------
TSE O&GP 100 138 125 146 200 179 171
------------- ------------- --------------- ---------------- ----------------- ---------------- ---------------- -------------
</TABLE>
7
<PAGE> 89
Cumulative Value of US$100 Invested on April 30, 1989
[LINE GRAPH]
<TABLE>
<CAPTION>
- -------------- ------- -------- --------- ----------- ----------- ---------- ----------- ----------- --------- ---------- ----------
Apr. 30 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Mar 13
1989 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -------------- ------- -------- --------- ----------- ----------- ---------- ----------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CII US$ 100 150 140 105 129 122 75 131 193 157 175
- -------------- ------- -------- --------- ----------- ----------- ---------- ----------- ----------- --------- ---------- ----------
Market Value 100 110 89 114 116 138 126 159 169 205 214
Index
- -------------- ------- -------- --------- ----------- ----------- ---------- ----------- ----------- --------- ---------- ----------
Nat. Res 100 123 132 120
- -------------- ------- -------- --------- ----------- ----------- ---------- ----------- ----------- --------- ---------- ----------
</TABLE>
Cumulative Value of US$100 Invested on December 31, 1992
[LINE GRAPH]
<TABLE>
<CAPTION>
---------------- -------------- ------------- ------------- ----------------- ---------------- ---------------- -------------
Dec. 31, 1992 Dec. 31, 1993 Dec. 31, 1994 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1997 Mar. 13,1998
---------------- -------------- ------------- ------------- ----------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CIIUS$ 100 95 58 102 150 122 137
---------------- -------------- ------------- ------------- ----------------- ---------------- ---------------- -------------
Market Value 100 120 109 137 146 177 186
Index
---------------- -------------- ------------- ------------- ----------------- ---------------- ---------------- -------------
Nat. Res 100 123 132 120
---------------- -------------- ------------- ------------- ----------------- ---------------- ---------------- -------------
</TABLE>
COMPENSATION OF DIRECTORS
With effect from January 1, 1997, each Director receives an annual retainer of
$25,000, which is paid in quarterly installments. Each non-executive Director is
also paid at the rate of $900 for each Board meeting and committee meeting
8
<PAGE> 90
attended. Directors receive no compensation for the time required to prepare for
or travel to or from Board or committee meetings. The Company reimburses
reasonable out-of-pocket expenses incurred by Directors. On May 15, 1997, each
of the Directors was granted an option on 5,000 common shares at the exercise
price of $21.32 U.S. per share.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Company supports and complies with the corporate governance guidelines of
The Toronto Stock Exchange. The Company's Board of Directors participates
actively in strategic planning and in the identification and management of
business risks confronting the Company. Corporate objectives, budgets and
corporate authorities are reviewed and approved regularly. The Company's Board
and Board Committees have ongoing involvement in succession planning,
shareholder communications, internal control matters and management information
systems. The Board has a non-executive Chairman and is comprised of eight
members, five of whom are nonrelated.
APPOINTMENT OF AUDITORS
As set forth in the notice, action will be taken at the meeting to provide for
the appointment of auditors until the close of the next annual meeting. THE
PROXIES HEREBY SOLICITED WILL BE EXERCISED IN FAVOR OF THE APPOINTMENT OF PRICE
WATERHOUSE which firm has been the Company's auditors since the Company's
inception. A representative of Price Waterhouse is expected to be present at the
meeting.
OTHER MATTERS
There is no business of which the management of the Company is aware to be
presented for action by the shareholders at the meeting to which this
Information Circular relates other than that mentioned herein or in the Notice
of Meeting. The date by which shareholder proposals must be received by the
Company for inclusion in the information circular and proxy form relating to the
1999 annual meeting is December 1, 1998.
ADDITIONAL INFORMATION
Copies of the Company's latest Annual Information Form and any documents
incorporated therein by reference; the Company's latest Annual Report on Form
10-K and any documents incorporated therein by reference; the Company's audited
Consolidated Financial Statements for the year ended December 31, 1997 and any
interim financial statements issued subsequent thereto, and this Information
Circular may be obtained from the Secretary of the Company at 1201 Toronto
Dominion Tower, Edmonton Centre, 10205 - 101 Street, Edmonton, Alberta, Canada,
T5J 2Z1.
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit
to state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made.
<TABLE>
<S> <C>
S.A. Milner, A.O.E.,LL.D. E.L. Hahn
President and Senior Vice President, Finance and Treasurer,
Chief Executive Officer Chief Financial Officer
</TABLE>
Edmonton, Alberta
March 20, 1998
9
<PAGE> 91
Exhibit 24(a)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
AND GEOLOGISTS
We hereby consent to the references to our firm and our report and to the use of
our report in the Annual Report of Chieftain International, Inc. on Form 10-K
for the fiscal year ended December 31, 1997, filed with the Securities and
Exchange Commission in Washington, D.C. pursuant to the Securities Exchange Act
of 1934.
NETHERLAND, SEWELL AND ASSOCIATES INC.
By: /s/ Frederic D. Sewell
------------------------------------
Frederic D. Sewell
President
<PAGE> 92
Exhibit 24(b)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the inclusion in the Annual Report on Form 10-K of our
report dated February 4, 1998 on the consolidated financial statements of
Chieftain International, Inc. for the year ended December 31, 1997.
/s/ Price Waterhouse
- ---------------------------------
Chartered Accountants
Edmonton, Alberta, Canada
March 20, 1998
<PAGE> 93
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 BALANCE SHEET AND THE STATEMENT OF INCOME AND DEFICIT FOR YEAR ENDED
DECEMBER 31, 1997 INCLUDED IN THE COMPANY'S DECEMBER 31, 1997 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[CASH] 26,925
[SECURITIES] 0
[RECEIVABLES] 10,862
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 38,393
[PP&E] 461,854<F1>
[DEPRECIATION] 225,139
[TOTAL-ASSETS] 278,550<F2>
[CURRENT-LIABILITIES] 15,717
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 192,845
[OTHER-SE] 56,621<F3>
[TOTAL-LIABILITY-AND-EQUITY] 278,550<F4>
[SALES] 69,627
[TOTAL-REVENUES] 72,055
[CGS] 0
[TOTAL-COSTS] 54,584<F5>
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 17,471
[INCOME-TAX] 7,311
[INCOME-CONTINUING] 10,160
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 10,160
[EPS-PRIMARY] 0.38
[EPS-DILUTED] 0.38
<FN>
<F1>The Company accounts for gas and oil properties in accordance with Canadian
guidelines on full cost accounting.
<F2>Deferred income taxes of $3,442 have been included in total assets.
<F3>Preferred shares of a subsidiary of $63,403, contributed surplus of $307, and
retained earnings (deficit) of $(7,089), have been combined in calculating
other stockholders' equity.
<F4>Deferred income taxes of $13,367 have been included in total liabilities and
stockholders' equity.
<F5>Direct expenses of $11,569, production taxes of $1,756, general and
administrative expenses of $4,308, and depletion and amortization of $36,951,
have been combined in calculating total cost.
</FN>
</TABLE>
