<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO. 1-11680
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0396023
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
600 TRAVIS
SUITE 7200
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 224-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
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<PAGE> 2
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION..............................................1
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1998 (unaudited)
and December 31, 1997..................................................1
Unaudited Consolidated Statement of Operations for the
Three Months Ended March 31, 1998 and 1997, respectively...............2
Unaudited Consolidated Statement of Cash Flows for the
Three months Ended March 31, 1998 and 1997.............................3
Consolidated Statement of Partners' Capital for the Three months
Ended March 31, 1998 (unaudited).......................................4
Notes to Consolidated Financial Statements (unaudited)...................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................11
PART II. OTHER INFORMATION.................................................16
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES...................................................................17
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,264 $ 6,430
Accounts receivable 1,531 1,953
Accounts receivable from affiliates 5,245 6,608
Other current assets 595 653
--------- ---------
Total current assets 8,635 15,644
--------- ---------
Equity investments 184,664 182,301
--------- ---------
Property and equipment:
Pipelines 76,680 78,244
Platforms and facilities 112,606 97,882
Oil and gas properties, at cost, using successful efforts method 120,339 120,296
--------- ---------
309,625 296,422
Less accumulated depreciation, depletion, amortization and impairment 103,134 95,783
--------- ---------
Property and equipment, net 206,491 200,639
--------- ---------
Investment in Tatham Offshore, Inc. (Note 2) 7,500 7,500
Other noncurrent assets 3,510 3,758
--------- ---------
Total assets $ 410,800 $ 409,842
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 15,040 $ 12,522
Accounts payable to affiliates 770 1,032
--------- ---------
Total current liabilities 15,810 13,554
Deferred federal income taxes 1,267 1,399
Notes payable 251,000 238,000
Other noncurrent liabilities 15,369 13,304
--------- ---------
Total liabilities 283,446 266,257
--------- ---------
Minority interest (543) (381)
--------- ---------
Partners' capital 127,897 143,966
--------- ---------
Total liabilities and partners' capital $ 410,800 $ 409,842
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
1
<PAGE> 4
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue:
Oil and gas sales $ 9,135 $ 18,100
Gathering, transportation and platform services 3,260 5,839
Equity in earnings 5,319 7,089
-------- --------
17,714 31,028
-------- --------
Costs and expenses:
Operating expenses 2,837 3,103
Depreciation, depletion and amortization 7,867 13,945
General and administrative expenses and management fee 4,950 2,473
-------- --------
15,654 19,521
-------- --------
Operating income 2,060 11,507
Interest income and other 84 693
Interest and other financing costs (3,722) (3,112)
Minority interest in income 13 (90)
-------- --------
(Loss) income before income taxes (1,565) 8,998
Income tax (benefit) expense (141) 34
-------- --------
Net (loss) income $ (1,424) $ 8,964
======== ========
Weighted average number of Units outstanding 24,367 24,367
======== ========
Basic and diluted net (loss) income per Unit $ (0.05) $ 0.32
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 5
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,424) $ 8,964
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Amortization of debt issue costs 240 241
Depreciation, depletion and amortization 7,867 13,945
Minority interest in income (13) 90
Equity in earnings (5,319) (7,089)
Distributions from equity investments 6,325 5,275
Deferred income taxes (132) 31
Other noncash items 1,556 (4,006)
Changes in operating working capital:
Decrease (increase) in accounts receivable 422 (547)
Decrease in accounts receivable from affiliates 1,363 4,298
Decrease in other current assets 58 584
Increase (decrease) in accounts payable and accrued liabilities 2,518 (7,133)
Decrease in payable to affiliates (262) (1,778)
-------- --------
Net cash provided by operating activities 13,199 12,875
-------- --------
Cash flows from investing activities:
Additions to pipelines, platforms and facilities (13,190) (1,821)
Equity investments (3,338) (24)
Development of oil and gas properties (43) (6,772)
-------- --------
Net cash used in investing activities (16,571) (8,617)
-------- --------
Cash flows from financing activities:
Decrease in restricted cash -- 716
Proceeds from notes payable 23,000 --
Repayments of notes payable (10,000) (8,000)
Debt issue costs -- (98)
Distributions to partners (14,794) (10,326)
-------- --------
Net cash used in financing activities (1,794) (17,708)
-------- --------
Decrease in cash and cash equivalents (5,166) (13,450)
Cash and cash equivalents at beginning of year 6,430 16,489
-------- --------
Cash and cash equivalents at end of period $ 1,264 $ 3,039
======== ========
Cash paid for interest, net of amounts capitalized $ 3,381 $ 2,930
Cash paid for income taxes $ -- $ 2
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 6
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)
<TABLE>
<CAPTION>
Preference Common General
Unitholders Unitholder Partner Total
----------- ---------- ------- -----
<S> <C> <C> <C> <C>
Partners' capital at
December 31, 1997 $ 163,426 $ (15,400) $ (4,060) $ 143,966
Net loss for the three months
ended March 31, 1998 (unaudited) (852) (297) (275) (1,424)
Cash distributions (unaudited) (9,038) (3,146) (2,461) (14,645)
--------- --------- --------- ---------
Partners' capital at
March 31, 1998 (unaudited) $ 153,536 $ (18,843) $ (6,796) $ 127,897
========= ========= ========= =========
Limited partnership Units
outstanding at December 31, 1997
and March 31, 1998 (unaudited) 18,075 6,292 -- (a) 24,367
========= ========= ========= =========
</TABLE>
- -----------------
(a) Leviathan Gas Pipeline Company owns a 1% general partner interest in
Leviathan Gas Pipeline Partners, L.P.
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 7
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Leviathan Gas Pipeline Partners, L.P. (the "Partnership"), a publicly held
Delaware limited partnership, is primarily engaged in the gathering and
transportation of natural gas and crude oil through pipeline systems located in
the Gulf of Mexico (the "Gulf") and in the development and production of oil and
gas reserves. The Partnership's assets include interests in (i) eight natural
gas pipelines, (ii) a crude oil pipeline system, (iii) five strategically
located multi-purpose platforms, (iv) three producing oil and gas properties and
(v) a dehydration facility.
Leviathan Gas Pipeline Company ("Leviathan"), a Delaware corporation and
wholly-owned subsidiary of Leviathan Holdings Company ("Leviathan Holdings"), an
85%-owned subsidiary of DeepTech International Inc. ("DeepTech"), is the general
partner of the Partnership, and as such, performs all management and operational
functions of the Partnership and its subsidiaries. The remaining 15% of
Leviathan Holdings is principally owned by members of the management of
DeepTech. DeepTech also owns and controls several other operating subsidiaries
which are engaged in various oil and gas related activities.
As of March 31, 1998, the Partnership had 18,075,000 Preference Units and
6,291,894 Common Units outstanding. All of the Preference Units are owned by the
public, representing a 72.7% effective limited partner interest in the
Partnership. Leviathan, through its ownership of all of the Common Units, its 1%
general partner interest in the Partnership and its approximate 1% nonmanaging
interest in certain of the Partnership's subsidiaries, owns a 27.3% effective
interest in the Partnership (23.2% effective interest net to DeepTech's
interest). See Note 4 for a discussion of the conversion of Preference Units
into Common Units.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the period covered by such statements. These interim
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997.
Effective January 1, 1998, the Partnership adopted Statement of Financial
Accounting Standard ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
method public entities report information about operating segments in both
interim and annual financial statements issued to shareholders and requires
related disclosures about products and services, geographic areas and major
customers. The Partnership is currently evaluating the disclosure requirements
of this statement as this statement does not apply to interim financial
statements in the initial year of its adoption. However, comparative financial
information for interim periods in the initial year of application must be
reported in financial statements for interim periods in the second year of
application.
NOTE 2 - RECENT EVENTS:
On March 2, 1998, DeepTech announced that its Board of Directors and holders of
a majority of its outstanding stock had approved the execution of an Agreement
and Plan of Merger (the "Merger Agreement") pursuant to which DeepTech would
merge (the "Merger") with El Paso Natural Gas Company ("El Paso") or, under
certain circumstances, one of its subsidiaries.
The material terms of the Merger and the transactions contemplated by the Merger
Agreement and other agreements as these agreements relate to the Partnership are
as follow:
(a) El Paso will acquire the minority interests of Leviathan Holdings and
two other subsidiaries of DeepTech primarily held by DeepTech
management for an aggregate of $55.0 million. As a result, El Paso will
own 100% of Leviathan's general partner interest in the Partnership and
an overall 27.3% effective interest in the Partnership.
5
<PAGE> 8
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(b) Pursuant to the Merger Agreement, employees of DeepTech or the
Partnership who are terminated upon the closing of the Merger or during
the six months thereafter, will receive certain severance payments from
DeepTech or El Paso.
(c) Tatham Offshore, Inc. ("Tatham Offshore"), an affiliate of the
Partnership, will transfer certain of its assets located in the Gulf to
the Partnership in consideration of the redemption by Tatham Offshore
of its 7,500 shares of Series B 9% Senior Convertible Preferred Stock
(the "Senior Preferred Stock") currently owned by the Partnership (the
"Redemption Agreement"). Specifically, under the terms of the
Redemption Agreement and subject to the satisfaction of certain
conditions at closing, the Partnership has agreed to exchange the
Senior Preferred Stock and all related accrued and unpaid dividends due
to the Partnership as of the date of the exchange for 100% of Tatham
Offshore's right, title and interest in and to Viosca Knoll Blocks 772,
773, 774, 817, 818 and 861 (subject to an existing production payment
obligation), West Delta Block 35, Ewing Bank Blocks 871, 914, 915 and
916 and the platform located at Ship Shoal Block 331. At the closing,
the Partnership will receive from/pay to Tatham Offshore an amount
equal to the net cash generated from/required by such properties from
January 1, 1998 through the closing date. In addition, the Partnership
has agreed to assume all abandonment and restoration obligations
associated with the platform and leases. This transaction is expected
to close on the later of July 1, 1998 or one business day after the
closing of the rights offering related to DeepTech's merger with El
Paso.
(d) Tatham Offshore has agreed to cancel its reversionary interests in
certain oil and gas properties owned by the Partnership.
Both the Merger and the transactions contemplated by the Redemption Agreement
are subject to customary regulatory approvals, the satisfaction of certain
conditions and the consummation of certain related transactions and are
anticipated to be completed in June or July 1998.
Mr. Grant E. Sims and Mr. James H. Lytal, the Chief Executive Officer and the
President, respectively, of the Partnership have entered into employment
agreements with El Paso effective as of the closing of the Merger. After the
Merger, Messrs. Sims and Lytal will continue to serve as the Chief Executive
Officer and the President, respectively, of the Partnership for a term of five
years commencing on the effective date of the Merger. However, pursuant to the
terms of their respective employment agreements, Messrs. Sims and Lytal have the
right to terminate upon thirty days notice and El Paso has the right to
terminate under certain circumstances.
6
<PAGE> 9
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3 - EQUITY INVESTMENTS:
The Partnership owns interests of 50% in Viosca Knoll Gathering Company ("Viosca
Knoll"), 36% in Poseidon Oil Pipeline Company, L.L.C. ("POPCO"), 25.7% in
Nautilus Pipeline Company, L.L.C. ("Nautilus"), 25.7% in Manta Ray Offshore
Gathering Company, L.L.C. ("Manta Ray Offshore"), 50% in Stingray Pipeline
Company ("Stingray"), 40% in High Island Offshore System ("HIOS"), 33 1/3% in
U-T Offshore System ("UTOS") and 50% in West Cameron Dehydration Company, L.L.C.
("West Cameron Dehy"). The summarized financial information for these
investments, which are accounted for using the equity method, is as follows:
<TABLE>
<CAPTION>
SUMMARIZED HISTORICAL OPERATING RESULTS
(In thousands)
Three Months Ended March 31, 1998
----------------------------------------------------------------------------------------------------
West
Viosca Cameron Manta Ray
HIOS Knoll Stingray Dehy POPCO UTOS Offshore Nautilus Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 10,928 $ 7,027 $ 5,519 $ 565 $ 8,097 $1,091 $1,533 $ 638
Other income 55 11 224 1 75 25 118 10
Operating expenses (4,047) (651) (3,439) (46) (888) (601) (305) (253)
Depreciation (1,192) (930) (1,808) (4) (2,196) (140) (1,031) (1,411)
Other expenses -- (929) (305) -- (2,198) -- -- (12)
-------- ------- ------- ----- ------- ------ ------ -------
Net earnings (loss) 5,744 4,528 191 516 2,890 375 315 (1,028)
Ownership percentage 40% 50% 50% 50% 36% 33.3% 25.7% 25.7%
-------- ------- ------- ----- ------- ------ ------ -------
2,298 2,264 96 258 1,040 125 81 (264)
Adjustments:
- - Depreciation(a) 190 -- 234 -- -- 8 (87) --
- - Contract amortization(a) (26) -- (95) -- -- -- -- --
- - Other (41) -- (12) -- (30) (10) -- (710)(c)
-------- ------- ------- ----- ------- ------ ------ -------
Equity in earnings (loss) $ 2,421 $ 2,264 $ 223 $ 258 $ 1,010 $ 123 $ (6) $ (974) $5,319
======== ======= ======= ===== ======= ====== ====== ======= ======
Distributions(b) $ 2,400 $ 2,150 $ 1,000 $ 275 $ -- $ -- $ 500 $ -- $6,325
======== ======= ======= ===== ======= ====== ====== ======= ======
</TABLE>
- ------------
(a) Adjustments result from purchase price adjustments made in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations."
(b) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
(c) Primarily relates to a revision of the allowance for funds used during
construction ("AFUDC") which represents the estimated costs, during the
construction period, of funds used for construction purposes.
7
<PAGE> 10
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
SUMMARIZED HISTORICAL OPERATING RESULTS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
------------------------------------------------------------------------------------------------
Viosca West Cameron Manta Ray
HIOS Knoll Stingray Dehy POPCO UTOS Offshore Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 11,679 $ 4,926 $ 6,214 $ 796 $ 4,131 $ 959 $ 1,103
Other income 114 -- 233 7 44 8 110
Operating expenses (3,872) (607) (2,833) (41) (825) (607) (371)
Depreciation (1,194) (586) (1,802) (4) (895) (141) (333)
Other expenses -- (456) (368) -- (1,265) -- --
-------- ------ -------- ------ ------- ----- ------
Net earnings 6,727 3,277 1,444 758 1,190 219 509
Ownership percentage 40% 50% 50% 50% 36% 33.3% 25.7%
-------- ------ -------- ------ ------- ----- ------
2,691 1,639 722 379 428 73 131
Adjustments:
- - Depreciation(a) 211 -- 238 -- -- 9 --
- - Contract amortization(a) (26) -- (85) -- -- -- --
- - Other (39) -- (12) -- 109 (8) 629(b)
-------- ------ -------- ------ ------- ----- ------
Equity in earnings $ 2,837 $1,639 $ 863 $ 379 $ 537 $ 74 $ 760 $7,089
======== ====== ======== ====== ======= ===== ====== ======
Distributions(c) $ 3,200 $1,350 $ 550 $ 175 $ -- $ -- $ -- $5,275
======== ====== ======== ====== ======= ===== ====== ======
</TABLE>
- ------------------
(a) Adjustments result from purchase price adjustments made in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
(b) Represents additional net earnings specifically allocated to the
Partnership related to the assets contributed by the Partnership to the
Manta Ray Offshore joint venture. Pursuant to the terms of the joint
venture agreement, the Partnership managed the operations of the assets
contributed to Manta Ray Offshore and was permitted to retain approximately
100% of the net earnings from such assets during the construction phase of
the expansion to the Manta Ray Offshore system (January 17, 1997 through
December 31, 1997). Effective January 1, 1998, Manta Ray Offshore began
allocating all net earnings in accordance with the ownership percentages of
the joint venture.
(c) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
NOTE 4 - PARTNERS' CAPITAL INCLUDING CASH DISTRIBUTIONS:
Cash distributions
Distributions by the Partnership of its Available Cash are effectively made 98%
to Unitholders and 2% to Leviathan, subject to the payment of incentive
distributions to Leviathan if certain target levels of cash distributions to
Unitholders are achieved (the "Incentive Distributions"). As an incentive, the
general partner's interest in the portion of quarterly cash distributions in
excess of $0.325 per Unit and less than or equal to $0.375 per Unit is increased
to 15%. For quarterly cash distributions over $0.375 per Unit but less than or
equal to $0.425 per Unit, the general partner receives 25% of such incremental
amount and for all quarterly cash distributions in excess of $0.425 per Unit,
the general partner receives 50% of the incremental amount.
In February 1998, the Partnership paid a cash distribution of $0.50 per
Preference and Common Unit for the period from October 1, 1997 through December
31, 1997 and an Incentive Distribution of $2.4 million to Leviathan, as general
partner. On April 15, 1998, the Partnership declared a cash distribution of
$0.525 per Preference and Common Unit for the period from January 1, 1998
through March 31, 1998 which will be paid on May 15, 1998 to Unitholders of
record as of April 30, 1998. Leviathan will receive an Incentive Distribution of
$3.0 million for the three months ended March 31, 1998.
Conversion of Preference Units into Common Units
The Preference Units are currently entitled to receive from Available Cash, as
defined in the Partnership Agreement, a minimum quarterly distribution for each
quarter of $0.275 per Preference Unit, plus any arrearage in the payment of the
minimum quarterly distribution for prior quarters, before any distribution of
Available Cash is made to holders of Common Units for such quarter.
8
<PAGE> 11
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
In May 1998, the Partnership notified the holders of its Preference Units of
their right to convert their Preference Units into an equal number of Common
Units, provided that, on August 5, 1998, after giving effect to the conversion
of all Preference Units as to which a notice of conversion had been timely
received by the Partnership, there were at least 2,000 holders of 100 or more
Common Units of the Partnership (the "Liquidity Condition"). Subject to the
satisfaction of the Liquidity Condition, after August 5, 1998, Preference Units
will not be entitled to (i) any cash distributions in excess of the minimum
quarterly distribution of $0.275 per Unit or (ii) any distribution preferences
over the Common Units, and the preference period will end.
Subject to the satisfaction of the Liquidity Condition, holders of Preference
Units must convert to Common Units in order to participate in (i) any cash
distributions above the minimum quarterly distributions of $0.275 per Unit or
(ii) future increases of such distributions of the Partnership, if any. The
Partnership anticipates that substantially all of the holders of the Preference
Units will elect to convert their Preference Units into Common Units since the
current quarterly distributions are significantly in excess of the minimum
quarterly distribution; however, no assurance can be made that the current
quarterly distribution rate will be increased or maintained.
If less than all of the Preference Units are converted into Common Units as of
August 5, 1998, the Partnership must again notify the remaining holders of the
Preference Units of their right to convert their Preference Units into Common
Units once each year for another two years.
NOTE 5 - RELATED PARTY TRANSACTIONS:
Management fees. For the three months ended March 31, 1998, Leviathan charged
the Partnership $2.5 million pursuant to the Partnership Agreement which
provides for reimbursement of expenses Leviathan incurs as general partner of
the Partnership, including reimbursement of expenses incurred by DeepTech in
providing management services to Leviathan and the Partnership.
Other. Tatham Offshore Canada Limited ("Tatham Offshore Canada"), a wholly-owned
subsidiary of Tatham Offshore, is the Canadian representative of North Atlantic
Pipeline Partners, L.P. ("North Atlantic"), the sponsor of a proposal to build
an approximately 2,500 kilometer pipeline from offshore Newfoundland and Nova
Scotia to the eastern seaboard of the United States. The Partnership has entered
into a letter agreement with Tatham Offshore Canada regarding participation in
the North Atlantic pipeline project. Under such agreement, Tatham Offshore
Canada is responsible for the pre-development costs of the project. Such
agreement contains certain termination rights, contemplates the negotiation,
execution and delivery of definitive agreements and provides that the
Partnership would hold a pro rata partnership interest of up to 20% in North
Atlantic. The Partnership has no financial commitment to the project until and
unless an application is approved by the appropriate Canadian and United States
regulatory authorities. In the event the Partnership was to terminate its
participation in North Atlantic after the date North Atlantic receives
regulatory approval of an application but prior to the in-service date of the
first phase of the North Atlantic pipeline, the Partnership, under certain
conditions, would be obligated to pay Tatham Offshore Canada an amount equal to
150% of the Partnership's pro rata share of the "success fee" earned by Tatham
Offshore Canada related to the first phase of construction. For a period of one
year after the effective date of the merger discussed in Note 2, the Partnership
shall have the right to terminate this agreement without incurring the liability
for the above-mentioned "success fee". Tatham Offshore Canada is seeking
additional participants on the same basis as that offered to the Partnership.
Pursuant to the Leviathan non-employee director compensation arrangements, the
Partnership is obligated to pay each non-employee director 2 1/2% of the general
partner's Incentive Distribution as a profit participation fee. During the three
months ended March 31, 1998, the Partnership paid the three non-employee
directors of Leviathan a total of $0.2 million as a profit participation fee.
In March 1998, Tatham Offshore eliminated its 7,500 shares of 9% Senior
Convertible Preferred Stock issued to the Partnership and replaced this stock
with its Senior Preferred Stock (discussed in Note 2). The Partnership, at any
time, may convert the shares of Senior Preferred Stock into shares of Tatham
9
<PAGE> 12
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Offshore Series A 12% Convertible Exchangeable Preferred Stock ("Series A
Preferred Stock") using a conversion ratio equal to (i) the liquidation
preference amount plus accumulated and unpaid dividends divided by (ii) $0.9375,
the closing price of the Tatham Offshore Series A Preferred Stock on February
27, 1998. In connection with the Redemption Agreement discussed in Note 2, the
Senior Preferred Stock and all related unpaid dividends will be redeemed in
full.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Hedging Activities
The Partnership hedges a portion of its oil and natural gas production to reduce
the Partnership's exposure to fluctuations in market prices of oil and natural
gas and to meet certain requirements of the Partnership Credit Facility (as
defined herein). The Partnership uses various financial instruments whereby
monthly settlements are based on differences between the prices specified in the
instruments and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. The Partnership
settles the instruments by paying the negative difference or receiving the
positive difference between the applicable settlement price and the price
specified in the contract. The instruments utilized by the Partnership differ
from futures contracts in that there is no contractual obligation which requires
or allows for the future delivery of the product. Gains or losses on hedging
activities are recognized as oil and gas sales in the period in which the hedged
production is sold.
At March 31, 1998, the Partnership had open sales hedges on approximately 25,000
million British thermal units ("MMbtu") of natural gas per day for the remaining
period in 1998 at an average price of $2.37 per MMbtu and open purchase hedges
of approximately 25,000 MMbtu of natural gas per day for the remaining period in
1998 at an average price of $2.24 per MMbtu. In addition, the Partnership had
entered into commodity swap transactions for calendar 1999 totaling 5,000 MMbtu
per day at a fixed price to be determined at the Partnership's option equal to
the January 1999 Natural Gas Futures Contract on NYMEX as quoted at any time
during 1998 to and including the last three trading days of the January 1999
contract minus $0.25 per MMbtu.
At March 31, 1998, the Partnership had open sales hedges on approximately 990
barrels of oil per day for the remaining period in 1998 at an average price of
$20.43 per barrel and open purchase hedges of approximately 1,000 barrels of oil
per day for the remaining period in 1998 at an average price of $17.45 per
barrel.
Other
In 1995, the Partnership adopted the Unit Rights Appreciation Plan (the "Plan")
to provide the Partnership with the ability of making awards of Unit Rights, as
hereinafter defined, to certain officers and employees of the Partnership or its
affiliates as an incentive for these individuals to continue in the service of
the Partnership or its affiliates. Under the Plan, the Partnership has granted
to certain officers and employees of the Partnership or its affiliates the right
to purchase, or realize the appreciation of, a Preference Unit or Common Unit
(see Note 4) (a "Unit Right"), pursuant to the provisions of the Plan. As of
March 31, 1998, a total of 1,200,000 Unit Rights had been granted under the
Plan. The exercise prices of the Preference Units covered by the Unit Rights
granted pursuant to the Plan range from $15.6875 to $21.50, the closing prices
of the Preference Units as reported on the New York Stock Exchange on the date
the Unit Rights were granted. As of March 31, 1998, the Partnership had accrued
$5.7 million related to the appreciation and vesting of the outstanding Unit
Rights. However, as a result of the "change of control" occurring upon the
closing of the Merger discussed in Note 2, the Unit Rights will fully vest and
the Partnership will be obligated to pay the holders of the Unit Rights an
amount equal to the difference between the grant price of the Preference Units
and the closing price of the Preference Units on the date of the Merger, or a
date otherwise specified. The closing price of the Preference Units on May 11,
1998 was $29 15/16 per Unit.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Partnership's
consolidated financial statements and notes thereto included in Item 1.
"Consolidated Financial Statements" and is intended to assist in the
understanding of the Partnership's financial condition and results of operations
for the three months ended March 31, 1998. Unless the context otherwise
requires, all references herein to the Partnership with respect to the
operations and ownership of the Partnership's assets are also references to its
subsidiaries.
OVERVIEW
The Partnership's assets include interests in (i) eight natural gas pipelines
(the "Gas Pipelines"), (ii) a crude oil pipeline system, (iii) five
strategically located multi-purpose platforms, (iv) three producing oil and gas
properties and (v) a dehydration facility.
The Gas Pipelines, strategically located offshore Louisiana and eastern Texas,
gather and transport natural gas for producers, marketers, pipelines and
end-users for a fee. The Gas Pipelines include approximately 1,167 miles of
pipeline with a throughput capacity of 6.5 billion cubic feet ("Bcf") of gas per
day. Each of the Gas Pipelines interconnects with one or more long line
transmission pipelines that provide access to multiple markets in the eastern
half of the United States. The Partnership's interest in the Gas Pipelines
consists of: a 100% interest in each of Manta Ray Gathering Company, L.L.C.
("Manta Ray"), Green Canyon Pipe Line Company, L.L.C. ("Green Canyon") and
Tarpon Transmission Company ("Tarpon"); a 50% partnership interest in each of
Stingray and Viosca Knoll; a 40% partnership interest in HIOS; a 33 1/3%
partnership interest in UTOS; and an effective 25.7% interest in each of Manta
Ray Offshore and Nautilus.
The Partnership owns a 36% interest in POPCO which owns and operates the
Poseidon Oil Pipeline ("Poseidon"). Poseidon, a major new sour crude oil
pipeline system built in response to an increased demand for additional sour
crude oil pipeline capacity in the central Gulf, consists of 297 miles of
16-inch to 24-inch pipeline with a capacity of approximately 400,000 barrels per
day and is currently delivering an average of approximately 75,000 barrels of
oil per day.
The Partnership operates and owns interests in five strategically located
multi-purpose platforms in the Gulf that have processing capabilities which
complement the Partnership's pipeline operations and play a key role in the
development of oil and gas reserves. The platforms are used to interconnect the
offshore pipeline network and to provide an efficient means to perform pipeline
maintenance and to operate compression, separation, processing and other
facilities. In addition, the multi-purpose platforms serve as landing sites for
deeper water production and as sites for the location of gas compression
facilities and drilling operations.
The Partnership owns an interest in and is operator of three producing leases in
the Gulf. The Viosca Knoll Block 817 wells (75% working interest currently owned
by the Partnership) are currently producing a gross aggregate average of
approximately 49 million cubic feet ("MMcf") of gas per day. Pursuant to the
Redemption Agreement, the Partnership has agreed to acquire the remaining 25%
working interest in Viosca Knoll Block 817. The Garden Banks Block 72 wells (50%
working interest owned by the Partnership) are currently producing a gross
aggregate average of approximately 1,965 barrels of oil and 8 MMcf of gas per
day. The Garden Banks Block 117 wells (50% working interest owned by the
Partnership) are currently producing a gross aggregate average of approximately
1,975 barrels of oil and 3.7 MMcf of gas per day.
The Partnership owns a 50% interest in West Cameron Dehy, which owns certain
dehydration facilities located at the northern terminus of the Stingray system,
onshore Louisiana.
11
<PAGE> 14
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Oil and gas sales totaled $9.1 million for the three months ended March 31, 1998
as compared with $18.1 million for the same period in 1997. The decrease is
attributable to decreased production from the Partnership's oil and gas
properties, substantially lower realized oil prices and the lack of acceptable
markets downstream of the Viosca Knoll system. During the three months ended
March 31, 1998, the Partnership produced and sold 2,789 MMcf of gas and 170,095
barrels of oil at average prices of $2.20 per thousand cubic feet ("Mcf") and
$17.26 per barrel, respectively. During the same period in 1997, the Partnership
produced and sold 6,191 MMcf of gas and 203,000 barrels of oil at average prices
of $2.15 per Mcf and $22.53 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $3.3
million for the three months ended March 31, 1998 as compared with $5.8 million
for the same period in 1997. The decrease of $2.5 million reflects decreases of
(i) $1.4 million related to the cessation of production from the only well
connected to the Ewing Bank system, (ii) $0.5 million from the Tarpon system
primarily related to (x) the deregulation of the Tarpon system in March 1997
allowing the Partnership to recognize additional revenue of $0.7 million during
the three months ended March 31, 1997 related to the gathering fees collected in
prior periods offset by (y) new production attached to the system, (iii) $0.4
million as a result of the contribution of a significant portion of the Manta
Ray system to Manta Ray Offshore on January 17, 1997 resulting in revenue from
these assets being included in equity in earnings for all of the three months in
the period ended March 31, 1998 as compared with a portion of the three months
ended March 31, 1997 and (iv) $0.2 million in platform services revenue from the
Partnership's Viosca Knoll Block 817 platform as a result of lower oil and gas
volumes processed on the platform. Gathering volumes from the Tarpon system
increased approximately 265% during the first quarter of 1998 as compared with
the first quarter of 1997 as a result of new producing fields attached to the
system in June and July 1997. Gathering volumes from the Ewing Bank system
declined 100% during the first quarter of 1998 as compared with the first
quarter of 1997 due to the cessation of oil and gas production from the one well
attached to the system in May 1997. Gathering volumes for the Green Canyon
system decreased approximately 2% for the three months ended March 31, 1998 as
compared with the same period in 1997.
Revenue from the Partnership's equity interests in Stingray, HIOS, UTOS, Viosca
Knoll, POPCO, Manta Ray Offshore, Nautilus and West Cameron Dehy (the "Equity
Investees") totaled $5.3 million for the three months ended March 31, 1998 as
compared with $7.1 million for the same period in 1997. The decrease of $1.8
million primarily reflects decreases of (i) $1.1 million related to Stingray and
HIOS as a result of increased maintenance costs and decreased throughput and
(ii) $1.8 million related to nonrecurring start-up costs, prior period
adjustments and a change in equity ownership of Nautilus and Manta Ray Offshore
offset by increases of (iii) $0.6 million from Viosca Knoll as a result of
increased throughput and (iv) $0.5 million from POPCO which placed a third phase
of Poseidon in service in December 1997. Total gas throughput volumes for the
Equity Investees increased approximately 10% from the three months ended March
31, 1997 to the three months ended March 31, 1998 primarily as a result of
increased throughput on the Viosca Knoll, Nautilus, Manta Ray Offshore and UTOS
systems. Oil volumes from Poseidon totaled 6.7 million barrels and 3.7 million
barrels for the three months ended March 31, 1998 and 1997, respectively.
Operating expenses for the three months ended March 31, 1998 totaled $2.8
million as compared to $3.1 million for the same period in 1997. The decrease is
primarily attributable to lower operating and transportation costs associated
with the Partnership's oil and gas properties during the three months ended
March 31, 1998.
Depreciation, depletion and amortization totaled $7.9 million for the three
months ended March 31, 1998 as compared with $13.9 million for the same period
in 1997. The decrease of $6.0 million reflects decreases of (i) $4.2 million in
depreciation and depletion on oil and gas wells and facilities located on the
Viosca Knoll Block 817, Garden Banks Block 72 and the Garden Banks Block 117 as
a result of decreased production from these leases and (ii) $1.8 million in
depreciation on pipelines, platforms and facilities as a result of the
Partnership fully depreciating its investment in the Ewing Bank and Ship Shoal
systems in June 1997.
12
<PAGE> 15
General and administrative expenses, including the management fee allocated from
Leviathan, totaled $5.0 million for the three months ended March 31, 1998 as
compared with $2.5 million for the same period in 1997. The increase of $2.5
million reflects increases of (i) $0.7 million in management fees allocated by
Leviathan to the Partnership as a result of increased operational activities and
(ii) $1.8 million in direct general and administrative expenses of the
Partnership primarily related to the appreciation and vesting of unit
appreciation rights granted to certain officers and employees in 1995, 1996 and
1997. See Item 1. "Consolidated Financial Statements -- Notes to Consolidated
Financial Statements -- Note 6 -- Commitments and Contingencies -- Other."
Interest income and other totaled $0.1 million for the three months ended March
31, 1998 as compared with $0.7 million for the three months ended March 31,
1997.
Interest and other financing costs, net of capitalized interest, for the three
months ended March 31, 1998 totaled $3.7 million as compared with $3.1 million
for the same period in 1997. During the three months ended March 31, 1998 and
1997, the Partnership capitalized $0.5 million and $0.8 million, respectively,
of interest costs in connection with construction projects and drilling
activities in progress during such periods.
Net loss for the three months ended March 31, 1998 totaled $1.4 million, or
$0.05 per Unit, as compared with net income of $9.0 million, or $0.32 per Unit,
for the three months ended March 31, 1997 as a result of the items discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Partnership intends to satisfy its capital requirements and
other working capital needs primarily from cash on hand, cash from operations
and borrowings under the Partnership Credit Facility (discussed below). Net cash
provided by operating activities for the three months ended March 31, 1998
totaled $13.2 million. At March 31, 1998, the Partnership had cash and cash
equivalents of $1.3 million.
Cash from operations is derived from (i) payments for gathering gas through the
Partnership's 100% owned pipelines, (ii) platform access and processing fees,
(iii) cash distributions from Equity Investees and (iv) the sale of oil and gas
attributable to the Partnership's interest in its producing properties. Oil and
gas properties are depleting assets and will produce reduced volumes of oil and
gas in the future unless additional wells are drilled or recompletions of
existing wells are successful. See "-- Overview" for current production rates
from these properties.
The Partnership's cash flows from operations will be affected by the ability of
each Equity Investee to make distributions. Distributions from such entities are
subject to the discretion of their respective management committees. Further,
each of Stingray, POPCO and Viosca Knoll is party to a credit agreement under
which it has outstanding obligations that may restrict the payments of
distributions to its owners. Distributions to the Partnership from Equity
Investees during the three months ended March 31, 1998 totaled $6.3 million.
The Partnership Credit Facility is a revolving credit facility providing for up
to $300 million of available credit subject to customary terms and conditions,
including certain debt incurrence limitations. Proceeds from the Partnership
Credit Facility are available to the Partnership for general partnership
purposes, including financing of capital expenditures, for working capital, and
subject to certain limitations, for paying distributions to the Unitholders. The
Partnership Credit Facility can also be utilized to issue letters of credit as
may be required from time to time; however, no letters of credit are currently
outstanding. The Partnership Credit Facility matures in December 1999; is
guaranteed by Leviathan and each of the Partnership's subsidiaries; and is
secured by the management agreement with Leviathan, substantially all of the
assets of the Partnership and Leviathan's 1% general partner interest in the
Partnership and approximate 1% interest in certain subsidiaries of the
Partnership. As of March 31, 1998, the Partnership had $251.0 million
outstanding under its credit facility bearing interest at an average floating
rate of 6.3% per annum. In April 1998, the Partnership Credit Facility was
amended to allow for the Merger of DeepTech and El Paso, the acquisition of
certain assets from Tatham Offshore pursuant to the Redemption Agreement and
certain other transactions. Currently, approximately $32.0 million of
additional funds are available under the Partnership Credit Facility.
13
<PAGE> 16
In March 1998, Stingray amended an existing term loan agreement to provide for
additional borrowings of $11.1 million and to extend the maturity date of the
loan from December 31, 2000 to March 31, 2003. The amended agreement requires
Stingray to make 18 quarterly principal payments of $1.6 million commencing on
December 31, 1998. The term loan agreement is principally secured by current and
future gas transportation contracts between Stingray and its customers. As of
March 31, 1998, Stingray had $28.5 million outstanding under its term loan
agreement bearing interest at an average floating rate of 6.5% per annum.
In April 1996, POPCO entered into a revolving credit facility (the "POPCO Credit
Facility") with a group of commercial banks to provide up to $150 million for
the construction and expansion of Poseidon and for other working capital needs
of POPCO. POPCO's ability to borrow money under the facility is subject to
certain customary terms and conditions, including borrowing base limitations.
The POPCO Credit Facility is secured by a substantial portion of POPCO's assets
and matures on April 30, 2001. As of March 31, 1998, POPCO had $123.0 million
outstanding under its credit facility bearing interest at an average floating
rate of 6.9% per annum. Currently, approximately $27.0 million of additional
funds are available under the POPCO Credit Facility.
In December 1996, Viosca Knoll entered into a revolving credit facility (the
"Viosca Knoll Credit Facility") with a syndicate of commercial banks to provide
up to $100 million for the addition of compression to the Viosca Knoll system
and for other working capital needs of Viosca Knoll, including funds for a
one-time distribution of $25 million to its partners. Viosca Knoll's ability to
borrow money under the facility is subject to certain customary terms and
conditions, including borrowing base limitations. The Viosca Knoll Credit
Facility is secured by a substantial portion of Viosca Knoll's assets and
matures on December 20, 2001. As of March 31, 1998, Viosca Knoll had $60.0
million outstanding under its credit facility bearing interest at an average
floating rate of 6.4% per annum. Currently, approximately $22.9 million of
additional funds are available under the Viosca Knoll Credit Facility.
Uses of Cash. The Partnership's capital requirements consist primarily of (i)
quarterly distributions to holders of Preference Units and Common Units and to
Leviathan as general partner, including Incentive Distributions, as applicable,
(ii) expenditures for the maintenance of its pipelines and related
infrastructure and the acquisition and construction of additional pipelines and
related facilities for the gathering, transportation and processing of oil and
gas in the Gulf, (iii) expenditures related to its producing oil and gas
properties, (iv) management fees and other operating expenses, (v) contributions
to Equity Investees as required to fund capital expenditures for new facilities,
(vi) debt service on its outstanding indebtedness and (vii) the payment of the
appreciation of Unit Rights as discussed in Item 1. "Consolidated Financial
Statements -- Notes to Consolidated Financial Statements -- Note 6 --
Commitments and Contingencies -- Other."
For every full quarter since its inception, the Partnership has declared and
subsequently paid a cash distribution to holders of Preference Units and Common
Units an amount equal to or exceeding the Minimum Quarterly Distribution (as
described in the Partnership Agreement) per Unit per quarter. See Item 1.
"Consolidated Financial Statements -- Notes to Consolidated Financial Statements
- -- Note 4 -- Partners' Capital including Cash Distributions -- Conversion of
Preference Units into Common Units." At the current distribution rate of $0.525
per Unit, the quarterly Partnership distributions total $16.0 million in respect
of the Preference Units, Common Units and general partner interest ($64.0
million on an annual basis, including $26.1 million to Leviathan). The
Partnership believes that it will be able to continue to pay at least the
current quarterly distribution of $0.525 per Preference and Common Unit for the
foreseeable future.
Distributions by the Partnership of its Available Cash are effectively made 98%
to Unitholders and 2% to Leviathan, as general partner, subject to the payment
of Incentive Distributions to Leviathan. As an incentive, the general partner's
interest in the portion of quarterly cash distributions in excess of $0.325 per
Unit and less than or equal to $0.375 per Unit is increased to 15%. For
quarterly cash distributions over $0.375 per Unit but less than or equal to
$0.425 per Unit, the general partner receives 25% of such incremental amount and
for all quarterly cash distributions in excess of $0.425 per Unit, the general
partner receives 50% of the incremental amount. For the three months ended March
31, 1998, the Partnership paid Leviathan Incentive Distributions totaling $2.4
million and will pay Leviathan an Incentive Distribution of $3.0 million in May
1998.
The Partnership anticipates that its capital expenditures and equity investments
for the remaining portion of 1998 will relate to continuing acquisition and
construction activities including the construction and installation of a new
14
<PAGE> 17
platform and processing facilities at East Cameron Block 373. This platform,
which the Partnership placed in service in April 1998 at a cost of approximately
$32 million, is strategically located to exploit reserves in the East Cameron
and Garden Banks area of the Gulf and is the terminus for an extension of the
Stingray system. The Partnership anticipates funding such cash requirements
primarily with available cash flow and borrowings under the Partnership Credit
Facility.
Any substantial capital expenditures by Stingray, POPCO and Viosca Knoll are
anticipated to be funded by borrowings under their respective credit facilities.
The Partnership's cash capital expenditures and equity investments for the three
months ended March 31, 1998 were $16.6 million. The Partnership may in the
future contribute existing assets to new joint ventures as partial consideration
for its ownership interest therein.
Interest costs incurred by the Partnership related to the Partnership Credit
Facility totaled $4.2 million for the three months ended March 31, 1998. The
Partnership capitalized $0.5 million of such interest costs in connection with
construction projects in progress during the period.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
This quarterly report contains certain forward looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
typically punctuated by words or phrases such as "anticipate," "estimate,"
"project," "should," "may," "management believes," and words or phrases of
similar import. Although management believes that such statements and
expressions are reasonable and made in good faith, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on the
Partnership's results of operations and financial condition are: (i) competitive
practices in the industry in which the Partnership competes, (ii) the impact of
current and future laws and government regulations affecting the industry in
general and the Partnership's operations in particular, (iii) environmental
liabilities to which the Partnership may become subject in the future that are
not covered by an indemnity or insurance, (iv) the throughput levels achieved by
the Gas Pipelines, Poseidon and any future pipelines in which the Partnership
owns an interest, (v) the ability to access additional reserves to offset the
natural decline in production from existing wells connected to the Gas Pipelines
and Poseidon, (vi) changes in gathering, transportation, processing, handling
and other rates due to changes in governmental regulation and/or competitive
factors, (vii) the impact of oil and natural gas price fluctuations, (viii) the
production rates and reserve estimates associated with the Partnership's
producing oil and gas properties, (ix) significant changes from expectations of
capital expenditures and operating expenses and unanticipated project delays and
(x) the ability of the Equity Investees to make distributions to the
Partnership. The Partnership disclaims any obligation to update any
forward-looking statements to reflect events or circumstances after the date
hereof.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Second Amended and Restated Credit
Agreement dated December 13, 1996 among the Partnership,
Several Lenders, The Chase Manhattan Bank, as
Administrative Agent, and ING (U.S.) Capital Corporation,
as Co-Arranger.
10.2 Second Amendment to Second Amended and Restated Credit
Agreement dated December 13, 1996 among the Partnership,
Several Lenders, The Chase Manhattan Bank, as
Administrative Agent, and ING (U.S.) Capital Corporation,
as Co-Arranger.
10.3 Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
LEVIATHAN GAS PIPELINE
PARTNERS, L.P.
(Registrant)
By: LEVIATHAN GAS PIPELINE
COMPANY, its General Partner
Date: May 14, 1998 By: /s/ KEITH B. FORMAN
--------------------------------
Keith B. Forman
Chief Financial Officer
Date: May 14, 1998 By: /s/ DENNIS A. KUNETKA
--------------------------------
Dennis A. Kunetka
Senior Vice President - Corporate Finance
(Principal Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 First Amendment to Second Amended and Restated Credit Agreement dated
December 13, 1996 among the Partnership, Several Lenders, The Chase
Manhattan Bank, as Administrative Agent, and ING (U.S.) Capital
Corporation, as Co-Arranger.
10.2 Second Amendment to Second Amended and Restated Credit Agreement dated
December 13, 1996 among the Partnership, Several Lenders, The Chase
Manhattan Bank, as Administrative Agent, and ING (U.S.) Capital
Corporation, as Co-Arranger.
10.3 Redemption Agreement dated February 27, 1998 between Tatham Offshore, Inc.
and Flextrend Development Company, L.L.C.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT AND WAIVER NO. 1
THIS AMENDMENT AND WAIVER NO. 1, dated as of July 31, 1997 (this
"Amendment"), to the Second Amended and Restated Credit Agreement, dated as of
December 13, 1996 (as amended, supplemented or otherwise modified prior to the
date hereof, the "Credit Agreement"), among LEVIATHAN GAS PIPELINE PARTNERS,
L.P., a Delaware limited partnership (the "Borrower"), the banks and other
financial institutions (the "Lenders") parties hereto, THE CHASE MANHATTAN
BANK, a New York banking corporation, as administrative agent (in such capacity
the "Administrative Agent") for the Lenders and ING (U.S.) CAPITAL CORPORATION,
a Delaware corporation, as co-arranger for the Lenders (the "Co-Arranger").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Administrative Agent, the
Co-Arranger and the Lenders to amend the Net Worth covenant and the Ratio of
Debt to Capitalization on the Credit Agreement and to agree to waive certain
prior defaults as set forth in this amendment;
WHEREAS, the Administrative Agent, the Co-Arranger and the Lenders are
willing to agree to such amendment, but only on the terms and subject to the
conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the sufficiency of which is hereby acknowledged,
the Borrower, the Administrative Agent, the Co-Arranger and the undersigned
Lenders hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined
in the Credit Agreement are used herein as therein defined.
2. Amendments. Subject to the satisfaction of the provisions
specified in Sections 4 and 5 below, the Credit Agreement
shall be amended on the Effective Date (as defined below) as
follows:
(i) Subsection 8.1(a). shall be deleted in its entirety,
and replaced with the following:
(a) Tangible Net Worth. Permit Consolidated Tangible
Net Worth at any time (the "date of determination")
to be less than an amount equal to the sum of (i)
$125,000,000 plus (ii) an amount equal to 75% of Net
Equity Proceeds during the period from March 1, 1996
to the date of determination.
(ii) Subsection 8.1(b) shall be deleted in its entirety
and replaced with the following:
<PAGE> 2
(b) Ratio of Debt to Capitalization. Permit the
ratio of (i) Consolidated Total Indebtedness of the
Borrower at any time to (ii) Consolidated Total
Capitalization at such time, expressed as a
percentage, to exceed 70%.
3. Waivers. Each of the Administrative Agent, the Co-Arranger and the
Lenders hereby waives any Default or Event of Default under subsection 8.1(a)
or 8.1(b) of the Credit Agreement in effect prior to the execution of this
Amendment to the extent such Default or Event of Default would not have been an
Event of Default or Default if the Amendment had been effective as of the date
of the Default or Event of Default.
4. Effectiveness. This Amendment shall become effective on the date
(the "Effective Date") the following conditions precedent are first satisfied:
(a) The Administrative Agent shall have received evidence
satisfactory to the Administrative Agent that this Amendment has been executed
and delivered by the Borrower, the Co-Arranger, the Required Lenders and each
of the Subsidiary Guarantors.
(b) The Administrative Agent shall have received, a
certificate of the Borrower, dated the Effective Date, as to the incumbency and
signature of the officers of the Borrower executing this Amendment,
satisfactory in form and substance to the Administrative Agent, executed by the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
president, Treasurer or any Vice President and the Secretary or any Assistant
Secretary of the Borrower.
(c) This Amendment, shall not contravene, violate or conflict
with, nor involve any Lender in any violation of, any Contractual Obligation or
Requirement of Law.
(d) The Borrower shall pay to each of the Lenders signing
this Amendment on or before July 31, 1997 a work fee in the amount of $5,000
per Lender.
5. Representations and Warranties. To induce the Administrative Agent,
the Co-Arranger and the Required Lenders to enter into this Amendment, the
Borrower hereby represents and warrants to the Administrative Agent and the
Required Lenders that, after giving effect to the amendments and waivers
provided for herein, (i) this Amendment constitutes the legal, valid and
binding obligations of each of the Loan Parties hereto, (ii) the
representations and warranties contained in the Credit Agreement and the other
Loan Documents will be true and correct in all material respects as if made on
and as of the date hereof (unless such representations or warranties are stated
to refer to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such
earlier date) and (iii) no Default or Event of Default will have occurred and
be continuing.
6. No Other Waivers or Amendments. Except as expressly waived or
amended hereby, the Credit Agreement, the Notes and the other Loan Documents
shall remain in full force
2
<PAGE> 3
and effect in accordance with their respective terms, without any waiver,
amendment or modification of any provision thereof.
7. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9. Payment of Expenses. The Borrower agrees to pay and reimburse the
Agent for all of its out-of-pocket costs and reasonable expenses incurred in
connection with this Amendment, including, without limitation, the reasonable
fees and disbursements of legal counsel to the Agent.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by its proper and duly authorized officer as of
the day and year first above written.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By:
------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By:
------------------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION, as Co-Arranger
and as a Lender
By:
------------------------------------------
Name:
Title:
DEN NORSKE BANK AS
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
4
<PAGE> 5
WELLS FARGO BANK TEXAS, N.A.
By:
------------------------------------------
Name:
Title:
MEESPIERSON N.V.
By:
------------------------------------------
Name:
Title:
BANK OF SCOTLAND
By:
------------------------------------------
Name:
Title:
BANQUE PARIBAS
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By:
------------------------------------------
Name:
Title:
5
<PAGE> 6
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
------------------------------------------
Name:
Title:
ARAB BANKING CORPORARTION (B.S.C.)
By:
------------------------------------------
Name:
Title:
CREDIT AGRICOLE
By:
------------------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
------------------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By:
------------------------------------------
Name:
Title:
6
<PAGE> 7
The undersigned guarantors hereby consent and agree to the foregoing
Amendment:
DELOS OFFSHORE COMPANY, L.L.C.
By:
------------------------------------
Title:
EWING BANK GATHERING COMPANY, L.L.C.
By:
------------------------------------
Title:
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
------------------------------------
Title:
GREEN CANYON PIPE LINE COMPANY, L.L.C.
By:
------------------------------------
Title:
LEVIATHAN OIL TRANSPORT SYSTEMS, L.L.C.
By:
------------------------------------
Title:
MANTA RAY GATHERING COMPANY, L.L.C.
By:
------------------------------------
Title:
POSEIDON PIPELINE COMPANY, L.L.C.
By:
------------------------------------
Title:
7
<PAGE> 8
STINGRAY HOLDING, L.L.C.
By:
-------------------------------------
Name:
Title:
TARPON TRANSMISSION COMPANY
By:
-------------------------------------
Title:
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By:
-------------------------------------
Title:
TEXAM OFFSHORE GAS TRANSMISSION, L.L.C
By:
-------------------------------------
Title:
TRANSCO OFFSHORE PIPELINE COMPANY, L.L.C.
By:
-------------------------------------
Title:
VK DEEPWATER GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Title:
VK-MAIN PASS GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Title:
SAILFISH PIPELINE COMPANY, L.L.C.
By:
-------------------------------------
Title:
8
<PAGE> 1
EXHIBIT 10.2
AMENDMENT NO. 2
THIS AMENDMENT, dated as of April 9, 1998 (this "Amendment"), to the Second
Amended and Restated Credit Agreement, dated as of March 23, 1995, as amended
and restated through December 13, 1996 (as amended, supplemented or otherwise
modified prior to the date hereof, the "Credit Agreement"), among LEVIATHAN GAS
PIPELINE PARTNERS, L.P., a Delaware limited partnership (the "Borrower"), the
banks and other financial institutions (the "Lenders") parties hereto, THE
CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent
(in such capacity, the "Administrative Agent") for the Lenders and ING (U.S.)
CAPITAL CORPORATION, a Delaware corporation, as co-arranger for the Lenders
(the "Co-Arranger").
W I T N E S S E T H:
WHEREAS, DeepTech International Inc. ("DeepTech"), which indirectly owns
approximately 27% of the Borrower and 85% of Leviathan Gas Pipeline Company,
the sole general partner of the Borrower, has entered into the Agreement and
Plan of Merger (the "Merger Agreement,") with El Paso Natural Gas Company ("El
Paso") pursuant to which DeepTech will merge with El Paso or a subsidiary of El
Paso (the "Merger"); and
WHEREAS, the completion of the Merger is subject to the consummation of
certain related transactions (the "Related Transactions") by DeepTech and/or
some of its subsidiaries, including the Borrower; and
WHEREAS, in connection with the Merger, the Related Transactions and other
matters, the Borrower has requested that the Administrative Agent, the
Co-Arranger and the Lenders amend the Credit Agreement and waive the applicable
provisions of the Credit Agreement to (i) permit the Borrower and certain of
its subsidiaries to perform its or their obligations under the Redemption
Agreement dated February 27, 1998 (the "Redemption Agreement") between Tatham
offshore, Inc. ("TOFF") and Flextrend Development Company, L.L.C., and (ii)
ensure that the consummation of the Merger and the Related Transactions and
certain other matters (including the automatic acceleration of certain options
under, and in accordance with, the Leviathan Unit Rights Appreciation Plan as a
result of a change in control as provided therein, do not cause or result in a
violation or breach of or a Default or Event of Default under the Credit
Agreement; and
WHEREAS, the Administrative Agent, the Co-Arranger and the Required Lenders
are willing to agree to such amendments and waivers, but only on the terms and
subject to the conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
Borrower, the Administrative Agent, the Co-Arranger and the Required Lenders
hereby agree as follows:
1
<PAGE> 2
1. Definitions. Unless other wise defined herein, terms defined
in the recitals to this Amendment have the meanings specified therein, and
terms defined in the Credit Agreement (including all amendments thereto) are
used herein as therein defined.
2. Amendments and Waivers to Credit Agreement.
(a) Amendments to Section 1. Subsection 1.1 of the
Credit Agreement is amended as follows:
(i) The definition of "Change of Control" is
amended by deleting the phrase "(other than management of DeepTech as of the
Closing Date and the shareholders of DeepTech as of the Closing Date)" and
substituting therefor the following phrase;
(other than the management of DeepTech as of the
Closing Date, the shareholders of DeepTech as of the
Closing Date and El Paso Natural Gas Company or any
Person controlling El Paso Natural Gas Company or any
successor of any such Person or El Paso Natural Gas
Company pursuant to a merger or consolidation with a
sole surviving entity)
(ii) The definition of "Incurrence Limitation" is
amended by deleting from clause (b) (i) thereof the amount "3.25" and
substituting therefor the phrase "Incurrence Limitation Factor".
(iii) The following definition is added to
Subsection 1.1 of the Credit Agreement in proper alphabetical order:
"Incurrence Limitation Factor": (a) from the
Amendment Effective Date (as defined in the Amendment
dated as of April 9, 1998 to this Agreement) to
December 31, 1998, 4.50, (b) thereafter to March 31,
1999, 4.25, (c) thereafter to June 30, 1999, 4.00,
(d) thereafter to September 30, 1999, 3.75 and (e)
thereafter, 3.50.
(b) Amendment to Section 7. Subsection 7.2(c) of the
Credit Agreement is hereby amended by adding at the end thereof the phrase ",
provided that such projections and certificate in respect of fiscal year 1998
may be delivered on or prior to April 15, 1998."
(c) Amendments to Section 8. Subsection 8.1 of the
Credit Agreement shall be amended as follows:
(i) Subsection 8.1(a) of the Credit Agreement is
hereby amended by deleting the amount "$125,000,000" and substituting therefor
the amount "$85,000,000".
(ii) Subsection 8.1(b) of the Credit Agreement is
hereby deleted.
2
<PAGE> 3
(iii) Subsection 8.1(d)(ii) of the Credit Agreement
is hereby amended by deleting therefrom the phrase "3.25" and
substituting therefor the phrase "the Incurrence Limitation Factor".
(iv) Subsection 8.1(e)(ii) of the Credit Agreement
is hereby amended by deleting the phrase "4.0" and substituting
therefor the phrase "the Incurrence Limitation Factor".
(v) Subsection 8.6 of the Credit Agreement is
hereby amended by (a) deleting the "and" from the end of clause (c),
(b) deleting the period from the end of clause (d) and substituting
therefor the phrase "; and " and (c) adding the following new clause
(e):
(e) the Borrower may permit the redemption of the
7,500 shares of 9% Senior Convertible Preferred Stock
issued by Tatham Offshore, Inc. ("TOI") in exchange
for TOI's working interest in VK817, its 37.5%
working interest in West Delta 35 and its 100%
ownership of the Ship Shoal 331 Platform (and upon
such redemption the Lenders' security interest in
such Preferred Stock will terminate in accordance
with subsection 11.18).
3. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Amendment Effective Date") on which all of the
following conditions precedent have been satisfied or waived:
(a) The Borrower, the Administrative Agent and the
Required Lenders shall have executed and delivered to the Administrative Agent
this Amendment, and the other Loan Parties shall have executed and delivered to
the Administrative Agent the attached Acknowledgment approving this Amendment.
(b) The Administrative Agent shall have received from the
Borrower (i) for the account of each Lender which executes and delivers this
Amendment prior to April 14, 1998, an amendment fee equal to .05% of such
Lender's Revolving Credit Commitment on the Amendment Effective Date and (ii)
for the account of the Administrative Agent and the Co-Arranger, such fees as
are separately agreed with the Borrower.
4. General.
(a) Representations and Warranties. After giving effect
to the effectiveness of this Amendment, the representations and warranties made
by the Loan Parties in the Loan Documents are true and correct in all material
respects on and as of the Amendment Effective Date (unless such representations
or warranties are stated to refer to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date) as if made on and as of the Amendment
Effective Date and no Default or Event of Default will have occurred and be
continuing.
3
<PAGE> 4
(b) Payment of Expenses. The Borrower agrees to pay or
reimburse the Administrative Agent for all of its out-of-pocket costs and
reasonable expenses incurred in connection with this Amendment, any other
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Administrative Agent.
(c) No Other Amendments; Confirmation. Except as
expressly amended, modified and supplemented hereby, the provisions of the
Credit Agreement, the Notes and the other Loan Documents are and shall remain
in full force and effect.
(d) Governing Law; Counterparts. (I) THIS
AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
(ii) This Amendment may be executed by one or more
of the parties to this Amendment on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year first above written.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By
----------------------------------
Name: Keith Forman
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and Lender
By
----------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION, as
Co-Arranger and Lender
By
----------------------------------
Name:
Title:
DEN NORSKE BANK AS
By
----------------------------------
Name:
Title:
WELLS FARGO BANK TEXAS, N.A.
By
----------------------------------
Name:
Title:
5
<PAGE> 6
MEESPIERSON N.V.
By
----------------------------------
Name:
Title:
BANK OF SCOTLAND
By
----------------------------------
Name:
Title:
BANQUE PARIBAS
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By
----------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By
----------------------------------
Name:
Title:
6
<PAGE> 7
ARAB BANKING CORPORATION (B.S.C.)
By
----------------------------------
Name:
Title:
CREDIT AGRICOLE
By
----------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By
----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By
----------------------------------
Name:
Title:
HIBERNIA NATIONAL BANK
By
----------------------------------
Name:
Title:
7
<PAGE> 8
ACKNOWLEDGMENT
The undersigned guarantors hereby consent and agree to the foregoing
Amendment:
LEVIATHAN GAS PIPELINE COMPANY
By:
----------------------------------
Title:
DELOS OFFSHORE COMPANY, L.L.C.
By:
----------------------------------
Title:
EWING BANK GATHERING COMPANY, L.L.C.
By:
----------------------------------
Title:
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
----------------------------------
Title:
GREEN CANYON PIPELINE COMPANY, L.L.C.
By:
----------------------------------
Title:
LEVIATHAN OIL TRANSPORT SYSTEMS, L.L.C.
By:
----------------------------------
Title:
MANTA RAY GATHERING COMPANY, L.L.C.
By:
----------------------------------
Title:
8
<PAGE> 9
POSEIDON PIPELINE COMPANY, L.L.C.
By:
----------------------------------
Title:
SAILFISH PIPELINE COMPANY, L.L.C.
By:
----------------------------------
Title:
STINGRAY HOLDING, L.L.C.
By:
----------------------------------
Title:
TARPON TRANSMISSION COMPANY
By:
----------------------------------
Title:
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By:
----------------------------------
Title:
TEXAM OFFSHORE GAS TRANSMISSION, L.L.C.
By:
----------------------------------
Title:
TRANSCO OFFSHORE PIPELINE COMPANY, L.L.C.
By:
----------------------------------
Title:
9
<PAGE> 10
VK DEEPWATER GATHERING COMPANY, L.L.C.
By:
----------------------------------
Title:
VK-MAIN PASS GATHERING COMPANY, L.L.C.
By:
----------------------------------
Title:
10
<PAGE> 1
EXHIBIT 10.3
===============================================================================
REDEMPTION AGREEMENT
by and between
TATHAM OFFSHORE, INC.,
And
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
FEBRUARY 27, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Transfer of the Properties........................................1
2. Delivery of Senior Preferred Stock................................1
3. Representations and Warranties of the Company.....................1
3.1. Organization.............................................1
3.2. Authority and Conflicts..................................1
3.3. Authorization............................................2
3.4. Enforceability...........................................2
3.5. Title....................................................2
3.6. Contracts................................................2
3.7. Litigation and Claims....................................2
3.8. Approvals and Preferential Rights........................3
3.9. Compliance with Law and Permits..........................3
3.10. Status of Contracts.....................................3
3.11. Production Burdens, Taxes, Expenses and Revenues........3
3.12. Production Balances.....................................3
3.13. Expenditure Commitments.................................3
3.14. Payout Balances.........................................4
3.15. Qualification...........................................4
3.16. Absence of Certain Changes..............................4
3.17. Disclaimer..............................................4
4. Representations and Warranties of Flextrend.......................4
4.1. Organization.............................................4
4.2. Authority and Conflicts..................................4
4.3. Authorization............................................5
4.4. Enforceability...........................................5
4.5. Qualification............................................5
4.6. Senior Preferred Stock...................................5
5. Closing...........................................................5
5.1. The Closing..............................................5
5.2. Deliveries by Company at Closing.........................6
5.3. Possession...............................................7
5.4. Deliveries by Flextrend At Closing.......................7
6. Assumption by Flextrend...........................................7
7. Production, Proceeds, Expenses and Taxes..........................7
7.1. Division of Substances...................................7
7.2. Division of Expenses.....................................7
7.3. Division of Proceeds.....................................8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
7.4. Property Tax Prorations..................................8
7.5. Adjustments..............................................8
8. Negative Covenants................................................8
9. Survival and Indemnification......................................9
9.1. Survival and Notice......................................9
9.2. The Company's Indemnification............................9
9.3. Flextrend's Indemnification.............................10
10. Further Assurances..............................................10
11. Notice..........................................................10
12. Assignment......................................................11
13. Governing Law...................................................11
14. Expenses and Fees...............................................12
15. Integration.....................................................12
16. Waiver or Modification..........................................12
17. Headings........................................................12
18. Invalid Provisions..............................................12
19. Multiple Counterparts...........................................13
20. Termination.....................................................13
21. Guarantee.......................................................13
22. Certain Definitions.............................................13
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
Exhibit 1 - Oil and Gas Properties
Exhibit 3.6 - Contracts
Exhibit 3.7 - Litigation and Claims
Exhibit 3.8 - Approvals and Preferential Rights
Exhibit 3.13 - Commitments
Exhibit 3.14 - Payout Balances
Exhibit 21 - Form of Guarantee
ANNEXES
Annex IA - Assignment of Leases and Bill of Sale [State
Filing Form]
Annex IB - Assignment of Leases and Bill of Sale [MMS Filing
Form]
-iii-
<PAGE> 5
REDEMPTION AGREEMENT
This Redemption Agreement is made and entered into on this the 27th
day of February, 1998, by and between Tatham Offshore, Inc., a Delaware
corporation (the "Company"), and Flextrend Development Company, L.L.C., a
Delaware limited liability company ("Flextrend").
1. TRANSFER OF THE PROPERTIES . Subject to the terms and conditions herein set
forth, in consideration of (i) redemption of the 7,500 shares of 9% Senior
Convertible Preferred Stock, par value $0.01 per share, of the Company (the
"Senior Preferred Stock"), owned or beneficially owned by the Partnership and
(ii) all accrued and unpaid dividends on the shares of Senior Preferred Stock
due to the Partnership, the Company agrees to sell, assign, convey and deliver
to Flextrend, and Flextrend agrees to acquire from the Company, effective as of
7:00 a.m. at the location of each of the Oil and Gas Properties on the date of
Closing (as defined in Section 5.1(a)) all of the interest of the Company in
and to the Properties as they exist on such date as such Properties are more
specifically described on Exhibit 1.
2. DELIVERY OF SENIOR PREFERRED STOCK . In consideration for the transfer of
the Properties to Flextrend, Flextrend shall cause the Partnership to agree
that all accrued and unpaid dividends on the shares of Senior Preferred Stock
shall conclusively be deemed to have been satisfied and paid in full, and the
shares of Senior Preferred Stock owned or beneficially owned by the Partnership
shall be redeemed, and Flextrend shall cause the Partnership to deliver to the
Company the shares of Senior Preferred Stock, free and clear of all
Encumbrances.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company represents and
warrants to Flextrend as follows:
3.1. ORGANIZATION . The Company is a corporation validly existing and in
good standing under the laws of the State of Delaware and is qualified to do
business in and is in good standing under the laws of Texas, Louisiana and
Alabama.
3.2. AUTHORITY AND CONFLICTS . The Company has full corporate power and
authority to carry on its business as presently conducted, to enter into this
Agreement and any agreements contemplated hereby to which it is a party and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement by the Company and any agreement contemplated hereby does not,
and the consummation of the transactions contemplated hereunder and thereunder
shall not, (a) violate or be in conflict with, or require the consent of any
person or entity under, any provision of the Company's governing documents, (b)
conflict with, result in a breach of, constitute a default (or an
<PAGE> 6
event that with the lapse of time or notice, or both would constitute a
default) under, or require any consent, authorization or approval under any
agreement or instrument to which the Company is a party or to which any of the
Properties or the Company is bound, except as disclosed in Exhibit 3.8, (c)
violate any provision of or require any consent, authorization or approval
under any judgment, decree, judicial or administrative order, award, writ,
injunction, statute, rule or regulation applicable to the Company, or (d)
result in the creation of any Encumbrance on any of the Properties other than
those contemplated by either this Agreement or any related agreements and
documents.
3.3. AUTHORIZATION . The execution and delivery of this Agreement and the
agreements contemplated hereby have been, and the performance of this Agreement
and the agreements contemplated hereby and the transactions contemplated hereby
and thereby shall be at the time required to be performed hereunder, duly and
validly authorized by all requisite corporate action on the part of the
Company.
3.4. ENFORCEABILITY . This Agreement has been duly executed and delivered on
behalf of the Company and constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by Equitable Limitations. All documents and
instruments required hereunder to be executed and delivered by the Company
shall be duly executed and delivered and shall constitute legal, valid and
binding obligations of the Company enforceable in accordance with their terms,
except as enforceability may be limited by Equitable Limitations.
3.5. TITLE . The Company has (i) Marketable Title to the Oil and Gas
Properties and (ii) defensible title to all of the Properties other than the
Oil and Gas Properties.
3.6. CONTRACTS . Exhibit 3.6 contains a complete list of all contracts that
constitute a part of the Properties or by which the Properties are bound or
subject (collectively, the "Contracts").
3.7. LITIGATION AND CLAIMS . Except as set forth on Exhibit 3.7, no claim,
demand, filing, cause of action, administrative proceeding, lawsuit or other
litigation is pending or, to the best knowledge of the Company, threatened that
could now or hereafter adversely affect the ownership, development or operation
of any of the Properties, other than proceedings relating to the industry
generally and as to which the Company is not a named party. No written or oral
notice from any governmental body or any other person has been received by the
Company (i) claiming any violation or repudiation of the Oil and Gas Properties
or any violation of any law, ordinance, code, rule or regulation with respect
to the Oil and Gas Properties or (ii) requiring, or calling attention to, the
need for any work, repairs, construction, alterations or installations on or in
connection with the Properties with which the Company has not complied.
-2-
<PAGE> 7
3.8. APPROVALS AND PREFERENTIAL RIGHTS . Exhibit 3.8 contains a complete and
accurate list of all approvals required to be obtained by the Company for the
assignment of the Properties to Flextrend and all preferential purchase rights
that affect the Properties.
3.9. COMPLIANCE WITH LAW AND PERMITS . The Properties have been operated in
compliance with the provisions and requirements of all laws, orders,
regulations, rules and ordinances issued or promulgated by all governmental
authorities having jurisdiction with respect to the Properties, noncompliance
with which reasonably may be expected to have a material adverse effect on the
Properties. All necessary governmental authorizations with regard to the
ownership, development or operation of the Properties have been obtained where
the failure to obtain such authorizations reasonably may be expected to have a
material adverse effect on the Properties, and no material violations exist in
respect of such licenses, permits or authorizations.
3.10. STATUS OF CONTRACTS . (i) To the Company's knowledge, all of the
Contracts and the rights and obligations of the Company thereunder are in full
force and effect, and (ii) the Company is not in breach of or default, or with
the lapse of time or the giving of notice, or both, would be in breach or
default, with respect to any of its obligations thereunder to the extent that
such breaches or defaults reasonably may be expected to have a material adverse
effect on the Properties.
3.11. PRODUCTION BURDENS, TAXES, EXPENSES AND REVENUES . All rents,
royalties, excess royalty, overriding royalty interests and other payments due
under or with respect to the Oil and Gas Properties have been properly and
timely paid; and all ad valorem, property, production, severance and other
taxes based on or measured by the ownership of the Properties or the production
of Substances therefrom, have been properly and timely paid. All expenses due
and payable as of the date hereof under the terms of the Contracts have been
properly and timely paid. All of the proceeds from the sale of Substances have
been properly and timely paid to the Company by the purchasers of production
without suspense or indemnity other than standard division order indemnities.
3.12. PRODUCTION BALANCES . None of the purchasers under any production
sales contracts are entitled to "make-up" or otherwise receive deliveries of
Substances at any time on or after January 1, 1998, without paying at such time
the full contract price therefor. No person is entitled to receive any portion
of the interest of the Company in any Substances or to receive cash or other
payments to "balance" any disproportionate allocation of Substances under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, or other similar agreements.
3.13. EXPENDITURE COMMITMENTS . Exhibit 3.13 contains a complete and
accurate list of (i) all authorities for expenditures ("AFE") to drill, rework
or plug and
-3-
<PAGE> 8
abandon Wells or for other capital expenditures pursuant to any of the
Contracts that have been proposed by any person on or after January 1, 1998,
whether or not accepted by the Company or any other person, and (ii) all AFE
and oral or written commitments to drill, rework or plug and abandon Wells or
for other capital expenditures pursuant to any of the Contracts for which all
of the activities anticipated in such AFE or commitments have not been
completed by the date of this Agreement.
3.14. PAYOUT BALANCES . Exhibit 3.14 contains a complete and accurate list
of the status of cost recovery or other "payout" balance, as of the dates shown
in Exhibit 3.14, for each Well that is subject to a reversion or other
adjustment at some level of cost recovery or payout.
3.15. QUALIFICATION . To the extent required with respect to the ownership,
development and operation of the Properties, the Company is properly qualified
by the MMS to own and operate the Properties.
3.16. ABSENCE OF CERTAIN CHANGES . Since January 1, 1998, the Properties
have not suffered any material destruction, damage or loss; provided that no
representation or warranty is made in this Section 3.16 relating to Viosca
Knoll Block 817.
3.17. DISCLAIMER . Except as set forth herein, the Properties are being
transferred to Flextrend hereunder "as is", "where is" and "with all faults"
without any representations or warranties of any kind, including, without
limitation, those relating to merchantability, fitness for purpose, quality,
condition, value or otherwise.
4. REPRESENTATIONS AND WARRANTIES OF FLEXTREND . Flextrend represents and
warrants to the Company that:
4.1. ORGANIZATION . Flextrend is a limited liability company validly
existing and in good standing under the laws of the State of Delaware and is
qualified to do business in and is in good standing under the laws of Texas,
Louisiana, and Alabama.
4.2. AUTHORITY AND CONFLICTS . Flextrend has full limited liability company
power and authority to carry on its business as presently conducted, to enter
into this Agreement and any agreements contemplated hereby to which it is a
party, and to perform its obligations hereunder and thereunder. Flextrend has
full corporate or similar power and authority to purchase the Properties on the
terms described in this Agreement. The execution and delivery of this Agreement
by the Company and any agreement contemplated hereby does not, and the
consummation of the transactions contemplated hereunder and thereunder shall
not, (a) violate or be in conflict with, or require the consent of any person
or entity under, any provision of Flextrend's governing documents, (b) conflict
with, result in a breach of, constitute a default (or an event that with the
lapse of time or notice, or both, would constitute a default) under, or require
any consent,
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<PAGE> 9
authorization or approval under any agreement or instrument to which Flextrend
is a party or is bound, (c) violate any provision of or require any consent
(except for qualifying with and filing the appropriate bonds and transfer
documents with the MMS), authorization or approval under any judgment, decree,
judicial or administrative order, award, writ, injunction, statute, rule or
regulation applicable to Flextrend, or (d) result in the creation of any
Encumbrance on the Senior Preferred Stock.
4.3. AUTHORIZATION . The execution and delivery of this Agreement and the
agreements contemplated hereby have been and the performance of this Agreement
and the transactions contemplated thereby shall be at the time required to be
performed hereunder, duly and validly authorized by all requisite partnership
action on the part of Flextrend.
4.4. ENFORCEABILITY . This Agreement has been duly executed and delivered on
behalf of Flextrend and constitutes a legal, valid and binding obligation of
Flextrend enforceable in accordance with its terms, except as enforceability
may be limited by Equitable Limitations. All documents and instruments required
hereunder to be executed and delivered by Flextrend shall be duly executed and
delivered and shall constitute legal, valid and binding obligations of
Flextrend enforceable in accordance with their terms, except as enforceability
may be limited by Equitable Limitations.
4.5. QUALIFICATION . To the extent required with respect to the ownership,
development and operation of the Properties, Flextrend is properly qualified by
the MMS to own and, upon the MMS' acceptance of the required bond from
Flextrend, operate the Properties.
4.6. SENIOR PREFERRED STOCK . The shares of Senior Preferred Stock are owned
by the Partnership free and clear of all Encumbrances.
5. CLOSING.
5.1. THE CLOSING . (a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1900 Pennzoil Place, South Tower, 711 Louisiana
Street, Suite 1900, Houston, Texas 77002 on the later of (i) July 1, 1998 or
(ii) such later date which shall be one business day following the Completion
Date (as defined in the Contribution Agreement); provided that, should the
Completion Date fall on or after October 1, 1998, the Company may, at its
option, elect to close the transactions contemplated by this Agreement on any
date on or after October 1, 1998, with ten (10) days' prior notice to
Flextrend, in which case, the Closing shall be deemed to occur on a date
specified by the Company. Time shall be of the essence in this Agreement.
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<PAGE> 10
(b) The obligation of each of the parties hereto to effect the
transactions contemplated hereby is subject to the satisfaction or waiver of
the following conditions: (i) the representations and warranties made by the
other party in this Agreement shall be true and correct on and as of the date
hereof (unless stated to relate to a specific earlier date, in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date), but only if the failure to be true would,
after giving effect to any indemnification rights, have a material adverse
effect on the value or operation of the Properties and the other party shall
have performed its covenants and agreements herein to be performed prior to the
Closing, except where the failure to perform such covenants and agreements
would not, individually or in the aggregate, have a material adverse effect on
the value or operation of any of the Properties or the ability of such other
party to consummate the transactions contemplated hereby, and an executive
officer of the other party shall have provided a certificate to such effect,
dated the date hereof; (ii) all material consents and filings required in
connection with the transactions contemplated hereby shall have been obtained
or made; and (iii) the other party shall have made the deliveries required to
be made by it pursuant to this Section 5.
5.2. DELIVERIES BY COMPANY AT CLOSING . The Company shall have delivered to
Flextrend the following instruments, properly executed and acknowledged:
5.2.1. Counterparts of the following: (i) State Assignment; and (ii)
MMS Assignment.
5.2.2. Such other instruments as are necessary to effectuate the
conveyance of the Properties to Flextrend.
5.2.3. With respect to any leases in which the Company owns less than
all of the operating rights or leasehold interests and is designated as the
operator under the applicable operating or other similar agreement, (i) letters
to all working interest owners in which the Company resigns as the operator and
recommends Flextrend or an affiliate of Flextrend as the successor operator and
(ii) any forms promulgated by the appropriate governmental authority and
necessary for the resignation by the Company as operator, which forms shall be
completed and executed by the Company and shall designate Flextrend or an
affiliate of Flextrend as the operator under the applicable operating or other
similar agreement. With respect to any leases in which the Company owns all of
the leasehold interests or operating rights and is designated as the operator,
any forms promulgated by the appropriate governmental authority and necessary
for the resignation by the Company as operator, which forms shall be completed
and executed by the Company and shall designate Flextrend or an affiliate of
Flextrend as the operator under the applicable operating or other similar
agreement.
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<PAGE> 11
5.3. POSSESSION . At the Closing, the Company shall deliver to Flextrend at
Flextrend's offices all of the Data and shall deliver to Flextrend possession
of the other Properties.
5.4. DELIVERIES BY FLEXTREND AT CLOSING. Against delivery of the documents
and materials described in Section 5.2, Flextrend shall cause the Partnership
to deliver to the Company, free and clear of all Encumbrances, a duly executed
certificate or certificates representing the 7,500 shares of Senior Preferred
Stock owned or beneficially owned by the Partnership, together with transfer
powers endorsed in blank relating to such certificates.
6. ASSUMPTION BY FLEXTREND . At Closing, Flextrend shall assume all of the
costs, obligations and liabilities of the Company relating to the Properties
that arise from or relate to (i) the period beginning on January 1, 1998, (ii)
plugging, abandonment or similar restoration operations relating to any Wells,
platforms or other facilities on or related to the Properties necessary or
appropriate to comply with all contracts, and any rules, laws, regulations or
orders of any governmental authority relating to such plugging, abandonment and
similar restoration operations and (iii) that certain (a) Production Payment
Agreement dated September 19, 1995 between the Company and J. Ray McDermott
Properties, Inc. and (b) Production Payment Agreement dated September 19, 1995
between the Company and F-W Oil Interests, Inc. Except to the extent provided
in clause (ii) and (iii) of the immediately preceding sentence, Flextrend shall
not assume any costs, obligations or liabilities (including negligence and
strict liability) that relate to the Properties and arise from or relate to the
period ending prior to January 1, 1998; or any obligation of the Company or any
other person to pay and discharge any refunds, including interest and
penalties, if any, that may be imposed by any governmental agency arising from
the sale of the Substances prior to January 1, 1998. Notwithstanding anything
to the contrary herein, the Company expressly reserves and retains any and all
of its rights and interests in and to that certain (a) Exchange Agreement dated
September 19, 1995 between the Company and J. Ray McDermott Properties, Inc.
and (b) Exchange Agreement dated September 19, 1995 between the Company and F-W
Oil Interests, Inc.
7. PRODUCTION, PROCEEDS, EXPENSES AND TAXES.
7.1. DIVISION OF SUBSTANCES . After the Closing, all Substances produced
from the Oil and Gas Properties on or after January 1, 1998 shall be owned by
Flextrend. All Substances produced and sold from the Oil and Gas Properties
prior to January 1, 1998 shall be owned by the Company.
7.2. DIVISION OF EXPENSES . Subject to Section 9 hereof, all costs, expenses
incurred and other expenditures incurred in connection with the Properties and
attributable to the period ending prior to January 1, 1998 shall be borne by
the Company.
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<PAGE> 12
Subject to Section 9 hereof, all costs, expenses and other expenditures
incurred in connection with the Properties and attributable to the period
beginning on January 1, 1998 other than costs and expenses not assumed by
Flextrend under Section 6 shall be borne by Flextrend.
7.3. DIVISION OF PROCEEDS . All net proceeds earned in connection with the
Properties attributable to the period ending prior to January 1, 1998 shall be
deemed to be owned by the Company. All proceeds earned in connection with the
Properties attributable to the period beginning on January 1, 1998 shall be
deemed to be owned by Flextrend.
7.4. PROPERTY TAX PRORATIONS . Real and personal property taxes for the
Properties for the year in which Closing occurs shall be prorated between
Flextrend and the Company as of January 1, 1998. If the actual taxes are not
known as of the Closing Date, the Company's share of such taxes shall be
determined by using (i) the rates and mileages for the year prior to the year
in which the Closing occurs, with appropriate adjustments for any known and
verifiable changes thereto, and (ii) the assessed values for the year in which
Closing occurs.
7.5. ADJUSTMENTS . At the Closing, the Company or Flextrend, as appropriate,
shall make a cash payment to the other to give effect to the provisions of
Section 7 to the extent then determinable and promptly after such amount is
finally determinable, the Company or Flextrend shall make such payments as may
be necessary to make final settlement. If, after the Closing, the Company
receives any proceeds that pursuant to this Section 7 belong to Flextrend, then
the Company shall deliver such proceeds to Flextrend within five Business Days
after receipt of such proceeds. If, after the Closing, Flextrend receives any
proceeds that pursuant to this Section 7 belong to the Company, then such
proceeds shall be returned to the Company within five Business Days after
receipt of such proceeds. If after Closing either party hereto receives
invoices for costs or expenses that pursuant to the terms of this Section 7 are
the responsibility of the other party, the party receiving such invoices shall
immediately deliver them to the other party.
8. NEGATIVE COVENANTS.
Except as Flextrend may otherwise consent in writing, between the date of
this Agreement and the date of Closing and except as contemplated by this
Agreement, the Company shall not:
(a) sell, transfer, assign, convey or otherwise dispose of any Properties
other than (i) oil, gas and other hydrocarbons produced, saved and sold in
the ordinary course of business, and (ii) personal property and equipment
which is replaced with
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<PAGE> 13
property and equipment of comparable or better value and utility in the
ordinary and routine maintenance and operation of the Properties;
(b) create or permit the creation of any Encumbrance on the Properties,
other than Permitted Encumbrances;
(c) grant any preferential right to purchase or similar right or agree to
require the consent of any party to the transfer and assignment of the
Properties to Flextrend;
(d) designate any Person, other than Flextrend, as an operator of the
Properties;
(e) incur or agree to incur any contractual obligation or liability,
whether absolute, contingent, matured or unmatured, which would constitute
an assumed liability by Flextrend as provided in Section 6 above; provided
that, the Company may incur such obligations or liabilities in the ordinary
course of business or in the ordinary and routine maintenance and operation
of the Properties with the consent of Flextrend which consent shall not be
unreasonably withheld or delayed; provided that any such obligation or
liability would not, either individually or in the aggregate, have a
material adverse effect on any of the Properties;
(f) enter into any transaction the effect of which, considered as a
whole, would be to cause the Company's ownership interest in any of the
Working Interests to be altered from its ownership interest as of the date
hereof; or
(g) agree or commit to do any of the foregoing.
9. SURVIVAL AND INDEMNIFICATION.
9.1. SURVIVAL AND NOTICE . The liability of Flextrend and the Company under
each of their respective representations, warranties and covenants contained in
this Agreement shall survive the Closing and execution and delivery of the
assignments contemplated hereby. Any assertion by any party to this Agreement
that any party is liable for the inaccuracy of any representation or warranty
or the breach of any covenant (except in Section 7.5, which shall survive until
the closing of the applicable statute of limitations) must be made in writing
and must be given to the other party not later than the first Business Day
occurring eighteen months after the date of Closing. The notice shall state the
facts known to the person providing such notice that give rise to such notice
in sufficient detail to allow the receiving person to evaluate the claim.
9.2. THE COMPANY'S INDEMNIFICATION . To the extent permitted by law, the
Company, from and after Closing, shall defend, indemnify and hold Flextrend
harmless
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<PAGE> 14
from and against any and all damage, loss, cost, expense, obligation, claim or
liability, including reasonable counsel fees and reasonable expenses of
investigating, defending arid prosecuting litigation (collectively, the
"Liability"), suffered by Flextrend as a result of (i) any cost, liability or
obligation that was not assumed by Flextrend pursuant to Section 6 (other than
Liability resulting from the inaccuracy of any representation or warranty or
the breach of a covenant by Flextrend contained in this Agreement); (ii) the
failure of the Company to comply with the bulk sales laws of Texas or any other
jurisdiction in connection with the transactions provided for in this
Agreement; (iii) any brokers' or finders' fees or commissions arising with
respect to brokers or finders retained or engaged by the Company and resulting
from or relating to the transactions contemplated in this Agreement; (iv) the
inaccuracy of any representation or warranty of the Company set forth in this
Agreement; and (v) the breach of, or failure to perform or satisfy, any of the
covenants of the Company set forth in this Agreement.
9.3. FLEXTREND'S INDEMNIFICATION . To the extent permitted by law,
Flextrend, from and after Closing, shall defend, indemnify and hold the Company
harmless from and against any and all Liability suffered by the Company as a
result of (i) any cost, liability or obligation that was assumed by Flextrend
pursuant to Section 6 (other than Liability resulting from the inaccuracy of
any representation or warranty or the breach of a covenant of the Company
contained in this Agreement); (ii) the failure of Flextrend to comply with the
bulk sales laws of Texas or any other jurisdiction in connection with the
transactions provided for in this Agreement; (iii) any brokers or finders' fees
or commissions arising with respect to brokers or finders retained or engaged
by Flextrend and resulting from or relating to the transactions contemplated in
this Agreement; (iv) the inaccuracy of any representation or warranty of
Flextrend set forth in this Agreement; and (v) the breach of, or failure to
perform or satisfy any of the covenants of Flextrend set forth in this
Agreement.
10. FURTHER ASSURANCES . After the Closing, the Company and Flextrend shall
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to carry out their obligations under this Agreement and under any
exhibit, document, certificate or other instrument delivered pursuant hereto.
The Company and Flextrend, as applicable, shall cooperate and use their best
efforts to obtain all approvals and consents required by or necessary for the
transactions contemplated by this Agreement that are customarily obtained after
Closing.
11. NOTICE . All notices required or permitted under this Agreement shall be in
writing and, (a) if by air courier, shall be deemed to have been given one
Business Day after the date deposited with a recognized carrier of overnight
mail, with all freight or other charges prepaid, (b) if by telegram, shall be
deemed to have been given one Business Day after delivered to the wire service,
(c) if by telex, provided a confirmation is received and
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<PAGE> 15
such notice is also sent by U.S. mail, shall be deemed to have been given when
such telex is sent, (d) if mailed, shall be deemed to have been given three
Business Days after the date when sent by registered or certified mail, postage
prepaid, and (e) if sent by telecopier, provided a confirmation is received and
such notice is also sent by U.S. mail, shall be deemed to have been given when
such telecopy is sent, addressed as follows:
The Company: Tatham Offshore, Inc.
7400 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Attention: Chief Executive Officer
Telecopier: (713) 224-7574
with a copy to: Rick L. Burdick
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Flextrend: Flextrend Development Company, L.L.C.
7200 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002
Attention: President
Telecopier: (713) 547-5151
or to such other address as either party hereto may from time to time designate
by notice in writing to the other.
12. ASSIGNMENT . This Agreement and any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether by operation of
law or otherwise) without the prior written consent of the other party;
provided that, in the case of any assignment as described above, no such
assignment shall relieve the assigning party of any of its obligations under
this Agreement and the non-assigning party shall have the right to seek
remedies directly from the assigning party without seeking the same from the
assignee. Subject to the preceding sentence, this Agreement will be binding
upon and inure to the benefit of, and be enforceable by, the parties and their
respective successors and permitted assigns.
13. GOVERNING LAW . This Agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to any
principles of conflicts of laws. The validity of the various conveyances
affecting the title to real property shall be governed by and construed in
accordance with the laws of the jurisdiction in which such
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<PAGE> 16
property is situated. The representations and warranties contained in such
conveyances and the remedies available because of a breach of such
representations and warranties shall be governed by and construed in accordance
with the laws of the State of Texas without giving effect to the principles of
conflict of laws.
14. EXPENSES AND FEES . (i) Each of the parties hereto shall pay the fees and
expenses of their respective counsel, accountants and other experts incident to
the negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby, (ii) Flextrend and the Company shall each pay
one half of (x) the cost of all fees for the recording of transfer documents
described in Section 5.2 and (y) any sales, transfer, stamp or other excise
taxes resulting from the transfer of the Properties to Flextrend, and (iii) all
other costs shall be borne by the party incurring such costs.
15. INTEGRATION . This Agreement, the exhibits hereto and the other agreements
to be entered into by the parties under the provisions of this Agreement set
forth the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements, prior
arrangements and prior understandings relating to the subject matter hereof.
16. WAIVER OR MODIFICATION . This Agreement may be amended, modified,
superseded or cancelled, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, only by a written instrument
executed by a duly authorized officer of Flextrend and the Company, or, in the
case of a waiver or consent, by or on behalf of the party or parties waiving
compliance or giving such consent. No waiver by any party of any condition, or
of any breach of any covenant, agreement, representation or warranty contained
in this Agreement, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or
waiver of any other condition or of any breach of any other covenant,
agreement, representation or warranty.
17. HEADINGS . The Section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. INVALID PROVISIONS . If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from
this Agreement.
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<PAGE> 17
19. MULTIPLE COUNTERPARTS . This Agreement may be executed in a number of
identical counterparts, each of which for all purposes is to be deemed as
original, and all of which constitute, collectively, one agreement; but in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
20. TERMINATION . This Agreement may be terminated by mutual written consent of
the parties hereto.
21. GUARANTEE . All obligations of Flextrend hereunder shall be unconditionally
guaranteed by the Partnership pursuant to that certain form of Guarantee
attached hereto as Exhibit 21.
22. CERTAIN DEFINITIONS . As used in this Agreement, the following terms shall
have the following meanings:
"AFEs" shall have the meaning set out in Section 3.13 above.
"Agreement" shall mean this Redemption Agreement, as the same may from time
to time be amended or supplemented.
"Business Day" shall mean a day other than the days that banking
institutions are required or permitted to be closed under the laws of the State
of Texas.
"Closing" shall have the meaning set out in Section 5.1(a) above.
"Contracts" shall have the meaning set out in Section 3.6.
"Contribution Agreement" shall mean the Contribution and Distribution
Agreement made as of the date hereof among DeepTech International Inc., a
Delaware corporation, the Company, DeepFlex Production Services, Inc., a
Delaware corporation, and El Paso Natural Gas Company, a Delaware corporation.
"Data" shall mean all (i) abstracts, title opinions, title reports, title
policies, lease and land files, surveys, analyses, compilations,
correspondence, filings with regulatory agencies, other documents and
instruments that relate to the Properties; (ii) geological, engineering,
exploration, production, and other technical data, magnetic field recordings,
digital processing tapes, field prints, summaries, reports and maps, whether
written or in an electronically reproducible form, that are in the possession
or control of the Company, and relate to the Oil and Gas Properties; and (iii)
all other books, records, files and magnetic tapes containing financial, title
or other information that are in the possession or control of the Company, or
any affiliate of the Company (excluding Flextrend), and in any manner relate to
the Properties; provided that "Data" shall not include any of the
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<PAGE> 18
foregoing to the extent such Data is subject to a licensing agreement that does
not permit access to Flextrend.
"Employee" shall mean any current, former, or retired employee, consultant
or director of the Company whose duties relate or related to the business
conducted with the Properties.
"Encumbrances" shall refer to each and all of the following items:
mortgages, claims, charges, security interests, liens, obligations,
encumbrances, imperfections of title or other matters affecting title, and any
rights of third parties whatsoever.
"Equipment" shall mean all equipment, fixtures, physical facilities or
interests therein of every type and description to the extent that the same are
used or held for use in connection with the ownership, development or operation
of the Properties, whether located on or off the Properties.
"Equitable Limitations" shall mean applicable bankruptcy, reorganization or
moratorium statutes, equitable principles or other similar laws affecting the
rights of creditors generally.
"Laws" shall refer to each and all of the following: domestic (federal,
state or local) or foreign laws, statutes, ordinances, rules, regulations,
decrees or orders.
"Liability" shall have the meaning set out in Section 9.2.
"Liens" shall mean all encumbrances, liens, claim, easements, rights,
agreements, instruments, obligations, burdens or defects.
"Marketable Title" shall mean such title as (i) will enable Flextrend, as
the Company's successor in title, to receive from a particular Oil and Gas
Property at least the Net Revenue Interests for the leases identified in
Exhibit 1, without reduction, suspension or termination throughout the term of
such lease, except for any reduction, suspension or termination (a) caused by
Flextrend, any of its affiliates (other than the Company), successors in title
or assigns, (b) caused by orders of the appropriate regulatory agency having
jurisdiction over such Oil and Gas Property that are promulgated after January
1, 1998 and that concern pooling, unitization, communitization or spacing
matters affecting such Oil and Gas Property, (c) or otherwise set forth in
Exhibit 1; (ii) will obligate Flextrend, as the Company's successor in title,
to bear no greater Working Interests other than the Working Interests for each
of the leases identified in Exhibit 1, without increase throughout the term of
such lease, except for any increase (a) caused by Flextrend, any of its
affiliates (other than the Company), successors in title or assigns, (b) that
also results in the Net Revenue Interests associated with such lease being
proportionately increased, (c) caused by contribution requirements provided for
under provisions similar to those
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<PAGE> 19
contained in Article VII.B. of the A.A.P.L. Form 610-1982 Model Form Operating
Agreement, (d) caused by orders of the appropriate regulatory agency having
jurisdiction over an Oil and Gas Property that are promulgated after January 1,
1998, and that concern pooling, unitization, communitization or spacing matters
affecting a particular Oil and Gas Property, or (e) otherwise set forth in
Exhibit 1; and (iii) is free and clear of all Liens except for Permitted
Encumbrances.
"MMS" shall mean the Minerals Management Service.
"MMS Assignment" shall mean both the Assignment of Leases and Bill of Sale
for filing with the MMS in the form of Annex IB.
"Net Revenue Interest" shall mean that interest in the gross production of
oil and gas and other minerals from the Properties subject to the oil, gas and
mineral leases to which Flextrend will be entitled to by virtue of its
acquisition of the Working Interests after deducting all landowner royalties,
overriding royalties and similar burdens attributable to the Working Interest.
"Oil and Gas Properties" shall mean all properties described in Exhibit 1
whether such properties are in the nature of fee interests, leasehold
interests, working interests, farmout rights, royalty, overriding royalty or
other non-working or carried interests, operating rights or other mineral
rights of every nature and any rights that arise by operation of law or
otherwise in all properties and lands pooled, unitized, communitized or
consolidated with such properties.
"Partnership" shall mean Leviathan Gas Pipeline Partners, L.P. and any
affiliate or subsidiary thereof.
"Payment Rights" shall mean all (i) accounts, instruments and general
intangibles (as such terms are defined in the Uniform Commercial Code of Texas)
attributable to the Properties with respect to any period of time on or after
January 1, 1998 and (ii) liens and security interests in favor of the Company,
whether choate or inchoate, under any law, rule or regulation or under the
Contracts (a) arising from the ownership, operation, sale or other disposition
on or after January 1, 1998 of any of the Properties and (b) arising in favor
of the Company as the operator of certain of the Oil and Gas Properties.
"Permitted Encumbrances" shall mean (i) liens for taxes not yet delinquent,
(ii) lessors' royalties, overriding royalties, division orders, reversionary
interests, and similar burdens that do not operate to reduce the net revenue
interests of the Company in any of the Oil and Gas Properties to less than the
amount set forth therefor in Exhibit 1, (iii) the consents and rights described
in Exhibit 3.8, (iv) the Contracts, (v) except to the extent any amounts
related thereto are due and payable, any mechanic and materialmen, operator,
non-operator, contractor and subcontractor or similar liens created by the
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<PAGE> 20
Contracts or operation of law, and (vi) the Liens created by the documents
contemplated hereby.
"Person" shall include an individual, a partnership, a limited liability
company, a corporation, a trust, an unincorporated organization, a government
or any department or agency thereof and any other entity.
"Properties" shall mean the Oil and Gas Properties, Wells, Substances,
Equipment, Data, Contracts and Payment Rights. "Properties" shall include any
additional interests acquired by Flextrend in a particular operation as a
result of one or more working interest owners electing to go non-consent under
the applicable operating agreements.
"State Assignment" shall mean an Assignment of Leases and Bill of Sale for
recordation in the appropriate real property records of the appropriate
parishes and/or counties in Louisiana, Alabama and Mississippi where the
Assignment needs to be recorded in the form of Annex IA.
"Substances" shall mean all severed crude oil, natural gas, casinghead gas,
drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids and other hydrocarbons and other minerals or materials of
every kind and description produced from the Oil and Gas Properties on or after
January 1, 1998.
"Wells" shall mean all oil, condensate or natural gas wells, water source
wells, and water and other types of injection wells either located on the Oil
and Gas Properties or held for use in connection with the Oil and Gas
Properties, whether producing, operating, shut-in or temporarily abandoned.
"Working Interest" shall mean the interest that Flextrend will be acquiring
pursuant to the terms of this Agreement upon which will be calculated
Flextrend's proportionate share of the costs, expenses and liabilities
attributable to the oil, gas and mineral leases described herein.
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<PAGE> 21
This Agreement has been executed as of the date first set forth above.
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
---------------------------------
Name:
Title:
TATHAM OFFSHORE, INC.
By:
---------------------------------
Name:
Title:
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<PAGE> 22
EXHIBIT 1
PROPERTIES
A. Any and all interests presently shown to be owned by Company by instruments
recorded in the official records of the Parishes of the State of Louisiana, the
Counties of Mississippi and Alabama or the United States of America, together
with all other right, title and interest of Company of whatever kind or
character, whether legal or equitable, vested or contingent, in and to the oil
and gas leases described below:
1. OCS-G 13631, BLOCK 331, SHIP SHOAL AREA, OFFSHORE LOUISIANA
Overriding Royalty Interest in Oil and Gas Lease dated September 1, 1992,
between the United States of America, as Lessor, and Company, as Lessee,
covering all of Block 331, Ship Shoal Area, South Addition, containing
approximately 5277.82 acres.
Overriding Royalty Interest: 2.49962%
2. OCS-G 13641, BLOCK 35, WEST DELTA AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1992, between the United States of America, as
Lessor, and Company, as Lessee, covering that portion of Block 35, West Delta
Area, OCS Leasing Map, Louisiana Map No. 8, seaward of the 1975 Supreme Court
Decree Line, containing approximately 4984.81 acres.
Working Interest: 38% Net Revenue Interest: 29.76666%
Overriding Royalty Interest: 1%
3. (a) OCS-G 9743, BLOCK 817, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA1
Oil and Gas Lease dated August 1, 1988, between the United States of America,
as Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 817,
Viosca Knoll Area, containing approximately 5, 760 acres. All of Block 817
from the seafloor down to the stratigraphic equivalent of the base of the Tex
X-6 Sand as encountered in the Viosca Knoll 817 Sohio #1 Well at a log depth of
4,450 feet:
Working Interest: 25% Net Revenue Interest: 18.75%
Overriding Royalty Interest: 1.25%
__________________________________
1 The interest owned by Company in Block 817, Viosca Knoll Area, is subject to
that certain (a) Production Payment Agreement, dated September 19, 1995,
between Company and J. Ray McDermott Properties, Inc. and (b) Production
Payment Agreement, dated September 19, 1995, between Company and F-W Oil
Interests, Inc.
<PAGE> 23
All of Block 817 below the base of the Tex X-6 Sand as encountered in the
Viosca Knoll 817 Sohio #1 Well at a log depth of 4,450 feet, SAVE AND EXCEPT
the E/2 of the E/2 and the E/2 of the E/2 of the W/2 of the E/2 of said Block
817 below the stratigraphic equivalent of the top of the Tex (L) Formation as
encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
The E/2 of the E/2 and the E/2 of the E/2 of the W/2 of the E/2 of Block 817
below the stratigraphic equivalent of the top of the Tex (L) Formation as
encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
(b) OCS-G 10939, BLOCKS 772/773, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Blocks
772/773, Viosca Knoll Area, containing approximately 5,304 acres. Working
Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
(c) OCS-G 10940, BLOCK 774, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 774,
Viosca Knoll Area, containing approximately 4,239 acres.
The N/2 of Block 774 and from the seafloor down to the stratigraphic equivalent
of the top of the Tex (L) Formation in the S/2 of Block 774 as encountered in
the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
The S/2 of Block 774 below the stratigraphic equivalent of the top of the Tex
(L) Formation as encountered in the OCS-G 13063 #1 Well at a depth of 12,150
feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
<PAGE> 24
(d) OCS-G 13063, BLOCK 818, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated May 1, 1991 between the United States of America, as
Lessor, and Fina Oil and Chemical Company, as Lessee, covering all of Block
818, Viosca Knoll Area, containing approximately 5, 760 acres.
All of Block 818, less and except the wellbore and all production from the
OCS-G 13063 #1 Well:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
The wellbore and all production from the OCS-G 13063 #1 Well:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
(e) OCS-G 10945, BLOCK 861, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated June 1, 1989, between the United States of America, as
Lessor, and Petrofina Delaware, Inc., as Lessee, covering all of Block 861,
Viosca Knoll Area, containing approximately 5, 760 acres.
All of Block 861 from the seafloor down to the stratigraphic equivalent of the
top of the Tex (L) Formation as encountered in the OCS-G 13063 #1 Well at a
depth of 12,150 feet:
Working Interest: 100% Net Revenue Interest: 75%
Overriding Royalty Interest: 5%
All of Block 861 below the stratigraphic equivalent of the top of the Tex (L)
Formation as encountered in the OCS-G 13063 #1 Well at a depth of 12,150 feet:
Working Interest: 50% Net Revenue Interest: 37.5%
Overriding Royalty Interest: 5%
4. (a) OCS-G 5804, BLOCK 914, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 914, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 73.567%
<PAGE> 25
(b) OCS-G 5805, BLOCK 915, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 915, Ewing
Bank Area, containing approximately 5, 760 acres.
W/2 of Block 915:
Working Interest: 100% Net Revenue Interest: 73.567%
E/2 of Block 915:
Working Interest: 100% Net Revenue Interest: 73.667%
(c) OCS-G 5806, BLOCK 916, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 916, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 75%
(d) OCS-G 5801, BLOCK 871, EWING BANK AREA, OFFSHORE LOUISIANA
Oil and Gas Lease dated July 1, 1983, between the United States of America, as
Lessor, and Mobil Oil Exploration & Producing Southeast, Inc., Sohio Petroleum
Company, Kerr-McGee Corporation, as Lessee, covering all of Block 871, Ewing
Bank Area, containing approximately 5, 760 acres.
Working Interest: 100% Net Revenue Interest: 75%
B. A four pile platform located on the oil and gas lease OCS-G 13631 which
covers Block 331 of the Ship Shoal Area, offshore Louisiana. The platform is
located at the following coordinates: x = 2,182,617 y = -188, 358. The
four pile platform has an 89', 10 3/4" by 78' drilling deck and a 99', 10 3/4"
by 78' production deck.
<PAGE> 26
EXHIBIT 3.6
CONTRACTS
OCS-G 9743, BLOCK 817, VIOSCA KNOLL AREA, OFFSHORE LOUISIANA
1. To the extent, but only to the extent, related to the Properties,
Company's rights in that Letter Agreement dated July 2, 1993 between
Fina Oil and Chemical Company and Petrofina Delaware, Inc. and Company
concerning the drilling and development of Viosca Knoll Area, Blocks
772/773, 774, 817, 818 and 861, as amended by Amendment Letter of
December 6, 1993 between Fina Oil and Chemical Company and Petrofina
Delaware, Inc. (collectively, "PDI") and Company. The rights
acquired by Flextrend in the foregoing Letter Agreement, as amended,
shall include, without limitation, all of Company's right to acquire
the override retained by PDI, which acquisition rights are subject to
the terms of that certain Agreement to Purchase and Sale Oil and Gas
Properties between ELF Exploration, Inc., and Company, J. Ray
McDermott Properties, Inc., J. Ray McDermott, Inc. and F-W Oil
Interest, Inc., effective April 12, 1995. Company shall retain all
rights and obligations established pursuant to the Letter Agreement,
as amended, that do not pertain to the Properties.
2. To the extent, but only to the extent, related to the Properties,
Company's rights in that Unit Agreement For Outer Continental Shelf
Exploration, Development and Production Operations on Viosca Knoll
Block 817 Unit, Blocks 772/773, 774, 817, 818 and 861 Viosca Knoll
Area, Offshore Louisiana, Contract No. 754393018, approved by the
Regional Supervisor Production and Development, Minerals Management
Service, Gulf of Mexico OCS Region on July 26, 1993 and accepted by
Company, Unit Operator, on July 7, 1993, and Petrofina Delaware, Inc.
and Fina Oil and Chemical Company on July 7, 1993.
3. To the extent, but only to the extent, related to the Properties,
Company's rights in that Farmout Agreement dated October 31, 1994
between Company, as Operator, and F-W Oil Interests, Inc. and O.P.I.
International, Inc. and J. Ray McDermott Properties, Inc., as
Non-Operators, pertaining to Viosca Knoll Block 817 Unit Area, Blocks,
772/773, 774, 817, 818 and 861, Viosca Knoll Area, Gulf of Mexico
("Farmout Agreement"). The rights acquired by Flextrend in the
Farmout Agreement shall include, without limitation, (i) the
reimbursement rights granted to Company pursuant to Section 4.2 of the
Farmout Agreement; and (ii) the right and obligation to file the Joint
Operating Agreement with the MMS as provided for in Section 6.2. The
interests received by Flextrend in the Properties are free and clear
of any conveyance obligations provided for in the Farmout Agreement.
Company shall retain all rights and obligations established pursuant
to the Farmout Agreement that do not pertain to the Properties. In
addition, Company shall retain all rights to the Initial Payment (as
defined in the Farmout Agreement), and shall be solely responsible, as
between Company and Flextrend, as to all costs, expenses and indemnity
obligations relating to the Initial Earning Well (as defined in the
Farmout Agreement) or any substitute well.
<PAGE> 27
4. Platform Limited Right of Use and Processing Agreement dated June 30,
1995 between VK-Main and Company pertaining to platform use and
processing of Viosca Knoll Area Block 817 production with demand
payments due thereunder to commence on July 1, 1995.
5. Service Agreement between VK-Main and Company dated June 30, 1995.
6. Letter from the United States Department of the Interior, Minerals
Management Service dated January 7, 1994 addressed to Company.
7. Gas Dedication Agreement dated April 21, 1995 between Flextrend, as
successor in interest to a portion of Company's interest, Company,
Leviathan, F-W Oil Interests, Inc., J. Ray McDermott Properties, Inc.,
J. Ray McDermott, Inc. and ELF Exploration, Inc.
8. Agreement for Purchase and Sale between Company and Flextrend and
related agreements dated June 30, 1995.
9. Oil and Condensate Purchase Agreement dated October 1, 1995 between
OGM and Company.
10. Gas and Purchase Agreement dated October 1, 1995 between OGM and
Company.
11. Master Gas Dedication Agreement between Company and Leviathan dated
December 10, 1993.
12. Agreement to Purchase and Sale Oil and Gas Properties, effective April
12, 1995, between ELF Exploration, Inc., and Company, J. Ray McDermott
Properties, Inc., J. Ray McDermott, Inc. and F-W Oil Interest, Inc.
OCS-G 13631, BLOCK 331, SHIP SHOAL AREA, OFFSHORE LOUISIANA
1. Master Gas Dedication Agreement dated December 10, 1993, as amended
between Company and Leviathan.
2. Platform Use Agreement dated December 31, 1997 between Offshore, Pogo
Producing Company, Samedan Oil Corporation, Seagull Energy E&P Inc.,
and Manta Ray Gathering Company, L.L.C.
OCS-G 5804, BLOCKS 871, 914, 915, 916, EWING BANK AREA, OFFSHORE, LOUISIANA
1. Gathering Agreement, as amended, dated July 1, 1992 between Company,
DeepTech International, Inc. and Ewing Bank Gathering Co., L.L.C.
2. Oil and Condensate Purchase Agreement dated October 1, 1992 between
OGM and Company.
3. Gas Purchase Agreement dated October 1, 1995 between OGM and Company.
<PAGE> 28
4. Condensate Separation Agreement dated July 1, 1993 between Trunkline
Gas Company and Company.
5. Facility Sharing Agreement dated October 21, 1992 between BP
Exploration Inc. and Company.
6. Gathering Agreement dated May 6, 1988 between Trunkline Gas Company
and Standard Gas Marketing Co., Mobil Natural Gas Inc., Mobil Oil E&P
Southeast Inc., Kerr-McGee Corporation and Kerr-McGee Federal Limited
Partnership I - 1981.
7. Unit Agreement, effective June 1, 1988, No. 754388019, issued by the
United States Department of the Interior, Minerals Management Service
in favor of Mobil Oil E&P Southeast Inc., Sohio Petroleum Company, and
Kerr-McGee Corporation, and Kerr-McGee Federal Limited Partnership
I-1981 conditioned to cover Blocks 871, 914, 915, 996, and one-half of
Blocks 958 and 959, Ewing Banks Area.
MASTER GAS DEDICATION AGREEMENT RELATING TO OCS-G 13362, 12631 AND OCS-G 9743,
AMONG OTHER PROPERTIES:
To the extent, but only to the extent, related to the Properties, Company's
rights in that Master Gas Dedication Agreement dated December 10, 1993 between
Leviathan and Company, as amended by (i) letter of November 8, 1994, between
Leviathan and Company, F-W Oil Interests, Inc., O.P.I. International, Inc. and
J. Ray McDermott Properties, Inc. and (ii) Amendment to Master Gas Dedication
Agreement effective April 21, 1995 between Leviathan and Company, F-W Oil
Interests, Inc., J. Ray McDermott Properties, Inc. and J. Ray McDermott, Inc.
<PAGE> 29
EXHIBIT 3.7
LITIGATION AND CLAIMS
<TABLE>
<CAPTION>
STYLE JURISDICTION CASE NO.
----- ------------ --------
<S> <C> <C>
1. Gerard Quirk, et ux. v. Mustang Engineering, U.S. District Court, CV94-1030
Inc. and Deepwater Production Systems, Inc. Western District of
and Tatham Offshore, Inc. Louisiana
2. Kenneth W. Fanguy v. Ambar, Inc., Water 32nd Judicial District 116380
Ways, Inc., Trico Marine Operators, Inc. and Court, Parish of
Flextrend Development Company, L.L.C. Terrebonne, State of
Louisiana
3. Roch Baillargeon v. Schlumberger Technology U.S. District Court, CV96-2403
Corporation, Flextrend Development Company, Western District of
L.L.C., Deepwater Port Services, Inc., Deep Louisiana
Tech International, Inc. d/b/a Deepwater
Production Systems, Inc., and Sedco-Forex.
4. Rickie Thompson v. Trico Marine Assets, Inc. 32nd Judicial District No. 119646
Court, Parish of
Terrebonne, State of
Louisiana
5. David Wade Lavergne v. Pool Company, Pool U.S. District Court, No. 97-3216
Energy Services Company Eastern District of
Louisiana
</TABLE>
<PAGE> 30
EXHIBIT 3.8
APPROVALS AND PREFERENTIAL RIGHTS
Except for certain governmental consents which cannot be obtained prior to
Closing, the following is, to the best of Company's knowledge, a complete and
accurate list of all approvals required to be obtained by Company for the
assignment of the Properties to Flextrend and all preferential rights that
affect the Properties:
CONSENTS:
1. Consent to assignment is required from VK-Main under the terms
of that certain Service Agreement effective June 30, 1995 between VK-Main and
Company pertaining to Viosca Knoll Area, Block 817, Offshore Louisiana.
2. Consent to assignment is required from VK-Main under the terms
of that certain Platform Limited Right of Use and Processing Agreement dated
June 30, 1995, between VK-Main on the one hand, and Company, F-W Oil Interests,
Inc., J. Ray McDermott, Inc. and J. Ray McDermott Properties, Inc., on the
other hand.
3. Consent to assignment is required from Pogo Producing Company,
Samedan Oil Corporation, and Seagull Energy E&P, Inc. under the terms of that
certain Platform Use Agreement (SS Block 331, MRY-2-2022) dated December 31,
1997, between Pogo Producing Company, Samedan Oil Corporation and Seagull
Energy E&P, Inc., on the one hand, and Company, on the other hand.
4. Consent to assignment is required from ELF Exploration, Inc. under
the terms of that certain Agreement to Purchase and Sale Oil and Gas
Properties, effective April 12, 1995, between ELF Exploration, Inc., and
Company, J. Ray McDermott Properties, Inc., J. Ray McDermott, Inc. and F-W Oil
Interest, Inc.
PREFERENTIAL RIGHTS:
NONE
<PAGE> 31
EXHIBIT 3.13
COMMITMENTS
1. AFE for workover of Well A-1
Total commitment: $625,000
Company's share of commitment: $156,250
2. AFE for plugging back of Well A-6
Total commitment: $15,500
Company's share of commitment: $3,878
<PAGE> 32
EXHIBIT 3.14
PAYOUT BALANCES
<TABLE>
<S> <C>
1) Production Payment Agreement dated $5,721,114.45
September 19, 1995 between Company and
J. Ray McDermott Properties, Inc.
2) Production Payment Agreement dated $5,721,114.45
September 19, 1995 between Company and F-
W Oil Interests, Inc.
</TABLE>
<PAGE> 33
EXHIBIT 21
GUARANTY
THIS GUARANTY (this "Guaranty") dated February 27, 1998, but effective as
of January 1, 1998, is issued by LEVIATHAN GAS PIPELINE PARTNERS, L.P., a
Delaware limited partnership (the "Guarantor"), in favor and for the benefit
of TATHAM OFFSHORE, INC., a Delaware corporation ("TOFF").
WHEREAS, Flextrend Development Company, L.L.C. (("Flextrend"), a wholly
owned subsidiary of Guarantor, and TOFF have entered into that certain
Redemption Agreement dated February 27, 1998 ("Redemption Agreement"); and
WHEREAS, Guarantor believes it is in its best interest for Flextrend and
TOFF to enter into the Redemption Agreement; and
WHEREAS, TOFF desires for Guarantor to guarantee the performance of
Flextrend under the Redemption Agreement and Guarantor is willing to do so
as an inducement for TOFF entering into such Agreement; and
WHEREAS, the obligations of Guarantor hereunder are being incurred
concurrently with the obligations of Flextrend under the Redemption
Agreement.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), subject to the terms and conditions of this Guaranty,
Guarantor hereby unconditionally and absolutely guarantees the punctual and
complete performance of all of the terms, covenants and conditions to be
complied with or performed by Flextrend (but not its assignees or other
transferees) under the Redemption Agreement (herein collectively the
"Obligations"), whether arising heretofore or hereafter.
This Guaranty shall be a continuing Guaranty and shall remain in full
force and effect until such time as all of the Obligations have been
performed.
This Guaranty shall be enforceable upon notice by TOFF and without prior
resort to any demands, possessory remedies or proceedings for collection of
any nature against Flextrend or any other entity. Notwithstanding anything
to the contrary contained herein, the Guarantor shall be entitled to raise
as a defense to its performance hereunder any defense that Guarantor would
be entitled to raise under the Redemption Agreement if the Guarantor was the
party executing and delivering the Redemption Agreement in lieu of
Flextrend.
-1-
<PAGE> 34
This Guaranty shall be deemed to be a contract under, and shall be
construed, interpreted and governed by and according to, the laws of the
State of Texas, excluding any conflict of laws principles which, if applied,
might permit or require the application of the laws of another jurisdiction.
The parties further agree that the jurisdiction and venue for any dispute or
claim arising out of or related to this Guaranty shall be brought and remain
in the federal or state courts located in the State of Texas. Guarantor
shall be liable to TOFF for all attorneys' fees and costs incurred by TOFF
in enforcing the provisions of this Guaranty and in collecting any amounts
due hereunder.
If any provision of this Guaranty or the application thereof to any
person or circumstances shall for any reason and for any extent be invalid
or unenforceable, neither the remainder of this Guaranty nor the application
of such provisions to any other persons or circumstances shall be affected
thereby but shall be enforced to the extent permitted by applicable law.
This writing is intended by the parties to be an integrated and final
expression of this Guaranty. No course of prior dealing between the parties,
no usage of trade, and no parol or extrinsic evidence of any nature shall be
used to supplement, modify or vary any of the terms hereof. There are no
conditions to the effectiveness of this Guaranty.
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the
date first set forth in the preamble.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By:
-----------------------------------
Name:
Title:
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LEVIATHAN
GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
AT MARCH 31, 1998 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,264
<SECURITIES> 0
<RECEIVABLES> 6,776
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,635
<PP&E> 309,625
<DEPRECIATION> 103,134
<TOTAL-ASSETS> 410,800
<CURRENT-LIABILITIES> 15,810
<BONDS> 251,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 410,800
<SALES> 9,135
<TOTAL-REVENUES> 17,714
<CGS> 2,837
<TOTAL-COSTS> 2,837
<OTHER-EXPENSES> 7,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,722
<INCOME-PRETAX> (1,565)
<INCOME-TAX> (141)
<INCOME-CONTINUING> (1,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,424)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
