<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Reg. No. 333-32587
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1997.
PROSPECTUS
NEWFIELD EXPLORATION COMPANY
272,600 SHARES OF COMMON STOCK, $.01 PAR VALUE
This Prospectus relates to the offer and sale of up to 272,600 shares (the
"Shares") of common stock, par value $.01 per share ("Common Stock"), of
Newfield Exploration Company ("Newfield" or the "Company").
The Shares are owned by certain persons (the "Selling Stockholders") who
acquired the Shares from the Company in connection with privately negotiated
transactions pursuant to which the Company acquired businesses owned in part by
the Selling Stockholders. See "The Company" and "Selling Stockholders."
The Selling Stockholders may from time to time sell all or a portion of the
Shares on the New York Stock Exchange (the "NYSE"), in the over-the-counter
market, on any other national securities exchange on which the Common Stock is
then listed or traded, in negotiated transactions or otherwise, at prices then
prevailing or related to the then current market price or at negotiated prices.
See "Plan of Distribution." Newfield will not receive any proceeds from the sale
of Shares hereunder. See "Use of Proceeds." All expenses of registration of the
Shares are being borne by Newfield, but all selling and other expenses incurred
by the Selling Stockholders will be borne by the Selling Stockholders. See
"Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), and any profit
on the sale of Shares and any commissions or discounts given to any such
broker-dealers may be regarded as underwriting commissions or discounts under
the Securities Act.
The Shares have not been registered for sale by the Selling Stockholders
under the securities laws of any state as of the date of this Prospectus.
Brokers or dealers effecting transactions in the Shares should confirm the
registration thereof under the securities laws of the states in which such
transactions occur, or the existence of any exemption from registration.
The Common Stock is traded on the NYSE. On November 20, 1997 the last sale
price of the Common Stock as reported on the composite tape for issues listed on
the NYSE was $24 7/8 per share.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The Date of this Prospectus is November 21, 1997.
<PAGE> 2
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NEWFIELD OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Form S-3 Registration Statement (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which were
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. The
Registration Statement and such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Branch of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Registration Statement, reports, proxy statements and
other information concerning the Company may be inspected at the office of the
NYSE, 20 Broad Street, 7th Floor, New York, New York 10005. Certain of such
reports, proxy statements and other information are also available on the
Commission's World Wide Web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference (Commission File Number 1-12534):
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
3. The Company's Current Reports on Form 8-K filed with the Commission
on May 15, 1997, July 21, 1997, October 1, 1997 and October 20, 1997; and
4. The Company's Registration Statement on Form 8-A dated November 4,
1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of
2
<PAGE> 3
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents that are incorporated by reference herein,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
James P. Ulm, II, Treasurer, at the Company's principal executive offices.
THE COMPANY
Newfield explores, develops and acquires oil and natural gas properties
principally in the Gulf of Mexico. On May 15, 1997, the Company acquired the
assets and subsidiaries of Huffco International, L.L.C. (the "International
Assets"), including a subsidiary that owns a 35% interest in a production
sharing contract with respect to a 415,000 acre block located in 60 to 100 feet
of water in the Bohai Bay offshore the People's Republic of China. In addition,
Newfield acquired certain rights and data relating to offshore West Africa, a
small technical staff and an international data base.
The Company was incorporated in Delaware in 1988. The address of the
Company's principal executive offices is 363 North Sam Houston Parkway East,
Suite 2020, Houston, Texas 77060, and its telephone number is (281) 847-6000.
3
<PAGE> 4
RISK FACTORS
Prospective investors in shares of Common Stock should carefully review the
information in this Prospectus and should particularly consider the following
matters in evaluating an investment in the Common Stock.
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's revenue, profitability and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. The Company's ability to maintain or increase its borrowing
capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and natural gas
are subject to wide fluctuation in response to relatively minor changes in the
supply of and demand for oil and natural gas, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include the level of consumer product demand, weather conditions, domestic and
foreign governmental regulations, the price and availability of alternative
fuels, political conditions in the Middle East, the foreign supply of oil and
natural gas, the price of oil and gas imports and overall economic conditions.
From time to time, oil and gas prices have been depressed by excess domestic and
imported supplies. There can be no assurance that current price levels will be
sustained. It is impossible to predict future oil and natural gas price
movements with any certainty. Declines in oil and natural gas prices may
adversely affect the Company's financial condition, liquidity and results of
operations and may reduce the amount of the Company's oil and natural gas that
can be produced economically. Additionally, substantially all of the Company's
sales of oil and natural gas are made in the spot market or pursuant to
contracts based on spot market prices and not pursuant to long-term fixed price
contracts.
From time to time, the Company has utilized and expects to continue to
utilize hedging transactions with respect to a portion of its oil and gas
production to achieve a more predictable cash flow, as well as to reduce its
exposure to price fluctuations. While the use of these hedging arrangements
limits the downside risk of adverse price movements, it may also limit future
revenues from favorable price movements. The use of hedging transactions also
involves the risk that the counterparties will be unable to meet the financial
terms of such transactions. All of the Company's hedging transactions to date
were carried out in the over-the-counter market and the obligations of the
counterparties have been guaranteed by entities with at least an investment
grade credit rating or secured by letters of credit. The Company accounts for
these transactions as hedging activities and, accordingly, gains or losses are
included in oil and gas revenues when the hedged production is delivered.
In addition, the marketability of the Company's production depends upon the
availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES
Certain information incorporated by reference into this Prospectus contains
estimates, most of which were prepared by the Company, of proved oil and gas
reserves and the present value of estimated future net cash flows therefrom.
Estimating quantities of reserves and future net cash flows is not an exact
science. There are numerous uncertainties inherent in the process that require
assumptions based upon available geologic, engineering and economic data,
including assumptions required by the Commission as to oil and gas prices,
drilling and operating expenses, capital expenditures, taxes and availability of
funds. As a result, any such estimate is inherently imprecise. Actual prices,
production, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves will vary from those assumed in the estimates
and such variances may be significant. Any significant variance from the
assumptions could result in the actual quantity of the Company's reserves and
future net cash flow therefrom being materially different from the estimates
incorporated by reference into this Prospectus. In addition, the Company's
estimated reserves may be subject
4
<PAGE> 5
to downward or upward revision, based upon production history, results of future
exploration and development, prevailing oil and gas prices, operating and
development costs and other factors. The Company's properties may also be
susceptible to hydrocarbon drainage from production by other operators on
adjacent properties.
The present value of estimated future net cash flows of the Company's
properties incorporated by reference into this Prospectus should not be
construed as the current market value of the estimated oil and gas reserves
attributable to the Company's properties. In accordance with applicable
requirements of the Commission, the estimated discounted future net cash flows
from proved reserves are generally based on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by factors such as the
amount and timing of actual production, changes in consumption by oil and gas
purchasers and changes in governmental regulations or taxation. The timing of
actual future net cash flows from proved reserves, and thus their actual present
value, will be affected by the timing of both the production and the incurrence
of expenses in connection with development and production of oil and gas
properties. In addition, the 10% discount factor, which is required by the
Commission to be used in calculating the present value of estimated future net
cash flows for reporting purposes, is not necessarily the most appropriate
discount factor based on interest rates in effect from time to time and risks
associated with the Company or the oil and gas industry in general.
NEED FOR RESERVE REPLACEMENT
As is generally the case in the Gulf of Mexico, the Company's producing
properties are characterized by a high initial production rate, followed by a
steep decline in production. While production declines vary from property to
property, and vary for any one property from time to time, recent production
declines experienced by the Company equate to a reserve life index (the number
of years a property would produce at a constant rate using current rates of
production) for the Company's proved reserves of approximately 5.7 years as of
December 31, 1996. As a result, the Company must locate and develop or acquire
new oil and gas reserves to replace those being depleted by production. Without
successful exploration or acquisition activities, the Company's reserves and
revenues will decline rapidly. There can be no assurance that the Company will
be able to find and develop or acquire additional reserves.
DRILLING RISKS; OPERATING DELAYS
Drilling involves numerous risks, including the risk that no commercially
productive natural gas or oil reservoirs will be encountered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or cancelled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages or
delays in the delivery of equipment. Demand and rates for drilling rigs,
production equipment and related services increased significantly during 1996
and to date in 1997. The Company has experienced delays in obtaining such
equipment and services, and in some instances the costs incurred were higher
than originally budgeted. There can be no assurance as to the success of the
Company's future drilling activities or the availability of equipment and
services.
ACQUISITION RISKS
The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and gas prices, operating costs, potential
environmental and other liabilities and other factors. Such assessments are
necessarily inexact and their accuracy is inherently uncertain. In connection
with such an assessment, the Company performs a review of the subject properties
that it believes to be generally consistent with industry practices, which
generally includes on-site inspections and the review of reports filed with the
Minerals Management Service for environmental compliance. Such a review,
however, will not reveal all existing or potential problems nor will it permit a
buyer to become sufficiently familiar with the properties to fully assess their
deficiencies and capabilities. Inspections may not always be performed on every
platform or well, and structural environmental problems are not necessarily
observable even when an inspection is undertaken. Even when problems are
identified, the seller may be unwilling or unable to provide effective
contractual protection against all or part of such problems. The Company is
generally not entitled to
5
<PAGE> 6
contractual indemnification for environmental liabilities and acquires
structures on a property on an "as is" basis.
COMPETITION
Competition in the oil and gas industry is intense, particularly with
respect to the acquisition of producing properties and proved undeveloped
acreage. Major and independent oil and gas companies actively bid for desirable
oil and gas properties, as well as for the equipment and labor required to
operate and develop such properties. Many of the Company's competitors have
financial resources and exploration and development budgets that are
substantially greater than those of the Company, which may adversely affect the
Company's ability to compete with these companies.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent upon a relatively small group of
management and technical personnel. The loss of one or more of these individuals
could have a material adverse effect on the Company.
OPERATING HAZARDS
The Company's operations are subject to the usual hazards incident to the
drilling of oil and gas wells, many of which are beyond the Company's control,
such as cratering, explosions, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. Additional risks include the
risk that no commercially productive oil or natural gas reservoirs will be
encountered and that operations may be curtailed, delayed or cancelled as a
result of numerous factors including title problems, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
In addition, substantially all of the Company's operations currently are
offshore and subject to the additional hazards of marine operations, such as
capsizing, collision and damage or loss from severe weather. These hazards can
cause personal injury and loss of life, severe damage to and destruction of
property and equipment, environmental damage and suspension of operations. In
accordance with industry practice, the Company maintains insurance against some,
but not all, of the risks described above.
GOVERNMENTAL REGULATION
Oil and gas operations are subject to various United States federal, state
and local and foreign and international governmental regulations that change
from time to time in response to economic or political conditions. Matters
subject to regulation include discharge permits for drilling operations,
drilling and abandonment bonds, reports concerning operations, the spacing of
wells, and unitization and pooling of properties and taxation. From time to
time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and gas wells below actual
production capacity in order to conserve supplies of oil and gas. In addition,
the production, handling, storage, transportation and disposal of oil and gas,
by-products thereof and other substances and material produced or used in
connection with oil and gas operations are subject to regulation under federal,
state and local laws and regulations primarily relating to protection of human
health and the environment. The discharge of oil, natural gas or pollutants into
the air, soil or water may give rise to significant liabilities on the part of
the Company and may require the Company to incur substantial remediation costs.
The Company may also be subject to substantial clean-up costs for any toxic or
hazardous substance that may exist under any of its properties. To date,
expenditures related to complying with these laws and for remediation of
existing environmental contamination have not been significant in relation to
the results of operations of the Company.
Although the Company believes it is in substantial compliance with all
applicable laws and regulations, the requirements imposed by such laws and
regulations are frequently changed and subject to interpretation. In addition,
the recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been proposed in
Congress from time to time that would reclassify certain crude oil and natural
gas exploration and production wastes as "hazardous wastes," which would make
the reclassified wastes subject to much more stringent handling, disposal and
clean-up requirements. If such
6
<PAGE> 7
legislation were to be enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
The Company could incur substantial costs to comply with environmental laws and
regulations, and the Company is unable to predict the ultimate cost of
compliance with these requirements or their effect on its production.
RISKS OF FOREIGN OPERATIONS
While the Company intends to continue to focus on the Gulf of Mexico, the
Company also intends to pursue selective opportunities to develop "focused
diversification" outside the Gulf of Mexico. In May 1997, the Company acquired
the assets and subsidiaries of Huffco International, L.L.C., which include a 35%
working interest in a 415,000 acre production sharing contract in the Bohai Bay,
offshore China. The Company also acquired certain rights and data relating to
offshore West Africa, an international database and added a small international
technical staff. The recently drilled initial exploratory well in the Bohai Bay
failed to produce oil or gas and Newfield and the other participants in the well
have agreed to plug and abandon the well. Newfield anticipates additional
exploratory drilling on the property in 1998. Successful exploratory drilling in
the Bohai Bay may result in significant future investment in this area. Newfield
is also actively considering investments in selected countries in West Africa
and Latin America. Ownership of property interests and production operations in
China, and in any other areas outside the United States in which the Company may
choose to do business, are subject to the various risks inherent in foreign
operations. These risks may include, among other things, currency restrictions
and exchange rate fluctuations, loss of revenue, property and equipment as a
result of hazards such as expropriation, nationalization, war, insurrection and
other political risks, risks of increases in taxes and governmental royalties,
renegotiation of contracts with governmental entities and quasi-governmental
agencies, change in laws and policies governing operations of foreign-based
companies and other uncertainties arising out of foreign government sovereignty
over the Company's international operations. The Company's international
operations may also be adversely affected by laws and policies of the United
States affecting foreign trade, taxation and investment. In addition, in the
event of a dispute arising from foreign operations, the Company may be subject
to the exclusive jurisdiction of foreign courts or may not be successful in
subjecting foreign persons to the jurisdiction of the courts of the United
States.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial expenditures for
the development, exploration, acquisition and production of oil and natural gas
reserves. The Company made capital expenditures, including exploration expense,
of $104.2 million during 1995 and $163.8 million during 1996. The Company plans
to make capital expenditures, including exploration expense but not including
expenditures for acquisitions, of approximately $181.3 million in 1997.
Management believes that the Company will have sufficient cash provided by
operating activities, borrowings under its credit facility and the proceeds from
a recently completed offering of $125,000,000 principal amount of 7.45% Senior
Notes due 2007 to fund planned capital expenditures in 1997 and 1998. However,
if revenues or cash flows from operations decrease as a result of lower oil and
natural gas prices or operating difficulties, the Company may be limited in its
ability to expend the capital necessary to undertake or complete its drilling
program, or it may be forced to raise additional debt or equity proceeds to fund
such expenditures. There can be no assurance that additional debt or equity
financing or cash generated by operations will be available to meet these
requirements.
USE OF PROCEEDS
The Selling Stockholders will receive all of the net proceeds from the sale
of the Shares owned by them. Newfield will not receive any of the proceeds from
the sale of the Shares offered hereby.
7
<PAGE> 8
SELLING STOCKHOLDERS
The following table sets forth certain information as of October 31, 1997
regarding beneficial ownership of Common Stock of the Company by each of the
Selling Stockholders. At the time of acquisition of the International Assets,
Terry Huffington, a principal owner of Huffco International, L.L.C. ("Huffco"),
was elected as a director of the Company and David A. Trice, the Chief Executive
Officer of Huffco, was elected as a vice president of the Company. Ms.
Huffington and Mr. Trice constitute all of the Selling Stockholders. In
connection with the Company's acquisition of the International Assets, the
Selling Stockholders acquired the number of Shares set forth opposite their
names in the second column below. Pursuant to the terms of the acquisition
agreements, the Selling Stockholders also retained certain contingent payment
rights with respect to the International Assets.
<TABLE>
<CAPTION>
SHARES OF
NEWFIELD COMMON STOCK
-------------------------------
BENEFICIALLY COVERED BY
NAME OWNED(1) THIS PROSPECTUS
---- ------------ ---------------
<S> <C> <C>
Terry Huffington........................................... 269,942(2) 268,579
David A. Trice............................................. 57,360(3) 4,021
------- -------
Totals........................................... 327,302 272,600
======= =======
</TABLE>
- ---------------
(1) Under the regulations of the Commission, shares are deemed to "beneficially
owned" by a person if he or she directly or indirectly has or shares the
power to vote or dispose of such shares, whether or not he or she has any
pecuniary interest in such shares, or if he or she has the right to acquire
the power to vote or dispose of such shares within 60 days, including any
right to acquire such power through the exercise of any option, warrant or
right.
(2) Includes 1,363 restricted shares of Common Stock granted to Ms. Huffington
in May 1997 pursuant to the Company's 1995 Non-Employee Director Restricted
Stock Plan that are subject to certain forfeiture provisions.
(3) Includes 35,000 restricted shares of Common Stock granted to Mr. Trice in
May 1997 pursuant to the Company's 1995 Omnibus Stock Plan that are subject
to certain forfeiture provisions.
All expenses of registration of the Shares are being borne by Newfield, but
all selling and other expenses incurred by the Selling Stockholders will be
borne by the Selling Stockholders.
PLAN OF DISTRIBUTION
Sales of Shares by the Selling Stockholders may be made from time to time
in one or more transactions, on the NYSE, in the over-the-counter market or any
other exchange or quotation system on which the Shares may be listed or quoted
(collectively, the "Exchanges"), in negotiated transactions or in a combination
of any such methods of sale, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Shares may be offered directly, to or
through underwriters or agents designated from time to time or to or through
brokers or dealers, or through any combination of these methods of sale. The
methods by which the Shares may be sold include (a) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (c) exchange distributions or secondary distributions in
accordance with the rules of the NYSE; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (e) firm commitment or
best efforts underwritings; and (f) privately negotiated transactions. An
underwriter, agent, broker or dealer may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in
8
<PAGE> 9
excess of customary commissions). A member firm of an Exchange may be engaged to
act as the Selling Stockholders' agent in the sale of Shares by the Selling
Stockholders.
In connection with distributions of Shares or otherwise, the Selling
Stockholders may enter into hedging transactions with brokers or dealers or
other financial institutions with respect to the Common Stock of the Company. In
connection with such transactions, such brokers or dealers or other financial
institutions may engage in short sales of Common Stock of the Company in the
course of hedging the positions they assume with the Selling Stockholders. Such
hedging transactions may require or permit the Selling Stockholders to deliver
Shares to such brokers or dealers or other financial institutions to settle such
hedging transactions. The Selling Stockholders may also sell Common Stock of the
Company short and deliver Shares to close out such short positions. If so
required by applicable law, this Prospectus, as amended or supplemented, may be
used to effect (i) the short sales of Common Stock of the Company referred to
above, (ii) the sale or other disposition by the brokers or dealers or other
financial institutions of any Shares they receive pursuant to the hedging
transactions referred to above or (iii) the delivery by the Selling Stockholders
of Shares to close out short positions. The Selling Stockholders may also pledge
the Shares registered hereunder to a broker or dealer or other financial
institution and, upon a default, such broker or dealer or other financial
institution may effect sales of the pledged Shares pursuant to this Prospectus
(as supplemented or amended to reflect such transaction). The Selling
Stockholders may also donate the Shares registered hereunder to a third party
and such donee may effect sales of the Shares pursuant to this Prospectus (as
supplemented or amended to reflect such transaction). In addition, any Shares
covered by this Prospectus that qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus. The foregoing description in this paragraph is subject to a Selling
Stockholder's compliance with Section 16(c) of the Exchange Act, to the extent
and during such periods as Section 16(c) is applicable to such Selling
Shareholder.
The Selling Stockholders and any underwriters, brokers, dealers, agents or
others that participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any underwriting discounts, commissions or fees received by such
persons and any profit on the resale of the Shares purchased by such persons may
be deemed to be underwriting commissions or discounts under the Securities Act.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities that they may incur in connection with the sale of the
Shares, including liabilities arising under the Securities Act, and to
contribute to payments that the Selling Stockholders may be required to make
with respect thereto. Agents, underwriters, brokers and dealers may be entitled
under agreements entered into by the Selling Stockholders or the Company to
indemnification against certain civil liabilities, including liabilities under
the Securities Act.
There is no assurance that any of the Selling Stockholders will sell any or
all of the Shares offered hereby.
VALIDITY OF SECURITIES
The validity of the Shares has been passed upon by Vinson & Elkins L.L.P.,
Houston, Texas.
EXPERTS
The audited consolidated financial statements and related schedules of the
Company incorporated by reference in this Prospectus, to the extent and for the
periods indicated in their reports, have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants, and have been incorporated by
reference herein in reliance upon such reports given on the authority of that
firm as experts in accounting and auditing.
Certain information incorporated by reference in this Prospectus relating
to the Company's proved oil and gas reserves and future net cash flows therefrom
is derived from estimates prepared by Ryder Scott Company, Petroleum Engineers,
and is incorporated by reference herein in reliance upon such firm as experts
with respect to such matters.
9
