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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-22892
TATHAM OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0269967
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 TRAVIS STREET
SUITE 7400
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 224-7400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01
WARRANTS
SERIES A 12% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SERIES B 8% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
SERIES C 4% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
MANDATORY REDEEMABLE PREFERRED STOCK
EXCHANGE WARRANTS
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
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AS OF AUGUST 30, 1996, THERE WERE OUTSTANDING 26,238,306 SHARES OF COMMON
STOCK OF THE REGISTRANT. THE AGGREGATE MARKET VALUE ON SUCH DATE OF THE VOTING
STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES WAS AN ESTIMATED $11.5 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
ITEMS 10, 11, 12 AND 13 OF PART III HAVE BEEN OMITTED FROM THIS REPORT,
SINCE TATHAM OFFSHORE WILL FILE WITH THE SECURITIES AND EXCHANGE COMMISSION,
NOT LATER THAN 120 DAYS AFTER THE CLOSE OF ITS FISCAL YEAR, A DEFINITIVE PROXY
STATEMENT, PURSUANT TO REGULATION 14A, WHICH INVOLVES THE ELECTION OF
DIRECTORS. THE INFORMATION REQUIRED BY ITEMS 10, 11, 12 AND 13 OF PART III OF
THIS REPORT, WHICH WILL APPEAR IN THE DEFINITIVE PROXY STATEMENT, IS
INCORPORATED BY REFERENCE INTO THIS ANNUAL REPORT.
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TATHAM OFFSHORE, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I............................................................................ 1
Item 1. Business.............................................................. 1
Overview.............................................................. 1
Recent Developments................................................... 1
Oil and Gas Properties................................................ 4
Regulation............................................................ 14
Operational Hazards and Insurance..................................... 16
Employees............................................................. 16
Certain Definitions................................................... 16
Item 2. Properties............................................................ 18
Item 3. Legal Proceedings..................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................... 18
Executive Officers of the Registrant.................................. 19
PART II........................................................................... 21
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.. 21
Item 6. Selected Financial Data............................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 24
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 31
PART III.......................................................................... 32
Item 10. Directors and Executive Officers of the Registrant.................... 32
Item 11. Executive Compensation................................................ 32
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 32
Item 13. Certain Relationships and Related Transactions........................ 32
PART IV........................................................................... 33
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 33
</TABLE>
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THE FOLLOWING TEXT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES
THERETO) APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K (THE "ANNUAL
REPORT"). UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS ANNUAL
REPORT TO "TATHAM OFFSHORE" OR TO THE "COMPANY" OR ITS OPERATIONS SHALL MEAN
TATHAM OFFSHORE, INC., A DELAWARE CORPORATION. FOR A DESCRIPTION OF CERTAIN
ITEMS USED HEREIN RELATING TO THE OIL AND GAS INDUSTRY, SEE ITEM 1. "BUSINESS
- -- CERTAIN DEFINITIONS."
PART I
ITEM 1. BUSINESS
OVERVIEW
Tatham Offshore is an independent energy company engaged in the
development and production of, and the exploration for, oil and gas reserves
located primarily offshore the United States in the Gulf of Mexico (the
"Gulf"), principally in the Flextrend (water depths of 600 to 1,500 feet) and
Deepwater (water depths greater than 1,500 feet) areas.
As of June 30, 1996, approximately 39% of the issued and outstanding
common stock of Tatham Offshore, par value $0.01 per share (the "Common
Stock"), was owned by DeepTech International Inc. ("DeepTech"), a diversified
energy company which, through its affiliates, is engaged in providing offshore
contract drilling services, oil and gas gathering and transmission, production
technology and engineering services, geological and geophysical technology
services, gas processing and liquids marketing, oil and gas marketing and,
through Tatham Offshore and another affiliate, oil and gas exploration,
development and production. As of June 30, 1996, DeepTech also owned (i) $60
million principal amount of Subordinated Convertible Promissory Notes of the
Company (the "Subordinated Notes"), convertible into Common Stock at $10.00 per
share and (ii) through DeepFlex Production Services, Inc. ("DeepFlex"), a
100%-owned subsidiary of DeepTech, 4.7 million shares of the Company's Series A
12% Convertible Exchangeable Preferred Stock and 5.3 million Warrants. See "--
Recent Developments." The Common Stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "TOFF". The Warrants and the Series A 12%
Convertible Exchangeable Preferred Stock are traded in the over-the-counter
market under the symbols "TOFFW" and "TOFFL", respectively.
RECENT DEVELOPMENTS
Overview. During the year ended June 30, 1995 and the first six months of
fiscal 1996, Tatham Offshore experienced liquidity problems resulting primarily
from substantial negative cash flow from operations. In order to improve
liquidity and partially address its capital requirements, Tatham Offshore (i)
sold, subject to certain reversionary rights, all of its working interests in a
portion of its oil and gas leases for $30 million to Flextrend Development
Company, L.L.C. ("Flextrend Development"), a subsidiary of Leviathan Gas
Pipeline Partners, L.P. (the "Partnership") which is an effective 23.2% owned
affiliate of DeepTech, (ii) raised additional equity through the sale of
Warrants and Convertible Exchangeable Preferred Stock, (iii) prepaid certain of
its demand charge obligations through the assignment of certain assets pursuant
to an agreement with the Partnership and (iv) reduced its overhead by lowering
the level of services required under its management agreement with DeepTech.
Sale of Tatham Offshore Assets to Flextrend Development. On June 30,
1995, Tatham Offshore entered into a purchase and sale agreement (the "Purchase
and Sale Agreement") with Flextrend Development pursuant to which Flextrend
Development acquired, subject to certain reversionary rights, a 75% working
interest in Viosca Knoll Block 817 (Phar Lap), a 50% working interest in Garden
Banks Block 72 (Spectacular Bid) and a 50% working interest in Garden Banks
Block 117 (Spend A Buck) (the "Assigned Properties") for $30 million. Under
the terms of the Purchase and Sale Agreement, Flextrend Development committed,
subject to obtaining financing, to pay all of its working interest share of the
costs associated
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with the drilling and, if successful, completion of a minimum of five new
wells, two on Viosca Knoll Block 817, two on Garden Banks Block 72 and one on
Garden Banks Block 117, and the completion and tie-back of one existing well
and the tie-back of the second well, if successful, located on Garden Banks
117. Flextrend Development is entitled to retain all of the revenues
attributable to the Assigned Properties until it has received net revenues
equal to the Payout Amount (as defined below), whereupon Tatham Offshore is
entitled to receive a reassignment of the Assigned Properties, subject to
reduction and conditions as discussed below. "Payout Amount" is defined as an
amount equal to all costs incurred by Flextrend Development with respect to the
Assigned Properties (including the $30 million acquisition cost paid to the
Company) plus interest thereon at a rate of 15% per annum. Effective February
1, 1996, the Partnership entered into an agreement with Tatham Offshore
regarding certain transportation agreements that increases the amount
recoverable from the Payout Amount by $7.5 million plus interest. See "--
Recent Developments -- Restructuring of Demand Charge Obligations with the
Partnership." As of June 30, 1996, the Payout Amount was $77.7 million
comprised of (i) initial acquisition and transaction costs of $32.1 million,
(ii) development and operating costs of $49.3 million, (iii) prepaid demand
charges of $7.5 million and (iv) interest of $7.1 million reduced by net
revenue of $18.3 million. As of June 30, 1996, Flextrend Development had
drilled, or was in the process of drilling, a total of eight wells on Viosca
Knoll Block 817 and a total of four wells on Garden Banks Block 72. In
addition, Flextrend Development was in the process of completing the subsea
tie-back of the Garden Banks Block 117 #1 well to the Garden Banks Block 72
production platform.
At any time prior to December 10, 1996, Flextrend Development may exercise
either of the following options (the "Working Interest Options"): (i) to
permanently retain 50% of the assigned working interests in either the Phar Lap
property or the Spectacular Bid/Spend A Buck properties or (ii) to permanently
retain 50% of the assigned working interest in all three of the Assigned
Properties in exchange for forgiving 25% in the case of option (i) or 50% in
the case of option (ii) of the then-existing Payout Amount exclusive of the
$7.5 million plus interest added to the Payout Amount in connection with the
restructuring of certain transportation agreements discussed below. In the
event Flextrend Development elects to reduce the Payout Amount, it will become
obligated to fund any further development costs attributable to Tatham
Offshore's portion of the working interests, such costs to be added to the
Payout Amount. Otherwise, any further development costs will be funded by
Flextrend Development on a discretionary basis, such costs to be added to the
Payout Amount. Further, in the event Flextrend Development forgoes its right
to reduce the Payout Amount, it will be entitled to recover from working
interest revenues in respect of the Assigned Properties all future demand
charges payable for platform access and processing, in their inverse order of
maturity, prior to any reassignment to Tatham Offshore. If however, Tatham
Offshore (i) satisfies in full the future demand charges payable for platform
access and processing, (ii) delivers evidence that it has received a rating of
BBB-, or better, from at least two reputable rating agencies or (iii) delivers
evidence that an entity with a rating of BBB-, or better, has agreed to
guarantee, assume or, to the reasonable satisfaction of the Partnership,
otherwise become responsible for such future demand charges payable, then
Tatham Offshore would receive a reassignment of the Assigned Properties upon
satisfaction of the Payout Amount. In the event the Payout Amount has been
satisfied but none of the above conditions have been met, Tatham Offshore is
entitled to receive one-third (1/3) of the revenues, net of operating expenses
and platform access and processing fees, until such time as one of the above
conditions is met.
Rights Offering, Sale of Warrants and Convertible Exchangeable Preferred
Stock. The Company filed a registration statement with the Securities and
Exchange Commission (the "Offering"), which was declared effective on December
26, 1995, relating to the granting to all holders of Common Stock, on the
record date, December 26, 1995, rights (the "Rights") to purchase up to
25,120,948 warrants (the "Warrants"). Each Right entitled the holder to
subscribe to purchase one Warrant at the purchase price of $.50 per Warrant.
Each Warrant entitles the holder thereof to purchase one share of any of (i)
Series A 12% Convertible Exchangeable Preferred Stock, which has a liquidation
preference of $1.50 per share ("Series A Preferred Stock") at any time prior to
5:00 p.m. New York time on July 1, 1996, (ii) Series B 8% Convertible
Exchangeable Preferred Stock, which has a liquidation preference of $1.00 per
share ("Series B Preferred Stock") at any time prior to 5:00 p.m. New York time
on October 1, 1996 or (iii) Series C 4% Convertible Exchangeable Preferred
Stock,
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which has a liquidation preference of $0.50 per share ("Series C Preferred
Stock" and together with the Series A Preferred Stock and Series B Preferred
Stock, the "Convertible Exchangeable Preferred Stock") at any time prior to
5:00 p.m. New York time on January 1, 1997 at the purchase price of $1.00 per
share. Each Warrant remaining unexercised at 5:00 p.m. New York time on
January 1, 1997 shall be automatically converted, without any action on the
part of the holder thereof, into one share of Mandatory Redeemable Preferred
Stock, which shall have a liquidation preference of $0.50 per share and shall
be mandatorily redeemable by the Company under certain circumstances. At any
time from July 1, 1996 until December 31, 1998, each share of Convertible
Exchangeable Preferred Stock may be exchanged for four warrants (the "Exchange
Warrants" and together with the Rights, the Warrants, the Convertible
Exchangeable Preferred Stock and the Mandatory Redeemable Preferred Stock, the
"Securities") each of which entitles the holder thereof to purchase one share
of Common Stock at a price equal to $0.653 per share which was based on the
lowest average of consecutive five day closing prices of Common Stock between
December 26, 1995 and July 1, 1996. The Exchange Warrants will expire July 1,
1999. Alternatively, at any time after July 1, 1996, the holder of any shares
of Convertible Exchangeable Preferred Stock will have the right, at the
holder's option, to convert the liquidation value of such stock and accrued and
unpaid dividends into shares of Common Stock at $0.653 per share. On and after
July 1, 1997, the Convertible Exchangeable Preferred Stock will be redeemable
at the option of the Company.
In February 1996, the Company issued 25,120,948 Warrants and received
$12.6 million in gross proceeds ($11.3 million net) pursuant to the exercise of
Rights. As of July 1, 1996, holders of 18,717,030 Warrants had exercised their
Warrants to purchase an equal number of shares of Series A Preferred Stock at
$1.00 per share. See Item 5. "Market for Registrant's Common Stock and Related
Shareholder Matters."
Restructuring of Demand Charge Obligations with the Partnership.
Effective February 1, 1996, Tatham Offshore entered into an agreement with the
Partnership to prepay its remaining existing demand charge payments under the
transportation agreements covering its Ewing Bank and Ship Shoal properties.
Under the agreement, Tatham Offshore's demand charge obligations relative to
the Ewing Bank Gathering System and the pipeline facilities constructed by the
Partnership for its Ship Shoal property have been prepaid in full. In
exchange, effective February 1, 1996, Tatham Offshore has (i) issued the
Partnership 7,500 shares of 9% Senior Preferred Stock with a liquidation
preference of $1,000 per share, (ii) added the sum of $7.5 million to the
Payout Amount under the Purchase and Sale Agreement with Flextrend Development
and (iii) granted to the Partnership certain rights to use and acquire the Ship
Shoal Block 331 platform. The Partnership has made an irrevocable offer to
Tatham Offshore to sell all or any portion of the 9% Senior Preferred Stock to
Tatham Offshore or its designee at a price equal to $1,000 per share, plus
interest thereon at 9% per annum less the sum of any dividends paid thereon.
If the 9% Senior Preferred Stock is not purchased by Tatham Offshore on or
before September 30, 1998, it will be convertible into shares of Series A
Preferred Stock based on the liquidation preference amount of the 9% Senior
Preferred Stock and the equivalent market value of the Series A Preferred Stock
as of the date of conversion. The increase in the Payout Amount will defer the
reversion of Tatham Offshore's working interest in its Viosca Knoll Block 817,
Garden Banks Block 72 and Garden Banks Block 117 properties under the Purchase
and Sale Agreement but will be excluded for purposes of computing the amount of
the Payout Amount to be extinguished if Flextrend Development exercises one of
its Working Interest Options. Tatham Offshore and the Partnership have also
agreed that in the event Tatham Offshore furnishes the Partnership with a
financing commitment from a lender with a credit rating of BBB- or better
covering 100% of the then outstanding Payout Amount, the interest rate utilized
to compute the Payout Amount shall be adjusted from and after the date of such
commitment to the interest rate specified in such commitment, whether utilized
or not. In addition, Tatham Offshore agreed to grant the Partnership the right
to utilize the Ship Shoal Block 331 platform and related facilities at a rental
rate of $1.00 per annum for such period as the platform is owned by Tatham
Offshore and located on the Ship Shoal Block 331, provided that such use does
not interfere with lease operations or other activities of Tatham Offshore.
Tatham Offshore has granted the Partnership a right of first refusal relative
to a sale of the platform. The agreement with the Partnership
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resulted in a reduction in demand charge payments of approximately $4.1 million
for the fiscal year ended June 30, 1996, $7.8 million for the fiscal year ended
June 30, 1997 and $5.9 million for fiscal years thereafter. Tatham Offshore
remains obligated to pay the commodity charges under these agreements as well
as its working interest share of all platform access and processing fees
associated with the Viosca Knoll Block 817 lease.
Deepwater Royalty Relief. The ability of the Company to satisfy its
anticipated capital requirements beyond those funded with the proceeds from the
sale of the Warrants, Series A Preferred Stock and any of the Securities
offered pursuant to the Offering will depend upon its success in implementing
its business strategy, particularly its ability to develop and initiate
production from the Sunday Silence field. Although the Company has pursued
farmout and outside financing arrangements for its Sunday Silence project, as
of this date, the Company has not been able to obtain an acceptable farmout
arrangement with an industry partner or develop a financing arrangement under
the current economic conditions. On November 28, 1995, a federal law was
enacted that offers deepwater royalty relief for all new federal leases located
in 200 meters or greater of water depth in the Gulf. For leases obtained prior
to November 28, 1995, the relief provided for in the new law is not automatic
but must be applied for with the Secretary of Interior (or his delegate). An
applicant must demonstrate that the proposed new production for which the
royalty relief is sought would not be economic to develop absent the royalty
relief. The Company filed an initial application in December 1995 but was
advised in late January 1996 that applications could not be accepted in advance
of publication of proposed interim regulations. Proposed interim regulations
implementing the new law were published by the Minerals Management Service
("MMS") in May 1996. The Company is in the process of preparing its
application for royalty relief for the Sunday Silence project and anticipates
filing such application within the next 30 days. Under the new legislation, a
minimum of the first 52.5 million equivalent barrels of oil production from the
Sunday Silence project would be exempt from federal royalties if such relief is
granted. The Company believes that if the requested royalty abatement is
granted, the resulting improved economics for the project will be sufficient to
obtain development financing or an industry farmout arrangement. However,
there can be no assurance that the Company will be granted the requested
royalty abatement, enter into a farmout or financing arrangement on favorable
terms, that the Sunday Silence field will be successfully developed or that
production will be initiated therefrom on a timely basis, if at all. See " --
Oil and Gas Properties -- Description of Properties -- Sunday Silence (Ewing
Bank Blocks 958, 959, 1002 and 1003)."
OIL AND GAS PROPERTIES
Tatham Offshore currently has a portfolio of mineral leaseholds which
includes producing properties and undeveloped leases. Tatham Offshore owns
interests in 15 oil and gas leases in the Gulf covering approximately 83,200
gross (72,500 net) and, pursuant to the Purchase and Sale Agreement, a
reversionary interest in 17,300 gross (10,100 net) acres in 3 offshore leases
in the Gulf. Although a substantial portion of Tatham Offshore's acreage is
undeveloped, limited drilling results have established estimated proved
reserves attributable to Tatham Offshore's interests in its leases of
approximately 11.9 million barrels ("MMbbls") of oil and 62.3 billion cubic
feet ("Bcf') of gas as of June 30, 1996, based on a reserve report prepared by
Ryder Scott Company Petroleum Engineers, an independent engineering consulting
firm ("Ryder Scott").
DESCRIPTION OF PROPERTIES
Seattle Slew (Ewing Bank Blocks 914 and 915). The Company owns a 100%
working interest in the Seattle Slew field which is located in the Flextrend
area in a water depth of approximately 1,000 feet. Seattle Slew is the initial
development project in Tatham Offshore's Ewing Bank project area. The Ewing
Bank project area consists of eight OCS lease blocks which contain
approximately 46,000 gross acres and which the Company believes contains three
development projects.
In 1991, Tatham Offshore caused the Ewing Bank 914 #2 well to be drilled
which was later connected to the seven mile gathering system constructed by the
Partnership, the Ewing Bank Gathering System. The
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Ewing Bank 914 #2 well, Tatham Offshore's first well on Seattle Slew, commenced
production in August 1993 from the PA-4 reservoir. From the inception of
production through June 30, 1996, the Ewing Bank 914 #2 well has produced a
total of approximately 1.1 million barrels of oil and condensate and 3.1 Bcf of
gas. Ryder Scott estimates that 0.7 Bcf of proved gas reserves and 319,000
barrels of proved oil reserves remain to be produced from the PA-4 reservoir as
of June 30, 1996. Ryder Scott has assigned an additional 2.5 Bcf of proved gas
reserves and 1.8 MMbbls of proved oil reserves to three additional reservoirs
in the Ewing Bank 914 #2 well. The Company anticipates that the Ewing Bank 914
#2 well will need to be recompleted in one of the remaining proved reservoirs
during calendar 1997. The production from the Ewing Bank 914 #2 well is
transported through the Ewing Bank Gathering System to a platform where it is
separated, measured and re-delivered into third party pipeline systems for
transportation onshore. The Ewing Bank 914 #2 well is currently producing an
average of approximately 900 barrels of oil and condensate, 2.0 MMcf of gas and
1,600 barrels of water per day. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
All future production from the Seattle Slew field is dedicated to the
Partnership for transportation under a transportation agreement (the "Ewing
Bank Gathering Agreement"). Under the Ewing Bank Gathering Agreement, the
Partnership's obligation to construct facilities to transport production from
new wells is subject to the mutual agreement of the parties and the
Partnership's determination that such facilities will be economic. See "--
Customers and Contracts -- Ewing Bank Gathering Agreement."
Silent Beauty (West Delta Block 35). Silent Beauty is a producing field
located 10 miles off the coast of Louisiana in approximately 60 feet of water.
Silent Beauty was acquired by Tatham Offshore in the May 1992 OCS lease sale
for approximately $224,000 to drill for and produce remaining reserves in a
fault block of an abandoned field. In late 1992, Tatham Offshore farmed-out
the property and retained a 38% working interest in West Delta Block 35. The
#A-1 well began producing in July 1993 and the #A-9 well began producing in
March 1994. From the inception of production through June 30, 1996, the Silent
Beauty field has produced 2.2 Bcf of gas and 22,000 barrels of oil, net to the
Company's interest. Ryder Scott estimates that Tatham Offshore's interest in
the West Delta Block 35 field contained approximately 1.8 Bcf of proved gas
reserves and 20,000 barrels of proved oil reserves as of June 30, 1996. The
gas production from the West Delta 35 field is transported onshore through an
interstate pipeline system and the oil production is currently transported
onshore by barge.
Sunday Silence (Ewing Bank Blocks 958, 959, 1002 and 1003). The Company
owns a 100% working interest in the Sunday Silence field, a recently discovered
and currently undeveloped field that is comprised of 20,160 gross and net acres
located approximately six miles south of the Seattle Slew field in water depths
ranging from 1,400 to 1,600 feet. In July 1994, Tatham Offshore completed the
drilling of an exploratory well at Sunday Silence, the Ewing Bank 958 #1. Logs
and sidewall cores indicate that the Ewing Bank 958 #1 well contains
approximately 380 feet of oil and gas pay. The Ewing Bank 958 #1 well, which
was drilled to a total measured depth of 17,600 feet, identified pay zones in
the Pliocene aged formations lying primarily at measured depths between 10,000
and 15,000 feet. Ryder Scott estimates that approximately 6.2 Bcf of proved
gas reserves and 4.4 MMbbls of proved oil reserves are attributable to Tatham
Offshore's interest in the Ewing Bank 958 #1 well as of June 30, 1996.
Tatham Offshore completed drilling its second Sunday Silence well at Ewing
Bank Block 1003 in late September 1994 to delineate the field. During October
1994, the Ewing Bank 1003 #1 delineation well was flow-tested at a rate of
approximately 8,700 barrels of oil and 5.4 MMcf of gas per day. Ryder Scott
estimates that approximately 1.1 Bcf of proved gas reserves and 1.8 MMbbls of
proved oil reserves are attributable to Tatham Offshore's interest in the Ewing
Bank 1003 #1 well.
Subject to obtaining financing or an appropriate joint venture partner,
Tatham Offshore anticipates that the initial two Sunday Silence wells and any
subsequent delineation wells will be reentered and completed for production
after the installation of a SPAR buoy production facility. Production from
Sunday Silence is dedicated to the Partnership under the Ewing Bank Gathering
Agreement. See "-- Customers and Contracts -- Ewing Bank Gathering Agreement"
and "-- Recent Developments -- Deepwater Royalty Relief." Also
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see Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Phar Lap (Viosca Knoll Block 817). Phar Lap is a development project that
is comprised of 5,760 gross acres located approximately 40 miles off the coast
of Louisiana in 650 feet of water. Tatham Offshore was assigned a 100% working
interest in the leases covering the Phar Lap acreage in July 1993 pursuant to a
farm-in agreement with Petrofina Delaware, Inc. and Fina Oil and Chemical
Company. In October 1994, the Company assigned a 25% working interest in
Viosca Knoll Block 817 and certain contiguous leases to F-W Oil Interest, Inc.,
J. Ray McDermott Properties, Inc. and J. Ray McDermott, Inc. (collectively, the
"Phar Deep Partners") in exchange for funding an exploratory well on Viosca
Knoll Block 818. Tatham Offshore has since assigned a 75% working interest
(56.25% net revenue interest) in the Phar Lap project to Flextrend Development,
subject to certain reversionary rights. The Phar Lap project consists of
Viosca Knoll Block 817 above the stratigraphic equivalent of the base of the
Tex X-6 Sand.
In September 1995, Tatham Offshore entered into an agreement the Phar Deep
Partners pursuant to which Tatham Offshore reacquired in the aggregate a 25%
working interest in Viosca Knoll Blocks 772/773, 774, 817, 818 and 861 (the
"Subject Interests"). In return, Tatham Offshore (i) assumed all leasehold and
development obligations with respect to the Subject Interests and (ii) issued a
Convertible Production Payment (defined below) to each Phar Deep Partner.
Under the Convertible Production Payment, the Phar Deep Partners are entitled
in the aggregate to 25% of the proceeds from production attributable to the
Subject Interests (after deducting all leasehold operating expenses, including
platform access and processing fees) until the Phar Deep Partners have received
the aggregate sum of $16.0 million. At the option of the Phar Deep Partners,
the unrecovered portion of the Convertible Production Payment may be converted
into Common Stock at a price of $8.00 per share. Under certain conditions, the
Phar Deep Partners have the right to require DeepTech to purchase the
Convertible Production Payment for an amount equal to 50% of the unrecovered
portion thereof.
The Company and Flextrend Development have concluded their drilling
program and have completed the drilling of eight natural gas wells on Viosca
Knoll Block 817. The Viosca Knoll Block 817 project is currently producing an
aggregate of approximately 90 MMcf of gas per day. The well deliverability
from the Viosca Knoll Block 817 project is in excess of 90 MMcf per day but is
limited to such amount by the production equipment currently located on the
production platform. The production equipment is currently being upgraded
which should allow the total deliverability from the Viosca Knoll Block 817
project to increase to approximately 125 MMcf per day. From the inception of
production through June 30, 1996, the Viosca Knoll project has produced 2.2 Bcf
of gas, net to the Company's current interest. Ryder Scott estimates that
approximately 17.2 Bcf of proved gas reserves are attributable to Tatham
Offshore's current 25% working interest in the Viosca Knoll Block 817 project
as of June 30, 1996. Pursuant to the Purchase and Sale Agreement, the Company
will receive a reassignment of at least a 37.5% working interest upon
satisfaction of the Payout Amount.
Genuine Risk (Ship Shoal Block 331). The Genuine Risk project is located
approximately 75 miles off the coast of Louisiana in 370 feet of water. Tatham
Offshore acquired the 5,278 gross acre lease in the OCS lease sale in August
1992 for approximately $224,000 and holds a 100% working interest therein.
Prior leaseholders drilled two wells on Genuine Risk, both of which identified
oil and gas bearing formations, but such leaseholders allowed the lease to
expire.
Tatham Offshore installed a drilling and production platform on Ship Shoal
Block 331 (the "Ship Shoal Platform") in February 1994. Once the Ship Shoal
Platform was installed, Tatham Offshore drilled and completed two wells and
initiated production in July 1994. A third well was subsequently drilled and
completed. The Partnership constructed flow lines from the Ship Shoal Platform
to a platform owned by the Partnership located at Ship Shoal Block 332 (the
"Ship Shoal Extension") to transport production from such wells. Production
and completion problems have caused each of the three wells at Genuine Risk to
be shut-in. In connection with the Company's assessment of its Ship Shoal
Block 331 property and its decision to
6
<PAGE> 9
seek a sale of all or a portion of such property, or a joint venture partner,
the Company reduced its investment in its Ship Shoal Block 331 property by $8.0
million during the fiscal year ended June 30, 1996. Prior to the production
problems, the Genuine Risk project produced 88 MMcf of gas and 31,500 barrels
of oil. Ryder Scott estimates that 24.4 Bcf of proved gas reserves and 3.2
MMbbls of proved oil reserves are attributable to Tatham Offshore's interest in
Genuine Risk.
Spectacular Bid (Garden Banks Block 72). Garden Banks Block 72 covers
approximately 5,760 gross (2,880 net) acres and is located 120 miles off the
coast of Louisiana in approximately 550 feet of water. Tatham Offshore and
MidCon Exploration Company ("MidCon Exploration") jointly bought the Garden
Banks Block 72 lease in the August 1991 OCS lease sale for a joint bid of $3.7
million. On June 30, 1995, Tatham Offshore assigned its 50% working interest
(approximately 40.2% net revenue interest) in Garden Banks Block 72 to
Flextrend Development, subject to certain reversionary rights. MidCon
Exploration owns the remaining 50% working interest in Garden Banks Block 72.
In May 1996, Flextrend Development placed on production two wells at
Garden Banks Block 72. Since the inception of production through June 1996,
Garden Banks Block 72 produced 25 MMcf of gas and 48,000 barrels of oil, net to
Flextrend Development's interest. In September 1996, a third well was placed
on production. The three wells are currently producing an average of
approximately 3,600 barrels of oil and 6.5 MMcf of gas per day. Gas production
is being transported through the Stingray system and the oil production is
being transported through the Poseidon Oil Pipeline. Flextrend Development has
drilled an additional well on Garden Banks Block 72 which it is in the process
of completing. A fifth well is currently planned for the field. Pursuant to
the Purchase and Sale Agreement, the Company will receive a reassignment of at
least a 25% working interest upon satisfaction of the Payout Amount.
Spend A Buck (Garden Banks Block 117). Garden Banks Block 117 covers 5,760
gross (2,880 net) acres adjacent to Garden Banks Block 72 and is located in
approximately 1,000 feet of water. Tatham Offshore and MidCon Exploration
jointly acquired the Garden Banks Block 117 lease from Shell Offshore, Inc.
under a farm-in arrangement. The farm-in agreement provides that Shell
Offshore, Inc. retains a 1/12 overriding royalty interest in Spend A Buck with
an option to convert the overriding royalty interest into a 30% working
interest after the property has produced 25 million net equivalent barrels of
oil. In November 1994, Tatham Offshore announced that it had completed the
drilling of a new field discovery at Garden Banks Block 117. The Garden Banks
117 #1 well was flow-tested at a rate of approximately 10,500 barrels of oil
and 11.9 MMcf of gas per day. On June 30, 1995, Tatham Offshore assigned its
50% working interest (approximately 40.2% net revenue interest) in Garden Banks
Block 117 to Flextrend Development, subject to certain reversionary rights.
MidCon Exploration owns the remaining 50% working interest in Garden Banks
Block 117.
In July 1996, Flextrend Development initiated production from the Garden
Banks 117 #1 well which is currently producing approximately 2,500 barrels of
oil, 5.0 MMcf of gas and 2,900 barrels of water per day. Flextrend Development
is in the process of drilling a second well on the Garden Banks Block 117 lease
which, if successful, Flextrend Development intends to complete and place on
production during the fourth quarter of 1996. Gas production is transported on
the Stingray system and oil production is transported through the Poseidon Oil
Pipeline. Pursuant to the Purchase and Sale Agreement, the Company will
receive a reassignment of at least a 25% working interest upon satisfaction of
the Payout Amount.
INTERNATIONAL OPPORTUNITIES
In August 1995, the Company formed a wholly-owned subsidiary, Tatham
Offshore (Jersey) Ltd. ("TOJ"), to pursue certain international opportunities.
TOJ is in the process of attempting to obtain offshore concessions from the
government of Nigeria. TOJ has entered into an agreement with an independent
oil and gas company that is also attempting to obtain offshore concessions from
the government
7
<PAGE> 10
of Nigeria. If either TOJ or such independent oil and gas company receives a
concession from the government of Nigeria, the parties have agreed to assign a
50% working interest in such property or properties to the other party. There
are no assurances that TOJ will be granted a concession or that the terms and
conditions that would apply to a concession if granted would be acceptable to
TOJ.
In February 1996, TOJ entered into an agreement pursuant to which it
received an option to acquire up to 2,500,000 shares, a 12.5% equity interest
in Gas Participacoes Ltda. ("GASPART"). GASPART in turn owns a minority equity
interest (approximately 41.5%) in seven local natural gas distribution
companies in Brazil. The remaining equity interest in each local distribution
company is owned by Petrobras, the Brazilian state-owned oil company, and the
state government for the state in which its operations are conducted. The
option is exercisable in whole or part at a price of $1.35 per share plus
interest thereon from February 1996 at the London Interbank Offering Rate. The
option expires during the third calendar quarter of 1997.
The Company has entered into a drilling arrangement (the "Drilling
Arrangement") with Sedco Forex Division of Schlumberger Technology Corporation
("Sedco Forex"). Under the terms of the Drilling Arrangement, the Company has
certain options with respect to the use of the semisubmersible drilling rig,
the FPS Bill Shoemaker, in the Newfoundland Grand Banks Area, offshore Canada.
These options include the use of the FPS Bill Shoemaker for the drilling of a
well prior to the deployment of the rig for a third party and the use of the
rig following the completion of the third party operations, subject to certain
consents and subject to availability. The FPS Bill Shoemaker is owned by an
affiliate of DeepTech and operated by Sedco Forex under a management agreement.
See "-- Customers and Contracts - Drilling Arrangement with Sedco Forex."
CUSTOMERS AND CONTRACTS
EWING BANK GATHERING AGREEMENT
In July 1992, Ewing Bank Gathering Company, L.L.C., a subsidiary of the
Partnership ("Ewing Bank Gathering"), DeepTech and Tatham Offshore entered into
the Ewing Bank Gathering Agreement. Pursuant to the Ewing Bank Gathering
Agreement and the Master Gas Dedication Agreement, all existing and future oil
and gas production from Tatham Offshore's leaseholds in the Ewing Bank project
area, which includes Ewing Bank Block 914 and seven other contiguous Ewing Bank
blocks, is dedicated to Ewing Bank Gathering for transportation. Effective
February 1, 1996, all remaining existing demand charges payable by Tatham
Offshore to Ewing Bank Gathering under this agreement were prepaid. See "--
Recent Developments -- Restructuring of Demand Charge Obligations with the
Partnership." Tatham Offshore remains obligated to pay commodity charges to
Ewing Bank Gathering under the existing agreement equal to 4% of the commodity
value of oil and gas transported through the Ewing Bank Gathering System. For
the year ended June 30, 1996, the monthly commodity charges paid thereunder
averaged $0.16 per Mcf of gas and $0.91 per bbl of oil transported.
The Ewing Bank Gathering Agreement remains in effect for the productive
life of the reserves or, if earlier, the expiration of 50 years from the date
of first production (August 1993). Under the Ewing Bank Gathering Agreement,
Ewing Bank has agreed to provide future gathering facilities subject to mutual
agreement between the parties and the determination by the Partnership that
such facilities would be economic. If pursuant to the Ewing Bank Gathering
Agreement such facilities are constructed by the Partnership or any of its
subsidiaries to transport additional production from the Ewing Bank project
area, the construction of such facilities would require Tatham Offshore to pay
additional demand charges and commodity charges.
OFFSHORE MARKETING AGREEMENTS
Tatham Offshore and Offshore Gas Marketing, Inc. ("Offshore Marketing"),
an affiliate of Tatham Offshore, have entered into agreements whereby Offshore
Marketing has agreed to purchase all of the gas,
8
<PAGE> 11
oil and condensate produced by Tatham Offshore. Offshore Marketing has agreed
to purchase such production at the platforms to which it is delivered and,
through October 1995, the sales prices paid to Tatham Offshore were based upon
contractually agreed upon posted prices. In November 1995, Tatham Offshore
renegotiated its agreement with Offshore Marketing to provide Offshore
Marketing fees equal to 2% of the sales value of crude oil and condensate and
$0.015 per dekatherm of natural gas for selling the Company's production.
During the fiscal year ended June 30, 1996, Tatham Offshore's sales to Offshore
Marketing totaled $19.2 million.
MASTER GAS DEDICATION AGREEMENT
In December 1993, the Partnership and Tatham Offshore entered into the
Master Gas Dedication Agreement pursuant to which Tatham Offshore dedicated to
the Partnership transportation of all future production, if any, from Tatham
Offshore's Phar Lap, Spectacular Bid, Spend A Buck and Genuine Risk project
areas and, in certain cases, additional acreage contained in adjoining areas of
mutual interest. In exchange, the Partnership agreed to install certain
pipeline facilities necessary to transport production from these areas and to
provide transportation services with respect to such production. Pursuant to
the terms of the Purchase and Sale Agreement, Flextrend Development has assumed
all of Tatham Offshore's obligations under the Master Gas Dedication Agreement
and certain ancillary agreements with respect to the Spend A Buck, Spectacular
Bid, and the Phar Lap properties. See " -- Recent Developments --
Restructuring of Demand Charge Obligations with the Partnership."
DRILLING ARRANGEMENT WITH SEDCO FOREX
In September 1996, the Company entered into the Drilling Arrangement with
Sedco Forex. The Drilling Arrangement includes the use of the semisubmersible
drilling rig, the FPS Bill Shoemaker, and will become effective upon the
mobilization of the rig to the Company's initial location. The initial
contract term of the Drilling Arrangement is for 90 days or, if sooner, the
completion of the Company's initial drilling operation and the mobilization of
the rig to another location. The Company may, at its option, extend the
initial contract term through (i) three successive one well options or (ii) two
successive one year terms. Under the terms of the Drilling Arrangement, the
Company has committed to pay Sedco Forex a drilling rate of $70,000 per day
with a standby rate of $66,700 per day. As security for its obligations under
the Drilling Arrangement, the Company is required to post an irrevocable letter
of credit or cash collateral of $6.3 million, which amount is equal to the
aggregate operating day rate for the contract term. In the event that the
Company exercises its option to extend the Drilling Arrangement, the Company
and Sedco Forex must agree upon additional security for the extension period.
During the term of the Drilling Arrangement, the Company has the right to
sub-contract the rig to other operators. If the rig is sub-contracted to
another operator, the Company will receive the difference between the
sub-contract rate and the above agreed upon rates, if any. The FPS Bill
Shoemaker is owned by an affiliate of DeepTech and operated by Sedco Forex
under a charter agreement. The Drilling Arrangement is conditioned upon the
completion of a third party financing that will fund certain improvements to
the FPS Bill Shoemaker. Sedco Forex has the right to substitute a similar
drilling rig for the FPS Bill Shoemaker in the event the FPS Bill Shoemaker is
unavailable due to a previously submitted bid for work offshore Canada. In the
event Sedco Forex elects to carry out such rig substitution, the Company has (i)
an option to use the FPS Bill Shoemaker in the Newfoundland Grand Banks Area
rather than the substitute rig to complete the initial contract term prior to
the use by the third party, subject to availability, and subject to higher
contract rates to account for the additional costs incurred by Sedco Forex as a
result of operations offshore Canada, and (ii) an additional option, upon
completion of the third party work and subject to the use of the rig for certain
other projects, to contract to use the rig for the drilling of one well at the
then prevailing contract price.
9
<PAGE> 12
OIL AND GAS RESERVES
Estimates of Tatham Offshore's oil and gas reserves as of June 30, 1996
have been made by Ryder Scott, an independent engineering consulting firm.
Ryder Scott's estimates of Tatham Offshore's total proved developed and proved
undeveloped reserves of oil and gas were as follows:
<TABLE>
<CAPTION>
June 30, 1996
Oil (Mbbl) Gas(1) (MMcf)
----------------------------------------------
Proved Proved Proved Proved
Developed Undeveloped Developed Undeveloped
<S> <C> <C> <C> <C>
Phar Lap(2) -- -- 15,694 1,466
Silent Beauty 20 -- 1,847 --
Genuine Risk 978 2,214 8,021 16,348
Seattle Slew 2,088 -- 3,178 --
Sunday Silence -- 6,168 -- 7,279
--------- ----------- --------- -----------
Subtotal 3,086 8,382 28,740 25,093
Reversionary Interest
in Assigned Properties 302 96 6,534 1,893
--------- ----------- --------- -----------
Total 3,388 8,478 35,274 26,986
========= =========== ========= ===========
</TABLE>
(1) Gas volumes are stated at the legal pressure base of the state or area in
which the reserves are located and at 60 degrees Fahrenheit.
(2) The Company's 25% working interest in Phar Lap is subject to a $16.0
million Convertible Production Payment payable from 25% of the net
proceeds from such interest. See "-- Oil and Gas Properties --
Description of Properties -- Phar Lap (Viosca Knoll Block 817)."
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenues therefrom are based upon a number of
variable factors and assumptions, such as historical production from the
subject properties, the assumed effects of regulation by governmental agencies
and assumptions concerning future oil and gas prices, future operating costs
and future plugging and abandonment costs, all of which may vary considerably
from actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group
of properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
Furthermore, Tatham Offshore's Phar Lap property has only been producing
since December 1995 and, accordingly, estimates of future production are based
on this limited history. Estimates with respect to proved undeveloped reserves
that may be developed and produced in the future are often based upon
volumetric calculations and upon analogy to similar types of reserves rather
than upon actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history will
result in variations, which may be substantial, in the estimated reserves. A
significant portion of Tatham Offshore's reserves is based upon volumetric
calculations. Further, Tatham Offshore's proved undeveloped reserves will
require substantial additional capital to develop and produce. There can be no
assurance that Tatham Offshore will be able to finance the development and
production of such reserves. See Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
10
<PAGE> 13
The following table sets forth as of June 30, 1996, the estimated future
net cash flows and the present value of estimated future net cash flows
discounted at 10% per annum, from the production and sale of the proved
developed and undeveloped reserves attributable to Tatham Offshore's interest
in gas and oil properties as of such date, as determined by Ryder Scott in
accordance with the requirements of applicable accounting standards before
income taxes.
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------
Proved Proved Total
Developed Undeveloped Proved
(In thousands)
<S> <C> <C> <C>
Estimated future net cash flows from
proved reserves before
income taxes(1)............................ $ 78,440 $ 87,471 $ 165,911
Present value of estimated future net
cash flows from proved reserves
before income taxes (discounted
at 10%) (1)................................ $ 59,296 $ 49,717 $ 109,013
</TABLE>
______________
(1) In preparing such estimates, Ryder Scott used prices of $19.27 per barrel
of oil and $2.48 per Mcf of gas as of June 30, 1996, the weighted average
prices that Tatham Offshore estimates it would have received, assuming
production from all of its properties with proved reserves.
In accordance with applicable requirements of the Securities and Exchange
Commission (the "Commission"), the estimated discounted future net revenues
from estimated proved reserves are based on prices and costs at fiscal year end
unless future prices or costs are contractually determined at such date. Actual
future prices and costs may be materially higher or lower. Actual future net
revenues also will be affected by factors such as actual production, supply and
demand for gas and oil, curtailments or increases in consumption by natural gas
purchasers, changes in governmental regulations or taxation and the impact of
inflation on costs.
In accordance with methodology approved by the Commission, specific
assumptions were applied in the computation of the reserve evaluation
estimates. Under this methodology, future net cash flows are determined by
reducing estimated future gross cash flows to Tatham Offshore for oil and
natural gas sales by the estimated costs to develop and produce the underlying
reserves, including future capital expenditures, operating costs,
transportation costs, royalty and overriding royalty burdens, production
payments and net profits interest expense on certain of Tatham Offshore's
properties.
Future net cash flows were discounted at 10% per annum to arrive at
discounted future net cash flows. The 10% discount factor used to calculate
present value is required by the Commission, but such rate is not necessarily
the most appropriate discount rate. Present value of future net cash flows,
irrespective of the discount rate used, is materially affected by assumptions
as to timing of future oil and natural gas prices and production, which may
prove to be inaccurate. In addition, the calculations of estimated net
revenues do not take into account the effect of certain cash outlays,
including, among other things, general and administrative costs, interest
expense and dividends. The present value of future net cash flows shown above
should not be construed as the current market value as of June 30, 1996, or any
prior date, of the estimated oil and natural gas reserves attributable to
Tatham Offshore's properties.
11
<PAGE> 14
PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth certain information regarding the
production volumes of, average unit prices received for and average production
costs for Tatham Offshore's sale of oil and gas for the periods indicated:
<TABLE>
<CAPTION>
NATURAL GAS
FISCAL YEAR ENDED JUNE 30,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net gas production (MMcf)................ 2,937 1,505 3,274
Average gas sales price (per Mcf)........ $2.34 $1.67 $2.51
Average production costs (1) (per Mcf)... $1.45 $2.33 $1.50
<CAPTION>
OIL AND CONDENSATE
FISCAL YEAR ENDED JUNE 30,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net production (Mbbl).................... 395 333 418
Average sales price (per barrel)......... $13.36 $16.67 $18.83
Average production costs (1) (per barrel) $10.79 $28.02 $19.86
</TABLE>
(1) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include demand and commodity charges under transportation
agreements, platform access and processing fees, maintenance and repair,
labor and utilities costs.
The relationship between Tatham Offshore's average prices and its average
production costs depicted by the table above is not necessarily indicative of
future results of operations expected by Tatham Offshore. Average production
costs exceeded average sales prices in 1995 due primarily to production
problems experienced by the Ewing Bank 914 #2 well and the three wells at
Genuine Risk. See "-- Oil and Gas Properties -- Description of Properties --
Seattle Slew (Ewing Bank Blocks 914 and 915)" and " -- Genuine Risk (Ship Shoal
Block 331)."
ACREAGE
The following table sets forth the developed and undeveloped oil and gas
acreage in which Tatham Offshore held an interest as of June 30, 1996.
Undeveloped acreage is considered to be those lease acres on which wells have
not been drilled or completed to a point that would permit the production of
commercial quantities of gas and oil, regardless of whether or not such acreage
contains proved reserves. Almost all of Tatham Offshore's acreage is
undeveloped. Gross acres in the following table refer to the combined number
of acres in which a working interest is owned directly by Tatham Offshore. The
number of net acres is the sum of the fractional ownership of working interests
owned directly by Tatham Offshore in the gross acres.
<TABLE>
<CAPTION>
GROSS NET
------ ------
<S> <C> <C>
Developed acreage ........... 5,360 4,124
Undeveloped acreage ......... 77,840 68,376
------ ------
Total acreage ............... 83,200 72,500
====== ======
</TABLE>
12
<PAGE> 15
OIL AND GAS DRILLING ACTIVITY
The following table sets forth the gross and net number of productive, dry
and total exploratory wells and development wells that Tatham Offshore drilled
in each of the years ended June 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------------------
1994 1995 1996
------------ ---------------- --------------
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Productive ................... 3.00 3.00 2.00 1.50 -- --
Dry .......................... 1.00 .67 2.00 2.00 -- --
----- ---- ------- ------- ------- ----
Total ........................ 4.00 3.67 4.00 3.50 -- --
===== ==== ======= ======= ======= ====
DEVELOPMENT
Productive ................... 1.00 .38 1.00 1.00 4.00 1.00
Dry .......................... -- -- -- -- 1.00 .25
----- ---- ------- ------- ------- ----
Total ........................ 1.00 .38 1.00 1.00 5.00 1.25
===== ==== ======= ======= ======= ====
</TABLE>
Subsequent to June 30, 1996, Tatham Offshore has completed one gross (.25
net) productive development well and has conducted recompletion operations on
one gross (.38 net) well. As of August 30, 1996, Tatham Offshore owned 8 gross
and 3.01 net producing wells. As of August 30, 1996, Tatham Offshore is
conducting completion operations on one of three additional gross (.75 net)
development wells which are pending completion.
COMPETITION
The exploration and production business is highly competitive. In seeking
to obtain desirable new leases and exploration prospects, Tatham Offshore faces
competition from both major and independent oil and gas companies. Many of
these competitors have financial and other resources substantially in excess of
those available to Tatham Offshore and may, accordingly, be better positioned
to acquire and exploit prospects, hire personnel and market production. In
addition, many of Tatham Offshore's larger competitors may be better able to
withstand the effect of changes in factors such as worldwide oil and natural
gas prices and levels of production, the cost and availability of alternative
fuels and the application of government regulations, which affect demand for
Tatham Offshore's oil and natural gas production and which are beyond the
control of Tatham Offshore.
There is also extensive competition in the market for gas and oil produced
by Tatham Offshore. Increases in worldwide energy production capability,
decreases in energy consumption as a result of conservation efforts, and the
continued development of alternate energy sources have brought about
substantial surpluses in gas and oil supplies in recent years resulting in
substantial competition for the marketing of gas and oil. As a result, there
have been reductions in gas and oil prices and delays in producing and
marketing natural gas after it is discovered. Changes in government
regulations relating to the production, transportation and marketing of gas
have also resulted in significant changes in the historical marketing patterns
of the industry. Generally, these changes have resulted in the abandonment by
many pipelines of long-term contracts for the purchase of gas, the development
by gas producers of their own marketing programs to take advantage of new
regulations requiring pipelines to transport natural gas for regulated fees and
an increasing tendency to rely on short-term sales contracts priced at spot
market prices. See "-- Regulation."
13
<PAGE> 16
REGULATION
GENERAL
The oil and gas industry is extensively regulated by federal and state
authorities in the United States. Legislation affecting the oil and gas
industry is under constant review and statutes are constantly being adopted,
expanded or amended. Further, numerous departments and agencies, both federal
and state, have issued rules and regulations binding on the oil and gas
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the oil and gas industry
increases its cost of doing business.
EXPLORATION, PRODUCTION AND DEVELOPMENT
The exploration, production and development operations of Tatham Offshore
are subject to regulation at the federal and state levels. Such regulation
includes requiring permits for the drilling of wells and maintaining bonding
and insurance requirements in order to drill or operate wells, and regulating
the location of wells, the method of drilling and casing wells, the surface use
and restoration of properties upon which wells are drilled and the plugging and
abandoning of wells. Tatham Offshore's exploration, production and development
operations are also subject to various conservation laws and regulations.
These include the regulation of the size of drilling and spacing units or
proration units, the density of wells that may be drilled, the levels of
production, and the unitization or pooling of gas and oil properties.
Substantially all of Tatham Offshore's oil and gas lease acreage was
granted by the federal government and is being administered by various federal
agencies. Such leases require compliance with detailed federal regulations and
orders that regulate, among other matters, drilling and operations on these
leases and calculation of royalty payments to the federal government. The
Mineral Leasing Act of 1920 ("MLA") and similar acts and regulations place
limitations on the number of acres under federal leases that may be owned in
any one state. The MLA and the Outer Continental Shelf Land Act ("OCSLA") and
related regulations also may restrict a corporation from the holding of federal
onshore gas and oil leases if stock of such corporation is owned by citizens of
foreign countries that are not deemed reciprocal under such act. Reciprocity
depends, in large part, on whether the laws of the foreign jurisdiction
prohibit or otherwise restrict a citizen of the United States from owning
minerals and/or rights related thereto in such jurisdiction.
Tatham Offshore presently has interests in or rights to offshore leases
located in federal waters. Federal leases are administered by the MMS.
Individuals and entities must qualify with the MMS prior to owning and
operating any leasehold or right-of-way interest in federal waters. Such
qualification with the MMS generally involves filing certain documents with the
MMS and obtaining an area-wide performance bond and, in some cases,
supplemental bonds representing security deemed necessary by the MMS in excess
of the area-wide bond requirements for facility abandonment and site clearance
costs.
In August 1993, the MMS issued a final rule that addressed the new levels
of bond coverage required of OCS lessees in connection with the plugging and
abandoning of wells located offshore, the removal of all production facilities
and site clearance costs. The coverage is designed to reflect an appropriate
balance between encouraging the maximum economic recovery of gas and oil from
federal offshore leases while providing the federal government an adequate
level of protection in the event the lessee defaults on its obligations to
properly abandon lease wells and remove platforms and other structures from the
property.
ENVIRONMENTAL
General. Tatham Offshore's operations are subject to extensive federal,
state and local regulatory requirements relating to environmental affairs,
health and safety, waste management and chemical products. To the best of the
Company's knowledge, its operations are in substantial compliance, and are
expected to continue to comply in all material respects, with applicable
environmental laws, regulations and ordinances.
14
<PAGE> 17
It is possible, however, that future developments, such as stricter
environmental laws, regulations or enforcement policies could affect the
handling, manufacture, use, emission or disposal of substances or wastes by
Tatham Offshore. Moreover, some risk of environmental costs and liabilities is
inherent in Tatham Offshore's operations and products as it is with other
companies engaged in similar or related businesses, and there can be no
assurance that material costs and liabilities, including substantial fines and
criminal sanctions for violation of environmental laws and regulations, will
not be incurred by the Company.
Solid Waste. Tatham Offshore's operations may generate or transport both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the federal Resource Conservation and Recovery Act and comparable state
statutes. Further, it is possible that some wastes that are currently
classified as nonhazardous, perhaps including wastes currently generated during
exploration, development and production operations may, in the future be
designated as "hazardous wastes," which are subject to more rigorous and costly
disposal requirements. Such changes in the regulations may result in
additional expenditures or operating expenses by Tatham Offshore.
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a site, and companies that
transport, dispose of or arrange for the disposal of, the hazardous substances
found at the site. CERCLA also authorizes the Environmental Protection Agency
("EPA") and, in some cases, third parties to take actions in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. Despite the "petroleum
exclusion" of Section 101(14) that encompasses natural gas, Tatham Offshore may
generate or transport "hazardous substances" within the meaning of CERCLA, or
comparable state statutes, in the course of its ordinary operations. Thus,
Tatham Offshore may be responsible under CERCLA or the state equivalents for
all or part of the costs required to clean up sites where a release has
occurred.
Air. Tatham Offshore's operations may be subject to the Clean Air Act
("CAA") and comparable state statutes. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from
operation. The EPA and the states have been developing regulations to implement
these requirements. Tatham Offshore may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, Tatham Offshore does
not believe its operations will be materially adversely affected by any such
requirements.
Water. The Federal Water Pollution Control Act ("FWPCA") imposes strict
controls against the unauthorized discharge of produced waters and other oil
and gas wastes into navigable waters. The FWPCA provides for civil and
criminal penalties for any unauthorized discharges of oil and other hazardous
substances in reportable quantities and, along with the Oil Pollution Act of
1990 ("OPA"), imposes substantial potential liability for the costs of removal,
remediation and damages. Similarly, the OPA imposes liability for the
discharge of oil into or upon navigable waters or adjoining shorelines. Among
other things, the OPA raises liability limits, narrows defenses to liability
and provides more instances in which a responsible party is subject to
unlimited liability. One provision of the OPA requires that offshore
facilities establish and maintain evidence of financial responsibility of $150
million. State laws for the control of water pollution also provide varying
civil and criminal penalties and liabilities in the case of an unauthorized
discharge of petroleum or its derivatives into state waters. Further, the
Coastal Zone Management Act authorizes state implementation and development of
programs of management measures for nonpoint source pollution to restore and
protect coastal waters.
Endangered Species. The Endangered Species Act ("ESA") seeks to ensure
that activities do not jeopardize endangered or threatened plant and animal
species, nor destroy or modify the critical habitat of
15
<PAGE> 18
such species. Under the ESA, exploration and production operations, as well as
actions by federal agencies, may not significantly impair or jeopardize the
species or its habitat. The ESA provides for criminal penalties for willful
violations of the Act. Other statutes which provide protection to animal and
plant species and thus may apply to Tatham Offshore's operations are the Marine
Mammal Protection Act, the Marine Protection and Sanctuaries Act, the Fish and
Wildlife Coordination Act, the Fishery Conservation and Management Act, the
Migratory Bird Treaty Act and the National Historic Preservation Act.
SAFETY AND HEALTH REGULATIONS
Tatham Offshore is also subject to laws and regulations concerning
occupational safety and health. It is not anticipated that Tatham Offshore
will be required in the near future to expend amounts that are material in the
aggregate to Tatham Offshore's overall operations by reason of occupational
safety and health laws and regulations, but inasmuch as such laws and
regulations are frequently changed, Tatham Offshore is unable to predict the
ultimate cost of compliance.
OPERATIONAL HAZARDS AND INSURANCE
Tatham Offshore's exploration, production and development operations are
subject to the usual hazards incident to the drilling and production of natural
gas and crude oil, such as blowouts, cratering, explosions, uncontrollable
flows of oil, natural gas or well fluids, fires, pollution, releases of toxic
gas and other environmental hazards and risks. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damages and suspension of operations.
Tatham Offshore maintains insurance of various types that it considers to
be adequate to cover its operations. Such insurance is subject to deductibles
that Tatham Offshore considers reasonable and not excessive. Consistent with
insurance coverage generally available to the industry, Tatham Offshore's
insurance policies do not provide coverage for losses or liabilities relating
to pollution, except for sudden and accidental occurrences.
EMPLOYEES
Tatham Offshore has no employees. All individuals, including executive
officers, necessary to meet the financial, geological, engineering and other
technical and administrative requirements of Tatham Offshore are provided by
DeepTech pursuant to a management agreement with Tatham Offshore (the
"Management Agreement"), or affiliates of DeepTech pursuant to service
contracts. Pursuant to the Management Agreement, Tatham Offshore agreed to pay
to DeepTech an annual management fee of $2.0 million, payable monthly, plus 40%
of DeepTech's unreimbursed overhead through October 31, 1995. In an effort to
minimize the Company's projected operating cash shortfall, Tatham Offshore and
DeepTech agreed to decrease the amount of managerial and administrative
services provided by DeepTech to the Company and amend the Management Agreement
effective November 1, 1995. The amended Management Agreement provides for an
annual management fee of 27.4% of DeepTech's overhead expenses. For the fiscal
year ended June 30, 1996, Tatham Offshore reimbursed DeepTech $4.4 million
pursuant to such Management Agreement.
CERTAIN DEFINITIONS
The following are abbreviations and words commonly used in the oil and gas
industry and in this Annual Report on Form 10-K.
"bbl" or "barrel" means barrel, a standard measure of volume for oil,
condensate and natural gas liquids which equals 42 U.S. gallons.
16
<PAGE> 19
"Bcf" means billion cubic feet (or thousand MMcf).
"condensate" means a hydrocarbon mixture that becomes liquid and
separates, similar to crude oil, from natural gas when it is produced.
"development well" means a well drilled within the proved area of an oil
or gas reservoir to the depth of a stratigraphic horizon known to be
productive.
"exploratory well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.
"farm-in" or "farm-out" refers to an agreement whereunder the owner of a
working interest in an oil and gas lease delivers the contractual right to earn
the working interest or a portion thereof to another party who desires to drill
on the leased acreage. Generally, the assignee is required to drill one or
more wells in order to earn a working interest in the acreage. The assignor
usually retains a royalty or a working interest after payout in the lease. The
assignor is said to have "farmed-out" the acreage. The assignee is said to
have "farmed-in" the acreage.
"gross" oil and natural gas wells or "gross" acres are the total number of
wells or acres, respectively, in which the Company has an interest, without
regard to the size of that interest.
"Mbbl" means thousand barrels.
"Mcf" means thousand cubic feet, a standard measure of volume for gas.
"MMbbls" means million barrels.
"MMbtu" means million British Thermal Units, a unit of heat measure with
one btu being the amount of heat needed to raise the temperature of one pound
of water one degree Fahrenheit.
"MMcf" means million cubic feet.
"net" oil and natural gas wells or "net" acres are the total gross number
of wells or acres, respectively, in which the Company has an interest
multiplied times the Company's working interest in such wells or acres.
"OCS" means Outer Continental Shelf, an area offshore the United States
over which the federal government has jurisdiction, which extends from the end
of state territorial waters (three to nine nautical miles offshore, depending
on the state) to 200 nautical miles from shore. The term OCS as used herein
includes not only those areas on the Shelf itself, but those areas in the
Flextrend and the Deepwater, to a limit of 200 nautical miles, as well.
"royalty" means an interest in an oil and gas lease that gives the owner
of the interest the right to receive a portion of the production from the
leased acreage (or of the proceeds of the sale thereof), but generally does not
require the owner to pay any portion of the costs of drilling or operating the
wells on the leased acreage. Royalties may be either landowner's royalties,
which are reserved by the owner of the leased acreage at the time the lease is
granted, or overriding royalties, which are usually carved from the leasehold
interest pursuant to an assignment to a third party reserved by an owner of the
leasehold in connection with a transfer of the leasehold to a subsequent owner.
"working interest" means an interest in an oil and gas lease that gives
the owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the
17
<PAGE> 20
balance of the production accruing to the owners of royalties. For example,
the owner of a 100% working interest in a lease burdened only by a landowner's
royalty of 12.5% would be required to pay 100% of the costs of a well but would
be entitled to retain 87.5% of the production.
In this Annual Report, natural gas volumes are stated at the legal
pressure base of the state or area in which the reserves are located and at 60
degrees Fahrenheit.
ITEM 2. PROPERTIES
Information on properties of Tatham Offshore is included in Item 1.
"Business."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings which have arisen in
the ordinary course of business. Management believes that the outcome of such
proceedings will not have a material adverse effect on the Company's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended June 30, 1996, a total of 7 stockholders
holding an aggregate 50.1% of Common Stock outstanding consented in writing to
the adoption of an amendment to the Company's Non-Employee Director Stock
Option Plan. In connection therewith, the Company will send an Information
Statement to the Company's stockholders.
18
<PAGE> 21
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of August 30, 1996
regarding the executive officers of Tatham Offshore. Each executive officer
named in the following table has been elected to serve until his successor is
duly appointed or elected or until his or her earlier removal or resignation
from office. No arrangement or understanding exists between any executive
officer of Tatham Offshore and any other person pursuant to which he or she was
or is to be selected as an officer.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
Thomas P. Tatham 50 Chairman of the Board, Chief Executive Officer and a
Director
Antoine Gautreaux, Jr. 43 Chief Operating Officer
Diana J. Walters 33 Chief Financial Officer and a Director
Dennis A. Kunetka 47 Senior Vice President--Corporate Finance and Investor Relations
Kenneth E. Beeney 37 Vice President -- Chief Geophysicist and a Director
John D. Pike 41 Vice President -- Chief Geologist
Edward J. Gibbon, Jr. 50 Vice President -- Reservoir Engineering
Jeffrey K. Lucas 40 Vice President -- Land Manager
</TABLE>
Thomas P. Tatham has served as Chairman of the Board and a Director of
Tatham Offshore since its inception in 1988. In addition, Mr. Tatham has
served as Chairman of the Board, Chief Executive Officer and a Director of
DeepTech International Inc. ("DeepTech") and Chairman of the Board of Leviathan
Gas Pipeline Company ("Leviathan"), affiliates of Tatham Offshore, since
October 1989 and February 1989, respectively. In addition, Mr. Tatham served
as Chief Executive Officer of Leviathan from February 1989 until June 1995.
Mr. Tatham has over 25 years experience in the oil and gas industry. He
founded Mid American Oil Company in 1970 and served as Chairman of the Board
and Chief Executive Officer until he sold his interest therein to Centex
Corporation in 1979. In 1979, Mr. Tatham founded Tatham Corporation to acquire
Sugar Bowl Gas Corporation ("Sugar Bowl"), the second largest intrastate
pipeline system in Louisiana. He served as Chairman of the Board of Tatham
Corporation from 1979 to December 1983, at which time it sold the assets of
Sugar Bowl to a joint venture between MidCon Corp. and Texas Oil and Gas, Inc.
From 1984 to 1988, Mr. Tatham pursued personal investments in various
industries, including the oil and gas industry. Mr. Tatham serves as a
director of J. Ray McDermott, S.A.
Antoine Gautreaux, Jr. has served as Chief Operating Officer of Tatham
Offshore since July 1996 and as Senior Vice President -- Operations from
September 1995 to July 1996. Prior to joining the Company, Mr. Gautreaux was
employed by Placid Oil Company ("Placid") for 21 years in various capacities,
including Manager of Drilling and Production. Mr. Gautreaux received a B.S.
degree from Nichols State University.
Diana J. Walters has served as a Director, Chief Financial Officer and
Secretary of Tatham Offshore since September 1995 and as an Assistant Secretary
of DeepTech since November 1993. In addition, Ms. Walters served as Vice
President Corporate Finance and Planning of Tatham Offshore from October 1993
through September 1995. Prior to joining Tatham Offshore, she served as a Vice
President in the Natural
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<PAGE> 22
Resources Group of Internationale Nederlanden Bank (ING Bank) from 1990 to 1993
financing independent oil and gas companies and as an Assistant Vice President
in the Natural Resources Department at Chase Manhattan Bank (formerly
Manufacturers Hanover Trust Company) from 1986 to 1990 financing interstate and
intrastate pipeline companies. Ms. Walters received a B.A. degree and a M.A.
degree in Energy and Mineral Resources from the University of Texas at Austin.
Dennis A. Kunetka has served as Senior Vice President -- Corporate Finance
of Tatham Offshore since October 1993. Mr. Kunetka has served as Senior Vice
President -- Corporate Finance and Investor Relations of DeepTech and Leviathan
since August 1993. Prior to joining Tatham Offshore, Mr. Kunetka served as
Vice President and Controller of United Gas Pipe Line Company ("UGPL") and its
parent company, United Gas Holding Corporation. Prior to joining UGPL in 1984,
Mr. Kunetka spent 11 years with Getty Oil Company in various tax, financial and
regulatory positions. Mr. Kunetka holds B.B.A. and M.S.A. degrees from the
University of Houston, a J.D. degree from South Texas College of Law and is a
Certified Public Accountant.
Kenneth E. Beeney has served as a Director and Vice President -- Chief
Geophysicist of Tatham Offshore since August 1993. Mr. Beeney has 15 years of
exploration experience, with a primary focus in the Gulf of Mexico. Prior to
joining Tatham Offshore in 1989, Mr. Beeney worked for Tenneco Oil Company
("Tenneco Oil") for eight years and Anadarko Petroleum Corporation on a variety
of exploration assignments. Mr. Beeney received a B.S. in Geophysics from the
Colorado School of Mines.
John D. Pike joined Tatham Offshore in 1991 and has served as Vice
President and Chief Geologist of Tatham Offshore since August 1993. Mr. Pike
has 15 years of exploration experience, with primary focus on various offshore
Louisiana trends. Prior to joining Tatham Offshore, Mr. Pike served Tenneco
Oil from 1981 to 1988 and Forest Oil Company from 1988 to 1991 in a variety of
exploration assignments. Mr. Pike received B.S. and M.S. degrees in Geology
from Texas A&M University and is a member of the American Association of
Petroleum Geologists.
Edward J. Gibbon, Jr. has served as Vice President -- Reservoir
Engineering of Tatham Offshore since September 1995. Mr. Gibbon has served as
Vice President -- Reservoir Engineering of Deepwater Production Systems, Inc.,
an affiliate of Tatham Offshore, since September 1993. Prior thereto Mr.
Gibbon served as the President of IDM Engineering, Inc., a company he founded
and which specialized in reservoir engineering studies and economic
evaluations. Mr. Gibbon received a Degree of Petroleum Engineer from the
Colorado School of Mines.
Jeffrey K. Lucas joined Tatham Offshore in 1989 and has served as Vice
President -- Land Manager of Tatham Offshore since June 1991. Mr. Lucas has
worked in the oil industry for 18 years. Prior to joining Tatham Offshore, Mr.
Lucas served in various capacities, including Division Landman, in the Land
Department of Tenneco Oil from 1979 to 1989 and was primarily responsible for
negotiating lease acquisitions in the Rocky Mountain area and the Gulf. Mr.
Lucas received a B.S. in Mineral Land Management from the University of
Colorado.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Tatham Offshore's Common Stock is listed on Nasdaq, which is the principal
trading market for these securities, under the symbol "TOFF". As of August 30,
1996, there were approximately 139 holders of record of the Common Stock. The
following table sets forth, for the periods indicated, the high and low closing
sales prices for the Common Stock as listed on Nasdaq.
<TABLE>
<CAPTION>
Common Stock Price Range
------------------------
High Low
----- ----
<S> <C> <C>
CALENDAR 1994
First Quarter(1) ................................... 10 1/2 9 1/8
Second Quarter ..................................... 19 3/8 8 7/8
Third Quarter ...................................... 16 3/4 9 3/4
Fourth Quarter ..................................... 13 7/8 9 5/8
CALENDAR 1995
First Quarter ...................................... 13 6 1/2
Second Quarter ..................................... 6 1/2 2 1/2
Third Quarter ...................................... 5 1/4 2 1/8
Fourth Quarter ..................................... 2 3/8 1
CALENDAR 1996
First Quarter ...................................... 1 1/4 5/8
Second Quarter...................................... 1 7/8 11/16
Third Quarter (through August 30, 1996)............. 1 3/8 49/64
</TABLE>
_______________
(1) Consisted of the period from the date on which the Common Stock was first
listed on Nasdaq, February 8, 1994, through March 31, 1994, a 52 day
period.
Tatham Offshore has never paid cash dividends on the Common Stock and does
not anticipate that it will pay any cash dividends on the Common Stock in the
foreseeable future. The payment of future dividends will be determined by the
Board of Directors in light of conditions then-existing, including the
Company's operating results, financial condition, capital requirements, general
business conditions and other factors the Board of Directors deems relevant.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
21
<PAGE> 24
The following table summarizes the Company's outstanding equity:
<TABLE>
<CAPTION>
Conversion/
Outstanding at Liquidation Dividend Exchange
Equity ------------------------------ Preference Rate Features
June 30, 1996 August 30, 1996
<S> <C> <C> <C> <C> <C>
Senior Preferred Stock (a) 7,500 7,500 $1,000 per share 9% (c)
Series A Preferred Stock 18,717,030 18,396,166 $1.50 per share 12% (d)(e)
Series B Preferred Stock -- -- $1.00 per share 8% (d)(e)
Series C Preferred Stock -- -- $0.50 per share 4% (d)(e)
Mandatory Redeemable
Preferred Stock -- -- $0.50 per share -- (e)(f)
Warrants (b) 6,403,918 6,403,918 N/A -- (g)
Common Stock 25,500,320 26,238,306 N/A -- --
</TABLE>
- ----------------
(a) The Partnership holds all outstanding shares.
(b) DeepFlex holds 5,329,043 of the outstanding Warrants.
(c) The Partnership has made an irrevocable offer to the Company to sell
all or any portion of the Senior Preferred Stock at a price equal to
$1,000 per share, plus interest thereon at 9% per annum less the sum of
any dividends paid thereon. In the event the Company does not purchase
the Senior Preferred Stock on or before September 30, 1998, then for a
period of 90 days thereafter it shall be convertible into Series A
Preferred Stock. The conversion ratio shall be equal to (i) the
liquidation preference amount plus accumulated unpaid dividends divided
by (ii) the arithmetic average of closing prices for the 20 trading days
following October 1, 1998 of the Series A Preferred Stock.
(d) At any time from July 1, 1996 until December 31, 1998, each share may
be exchanged for four Exchange Warrants each of which entitles the
holder thereof to purchase one share of Common Stock at $0.653 per
share. At any time after July 1, 1996, the holder may convert the
liquidation value and unpaid dividends into shares of Common Stock at
$0.653 per share.
(e) On or after July 1, 1997, redeemable at the option of the Company.
(f) The Company is required to redeem at a redemption price of $0.50 per
share if the Company redeems any shares of Series A, B or C Preferred
Stock. The Company is also required to redeem at a redemption price of
$0.50 per share from net proceeds from the sale of Common Stock pursuant
to the exercise of Exchange Warrants, subject to certain conditions.
(g) Holders are entitled to purchase, for $1.00 per share, one share of
either (i) Series B Preferred Stock on or before October 1, 1996 or (ii)
Series C Preferred Stock on or before January 1, 1997. All remaining
unexercised Warrants will automatically be converted into Mandatory
Redeemable Preferred Stock on January 1,1997.
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company at and for
each of the three fiscal years ended June 30, 1994, 1995 and 1996 and at June
30, 1995 and 1996 have been derived from the historical financial statements
and notes thereto which are included elsewhere in this Annual Report on Form
10-K. The selected financial data at and for each of the two fiscal years
ended June 30, 1992 and 1993 and at June 30, 1994 have been derived from the
historical financial statements. The following selected financial data should
be read in conjunction with the Company's consolidated financial statements and
related notes thereto, which are included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
Oil and gas sales to affiliates .................. $ -- $ -- $ 11,971 $ 7,800 $ 15,904
Oil and gas sales ................................ 413 268 175 254 166
-------- -------- --------- --------- --------
Total revenue ............................ 413 268 12,146 8,054 16,070
-------- -------- --------- --------- --------
COSTS AND EXPENSES:
Production and operating expenses ................ 359 341 8,509 13,745 13,203
Exploration expenses ............................. 740 1,104 3,067 11,459 637
Depreciation, depletion, amortization
and impairment ................................ 1,569 -- 983 1,210 9,758
Management fee and general and administrative
expenses allocated from affiliate ............. 2,220 2,658 3,377 4,967 4,436
General and administrative expenses .............. 625 398 1,496 2,145 1,839
-------- -------- --------- --------- --------
Total operating costs .................... 5,513 4,501 17,432 33,526 29,873
-------- -------- --------- --------- --------
Operating loss ................................... (5,100) (4,233) (5,286) (25,472) (13,803)
Gain on sale of oil and gas properties ........... -- -- -- 1,496 22,641
Interest income .................................. 6 3 431 836 113
Interest and other financing costs ............... (1,416) (2,094) (3,935) (11,631) (8,161)
-------- -------- --------- --------- --------
Net income (loss) ................................ $ (6,510) $ (6,324) $ (8,790) $ (34,771) $ 790
======== ======== ========= ========= ========
Net income (loss) available to common stockholders $ (6,690) $ (6,444) $ (9,925) $ (34,771) $ 509
======== ======== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties, net............... $ 4,079 $ 7,910 $ 46,453 $ 70,829 $ 64,900
Total assets ............................. 4,368 8,274 99,291 94,720 97,130
Deferred income .......................... -- -- -- 30,000 --
Long term debt ........................... 12,012 21,469 60,000 60,000 60,000
Convertible, redeemable preferred stock... 3,600 3,600 -- -- --
Stockholders' equity (deficit)............ (13,021) (19,465) 14,751 (20,020) 18,862
</TABLE>
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<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Tatham Offshore is an independent energy company engaged in the
development and production of, and the exploration for, offshore oil and
gas reserves, with activities concentrated in the Flextrend and Deepwater
areas of the Gulf. Tatham Offshore's current portfolio of mineral
leaseholds consist of 15 offshore oil and gas leases in the Gulf covering
approximately 83,200 gross (72,500 net) acres which include producing
properties and undeveloped leases. Although a substantial portion of
Tatham Offshore's acreage is undeveloped, limited drilling results have
established estimated proved reserves attributable to Tatham Offshore's
interests in its leases of approximately 11.9 MMbbls of oil and condensate
and 62.3 Bcf of gas as of June 30, 1996, based on a reserve report
prepared by Ryder Scott.
The following discussion is intended to assist in the understanding
of the Company's financial position and results of operations for each of
the fiscal years ended June 30, 1996, 1995 and 1994. Part I of this
Statement and the financial statements and related notes thereto included
elsewhere in this Annual Report contain detailed information that should
be referred to in conjunction with this discussion.
RESULTS OF OPERATIONS
Year Ended June 30, 1996 Compared with Year Ended June 30, 1995
Revenue from oil and gas sales totaled $16.1 million for the year
ended June 30, 1996 as compared with $8.1 million for the year ended June
30, 1995. During the year ended June 30, 1996, the Company sold 3,274
MMcf of gas and 418,000 barrels of oil at average prices of $2.51 per Mcf
and $18.83 per barrel, respectively. During the same period in 1995, the
Company sold 1,505 MMcf of gas and 333,000 barrels of oil at average
prices of $1.67 per Mcf and $16.67 per barrel, respectively. The increase
in oil and gas revenue is due primarily to increased production from the
Ewing Bank 914 #2 well, the initiation of production at the Viosca Knoll
Block 817 project in December 1995 and higher oil and gas prices. During
the year ended June 30, 1995, the Ewing Bank 914 #2 well was shut-in for
approximately four months to allow the Company to replace the flow lines
from the subsea wellhead to a fixed platform. During the year ended June
30, 1996, the Ewing Bank 914 #2 well was shut-in approximately six weeks
during which the Company completed repair operations on the flow lines.
Production and operating expenses for the year ended June 30, 1996
totaled $13.2 million as compared with $13.7 million for the same period
in 1995. The decrease in production and operating expenses is primarily
comprised of (i) a decrease of $1.5 million in transportation services
primarily related to the restructuring of certain transportation
agreements with the Partnership, (ii) a decrease in workover expenses of
$0.8 million and (iii) a net decrease in operating costs related to Ewing
Bank, West Delta, West Cameron and Ship Shoal properties of $1.8 million
offset by $2.3 million of costs associated with the repair of the flow
lines that connect the Ewing Bank 914 #2 well to a fixed platform and $1.3
million of operating costs associated with the Viosca Knoll Block 817
project.
Exploration expenses for the year ended June 30, 1996 totaled $0.6
million as compared with $11.5 million for the year ended June 30, 1995.
During the year ended June 30, 1995, the Company expensed drilling costs
of $10.6 million associated with the Ewing Bank 915 #4 and Viosca Knoll
818 #1 wells. Exploration expenses for both periods included delay
rentals, minimum royalties and costs incurred under an amended technology
services agreement with Dover Technology, Inc. ("Dover"), a 50%-owned
affiliate of DeepTech.
Depreciation, depletion and amortization for the year ended June 30,
1996 was $9.8 million as compared with $1.2 million for the year ended
June 30, 1995. Depreciation, depletion and amortization for the year
24
<PAGE> 27
ended June 30, 1996 reflected costs applicable to the West Delta 35 and
Viosca Knoll Block 817 projects and the Ewing Bank 914 #2 well whereas
depreciation, depletion and amortization for the year ended June 30, 1995
reflected costs applicable to the West Delta 35 and Ship Shoal 331
projects and the Ewing Bank 914 #2 well. In connection with the Company's
assessment of its Ship Shoal Block 331 property and its decision to seek a
sale of all or a portion of such property, or a joint venture partner, the
Company reduced its investment in its Ship Shoal Block 331 property by
$8.0 million during the fiscal year ended June 30, 1996.
General and administrative expenses, including the management fee and
general and administrative expenses allocated from DeepTech, for the year
ended June 30, 1996 were $6.3 million as compared with $7.1 million for
the same period in 1995. The decrease in general and administrative
expenses for the year ended June 30, 1996 reflected a $0.5 million
decrease related to the Company reducing the amount of managerial and
administrative services provided by DeepTech pursuant to the Management
Agreement and a decrease of $0.3 million in direct general and
administrative expenses incurred by the Company.
The operating loss for the year ended June 30, 1996 was $13.8 million
as compared with an operating loss of $25.5 million for the year ended
June 30, 1995. The change in operating loss was due to the items
discussed above.
During the year ended June 30, 1996, the Company recognized a $22.6
million gain related to the sale of the Assigned Properties to Flextrend
Development as a result of the Company waiving its options to prepay the
then existing Payout Amount and receive a reassignment of its working
interests. During the year ended June 30, 1995, the Company recognized a
$1.5 million gain primarily related to a farmout agreement on its five
block Phar Lap project located in the Viosca Knoll area.
Interest expense, net of interest income, for the year ended June 30,
1996 totaled $8.0 million as compared with $10.8 million for the year
ended June 30, 1995. For the years ended June 30, 1996 and 1995, $7.1
million of the interest expense was attributable to interest payable to
DeepTech under the Subordinated Notes.
After considering $0.3 million of preferred dividends in arrears, the
Company's net income available to common shareholders for the year ended
June 30, 1996 was $0.5 million as compared with a net loss available to
common shareholders for the year ended June 30, 1995 of $34.8 million.
Year Ended June 30, 1995 Compared with Year Ended June 30, 1994
Revenue from oil and gas sales totaled $8.1 million for the year
ended June 30, 1995 as compared with $12.1 million for the year ended June
30, 1994. During the year ended June 30, 1995, the Company sold 1,505
MMcf of gas and 333,000 barrels of oil and condensate at average prices of
$1.67 per Mcf and $16.67 per barrel, respectively. During the year ended
June 30, 1994, the Company sold 2,937 MMcf of gas and 395,000 barrels of
oil and condensate at average prices of $2.34 per Mcf and $13.36 per
barrel, respectively. The decrease in oil and gas revenue primarily
reflected lower production from the Ewing Bank 914 #2 well due to the
paraffin build-up in the subsea flow lines.
Production and operating expenses for the year ended June 30, 1995
were $13.7 million as compared with $8.5 million for the year ended June
30, 1994. Included in production and operating expenses for each year
were demand charges of $6.6 million and $5.0 million, respectively, which
were paid to the Partnership under the Ewing Bank Gathering Agreement
pursuant to which the Company was obligated to pay certain fixed demand
charges irrespective of the volume transported through the system. Since
the Ewing Bank 914 #2 well began production in late August 1993,
production and operating expenses for the year ended June 30, 1994
reflected demand charges for only a portion of the twelve-month period,
whereas the year ended June 30, 1995 included demand charges for the
entire twelve-month period. Included in production and operating expenses
for the year ended June 30, 1995 was approximately $1.6 million relating
to costs associated with chemical paraffin inhibitors and additional oil
transport fees for the Ewing
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<PAGE> 28
Bank 914 #2 well. Also, included in operating expenses for the year ended
June 30, 1995 were costs to operate and perform workovers on wells at Ship
Shoal 331 totaling $0.9 million. In addition, included in production and
operating expenses for the year ended June 30, 1995 were demand charges of
$1.4 million which were paid to the Partnership under the Ship Shoal 331
transportation and processing agreement. Demand charges were payable under
this agreement irrespective of the volume transported through the system.
Exploration expenses for the year ended June 30, 1995 were $11.5
million as compared with $3.1 million for the year ended June 30, 1994.
Included in exploration expenses for the year ended June 30, 1995 were
$10.6 million of drilling costs associated with the Ewing Bank 915 #4 and
Viosca Knoll 818 #1 wells. Exploration expenses for the year ended June
30, 1994 included $0.8 million of Tatham Offshore's investment in its
shallow water leases that were relinquished during the year, $0.4 million
of dry hole costs associated with the sidetrack of an exploratory well
located in West Delta Block 49 and increased evaluation of seismic data.
Exploration expenses for both of these periods also included delay
rentals, minimum royalties and the purchase and evaluation of seismic
data. The increase in exploration expenses was partially offset by a
decrease in charges pursuant to the technology services agreement with
Dover, which was amended effective July 1, 1994 to provide for a fixed fee
of $50,000 per month. During the year ended June 30, 1995, the Company
incurred $0.7 million under the technology services agreement as compared
with $1.5 million during the year ended June 30, 1994.
Depreciation, depletion, amortization and impairment was $1.2 million
for the year ended June 30, 1995 as compared with $1.0 million for the
year ended June 30, 1994. Depreciation, depletion and amortization for
the year ended June 30, 1995 reflected costs associated with the West
Delta 35 and Ship Shoal 331 properties and Ewing Bank 914 #2 well,
whereas, depreciation, depletion, amortization and impairment costs for
the year ended June 30, 1994 were attributable to the West Delta Block 35
project and the Ewing Bank 914 #2 well and a $0.5 million increase in the
reserve for the eventual abandonment of the shallow water production
platform at West Cameron Block 436.
General and administrative expenses, including the management fee and
general and administrative expenses allocated from DeepTech, for the year
ended June 30, 1995 were $7.1 million as compared with $4.9 million for
the year ended June 30, 1994 primarily reflecting an increase in staff and
overhead expenses allocated to Tatham Offshore under the Management
Agreement as a result of increased activity related to the wells drilled
during fiscal 1995.
Operating loss for the year ended June 30, 1995 was $25.5 million as
compared with $5.3 million for the year ended June 30, 1994. The
increased operating loss was due to the items discussed above.
During the year ended June 30, 1995, the Company recognized a $1.5
million gain primarily related to a farmout agreement on its five block
Phar Lap project located in the Viosca Knoll area.
Interest expense and other financing costs, net of interest income,
for the year ended June 30, 1995 were $10.8 million as compared with $3.5
million for the year ended June 30, 1994. The increase in interest
expense, net of interest income, was primarily attributable to increased
borrowings under a construction and financing agreement as a result of the
acquisition of the Ship Shoal Platform and the Subordinated Notes.
Tatham Offshore's net loss available to common stockholders for the
year ended June 30, 1995 was $34.8 million. After taking into account the
Company's accrual to conversion value on its convertible, redeemable
preferred stock of $1.1 million, the net loss available to common
stockholders for the year ended June 30, 1994 was $9.9 million.
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<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash. The Company intends to satisfy its immediate
capital requirements and other working capital needs primarily from cash
on hand, cash generated from continuing operations and proceeds from the
exercise of existing Warrants. At June 30, 1996, the Company had $4.8
million of cash and cash equivalents. In addition, Tatham Offshore had an
additional $6.4 million of net working capital including $12.2 million in
stock subscriptions receivable which was collected in July 1996.
Cash from continuing operations is derived primarily from production
from the Company's Phar Lap project which is currently producing
approximately 90 MMcf per day. As of August 30, 1996, the Company has
five wells at Phar Lap which are capable of production and the operator is
in the process of completing the first of three additional wells on that
project. The well deliverability from the Phar Lap project is in excess of
the 90 MMcf per day but is limited to such amount by the processing
capability of the production equipment currently located on the production
platform. The operator is currently taking steps to add additional
equipment to the platform at Viosca Knoll Block 817 which is expected to
increase the processing capacity to approximately 125 MMcf per day by mid
November 1996. Tatham Offshore currently owns a 25% working interest in
the Phar Lap project which interest is subject to a production payment
equal to 25% of the net operating cash flow from such working interest.
Tatham Offshore also has producing wells at Ewing Bank 914 # 2 and at
its Silent Beauty project at West Delta Block 35 which contribute to cash
from continuing operations. The Company owns a 100% working interest in
the Ewing Bank 914 #2 well and a 38% working interest in the Silent Beauty
project. During February 1996, the Ewing Bank 914 #2 well began
producing some water (increasing to approximately 62% of total production
by August 30, 1996) resulting in a reduction of the hydrocarbon
production. The Ewing Bank 914 #2 well is currently producing at a rate of
approximately 900 barrels of oil, 2.0 MMcf of gas and 1,600 barrels of
water per day.
As a result of the Offering, in February 1996, the Company received
$12.6 million in gross proceeds ($11.3 million, net) pursuant to the
exercise of Rights to purchase 25,120,948 Warrants at $.50 per warrant. As
of July 1, 1996, 18,717,030 of these Warrants had been exercised to
purchase an equivalent number of shares of Series A Preferred Stock at
$1.00 per share which generated an additional $18.7 million in proceeds to
the Company. Proceeds from the Offering through July 1, 1996 were
utilized to (i) repay $8.1 million in principal and interest due on a
bridge loan from DeepFlex, (ii) pay $4.7 million in management fees
payable by the Company to DeepTech pursuant to its Management Agreement
and (iii) to fund the Company's working capital and capital requirements.
As of July 1, 1996, there were 6,403,918 Warrants outstanding. Each
of the remaining Warrants may be exercised to purchase one share of (i)
Series B Preferred Stock, which has a liquidation preference of $1.00 per
share, at any time prior to 5:00 p.m. New York time on October 1, 1996 or
(ii) Series C Preferred Stock, which has a liquidation preference of $.50
per share, at any time prior to 5:00 p.m. New York time on January 1, 1997
at the purchase price of $1.00 per share. Each Warrant remaining
unexercised at 5:00 p.m. New York time on January 1, 1997 shall be
automatically converted, without any action on the part of the holder
thereof, into one share of Mandatory Redeemable Preferred Stock , which
shall have a liquidation preference of $0.50 per share and shall be
mandatorily redeemable by the Company under certain circumstances. At any
time from July 1, 1996 until December 31, 1998, each share of Series A, B
or C Preferred Stock may be exchanged for four Exchange Warrants each of
which shall entitle the holder thereof to purchase one share of Common
Stock at $0.653 per share. The Exchange Warrants will expire July 1,
1999. Alternatively, at any time after July 1, 1996, the holder of any
shares of Series A, B or C Preferred Stock will have the right, at the
holder's option, to convert the liquidation value of such stock and
accrued and unpaid dividends into shares of Common Stock at the $0.653 per
share. On and after July 1, 1997, the Convertible Exchangeable Preferred
27
<PAGE> 30
Stock will be redeemable at the option of the Company. Through August 30,
1996, a total of 320,864 shares of Series A Preferred Stock had been
converted into 737,986 shares of Common Stock.
Uses of Cash. The Company's primary uses of cash consist of (i)
amounts due under the Subordinated Notes, (ii) expenses associated with
operating its producing properties, including its obligations under the
Drilling Arrangement and its production payment and leasehold abandonment
liabilities, (iii) capital expenditures necessary to fund its portion of the
development costs attributable to its working interests, (iv) platform access
fees and processing and commodity charges payable to the Partnership, (v)
interest and principal on the Affiliate Note (discussed herein) and
(vi) payments due under the Management Agreement with DeepTech.
As of June 30, 1996, Tatham Offshore had $60.0 million aggregate
principal amount of Subordinated Notes outstanding, the maximum principal
amount of Subordinated Notes issuable, all of which were held by DeepTech.
The Subordinated Notes are subordinate to all senior indebtedness of
Tatham Offshore, which would include the Affiliate Note. As of the date
of this Annual Report, Tatham Offshore did not have any outstanding
indebtedness ranking senior to the Subordinated Notes, except for
outstanding indebtedness under the Affiliate Note. The Subordinated Notes
bear interest at a rate of 11 3/4% per annum, payable in arrears
(approximately $1.8 million per quarter); provided, however, that
effective July 1, 1997, interest shall accrue at a rate of 13% per annum.
The principal amount of the Subordinated Notes is payable in seven equal
annual installments of approximately $8.6 million each commencing August
1, 1999. For the year ended June 30, 1996, Tatham Offshore paid DeepTech
$7.1 million in interest on the Subordinated Notes.
During the year ended June 30, 1996, the Company began incurring
abandonment costs related to its West Cameron 436 property, in which it
owns a 47% working interest. The West Cameron 436 property ceased
producing in 1994. The total estimated abandonment obligation, net to the
Company's working interest, of $1.2 million was fully accrued as of June
30, 1995. Through August 30, 1996, the Company has paid approximately
$0.8 million of the estimated abandonment costs.
The Company was obligated to make demand charge payments to the
Partnership under certain transportation agreements. Demand charges were
payable whether or not any production was actually transported. In
addition, Tatham Offshore is obligated to pay commodity charges, based on
the volume of oil and gas transported or processed, under these
agreements. Also, the Company is obligated to pay $1.6 million in
platform access fees annually relative to its 25% working interest in its
Phar Lap property. Production problems at Ship Shoal Block 331 and
reduced oil production from the Ewing Bank 914 #2 well affected Tatham
Offshore's ability to pay the demand charge obligations under agreements
relative to these properties. Effective February 1, 1996, Tatham Offshore
entered into an agreement with the Partnership to prepay its remaining
demand charge payments under the transportation agreements covering its
Ewing Bank and Ship Shoal properties. Under the agreement, Tatham
Offshore's demand charge obligations relative to the Ewing Bank Gathering
System and the Ship Shoal Extension have been prepaid in full. In
exchange, effective February 1, 1996, Tatham Offshore has (i) issued the
Partnership 7,500 shares of 9% Senior Preferred Stock with a liquidation
preference of $1,000 per share, (ii) added the sum of $7.5 million to the
Payout Amount under the Purchase and Sale Agreement with Flextrend
Development and (iii) granted to the Partnership certain rights to use and
acquire the Ship Shoal Platform. The Partnership has made an irrevocable
offer to Tatham Offshore to sell all or any portion of the 9% Senior
Preferred Stock to Tatham Offshore or its designee at a price equal to
$1,000 per share, plus interest thereon at 9% per annum less the sum of
any dividends paid thereon. If the 9% Senior Preferred Stock is not
purchased by Tatham Offshore on or before September 30, 1998, it will be
convertible into shares of Tatham Offshore's Series A Preferred Stock
based on the liquidation preference amount of the Senior Preferred Stock
and the equivalent market value of the Series A Preferred Stock as of the
date of conversion. The increase in the Payout Amount will defer the
reversion of Tatham Offshore's working interest in its Viosca Knoll Block
817, Garden Banks Block 72 and Garden Banks Block 117 properties under the
Purchase and Sale Agreement and will be excluded for purposes of computing
the amount to be extinguished if Flextrend Development exercises one of
its Working Interest Options. In addition, Tatham Offshore agreed to
grant the Partnership the right to utilize the Ship Shoal Platform and
28
<PAGE> 31
related facilities at a rental rate of $1.00 per annum for such period as
the platform is owned by Tatham Offshore and located on the Ship Shoal
Block 331, provided such use does not interfere with lease operations or
other activities of Tatham Offshore. Tatham Offshore has granted the
Partnership a right of first refusal relative to a sale of the platform.
The agreement with the Partnership reduced demand charge payments by
approximately $4.1 million for the fiscal year ended June 30, 1996, and
will result in a reduction of $7.8 million for the fiscal year ended June
30, 1997 and $5.9 million for fiscal years thereafter. Tatham Offshore
remains obligated to pay the commodity charges under these agreements as
well as all platform access and processing fees associated with the Viosca
Knoll Block 817 lease.
On November 1, 1995, the Company converted $1.7 million of its
accounts payable to an affiliate into an unsecured promissory note to
DeepTech (the "Affiliate Note") which bears interest at 14.5% per annum.
Interest on the Affiliate Note is payable quarterly, beginning March 31,
1996. The principal is due and payable in six monthly installments,
beginning on a date which is the earlier of (i) November 1, 1997 or (ii)
the last day of the calendar month in which the Company receives proceeds
from the issuance of any preferred stock described in the Offering in an
amount equal to or greater than $20.0 million. Interest expense related
to the Affiliate Note totaled $0.2 million for the year ended June 30,
1996.
Effective July 1, 1993, the Management Agreement between the Company
and DeepTech provided for an annual management fee equal to 40% of
DeepTech's overhead. The management fee is intended to reimburse DeepTech
for the estimated costs of its operational, financial, accounting and
administrative services provided to Tatham Offshore. In an effort to
minimize the Company's projected operating cash shortfall, the Company and
DeepTech agreed to decrease the amount of managerial and administrative
services provided by DeepTech to the Company and amend the Management
Agreement effective November 1, 1995. The amended Management Agreement
provides for an annual management fee of 27.4% of DeepTech's overhead
expenses. For the year ended June 30, 1996, the Company was charged $4.4
million in management fees pursuant to the Management Agreement.
Liquidity Outlook. During the year ended June 30, 1995 and the first
six months of fiscal 1996, Tatham Offshore experienced liquidity problems
resulting primarily from substantial negative cash flow from operations.
In order to improve liquidity and partially address its capital
requirements, Tatham Offshore (i) sold, subject to certain reversionary
rights, all of its working interests in the Assigned Properties for $30
million to Flextrend Development, (ii) raised additional equity through
the sale of Warrants and Series A Preferred Stock, (iii) prepaid certain
of its demand charge obligations through the assignment of certain assets
pursuant to an agreement with the Partnership and (iv) reduced its
overhead by lowering the level of services required under its Management
Agreement with DeepTech.
Tatham Offshore is entitled to receive a reassignment of the Assigned
Properties, subject to reduction and conditions as discussed below, after
Flextrend Development has received net revenues equal to the Payout
Amount. As of June 30, 1996, the Payout Amount was $77.7 million comprised
of (i) initial acquisition and transaction costs of $32.1 million, (ii)
development and operating costs of $49.3 million, (iii) prepaid demand
charges of $7.5 million and (iv) interest of $7.1 million reduced by net
revenue of $18.3 million. Tatham Offshore and the Partnership have agreed
that in the event the Company furnishes the Partnership with a financing
commitment from a lender with a credit rating of BBB- or better covering
100% of the then outstanding Payout Amount, the interest rate utilized to
compute the Payout Amount shall be adjusted from and after the date of
such commitment to the interest rate specified in such commitment, whether
utilized or not. At any time prior to December 10, 1996, Flextrend
Development may exercise either of the Working Interest Options in
exchange for forgiving 25% or 50%, respectively, of the then-existing
Payout Amount, exclusive of the $7.5 million plus interest added to the
Payout Amount in connection with the prepayment of demand charges. In
the event Flextrend Development elects to reduce the Payout Amount, it
will become obligated to fund any further development costs attributable
to the Company's portion of the working interests, such costs to be added
to the Payout Amount. Otherwise, any further development costs will be
funded by
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<PAGE> 32
Flextrend Development on a discretionary basis, such costs to be added to
the Payout Amount. Further, in the event Flextrend Development forgoes
its right to permanently retain a working interest in all or a portion of
the Assigned Properties, it will be entitled to recover from working
interest revenues in respect of the Assigned Properties all future demand
charges payable for platform access and processing, in their inverse order
of maturity, prior to any reassignment to the Company. If however, Tatham
Offshore (i) satisfies in full the future demand charges payable for
platform access and processing, (ii) delivers evidence that it has
received a rating of BBB-, or better, from at least two reputable rating
agencies or (iii) delivers evidence that an entity with a rating of BBB-,
or better, has agreed to guarantee, assume or, to the reasonable
satisfaction of the Partnership, otherwise become responsible for such
future demand charges payable, then Tatham Offshore would receive a
reassignment of the Assigned Properties upon satisfaction of the Payout
Amount. In the event the Payout Amount has been satisfied but none of the
above conditions have been met, Tatham Offshore is entitled to receive
one-third (1/3) of the revenues, net of operating expenses and platform
access and processing fees, until such time as one of the above conditions
is met.
Flextrend Development has initiated production from each of the
Assigned Properties. As discussed above, the Phar Lap property is
currently producing approximately 90 MMcf per day. In addition to three
producing wells on Garden Banks Block 72, which are currently producing
approximately 3,600 barrels of oil and 6.5 MMcf of gas per day, an
additional well has been successfully drilled and is currently being
completed. The Garden Banks 117 property is currently producing
approximately 2,500 barrels of oil, 5.0 MMcf of gas and 2,900 barrels of
water per day from one well. Flextrend Development is currently drilling a
second well at Garden Banks Block 117.
In September 1996, the Company entered into the Drilling Arrangement
with Sedco Forex. The Drilling Arrangement includes the use of the
semisubmersible drilling rig, the FPS Bill Shoemaker, and will become
effective upon the mobilization of the rig to the Company's initial
location. The initial contract term of the Drilling Arrangement is for 90
days or, if sooner, the completion of the Company's initial drilling
operation and the mobilization of the rig to another location. The
Company may, at its option, extend the initial contract term through (i)
three successive one well options or (ii) two successive one year terms.
Under the terms of the Drilling Arrangement, the Company has committed to
pay Sedco Forex a drilling rate of $70,000 per day with a standby rate of
$66,700 per day. As security for its obligations under the Drilling
Arrangement, the Company is required to post an irrevocable letter of
credit or cash collateral of $6.3 million, which amount is equal to the
aggregate operating day rate for the contract term. In the event that the
Company exercises its option to extend the Drilling Arrangement, the Company
and Sedco Forex must agree upon additional security for the extension period.
During the term of the Drilling Arrangement, the Company has the right to
sub-contract the rig to other operators. If the rig is sub-contracted to
another operator, the Company will receive the difference between the
sub-contract rate and the above agreed upon rates, if any. The FPS Bill
Shoemaker is owned by an affiliate of DeepTech and operated by Sedco Forex
under a charter agreement. The Drilling Arrangement is conditioned upon the
completion of a third party financing that will fund certain improvements to the
FPS Bill Shoemaker. Sedco Forex has the right to substitute a similar drilling
rig for the FPS Bill Shoemaker in the event the FPS Bill Shoemaker is
unavailable due to a previously submitted bid for work offshore Canada. In the
event Sedco Forex elects to carry out such rig substitution, the Company has (i)
an option to use the FPS Bill Shoemaker in the Newfoundland Grand Banks Area
rather than the substitute rig to complete the initial contract term prior to
the use by the third party, subject to availability, and subject to higher
contract rates to account for the additional costs incurred by Sedco Forex as a
result of operations offshore Canada, and (ii) an additional option, upon
completion of the third party work and subject to the use of the rig for certain
other projects, to contract to use the rig for the drilling of one well at the
then prevailing contract price.
The Company currently intends to fund its operations for the period
of July 1, 1996 through at least June 30, 1997 with cash on hand and cash
from continuing operations. Although the restructuring of the Company's
existing demand charge obligations with the Partnership, the reduction of
its overhead and the initiation of production from the Viosca Knoll Block
817 field have significantly reduced the Company's cash flow deficit, the
Company does not anticipate generating positive cash flow prior to the
first to occur of
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(i) obtaining a refinancing commitment which could allow the Company to
reacquire all or a portion of the Assigned Properties from Flextrend
Development, (ii) actual payout of the Payout Amount and the resulting
reversion of all or a portion of the Assigned Properties which the Company
anticipates will occur no sooner than the end of fiscal 1998 or (iii) the
initial production from the Company's Sunday Silence field. In order to
initiate production from the Sunday Silence field, the Company will
require substantial additional capital to install a production facility
and drill additional development wells. There can be no assurance,
however, that the Company will be able to obtain additional financing on
terms that are acceptable to the Company.
To meet these additional capital needs, the Company will continue to
pursue the implementation of its business strategy which will focus
primarily on (i) attempting to develop and initiate production from the
Company's Sunday Silence field under a farmout or financing arrangement
with an industry partner or financial institution, (ii) analyzing the
results of drilling operations on the Assigned Properties in an effort to
maximize the value of its reversionary interest and attempting to obtain a
financing commitment to reacquire the properties or, at a minimum, to
cause a reduction in the interest rate utilized in the calculation of the
Payout Amount, (iii) attempting to sell or farmout interests in its other
properties, (iv) attempting to reinitiate production at Genuine Risk (Ship
Shoal Block 331) under a farmout arrangement with an industry partner or,
alternatively, selling the property or salvaging the platform and
equipment located at Genuine Risk for sale to a third party or
redeployment on another property, (v) seeking to acquire interests in
producing properties on a carried or financed basis and (vi) pursuing the
possible merger of the Company with an industry partner with sufficient
capital resources available to meet the capital requirements for the
development of the combined entity's properties.
The ability of the Company to satisfy its capital needs beyond those
funded with the proceeds from the sale of the Warrants, Series A Preferred
Stock and any of the Securities offered pursuant to the Offering will
depend upon its success in implementing its business strategy,
particularly its ability to develop and initiate production from the
Sunday Silence field. Although the Company has pursued farmout and
outside financing arrangements for its Sunday Silence project, as of this
date, the Company has not been able to obtain an acceptable farmout
arrangement with an industry partner or develop a financing arrangement
under the current economic conditions. On November 28, 1995, a federal
law was enacted that offers deepwater royalty relief for certain federal
leases located in 200 meters or greater of water depth in the Gulf. The
relief provided for in the new law is not automatic but must be applied
for with the Secretary of Interior (or his delegate). An applicant must
demonstrate that the proposed new production for which the royalty relief
is sought would not be economic to develop absent the royalty relief. The
Company filed an initial application in December 1995 but was advised in
late January 1996 that applications could not be accepted in advance of
publication of proposed interim regulations. Proposed interim regulations
were published by the MMS in May 1996. The Company is in the process of
preparing its application for royalty relief for the Sunday Silence
project and anticipates filing such application within the next 30 days.
Under the new legislation, the first 52.5 million equivalent barrels of
oil production from the Sunday Silence project would be exempt from
federal royalties if such relief is granted. The Company believes that if
the requested royalty abatement is granted, the resulting improved
economics for the project will be sufficient to obtain development
financing or an industry farmout arrangement. However, there can be no
assurance that the Company will be able to obtain the requested royalty
abatement, enter into a farmout or financing arrangement on favorable
terms, that the Sunday Silence field will be successfully developed or
that production will be initiated therefrom on a timely basis, if at all.
The Company has never paid dividends on its common or preferred
stock. The Company expects to retain all available earnings generated by
its operations for the growth and development of its business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder
are included in this Annual Report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the caption "Election of Directors"
in the Company's definitive proxy statement (the "Proxy Statement")
relating to the 1996 annual stockholders meeting (the "Annual Meeting"),
is incorporated herein by reference. The information regarding executive
officers of the Registrant is contained in Part I of this Form 10-K under
a separate item captioned "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the caption "Election of Directors --
Executive Compensation" in the Proxy Statement relating to the Annual
Meeting is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Election of Directors --
Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the captions "Election of Directors
- -- Certain Relationships and Related Transactions" and "Election of
Directors -- Officer and Employee Deferred Compensation Arrangements",
"Election of Directors -- Equity Incentive Plan", and "Election of
Directors -- Non Employee Director Stock Option Plan" in the Proxy
Statement is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. Financial Statements
As to financial statements and supplementary information, reference
is made to "Index to Consolidated Financial Statements" on page F-1
of this Annual Report.
2. Financial Statement Schedules
None.
3. Exhibits
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger by and between Tatham Offshore, a
Delaware corporation, and Tatham Offshore, Inc., a Texas corporation
(filed as exhibit 2.1 in Tatham Offshore's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994, and incorporated herein by
reference).
3.1 Restated Certificate of Incorporation of Tatham Offshore (filed as
exhibit 3.1 in Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by
reference).
3.2 By-laws of Tatham Offshore (filed as exhibit 3.2 in Tatham Offshore's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994,
and incorporated herein by reference).
3.3 Certificate of Amendment of Certificate of Incorporation of Tatham
Offshore (filed as Exhibit 3.1 to the Tatham Offshore, Inc. Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by reference).
4.1 Certificate of Designation Establishing the Series A Convertible
Exchangeable Preferred Stock of Tatham Offshore (filed as Exhibit 4.1
to the Tatham Offshore, Inc. Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995, Commission File No. 0-22892 and
incorporated herein by reference).
4.2 Certificate of Designation Establishing the Series B Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.2 to the Tatham
Offshore, Inc. Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, Commission File No. 0-22892 and incorporated
herein by reference).
4.3 Certificate of Designation Establishing the Series C Convertible
Exchangeable Preferred Stock (filed as Exhibit 4.3 to the Tatham
Offshore, Inc. Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995, Commission File No. 0-22892 and incorporated
herein by reference).
33
<PAGE> 36
4.4 Certificate of Designation Establishing the Mandatory Redeemable
Preferred Stock (filed as Exhibit 4.4 to the Tatham Offshore, Inc.
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995, Commission File No. 0-22892 and incorporated herein by
reference).
4.5 Warrant Agreement relating to the warrants entitling the holder
thereof to purchase shares of Convertible Exchangeable Preferred
Stock (filed as Exhibit 4.5 to the Tatham Offshore, Inc. Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995,
Commission File No. 0-22892 and incorporated herein by reference).
4.6 Exchange Warrant Agreement relating to the warrants entitling the
holder thereof to purchase shares of Tatham Offshore's Common Stock
(filed as Exhibit 4.6 to the Tatham Offshore, Inc. Quarterly Report
on Form 10-Q for the quarter ended December 31, 1995, Commission File
No. 0-22892 and incorporated herein by reference).
10.1 Registration Rights Agreement dated March 21, 1994, between Tatham
Offshore and First Interstate Bank of Texas, N.A., as Trustee (filed
as Exhibit 10.17 to DeepTech's Registration Statement on Form S-1,
File No. 33-76999, and incorporated herein by reference).
10.2 Amended and Restated Management Agreement, effective as of July 1,
1992, between DeepTech and Tatham Offshore (filed as Exhibit 10.1 to
Amendment No. 4 to Tatham Offshore's Registration Statement on Form
S-1, File No. 33-70120, and incorporated herein by reference).
10.3 First Amendment to the Amended and Restated Management Agreement,
dated as of January 1, 1995, between DeepTech and Tatham Offshore
(filed as Exhibit 10.71 to DeepTech's Registration Statement on Form
S-1, File No. 33-88688, and incorporated herein by reference).
10.4 Employee Bonus Plan of Tatham Offshore (filed as Exhibit 10.2 to
Tatham Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.5 Lease dated July 1, 1983 between the United States of America (the
"USA"), as Lessor, and Mobil Oil & Exploration & Producing Southeast
Inc. ("Mobil-X"), Sohio Petroleum Company ("Sohio") and Kerr-McGee
Corporation ("Kerr-McGee"), as subsequently assigned to Tatham
Offshore, as Lessee, covering Gulf of Mexico OCS-G 5801, Ewing Bank
Block 871 (filed as Exhibit 10.3 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.6 Lease dated July 1, 1983 between the USA, as Lessor, and Mobil-X,
Sohio and Kerr-McGee, as subsequently assigned to Tatham Offshore, as
Lessee, covering Gulf of Mexico OCS-G 5804, Ewing Bank Block 914
(filed as Exhibit 10.4 to Tatham Offshore's Registration Statement on
Form S-1, File No. 33-70120, and incorporated herein by reference).
10.7 Lease dated July 1, 1983 between the USA, as Lessor, and Mobil-X and
Kerr McGee, as subsequently assigned to Tatham Offshore, as Lessee,
covering Gulf of Mexico OCS-G 5805, Ewing Bank Block 915 (filed as
Exhibit 10.5 to Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120,
34
<PAGE> 37
and incorporated herein by reference).
10.8 Lease dated July 1, 1983 between the USA, as Lessor, and Mobil-X,
Sohio and Kerr-McGee, as subsequently assigned to Tatham Offshore, as
Lessee, covering Gulf of Mexico OCS-G 5806, Ewing Bank Block 916
(filed as Exhibit 10.6 to Tatham Offshore's Registration Statement on
Form S-1, File No. 33-70120, and incorporated herein by reference).
10.9 Lease dated July 1, 1983 between the USA, as Lessor, and Sohio and
Kerr-McGee, as subsequently assigned to Tatham Offshore, as Lessee,
covering Gulf of Mexico OCS-G 6921, Ewing Bank Block 958 (filed as
Exhibit 10.7 to Tatham Offshore's Registration Statement on Form S-1,
File No. 33-70120, and incorporated herein by reference).
10.10 Lease dated July 1, 1983 between the USA, as Lessor, and Mobil-X,
Sohio and Kerr-McGee, as subsequently assigned to Tatham Offshore, as
Lessee, covering Gulf of Mexico OCS-G 6922, Ewing Bank Block 959
(filed as Exhibit 10.8 to Tatham Offshore's Registration Statement on
Form S-1, File No. 33-70120, and incorporated herein by reference).
10.11 Lease dated May 1, 1993 between the USA, as Lessor, and Tatham
Offshore, as Lessee, covering Gulf of Mexico OCS-G 13996, Ewing Bank
Block 1002 (filed as Exhibit 10.9 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.12 Lease dated May 1, 1991 between the USA, as Lessor, and Tatham
Offshore, as Lessee, covering Gulf of Mexico OCS-G 13091, Ewing Bank
Block 1003 (filed as Exhibit 10.10 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.13 Lease dated September 1, 1992 between the USA, as Lessor, and Tatham
Offshore, as Lessee covering Gulf of Mexico OCS-G 13631, Ship Shoal
Block 331 (filed as Exhibit 10.11 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.14 Lease dated May 1, 1974 between the USA, as Lessor, American
Petrofina Exploration Company and Skelly Oil Company, as subsequently
assigned to Tatham Offshore, as Lessee, covering Gulf of Mexico OCS-G
2539, West Cameron Block 436 (filed as Exhibit 10.12 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.15 Lease dated May 1, 1974 between the USA, as Lessor, and Texaco, Inc.,
as subsequently assigned to Tatham Offshore, as Lessee, covering Gulf
of Mexico OCS-G 2540, West Cameron Block 437 (filed as Exhibit 10.13
to Tatham Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.16 Lease dated July 1, 1992 between the USA, as Lessor, and Tatham
Offshore, as Lessee, covering Gulf of Mexico OCS-G 13641, West
Cameron Block 35 (filed as Exhibit 10.14 to Tatham Offshore's
Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
35
<PAGE> 38
10.17 Gathering Agreement dated July 1, 1992 between Ewing Bank Gathering,
DeepTech and Tatham Offshore (filed as Exhibit 10.16 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.18 Letter Agreement dated March 22, 1995 between Tatham Offshore and
Ewing Bank Gathering Company, L.L.C. amending the Gathering Agreement
dated July 1, 1992 (filed as Exhibit 10.44 to DeepTech's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by reference).
10.19 Gas Purchase Agreement dated July 26, 1993 between Offshore Marketing
and Tatham Offshore (filed as Exhibit 10.17 to Tatham Offshore's
Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.20 Condensate Purchase Agreement dated July 26, 1993 between Offshore
Marketing and Tatham Offshore (filed as Exhibit 10.18 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.21 Amended and Restated Facilities Sharing Agreement, dated December 7,
1994, between BP Exploration & Gas Inc., Mobil Exploration and
Producing U.S. Inc., as agent for Mobil Exploration and Production
Southeast Inc., Kerr-McGee and Tatham Offshore (filed as Exhibit
10.47 to DeepTech's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, Commission File No. 0-23934 and incorporated
herein by reference).
10.22 Farmout Agreement, dated October 1, 1994, between Tatham Offshore,
F-W Oil Interests, Inc., O.P.I. International, Inc., and J. Ray
McDermott Properties, Inc. (filed as Exhibit 10.48 to DeepTech's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995,
Commission File No. 0-23934 and incorporated herein by reference).
10.23 Agreement dated July 2, 1993 and amended on December 6, 1993 between
Fina Oil and Chemical Company and Petrofina Delaware, Incorporated
and Tatham Offshore covering Viosca Knoll Blocks 772/773, 774, 817,
818 and 861 (filed as Exhibit 10.20 to Tatham Offshore's Registration
Statement on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.24 Farmout Agreement dated October 7, 1993 and amended on October 8,
1993 between Shell Offshore and Tatham Offshore covering Gulf of
Mexico OCS-G 12631, Garden Bank Block 117 (filed as Exhibit 10.21 to
Tatham Offshore's Registration Statement on Form S-1, File No.
33-70120, and incorporated herein by reference).
10.25 Unit Agreement for Outer Continental Shelf Exploration, Development
and Production Operations for the Ewing Bank Blocks 871, 914, 915,
916, 958 and 959, Ewing Bank Area, Offshore Louisiana, dated May 13,
1988 by and among Mobil-X, Sohio, Kerr-McGee and Kerr-McGee Federal
Limited Partnership I-1981 (filed as Exhibit 10.22 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
36
<PAGE> 39
10.26 Unit Agreement for Outer Continental Shelf Exploration, Development
and Production Operations for the Viosca Knoll Blocks 772, 773, 774,
817, 818 and 861, Viosca Knoll Area Offshore Louisiana, dated July 7,
1993 by and among Tatham Offshore, Petrofina Delaware, Incorporated
and Fina Oil & Chemical Company (filed as Exhibit 10.23 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.27 Technology Services Agreement dated as of July 1, 1993 between Tatham
Offshore and Dover (filed as Exhibit 10.24 to Tatham Offshore's
Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.28 First Amendment, dated as of July 1, 1994, to Technology Services
Agreement between Dover and Tatham Offshore (filed as Exhibit 10.60
to DeepTech's Registration Statement on Form S-1, File No. 33-88688,
and incorporated herein by reference).
10.29 DeepTech Registration Rights Agreement by and between Tatham Offshore
and DeepTech (filed as Exhibit 10.25 to Tatham Offshore's
Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.30 Indemnification Agreement dated as of October 16, 1993 between Tatham
Offshore and its directors (filed as Exhibit 10.26 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.31 Contract between OPI International, Inc. and Tatham Offshore dated
August 31, 1993, as amended (filed as Exhibit 10.27 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.32 Platform Facility Financing Agreement dated as of August 31, 1993
between Tatham Offshore and Offshore Energy Capital Corporation
(filed as Exhibit 10.28 to Tatham Offshore's Registration Statement
on Form S-1, File No. 33-70120, and incorporated herein by
reference).
10.33 Master Gas Dedication Agreement dated December 10, 1993 between
Tatham Offshore and Leviathan (filed as Exhibit 10.29 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.34 Amendment to Master Gas Dedication Agreement dated April 21, 1995
between Leviathan Gas Pipeline Partners, L.P. and Tatham Offshore
(filed as Exhibit 10.26 to DeepTech's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
10.35 Amendment to Master Gas Dedication Agreement dated April 21, 1995
between Leviathan Gas Pipeline Partners, L.P. and Tatham Offshore
(filed as Exhibit 10.27 to DeepTech's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
37
<PAGE> 40
10.36 Gas Dedication Agreement dated April 21, 1995 between Leviathan Gas
Pipeline Partners, L.P., Tatham Offshore and Elf Exploration, Inc.
(filed as Exhibit 10.28 to DeepTech's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
10.37 Gas Dedication Agreement dated April 21, 1995 between Leviathan Gas
Pipeline Partners, L.P., Tatham Offshore, F-W Oil Interests, Inc., J.
Ray McDermott Properties, Inc., J. Ray McDermott, Inc. and Elf
Exploration, Inc. (filed as Exhibit 10.29 to DeepTech's Annual Report
on Form 10-K for the fiscal year ended June 30, 1995, Commission File
No. 0-23934 and incorporated herein by reference).
10.38 Subordinated Convertible Note Purchase Agreement between Tatham
Offshore and DeepTech, as amended (filed as exhibit 10.30 in Tatham
Offshore's Annual Report on Form 10-K for the fiscal year ended June
30, 1994, and incorporated herein by reference).
10.39 11 3/4% Subordinated Convertible Promissory Note made payable by the
Company to the order of the holder thereof (filed as exhibit 10.31 in
Tatham Offshore's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994, and incorporated herein by reference).
10.40 Purchase and Sale Agreement between Tatham Offshore and OPI
International, Inc. (filed as Exhibit 10.33 to Tatham Offshore's
Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.41 Agreement dated August 31, 1993 between Offshore Energy Capital
Corporation and Tatham Offshore (filed as Exhibit 10.34 to Tatham
Offshore's Registration Statement on Form S-1, File No. 33-70120, and
incorporated herein by reference).
10.42 Endorsement No. 2, dated January 5, 1995, to the Promissory Note
dated April 13, 1994 from Tatham Offshore payable to the order of
Offshore Energy Capital Corporation, as endorsed to the order of
NationsBank of Texas, N.A. and as amended by Endorsement No. 1, dated
September 21, 1994 (filed as Exhibit 10.61 to DeepTech's Registration
Statement on Form S-1, File No. 33-88688, and incorporated herein by
reference).
10.43 Form of Stock Option Agreement by and between the Optionee and Tatham
Offshore (filed as exhibit 10.35 in Tatham Offshore's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994, and
incorporated herein by reference).
10.44 Agreement for Purchase and Sale by and between Tatham Offshore, Inc.,
as Seller, and Flextrend Development Company, L.L.C., as Buyer, dated
June 30, 1995 (filed as Exhibit 6(a) to the Leviathan Gas Pipeline
Partners, L.P. Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, Commission File Number 1-11680 and incorporated herein
by reference).
38
<PAGE> 41
10.45 Production Payment Agreement dated as of September 19, 1995 by Tatham
Offshore in favor of F-W Oil Interests, Inc. (filed as Exhibit 10.91
to DeepTech's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, Commission File No. 0-23934 and incorporated herein by
reference).
10.46 Production Payment Agreement dated as of September 19, 1995 by Tatham
Offshore in favor of J. Ray McDermott Properties, Inc. (filed as
Exhibit 10.92 to DeepTech's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995, Commission File No. 0-23934 and
incorporated herein by reference).
10.47 Tatham Offshore, Inc. Employee Equity Incentive Plan (filed a
Exhibit 10.47 to Tatham Offshore's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.48 Tatham Offshore, Inc. Non-Employee Director Stock Option Plan (filed
as Exhibit 10.48 to Tatham Offshore's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, and incorporated herein by
reference).
10.49 Loan Agreement between Tatham Offshore, Inc. and DeepFlex Production
Services, Inc. dated October 1, 1995 (filed as Exhibit 10.1 to the
Tatham Offshore, Inc. Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, Commission File No. 0-22892 and
incorporated herein by reference).
10.50* Master Drilling Agreement and Drilling Order between Tatham
Offshore, Inc. and Sedco Forex Division, Schlumberger Technology
Corporation dated September 19, 1996.
21.1* List of Subsidiaries of Tatham Offshore, Inc..
23.1* Consent of Independent Accountants, Price Waterhouse LLP.
23.2* Consent of Ryder Scott Company Petroleum Engineers, Independent
Petroleum Engineers.
24.1 * Power of Attorney (included on the signatures hereof).
- ---------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K with the Securities
and Exchange Commission on March 29, 1996.
39
<PAGE> 42
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Dennis A.
Kunetka and Diana J. Walters and each of them, any one of whom may act without
the joinder of the others, as his or her attorney-in-fact to sign on his or her
behalf and in the capacity stated below and to file all amendments to this
Annual Report, which amendment or amendments may make such changes and
additions thereto as such attorney-in-fact may deem necessary or appropriate.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TATHAM OFFSHORE, INC.
(Registrant)
By: /s/ Thomas P. Tatham
---------------------------
Thomas P. Tatham
Chairman of the Board
September 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date(s) indicated.
<TABLE>
<S> <C>
/s/ Thomas P. Tatham /s/ Donald S. Taylor
- ------------------------------------------------ ------------------------------------------
Thomas P. Tatham Donald S. Taylor
Chairman of the Board Director
September 26, 1996 September 26, 1996
- ------------------------------------------------ ------------------------------------------
Harry J. Briscoe Robert H. Williams
Director Director
September 26, 1996 September 26, 1996
/s/ Kenneth E. Beeney /s/ Diana J. Walters
- ------------------------------------------------ ------------------------------------------
Kenneth E. Beeney Diana J. Walters
Director and Vice President - Chief Geophysicist Director and Chief Financial Officer
September 26, 1996 (Principal Financial Officer and Principal
Accounting Officer)
September 26, 1996
</TABLE>
40
<PAGE> 43
<TABLE>
<S> <C>
/s/ Phillip G. Clarke /s/ Roger B. Vincent, Sr.
- ------------------------------------------------ ------------------------------------------
Phillip G. Clarke Roger B. Vincent, Sr.
Director Director
September 26, 1996 September 26, 1996
/s/ Humbert B. Powell, III /s/ James G. Niven
- ------------------------------------------------ ------------------------------------------
Humbert B. Powell, III James G. Niven
Director Director
September 26, 1996 September 26, 1996
/s/ Clyde E. Nath
- ------------------------------------------------
Clyde E. Nath
Director
September 26, 1996
</TABLE>
41
<PAGE> 44
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet as of June 30, 1996 and 1995 . . . . . . . F-3
Consolidated Statement of Operations for the Years Ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Stockholders' Equity for the Years
Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Tatham Offshore, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of stockholders'
equity present fairly, in all material respects, the financial position of
Tatham Offshore, Inc. and its subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
August 30, 1996
F-2
<PAGE> 46
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,764 $ 3,864
Stock subscriptions receivable 12,242 -
Accounts receivable from joint venture partners 719 3,462
Receivable from affiliates 968 16,271
Prepaid expenses 1,943 204
--------- ---------
Total current assets 20,636 23,801
--------- ---------
Oil and gas properties:
Oil and gas properties, at cost, using
successful efforts method 78,158 74,373
Less - accumulated depreciation, depletion,
amortization and impairment 13,258 3,544
--------- ---------
Oil and gas properties, net 64,900 70,829
--------- ---------
Prepaid expenses 11,594 -
Other assets - 90
--------- ---------
Total assets $ 97,130 $ 94,720
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 4,654 $ 10,462
Accounts payable to affiliates 3,101 2,298
Notes payable - 10,468
Notes payable to affiliate 1,734 -
--------- ---------
Total current liabilities 9,489 23,228
Deferred income - 30,000
Long-term debt to affiliate 60,000 60,000
Other noncurrent liabilities 8,779 1,512
--------- ---------
78,268 114,740
--------- ---------
Commitments and contingencies (Note 8)
Stockholders' equity (Note 5):
Preferred stock, $0.01 par value, 110,000,000 and
10,000,000 shares authorized as of June 30, 1996
and 1995, respectively, 18,724,530 shares issued and
outstanding at June 30, 1996 187 -
Common stock, $0.01 par value, 250,000,000 and
100,000,000 shares authorized as of June 30, 1996
and 1995, respectively, 25,500,320 and 25,000,000
shares issued and outstanding as of June 30, 1996 and
1995, respectively 255 250
Warrants outstanding to purchase shares of Convertible
Exchangeable Preferred Stock 2,883 -
Additional paid-in capital 80,004 44,987
Accumulated deficit (64,467) (65,257)
--------- ---------
18,862 (20,020)
--------- ---------
Total liabilities and stockholders' equity $ 97,130 $ 94,720
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 47
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Oil and gas sales to affiliates $ 15,904 $ 7,800 $ 11,971
Oil and gas sales 166 254 175
---------- ---------- ---------
16,070 8,054 12,146
---------- ---------- ---------
Costs and expenses:
Production and operating expenses 13,203 13,745 8,509
Exploration expenses 637 11,459 3,067
Depreciation, depletion, amortization
and impairment 9,758 1,210 983
Management fee and general and administrative
expenses allocated from affiliate 4,436 4,967 3,377
General and administrative expenses 1,839 2,145 1,496
---------- ---------- ---------
29,873 33,526 17,432
---------- ---------- ---------
Operating loss (13,803) (25,472) (5,286)
Interest income 113 836 431
Gain on sale of oil and gas properties 22,641 1,496 -
Interest and other financing costs (255) (4,566) (43)
Interest expense - affiliates (7,906) (7,065) (3,892)
---------- ---------- ---------
Net income (loss) $ 790 $ (34,771) $ (8,790)
========== ========== =========
Net income (loss) available to common stockholders $ 509 $ (34,771) $ (9,925)
========== ========== =========
Net income (loss) per common share $ 0.02 $ (1.39) $ (0.45)
========== ========== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 48
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 790 $(34,771) $ (8,790)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation, depletion, amortization
and impairment 9,758 1,210 983
Abandonment of leases - - 780
Amortization of debt issue costs - 2,810 43
Gain on sale of oil and gas properties (22,641) (1,496) -
Other 1,889 - -
Changes in operating working capital:
Decrease (increase) in accounts receivable
from joint venture partners 2,743 (2,837) (465)
Decrease (increase) in receivable from affiliates 303 (773) (445)
Decrease (increase) in prepaid expenses 175 (81) (85)
(Decrease) increase in accounts payable, accrued
liabilities and other current liabilities (7,809) 15,697 4,522
Increase (decrease) in accounts payable to affiliates 7,208 (4,092) 5,685
--------- -------- ---------
Net cash (used in) provided by
operating activities (7,584) (24,333) 2,228
--------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (9,143) (25,686) (28,652)
Proceeds from deferred income related to
the Assigned Properties 15,000 15,000 -
Proceeds from the sale of oil and gas
properties - 1,619 -
--------- -------- ---------
Net cash provided by (used in)
investing activities 5,857 (9,067) (28,652)
--------- -------- ---------
Cash flows from financing activities:
Repayment of notes payable (10,468) (11,428) -
Proceeds from notes payable to affiliate 8,000 - -
Repayment of notes payable to affiliate (8,000) - -
Proceeds of offering of Warrants, net of underwriting
fees, commissions and offering costs 11,291 - -
Proceeds from issuance of Series A Preferred Stock 1,804 - -
Net proceeds from line of credit and convertible
subordinated notes with affiliate - - 38,531
Proceeds of equity offering, net of
underwriting fees and commissions - - 46,500
Equity offering costs - - (1,915)
Redemption of convertible, redeemable
preferred stock - - (5,035)
Debt issue costs - (183) (2,804)
--------- -------- ---------
Net cash provided by (used in)
financing activities 2,627 (11,611) 75,277
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents 900 (45,011) 48,853
Cash and cash equivalents at beginning of year 3,864 48,875 22
--------- -------- ---------
Cash and cash equivalents at end of year $ 4,764 $ 3,864 $ 48,875
========= ======== =========
</TABLE>
Supplemental disclosures to the statement of cash flows - see Note 9.
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE> 49
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Warrants
outstanding
to purchase shares
Preferred Stock Common Stock of Convertible
--------------------- -------------------- Exchangeable Additional
Number of Number of Preferred paid-in Accumulated
Shares Par value Shares Par value Stock capital deficit Total
-------- --------- --------- --------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 - $ - 20,000 $ 200 $ - $ 1,052 $ (20,717) $ (19,465)
Redemption of convertible,
redeemable preferred
stock - - - - - (600) (535) (1,135)
Initial equity offering, - - 5,000 50 - 44,535 - 44,585
net
Distribution in excess of
predecessor basis - - - - - - (444) (444)
Net loss for the year ended
June 30, 1994 - - - - - - (8,790) (8,790)
-------- -------- -------- --------- --------- --------- --------- ---------
Balance, June 30, 1994 - - 25,000 250 - 44,987 (30,486) 14,751
Net loss for the year ended
June 30, 1995 - - - - - - (34,771) (34,771)
-------- -------- -------- --------- --------- --------- --------- ---------
Balance, June 30, 1995 - - 25,000 250 - 44,987 (65,257) (20,020)
Offering of Warrants, net - - - - 11,291 - - 11,291
Issuance of Senior
Preferred Stock 8 - - - - 7,500 - 7,500
Issuance of Series A
Preferred Stock 18,717 187 - - (8,408) 26,939 - 18,718
Issuance of common stock - - 500 5 - 578 - 583
Net income for the year
ended June 30, 1996 - - - - - - 790 790
-------- -------- -------- --------- --------- --------- --------- ---------
Balance, June 30, 1996 18,725 $ 187 25,500 $ 255 $ 2,883 $ 80,004 $ (64,467) $ 18,862
======== ======== ======== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE> 50
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION:
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company") is an independent
energy company engaged in the development, exploration and production of oil
and gas reserves located primarily offshore the United States in the Gulf of
Mexico (the "Gulf"). The Company was incorporated in Delaware on October 5,
1993 as a wholly owned subsidiary of Tatham Offshore, Inc., a Texas corporation
(the "Predecessor Company"), which was merged with and into the Company on
February 2, 1994 (the "Merger") (Note 5).
As of June 30, 1996, the Company is an approximately 39%-owned subsidiary of
DeepTech International Inc. ("DeepTech"), a diversified energy company, which,
through its affiliates, is engaged in providing contract drilling services, oil
and gas gathering and transmission, technology and engineering services,
geological and geophysical technology services, gas processing and liquids
marketing, oil and gas marketing and, through the Company and other affiliates,
oil and gas exploration, development and production.
In August 1995, the Company formed a wholly-owned subsidiary, Tatham Offshore
(Jersey) Ltd. ("TOJ"), incorporated in the Island of Jersey, to pursue certain
international opportunities. In April 1996, the Company formed a wholly-owned
subsidiary, Tatham Offshore Development Company, Inc., a Delaware corporation,
to hold certain of Tatham Offshore's oil and gas leases.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
those 50% or more owned subsidiaries controlled by Tatham Offshore. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Oil and gas properties
The Company accounts for its oil and gas exploration and production activities
using the successful efforts method of accounting. Under this method, costs of
successful exploratory wells, development wells and acquisitions of mineral
leasehold interests are capitalized. Production, exploratory dry hole and
other exploration costs, including geological and geophysical costs and delay
rentals, are expensed as incurred. Unproved properties are assessed
periodically and any impairment in value is recognized currently as
depreciation, depletion and amortization expense. The costs associated with
leases on undrilled acreage are recognized as exploration expense ($780,000 for
the year ended June 30, 1994) in the period in which management of the Company
determines that no further development of such leases is anticipated. Upon
discovery of proved reserves, the costs of unproved properties are transferred
to proved properties.
F-7
<PAGE> 51
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Depreciation, depletion and amortization of the capitalized costs of producing
oil and gas properties, consisting principally of tangible and intangible costs
incurred in developing a property and costs of productive leasehold interests,
are computed on the unit-of-production method. Unit-of-production rates are
based on annual estimates of remaining proved developed reserves or proved
reserves, as appropriate, for each property. Estimated dismantlement,
restoration and abandonment costs and estimated residual salvage values are
taken into account in determining depreciation provisions. Other noncurrent
liabilities at June 30, 1996 and 1995 include $811,000 and $1,512,000,
respectively, of accrued dismantlement, restoration and abandonment costs.
Based on continuing evaluation and other factors, impairments (additional
depreciation and depletion) are recorded to the extent that the net book value
of oil and gas properties, on an overall basis, exceeds the estimated
undiscounted future net revenue of proved oil and gas reserves, net of income
taxes.
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", was issued in March 1995. SFAS No. 121 requires recognition of impairment
losses on long-lived assets (including proved properties, wells, equipment and
related facilities) if the carrying amount of such assets, grouped at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows from other assets, exceeds the estimated
undiscounted future cash flows of such assets. Measurement of any impairment
loss will be based on the fair value of the assets. The Company has adopted
SFAS No. 121 effective July 1, 1996. SFAS No. 121 does not permit restatement
of previously issued financial statements. The adoption of SFAS No. 121 did
not have a material adverse effect on the Company's financial position or
results of operations.
Repair and maintenance costs are charged to expense as incurred; additions,
improvements and replacements are capitalized.
Capitalization of interest
Interest is capitalized in connection with major construction and drilling
activities as part of the cost of the asset and is amortized over the related
asset's estimated useful life. For the year ended June 30, 1994, interest
costs of $546,000 were capitalized pursuant to a vendor construction and
financing agreement discussed in Note 4. No interest was capitalized during
the years ended June 30, 1996 and 1995.
Debt issue costs
Debt issue costs are capitalized and amortized over the expected life of the
related indebtedness. Any unamortized debt issue costs are expensed at the
time the related indebtedness is repaid or otherwise terminated. Amortization
of debt issue costs of $2,810,000 and $43,000 is included as interest expense
in the accompanying statement of operations for the years ended June 30, 1995
and 1994, respectively (Note 4).
Revenue recognition
Revenue from oil and gas sales is recognized upon delivery in the period of
production.
Income taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of differences
between the carrying amounts and the tax bases of assets and liabilities.
F-8
<PAGE> 52
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Earnings per share
Primary earnings (loss) per share is computed by dividing common equity in net
income (loss) by the weighted average number of shares and common stock
equivalents outstanding during the period. The weighted average number of
shares outstanding for purposes of computing primary earnings (loss) per share
were 41,311,555 shares, 25,000,000 shares and 21,863,014 shares, respectively,
for the years ended June 30, 1996, 1995 and 1994.
Estimates
The preparation of financial statements in conformity with generally accepting
accounting principles requires management to make estimates and assumptions,
including those related to oil and gas reserves and potential environment
liabilities, that effect the reported amount of certain assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Management believes that the estimates used are reasonable.
Other
The fair values of the financial instruments included in the Company's assets
and liabilities approximate their carrying values.
Certain amounts in prior years have been reclassified to conform to the current
year's presentation.
NOTE 3 - OIL AND GAS PROPERTIES:
All of the Company's oil and gas properties are located in the Gulf and its oil
and gas activities are primarily conducted there.
Presented below are costs incurred in the Company's oil and gas property
acquisition, exploration and development activities, whether capitalized or
expensed at the time these costs were incurred:
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Acquisitions of properties:
Proved $ 2,373 $ - $ 555
Unproved - - 761
Exploration 637 11,459 2,287
Development 8,799 20,559 38,454
--------- --------- --------
Total costs incurred $ 11,809 $ 32,018 $ 42,057
========= ========= ========
</TABLE>
F-9
<PAGE> 53
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Investments in oil and gas properties at June 30, 1996 and 1995 were comprised
of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
(In thousands)
<S> <C> <C>
Proved properties $ 6,050 $ 11,064
Unproved properties 1,539 1,539
Wells, equipment and related facilities 70,569 61,770
--------- ---------
Total capitalized costs 78,158 74,373
Accumulated depreciation, depletion
amortization and impairment (13,258) (3,544)
-------- --------
Net capitalized costs $ 64,900 $ 70,829
========= =========
</TABLE>
The results of operations for oil and gas activities shown below exclude
corporate overhead, interest costs and income tax benefits.
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Oil and gas sales $ 16,070 $ 8,054 $ 12,146
Production and operating expenses (13,203) (13,745) (8,509)
Exploration expenses (637) (11,459) (3,067)
Depreciation, depletion and amortization (9,758) (1,210) (447)
Impairment - - (536)
---------- ---------- ---------
Results of operations from oil and gas
activities (excluding corporate overhead,
interest costs and income tax benefits) $ (7,528) $ (18,360) $ (413)
========= ========= =========
</TABLE>
On June 30, 1995, Flextrend Development Company, L.L.C. ("Flextrend
Development"), an operating subsidiary of Leviathan Gas Pipeline Partners, L.P.
(the "Partnership") which is an effective 23.2% owned affiliate of DeepTech,
entered into a purchase and sale agreement (the "Purchase and Sale Agreement")
with Tatham Offshore. Pursuant to the Purchase and Sale Agreement, Flextrend
Development acquired, subject to certain reversionary interests, a 75% working
interest in Viosca Knoll Block 817, a 50% working interest in Garden Banks
Block 72 and a 50% working interest in Garden Banks Block 117 (the "Assigned
Properties") from Tatham Offshore for $30,000,000. The Company received
$15,000,000 at closing and an additional $15,000,000 on August 15, 1995.
Flextrend Development is entitled to retain all of the revenues attributable to
the Assigned Properties until it has received net revenues equal to the Payout
Amount (as defined below), whereupon the Company is entitled to receive a
reassignment of the Assigned Properties, subject to reduction and conditions as
discussed below. "Payout Amount" is defined as an amount equal to all costs
incurred by Flextrend Development with respect to the Assigned Properties
(including the $30,000,000 acquisition cost paid to the Company) plus interest
thereon at a rate of 15% per annum. Effective February 1, 1996, the
Partnership entered into an agreement with Tatham Offshore regarding certain
transportation agreements that increases the amount recoverable from the Payout
Amount by $7,500,000 plus interest (Note 6). As of June 30, 1996, the Payout
Amount was $77,698,000 comprised of (i) initial acquisition and transaction
costs of $32,089,000, (ii) development and operating costs of $49,301,000,
(iii) prepaid demand charges of $7,500,000 and (iv) interest of $7,084,000
reduced by net revenue of $18,276,000. Tatham Offshore and the Partnership
have agreed that in the event the Company furnishes the Partnership with a
financing commitment from a lender with a credit rating of BBB- or better
covering 100% of the then outstanding Payout Amount, the interest rate utilized
to compute the Payout Amount shall be adjusted from and after the date of such
commitment to the interest rate specified in such commitment, whether utilized
or not. At any time prior to December 10, 1996, Flextrend Development may
exercise either of the following options: (i) to permanently retain 50% of the
assigned working interest in either the Viosca Knoll Block 817 property or the
Garden Banks Block 72/Garden Banks Block 117 properties or (ii) to
F-10
<PAGE> 54
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
permanently retain 50% of the assigned working interest in all Assigned
Properties in exchange for forgiving 25% or 50%, respectively, of the
then-existing Payout Amount, exclusive of the $7,500,000 plus interest added to
the Payout Amount in connection with certain transportation agreements as
discussed above. In the event Flextrend Development elects to reduce the
Payout Amount, it will become obligated to fund any further development costs
attributable to the Company's portion of the working interests, such costs to
be added to the Payout Amount. Otherwise, any further development costs will be
funded by Flextrend Development on a discretionary basis, such costs to be
added to the Payout Amount. Further, in the event Flextrend Development
forgoes its right to permanently retain a working interest in all or a portion
of the Assigned Properties, it will be entitled to recover from working
interest revenues in respect of the Assigned Properties all future demand
charges payable for platform access and processing, in their inverse order of
maturity, prior to any reassignment to the Company. If however, Tatham
Offshore (i) satisfies in full the future demand charges payable for platform
access and processing, (ii) delivers evidence that it has received a rating of
BBB-, or better, from at least two reputable rating agencies or (iii) delivers
evidence that an entity with a rating of BBB-, or better, has agreed to
guarantee, assume or, to the reasonable satisfaction of the Partnership,
otherwise become responsible for such future demand charges payable, then
Tatham Offshore would receive a reassignment of the Assigned Properties upon
satisfaction of the Payout Amount. In the event the Payout Amount has been
satisfied but none of the above conditions have been met, Tatham Offshore is
entitled to receive one-third (1/3) of the revenues, net of operating expenses
and platform access and processing fees, until such time as one of the above
conditions is met.
During the year ended June 30, 1996, the Company waived its options to prepay
the then-existing Payout Amount and receive a reassignment of its working
interests and recognized $22,641,000 as a gain on the sale of oil and gas
properties. Until September 15, 1995, Tatham Offshore had the option to repay
the initial amounts advanced plus transaction costs, with interest, and receive
a reassignment of 100% of its working interests. Accordingly, the accompanying
consolidated balance sheet as of June 30, 1995 reflects (i) a $15,000,000
receivable from Flextrend Development, (ii) $30,000,000 of deferred income
which represents total cash proceeds to be received by the Company pursuant to
the Purchase and Sale Agreement and (iii) $7,387,000 of carrying basis related
to the Assigned Properties.
In September 1995, the Company acquired an aggregate 25% working interest in
Phar Lap (Viosca Knoll Block 817) and an approximate 12.5% working interest in
the remainder of the Phar Lap Unit (collectively, the "Phar Lap Working
Interest") from two industry partners for a total of $16,000,000 in convertible
production payments payable from 25% of the net cash flow from the Phar Lap
Working Interest so acquired. The unpaid portion of the production payments is
convertible into Tatham Offshore common stock at any time during the first five
years at $8.00 per share. Under certain circumstances, the industry partners
may require DeepTech to purchase the convertible production payments for an
amount equal to 50% of the unrecovered portion thereof. The estimated net
present value of the convertible production payments payable of $2,000,000 was
recorded as oil and gas properties on the date of acquisition.
The Company anticipates substantial future capital expenditures associated with
the full development of its oil and gas properties. See Note 8. In connection
with the Company's assessment of its Ship Shoal 331 property, which experienced
production problems and is currently shut in, and its decision to seek a sale
of all or a portion of such property, or a joint venture partner, the Company
reduced its investment in its Ship Shoal Block 331 property by $8,000,000
during the year ended June 30, 1996.
During the year ended June 30, 1995, the Company recognized a $1,500,000 gain
related to the farmout of 25% of its working interest in its Phar Lap Unit
property to third parties.
F-11
<PAGE> 55
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - INDEBTEDNESS:
Notes payable
Prior to June 30, 1995, the Company converted approximately $12,813,000 of its
accounts payable into short-term promissory notes (the "Creditor Notes") of
which $10,468,000 remained outstanding at June 30, 1995. Of the amounts
outstanding at June 30, 1995, $8,577,000 bore interest at 12% per annum with
the remaining portion bearing interest at 18% per annum. In August 1995, the
Company paid all outstanding principal and interest due under the Creditor
Notes. Interest expense related to the Creditor Notes totaled $256,000 and
$665,000 for the years ended June 30, 1996 and 1995, respectively.
In August 1993, the Company entered into a construction agreement and vendor
financing agreement, as amended, (collectively, the "Construction and Financing
Agreement") with a vendor pursuant to which the vendor acquired, fabricated and
installed a platform and related facilities at Ship Shoal Block 331. At June
30, 1994, the Company owed $11,428,000 pursuant to the Construction and
Financing Agreement. On June 30, 1995, the Company repaid the then outstanding
principal and accrued interest. The Company fully amortized $269,000 of debt
issue costs incurred in connection with the Construction and Financing
Agreement during the year ended June 30, 1995.
Long-term debt - affiliates
As of June 30, 1996, the Company had $60,000,000 aggregate principal amount of
Convertible Promissory Notes (the "Subordinated Notes") outstanding, the
maximum principal amount issuable under the subordinated convertible note
purchase agreement. The Subordinated Notes bear interest at a rate of 11 3/4%
per annum, payable quarterly in arrears; provided, however, that effective July
1, 1997, interest shall accrue at a rate of 13% per annum. Interest expense
related to this borrowing totaled $7,060,000, $7,050,000 and $1,508,000 for the
years ended June 30, 1996, 1995 and 1994, respectively. The principal amount
of the Subordinated Notes is payable in seven equal annual installments of
approximately $8,571,000 commencing August 1, 1999. At any time after August
1, 1999, the Company may redeem in full, or may from time to time redeem in
part, the Subordinated Notes, without penalty or premium, upon 90 days prior
written notice to the holders thereof. The holders of the Subordinated Notes
have the option at any time to convert all or any portion of the principal and
accrued interest outstanding thereunder into common stock of the Company at a
price equal to the initial public offering price of the Company's stock, $10.00
per share, subject to adjustment under certain circumstances. DeepTech
currently holds all of the Subordinated Notes. The holders of 20% or more of
the principal amount of the Subordinated Notes and common stock into which
Subordinated Notes have been converted have the right to demand the
registration of the Subordinated Notes (or any shares of common stock issued
upon conversion thereof) under the Securities Act of 1933, as amended;
provided, however, that the Company shall only be obligated to file and cause
to become effective three registration statements with respect thereto. In
addition, such holders have certain piggyback registration rights. The holders
of a majority of the aggregate principal amount of the Subordinated Notes may
accelerate the payment of the principal and interest thereon upon the
occurrence of certain events of default which include the failure to pay
principal or interest when due, the voluntary or involuntary bankruptcy of the
Company, unpaid judgment against the Company in excess of $5,000,000 and the
acceleration of other indebtedness of the Company in excess of $5,000,000 in
the aggregate. The Subordinated Notes are subordinate to all senior
indebtedness of the Company, which includes any indebtedness outstanding under
the Affiliate Note (Note 6). The Company has agreed not to incur additional
subordinated indebtedness without the consent of the holders of the
Subordinated Notes.
Revolving credit
The Company entered into a revolving credit facility with two commercial banks
(the "Credit Facility") in May 1994. The Credit Facility was limited to an
amount of a borrowing base as determined by the lenders. No funds were ever
borrowed under the Credit Facility and in connection with the sale of the
Assigned Properties the Credit Facility was terminated in June 1995. Debt
issue costs incurred in connection with the Credit Facility totaled $2,694,000,
of which $2,651,000 and $43,000 were amortized during the years ended June 30,
1995 and 1994, respectively.
F-12
<PAGE> 56
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 - STOCKHOLDERS' EQUITY:
Common Stock
Pursuant to the Merger, the Company issued 20,000,000 shares of $0.01 par value
common stock in exchange for all the Predecessor Company's 1,000 shares of
issued and outstanding common stock and succeeded to all of the assets and
liabilities of the Predecessor Company.
On February 15, 1994, the Company issued 5,000,000 shares of common stock to
the public at $10.00 per share (the "Initial Offering"), representing 20% of
the Company's issued and outstanding common stock immediately after the Initial
Offering, pursuant to a registration statement on Form S-1 filed with the
Securities and Exchange Commission (the "Commission") in October 1993. The
Company received $44,600,000 in net proceeds from the Initial Offering.
On August 28, 1995, the Company filed a registration statement on Form S-8 with
the Commission for the registration of 4,000,000 shares of common stock
authorized for issuance upon exercise of options under the Company's Equity
Incentive Plan (the "Incentive Plan") and 1,000,000 shares of common stock
authorized for issuance upon exercise of options under the Company's
Non-Employee Director Stock Option Plan. The Incentive Plan provides the
Company the ability to issue a variety of awards pursuant to the plan including
stock options, restricted stock and stock value equivalent awards. During the
year ended June 30, 1996, the Company issued 245,182 shares of common stock to
certain management personnel of DeepTech in connection with DeepTech's deferred
compensation arrangement discussed in Note 6. In June 1996, the Company issued
255,138 shares of common stock to outside directors pursuant to the exercise of
options granted under the Company's Non-Employee Director Stock Option Plan in
settlement of directors' fees and meeting attendance fees for the year ended
June 30, 1996. As of June 30, 1996, the Company issued a total of 155,000
options to its outside directors and an employee of DeepTech pursuant to the
Non-Employee Director Stock Option Plan and the Incentive Plan.
On October 26, 1995, the Board of Directors proposed an amendment to the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of the Company's common stock, $0.01 par value per share,
from 100,000,000 shares to 250,000,000 shares and the number of shares of
preferred stock, $0.01 par value per share, from 10,000,000 shares to
110,000,000 shares. This increase in authorized capital was necessary in order
for the Company to effect the Offering, as discussed below. The amendment to
the Company's Restated Certificate of Incorporation had to be approved by
holders of a majority of the outstanding shares of common stock of the Company.
Stockholders holding a majority of the issued and outstanding shares of common
stock have consented in writing to the amendment. The amendment was effective
on February 8, 1996.
Preferred Stock
The Company filed a registration statement with the Commission (the
"Offering"), which was declared effective on December 26, 1995, relating to the
granting to all holders of Tatham Offshore's common stock, on the record date,
December 26, 1995, rights (the "Rights") to purchase up to 25,120,948 warrants
(the "Warrants"). Each Right entitled the holder to subscribe to purchase one
Warrant at the purchase price of $.50 per Warrant. Each Warrant entitles the
holder thereof to purchase one share of any of (i) Series A 12% Convertible
Exchangeable Preferred Stock, which has a liquidation preference of $1.50 per
share ("Series A Preferred Stock") at any time prior to 5:00 p.m., New York
time on July 1, 1996, (ii) Series B 8% Convertible Exchangeable Preferred
Stock, which has a liquidation preference of $1.00 per share ("Series B
Preferred Stock") at any time prior to 5:00 p.m. New York time on October 1,
1996 or (iii) Series C 4% Convertible Exchangeable Preferred Stock, which has a
liquidation preference of $0.50 per share ("Series C Preferred Stock" and
together with the Series A Preferred Stock and Series B Preferred Stock, the
"Convertible Exchangeable Preferred Stock") at any time prior to 5:00 p.m. New
York time on January 1, 1997 at the purchase price of $1.00 per share. Each
Warrant remaining unexercised at 5:00 p.m. New York time on January 1, 1997
shall be automatically converted, without any action on the part of the holder
thereof, into one share of Mandatory Redeemable Preferred Stock, which shall
have a liquidation preference of $0.50 per
F-13
<PAGE> 57
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
share and shall be mandatorily redeemable by the Company under certain
circumstances. At any time from July 1, 1996 until December 31, 1998, each
share of Convertible Exchangeable Preferred Stock may be exchanged for four
warrants (the "Exchange Warrants" and together with the Rights, the Warrants,
the Convertible Exchangeable Preferred Stock and the Mandatory Redeemable
Preferred Stock, the "Securities") each of which entitles the holder thereof to
purchase one share of Tatham Offshore common stock at a price equal to $0.653
per share which was based on the lowest average of consecutive five day closing
prices of the Company's common stock between December 26, 1995 and July 1,
1996. The Exchange Warrants will expire July 1, 1999. Alternatively, at any
time after July 1, 1996, the holder of any shares of Convertible Exchangeable
Preferred Stock will have the right, at the holder's option, to convert the
liquidation value of such stock and accrued and unpaid dividends into shares of
Tatham Offshore common stock at $0.653 per share. On and after July 1, 1997,
the Convertible Exchangeable Preferred Stock will be redeemable at the option
of the Company.
In February 1996, the Company issued 25,120,948 Warrants and received
$12,560,000 in gross proceeds ($11,291,000 net) pursuant to the exercise of
Rights. As of July 1, 1996, holders of 18,717,030 Warrants had exercised their
Warrants to purchase an equal number of shares of Series A Preferred Stock at
$1.00 per share. Included on the accompanying consolidated balance sheet at
June 30, 1996 is $12,243,000 of stock subscriptions receivable related to the
purchase of Series A Preferred Stock which was collected in July 1996.
At June 30, 1996, assuming that (a) all remaining 6,403,918 Warrants were
exercised to acquire Series B Preferred Stock, (b) 18,717,030 shares of Series
A Preferred Stock and 6,403,918 shares of Series B Preferred Stock were
immediately converted into shares of Tatham Offshore common stock at $0.653 per
share and (c) no other issuances of common stock, the Company would have had
approximately 78,302,000 shares of common stock outstanding.
In August 1996, Tatham Offshore issued 737,986 shares of its common stock as a
result of the conversion of 320,864 shares of Series A Preferred Stock.
Senior Preferred Stock
Effective February 1, 1996, Tatham Offshore issued 7,500 shares of its 9%
senior convertible preferred stock (the "Senior Preferred Stock") to the
Partnership as partial consideration for the satisfaction of certain demand
charge obligations as further described in Note 6. The Senior Preferred Stock
accrues dividends at 9% per annum as of February 1, 1996, which are payable
quarterly and shall cumulate to the extent not paid. Each share of the Senior
Preferred Stock has a liquidation preference value of $1,000 and is senior to
all other classes of Tatham Offshore preferred and common stock in the case of
liquidation, dissolution or winding up of Tatham Offshore. The Partnership has
made an irrevocable offer to Tatham Offshore to sell all or any portion of the
Senior Preferred Stock to Tatham Offshore or its designee at a price equal to
$1,000 per share, plus interest thereon at 9% per annum less the sum of any
dividends paid thereon. In the event Tatham Offshore does not purchase the
Senior Preferred Stock on or before September 30, 1998, then for a period of 90
days thereafter it shall be convertible into Series A Preferred Stock. The
conversion ratio shall be equal to (i) the liquidation preference amount plus
accumulated but unpaid dividends divided by (ii) the arithmetic average of
closing prices for the 20 trading days following October 1, 1998 of the Series
A Preferred Stock. As of June 30, 1996, dividends in arrears on the Senior
Preferred Stock totaled $281,000 which represents the difference between net
income and net income available to common shareholders for the year ended June
30, 1996.
Other
During the year ended June 30, 1994, Tatham Offshore redeemed all of its then
outstanding convertible redeemable stock for $5,035,000. The obligation
included a redemption premium in excess of the cumulative undeclared dividends.
The premium of $600,000 and the cumulative undeclared dividends of $535,000
were treated as adjustments to stockholders' equity and constitute the
difference between net loss and net loss available to common stockholders for
the year ended June 30, 1994.
F-14
<PAGE> 58
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - RELATED PARTY TRANSACTIONS:
DeepTech
In October 1995, DeepFlex Production Services, Inc. ("DeepFlex Services"), a
wholly-owned subsidiary of DeepTech, entered into a bridge loan agreement (the
"Bridge Loan") with Tatham Offshore whereby DeepFlex Services agreed to make
$12,500,000 of interim bridge financing available to fund a portion of the
Company's working capital and capital requirements. Tatham Offshore borrowed a
total of $8,000,000 under the Bridge Loan. All indebtedness outstanding under
the Bridge Loan accrued interest at a rate of 15% per annum. Interest expense
related to borrowings under the Bridge Loan totaled $210,000 for the year ended
June 30, 1996. The terms of the Bridge Loan required the Company to undertake
the Offering (Note 5) or to implement another refinancing or asset disposition
sufficient to repay the outstanding indebtedness under the Bridge Loan. On
January 31, 1996, DeepFlex Services subscribed for the purchase of 10,000,000
Warrants, pursuant to the exercise of Rights which had been assigned from
DeepTech, at a cost of $5,000,000, which was paid through the forgiveness of
$5,000,000 of principal and interest due under the Bridge Loan. In February
1996, Tatham Offshore used $3,100,000 of Offering proceeds to repay in full the
remaining principal and accrued interest outstanding under the Bridge Loan.
On November 1, 1995, the Company converted $1,734,000 of its accounts payable
to an affiliate into an unsecured promissory note payable to DeepTech (the
"Affiliate Note") which bears interest at 14.5% per annum. Interest on the
Affiliate Note is payable quarterly, beginning March 31, 1996. The principal
is due and payable in six monthly installments, beginning on a date which is
the earlier of (i) November 1, 1997 or (ii) the last day of the calendar month
in which the Company receives proceeds from the issuance of any preferred stock
described in Note 5 in an amount equal to or greater than $20,000,000.
Interest expense related to the Affiliate Note totaled $170,000 for the year
ended June 30, 1996.
Effective July 1, 1993, the management agreement between the Company and
DeepTech provided for an annual management fee equal to 40% of DeepTech's
overhead. The management fee is intended to reimburse DeepTech for the
estimated costs of its operational, financial, accounting and administrative
services provided to the Company. In an effort to minimize the Company's
projected operating cash shortfall, the Company and DeepTech agreed to decrease
the amount of managerial and administrative services provided by DeepTech to
the Company and amend the management fee agreement effective November 1, 1995.
The amended management agreement provides for an annual management fee of 27.4%
of DeepTech's overhead expenses. During the years ended June 30, 1996, 1995 and
1994, Tatham Offshore was charged $4,436,000, $4,967,000 and $3,377,000,
respectively, under the management agreement. On June 30, 1996, DeepFlex
Services exercised 4,670,957 of its 10,000,000 Warrants to purchase an equal
number of shares of Series A Preferred Stock at $1.00 per share by offsetting
the then outstanding payable to DeepTech for costs allocated under the
management agreement by $4,670,957.
Effective July 1, 1995, DeepTech established three deferred compensation
arrangements: (i) a mandatory arrangement for DeepTech's Chief Executive
Officer (the "DeepTech CEO"), (ii) a mandatory arrangement for certain senior
executives of DeepTech and (iii) an optional arrangement for all other
employees of DeepTech. Pursuant to the terms of each arrangement, participants
deferred all or a portion of their cash salary until no later than July 1,
1996. During each month in the deferral period, each participant was entitled
to receive options to purchase a number of shares of either DeepTech or Tatham
Offshore or Preference Units of the Partnership equal to a percentage (ranging
from 100% to 300% times their cash salary) divided by the lesser of the closing
price on June 30, 1995 (DeepTech - $4.00, Tatham Offshore - $3.50 and the
Partnership - $23.75) or the average closing price for the applicable month.
Options are exercisable only by cancellation of the participant's cash salary.
Each participant earned credits equal to a multiple, based on the option
elected, of their deferred cash salary. Any participant except the DeepTech
CEO could have received all or a portion of their salary in cash if they did
not elect to exercise any options. To the extent that the Company issued its
common stock pursuant to the exercise of options granted under these
arrangements, it received an offsetting credit against its management fees
payable to DeepTech. In November 1995, DeepTech terminated the deferred
compensation arrangement for all but three employees of DeepTech. In November
1995 and June 1996, the Company issued 120,948 shares and 124,234 shares,
respectively, of its
F-15
<PAGE> 59
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
common stock in connection with the mandatory arrangement for certain senior
executives of DeepTech and received a $360,000 credit against its management
fees payable to DeepTech.
During the year ended June 30, 1990, Tatham Offshore established a bonus plan
for the directors, employees and consultants of DeepTech who perform services
for the Company which was administered by a committee of the Company's Board of
Directors. For the year ended June 30, 1994, the Company awarded an aggregate
of $583,000, under this bonus plan. No awards were made for the year ended
June 30,1995 and during the year ended June 30, 1996, the bonus plan was
discontinued.
In connection with the Initial Offering and the exchange of outstanding
indebtedness for Subordinated Notes, DeepTech transferred a 5% working interest
in certain oil and gas properties to the Company for $1,444,000 and other
consideration. These properties were recorded by the Company as a property
acquisition at DeepTech's historical cost basis ($1,000,000) and the remainder
of the consideration ($444,000) constitutes the distribution in excess of
predecessor basis on the accompanying statement of stockholders' equity for the
year ended June 30, 1994.
The Partnership
Production and operating expenses on the accompanying consolidated statement of
operations include the following demand, commodity and platform access fees as
a result of agreements between Tatham Offshore and the Partnership. Demand
charges are payable whether or not any production was actually transported.
Commodity charges are based on the volume of oil and gas transported or
processed.
<TABLE>
<CAPTION>
For the year ended June 30,
------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Demand charges:
Ewing Bank property $ 4,644 $ 6,582 $ 4,979
Ship Shoal property 997 1,359 -
Commodity charges:
Viosca Knoll property 430 - -
Ewing Bank property 446 324 537
Ship Shoal property - 49 -
Platform access fees 1,580 - -
---------- ---------- ----------
$ 8,097 $ 8,314 $ 5,516
========== ========== ==========
</TABLE>
Production problems at Ship Shoal Block 331 and reduced oil production from the
Ewing Bank 914 #2 well have affected Tatham Offshore's ability to pay the
demand charge obligations under agreements relative to these properties. As a
result, effective February 1, 1996, Tatham Offshore entered into an agreement
with the Partnership to prepay its remaining demand charge obligations under
the transportation agreements covering its Ewing Bank and Ship Shoal
properties. Under the agreement, Tatham Offshore's demand charge obligations
relative to the Ewing Bank Gathering System and the pipeline facilities
constructed by the Partnership for its Ship Shoal property have been prepaid in
full. In exchange, effective February 1, 1996, Tatham Offshore has (i) issued
to the Partnership 7,500 shares of Senior Preferred Stock with a liquidation
preference of $1,000 per share, (ii) added the sum of $7,500,000 to the Payout
Amount under the Purchase and Sale Agreement with Flextrend Development and
(iii) granted to the Partnership certain rights to use and acquire the Ship
Shoal Block 331 platform. The Partnership has the right to utilize the Ship
Shoal Block 331 platform and related facilities at a rental rate of $1.00 per
annum for such period as the platform is owned by Tatham Offshore and located
on the Ship Shoal Block 331, provided such use, at the time proposed, does not
interfere with lease operations or other activities of Tatham Offshore. In
addition, the Partnership has a right of first refusal relative to a sale of
the platform. The agreement with the Partnership resulted in a reduction in
demand charge payments of $4,100,000 for the fiscal year ended June 30, 1996,
and will result in a reduction of demand charge payments of $7,800,000 for the
fiscal year ended June 30, 1997 and $5,900,000 for fiscal years thereafter.
Tatham Offshore remains obligated to pay the commodity charges under these
agreements as
F-16
<PAGE> 60
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
well as all platform access and processing fees associated with the Viosca
Knoll Block 817 lease. At June 30, 1996, the total present value of the
unamortized demand charge obligations of $13,507,000 is reflected in the
accompanying consolidated balance sheet as prepaid expenses and is being
amortized over the estimated useful lives of the related transportation
agreements. The $7,500,000 addition to the Payout Amount, including accrued
interest of $469,000, is classified as a production payment and included in
other noncurrent liabilities on the accompanying consolidated balance sheet.
Other
During the years ended June 30, 1996, 1995 and 1994, the Company sold 99%, 97%
and 99%, respectively, of its production to Offshore Gas Marketing, Inc.
("Offshore Marketing"), an 80% owned subsidiary of DeepTech. Through October
1995, the sales prices were based upon contractually agreed upon posted prices.
In November 1995, Tatham Offshore renegotiated its agreement with Offshore
Marketing to provide Offshore Marketing fees equal to 2% of the sales value of
crude oil and condensate and $0.015 per dekatherm of natural gas for selling
the Company's production.
Dover Technology, Inc. ("Dover"), a 50% owned subsidiary of DeepTech, charged
Tatham Offshore $601,000, $747,000, and $1,516,000 for the years ended June 30,
1996, 1995 and 1994, respectively, for services related to the acquisition,
development, exploration or evaluation of oil and gas properties at rates which
management believes are comparable to those available for similar services from
unrelated parties. Tatham Offshore's payable to Dover for these services in
the amount of $1,734,000 at November 1, 1995 was converted into the Affiliate
Note.
Included in other assets on the balance sheet at June 30, 1995 was a
non-interest bearing advance of $90,000 to an officer of DeepTech who is also a
stockholder of the Company. During the year ended June 30, 1996, the Company
forgave this advance in exchange for consulting fees rendered by the
officer/stockholder to Tatham Offshore.
NOTE 7 - INCOME TAXES:
The Company's deferred income tax liabilities (assets) at June 30, 1996 and
1995 consist of net operating loss ("NOL") carryforwards and the tax effect of
timing differences between financial and tax reporting related to the
recognition of certain amounts as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
1996 1995
(In thousands)
<S> <C> <C>
Oil and gas properties $ 1,142 $ 2,191
----------- ----------
Gross deferred liability 1,142 2,191
----------- ----------
NOL carryforwards (22,445) (15,997)
Deferred income - (7,689)
Accruals deferred for tax purposes - (294)
----------- ----------
Gross deferred asset (22,445) (23,980)
----------- ----------
Net deferred tax asset (21,303) (21,789)
Valuation allowances 21,303 21,789
----------- ----------
$ - $ -
=========== ==========
</TABLE>
Because of the Company's losses in all but the most recent year, valuation
allowances of $21,303,000 and $21,789,000 at June 30, 1996 and 1995,
respectively, were provided against the net deferred tax assets. At June 30,
1996, the Company had approximately $66,013,000 of regular tax NOL
carryforwards and approximately $64,602,000 of alternative minimum tax NOL
carryforwards. These losses begin to expire in the year 2005. Although
substantial changes in a company's ownership can result in an annual limitation
on the utilization of federal income tax NOL carryforwards, it is not
anticipated that this restriction will significantly affect the utilization of
Tatham Offshore's NOL carryforwards.
F-17
<PAGE> 61
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, the Company is subject to various laws and
regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position of the Company.
The Company is involved in certain legal proceedings which have arisen in the
ordinary course of business. Management believes that the outcome of such
proceedings will not have a material adverse effect on the Company's financial
position.
The Company anticipates substantial future capital expenditures associated with
the full development of its oil and gas properties. Realization of the full
potential of the Company's properties is dependent upon the ability to obtain
sufficient additional capital or project financing.
In August 1995, TOJ began the process of attempting to obtain offshore
concessions from the government of Nigeria. There are no assurances that TOJ
will be granted a concession or the terms and conditions that would apply to a
concession if granted.
NOTE 9 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Cash paid for interest, net of
amounts capitalized $ 7,693 $ 8,548 $ 1,508
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Additions to oil and gas properties $ (2,000) $ - $ (11,428)
Issuance of notes payable - 12,813 11,428
Increase (reduction) in accounts payable
and accrued liabilities 2,000 (12,813) -
Reduction in line of credit with and
note payable to DeepTech - - (34,000)
Sale of Subordinated Notes - - 34,000
Deferred income related to oil and gas
properties held for sale - 15,000 -
Receivable from affiliate - (15,000) -
Stock subscriptions receivable (12,242) - -
Issuance of Series A Preferred Stock 16,913 - -
Payable to affiliate (4,671) - -
</TABLE>
NOTE 10 - SUBSEQUENT EVENTS:
In September 1996, the Company entered into a drilling arrangement (the
"Drilling Arrangement") with Sedco Forex Division of Schlumberger Technology
Corporation ("Sedco Forex"). The Drilling Arrangement includes the use of the
semisubmersible drilling rig, the FPS Bill Shoemaker, owned by an affiliate of
DeepTech, and will become effective upon the mobilization of the rig to the
Company's initial location. The initial contract term of the Drilling
Arrangement is for 90 days or, if sooner, the completion of the Company's
initial drilling operation and the mobilization of the rig to another location.
The Company may, at its option, extend the initial contract term through (i)
three successive one well options or (ii) two successive one year terms. Under
the terms of the Drilling Arrangement, the Company has committed to pay Sedco
Forex a drilling rate of $70,000 per day with a standby rate
F-18
<PAGE> 62
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of $66,700 per day. As security for its obligations under the Drilling
Arrangement, the Company is required to post an irrevocable letter of credit
or cash collateral of $6.3 million, which amount is equal to the aggregate
operating day rate for the contract term. In the event that the Company
exercises its option to extend the Drilling Arrangement, the Company and Sedco
Forex must agree upon additional security for the extension period.
During the term of the Drilling Arrangement, the Company has the right to
sub-contract the rig to other operators. If the rig is sub-contracted to
another operator, the Company will receive the difference between the
sub-contract rate and the above agreed upon rates, if any. The FPS Bill
Shoemaker is owned by an affiliate of DeepTech and operated by Sedco Forex
under a charter agreement. The Drilling Arrangement is conditioned upon the
completion of a third party financing that will fund certain improvements to the
FPS Bill Shoemaker. Sedco Forex has the right to substitute a similar drilling
rig for the FPS Bill Shoemaker in the event the FPS Bill Shoemaker is
unavailable due to a previously submitted bid for work offshore Canada. In the
event Sedco Forex elects to carry out such rig substitution, the Company has (i)
an option to use the FPS Bill Shoemaker in the Newfoundland Grand Banks Area
rather than the substitute rig to complete the initial contract term prior to
the use by the third party, subject to availability, and subject to higher
contract rates to account for the additional costs incurred by Sedco Forex as a
result of operations offshore Canada, and (ii) an additional option, upon
completion of the third party work and subject to the use of the rig for certain
other projects, to contract to use the rig for the drilling of one well at the
then prevailing contract price.
NOTE 11 - SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED):
Oil and gas reserves
The following table represents the Company's net interest in estimated
quantities of developed and undeveloped reserves of crude oil, condensate and
natural gas and changes in such quantities at fiscal year end 1996, 1995 and
1994. Estimates of the Company's reserves at June 30, 1996, 1995 and 1994 have
been made by the independent engineering consulting firm, Ryder Scott Company
Petroleum Engineers. Net proved reserves are the estimated quantities of crude
oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves
are proved reserve volumes that can be expected to be recovered through
existing wells with existing equipment and operating methods. Proved
undeveloped reserves are proved reserve volumes that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
significant expenditure is required for recompletion.
Estimates of reserve quantities are based on sound geological and engineering
principles, but, by their very nature, are still estimates that are subject to
substantial upward or downward revision as additional information regarding
producing fields and technology becomes available.
F-19
<PAGE> 63
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Oil/Condensate Natural gas
(barrels) (MCF)
---------------- ------------
(In thousands)
<S> <C> <C>
Proved reserves -- June 30, 1993 5,044 71,530
Revisions of previous estimates 566 (1,221)
Purchase of reserves in place 129 196
Extensions, discoveries and other additions 8,007 31,732
Production (395) (2,937)
------ -------
Proved reserves -- June 30, 1994 13,351 99,300
Revisions of previous estimates 3 (7,146)
Extensions, discoveries and other additions 1,767 1,117
Production (333) (1,505)
Sales of reserves in place (2,733) (50,156)
------ -------
Proved reserves -- June 30, 1995 12,055 41,610
Revisions of previous estimates (168) (3,902)
Purchase of reserves in place - 17,160
Extensions, discoveries and other additions 398 8,427
Production (418) (1,035)
Sales of reserves in place - -
------ -------
Proved reserves -- June 30, 1996 11,867 62,260
====== =======
Proved developed reserves -- June 30, 1994 4,176 19,988
====== =======
Proved developed reserves -- June 30, 1995 3,661 13,930
====== =======
Proved developed reserves -- June 30, 1996 3,388 35,274
====== =======
</TABLE>
In general, estimates of economically recoverable oil and natural gas reserves
and of the future net revenues therefrom are based upon a number of variable
factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs and
future plugging and abandonment costs, all of which may vary considerably from
actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group
of properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenues expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
Furthermore, Tatham Offshore's wells have only been producing for a short
period of time and, accordingly, estimates of future production are based on
this limited history. Estimates with respect to proved undeveloped reserves
that may be developed and produced in the future are often based upon
volumetric calculations and upon analogy to similar types of reserves rather
than upon actual production history. Estimates based on these methods are
generally less reliable than those based on actual production history.
Subsequent evaluation of the same reserves based upon production history will
result in variations, which may be substantial, in the estimated reserves. A
significant portion of Tatham Offshore's reserves is based upon volumetric
calculations.
The Company anticipates substantial future capital expenditures associated with
the full development of its oil and gas properties. Realization of the full
potential of the Company's properties is dependent upon the ability to obtain
sufficient additional capital or project financing.
Future net cash flows
The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities."
F-20
<PAGE> 64
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Accordingly, future cash inflows were determined by applying year-end oil and
gas prices to the Company's estimated share of future production from proved
oil and gas reserves. The average prices utilized in the calculation of the
standardized measure of discounted future net cash flows at June 30, 1996 were
$19.27 per barrel of oil and $2.48 per MCF of gas. Future production and
development costs were computed by applying year-end costs to future years.
Future income taxes were derived by applying year-end statutory tax rates to
the estimated net future cash flows taking into consideration the Company's NOL
carryforwards. A prescribed 10% discount factor was applied to the future net
cash flows.
In the Company's opinion, this standardized measure is not a representative
measure of fair market value, and the standardized measure presented for the
Company's proved oil and gas reserves is not representative of the reserve
value. The standardized measure is intended only to assist financial statement
users in making comparisons between companies.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Future cash inflows $ 383,130 $ 275,415 $ 449,764
Future production costs 128,195 100,638 131,939
Future development costs 89,024 88,801 121,256
Future income tax expenses 14,882 - 40,901
------------ ------------ ------------
Future net cash flows 151,029 85,976 155,668
Annual discount at 10% rate 47,345 37,993 48,003
------------ ------------ ------------
Standardized measure of discounted future
net cash flows $ 103,683 $ 47,983 $ 107,665
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------
Proved Proved
Developed Undeveloped Total
------------ ----------- ------------
(In thousands)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows
from proved reserves before income taxes $ 78,440 $ 87,471 $ 165,911
============ ============ ============
Present value of future net cash flows from
proved reserves before income taxes,
discounted at 10% $ 59,296 $ 49,717 $ 109,013
============ ============ ============
</TABLE>
F-21
<PAGE> 65
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following are the principal sources of change in the standardized measure:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Beginning of year $ 47,983 $ 107,665 $ 53,958
Sales and transfers of oil and gas produced,
net of production costs (8,678) (3,156) (8,616)
Net changes in prices and production costs 38,730 (32,805) (4,892)
Extensions, discoveries and improved
recovery, less related costs 3,746 1,227 68,558
Changes in estimated future development costs 5,764 (10,909) (5,428)
Previously estimated development costs
incurred during the year 1,987 13,000 1,074
Revisions of previous quantity estimates (3,198) (6,917) 2,135
Purchase of reserves in place 18,200 - 820
Sales of reserves in place - (25,298) -
Net change in income taxes (5,330) 18,410 (3,984)
Accretion of discount 4,798 12,607 6,838
Changes in production rates, timing and other (319) (25,841) (2,798)
------------ ------------ ------------
End of year(1) $ 103,683 $ 47,983 $ 107,665
============ ============ ============
</TABLE>
- ---------------
(1) The standardized measure calculations at June 30, 1995 and 1994 exclude the
Company's obligations to pay demand charges to an affiliate relative to its
Ewing Bank and Ship Shoal properties. These demand charges were prepaid in
full during the year ended June 30, 1996. See Note 6.
F-22
<PAGE> 66
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
10.50 Master Drilling Agreement
21.1 Tatham Offshore, Inc. Subsidiaries
23.1 Consent of Independent Accountants
23.2 Consent of Ryder Scott Company Petroleum Engineers
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.50
MASTER DRILLING AGREEMENT
<PAGE> 2
MASTER DRILLING AGREEMENT
THIS AGREEMENT, made and entered into the 19th day of September, 1996,
by and between Tatham Offshore, Inc., a Delaware corporation, hereinafter
called "TOFF", and Sedco Forex Division, Schlumberger Technology Corporation,
hereinafter called "Contractor";
WITNESSETH, that:
WHEREAS, TOFF may from time to time desire to have a well or wells
drilled and completed or abandoned in search of oil, or gas, or for other
purposes;
AND, WHEREAS, Contractor is engaged in the business of drilling and
completing or abandoning such wells and warrants and represents that it has or
will have adequate equipment in good working order and fully trained personnel,
properly certified, and capable of efficiently operating such equipment with
which it desires to drill and/or complete or abandon such well or wells;
NOW, THEREFORE, it is agreed by and between TOFF and Contractor as
follows:
I. MASTER AGREEMENT
1.1 USE OF DRILLING ORDER. If at any time during the term of this
Master Agreement, hereinafter called "Agreement", TOFF desires to have a well
or wells drilled and/or completed or abandoned by Contractor, TOFF shall
prepare and submit to Contractor a "Bid Sheet and Drilling Order", hereinafter
referred to as "Drilling Order", which shall set forth the specifications and
other conditions under which such well or wells are to be drilled and/or
completed or abandoned. If Contractor desires to drill and/or complete or
abandon the well or wells set forth in Drilling Order under the terms and
conditions thereof and of this Agreement, Contractor shall complete the
Drilling Order, setting forth the prices it proposes to charge for its services
and properly execute the Drilling Order in duplicate originals and return them
to TOFF. If TOFF is satisfied with Contractor's proposals, TOFF will execute
the Drilling Order and return one duplicate original to Contractor. When the
Drilling Order has been so executed, it together with this Agreement shall
become the "Contract" which shall control the relationship of the parties
relative to the drilling and/or completing or abandoning of any well or wells
covered therein. This Agreement and the accepted and executed Drilling Order
may hereinafter be referred to as the "Contract." Execution of this Agreement
alone shall not obligate either TOFF or Contractor to enter into any Drilling
Order. TOFF is not obligated by this "Agreement" to solicit or submit bids to
Contractor on any wells and may solicit and submit bids from and enter into
contracts with other parties for drilling and/or completing or abandoning wells
or may do same itself.
<PAGE> 3
1.2 DRILLING ORDER TERMS INCLUDED. If and when the Drilling Order
has been executed by the parties, Contractor shall commence operations for
drilling of the well or wells at the time and date set forth in the Drilling
Order and drill and/or complete or abandon the well or wells during the term,
at the location, in the manner, to the depth, and in accordance with all
provisions and specifications of both this Agreement and the Drilling Order.
II. FURNISHING OF MATERIALS, EQUIPMENT, SUPPLIES AND LABOR
2.1 FURNISHED BY WHOM. For the work to be performed by it,
hereunder, Contractor shall furnish the minimum crew complement specified in
the Drilling Order Section 13 and shall furnish the rig and drilling equipment
referred to in the Drilling Order Section 4, and such other equipment,
materials and services as specified in the Drilling Order Section 5 as are to
be furnished by Contractor for TOFF. TOFF shall furnish such items as it is
required to furnish by the Drilling Order Section 5. All other materials,
equipment, tools, appliances, machinery, services and supplies for the proper
drilling, completing, abandoning, working over, or deepening, and for
protecting the rig or the well or wells involved, except that which TOFF herein
expressly agrees either to furnish or reimburse Contractor for, shall be
furnished and installed by and at the expense of Contractor. All labor
necessary and proper in such operations shall be furnished by and at the
expense of the Contractor.
2.2 PURCHASES FOR TOFF. If Contractor purchases at TOFF's request
any materials, supplies or equipment which TOFF is obligated to furnish under
the terms of this Agreement or under the Drilling Order, TOFF shall pay
Contractor within thirty (30) days after date of receipt of Contractor's
invoice the actual cost of such materials, supplies or equipment, less any cash
discounts thereon to which Contractor may be entitled. Contractor shall
furnish TOFF copies of suppliers', vendors' or third party invoices covering
such materials, supplies or equipment. The use of machinery, tools and
equipment which according to the Drilling Order are to be furnished by
Contractor but which are nevertheless furnished by TOFF, will be charged to
Contractor on mutually agreed commercial rental rates and terms.
2.3 MOVING ON LOCATION. TOFF will survey the location of the well
and furnish such labor, equipment, materials, supplies and services as set out
in the Drilling Order Section 5 so that Contractor may fulfill its obligation
to position the rig on location.
III. BASIS OF PAYMENT
3.1 DAY WORK RATES. TOFF shall pay Contractor for work performed
hereunder in accordance with the rates and basis of payment set forth in the
applicable Drilling Order Section 13 (Day Work Bid).
3.2 SHUT-DOWN - TOFF. When Contractor's rig is shut down by
Contractor waiting for orders from TOFF, or for materials, services or other
items which TOFF is obligated to furnish, TOFF shall pay Contractor the
applicable standby rates specified in the Drilling Order Section 13C. Before
changing to or from standby rate without crew, TOFF shall: (a) give Contractor
a minimum of eight (8) hours notice, and (b) provide for the rate change to
take effect at the "tour-change-time" only.
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3.3 SHUT-DOWN - CONTRACTOR. When it is necessary to shut down
Contractor's rig for repairs or due to lack of materials or labor to be
furnished by Contractor, Contractor shall be allowed compensation in the manner
set out in the applicable Drilling Order Section 13M.
IV. TIME OF PAYMENT
4.1 PAYMENT IN GENERAL. Subject to and conditioned upon the full
and complete compliance by Contractor with all terms and conditions of this
Agreement and of the Drilling Order, TOFF shall make payments to Contractor as
stipulated herein.
4.2 DAY WORK PAYMENT. Contractor shall invoice TOFF at the close
of each calendar month for the number of days work was performed during the
month at day work rates set forth in the applicable Drilling Order Section 13
(Day Work). Upon completion of drilling operations, Contractor shall remove
its rig from location (unless a delay is agreed to by TOFF) and clean up the
well site as specified in the Drilling Order. If clean up at the well site is
not accomplished to TOFF's satisfaction, TOFF may retain an amount sufficient
to accomplish such clean up out of the last invoice submitted to TOFF. This
shall not limit TOFF's right to recover the full amount of clean up costs.
4.3 TIME OF PAYMENT. TOFF shall pay all properly documented
invoices within thirty (30) days after receipt thereof, except as provided in
Paragraph 4.2 for cleanup.
V. STOPPAGE OF WORK
5.1 WELL-TO-WELL CONTRACTS. In well-to-well contracts, TOFF shall
have the right to terminate the performance of the work covered by the Drilling
Order for any reason at any point it may desire. This includes the right to
delete as many wells as desired from a multiple-well Drilling Order.
5.2 TERM CONTRACTS. TOFF shall have the right to direct the
stoppage of the work to be performed hereunder at any time, including during
work on any well and prior to reaching the objective depth or to completion of
other work being performed. In the event of such stoppage, TOFF shall be under
no obligation to Contractor except to pay for all work done by Contractor and
otherwise satisfy TOFF's obligations in accordance with the terms of this
Agreement and the applicable Drilling Order as of the time of such stoppage,
and to pay charges later incurred and perform later duties in accordance with
the terms hereof for and in connection with any completion or abandoning
operations or moving off location. However, the parties may agree to other
work under provisions of Drilling Order Section 15 in which event such further
work shall be conducted in accordance with the terms and conditions of this
Agreement and the Drilling Order.
VI. TAKEOVER BY TOFF
Time is of the essence in performance of this "Contract". In the
event of unreasonably slow progress, carelessness, inattention or incompetence
on the part of Contractor or in the event Contractor for any reason shall fail
to supply sufficient properly skilled workmen or
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suitable tools, machinery and equipment for efficient performance of the work
on any well hereunder or in the event Contractor neglects or willfully
discontinues or delays commencement of work to be performed hereunder, then
TOFF shall notify Contractor of its dissatisfaction. If such condition is not
corrected to TOFF's satisfaction within five days of notice, TOFF shall have
the option to terminate the "Contract" or take possession of the well,
discontinue the drilling thereof, and dismantle or abandon same, being liable
only for the work done by contractor prior to such termination or takeover. If
TOFF so elects, it may take possession of the well and any or all of
Contractor's tools, machinery and equipment at the well site and, through its
own employees or some other contractor, drill such well to completion. TOFF
shall also have such termination right after takeover of work on a well as
provided below. If there should be imminent danger of a blowout or other well
hazards, TOFF shall have the right to take over operations immediately and
either discontinue, abandon, or continue drilling. Contractor shall continue
to have custody of and be responsible for its rig and the positioning, locating
and maintaining of it, and TOFF or its representative shall have supervision
and control of such facilities only to the extent of the drilling or other
operations involved. If TOFF takes over the well and operation of Contractor's
tools, machinery and equipment and completes the well, TOFF's costs in
completing the well, with no allowance for use of Contractor's tools, machinery
and equipment shall be deducted from the contract price which otherwise would
have been paid to Contractor, and the balance, if any, paid to Contractor.
TOFF shall be responsible for the return of such drilling equipment and tools,
machinery and equipment to Contractor in as good as condition as when received,
natural wear and weathering, accidental loss or breakage excepted. If
operations are taken over by TOFF as herein provided, all operations thereafter
performed shall be at TOFF's risk and the indemnity provisions hereof shall not
apply. Contractor shall continue to have custody, control and supervision of
the vessel, its hull and all ballast control and related systems essential to
maintaining the vessel in a safe condition. TOFF shall have supervision,
custody and control over Contractor's drilling equipment and related drilling
operations. If Contractor carries insurance on Contractor's tools, machinery
and equipment, such insurance shall be continued in effect during the period of
such takeover, and TOFF shall reimburse Contractor for the cost thereof. TOFF
may elect to secure such insurance through some other source including
assumption of all or part of the risk as a self-insurer.
VII. CASING PROGRAM
7.1 METHOD AND COMPENSATION. Contractor shall run and cement all
strings of casing as provided in the applicable Drilling Order Section 6 and
shall be compensated at the applicable day work rates as set out in that
Drilling Order.
7.2 PROTECTORS AND LUBRICANTS. Contractor shall keep thread
protectors on the casing until it is taken from the racks to be run into the
hole and shall apply a suitable pipe thread lubricant as it is run. Contractor
shall preserve all such protectors. After operations are completed, Contractor
shall break down all surplus casing, put protectors on same as it is broken
down, and return such casing to the pipe racks.
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VIII. DRILLING METHODS AND PRACTICES
8.1 STANDARDS OF PERFORMANCE. Contractor agrees to perform all
work under the terms of this Agreement and according to the specifications and
conditions set forth in the Drilling Order with due diligence and care in a
good, workmanlike manner in accordance with best drilling practices.
8.2 TOFF EQUIPMENT - FAILURE NOTIFICATION. Contractor agrees to
notify TOFF promptly in case of any failure of TOFF provided equipment,
materials, or supplies.
8.3 EQUIPMENT CONDITION. Contractor shall maintain all its
equipment in good safe operating condition at all times. Well control
equipment shall be checked by Contractor as prescribed in Section 4B of the
Drilling Order and Contractor shall use all reasonable means to control and
prevent fires and blowouts and to protect the hole and TOFF's equipment. Any
equipment furnished by TOFF to Contractor shall be controlled and maintained by
Contractor in good working condition. TOFF agrees to reimburse Contractor for
any third party expense incurred and authorized by TOFF's on- the-job
representative to repair TOFF furnished equipment.
8.4 MAXIMUM EQUIPMENT CAPACITY. Contractor shall utilize its
equipment to its maximum capacity as rated by the manufacturer thereof, if TOFF
so requests.
8.5 MUD PROGRAM. Contractor shall maintain the mud program in a
manner satisfactory to TOFF. Drilling fluid shall be maintained in accordance
with specifications set forth in the Drilling Order Section 7. The amounts of
mud and mud conditioners to be furnished by either party shall be as specified
in the Drilling Order. If TOFF furnishes mud and mud conditioners, TOFF shall
have supervision over use of these materials.
8.6 FORMATION DATA. Contractor agrees to save and label samples
of such formations and to keep drilling times of such formations as TOFF may
request. Contractor agrees to notify TOFF promptly whenever any oil and/or gas
bearing formation is found. TOFF shall be afforded sufficient time to examine
such formation to determine whether or not the well should be completed, and
for such time consumed, Contractor shall be paid the applicable rate provided
in the Drilling Order.
8.7 EQUIPMENT, PERSONNEL AND DEVIATION SURVEYS. Contractor agrees
to furnish equipment, personnel, and instruments acceptable to TOFF and in
conformity with all governmental regulations and to make deviation surveys as
provided in the Drilling Order Section 8 to maintain drill angle and direction
of the hole within allowable limits specified in the Drilling Order. All such
deviation surveys shall be made at TOFF's sole risk, cost, and expense. TOFF
reserves the right to require drift angle and directional surveys additional to
those specified in the Drilling Order. If the course of the hole is found to
be within prescribed limits of the Drilling Order, the cost of such additional
survey, including rig time, shall be borne by TOFF at the applicable day work
rate.
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8.8 SAFE PRACTICES. Contractor shall locate boilers and other
sources of ignition a safe distance from the well and shall prohibit use of
open flames (except welding under controlled conditions) or smoking on the rig
floor or other hazardous areas by its own personnel or other parties. If the
well or equipment should catch fire from use of open flames (other than those
covered by a mutually agreed work permit) or from smoking in hazardous areas,
this will be considered as negligence on the part of the Contractor.
Contractor shall observe recommendations contained in API RP 54 ("Recommended
Practices for Occupational Safety & Health for Oil and Gas Well Drilling and
Servicing Operations") and all revisions to same and shall obey all Federal,
State, and local laws, rules, and regulations relative to safety and health.
Contractor shall permit no employee, invitee or other party on the rig that is
under the influence of alcohol or drugs. No alcohol, illegal drugs or firearms
shall be allowed by Contractor on the job site. Contractor shall prohibit the
presence on the rig of unauthorized personnel or visitors unless such visits
are approved by TOFF. Contractor shall have a formal safety program and shall
provide suitable equipment and personnel properly and adequately trained in the
safe performance of their duties.
8.9 RIG EVACUATION. Contractor's supervisor at the location shall
have sole and final responsibility to issue orders to Contractor's personnel to
evacuate the rig for reasons of weather or emergency.
8.10 BLOWOUT PREVENTION. Blowout prevention equipment shall be
furnished by Contractor as specified in Drilling Order Section 4B and installed
and tested in accordance with TOFF's requirements. The control manifold shall
be located near the driller's position with a second remote control located at
a safe distance from the derrick floor at a point mutually satisfactory to
Contractor and TOFF. It is essential that each member of the drilling crew
understand the operation of the equipment and be capable of operating it when
necessary. Regularly scheduled drills shall be conducted and noted on the
Drilling Report.
8.11 INSPECTION OF TOFF EQUIPMENT. Contractor shall visually
examine all casing, equipment, machinery, tools or other items furnished by
TOFF and if any apparent defects are found therein sufficient to make the use
of any such items unsuitable or unsafe, Contractor shall immediately notify
TOFF of such defects, and TOFF shall promptly replace the item so found
defective.
IX. CORING, TESTING, LOGGING AND COMPLETION
Contractor shall perform all coring, testing, logging and completion
work on a day work basis as provided in Drilling Order.
X. REPORTS TO BE FURNISHED BY CONTRACTOR
10.1 DAILY DRILLING REPORT. Contractor shall complete and furnish
TOFF with the Standard API-IADC Daily Drilling Report showing the depth of the
hole, the formations penetrated, and such other data as required by TOFF.
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10.2 RIG TIME. TOFF's representative will consult with Contractor's
representative at the rig on the proper breakdown of rig time, which shall be
entered by Contractor in tile "Time Summary" section of the API-IADC Report.
TOFF's representative will sign the tour sheets in receipt of such work. This
breakdown should be reviewed by each party's authorized representatives and any
desired changes shall be negotiated, prior to preparation of the invoice.
10.3 DELIVERY TICKETS. Delivery tickets covering any materials or
supplies furnished by TOFF or furnished by vendors for which TOFF is obligated
to reimburse Contractor, shall be submitted as received with the Daily Drilling
Report. The quantity, description and condition of the materials and supplies
so furnished shall be verified and checked by Contractor, and delivery tickets
shall be properly certified as to receipt by Contractor's representative.
Contractor must obtain approval of TOFF's representative on the job of delivery
tickets for materials and supplies for which Contractor is to be reimbursed by
TOFF.
10.4 DAMAGE OR INJURY. Contractor shall orally report to TOFF, as
soon as practicable, followed by an appropriate written report, all accidents
or occurrences resulting in death or injuries to Contractor's employees,
invitees or third parties, or damage to property of TOFF or third parties
arising out of or during the course of operation of Contractor or of any
subcontractor of Contractor, and shall furnish TOFF with a copy of all reports
made by Contractor to Contractor's insurer(s) or to others of such accidents
and occurrences.
10.5 GOVERNMENTAL REPORTS. Contractor when requested by TOFF shall
provide to government or state agencies further information on deaths or lost
time injuries and shall provide TOFF with a copy of such further information.
XI. INSURANCE AND INDEMNITY
11.1 TYPES AND LIMITS. At all times during the term of the
"Contract", Contractor shall maintain, at Contractor's expense, insurance
satisfactory to TOFF of the minimum types and limits as follows:
a. Such insurance as may be required or available to cover any
risk exposures under the workers' compensation, social
security or other laws of any nation, state, or other
governmental entity and/or regulations of any authorities
having jurisdiction in the operations.
b. Employers' Liability Insurance, with dollar limits as
specified in Section 14 of the Drilling Order for each
occurrence for employment subject to state Workers'
Compensation Acts and with dollar limits as specified in
Section 14 of the Drilling Order for each occurrence for
employment where there is possible liability under the Jones
Act or Death on the High Seas Act. (This coverage may be
contained to some extent in other insurances listed elsewhere
herein).
c. Comprehensive General Liability Insurance, including
contractual liability coverage for Contractor's obligations
hereunder to defend and/or indemnify TOFF, with dollar limits
as specified in Section 14 of the Drilling Order for
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each occurrence for bodily/personal injury, death and property
damage combined.
d. Comprehensive Automobile Liability Insurance including owned,
non-owned, and hired vehicles, with dollar limits as specified
in Section 14 of the Drilling Order for each occurrence for
bodily injury, death and property damage combined.
e. Full Form Marine Protection and Indemnity Insurance (including
transportation, wages, maintenance and cure) covering the rig
with dollar limits as specified in Section 14 of the Drilling
Order for each occurrence or the actual cash value of the rig,
whichever is greater. (This coverage may be contained to some
extent in other insurances listed elsewhere herein).
f. Standard Marine Hull and Machinery, (including collision
liability coverage to the extent not provided in any insurance
listed elsewhere herein) and for International operations, War
and Political Risks Insurance in the amount of the actual cash
value of the rig.
This insurance shall provide that any action "in rem" against
the rig shall be treated as though it were an action against
Contractor.
g. Property Insurance on all other property of Contractor,
including drilling rig and machinery in the amount of actual
cash value.
h. If aircraft are owned, leased, or hired by Contractor:
Aircraft Liability Insurance covering any such aircraft
including passenger liability with dollar limits as specified
in Section 14 of the Drilling Order for each occurrence.
11.2 ADDITIONAL INSUREDS AND SUBROGATION WAIVER. To the fullest
extent permitted by law and without in anyway limiting Contractor's liability
or responsibility under the indemnity provision hereof, all insurance policies
maintained by Contractor in accordance with Paragraph 11.1 above and any other
insurance maintained applicable to Contractor's performance under the
"Contract" shall include TOFF and any parties in joint operation with TOFF as
additional insureds and/or shall contain a waiver of subrogation against TOFF
and said other parties (each to the extent Contractor has assumed liability
under this Contract) as appropriate to secure the maximum benefit to TOFF and
its joint operations parties. To the extent Contractor has assumed liability
hereunder, Contractor's insurance shall be regarded as primary insurance
underlying any other applicable insurance. Any risks and liabilities not
expressly assumed by TOFF or Contractor hereunder shall be governed by
applicable law, and to the extent any such liabilities are imposed upon the
Contractor by applicable law, and not expressly assumed by TOFF, the insurance
carried by the Contractor shall be regarded as primary insurance underlying any
other applicable insurance.
11.3 CANCELLATION NOTICE. All such insurance shall be carried by
an insurance company acceptable to TOFF and shall not be cancelled nor
materially changed without thirty
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(30) days prior written notice having been furnished TOFF. Contractor agrees
to furnish TOFF, upon request, evidence of such insurance satisfactory to TOFF.
11.4 SELF-INSURANCE. In the event Contractor self-insures in part
or whole any risks for which insurance is herein required, notice of same must
be in writing and approved by TOFF.
11.5 TOFF'S PROCUREMENT. TOFF has the right but not the duty, by
giving Contractor timely notice, to procure any or all of the insurance
specified herein with terms, conditions, and limits as mutually agreed and as
further detailed in the Drilling Order Section 14 subject to annual review if
requested.
11.6 INDEMNITY. Whenever "TOFF" or "Contractor" appears herein as
an indemnitee, said term shall also include indemnitee's parent, subsidiary and
affiliated companies, and directors, officers, employees and invitees of such
parties.
11.6 a(1) Contractor shall release, defend, indemnify and hold
harmless TOFF to the fullest extent permitted by law from and against any loss,
damage, claim, suit, liability, judgment, and expense (including attorneys'
fees and other costs of litigation) arising in connection herewith, resulting
from or in any way related to the work to be performed hereunder for
bodily/personal injury, disease or death of Contractor's employees or invitees,
Contractor's subcontractors of any tier and their employees or invitees,
without regard to the cause or causes thereof or the sole or concurrent
negligence, fault or strict liability without fault of TOFF, TOFF's
contractors, or of any party or parties.
11.6 a(2) Contractor shall release, defend, indemnify, and hold
harmless TOFF to the fullest extent permitted by law from and against any loss,
damage, claim, suit, liability, judgment and expense (including attorneys' fees
and other costs of litigation), arising in connection herewith, resulting from
or in any way related to the work to be performed hereunder for (except as
provided otherwise elsewhere herein) loss of or damage to property owned or
leased by Contractor, its employees and invitees, and Contractor's
subcontractors of any tier and their employees and invitees without regard to
the cause or causes thereof or sole or concurrent negligence, fault, or strict
liability without fault of TOFF, TOFF's contractors, or of any party or
parties.
11.6 b(l) TOFF shall release, defend, indemnify and hold harmless
Contractor to the fullest extent permitted by law from and against any loss,
damage, claim, suit, liability, judgment, and expense (including attorneys'
fees and other costs of litigation) arising in connection herewith, resulting
from or in any way related to the work to be performed hereunder for bodily
injury, disease or death of TOFF's employees and invitees, TOFF's contractors
of any tier (except Contractor herein and its subcontractors of any tier) and
their employees and invitees, without regard to the cause or causes thereof or
the sole or concurrent negligence, fault or strict liability without fault of
Contractor and its subcontractors of any tier, or of any party or parties.
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11.6 b(2) TOFF shall release, defend, indemnify, and hold harmless
Contractor to the fullest extent permitted by law from and against any loss,
damage, claim, suit, liability, judgment and expense (including attorney's fees
and other costs of litigation), arising in connection herewith, resulting from
or in any way related to the work to be performed hereunder for (except as
provided otherwise elsewhere herein) loss of or damage to property owned by
TOFF, its employees and invitees, and its contractors of any tier (except
Contractor herein and its subcontractors of any tier) and their employees and
invitees without regard to the cause or causes thereof or the sole or
concurrent negligence, fault, or strict liability without fault of Contractor
and its subcontractors of any tier, or of any party or parties.
11.7 NOTICE PROVISIONS. Indemnitee shall, as soon as practical
after receiving notice of claim or suit brought against it, provide to
indemnitor full particulars within its knowledge and shall render all
reasonable assistance requested by indemnitor in the defense of such claim or
suit.
11.8 SPECIAL PROVISIONS APPLICABLE. Except as otherwise expressly
limited herein, it is the intent of the parties hereto that all indemnity
obligations and/or contribution and/or liabilities and/or responsibilities
assumed by such parties be without monetary limit and shall not be limited by
any amounts of insurance carried or required herein and be without regard to
the cause or causes thereof, including pre-existing conditions, the
unseaworthiness of any vessel or vessels, strict liability, and to the fullest
extent permitted by law without regard to negligence or fault of any party or
parties, whether such negligence or fault be sole, joint or concurrent, active
or passive.
11.9 ADJUSTMENT OF LIMITS. If it is judicially determined that the
monetary limits of insurance required or the indemnities assumed by either
party herein (which Contractor and TOFF agree will be supported by insurance or
which are self-insured in whole or part) do not conform with applicable law, it
is agreed that said insurance or indemnities shall automatically be amended to
conform to the maximum monetary limits and other provisions in such law.
XII. RESPONSIBILITY FOR THE HOLE
12.1 LOSS, DAMAGE OR IMPAIRMENT. If the hole is lost, damaged or
otherwise impaired, TOFF shall be responsible and shall bear any resulting loss
and expense including cost of regaining control of well, except as otherwise
provided in Article XIII. However, if such loss or damage is caused by
Contractor's gross negligence or willful misconduct, then Contractor shall
drill a new hole on the same location, or at TOFF's election, redrill said
section of the hole as TOFF may require, in either case subject to all of the
terms and conditions of this Agreement and the Drilling Order, except that the
operating day rate will be reduced 20% until the new hole has reached the depth
at which the old hole was abandoned or the section has been redrilled to TOFF's
satisfaction. It is agreed that this is TOFF's exclusive remedy for loss or
damage to the hole. "Hole" shall mean the connector pipe leading from
immediately below the rotary table to the ocean floor and below that any cased
and/or open hole extending from the connector pipe.
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12.2 OTHER CAUSES OF LOSS. Notwithstanding the provisions of
Paragraph 12.1, TOFF, except to the extent caused by the gross negligence or
willful misconduct of Contractor, shall be responsible for loss of or damage to
or other impairment to the hole to the extent caused by the failure of casing,
cement or cementing services, equipment, machinery, tools or any other material
or services furnished by TOFF.
12.3 TOOLS ON DAY WORK. Notwithstanding Contractor's
responsibility for Contractor owned or leased property as set forth in
Paragraph 11.6.a(2) TOFF assumes responsibility while work is being performed
on a day work basis for loss of or damage to tools and equipment when in the
hole except to the extent caused by Contractor's gross negligence or willful
misconduct. The basis for reimbursement shall be the depreciated replacement
cost as mutually agreed.
12.4 FISHING JOBS. If a fishing job is required while the work is
being performed on a day work basis, TOFF shall be responsible for all cost and
expense unless such fishing job is caused by Contractor's gross negligence or
willful misconduct in which case it shall be performed at 80% of Contractor's
operating day rate.
XIII. POLLUTION RESPONSIBILITY
13.1 CONTRACTOR'S RESPONSIBILITY. Contractor shall assume all
responsibility for, including control and removal of, and release, defend,
indemnify and hold TOFF harmless against and from loss, cost, damage, or
liability arising from pollution or contamination:
1. Which originates above the surface of the land or
water:
(a) From spills or leaks of fuels, lubricants,
motor oils, pipe dope, paints, solvents, ballasts,
bilge, garbage, sewerage, and other materials
exclusive of those covered by subpart (b), in
Contractor's possession and control, whether or not
caused by the negligence of Contractor and/or TOFF;
and
(b) From spills, leaks or dumping of oil
emulsion, oil base or chemically treated fluids,
contaminated cuttings and lost circulation and fish
recovery materials and fluids, when said materials
are in Contractor's possession, although their use or
disposition may be at TOFF's direction, and such
spill, leak or dumping are a result of Contractor's
gross negligence, willful misconduct or act not in
accordance with TOFF's direction.
2. Resulting from fire, blowout, cratering, seepage, or
any other uncontrolled flow, from surface or
subsurface, of oil, gas or water from wells during
the conduct of operations hereunder, when caused by
Contractor's gross negligence or willful misconduct,
but only up to and not in excess of the amount of the
dollar limit as set out in Section 14 of the Drilling
Order for each occurrence of such loss, cost or
damage.
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3. Resulting from leakage, or other uncontrolled flow of
oil, gas or water from pipelines, including lines on
or in submerged lands, ruptured or damaged by
Contractor's rig, barge, anchors, or other equipment,
or by Contractor's operations, whether or not
Contractor is grossly negligent except that
Contractor shall not be responsible for pollution
when the pipeline rupture or damage is caused by the
correct positioning or operation of Contractor's
equipment at a specific location, or on a specific
route, designated by TOFF or by the actual
positioning of such equipment whether or not correct)
by TOFF.
13.2 TOFF'S RESPONSIBILITY. TOFF shall assume all responsibility
for, including control and removal of, and release, defend, indemnify and hold
Contractor and the rig harmless against and from loss, cost, damage, or
liability arising from pollution or contamination:
(1) Resulting, except as provided in Paragraph
A.1(b) above, from possession, use or disposition of
oil emulsion, oil base or chemically treated fluids,
contaminated cuttings, and lost circulation and fish
recovery materials and fluids, including such
possession, use or disposition by third party
contractors;
(2) Resulting from fire, blowout, cratering,
seepage, or any other uncontrolled flow of oil, gas
or water from wells during the conduct of operations
hereunder when not resulting from Contractor's gross
negligence or willful misconduct, and, when
Contractor is grossly negligent, excluding the amount
per occurrence of such loss, cost or damage for which
Contractor is responsible under A.2 above; and
(3) Resulting as stated in Paragraph A.3 above,
when caused by the correct positioning or operation
of Contractor's equipment at a specific location, or
on a specific route, designated by TOFF or by the
actual positioning of such equipment (whether or not
correct) by TOFF.
13.3 TOFF CONTROL. Without relieving Contractor of any obligations
hereunder, it is agreed that TOFF may take part to any degree it deems
necessary in the control and removal of any pollution or contamination which is
the responsibility of Contractor under the foregoing provisions; and Contractor
shall reimburse TOFF for the cost thereof, subject to any limitation above
provided, upon the receipt of billing from TOFF. Initiation of cleanup
operation by either party shall not be construed as an admission or assumption
of liability.
XIV. RESPONSIBILITY FOR THE RIG
14.1 CONTRACTOR RESPONSIBILITY. Contractor agrees that TOFF shall
not be liable for or responsible for any damage, loss, or repair to
Contractor's rig, drilling equipment and appliances, including, but not limited
to, damage, loss, or repair of the rig during movement to, from or between
locations, whatsoever the cause whether through TOFF's sole or joint
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negligence or fault during existence of the "Contract" but the benefits of this
Paragraph shall not, under any circumstance, inure to the benefit of any third
party. Contractor and TOFF agree that the value or amount of the hull and/or
machinery insurance carried by Contractor on its rig shall be considered the
agreed value of the rig for any purpose of the "Contract" or otherwise.
Contractor assumes full and complete responsibility at its sole cost and
expense for removal of any debris, drilling equipment or material lost on the
lease by Contractor or its subcontractor or the debris of the loss or wreck of
the rig itself when removal is required by TOFF for proper operations on its
lease, or to conduct safe oil and gas drilling and producing operations, or if
required by law or government rule or regulation.
14.2 TOFF'S PROPERTY. Notwithstanding TOFF's responsibility for
TOFF owned property as set out in Paragraph 11.6.b(2), Contractor shall make
all reasonable efforts to return to TOFF at completion or abandonment of the
well all machinery, tools, material and equipment ,furnished by TOFF in as good
condition as when received by Contractor, ordinary wear and tear excepted.
XV. TAXES AND CLAIMS
15.1 TAXES, LICENSES & FEES. Contractor shall pay all taxes,
licenses and fees levied or assessed on Contractor in connection with or
incidental to the performance of the "Contract" by any governmental agency for
unemployment compensation insurance, old age benefits, social security, or any
other taxes upon the wages of Contractor, its agents, employees and
representatives. Contractor shall require the same agreements and be liable
for any breach of such agreements by any of its subcontractors.
15.2 REIMBURSEMENT OBLIGATION. Contractor shall reimburse TOFF on
demand for all such taxes or governmental charges, state or federal, which TOFF
may be required or deem it necessary to pay on account of employees of
Contractor or its subcontractors. Contractor shall furnish TOFF with the
information required to enable it to make the necessary reports and to pay such
taxes or charges. TOFF may elect to deduct all sums so paid for such taxes and
governmental charges from such amounts as may be or become due to Contractor
hereunder.
15.3 LABOR AND MATERIALS. Contractor shall pay all claims for
labor, material, services and supplies furnished by Contractor hereunder and
shall allow no lien or charge to be fixed upon the lease, the well, the tract
on which the well is to be drilled or other property of TOFF. Contractor
agrees to release, defend, indemnify, protect, and save TOFF harmless from and
against all such claims and liens. If Contractor shall fail or refuse to pay
any claims or indebtedness incurred by Contractor in connection with the
drilling of any well or wells hereunder, TOFF shall have the right to pay any
such claims or indebtedness out of any money due or to become due to Contractor
hereunder. No assignment or transfer by Contractor of rights to monies due
Contractor hereunder shall have any force or effect as far as TOFF's rights are
concerned until all such claims and indebtedness incurred by Contractor shall
have been completely liquidated and discharged.
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<PAGE> 15
15.4 PROOF OF PAYMENT. Before payments are made by TOFF to
Contractor, TOFF may require Contractor to furnish proof that there are no
unsatisfied claims for labor, materials, equipment and supplies, or for
injuries to persons or property not covered by insurance.
XVI. INDEPENDENT CONTRACTOR RELATIONSHIP
16.1 INDEPENDENT CONTRACTOR. Contractor is an independent
contractor with respect to performance of all work hereunder and neither
Contractor nor anyone employed by Contractor shall be deemed for any purpose to
be the employee, agent, servant or representative of TOFF in performance of any
work or service hereunder. TOFF shall have no direction or control of
Contractor or its employees and agents except in the results to be obtained.
The work performed hereunder shall meet the approval of TOFF and be subject to
the general right of inspection provided herein for TOFF to secure the
satisfactory completion thereof.
16.2 TOFF ACCESS. Contractor shall perform and supervise all work
hereunder, but TOFF's representatives shall have unlimited access to the
premises to determine whether work is being performed by Contractor in
accordance with all of the provisions of this Agreement and Drilling Order.
TOFF's representative shall have the right at all times to be on or about the
rig and to have access to all reports, records, logs, samples and cores.
XVII. LAWS, RULES AND REGULATIONS
Contractor shall comply with all federal, state and municipal laws,
special permit conditions, rules and regulations which are now or may become
applicable to operations covered by this Agreement and the Drilling Order.
XVIII. FORCE MAJEURE
Neither Contractor nor TOFF shall be liable to the other for delays,
damages, or any act, due, occasioned or caused by reason of federal or state
laws, or the rules, regulations or orders of any public body or official
exercising or purporting to exercise authority or control concerning the
operations covered hereby, including the use of tools and equipment, or due,
occasioned or caused by strikes, terrorists, riots, civil commotions, action of
the elements or causes beyond the control of the parties affected hereby.
Delays due to the above causes, or any of them, shall not he deemed to be a
breach of or failure to perform under this agreement. Hazardous weather shall
not constitute a force majeure condition. Notice of force majeure occurrences
and the details constituting them shall be given promptly in writing.
XIX. INGRESS AND EGRESS TO LOCATION
TOFF shall secure for Contractor rights of ingress and egress to the
location on which the well is to be drilled. TOFF shall advise Contractor of
any limitations or restrictions affecting ingress and egress, and Contractor
shall abide by and shall have its employees, invitees, agents or subcontractors
abide by such limitations or restrictions. If Contractor is
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<PAGE> 16
denied free access to the location for any reason not within the control of
Contractor, time lost by such denial shall be paid for at a reasonable rate in
keeping with the stage of operations at the time.
XX. AUDITS
If any payment provided for hereunder is to be made on the basis of
Contractor's costs, TOFF shall have the right to audit Contractor's books and
records relating to such costs. Contractor agrees to maintain such books and
records for a period of two (2) years from the date such costs were incurred
and to make such books and records available to TOFF at any time or times
within the two-year period. TOFF at its option may request Contractor to
provide copies of such records as needed.
XXI. PATENTS AND LICENSES
Notwithstanding any other provisions herein to the contrary,
Contractor represents and warrants that the use or construction of all tools
and equipment furnished by Contractor and used in the work provided for herein
does not infringe on any license or patent which has been issued or applied
for, and Contractor shall release, defend, indemnify and hold TOFF harmless
from any and all claims, demands and causes of action of every kind and
character in favor of or made by any patentee, licensee or claimant of any
right or priority to any such tool or equipment, or the use or construction
thereof which may result from or arise out of the furnishing or use of any such
tool or equipment by Contractor in connection with the work under this
"Contract".
XXII. CONFLICTS
In the event there is a conflict between the provisions hereof and any
papers or documents, other than the Drilling Order, which may have been
executed or passed between the parties hereto in connection with the subject
matter hereof, it is understood and agreed that the provisions hereof shall be
controlling. If there be a conflict between the provisions hereof and the
Drilling Order executed in connection herewith, it is understood and agreed
that the provisions of such Drilling Order shall he controlling.
XXIII. ASSIGNMENTS
23.1 BY CONTRACTOR. This Agreement or the "Contract" completed
hereunder and operations thereunder shall not be assigned in whole or in part,
without the prior written consent of TOFF. Contractor shall not assign any sum
that may accrue to Contractor hereunder without written consent of TOFF.
23.2 BY TOFF. TOFF shall have the right to assign and re-assign
both this Agreement and the "Contract" completed hereunder to any of its
subsidiaries or affiliates upon giving timely notice to Contractor. TOFF shall
have the right, subject to prior consent of Contractor, which consent shall not
be unreasonably withheld, to assign the "Contract" to any company other than
its subsidiaries and affiliates. TOFF shall have the right to employ other
15
<PAGE> 17
companies including affiliates and subsidiaries to perform any operations or
services to be provided by TOFF under the "Contract".
XXIV. CANCELLATION
Whenever there is no accompanying Drilling Order currently in effect
between the parties, this Agreement may be cancelled by either party but only
after ten (10) days prior notice of such cancellation has been furnished to the
other party.
XXV. WELL INFORMATION
Neither Contractor nor Contractor's employees or invitees shall
disclose any information in connection with any well and Contractor shall use
its best efforts to ensure that its employees, agents and subcontractors shall
not disclose any information in connection with any well to be drilled under
this Agreement to anyone or permit visitors access to the drilling unit for
purposes of obtaining well information other than TOFF, or its duly authorized
representative except upon written instructions of TOFF, and then only in
accordance with such written instructions.
XXVI. EQUAL OPPORTUNITY
In connection with the performance of services under this Agreement,
Contractor shall, when applicable, comply with all of the provisions provided
on the "Equal Opportunity" attachment made a part hereof and labeled as Exhibit
"A".
XXVII. UTILIZATION OF MINORITY & WOMEN BUSINESS ENTERPRISES
It is the policy of the U.S. Government that Minority and Female
Business Enterprises shall not be excluded from participating in business
opportunities because of race or sex and that they have the maximum practicable
opportunity to participate in the performance of government contracts.
Contractor agrees to use his best efforts to carry out this policy in
the awards of his subcontracts to the fullest extent consistent with the
efficient performance of the "Contract" under good oil field practices. As
used herein, a minority- or woman-owned business enterprise is defined as a
business that has at least 51% ownership by minority or women members and whose
management and daily business operations are controlled and operated by one or
more of such individuals. Minority group members shall include Black
Americans, Hispanic Americans, Native Americans and Asian-Pacific Americans.
Contractors acting in good faith may rely on written representations from
subcontractors and suppliers as to their minority- and/or women-owned
qualifications. This provision shall be automatically amended to conform to
any future changes in statute or regulation.
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<PAGE> 18
XXVIII. EARLY TERMINATION
28.1 TOTAL OR CONSTRUCTIVE TOTAL LOSS. If the drilling rig
utilized by Contractor for operations hereunder is for whatever cause declared
a total or constructive total loss, then the "Contract" between the parties
which had been completed by acceptance of the Drilling Order shall be
terminated without notice as of the moment of such loss and no further payments
shall be due under the "Contract". TOFF shall remain liable for all costs
incurred and outstanding under the "Contract" before the moment of such loss.
Contractor shall be liable for salvage or debris removal as set out in either
this Agreement or the Drilling Order.
28.2 INSOLVENCY. Should Contractor become insolvent or make an
assignment for the benefit of creditors or be adjudicated as bankrupt or admit
in writing its inability to pay its debts generally as the same become due, or
should any proceedings be instituted by Contractor under any State or Federal
law for relief of debtors or for the appointment of a receiver, trustee or
liquidate of Contractor, or should a voluntary petition in bankruptcy or for a
reorganization or for an adjudication of Contractor as an insolvent or a
bankrupt be filed, or should an attachment be levied upon Contractor's
equipment and not removed within ten (10) days therefrom, then upon the
occurrence of any such event, TOFF shall thereupon have the right to cancel the
"Contract" and to terminate immediately all work then being performed
thereunder.
28.3 EXTENSIVE REPAIRS. TOFF shall have the right, upon written
notice, to terminate the "Contract" in the event operations cannot be performed
because of or in conjunction with extensive repairs or modifications to the rig
or its equipment which exceed or are estimated to exceed thirty (30) days. No
day work rate will be payable during the period when such repairs or
modifications are being made beyond limits set forth in Section 13 of the
Drilling Order.
28.4 INABILITY TO MEET SPECIFICATIONS. TOFF may, at its option,
terminate the "Contract" on written notice if Contractor's drilling rig fails
to meet the requirements for which it has been designed due to a deficiency in
construction and/or design and Contractor is unable to show that corrective
work can be accomplished within thirty (30) days. No day work rate will be
payable during the period when such deficiencies are being corrected.
28.5 FORCE MAJEURE. Either party, at its option, may terminate the
"Contract" on or after the fifteenth day after operations have been suspended,
due to a force majeure condition as described in Article XVIII.
XXIX. JOINT OPERATIONS
If any of the work performed or to be performed hereunder is a part of
a joint operation between TOFF and other parties, then the obligation and
liabilities of Contractor hereunder shall run to and in favor of TOFF and the
other parties engaged in such joint operation.
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<PAGE> 19
XXX. CAPTIONS
The headings and captions in this Agreement and the Drilling Order are
for convenience only, and shall not be used in construing the meaning hereof.
XXXI. NOTICES
Notices required under this Agreement shall be sent by U. S. Mail,
Telex, or telegram to the following addresses:
TOFF Contractor
Tatham Offshore, Inc. Sedco Forex Division of Schlumberger
7400 Texas Commerce Tower Technology Corporation
600 Travis 1155 South Dairy Ashford, Suite 402
Houston, Texas 77002 Houston, Texas 77079
Attention: Antoine Gautreaux, Jr. Attention: J. R. Powers
When there is a currently effective Drilling Order, notices required
under the "Contract" shall be sent to the address given in the Drilling Order
Section 12.
XXXII. GENERAL PROVISIONS.
32.1 WAIVER. None of the requirements of this Agreement or the
Drilling Order shall be considered as waived unless such waiver is made in
writing by both of the parties.
32.2 ATTORNEYS' FEES. In the event TOFF is required to retain an
attorney to enforce any of the provisions of the "Contract" then the reasonable
costs of such attorney shall be a charge against the contractor.
32.3 CONTINUING OBLIGATIONS. All indemnity obligations and/or
contributions and/or liabilities and/or duties and responsibilities assumed by
the parties to this "Contract" shall survive the termination for any cause of
this "Contract," including but not limited to Contractor's responsibility for
salvage and debris removal.
32.4 GOVERNING LAW. This "Contract" shall be construed and the
relations between the parties shall be determined in accordance with the
General Maritime Law of the United States of America, not including however any
of its "conflicts of law" rules which would direct or refer to the laws of
another jurisdiction.
32.5 CONSEQUENTIAL DAMAGES. Neither party shall be liable to the
other for special, indirect or consequential damages resulting from or arising
out of this Contract, including without limitation loss of profit, production,
or business interruption, howsoever they may be caused including negligence.
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32.6 RESPONSIBILITY FOR THE RESERVOIR. TOFF assumes all liability
for and agrees to release, defend and indemnify, and hold CONTRACTOR harmless
from any and all claims, demands, and causes of action resulting from the loss
of or damage to geological formation or strata or oil and/or gas reservoir
underlying TOFF's lease resulting from a blowout, crater or any other cause
during or resulting from operations under this CONTRACT irrespective of the
negligence or fault of CONTRACTOR. However, this clause shall be applicable
only to loss of or damage to the reservoir or formation itself and all damages
or losses related to or arising out of pollution, contamination, spill or other
surface or subsurface release of oil, gas, other hydrocarbons or other
uncontrolled flows shall be governed by the provisions of the Pollution Clause
Article XIII of the Master Drilling Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have executed duplicate originals of
this Agreement on this 19th day of September, 1996 in the presence of the
undersigned witnesses.
WITNESSES: CONTRACTOR
SEDCO FOREX DIVISION, SCHLUMBERGER
TECHNOLOGY CORPORATION
/s/ HARVEY O. FLEISHER By: /s/ J. R. POWERS
- ------------------------------ -------------------------
Printed Name: J. R. Powers
-------------------------
/s/ KIMBERLY A. WILKIE Title: District Manager
- ------------------------------ -------------------------
WITNESSES: TATHAM OFFSHORE, INC.
/s/ HARVEY O. FLEISHER By: /s/ A. GAUTREAUX JR.
- ------------------------------ -------------------------
Printed Name: Antoine Gautreaux Jr.
-------------------------
/s/ KIMBERLY A. WILKIE Title: C.O.O.
- ------------------------------ -------------------------
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EXHIBIT A
CERTIFICATE OF EQUAL OPPORTUNITY COMPLIANCE
The following certification and agreements shall be a part of and a
supplement to the Master Drilling Agreement entered into between Tatham
Offshore, Inc. (TOFF) and Sedco Forex Division, Schlumberger Technology
Corporation (Contractor), dated September _____, 1996, and will continue in
effect if and so long as required by any applicable Executive Order, rules,
regulations, or Federal laws, or until resolicited by TOFF.
I. EQUAL OPPORTUNITY CLAUSE
A. Contractor agrees to the following provisions of Section 202
of Executive Order 11246.
1. Contractor will not discriminate against any employee
or applicant for employment because of race, color,
religion, sex, of national origin. Contractor will
take affirmative action to ensure that applicants are
employed and that employees are treated during
employment, without regard to their race, color,
religion, sex, or national origin. Such action shall
include, but not be limited to the following:
employment, upgrading, demotion or transfer,
recruitment or recruitment advertising, layoff or
termination, rates of pay or other forms of
compensation, and selection for training, including
apprenticeship. Contractor agrees to post in
conspicuous places, available to employees and
applicants for employment, notices to be provided by
the contracting officer setting forth the provisions
of this nondiscrimination clause.
2. Contractor will, in all solicitations or
advertisements for employees placed by or on behalf
of the Contractor, state that all qualified
applicants will receive consideration for employment
without regard to race, color, religion, sex or
national origin.
3. Contractor will send to each labor union or
representative of workers with which he has a
collective bargaining agreement or other contract or
understanding a notice, to be provided by the agency
contracting officer, advising the labor union or
workers' representative of the Contractor's
commitments under Section 202 of Executive Order No.
11246 of September 24, 1965, and shall post copies of
the notice in conspicuous places available to
employees and applicants for employment.
4. Contractor will comply with all provisions of
Executive Order No. 11246 of September 24, 1965, and
of the rules, regulations, and relevant orders of the
Secretary of Labor.
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5. Contractor will furnish all information and reports
required by Executive Order No. 11246 of September
24, 1965, and by the rules, regulations, and order of
the Secretary of Labor, or pursuant thereto, and will
permit access to his books, records, and accounts by
the contracting agency and the Secretary of Labor for
purposes of investigation to ascertain compliance
with such rules, regulations and orders.
6. In the event of the Contractor's noncompliance with
the nondiscimination clauses of this "Contract" or
with any of such rules, regulations or orders, this
"Contract" may be cancelled, terminated, or suspended
in whole or in part and the Contractor may be
declared ineligible for further Government contracts
in accordance with procedures authorized in
Protective Order No. 11246 of September 24, 1965,
and such other sanctions may be imposed and remedies
invoked as provided in Executive Order No. 11246 of
September 24, 1965, or by rule, regulation, or order
of the Secretary of Labor, or as otherwise provided
by law.
7. Contractor will include the provisions of Paragraphs
(1) through (7) in every subcontract or purchase
order unless exempted by rules, regulations or orders
of the Secretary of Labor issued pursuant to Section
204 of Executive Order No. 11246 of September 24,
1965, so that such provisions will be binding upon
each subcontractor or vendor. Contractor will take
such action with respect to any subcontract or
purchase order as the contracting agency may direct
as a means of enforcing such provisions including
sanctions for noncompliance; provided, however, that
in the event the Contractor becomes involved in or is
threatened with, litigation with a subcontractor or
vendor as a result of such direction by the
contracting agency, the Contractor may request the
United States to enter into such litigation to
protect the interests of the United States.
B. CERTIFICATION OF NONSEGREGATED FACILITIES
By submission of this Certificate, Contractor certifies that
segregated facilities are not and will not be maintained or
provided for its employees at any of its establishments; that
such employees are not and will not be permitted to perform
their services at any location under its control where
segregated facilities are maintained, and, that Contractor is
aware of and understands that any breach of the foregoing is a
violation of the Equal Opportunity Clause of Executive Order
11246. "Segregated Facilities" as used herein means any
waiting rooms, work areas, rest rooms. and washrooms,
restaurants and other eating rooms, time clocks, locker rooms
and other storage or dressing areas, parking lots, drinking
fountains, recreation or entertainment areas, transportation
and housing facilities provided for employees which are
A-2
<PAGE> 24
segregated by explicit directive or are in fact segregated on
the basis of race, creed, color or national origin, because of
habit, local customs, or otherwise.
Contractor further agrees that except where it has obtained
identical certifications from proposed subcontractors for
specific time periods, it will obtain identical certification
from proposed subcontractors prior to the award of
subcontracts exceeding $10,000 which are not exempt from the
provisions of the Equal Opportunity Clause; that it will
retain such certifications in its files; and that it will
forward the following notice to prospective subcontractors.
"NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT
FOR CERTIFICATION OF NONSEGREGATED FACILITIES. A
Certificate of Nonsegregated Facilities, as required
by Section 60-1.8 of Title 41 of the Code of Federal
Regulations, must be submitted prior to the award of
a subcontract exceeding $10,000 which is not exempt
from the provisions of the Equal Opportunity Clause.
The certification may be submitted either for each
subcontract or for all subcontracts during a
specified period, i.e., quarterly, semi-annually or
annually.
Note: The penalty for making false statements in
offers is prescribed in 18 U.S.C. 1001."
II. STANDARD FORM 100 (EEO-1) AND AFFIRMATIVE ACTION PROGRAM
Contractor agrees and certifies that if the value of any "Contract" or
purchase order with TOFF is $50,000 or more and the Contractor has
fifty (50) or more employees, Contractor:
1. Agrees to file a complete and accurate report on Standard Form
100 (EEO-1) within thirty (30) days of the date of "Contract"
award unless such a report has been filed in the last twelve
(12) months and agrees to file such reports annually, as
required by Section 60-1.7 of Title 41 of the Code of Federal
Regulations.
2. Affirms that it has developed and is maintaining current an
affirmative action program at each of its establishments, as
prescribed in Section 60-1.40 of Title 41 of the Code of
Federal Regulations or that if such a program has not been
established that it will be within 120 days of receipt of any
"Contract" of $50,000 or more.
III. THE VIETNAM ERA VETERAN'S READJUSTMENT ASSISTANCE ACT OF 1974
If the value of any "Contract" is $10,000 or more, the Contractor
agrees and certifies that he is and will remain in compliance with the
affirmative action clause set forth at
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<PAGE> 25
41 CFR 60-250.4, to promote affirmative action in the employment and
advancement of qualified disabled veterans and veterans of the Vietnam
era. The contract clause is incorporated herein by reference.
IV. THE REHABILITATION ACT OF 1973
If the value of any "Contract" is $2,500 or more, the Contractor
agrees and certifies that he is and will remain in compliance with the
affirmative action clause set forth in 41 CFR 60-741.4 (to employ and advance
in employment qualified handicapped individuals) and incorporated herein by
reference.
A-4
<PAGE> 26
MASTER DRILLING AGREEMENT
TATHAM OFFSHORE, INC. (TOFF)
EXEMPTION CLAIMS
I. EQUAL OPPORTUNITY CLAUSE
We are exempt because: (please mark below)
None of our contracts/purchase orders with TOFF is in excess
of $10,000.
We have a specific exemption provided by 41 CFR 60-1.5.
(Please attach a copy of the document granting the exemption.)
II. EMPLOYER INFORMATION REPORT (STANDARD FORM 100) AND AFFIRMATIVE ACTION
PROGRAM
We are exempt because: (please mark below)
We are exempt for a reason marked in Section 1 above.
We have fewer than fifty (50) employees.
Our contract, subcontract or purchase order is under $50,000.
III. EMPLOYMENT OF DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA
We are exempt because: (please mark below)
None of our contracts/purchase orders are for $10,000 or more.
All of our contracts with TOFF are for personal services.
Other. (Please specify.)_________________________________________
__________________________________________________________________
IV. EMPLOYMENT OF HANDICAPPED INDIVIDUALS
We are exempt because: (please mark below)
None of our contracts or purchase orders are for $2,500 or
more.
We have a special exemption as provided by 41 CFR 60-741.3(b).
(Please enclose the document granting the exemption.)
B-1
<PAGE> 27
Other. (Please specify an attach documents, if appropriate.)
------------------------------------------------------------
Please sign below signifying your agreement to comply with the foregoing
provisions unless exempt as indicated above and return to TOFF.
Executed this _____ day of _______________, 19_____, by:
- --------------------------------------------------------------------------------
FIRM/COMPANY NAME P.O. BOX CITY STATE ZIP
- --------------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE NAME (Type/Print) Title
- --------------------------------------------------------------------------------
B-2
<PAGE> 28
DRILLING ORDER
SECTION 1. NAME AND LOCATION OF WELL(S) - TERM OF CONTRACT
Initial CONTRACT TERM shall be for the earlier of (i) ninety (90) days or (ii)
the completion of initial drilling operations and the mobilization of the rig
for another operator unless Tatham Offshore, Inc. (TOFF or OPERATOR) has
provided notice to Sedco Forex Division, Schlumberger Technology Corporation
(SEDCO or CONTRACTOR) of its intent to exercise an Extension Option or its Out
Sourcing Option (each as set forth below). That term shall be automatically
extended, if and as applicable, through the completion of operations on any
well which is spudded within that initial ninety (90) day period.
TOFF shall have the right and the option to extend the Contract Term following
completion of the initial Contract Term set forth hereinabove through either
one of the following two forms of extension options: (i) three successive
options to drill one well (the "Well Extension Options") or (ii) two successive
options to extend the initial Contract Term for one year (the "Term Extension
Options" and, together with the Well Extension Options, the "Extension
Options"). The Well Extension Options and the Term Extension Options shall be
mutually exclusive. If TOFF chooses to exercise an Extension Option, it shall
notify SEDCO in writing of its choice of Extension Option and of its exercise
of such Extension Option at least forty-five (45) days prior to the expiration
of the initial Contract Term. After exercise of the initial Extension Option,
to exercise a successive Extension Option, TOFF must give SEDCO written notice
at least forty-five (45) days prior to (i) the expiration of the first Term
Extension Option period, with respect to the Term Extension Option or (ii) the
completion of operations on the preceding well, with respect to the Well
Extension Option.
During the Contract Term and the Extension Option Periods, if exercised, TOFF
shall have the right and the option to "out source" the rig to other operator's
in North and Central America at the then current market rates. SEDCO agrees to
assist in the brokering of the rig for such out sourcing. In the event that
the rig is out sourced, TOFF and SEDCO agree that any day rate received in
excess of TOFF's contract day rate during the period of out sourcing shall be
for the benefit of TOFF. TOFF and SEDCO further agree that TOFF's Contract
Term and Extension Option Periods shall continue to run during any such period
of out sourcing. To exercise the Out Sourcing Option, TOFF must give SEDCO
written notice at least forty-five (45) days prior to the actual out sourcing
of the rig.
The Basic Rig shall be equipped per Attachment 12 entitled "Single Riser System
Minimum Requirements" and be capable of performing drilling operations in water
depths of up to 1,500 feet.
<PAGE> 29
SECTION 2. COMMENCEMENT DATE
The initial Contract Term shall commence coincident with the point in time that
the rig commences mobilization to TOFF's initial location provided the rig has
completed and passed all required regulatory inspections and certifications but
in no event prior to February 1, 1997. CONTRACTOR hereby agrees to obtain such
inspections and certifications immediately following the completion of the
complete overhaul and reconditioning of the rig's machinery and systems
including all upgrades and modifications to such machinery and systems. In the
event CONTRACTOR has not delivered the FPS BILL SHOEMAKER due to having signed
the Amoco contract, pursuant to Section 4.C.1, and an acceptable substitute rig
is not readily available to TOFF as set forth herein on or prior to June 30,
1997, TOFF or CONTRACTOR may terminate this Drilling Order without penalty;
provided, however, the options set forth in Sections 4.C.1 and 4.C.2 herein
shall survive. In the event that the conditions set forth in Section 13.N of
that certain Drilling Make-Ready Agreement dated June 1, 1996 by and between
Deepwater Drillers, L.L.C. and CONTRACTOR are not satisfied, CONTRACTOR may, in
addition to any other remedies it might have, terminate this Drilling Order.
SECTION 3. CONTRACT DEPTH(S): (PER PROGNOSIS)
Subject to right of TOFF to abandon the well(s) or to have the well(s)
completed at a lesser depth, CONTRACTOR agrees to drill the well(s) to a total
maximum Contract Depth of 25,000 feet or prognosis specified depth, whichever
is less. All such drilling shall be on a day work basis at rates specified in
Section 13 hereof.
At TOFF's request, CONTRACTOR agrees to drill a depth greater than total
Contract Depth if in CONTRACTOR's opinion equipment at the well site is capable
of such drilling. The cost of Rig upgrades and Rates for such drilling shall
be negotiated by the parties hereto unless otherwise provided by Section 13
hereof.
At TOFF's request, CONTRACTOR agrees to drill in water depths greater than
1,500' water depth if, in CONTRACTOR's opinion, the rig is capable of such
drilling.
SECTION 4. RIG AND EQUIPMENT TO BE FURNISHED BY CONTRACTOR
A. Rig: The FPS BILL SHOEMAKER or, subject to the reasonable consent of
TOFF or as set forth in Section 4.C., another semisubmersible drilling
rig capable of drilling in up to 1,500 feet of water. CONTRACTOR
shall have the right to suspend this Drilling Order for up to 120 days
prior to the commencement of the initial well or after the completion
of operations on any well for purposes of substituting the rig to be
used or the rig then in use. In the event a substitute rig is
provided as set forth in this Section 4, changes to the equipment
specifications set forth in this Drilling Order (including, without
limitation, the specifications set forth in this Section 4 and in
Section 5) may be made as such rig
2
<PAGE> 30
substitution may reasonably require, subject to the consent of TOFF,
which consent may not be unreasonably withheld.
One of the following options shall apply (as checked):
Attachment 1, Check List for Drilling Equipment, which is
----- incorporated herein by this reference, defined minimum
equipment requirements desired by TOFF. CONTRACTOR should use
blank forms provided to describe its equipment and attach its
equipment list.
X CONTRACTOR should fill out Attachment 1 or attach its equipment
----- list to show equipment it can furnish which CONTRACTOR
considers adequate for the job.
B. BLOWOUT PREVENTION EQUIPMENT
The following options shall apply (as checked):
X CONTRACTOR is to provide and install blowout prevention
----- equipment after setting 20" casing. The Blowout Preventer
Stack shall have a bore of 18-3/4" and pressure rating of
10,000 psi as a minimum. The TOFF well control equipment
specifications and configuration for the diverter and
preventer stack are shown in Attachment 2 (drawings No. 101B
and 110) and for the choke manifold in Attachment 3 (drawing
202C). Any deviations from the TOFF specifications and
configuration shall be listed in Attachment 1 (Enclosures I,
J, and K) including a description of the deviation, the cost,
if any, CONTRACTOR would charge TOFF to bring the equipment
into compliance, and the timing required by CONTRACTOR to
implement such modifications. CONTRACTOR to state additional
costs, if any, to meet all minimum equipment requirements that
would be for TOFF's account. Costs over and above those
stated would be for CONTRACTOR's account.
All the blowout prevention equipment shall be manufactured to
and maintained in accordance with NACE MRO175, latest edition.
In Attachment 1 (Enclosure J) CONTRACTOR shall provide the
equipment certification and inspection records showing that
all the blowout prevention equipment was manufactured to NACE
MRO175 specification. In addition, CONTRACTOR shall provide
in Attachment 1 (Enclosure J) a record (certification and
inspection records) of all blowout prevention equipment
repairs (field repairs, shop repairs, component and/or parts
replacement, etc.) showing that the equipment has been
maintained in accordance with NACE.
3
<PAGE> 31
Any repairs to CONTRACTOR's blowout prevention equipment shall
comply with the original equipment manufacturers (OEM)
specification. TOFF retains the right to inspect any repair
and/or replacement component/part to insure that the OEM
specifications are met.
All well control equipment shall meet the rules and
regulations set forth by the Minerals Management Service,
Federal Register Part 250 - Oil and Gas and Sulphur operations
in the Outer Continental Shelf.
X CONTRACTOR to provide schematic representing actual equipment
----- being provided in order to meet the requirements of
Attachments 2 and 3 (BOP stack and Choke Manifold Drawings and
Specs).
No blowout equipment is required.
-----
Regardless of option selected, the blowout prevention
equipment is to be serviced, maintained and tested by the
CONTRACTOR in accordance with Attachment 4, Instruction Sheet.
Give last repair or inspection date and who performed service.
Give serial numbers on ram preventers. If rated for sour
service, provide applicable documentation that certifies the
sour service rating.
C. TOFF hereby acknowledges that, as of the date hereof, CONTRACTOR has
submitted a bid to engage the FPS BILL SHOEMAKER to perform operations for
Amoco and that delivery of the FPS BILL SHOEMAKER thereunder may be
required prior to the commencement and completion of the Contract Term. In
the event that CONTRACTOR shall sign an agreement to perform work for Amoco
and pursuant to such agreement CONTRACTOR shall be required to deliver the
FPS BILL SHOEMAKER prior to the commencement and completion of the Contract
Term, CONTRACTOR may substitute the FPS BILL SHOEMAKER with another
semisubmersible drilling rig as set forth in Section 4.A. above. In the
event CONTRACTOR elects to carry out such rig substitution, in addition to
the rights hereunder as they relate to the substitute rig, TOFF shall have
the following options:
1. Subject to agreement by Amoco to delay delivery of the FPS BILL
SHOEMAKER and upon written notice to CONTRACTOR, TOFF may elect to
use the FPS BILL SHOEMAKER in the Newfoundland Grand Banks Area or
such general vicinity rather than the substitute rig to complete
the Contract Term, subject to the terms and conditions set forth
herein; provided that the rates set forth in Section 13 hereof
shall be adjusted to account for any additional costs to
CONTRACTOR as a result of such new location. The election by TOFF
to use the FPS BILL SHOEMAKER instead of the substitute rig
pursuant to this Section 4.C.1. shall in no way impair TOFF's
right to exercise the Extension Options with respect to the
substitute rig.
4
<PAGE> 32
2. Upon completion of CONTRACTOR's operations for Amoco and subject
to the use of the FPS BILL SHOEMAKER by Petro Canada for the
Terra Nova development project, TOFF shall have the right to
contract to use the FPS BILL SHOEMAKER at the then prevailing
Amoco rates for the drilling of one well.
SECTION 5. CHECK LIST OF ADDITIONAL EQUIPMENT, MATERIAL AND SERVICES TO
BE PROVIDED
Attachment 5, Check List for Equipment, Material, and Services, which is
incorporated herein by this reference, defines certain specific items to be
furnished by the party therein designated and, with respect to the items to be
furnished by CONTRACTOR, designates the basis of payment.
SECTION 6. INTENTIONALLY LEFT BLANK:
SECTION 7. INTENTIONALLY LEFT BLANK:
SECTION 8. INTENTIONALLY LEFT BLANK:
SECTION 9. INTENTIONALLY LEFT BLANK:
SECTION 10. INTENTIONALLY LEFT BLANK:
SECTION 11. INTENTIONALLY LEFT BLANK:
SECTION 12. DESIGNATED REPRESENTATIVES:
TOFF CONTRACTOR
Tatham Offshore, Inc. Sedco Forex Division, Schlumberger
Technology Corporation
(Company Name) (Company Name)
Antoine Gautreaux, Jr. John Powers
(Representative's Name) (Representative's Name)
7400 Texas Commerce Tower 1155 South Dairy Ashford,
600 Travis Suite 402
5
<PAGE> 33
(Address) (Address)
Houston, TX 77002 Houston, TX 77079
(State, Zip Code) (State, Zip Code)
(713) 224-7400 (713) 556-3863
(Day Telephone Number) (Day Telephone Number)
(713) 224-7400 (713) 466-1603
(Night Telephone Number) (Night Telephone Number)
SECTION 13. COMPENSATION TO BE PAID CONTRACTOR (DAY WORK BID):
A. $70,000 per day when operating
B. INTENTIONALLY LEFT BLANK
C. $66,700 *per day standby rate, when the rig is anchored on
location and is in position for drilling operations
and in the opinion of CONTRACTOR and TOFF, it is
considered prudent and necessary to suspend drilling
operations because of hazardous weather conditions or
the possibility of hazardous weather conditions.
This rate will apply when drilling operations are
suspended and shall be effective until weather
conditions permit commencement of drilling
operations. In the event the rig is damaged, repairs
will be made at the CONTRACTOR's expense, and
drilling day work payments will cease at the time of
damage and will not resume until the rig is again
ready and able to perform. This rate shall also
apply when operations are suspended due to lack of
materials and/or services to be furnished by TOFF and
during periods while waiting on orders.
D. $66,700 per day moving rate - to apply when moving to TOFF's
first location, between TOFF locations and from last
TOFF location to a mutually agreed stacking location.
Attachment 7 shall apply to day work moves. Between
locations, moving rate starts when the last anchor is
racked at the end of P&A or T&A Operations on the
previous well. Moving rate stops when all anchors
are run and tensioned and the vessel is spotted
within 50' of the final well location or mutually
agreed stacking location.
E. $70,000 per day Workover Rate.
F. $53,500 per day Force Majeure Rate.
6
<PAGE> 34
Loop/eddy currents which prevent the rig from
conducting normal operations shall be considered a
Force Majeure condition in addition to those
conditions set forth in the Master Drilling
agreement.
G. This Drilling Order shall terminate after TOFF has released the rig
after finishing the Contract Term stipulated in Section 1. Rig
release shall occur when the well operations are completed at the last
well of the Contract Term, the TOFF equipment is removed from the rig
and the last anchor is racked. If the rig will be stacked at a
neutral site, this Drilling Order shall terminate upon arrival at a
mutually agreed stacking location in the Gulf of Mexico. If the rig
is going directly to a new operator following its release from TOFF,
the CONTRACTOR shall be responsible for moving the rig from the last
TOFF location. Term contracts shall always include the time necessary
to complete a well in progress.
H. The appropriate day work rate above will commence when the rig is
positioned and moored on location, ballasted to drilling draft, rigged
up and ready to commence drilling operations.
I. The moving rate shall commence at such time as the rig clears its last
location with all of the prior operator's equipment off loaded.
J. The moving rate shall commence at such time as the rig clears its last
TOFF location en route to a mutually agreed stacking location. If the
rig is going to a new Operator, Section 13.G. above shall apply.
NOTE: *For all rates set forth in A. Through F. above, pricing
includes the following. If not included but requested by TOFF, CONTRACTOR
agrees to provide for the additional amount specified below:
7
<PAGE> 35
<TABLE>
<CAPTION>
Additional Charges $/Day
<S> <C> <C> <C> <C> <C>
ROV Yes No X
----- ----- --------------------------------------
Diverter Yes X No
----- ----- --------------------------------------
BOP Stack Yes X No
----- ----- --------------------------------------
Choke Manifold Yes X No
----- ----- --------------------------------------
Remote Hydraulic Chokes (2) Yes X No
----- ----- --------------------------------------
Drill Scan w/CH4 gas detector Yes No X
----- ----- --------------------------------------
Top Drive (TD4-S or Equal) Yes X No
----- ----- --------------------------------------
1,500' of Boosted Drilling Riser Yes X No
----- ----- --------------------------------------
Addition of 3rd 1600 HP Mud Pump Yes X No
----- ----- --------------------------------------
Equipment to mix and displace cement, Yes No
test BOP/seal assemblies and LOT
----- ----- --------------------------------------
Casing Crews & Equipment Yes No X Cost plus 15%
----- ----- --------------------------------------
Marine Transportation Yes No X
----- ----- --------------------------------------
Backdown buoy and Jewelry Yes No X Cost plus 15%
----- ----- --------------------------------------
Anchor Handling Boats & Crews Yes No X
----- ----- --------------------------------------
Helideck for 412 fully loaded Yes X No
----- ----- --------------------------------------
Quarters for 98 Personnel Yes X No
----- ----- --------------------------------------
Catering for 6 TOFF Personnel and/or Yes No
TOFF third party personnel X Excess $12/meal & $6/bunk
----- ----- --------------------------------------
Reimbursement of Mutually Agreed Rig
Upgrades investment to be amortized
over the period of one (1) year Yes No X
----- ----- --------------------------------------
</TABLE>
8
<PAGE> 36
K. Additional Compensation:
1. Standby without crew $53,500 per day
L. CONTRACTOR to list personnel complement for rig. Personnel complement
to meet all MMS, and other applicable regulatory requirements.
<TABLE>
<CAPTION>
Cost Per Man
Per Day for
Normal Added
Staff/Hourly On Duty On Rig Hrs./Day Rates Per Hour Per Man Personnel**
------------ ------- ------ -------- ----------------------- ------------
Straight
Time Overtime
-------- --------
<S> <C> <C> <C> <C> <C> <C>
Rig Supt. 1 1 Salaried $ 750
------- ------ -------- --------- -------- ------------
Asst. Rig Supt. 1 1 Salaried $ 654
------- ------ -------- --------- -------- ------------
Chief Mech. 1 1 Salaried $ 577
------- ------ -------- --------- -------- ------------
Chief Elec. 1 1 Salaried $ 577
------- ------ -------- --------- -------- ------------
Sub Sea Eng. 1 1 Salaried $ 654
------- ------ -------- --------- -------- ------------
Barge Eng. 1 1 Salaried $ 591
------- ------ -------- --------- -------- ------------
Driller 1 2 12 $ 17.20 $ 46.31 $ 515
------- ------ -------- --------- -------- ------------
Asst. Driller 1 2 12 $ 14.01 $ 38.05 $ 427
------- ------ -------- --------- -------- ------------
Derrickmen 1 2 12 $ 12.15 $ 32.72 $ 366
------- ------ -------- --------- -------- ------------
Roughneck 3 6 12 $ 10.82 $ 29.13 $ 330
------- ------ -------- --------- -------- ------------
Roustabout 4 8 12 $ 9.22 $ 24.82 $ 285
------- ------ -------- --------- -------- ------------
Mechanic 1 1 12 $ 15.30 $ 41.20 $ 453
------- ------ -------- --------- -------- ------------
Motormen 1 2 12 $ 11.59 $ 31.22 $ 350
------- ------ -------- --------- -------- ------------
Electrician 1 1 12 $ 15.30 $ 41.20 $ 453
------- ------ -------- --------- -------- ------------
Watchstander 1 2 12 $ 13.91 $ 37.46 $ 414
------- ------ -------- --------- -------- ------------
Crane Oper. 1 2 12 $ 13.18 $ 35.49 $ 394
------- ------ -------- --------- -------- ------------
Welder 1 1 12 $ 12.57 $ 38.85 $ 378
------- ------ -------- --------- -------- ------------
Store Keeper 1 1 12 $ 14.01 $ 37.73 $ 427
------- ------ -------- --------- -------- ------------
Medic 1 1 12 $ 11.64 $ 31.34 $ 352
------- ------ -------- --------- -------- ------------
12
------- ------ -------- --------- -------- ------------
12
------- ------ -------- --------- -------- ------------
12
------- ------ -------- --------- -------- ------------
12
Total
------- ------ -------- --------- -------- ------------
</TABLE>
Catering: Self Catered? Yes No.
----- -----
If No, Specify Caterer:
------------------------
CONTRACTOR to provide Catering Services with the number of Catering Personnel
provided to be at CONTRACTOR's discretion.
*S.T. means straight time rate (rate w/o burden); O.T. means overtime rate
(rate w/burden).
9
<PAGE> 37
CONTRACTOR's burden rate is 79.5%.
**includes burden and catering.
Additional crew complement, if required by TOFF, will be reimbursed at the
rates listed above.
For all above labor used by TOFF in excess of regular scheduled hours,
CONTRACTOR will be reimbursed at overtime rates plus payroll burden. In such
cases duplicate time tickets signed by CONTRACTOR's Drilling Foreman and TOFF's
Drilling Foreman will be furnished to TOFF for verification. In the event a
drilling crew is not manned to the specified complement for a full schedule
tour, a deduction will be made from the daily rig rate based upon the missing
crew member's hourly rate, or daily rate with burden.
M. DOWNTIME PROVISIONS
If it becomes necessary to shut down CONTRACTOR's rig for repairs of surface or
subsurface equipment or due to lack of materials or labor furnished by
CONTRACTOR while CONTRACTOR is performing work on a day work basis, CONTRACTORS
shall be allowed compensation for such repairs or delay at the appropriate day
work rate commensurate with the stage of operations then in effect; i.e., with
drill pipe, without drill pipe, or standby rate. The number of hours for which
CONTRACTOR is to be compensated shall be limited as follows (CONTRACTOR shall
be allotted 30 minutes per tour to conduct normal maintenance without penalty.
All delays beyond that 30 minutes per tour shall be subject to the following):
Hours for any one delay/repair: 0
Total hours per day: 0
Total hours per calendar month: 0
Total hours in the aggregate for the well: 0
N. DOWNTIME INCENTIVE PLAN
This Drilling Order provides for a REPAIR RATE equal to ninety percent (90%) of
the Operating Rate (Section 13.A.) to apply during the first forty-eight (48)
hours of Downtime associated with rig or rig equipment downtime during each
calendar month, prorata, with any subsequent Downtime experienced during the
month to be compensated at $0.00.
O. DRILLING PERFORMANCE BONUS PROVISIONS
Any Drilling Performance Bonus Plan, if offered hereunder, will be subject to
TOFF's sole discretion.
P. SAFETY PERFORMANCE BONUS PROVISIONS
Any Safety Performance Bonus Plan, if offered hereunder, will be subject to
TOFF's sole discretion.
10
<PAGE> 38
Q. EXTENSION PERIOD RATES
During the term of the first Term Extension Option and for any Well Extension
Options, the rates set forth in A through F and K above shall be increased by
$5,000 per day.
During the term of the second Term Extension Option, the rates shall be the
then prevailing market rates, as mutually agreed by the parties hereto.
SECTION 14. INSURANCE: (CONTRACTOR TO ATTACH CERTIFICATE INDICATING
COVERAGE)
A. *Limits: CONTRACTOR to list below CONTRACTOR's liability
insurance limits, including limits in primary and all excess
insurance, applicable to the Master Drilling Agreement paragraph
indicated.
Employers' Liability for employment subject to State Workers'
Compensation Acts: $1,000,000 (see Paragraph 11.1.b).
Employers' Liability where possible liability under Jones Act or Death
on the High Seas Act: $1,000,000 (see Paragraph 11.1.b).
Comprehensive General Liability with the Watercraft Exclusion deleted:
$1,000,000 (see Paragraph 11.1.c).
Comprehensive Automobile Liability: $1,000,000 (see Paragraph
11.1.d).
Marine Protection and Indemnity: $1,000,000 (see Paragraph
11.1.e(1)).
Aircraft Liability: $1,000,000(see Paragraph 11.1.g).
Pollution/Contamination: $1,000,000 (see Article XIII A(2)).
($1,000,000.00 minimum coverage required) CONTRACTOR may elect to self
insure
Excess Liability: $10,000,000
B. Costs: Complete Attachment 9 only if Drilling Order is for one year
or more.
11
<PAGE> 39
SECTION 15. WORK TO BE PERFORMED - ADDITIONAL WORK:
See Attachment 10.
SECTION 16. MOVEMENT OF RIG:
CONTRACTOR shall be solely responsible for movement of the rig between all
locations as well as for spotting, positioning and maintaining the rig on
location. The costs and responsibilities for arranging for services used in
accomplishing this shall be as designated in Attachment 7.
SECTION 17. SPECIAL AGREEMENTS:
A. Other special agreements - Refer to Attachment #11, Special
Agreements.
B. Summary of Attachments: The following Attachments, accompany this
Drilling Order.
Attachments Provided by CONTRACTOR:
Attachment 1: Contractor's Rig/Equipment Specifications and
Descriptions
Attachments Provided by TOFF:
Attachment 2: Minimum Specifications for BOP Equipment and Diverter
Equipment
Attachment 3: Minimum Specifications for Choke Manifold Equipment
Attachment 4: Instructions for Testing and Operation of BOP
Equipment
Attachment 5: Checklist for Equipment, Material and Services
Attachment 6: Intentionally left blank
Attachment 7: Rig Movement Checklist - Day Work Moves
Attachment 8: CONTRACTOR Awareness of Provisions of FR Vol. 53
Attachment 9: Cost of Insurance
Attachment 10: Work to be Performed - Additional Work
Attachment 11: Special Agreements
11.1: Helideck Specifications Form
11.3: Minimum Requirements for Eye Protection
Attachment 12: Minimum Requirements, Single Riser System
C. CONTRACTOR to provide all of the following items upon request.
1. Completed Drilling Order Items, Sections 1-17 as applicable
12
<PAGE> 40
2. Completed Forms in Attachments
Attachment 5
Attachment 7
Attachment 8
Attachment 9
Attachment 11.1
3. Documents of Compliance with Regulatory Bodies
4. Standard Rig Brochure
5. Enclosures
A: Minimum of three drawings of rig dimensions and deck layout
B: Crane description
C: Inventory - Drill String Handling Tools
Latest Drill String Inspection Reports
(Inspection Reports Required upon TOFF's request)
D: Inventory of XO subs, etc.
E: Fishing Tools Inventory
F: Circulating System Drawings
G: Ballast Control System
H: Riser, BOP Handling Tools
I: Diverter System drawings w/Riser Gas Handling Equipment
J: BOP & LMRP Drawings (Include Equipment Certification and
Inspection Records)
K: Detailed description of Accumulator System
L: Choke Manifold Drawing
M: Well Control System Records
N: Quarters Layout
O: Drawing of ROV Location
P: Solids Control System Drawings
Q: Oil Base Mud & Cuttings Containment Plan
R: Mooring System Analysis, Maximum Weather Conditions (API
hurricane criteria)
S: Size vessel required to run/pull anchors (bollard pull, winch
capacity, pennant line size and length)
T: Sample Load Forms for Variable Deck Load Calculations
U: BOP Control System detailed schematic
Other Information to be provided by CONTRACTOR (all items to be provided upon
request):
(1) Financial Statements
(2) Qualification Records of Crew Members
(3) CONTRACTOR Safety Data Report Form
(4) Detailed description of Crews
13
<PAGE> 41
(5) Description of Waste Treatment System
(6) Downtime Hours on a Monthly Basis
(7) Fire Detection Systems and Sensors
(8) Safety Devices
(9) Emergency Power Systems
(10) EMR's for Three Years
(11) OSHA No. 200 Log for Two Years
D. Suspension - The dayrates established herein for CONTRACTOR's rig
shall be suspended during any and all required dry docking/inspection
periods including transit time to and from said drydocking/inspection
periods that may be/are mandated by any and all regulatory agencies.
Additionally, the parties hereto hereby agree that the Contract Term
shall continue to run during said drydocking/inspection periods.
E. Notwithstanding any other provision of this Agreement, should there be
any unknown or unidentified man-made or natural obstructions, above or
below the surface of the water, at the location of the well or within
the access thereto and the Rig and/or its associated equipment damage
those unknown or unidentified obstructions, TOFF shall release,
defend, indemnify and hold harmless CONTRACTOR from and against any
claims for such damage, including without limitation, loss of or
damage to pipelines, platforms, cables or other man-made obstructions.
Should the Rig and/or its associated equipment damage any known or
identified man-made or natural obstructions, above or below the
surface of the water, at the location of the well or within the access
thereto when caused by the correct positioning or operation of the Rig
and/or its associated equipment at a specific location, or on a
specific route, designated and/or approved by TOFF or by the actual
positioning of the Rig and/or its associated equipment by TOFF, TOFF
shall release, defend, indemnify and hold harmless CONTRACTOR from and
against any claims for such damage, including without limitation, loss
of or damage to pipelines, platforms, cables or other man-made
obstructions.
SECTION 18. SECURITY
1As security for its obligations under this Drilling Order, TOFF shall post
cash collateral or an irrevocable letter of credit in an amount equal to (i)
the applicable operating day rate set forth in Section 13 hereunder multiplied
by (ii) the number of days of the initial Contract Term. In the event TOFF
exercises any Extension Option, Contractor and TOFF shall agree upon additional
security for the extension period. Such security shall be released upon the
earlier to occur of (i) the termination of this Drilling Order and the
satisfaction of all of TOFF's obligations under this Drilling Order or (ii) the
receipt of a guarantee, in a form reasonably acceptable to Contractor, for all
amounts payable under this Drilling Order from an entity having a Standards &
Poors credit rating of BBB- or equivalent credit rating from a national credit
facility.
[Remainder of page intentionally left blank.]
14
<PAGE> 42
In response to the above request, our input for the Drilling Order for the
drilling of the well(s) hereinabove described is submitted as set forth above.
Provisions of the Master Drilling Agreement dated September 19, 1996, as
amended shall apply hereto.
Date: SEDCO FOREX DIVISION, SCHLUMBERGER
TECHNOLOGY CORPORATION
BY: /s/ J.R. POWERS
------------------------------------
PRINTED NAME: J.R. Powers
--------------------------
TITLE: District Manager
---------------------------------
The foregoing Drilling Order is hereby accepted and approved this 19th day of
September, 1996.
TATHAM OFFSHORE, INC.
BY: A. GAUTREAUX, JR.
------------------------------------
PRINTED NAME: Antoine Gautreaux, Jr.
--------------------------
TITLE: C.O.O.
---------------------------------
<PAGE> 1
EXHIBIT 21.1
TATHAM OFFSHORE, INC. SUBSIDIARIES
Tatham Offshore (Jersey) Ltd., a company organized under the laws of New Jersey.
Tatham Offshore Development, Inc., a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-96274) of Tatham Offshore, Inc. of our report
dated August 30, 1996 appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE, LLP
Houston, Texas
September 23, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference into the
Registration Statement on Form S-8 (Registration Number 33-96274) of Tatham
Offshore, Inc., of the use of our report, Estimated Net Reserves and Income
Data Attributable to Certain Leasehold and Royalty Interests of Tatham
Offshore, Inc., dated as of June 30, 1996, and all references to our firm
appearing in this Annual Report on Form 10-K of Tatham Offshore, Inc. for the
fiscal year ended June 30, 1996.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) TATHAM
OFFSHORE INC. AND SUBSIDIARY'S CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30,
1996 INCLUDED IN ITS FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,746
<SECURITIES> 0
<RECEIVABLES> 13,929
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,636
<PP&E> 78,158
<DEPRECIATION> 13,258
<TOTAL-ASSETS> 97,130
<CURRENT-LIABILITIES> 9,489
<BONDS> 0
0
187
<COMMON> 255
<OTHER-SE> 18,420
<TOTAL-LIABILITY-AND-EQUITY> 97,130
<SALES> 16,070
<TOTAL-REVENUES> 16,070
<CGS> 13,203
<TOTAL-COSTS> 13,840
<OTHER-EXPENSES> 9,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,161
<INCOME-PRETAX> 790
<INCOME-TAX> 0
<INCOME-CONTINUING> 509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 509
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
