<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO. 0-22892
TATHAM OFFSHORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0269967
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FIVE POST OAK PARK
4400 POST OAK PARKWAY, SUITE 1550
HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 621-3996
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING TWELVE MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
AS OF MAY 15, 2000, THERE WERE OUTSTANDING 26,078,548 SHARES OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF THE REGISTRANT.
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<PAGE> 2
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION.............................................................................3
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 2000 (unaudited) and June 30, 1999..........................3
Unaudited Consolidated Statement of Operations for the Three and Nine Months
Ended March 31, 2000 and 1999, respectively.........................................................4
Unaudited Consolidated Statement of Cash Flows for the Nine Months
Ended March 31, 2000 and 1999.......................................................................5
Consolidated Statement of Stockholders' Equity for the
Nine Months Ended March 31, 2000 (unaudited)........................................................6
Notes to Consolidated Financial Statements............................................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................................14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS......................................................................................22
PART II. OTHER INFORMATION...............................................................................23
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.................................................................................................25
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
(unaudited)
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,954 $ 486
Accounts receivable 10 16,076
Notes receivable 2,076 --
Prepaid expenses 31 168
---------- ----------
Total current assets 4,071 16,730
---------- ----------
Property and equipment 2,374 146,487
Less - accumulated depreciation 114 12,204
---------- ----------
Property and equipment, net 2,260 134,283
---------- ----------
Restricted cash 170 170
Deferred costs 14,472 12,591
Equity investments (Note 3) 52,772 --
---------- ----------
Total assets $ 73,745 $ 163,774
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 920 $ 10,102
Accounts payable to affiliates 6,344 8,082
Demand note 4,203 --
Long-term debt currently payable -- 58,148
Long-term debt to affiliate currently payable 29,909 26,519
---------- ----------
Total current liabilities 41,376 102,851
---------- ----------
Commitments and contingencies (Note 6)
Stockholders' equity (Note 4):
Preferred stock, $0.01 par value, 110,000,000 shares authorized as of March
31, 2000 and June 30, 1999, 17,558,828 and 17,579,717 shares issued and
outstanding at March 31, 2000 and June 30, 1999, respectively 176 176
Common stock, $0.01 par value, 250,000,000 shares
authorized as of March 31, 2000 and June 30, 1999,
26,078,548 and 26,074,321 shares issued and outstanding
as of March 31, 2000 and June 30, 1999, respectively 261 261
Additional paid-in capital 186,217 186,217
Accumulated deficit (154,285) (125,731)
---------- ----------
32,369 60,923
---------- ----------
Total liabilities and stockholders' equity $ 73,745 $ 163,774
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 4
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue:
Drilling services $ -- $ 6,067 $ -- $ 28,344
---------- ---------- ---------- ----------
-- 6,067 -- 28,344
---------- ---------- ---------- ----------
Costs and expenses:
Drilling operating expenses -- 4,522 -- 16,451
Depreciation 21 1,460 64 4,233
Loss from equity investments (Note 3) 19,809 -- 23,973 --
Management fee -- -- -- 155
General and administrative expenses 163 1,919 657 4,959
---------- ---------- ---------- ----------
19,993 7,901 24,694 25,798
---------- ---------- ---------- ----------
Operating income (loss) (19,993) (1,834) (24,694) 2,546
Interest and other income 132 844 183 893
Interest expense and other financing costs (203) (1,693) (203) (5,754)
Interest expense and other financing costs - affiliates (1,366) (3,059) (4,176) (4,571)
---------- ---------- ---------- ----------
Net loss from continuing operations (21,430) (5,742) (28,890) (6,886)
Discontinued operations (Note 1)
Gain (loss) from oil and gas operations -- -- 336 (221)
---------- ---------- ---------- ----------
Net loss (21,430) (5,742) (28,554) (7,107)
Preferred stock dividends (776) (763) (2,329) (2,291)
---------- ---------- ---------- ----------
Net loss allocable to common shareholders $ (22,206) $ (6,505) $ (30,883) $ (9,398)
========== ========== ========== ==========
Weighted average number of shares 26,075 26,074 26,075 26,748
========== ========== ========== ==========
Basic and diluted loss per common share
from continuing operations (Note 5) $ (0.85) $ (0.25) $ (1.20) $ (0.34)
========== ========== ========== ==========
Basic and diluted loss per common share from
discontinued operations (Note 5) $ 0.00 $ (0.00) $ 0.02 $ (0.01)
========== ========== ========== ==========
Basic and diluted loss per common share $ (0.85) $ (0.25) $ (1.18) $ (0.35)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 5
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
-----------------------------
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (28,554) $ (7,107)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 64 4,491
Amortization of debt issue costs -- 3,079
Noncash interest expense 4,379 2,471
Loss from equity investments 23,973 --
Changes in operating working capital (net of effect of deconsolidating):
(Increase) decrease in accounts receivable 32 (6,500)
(Increase) decrease in receivable from affiliates (857) 488
Increase in notes receivable (2,076) --
Increase in prepaid expenses (19) (34)
(Increase) decrease in accounts payable and accrued liabilities (774) 3,806
Decrease in accounts payable to affiliates (185) (2,807)
---------- ----------
Net cash used in operating activities (4,017) (2,113)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (355) (10,374)
Deferred costs (1,882) (860)
Reduction in cash from deconsolidating rig subsidiaries (382) --
Conveyance of oil and gas properties -- (1,605)
---------- ----------
Net cash used in investing activities (2,619) (12,839)
---------- ----------
Cash flows from financing activities:
Repayment of notes payable -- (1,008)
Repayment of notes payable to affiliate -- (2,250)
Proceeds from demand note 4,000 --
Proceeds from notes payable to affiliate 4,104 20,640
Increase in restricted cash -- (170)
Debt issue costs -- (2,501)
---------- ----------
Net cash provided by financing activities 8,104 14,711
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,468 (241)
Cash and cash equivalents at beginning of year 486 2,689
---------- ----------
Cash and cash equivalents at end of period $ 1,954 $ 2,448
========== ==========
</TABLE>
Supplemental disclosures to the Statement of Cash Flows - see Note 7.
The accompanying notes are an integral part of this financial statement.
5
<PAGE> 6
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- --------------------- Additional
Number of Number of paid-in Accumulated
Shares Par value Shares Par value capital deficit Total
--------- --------- --------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1999 17,580 $ 176 26,074 $ 261 $ 186,217 $(125,731) $ 60,923
Conversion of Series A Preferred Stock
into common stock (1) -- 1 -- -- --
Conversion of Series B Preferred Stock
into common stock (20) -- 4 -- -- --
Net loss for the nine months ended
March 31, 2000 (unaudited) -- -- -- -- -- (28,554) (28,554)
--------- --------- --------- --------- --------- --------- ---------
Balance, March 31, 2000 (unaudited) 17,559 $ 176 26,079 $ 261 $ 186,217 $(154,285) $ 32,369
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE> 7
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company"), a Delaware
corporation, provides offshore contract drilling services to the oil and gas
industry and is currently pursuing, through its subsidiaries, energy related
opportunities in Atlantic Canada, including offshore contract drilling services,
substantial natural gas gathering and transmission facilities and related energy
infrastructure. Historically, Tatham Offshore was 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"). Prior to August 14, 1998,
Tatham Offshore was an approximately 94%-owned subsidiary of DeepTech
International Inc. ("DeepTech"), a diversified energy company. In connection
with the merger of DeepTech with a subsidiary of El Paso Energy Corporation ("El
Paso Energy") and related transactions completed on or before August 14, 1998
(the "Merger"), (i) Tatham Offshore transferred its ownership of Tatham Offshore
Development, Inc. ("Tatham Development"), a Delaware corporation and former
wholly-owned subsidiary of Tatham Offshore which held interests in Ewing Bank
Blocks 958, 959, 1002 and 1003, the Sunday Silence prospect, to DeepTech, (ii)
Tatham Offshore conveyed its remaining oil and gas properties to Leviathan Gas
Pipeline Partners, L.P. ("Leviathan"), (iii) DeepTech contributed all of the
outstanding shares of capital stock of DeepFlex Production Services, Inc.
("DeepFlex") to Tatham Offshore and (iv) DeepTech divested itself of its equity
ownership interest in Tatham Offshore pursuant to a spin-off transaction
effected by a Rights Offering (the "Rights Offering"). DeepFlex, a Delaware
corporation and wholly-owned subsidiary of Tatham Offshore, was formed in
January 1995 and, through its subsidiaries, focuses on the acquisition and
deployment of semisubmersible drilling rigs for contract drilling. RIGCO North
America, L.L.C. ("RIGCO") and FPS VI, L.L.C. ("FPS VI"), wholly-owned
subsidiaries of DeepFlex, have owned interests in the FPS Laffit Pincay (the
"Laffit Pincay") and the FPS Bill Shoemaker (the "Bill Shoemaker" and, together
with the Laffit Pincay, the "Rigs"), both second generation semisubmersible
drilling rigs.
Pursuant to management and charter agreements, Sedco Forex Division of
Schlumberger Technology Corporation ("Sedco Forex") has marketed, managed, and
operated the Rigs. On two occasions, Sedco Forex assigned its responsibilities
under the Bill Shoemaker management and charter agreement to an affiliate, Sedco
Canada Limited ("SCL"), while the Bill Shoemaker was operating in Canada. On
January 22, 1999, RIGCO gave Sedco Forex a written termination notice of the
management and charter agreements for the Laffit Pincay. Effective March 23,
1999, RIGCO took over the marketing, management and operational responsibilities
for the Laffit Pincay. On April 20, 1999, RIGCO gave Sedco Forex a written
termination notice of the management and charter agreement for the Bill
Shoemaker. Under the Bill Shoemaker management and charter agreement, SCL
continued to man and operate the rig through the conclusion of its drilling
contract with Husky Oil Operations Limited. At the conclusion of the Husky Oil
Operations Limited drilling contract on November 15, 1999, RIGCO assumed the
marketing, management and operational responsibilities for the Bill Shoemaker.
Tatham Offshore Canada Limited, a wholly-owned subsidiary of Tatham Offshore,
pursues certain opportunities offshore eastern Canada and is the Canadian
representative of North Atlantic Pipeline Partners, L.P. ("North Atlantic
Pipeline Partners"). North Atlantic Pipeline Partners is the sponsor of a
proposal to construct a natural gas pipeline and related infrastructure in the
Grand Banks area offshore Newfoundland and Nova Scotia to the eastern seaboard
of the United States.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the statements reflect all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the period covered by such statements. These interim
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1999.
Bankruptcy Filing by Subsidiaries
On August 9, 1999, RIGCO, FPS VI, FPS III, Inc. ("FPS III") and FPS V, Inc.
("FPS V") (collectively, the "Rig Subsidiaries"), wholly-owned subsidiaries of
DeepFlex, filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Filing"). At the time of the Bankruptcy Filing,
RIGCO owned a 100%
7
<PAGE> 8
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
interest in the Bill Shoemaker and a 25% undivided interest in the Laffit Pincay
and FPS VI owned a 75% undivided interest in the Laffit Pincay. FPS III and FPS
V are the owners of RIGCO and FPS VI with FPS III owning a 50% interest in RIGCO
and FPS V owning a 50% interest in RIGCO and a 100% interest in FPS VI. The
bankruptcy proceedings of the Rig Subsidiaries are administered jointly. As a
result of the Bankruptcy Filing, the Rigs are being managed by the Company's rig
related subsidiaries as debtors-in-possession. The syndicate of lenders under
the Credit Facility have a secured interest in substantially all of the assets
of RIGCO and FPS VI.
On May 1, 2000, RIGCO and FPS VI sold all of their interest in the Laffit Pincay
to a third party for $28.5 million in cash. Expenses associated with the sale
totaled $0.3 million and $175,000 of the net proceeds is being held by RIGCO, in
a separate debtor-in-possession bank account, pending the resolution of a
maritime lien claim by one of RIGCO's pre-petition creditors. The balance of the
proceeds from the sale of the Laffit Pincay, $28.0 million, was paid to RIGCO's
secured lenders in partial payment of their secured claim under the Credit
Facility. Loss from equity investments includes an impairment provision of $13.3
million related to the sale of this rig.
As a result of the Bankruptcy Filing, financial statements presented after the
date of the Bankruptcy Filing reflect the investment in and advances to and the
results of operations of the Rig Subsidiaries on the equity method of accounting
(see Note 3). Tatham Offshore's remaining 50% or more owned subsidiaries
controlled by the Company are included in the accompanying consolidated
financial statements.
Discontinued Operations
Discontinued operations represent Tatham Offshore's oil and gas exploration and
development business transferred to DeepTech and Leviathan as discussed above.
These operations were accounted for using the successful efforts method of
accounting. Net sales from discontinued oil and gas operations were $0.9 million
for the period from July 1, 1998 through August 14, 1998. General and
administrative expenses were allocated to discontinued operations based on the
percentage of employees' time related to the discontinued operations and were
$0.3 million for the period from July 1, 1998 through August 14, 1998. Interest
expense for the period from July 1, 1998 through August 14, 1998 was allocated
100% to discontinued operations.
NOTE 2 - RELATED PARTY TRANSACTIONS:
Management Agreement
The management agreement between Tatham Offshore and DeepTech provided for an
annual management fee which was intended to reimburse DeepTech for the estimated
costs of its operational, financial, accounting and administrative services
provided to the Company. Effective July 1, 1997, the management agreement was
amended to provide for an annual management fee of 26% of DeepTech's overhead
expenses. During the nine months ended March 31, 1999, DeepTech charged Tatham
Offshore $310,000 under this agreement. The management agreement was terminated
August 14, 1998.
Notes Payable to Affiliates
In connection with the Merger, the Company entered into a short-term financing
arrangement with Tatham Brothers, LLC ("Tatham Brothers") (the "Short-Term
Facility") to provide for funds to (i) satisfy approximately $1.6 million of
cash requirements with respect to the redemption agreement with Leviathan, (ii)
pay $1.4 million to DeepTech in connection with the management agreement between
Tatham Offshore and DeepTech, (iii) pay approximately $6.9 million to Tatham
Brothers Securities, LLC ("TB Securities") with respect to obligations under the
Rights Offering, (iv) fund a $7.5 million letter of credit for potential tax
liabilities, (v) refinance $5.1 million in existing loans to DeepFlex and (vi)
pay fees and expenses associated with the Short-Term Facility. Tatham Brothers
is an affiliate of Mr. Thomas P. Tatham, Chairman of the Board and Chief
Executive Officer of the Company, and the parent company of TB Securities. The
original terms of the Short-Term Facility provided for an interest rate of 12%
per annum with principal and accrued interest due on January 15, 1999. On
January 15, 1999, the Company and Tatham Brothers agreed to refinance the
original $22.9 million principal plus $1.1 million accrued interest into a new
short-term loan which bears interest at the rate of 15% per annum and was due
March 31, 1999. In connection with the refinancing, the Company paid Tatham
Brothers a fee of $1.0 million in the form of a 15% subordinated convertible
note (the "Subordinated Convertible Note"). The Subordinated Convertible Note
bears interest at the rate of 15% per annum and is due on August 15, 2001.
Tatham Brothers may convert the principal amount of the Subordinated Convertible
Note
8
<PAGE> 9
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
and accrued unpaid interest into shares of Common Stock of the Company based on
the average market price for the five trading days prior to the end of the
previous calendar quarter. The Short-Term Facility is secured by a pledge of
DeepFlex of its interest in certain payment-in-kind Subordinated Promissory
Notes issued by RIGCO and FPS V, both subsidiaries of the Company, which had an
outstanding balance of approximately $80.8 million at March 31, 2000. On March
31, 1999, the Company and Tatham Brothers extended the Short-Term Facility until
April 30, 1999. Pursuant to the terms of the Short-Term Facility, Tatham
Offshore was required to pay $24.1 million in principal and $0.3 million in
interest on April 30, 1999. Tatham Offshore did not make payment of such
amounts; as a result, an event of default has occurred and is continuing under
the Short-Term Facility. The default interest rate under the Short-Term Facility
is 19% per annum. The principal balance and accrued interest under the
Short-Term Facility and Subordinated Convertible Note are included in long-term
debt to affiliate currently payable on the consolidated balance sheet.
The Standby Agreement (the "Standby Agreement"), dated as of February 27, 1998,
was executed in connection with the Merger and related transactions and is by
and among Tatham Offshore, DeepTech, Mr. Thomas P. Tatham and El Paso Energy.
Pursuant to the Standby Agreement, to the extent that any of the Company's
Common Stock or Series A Preferred Stock was not subscribed for by holders of
DeepTech common stock in the Rights Offering, Tatham Brothers committed to
purchase such number of unsubscribed shares in order for DeepTech to receive net
proceeds from the Rights Offering of not less than $75 million (the "Standby
Commitment"). In addition, Tatham Brothers had the right to purchase any shares
which DeepTech held after the Rights Offering and the satisfaction of the
Standby Commitment. Mr. Tatham unconditionally guaranteed Tatham Brothers'
performance of the Standby Commitment, which guarantee was backed by a letter of
credit from NationsBank, N.A. In consideration of Mr. Tatham's guarantee of the
Standby Commitment, under the terms of a Repayment Agreement between Mr. Tatham
and Tatham Brothers, dated February 27, 1998, (i) Tatham Brothers granted to Mr.
Tatham an option to purchase up to a one-third membership interest in Tatham
Brothers for $1,000 through the issuance of new membership units, and (ii) Mr.
Tatham had the right, but not the obligation, to lend to Tatham Brothers all
sums necessary for Tatham Brothers to fulfill its obligations under the Standby
Commitment. In exchange for certain consideration, Tatham Brothers assigned all
of its rights and interest under the Standby Agreement and the Standby
Commitment to TB Securities.
Pursuant to the Purchase Commitment Agreement, dated as of February 27, 1998 by
and between Tatham Brothers and Tatham Offshore, in consideration of the Standby
Commitment, the Company paid Tatham Brothers a fee of $6.9 million, which amount
was included in the amount payable under the Short-Term Facility.
Tatham Offshore is a guarantor of $5.0 million of a $9.0 million loan from Bank
of America, N.A. to Tatham Brothers, which proceeds were loaned to DeepFlex to
fund certain improvements to the Rigs. The loan bore interest at LIBOR plus 2%
and was due on November 30, 1999 or upon demand. On December 1, 1999, Tatham
Brothers made a principal reduction of $2.6 million and extended the note until
September 30, 2000 or upon demand. Effective February 1, 2000, the loan bears
interest at the rate of 6.5% per annum. The loan from Tatham Brothers to
DeepFlex, plus accrued interest, was included in the amount payable under the
Short-Term Facility discussed above.
In connection with the Bill Shoemaker make-ready agreement with Sedco Forex,
RIGCO obtained a $6.5 million letter of credit in January 1999 to secure payment
to Sedco Forex, and the funds used to secure such letter of credit were provided
by Mr. Thomas P. Tatham. The $6.5 million in collateral funds plus accrued
liquidated damages totaling $1.7 million are included in the accounts of RIGCO.
In exchange for providing the funds to secure the letter of credit, RIGCO paid a
fee of $500,000 to Mr. Tatham. RIGCO has agreed to pay Mr. Tatham, as liquidated
damages, $10,000 per day from February 15, 1999 until such funds are returned.
The liquidated damages payment would be in the form of a promissory note bearing
interest at the rate of 18% per annum.
Tatham Aviation Services, Inc. ("Tatham Aviation"), whose sole shareholder is
Mr. Thomas P. Tatham, has provided the Company use of a corporate aircraft. The
agreement between the Company and Tatham Aviation provides for the Company's
reimbursement of operating costs, insurance and carrying costs in exchange for
the use of the corporate aircraft. During the nine months ended March 31, 2000,
the Company paid Tatham Aviation $992,000 under this agreement.
On February 10, 1999, Tatham Offshore issued two promissory notes, each in the
original principal amount of $1.1 million, to Tatham Brothers and a foundation
associated with Mr. Thomas P. Tatham, respectively, to secure funds to purchase
new anchor chains in connection with the Bill Shoemaker make-ready. Effective
with the purchase of
9
<PAGE> 10
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
the anchor chains, RIGCO and Tatham Offshore entered into an agreement whereby
RIGCO has the option to either lease or purchase the anchor chains from Tatham
Offshore. In April 1999, Tatham Offshore Canada Limited purchased the two
promissory notes for their principal amount plus accrued interest.
On June 30, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Loans
under this agreement bear interest at the prime rate plus 3% (on December 31,
1999, the interest rate under this facility was 11.5%) and were due on September
30, 1999. As of the date of the Bankruptcy Filing, Tatham Investment Corp. had
an unsecured claim of $338,303 under this agreement.
Effective July 1, 1999, Tatham Offshore entered into a revolving draw facility
with Tatham Investment Corp. The revolving draw facility provides for loans, at
the lender's sole discretion, by Tatham Investment Corp. to Tatham Offshore in
amounts up to $5.0 million. The revolving draw facility bears interest at the
rate of 15% per annum and is payable upon demand by the lender. Through March
31, 2000, the Company has borrowed $4.2 million under this facility which along
with accrued interest of $347,302 is included in accounts payable to affiliates
on the consolidated balance sheet. The Company has pledged all of its equity
ownership in certain wholly-owned subsidiaries of the Company as well as a
certain promissory note issued by Tatham Offshore Canada, Limited as security
under this revolving draw facility.
Other
Leviathan charged Tatham Offshore $197,500 for the period from July 1, 1998
through August 14, 1998 for commodity and platform access fees associated with
the Viosca Knoll 817 lease in accordance with certain agreements between the
parties.
During the period from July 1, 1998 through August 14, 1998, Tatham Offshore
sold all of its production to Offshore Gas Marketing, Inc. ("Offshore
Marketing"), an 80%-owned subsidiary of DeepTech. Under its agreement with
Offshore Marketing, the Company paid 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.
NOTE 3 - EQUITY INVESTMENTS:
On August 9, 1999, the Rig Subsidiaries, wholly-owned indirect subsidiaries of
Tatham Offshore, filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code. As a result of the Bankruptcy Filing, the Rig Subsidiaries are
operating their businesses and managing their property as debtors-in-possession.
Financial statements presented after the date of the Bankruptcy Filing reflect
the investment in and advances to and the results of operations of the Rig
Subsidiaries under the equity method of accounting. At March 31, 2000, the
combined assets of the Rig Subsidiaries totaled $123.0 million. Excluding
deferred income taxes, the Rig Subsidiaries had $151.1 million of total debt and
other liabilities at March 31, 2000 including $62.3 million of secured debt
under the Credit Facility. Substantially all of the remaining debt and other
liabilities are owed to affiliates of the Rig Subsidiaries. The following is
summarized combined income statement information for the subsidiaries included
in the Bankruptcy Filing.
10
<PAGE> 11
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, 2000 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenue:
Drilling services $ -- $ 13,341
Costs and expenses:
Drilling and other operating expenses 2,039 10,176
Depreciation and impairment 14,731 17,639
General and administrative expenses
and management fee 842 2,765
------------ ------------
17,612 30,580
------------ ------------
Operating loss (17,612) (17,239)
Interest and other income 91 176
Interest expense and other financing costs (2,289) (6,506)
Interest expense and other financing costs - affiliates -- (1,445)
------------ ------------
Net loss $ (19,810) $ (25,014)
============ ============
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY:
The following table summarizes Tatham Offshore's outstanding equity as of March
31, 2000:
<TABLE>
<CAPTION>
Conversion/
Shares Liquidation Dividend Dividends Exchange
Equity Outstanding Preference Rate In Arrears Features
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock 17,183,244(a) $1.50 per share 12% $11,682,000 (b)(c)
Series B Preferred Stock 54,379 $1.00 per share 8% $ 20,000 (b)(c)
Series C Preferred Stock 321,205 $0.50 per share 4% $ 20,000 (b)(c)
Common Stock 26,078,548(a) N/A -- -- --
</TABLE>
- ------------------
(a) In connection with the Rights Offering, Tatham Offshore purchased all of
the shares of Common Stock and Series A Preferred Stock that were not
acquired by the holders of Rights or TB Securities in the Rights Offering,
3,926,746 and 653,365, respectively, and the proceeds from such purchase
by Tatham Offshore were contributed by DeepTech to Tatham Offshore.
(b) At any time, the holder of any shares may convert the liquidation value
and unpaid dividends into shares of Tatham Offshore common stock at $6.53
per share.
(c) Redeemable at the option of Tatham Offshore on or after July 1, 1997.
NOTE 5 - EARNINGS PER SHARE:
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
net income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted EPS reflects
potential dilution and is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during the period increased by the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.
11
<PAGE> 12
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 6 - 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 or operations of
the Company. Various legal actions 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 consolidated financial position or results of
operations of the Company.
Effective January 25, 1998, Sedco Forex entered into a one-year contract with
Shell Offshore Inc. ("Shell") for the use of the Bill Shoemaker in the Gulf.
RIGCO was notified by Sedco Forex that as of November 18, 1998, Shell would
cease using the Bill Shoemaker to conduct drilling operations in the Gulf. RIGCO
has been paid for drilling services performed by the Bill Shoemaker for Shell
through November 18, 1998 but has not been paid for any period since that time.
At March 31, 2000, RIGCO had recorded a $7.5 million account receivable from
Sedco Forex related to the unpaid portion of the Shell contract. On April 20,
1999, RIGCO gave Sedco Forex a written termination notice of the management and
charter agreement for the Bill Shoemaker. On July 26, 1999, RIGCO filed a
petition alleging more than $51 million in actual damages against Schlumberger
Technology Corporation and Schlumberger Canada, Ltd.
The Company anticipates substantial future capital expenditures associated with
the development and implementation of the North Atlantic pipeline project and
related opportunities in Atlantic Canada. Realization of the potential of the
North Atlantic pipeline project and related opportunities in Atlantic Canada is
dependent upon the ability of the Company to obtain sufficient additional
capital or project financing.
NOTE 7 - SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid, net of amounts capitalized
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
(in thousands)
<S> <C> <C>
Interest $ -- $ 3,232
Taxes $ -- $ --
</TABLE>
Supplemental Disclosures of Noncash Investing and Financing Activities
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
(in thousands)
<S> <C> <C>
Debt issued to refinance accounts payable
to affiliates $ -- $ 5,153
Senior Preferred Stock redeemed under
the Redemption Agreement $ -- $ 7,500
Debt issued to finance Rights Offering $ -- $ 6,923
</TABLE>
12
<PAGE> 13
TATHAM OFFSHORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
As discussed in Note 1, the Company has reflected the investment in and advances
to and the results of operations of the Rig Subsidiaries on the equity method of
accounting. The assets, liabilities and accumulated deficit of the Rig
Subsidiaries at June 30, 1999 were as follows (in thousands):
<TABLE>
<S> <C>
Cash $ 382
Accounts receivable 16,034
Prepaid expenses 156
Semisubmersible drilling rigs, net 132,314
Accounts payable and accrued liabilities (8,408)
Accounts payable to affiliates (6,003)
Notes payable to affiliates (79,357)
Current portion of note payable (58,148)
Deferred income taxes (10,238)
---------
Accumulated deficit $ (13,268)
=========
</TABLE>
NOTE 8 - SEGMENT INFORMATION:
The Company currently operates two business segments, the offshore contract
drilling business and the pursuit of an integrated energy related investment
strategy in Atlantic Canada. The Company is required to report summarized
financial results for operating segments and related disclosures about products
and services, geographic areas and major customers. Primary disclosure
requirements include total segment revenues, total segment profit or loss and
total segment assets.
For the three and nine months ended March 31, 2000, operations for the drilling
segment are included in the financial statements on the equity method of
accounting (see Note 3). For the three months ended March 31, 1999, the drilling
segment revenues totaled $6.1 million and the drilling segment profit totaled
$0.1 million. For the nine months ended March 31, 1999, the drilling segment
revenues totaled $28.3 million and the drilling segment profit totaled $7.7
million. The Canadian Investment Strategy segment had no revenues and all costs
were capitalized for the three and nine months ended March 31, 2000 and 1999.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in Item 1.
"Consolidated Financial Statements" and is intended to assist in the
understanding of the Company's financial condition and results of operations for
the three and nine months ended March 31, 2000.
GENERAL
Tatham Offshore, Inc. ("Tatham Offshore" or the "Company"), a Delaware
corporation, provides offshore contract drilling services to the oil and gas
industry and is currently pursuing, through its subsidiaries, energy related
opportunities in Atlantic Canada, including offshore contract drilling services,
substantial natural gas gathering and transmission facilities and related energy
infrastructure. Historically, Tatham Offshore has been in the oil and gas
exploration and development business, primarily in the Gulf. The Company has
refocused its business from the oil and gas exploration and production business
in the Gulf to an integrated frontier investment strategy targeting Atlantic
Canada with an initial emphasis on the offshore contract drilling business.
Accordingly, in connection with DeepTech's merger (the "Merger") with a
subsidiary of El Paso Energy completed on August 14, 1998, Tatham Offshore (i)
transferred its ownership of Tatham Development, which owns oil and gas
producing properties, to DeepTech and its remaining oil and gas properties to
Leviathan, and (ii) acquired from DeepTech ownership of DeepFlex which, through
its subsidiaries, owns the Laffit Pincay and the Bill Shoemaker. The Company's
oil and gas operations in the Gulf are reflected as discontinued operations in
the financial statements. As a result of the Bankruptcy Filing as discussed
below, financial statements presented after the date of the Bankruptcy Filing
reflect the investment in and advances to and the results of operation of the
Rig Subsidiaries on the equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1999
The Laffit Pincay and Bill Shoemaker were both stacked without a drilling
contract for the three months ended March 31, 2000 and therefore did not
generate any revenue from drilling services for the period. Revenue from
drilling services totaled $6.1 million for the three months ended March 31,
1999, all of which was generated by the Bill Shoemaker.
Operating expenses for the Rigs for the three months ended March 31, 2000
totaled $2.0 million and were attributable to direct operating expenses for the
Rigs. Operating expenses for the Rigs for the three months ended March 31, 2000
were reflected in equity earnings. During this period, the Bill Shoemaker's
operating expenses totaled $0.8 million and the Laffit Pincay's operating
expenses totaled $1.2 million. Operating expenses for the Laffit Pincay and Bill
Shoemaker during this period included the costs necessary to maintain the rigs
in a warm-stacked mode. Operating expenses for the three months ended March 31,
1999 totaled $4.5 million and were attributable to the management fee and direct
operating expenses for the Rigs. During this period, the Bill Shoemaker's
operating expenses totaled $2.4 million and the Laffit Pincay's operating
expenses totaled $2.1 million. Operating expense for the Laffit Pincay during
this period included the costs necessary to maintain the rig in a warm-stacked
mode. The reduction in operating expense for both rigs from $4.5 million for the
three month period ending March 31, 1999 to $2.0 million for the three month
period ending March 31, 2000 was due to reduced crew requirements and the
elimination of management fees payable to Sedco Forex as a result of the
termination of the Sedco Forex management agreements.
Depreciation expense for the Rigs totaled $14.7 million for the three months
ended March 31, 2000 and is reflected in equity earnings. Depreciation expense
for the Bill Shoemaker and the Laffit Pincay totaled $1.0 million and $13.7
million, respectively. Depreciation expense for the Laffit Pincay includes an
impairment provision of $13.3 million related to the sale of the rig.
Depreciation expense totaled $1.5 million for the three months ended March 31,
1999. Depreciation expense for the Bill Shoemaker and the Laffit Pincay totaled
$1.0 million and $0.5 million, respectively.
General and administrative expense totaled $163,000 for the three months ended
March 31, 2000 and includes staff and overhead costs for the Atlantic Canada
business. In addition, general and administrative expense relating to the Rigs
totaled $0.8 million and is reflected in equity earnings. General and
administrative expense totaled
14
<PAGE> 15
$1.9 million for the three months ended March 31, 1999. General and
administrative expense for the three months ended March 31, 1999 included staff
and overhead costs for the operation of the marine services and Atlantic Canada
businesses.
Operating loss for the three months ended March 31, 2000 totaled $20.0 million
as compared to operating loss of $1.8 million for the three months ended March
31, 1999. The change was due to the items discussed above.
Interest income and other for the three months ended March 31, 2000 and 1999
totaled $0.1 million and $0.8 million, respectively, and primarily included
interest income from available cash.
Interest expense and other financing costs to affiliates for the three months
ended March 31, 2000 and 1999 totaled $1.6 million and $4.7 million,
respectively, and related to borrowings from Tatham Brothers. Interest expense
incurred by RIGCO under the Credit Facility for the three months ended March 31,
2000 totaled $2.3 million and is included in equity earnings. Interest expense
incurred by RIGCO under the Credit Facility for the three months ended March 31,
1999 totaled $1.7 million.
Tatham Offshore eliminated all of its Senior Preferred Stock and the associated
preferred stock dividends in arrears as a result of certain Merger related
agreements and repurchased and cancelled 653,365 shares of its Series A
Preferred Stock in connection with the Rights Offering. Tatham Offshore's
remaining preferred stock dividends totaled $0.8 million for the three months
ended March 31, 2000 as compared with $0.8 million for the three months ended
March 31, 1999. After taking preferred stock dividends into account, the
Company's net loss allocable to common shareholders for the three months ended
March 31, 2000 was $22.2 million, or $0.85 per share, as compared with a net
loss allocable to common shareholders for the three months ended March 31, 1999
of $6.5 million, or $0.25 per share.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1999
Revenue from drilling services totaled $13.3 million for the nine months ended
March 31, 2000 and is reflected in equity earnings. All of the revenue for the
nine months ended March 31, 2000 was generated by the Bill Shoemaker. During
this period the Bill Shoemaker was under contract for the period from July 1,
1999 through November 15, 1999. Revenue from drilling services totaled $28.4
million for the nine months ended March 31, 1999. The Bill Shoemaker generated a
total of $26.3 million in revenue and the Laffit Pincay generated a total of
$2.1 million in revenue. The reduction in revenue from $28.4 million for the
nine months ended March 31, 1999 to $13.3 million for the nine months ended
March 31, 2000 was due to a lower average day rate in effect during 1999 as well
as the lower utilization rate. The Laffit Pincay did not have a drilling
contract during the nine months ended March 31, 2000 and had only one short term
drilling contract during the nine months ended March 31, 1999.
Operating expenses for the Rigs for the nine months ended March 31, 2000 totaled
$10.2 million and were attributable to the management fee and direct operating
expenses for the Rigs. Operating expenses for the Rigs for the nine months ended
March 31, 2000 were reflected in equity earnings. During this period, the Bill
Shoemaker's operating expenses totaled $7.5 million and the Laffit Pincay's
operating expenses totaled $2.7 million. Operating expenses for the Laffit
Pincay during this period included the costs necessary to maintain the rig in a
warm-stacked mode. Operating expenses for the nine months ended March 31, 1999
totaled $16.5 million and were attributable to the management fee and direct
operating expenses for the Rigs. During this period, the Bill Shoemaker's
operating expenses totaled $8.4 million and the Laffit Pincay's operating
expenses totaled $8.1 million. Operating expense for the Laffit Pincay during
this period included the costs necessary to maintain the rig in a warm-stacked
mode. The reduction in operating expense for the Laffit Pincay from $8.1 million
for the nine month period ending March 31, 1999 to $2.7 million for the nine
month period ending March 31, 2000 was due to reduced crew requirements and the
elimination of management fees payable to Sedco Forex as a result of the
termination of the Sedco Forex management agreement on March 23, 1999.
Depreciation expense for the Rigs totaled $17.6 million for the nine months
ended March 31, 2000 and is reflected in equity earnings. Depreciation expense
for the Bill Shoemaker and the Laffit Pincay totaled $2.9 million and $14.7
million, respectively. Depreciation expense for the Laffit Pincay includes an
impairment provision of $13.3 million related to the sale of the rig.
Depreciation expense totaled $4.2 million for the nine months ended March 31,
1999. Depreciation expense for the Bill Shoemaker and the Laffit Pincay totaled
$2.7 million and $1.5 million, respectively.
15
<PAGE> 16
General and administrative expense totaled $657,000 for the nine months ended
March 31, 2000. In addition, general and administrative expense relating to the
Rigs totaled $2.8 million and is reflected in equity earnings. General and
administrative expense totaled $5.0 million for the nine months ended March 31,
1999. General and administrative expense includes staff and overhead costs
allocated to the Company under a management agreement with DeepTech of $0.2
million for the nine months ended March 31, 1999. In connection with the Merger,
the management agreement between the Company and DeepTech was terminated on
August 14, 1998. General and administrative expense for the nine months ended
March 31, 1999 included staff and overhead costs for the operation of the marine
services and Atlantic Canada businesses. General and administrative costs
attributable to discontinued operations totaled $0.3 million for the nine months
ended March 31, 1999.
Operating loss for the nine months ended March 31, 2000 totaled $24.7 million as
compared to operating income of $2.5 million for the nine months ended March 31,
1999. The change was due to the items discussed above.
Interest income and other for the nine months ended March 31, 2000 and 1999
totaled $183,000 and $0.9 million, respectively, and included interest income
from available cash and other income in 1999 of $618,000 related to a settlement
with El Paso under certain merger related agreements.
Interest expense and other financing costs to affiliates for the nine months
ended March 31, 2000 and 1999 totaled $4.4 million and $10.3 million,
respectively, and related to borrowings from Tatham Brothers. The Rig
Subsidiaries also incurred interest expense to affiliated entities of $1.4
million for the nine months ended March 31, 2000 which is included in equity
earnings. Interest expense incurred by RIGCO under the Credit Facility for the
nine months ended March 31, 2000 totaled $6.5 million and is included in equity
earnings. Interest expense incurred by RIGCO under the Credit Facility for the
nine months ended March 31, 1999 totaled $5.7 million.
On or before August 14, 1998, the Company transferred all of its oil and gas
properties in the Gulf to DeepTech and Leviathan in connection with the Merger.
For the nine months ended March 31, 2000, the Company reported earnings from
discontinued operations of $336,000 due to the reversal of oil and gas expense
accruals. The Company reported a net loss from discontinued operations of $0.2
million for the nine months ended March 31, 1999. During the period from July 1,
1998 through August 14, 1998, the Company sold 479 million cubic feet of natural
gas and 1,200 barrels of oil at average prices of $1.86 per thousand cubic feet
of natural gas and $7.13 per barrel of oil, respectively.
Tatham Offshore eliminated all of its Senior Preferred Stock and the associated
preferred stock dividends in arrears as a result of certain Merger related
agreements and repurchased and cancelled 653,365 shares of its Series A
Preferred Stock in connection with the Rights Offering. Tatham Offshore's
remaining preferred stock dividends totaled $2.3 million for the nine months
ended March 31, 2000 as compared with $2.3 million for the nine months ended
March 31, 1999. After taking preferred stock dividends into account, the
Company's net loss allocable to common shareholders for the nine months ended
March 31, 2000 was $30.9 million, or $1.18 per share, as compared with a net
loss allocable to common shareholders for the nine months ended March 31, 1999
of $9.4 million, or $0.35 per share.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Sources of Cash.. The Company expects to be dependent upon cash on hand and
loans under a revolving draw facility with Tatham Investment Corp. to pay its
operating expenses and satisfy its other obligations. The use of cash held by or
generated from operations of the Rig Subsidiaries is subject to approval of the
Bankruptcy Court. As described below, the Company will need to raise substantial
capital (equity, debt or both) or enter into other arrangements to allow the
Company to implement its business strategy in Atlantic Canada.
On August 9, 1999, RIGCO, FPS VI, FPS III and FPS V (the "Rig Subsidiaries")
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Filing"). At the time of the Bankruptcy Filing, RIGCO owned a
100% interest in the Bill Shoemaker and a 25% undivided interest in the Laffit
Pincay and FPS VI owned a 75% undivided interest in the Laffit Pincay. FPS III
and FPS V are the owners of RIGCO and FPS VI with FPS III owning a 50% interest
in RIGCO and FPS V owning a 50% interest in RIGCO and a 100% interest in FPS VI.
The proceedings of the Rig Subsidiaries are administered jointly. As a result of
the Bankruptcy Filing, the Rigs are being managed by the Company's subsidiaries
as debtors-in-possession. The syndicate of lenders under the Credit Facility
have a secured interest in substantially all of the assets of RIGCO and FPS VI.
Any cash received by RIGCO and FPS VI is considered collateral for the secured
lenders (the "Cash Collateral") under the Credit Facility. RIGCO and FPS VI as
debtors-in-possession were granted temporary permission by the Bankruptcy Court
for limited use of the Cash Collateral to pay operating and maintenance costs
for the Rigs and to pay certain limited general and administrative costs of
Tatham Offshore. As of April 15, 2000, other than an agreement with the lenders
which allowed RIGCO to use cash collateral to fund RIGCO's payroll, the Rig
Subsidiaries are not presently authorized to use cash collateral.
As of May 15, 2000, RIGCO's cash reserves are substantially depleted and RIGCO
will require additional cash to continue to pay all obligations, including
payroll, operating and maintenance expenses, interest obligations, legal
expenses, lease obligations and general and administrative expenses to Tatham
Offshore. RIGCO and the secured lenders are currently negotiating a possible
short-term loan (the "Proposed DIP Loan") which, if funded, would provide RIGCO
with cash to fund its operations through June 30, 2000. It is contemplated that
the Proposed DIP Loan would require, among other things, RIGCO to have a binding
contract for the sale of the Bill Shoemaker by May 31, 2000 with a minimum bid
of $37.5 million. Due to the nature of the potential sale of the Bill Shoemaker,
there can be no guarantee as to (i) whether or not a minimum bid will be
received or (ii) whether a successful bid will recover RIGCO's investment in the
Bill Shoemaker. Failure to secure a sales contract by such date would result in
an event of default under the Proposed DIP Loan and terminate the secured
lenders' obligation to provide further funding. The Proposed DIP Loan and the
sale of the Bill Shoemaker are subject to the approval of the Bankruptcy Court.
See "--Liquidity Outlook."
On May 1, 2000, RIGCO and FPS VI sold all of their interest in the Laffit Pincay
to a third party for $28.5 million in cash. Expenses associated with the sale
totaled $0.3 million and $175,000 of the net proceeds is being held by RIGCO, in
a separate debtor-in-possession bank account, pending the resolution of a
maritime lien claim by one of RIGCO's pre-petition creditors. The balance of the
proceeds from the sale of the Laffit Pincay, $28.0 million, was paid to RIGCO's
secured lenders in partial payment of their secured claim under the Credit
Facility.
In August 1998, both El Paso Energy and the Company were required to post
letters of credit in connection with certain Merger related agreements. In March
1999, the Company entered into an agreement with El Paso Energy under which (i)
each company was released of its obligation to maintain letters of credit in
favor of one another, (ii) El Paso Energy paid the Company $618,000 and (iii)
the Company released its rights to certain potential pre-merger tax attributes
of the DeepTech group. As a result of this agreement, the Company's $6.1 million
cash collateral which secured its letter of credit in favor of El Paso Energy
was released and became available for general corporate purposes.
On July 1, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Loans
under this agreement bear interest at the prime rate plus 3% (on March 31, 2000,
the interest rate under this facility was 12.0%) and were due on September 30,
1999. As of the date of the Bankruptcy Filing, Tatham Investment Corp. had an
unsecured claim of $338,303 under this agreement.
Effective July 1, 1999, Tatham Offshore entered into a revolving draw facility
with Tatham Investment Corp. The revolving draw facility provides for loans, at
the lender's sole discretion, by Tatham Investment Corp. to Tatham Offshore in
amounts up to $5.0 million. The revolving draw facility bears interest at the
rate of 15% per annum and is payable upon demand by the lender. Through March
31, 2000, the Company has borrowed $4.2 million under
17
<PAGE> 18
this facility. The Company has pledged all of its equity ownership in certain
wholly-owned subsidiaries of the Company as well as a certain promissory note
issued by Tatham Offshore Canada, Limited.
In December 1999, North Atlantic Pipeline Partners, L.P. borrowed $4.0 million
from an unrelated party. The $4.0 million loan is evidenced by a demand note
bearing interest at the rate of 15% per annum.
Uses of Cash. The Company expects that its primary uses of cash will consist of
(i) amounts necessary to staff and maintain the Bill Shoemaker while it is not
under contract, and (ii) amounts necessary to pay general and administrative and
other operational expenses. The use of cash held by the Rig Subsidiaries
requires approval by the Bankruptcy Court. As a result of an agreement with the
secured lenders, the Rig Subsidiaries had interim use of such cash through
April 14, 2000 and limited use for payroll through May 15, 2000. See
"--Liquidity Outlook".
Following the completion of the Husky Oil Operation Limited contract, in
mid-November 1999, the Bill Shoemaker was warm-stacked in a facility in
Newfoundland, Canada pending additional contract drilling commitments in Canada
or other suitable locations worldwide. The costs to stack the Bill Shoemaker in
Canada are approximately $300,000 per month.
In addition, the Company will use available cash from non-rig related borrowings
to fund the pursuit of its business strategy in Atlantic Canada. Such uses will
include funding initial expenditures related to the North Atlantic Pipeline
Partners' pipeline project, the remainder of the Company's Atlantic Canada
strategy and any of the Company's other potential capital expenditures.
North Atlantic Pipeline Partners is the sponsor of a proposal to construct a
natural gas pipeline from offshore Newfoundland and Nova Scotia to Seabrook, New
Hampshire. As of March 31, 2000, Tatham Offshore Canada Limited, the Canadian
representative of North Atlantic Pipeline Partners, has incurred $14.5 million
in developmental costs in connection with such project and related
infrastructure projects. The Company anticipates that the ultimate capital costs
of the pipeline and related projects, if approved, could be in excess of several
billion dollars. The Company plans to obtain debt and equity financing and/or
secure joint venture partners to satisfy the capital requirements for the
Atlantic Canada projects, as required.
Liquidity Outlook. The Company intends to fund its immediate cash requirements
with cash on hand and loans under the revolving draw facility with Tatham
Investment Corp. At March 31, 2000, Tatham Offshore had $2.0 million of cash and
cash equivalents. In addition, RIGCO had $0.6 million of cash and cash
equivalents at March 31, 2000. The use of cash held by or generated from
operations of the Rig Subsidiaries is subject to approval of the Bankruptcy
Court. However, to meet its debt obligations and future capital needs with
respect to Atlantic Canada, the Company will need to raise substantial capital
(equity, debt or both) or enter into other arrangements including the sale of
the Bill Shoemaker.
Drilling Operations
On September 30, 1996, RIGCO entered into a $65 million senior secured credit
facility with a syndicate of lenders (as amended, the "Credit Facility").
Proceeds from the Credit Facility were used to acquire the Bill Shoemaker, to
fund significant upgrades to the Bill Shoemaker, and to retire $30.3 million of
other rig related indebtedness. In April 1997, the Credit Facility was amended
to provide for an additional $12 million to fund the remaining refurbishments
and upgrades to the Bill Shoemaker. The Credit Facility (i) originally matured
on September 30, 1998, (ii) provides for interest at the prime rate plus 3% per
annum (9.0% at March 31, 2000), payable quarterly, and (iii) is secured by the
two semisubmersible drilling rigs and all of the related assets. On September
25, 1998, the parties to the Credit Facility amended the agreement to (i) extend
the maturity date from September 30, 1998 to March 31, 1999, (ii) waive all
principal payments until the maturity date, and (iii) extend the expiration date
on the warrants issued to the lenders under the original Credit Facility to
March 31, 1999. RIGCO paid a total of 0.5% of the outstanding principal balance
to the lenders in connection with the amendment.
On March 31, 1999, the parties to the Credit Facility amended the agreement to
(i) extend the maturity to April 30, 1999, (ii) waive all principal and interest
payments until the maturity date and (iii) extend the expiration date on the
warrants issued to the lenders under the original Credit Facility to April 30,
1999. RIGCO paid a total of $100,000 to the lenders in connection with the
amendment and agreed to increase the interest rate on the outstanding principal
to the default rate under the Credit Facility (the prime rate plus 5% per annum,
which equaled 14% at March 31,
18
<PAGE> 19
2000) for the period of the extension. RIGCO did not make the principal payment
or interest payment due on April 30, 1999, is presently in default under the
terms of the Credit Facility, and has filed voluntary petitions under Chapter 11
of the U.S. Bankruptcy Code. As of the date of the Bankruptcy Filing, amounts
outstanding under the Credit Facility totaled $58.1 million in principal and
$4.1 million in accrued interest. See "-- Subsidiary Bankruptcy Court
Proceedings".
Effective January 25, 1998, Sedco Forex entered into a one-year contract with
Shell Offshore Inc. ("Shell") for the use of the Bill Shoemaker in the Gulf.
RIGCO was notified by Sedco Forex that as of November 18, 1998, Shell would
cease using the Bill Shoemaker to conduct drilling operations in the Gulf. RIGCO
has been paid for drilling services performed by the Bill Shoemaker for Shell
through November 18, 1998, but has not been paid for any period since that time.
RIGCO is seeking to recover its damages resulting from this early termination,
along with damages unrelated to the Shell contract, in the suit against
Schlumberger Technology Corporation and Schlumberger Canada, Ltd. (collectively
"Schlumberger") discussed hereafter.
Following the early release of the rig by Shell, the Bill Shoemaker was towed to
a shipyard in Galveston, Texas where it underwent significant unanticipated
refurbishments in preparation for mobilization to the Grand Banks area in
Atlantic Canada. Capital costs, including crew costs while in the shipyard, for
the make-ready totaled approximately $8.5 million. Following the make-ready, the
Bill Shoemaker was mobilized to the Grand Banks area in Atlantic Canada to
conduct a two-well program (with three options permitting up to seven additional
wells) at predetermined rates for Husky Oil Operations Limited. In connection
with the Bill Shoemaker make-ready agreement with Sedco Forex, RIGCO obtained a
letter of credit for $6.5 million to secure payment to Sedco Forex. The letter
of credit was secured with funds provided by Mr. Thomas P. Tatham, Chairman of
the Board and Chief Executive Officer of the Company. In exchange for providing
the funds to secure the letter of credit, RIGCO paid a fee of $500,000 to Mr.
Tatham. RIGCO has agreed to pay Mr. Tatham, as liquidated damages, $10,000 per
day from February 15, 1999 until such funds are returned. The liquidated damages
payment would be in the form of a promissory note bearing interest at the rate
of 18% per annum. All of the funds securing the letter of credit were drawn by
Sedco Forex for payments under the make-ready agreement.
On April 20, 1999, RIGCO gave Sedco Forex a written termination notice of the
management and charter agreement for the Bill Shoemaker. As RIGCO currently does
not have a replacement drilling agreement for the Bill Shoemaker, RIGCO will be
dependent on cash reserves generated from the Husky Oil Operations Limited
agreement, or funds from new financing arrangements, to fund its ongoing cash
requirements.
On July 26, 1999, RIGCO filed a petition in the 165th Judicial District Court in
Harris County, Texas, seeking both actual and exemplary damages from
Schlumberger for claims arising out of Schlumberger's Sedco Forex Division's
marketing, manning, management and operation of the Bill Shoemaker and Laffit
Pincay pursuant to certain charter, make-ready and other agreements and
arrangements. The allegations include claims of gross negligence, breach of
contract, fraud, negligent misrepresentation and negligence. Additionally, RIGCO
and FPS VI have alleged in bankruptcy court proceedings that the manner in which
Schlumberger performed its duties with respect to the Bill Shoemaker and Laffit
Pincay during the course of the management and charter agreements resulted in
RIGCO's financial difficulties and caused it to default on its secured debt
obligations.
Subsidiary Bankruptcy Court Proceedings
On or about February 9, 2000, RIGCO, FPS III, FPS IV and FPS V, as
debtors-in-possession, and the secured lenders under the Credit Facility filed a
Stipulation and Order Authorizing Continued Use of Cash Collateral and Adequate
Protection with the Bankruptcy Court (the "February 2000 Stipulation"). The
February 2000 Stipulation provides that (i) the debtors-in-possession will
accept an offer to purchase the Laffit Pincay at the best commercial offer above
a stated minimum, (ii) within five business days of the acceptance of the offer,
debtors-in-possession will file with the Bankruptcy Court a motion seeking
approval of reasonable and customary proposed bankruptcy sale procedures
including the establishment of an overbid period and approval of topping fees,
(iii) within five business days of the acceptance of the offer,
debtors-in-possession shall retain a certain broker to market the Laffit Pincay,
(iv) the debtors-in-possession will enter into a definitive Purchase Agreement
which is acceptable to the secured lenders for the sale of the Laffit Pincay
within 21 days after the acceptance of the offer and shall file a motion seeking
approval of the proposed sale pursuant to the terms of the Purchase Agreement
with the Bankruptcy Court, (v) the debtors-in-possession will use their best
efforts to obtain a hearing on the proposed sales procedures on February 17,
2000, a hearing on the proposed sale on March 20, 2000 and the closing of the
sale of the Laffit
19
<PAGE> 20
Pincay on or before March 31, 2000, (vi) the terms of the Purchase Agreement or
any subsequent purchase agreement approved by the Bankruptcy Court shall provide
that the sale of the Laffit Pincay will close on or before March 31, 2000,
assuming all conditions precedent to the closing have been satisfied, (vii) upon
the sale of the Laffit Pincay, the secured lenders would receive all of the net
proceeds from the sale after deduction of customary and reasonable expenses,
costs and fees associated with the sale, (viii) on or before March 31, 2000, the
debtors-in-possession will accept an offer to purchase the Bill Shoemaker for an
amount exceeding all remaining amounts owing to the secured lenders and that the
sale of the Bill Shoemaker will close no later than June 30, 2000, (ix) if the
debtors-in-possession fulfill the conditions for the sale of the Bill Shoemaker
as set forth in (viii) above, some or all of the secured lenders will make a
post-petition loan to RIGCO up to $1.6 million (the "DIP Loan"), (x) proceeds
from the sale of the Bill Shoemaker will be used to first pay off the
obligations under the DIP Loan and second to pay off all secured obligations
owed to the secured lenders under the Credit Facility, (xi) upon approval of the
Bankruptcy Court of the February 2000 Stipulation, the debtors-in-possession
will pay the secured lenders $2.0 million in partial payment of the secured
lenders' claim and (xii) debtors-in-possession will be allowed continued use of
the cash collateral through March 31, 2000 in accordance with an agreed budget.
In February 2000, RIGCO made a $2.0 million payment to the secured lenders as
provided in the February 9, 2000 stipulation. The secured lenders allowed
continued use of the cash collateral through April 14, 2000 and limited use of
cash collateral for payroll through May 15, 2000. On May 1, 2000, the Laffit
Pincay was sold to a third party for $28.5 million in cash. To date, RIGCO has
not secured a sales contract for the Bill Shoemaker.
On or about December 11, 1999, the secured lenders filed with the Bankruptcy
Court (i) a motion to convert the Chapter 11 cases of the debtors-in-possession
to Chapter 7, or alternatively to dismiss the Chapter 11 cases ("Motion to
Convert") and (ii) a motion to modify the automatic stay. The hearing on the
Motion to Convert is scheduled for May 19, 2000. If RIGCO and the secured
lenders enter into the Proposed DIP Loan prior to the May 19, 2000 hearing on
the Motion to Convert, it is anticipated that the secured lenders will request
that the hearing be reset for a later date. If the Chapter 11 cases are
converted to Chapter 7, a trustee would be appointed to liquidate the assets of
the debtors, pay administrative expenses incurred in administering the Chapter 7
and Chapter 11 cases and distribute the proceeds to secured lenders, unsecured
creditors and equity holders.
Atlantic Canada
The Company has refocused its business from the development, exploration and
production of oil and gas in the Gulf to an integrated frontier investment
strategy targeting Atlantic Canada with initial emphasis on the offshore
contract drilling business. The Company believes that the Atlantic Canada region
offers significant investment opportunities and the Company plans to diversify
its business to include the North Atlantic pipeline project, related gas
processing facilities, a facility for the generation of electricity and other
related investments including upstream exploration and production activities and
the acquisition of oil and gas concessions or license interests. The Company has
incurred approximately $14.5 million in costs associated with its Atlantic
Canada strategy.
The ability of the Company to satisfy its future capital needs with respect to
its planned Atlantic Canada strategy, particularly its ability to obtain
regulatory approval and financing for the North Atlantic Pipeline Partners'
pipeline project, will depend upon its ability to raise substantial amounts of
additional capital and to implement its business strategy successfully. With
respect to the Company's Atlantic Canada strategy, (i) the Company does not
currently possess the capital necessary to implement its business strategy
completely and there can be no assurances that the Company will be able to
obtain sufficient capital for any or all of the projects, (ii) there can be no
assurances that these projects and other opportunities will prove to be
economical or that they will occur, and (iii) many of these projects will
require governmental approvals, almost all of which the Company has yet to
receive. Moreover, if there are developments that the Company determines to be
indicative of a lack of reasonable opportunity to realize benefits for the
Company's stockholders, then the Company will pursue other opportunities,
wherever located, as the Company determines to be in the Company's best
interests. The Company or its Canadian subsidiaries may seek to obtain
additional equity capital to assist in the funding of the ongoing day-to-day
operations of its planned Atlantic Canada strategy.
20
<PAGE> 21
Other
In connection with the Merger, the Company entered into a $22.9 million
short-term financing arrangement with Tatham Brothers (as amended, the
"Short-Term Facility") to provide for funds to (i) satisfy approximately $1.6
million of cash requirements with respect to the redemption agreement with
Leviathan, (ii) pay $1.4 million to DeepTech in connection with the management
agreement between Tatham Offshore and DeepTech, (iii) pay approximately $6.9
million to TB Securities with respect to obligations under the Rights Offering,
(iv) fund a $7.5 million letter of credit for potential tax liabilities, (v)
refinance $5.1 million in existing loans to DeepFlex and (vi) pay fees and
expenses associated with the Short-Term Facility. Tatham Brothers is an
affiliate of Thomas P. Tatham and the parent company of TB Securities. The
Short-Term Facility accrued interest at the rate of 12% per annum and was due on
January 15, 1999. On January 15, 1999, the Company and Tatham Brothers agreed to
refinance the original $22.9 million principal plus $1.1 million of accrued
interest into a new short-term loan which bears interest at the rate of 15% per
annum and was due March 31, 1999. In connection with the refinancing, the
Company paid Tatham Brothers a fee of $1.0 million in the form of a 15%
subordinated convertible note (the "Subordinated Convertible Note"). The
Subordinated Convertible Note bears interest at the rate of 15% per annum and is
due on August 15, 2001. Tatham Brothers may convert the principal amount of the
Subordinated Convertible Note and accrued unpaid interest into shares of Common
Stock of the Company based on the average market price for the five trading days
prior to the end of the previous calendar quarter. The Short-Term Facility is
secured by a pledge of DeepFlex of its interest in certain payment-in-kind
Subordinated Promissory Notes issued by RIGCO and FPS V, both subsidiaries of
the Company, which had an outstanding balance of approximately $80.8 million at
March 31, 2000. On March 31, 1999, the Company and Tatham Brothers extended the
Short-Term Facility until April 30, 1999. Pursuant to the terms of the
Short-Term Facility, Tatham Offshore was required to pay $24.1 million in
principal and $0.3 million in interest on April 30, 1999. Tatham Offshore did
not make payment of such amount; as a result, an Event of Default has occurred
and is continuing under the Short-Term Facility.
Tatham Offshore is a guarantor of $5.0 million of a $9.0 million loan from Bank
of America, N.A. to Tatham Brothers, which proceeds were loaned to DeepFlex to
fund certain improvements to the Rigs. The loan bore interest at LIBOR plus 2%
and was due on November 30, 1999 or upon demand. On December 1, 1999, Tatham
Brothers made a principal reduction of $2.6 million and extended the note until
September 30, 2000 or upon demand. Effective February 1, 2000, the loan bears
interest at the rate of 6.5% per annum. The loan from Tatham Brothers to
DeepFlex, plus accrued interest, was included in the amount payable under the
Short-Term Facility discussed above.
Since the Nasdaq National Market has delisted Tatham Offshore's common stock,
the holders thereof have suffered a decrease in marketability of their shares
and the liquidity of their investment in Tatham Offshore's common stock and its
preferred stocks which are convertible into common stock. This decrease in the
marketability and liquidity of the Company's common and preferred stock may have
a material adverse effect on Tatham Offshore's ability to access equity markets
in the future.
Tatham Offshore has never declared or paid dividends on its common or preferred
stock. Tatham Offshore expects to retain all available earnings generated by its
operations for the growth and development of its business.
YEAR 2000. The year 2000 issue is the result of computer programs that were
written using two digits rather than four to define the year. The Company
believes that substantially all of its information technology software and
equipment are year 2000 compliant and that this problem will have no affect on
the Company's internal operations. The costs relating to the assessment of the
year 2000 issue have, to date, been de minimus. Although the Company intends to
interact only with those third parties that have year 2000 compliant computer
systems, it is impossible for the Company to monitor all such systems. The
Company had discussions with the operator of the Bill Shoemaker and has
performed external IT and Non-IT system reviews. Based on discussions and
reviews, the Company believes that there will be no disruption in the operation
of either of its drilling rigs as a result of the year 2000 issue. In the event
the Company experiences year 2000 compliance problems, adverse consequences
could include the interruption of drilling services aboard the Rigs, delays in
shipments of materials and supplies required to operate the Rigs, delays in
transferring personnel to and from the Rigs, and delays in receiving funds from
customers or in making payments to suppliers. There can be no assurances that
such systems will not have a material adverse impact on the Company's business
and operations. Since the Laffit Pincay and the Bill Shoemaker were warm-stacked
at December 31, 1999, management did not
21
<PAGE> 22
deem it necessary to develop a contingency plan for worst case year 2000
business interruptions. To date, the Company has not experienced any adverse
impact to its business or operations as a result of year 2000 issues.
UNCERTAINTY OF FORWARD LOOKING STATEMENTS AND INFORMATION
This quarterly report contains certain forward looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
typically punctuated by words or phrases such as "anticipate," "estimate,"
"project," "should," "may," "management believes," and words or phrases of
similar import. Although management believes that such statements and
expressions are reasonable and made in good faith, it can give no assurance that
such expectations will prove to have been correct. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Among the key factors that may have a direct bearing on the
Company's results of operations and financial condition are: (i) competitive
practices in the industry in which the Company competes, (ii) the impact of
current and future laws and government regulations affecting the industry in
general and the Company's operations in particular, (iii) environmental
liabilities to which the Company may become subject in the future that are not
covered by an indemnity or insurance, (iv) the impact of oil and natural gas
price fluctuations and (v) significant changes from expectations of capital
expenditures and operating expenses and unanticipated project delays. The
Company disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to some market risk due to the floating interest rate
under the RIGCO Credit Facility. Under the RIGCO Credit Facility, the remaining
principal was due on April 30, 1999 along with the final interest payment. On
March 31, 2000, the Credit Facility had principal balance of $58,148,000 and an
interest rate based on the prime rate plus 3% (12.0% at March 31, 2000) and a
default interest rate based on the prime rate plus 5% (14.0% at March 31, 2000).
A 1 1/2% increase in interest rates could result in a $900,000 annual increase
in interest expense on the existing principal balance.
On June 30, 1999, RIGCO entered into a committed draw facility with Tatham
Investment Corp., which is 100% owned by Mr. Thomas P. Tatham. Tatham Investment
Corp. agreed to loan up to $750,000 to RIGCO for working capital purposes. Any
loans bear interest at the prime rate plus 3% (on March 31, 2000, the interest
rate was 12.0%) and were due on September 30, 1999.
22
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
RIGCO North America, L.L.C. v. Schlumberger Technology Corporation, et
al., Cause No. 99-38082. On July 26, 1999, RIGCO sued Schlumberger
Technology Corporation ("STC") and Schlumberger, Canada Ltd. ("SCL")
seeking over $51 million in damages in connection with the defendants'
charters of the FPS Laffit Pincay and the FPS Bill Shoemaker. RIGCO's
suit alleges causes of action for gross negligence, breach of contract,
negligence, fraud, and negligent misrepresentation arising from
Defendants' management, operation and marketing of both rigs as well as
STC's agreement to renovate the Bill Shoemaker. In early 2000,
Defendants notified RIGCO that some or all of the assets subject to this
suit were transferred due to merger to two new corporations, Sedco Forex
Corporation ("SFC") and Sedco Forex Canada Limited ("SFCL"). RIGCO in a
motion unopposed by STC and SCL has sought leave to join SFC and SFCL as
defendants in the pending action. The motion is still being considered
by the Court. The suit is proceeding in state district court in Harris
County, Texas, with trial currently scheduled for September 2000.
In re RIGCO North America, L.L.C., et al.; In the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi
Division; Case Nos. 99-22401-C-11 through 99-22404-C-11 (Jointly
Administered Under Case No. 99-22401-C-11). On August 9, 1999, RIGCO
North America, L.L.C., FPS VI, L.L.C., FPS III, Inc., and FPS V, Inc.
(collectively, the "Debtors") filed voluntary petitions for relief under
Chapter 11, Title 11 of the United States Code. The Debtors are
operating their businesses and managing their property as
debtors-in-possession. As a result of an agreement between the Debtors
and the secured creditors, the debtors had interim use of cash
collateral through April 14 2000 and limited use of cash collateral for
payroll through May 15, 2000.
RIGCO North America, L.L.C. v. Schlumberger Technology Corporation and
Schlumberger Canada Ltd.; In the United States Bankruptcy Court for the
Southern District of Texas, Corpus Christi Division; Adversary No.
99-2154-C. On September 3, 1999, RIGCO North America, L.L.C. filed a
complaint against STC and SCL to avoid a preferential transfer or
transfers pursuant to 11 U.S.C. Section 547 and to recover the property
transferred or its value pursuant to 11 U.S.C. Section 550. The
Defendants have answered the complaint. On September 21, 1999, the Court
entered a Comprehensive Discovery, Mediation and Scheduling Order
requiring, among other things, non-binding mediation. The Court-ordered
mediation was unsuccessful, and the parties are in the process of
conducting discovery. As with the action proceeding in state court
against STC and SCL, RIGCO received notice that SFC and SFCL were the
transferees of some or all of the assets subject to the preference
action. RIGCO sought leave to join SFC and SFCL in the preference
action. The Bankruptcy Court signed an order permitting such joinder. In
April 2000, both SFC and SFCL were served with summons in this action.
Their answers are due in late May 2000.
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 or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
RIGCO and FPS VI, significant subsidiaries of the Company, are party to
a Credit Agreement dated as of September 30, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Facility") with BHF-Bank Aktiengesellschaft, as administrative agent
("BHF"), Lehman Commercial Paper Inc., Hibernia National Bank, and
certain other banks and financial institutions (collectively, the
"Lenders").
Pursuant to the terms of the Credit Agreement, RIGCO and FPS VI were
required to pay $60.3 million, all amounts owing under the Credit
Agreement, on April 30, 1999. RIGCO and FPS VI did not make payment of
such amounts; as a result, an Event of Default has occurred and is
continuing under the Credit Agreement.
By letter dated May 3, 1999, BHF, on behalf of the Lenders, advised
RIGCO and FPS VI that the Lenders would not exercise their rights,
remedies, powers and privileges under the Credit Agreement and the other
related loan documents at that time, but that they reserve the right to
do so at any time they deem appropriate.
On August 9, 1999, RIGCO and FPS VI filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code.
23
<PAGE> 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule
99.1 Stipulation and Order Authorizing Continued Use of Cash
Collateral and Adequate Protection (filed as Exhibit 99.1 to
Tatham Offshore's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, and incorporated herein by reference).
99.2 Supplement to Stipulation and Order Authorizing Continued Use
of Cash Collateral and Adequate Protection.
99.3 Second Supplement to Stipulation and Order Authorizing Continued
Use of Cash Collateral and Adequate Protection.
24
<PAGE> 25
27.2 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TATHAM OFFSHORE, INC.
Date: May 15, 2000 By: /s/ DENNIS A. KUNETKA
-----------------------------------------
Dennis A. Kunetka
Chief Financial Officer and Secretary
(Signing on behalf of the Registrant and
as Principal Accounting Officer)
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27.1 Financial Data Schedule
99.l Stipulation and Order Authorizing Continued Use of Cash
Collateral and Adequate Protection (filed as Exhibit 99.1
to Tatham Offshore's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999, and incorporated
herein by reference).
99.2 Supplement to Stipulation and Order Authorizing Continued
Use of Cash Collateral and Adequate Protection.
99.3 Second Supplement to Stipulation and Order Authorizing
Continued Use of Cash Collateral and Adequate Protection.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TATHAM
OFFSHORE, INC. AND SUBSIDIARIES UNAUDITED FINANCIAL STATEMENTS AT MARCH 31,
2000 INCLUDED IN ITS FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,954
<SECURITIES> 0
<RECEIVABLES> 2,086
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,071
<PP&E> 2,374
<DEPRECIATION> 114
<TOTAL-ASSETS> 73,745
<CURRENT-LIABILITIES> 41,376
<BONDS> 0
0
176
<COMMON> 261
<OTHER-SE> 31,932
<TOTAL-LIABILITY-AND-EQUITY> 73,745
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,379
<INCOME-PRETAX> (28,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,890)
<DISCONTINUED> 336
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,883)
<EPS-BASIC> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
<PAGE> 1
EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
IN RE: ) CASE NUMBER:
)
RIGCO NORTH AMERICA, L.L.C. ) 99-22401-C-11
FPS III, INC. ) 99-22402-C-11
FPS VI, L.L.C. ) 99-22403-C-11
FPS V, INC. ) 99-22404-C-11
) (Chapter 11)
)
) Jointly Administered Under
DEBTORS ) Case No. 99-22401-C-11
SUPPLEMENT TO STIPULATION AND ORDER AUTHORIZING
CONTINUED USE OF CASH COLLATERAL AND ADEQUATE PROTECTION
RIGCO North America, L.L.C. ("RIGCO"), FPS III, Inc., FPS V, Inc., FPS VI,
L.L.C., as the debtors in possession in the above-captioned proceedings
(collectively, the "Debtors") and BHF (USA) Capital Corporation, as
Administrative Agent for the Lender Group referred to below (the "Agent"), enter
into this Supplement to Stipulation and Order Authorizing Continued Use of Cash
Collateral and Adequate Protection ("Supplement to Stipulation").
RECITALS
The following recital is hereby acknowledged and agreed:
A. On or about February 17, 2000, this Court signed the Stipulation and
Order Authorizing Continued Use of Cash Collateral and Adequate Protection (the
"Stipulation and Order").
B. Certain subsequent events have occurred which necessitate a modification
and supplementation to the Stipulation and Order.
1
<PAGE> 2
AGREEMENT
NOW, THEREFORE, it is stipulated and agreed that the Stipulation and Order
continues to remain in effect with the following modifications:
1. the Budget referred to and attached to the Stipulation and Order as
Exhibit A is replaced by the Budget attached hereto as Exhibit "A."
2. the amount of the DIP Loan commitment will also conform to the
replacement operating budget attached hereto as Exhibit "A."
3. the full amount of the proceeds of sale of the FPS Lafitt Pincay will
not be paid to the Lender Group as previously provided, such amount being
reduced by the sum and for the reason set forth in the following sentence. An
amount not greater than $175,000 will be segregated and the maritime lien
interest being asserted by Friede Goldman Halter, Inc. will attach to such
segregated fund pending a determination of the validity and amount of such
maritime lien claim. Any order authorizing the sale of the FPS Lafitt Pincay
will contain a provision reflecting paragraph 3 of this supplement to the
Stipulation and Order.
WHEREFORE, the parties hereby respectfully request that the Bankruptcy
Court approve this Supplement to Stipulation as an Order of the Court.
Dated: March 17, 2000.
/s/ HARRY A. PERRIN
----------------------------------------
Harry A. Perrin
J. Hayden Kepner, Jr.
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
(713) 546-5000
(713) 224-9511 (fax)
ATTORNEYS FOR LEHMAN
COMMERCIAL PAPER INC.,
SYNDICATED LOAN FUNDING TRUST,
BHF (USA) CAPITAL CORPORATION,
HIBERNIA NATIONAL BANK,
<PAGE> 3
MERRILL LYNCH PRIME RATE
PORTFOLIO BY MERRILL LYNCH
ASSET MANAGEMENT L.P., MERRILL
LYNCH SENIOR FLOATING RATE
FUND, INC., MERRILL LYNCH DEBT
STRATEGIES PORTFOLIO BY
MERRILL LYNCH ASSET
MANAGEMENT L.P., SENIOR HIGH
INCOME PORTFOLIO, INC., AND VAN
KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
(COLLECTIVELY, THE "LENDER
GROUP")
/s/ H. REY STROUBE, III
----------------------------------------
H. Rey Stroube, III
Jan M. Abell
Akin, Gump, Strauss Hauer & Feld, L.P.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
(713) 220-5800
(713) 236-0822 (fax)
ATTORNEYS FOR RIGCO NORTH
AMERICA, L.L.C., FPS VI, L.L.C., FPS
III, INC., AND FPS V, INC., DEBTORS.
SO ORDERED this 17th day of March 2000.
/s/ RICHARD SCHMIDT
- ---------------------------------
Richard Schmidt
United States Bankruptcy Judge
<PAGE> 1
EXHIBIT 99.3
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
IN RE: ) CASE NUMBER:
)
RIGCO NORTH AMERICA, L.L.C. ) 99-22401-C-11
FPS III, INC. ) 99-22402-C-11
FPS VI, L.L.C. ) 99-22403-C-11
FPS V, INC. ) 99-22404-C-11
) (Chapter 11)
)
) Jointly Administered Under
DEBTORS ) Case No. 99-22401-C-11
SECOND SUPPLEMENT TO STIPULATION AND ORDER AUTHORIZING
CONTINUED USE OF CASH COLLATERAL AND ADEQUATE PROTECTION
RIGCO North America, L.L.C. ("RIGCO"), FPS III, Inc., FPS V, Inc., FPS VI,
L.L.C., as the debtors in possession in the above-captioned proceedings
(collectively, the "Debtors") and BHF (USA) Capital Corporation, as
Administrative Agent for the Lender Group referred to below (the "Agent"), enter
into this Second Supplement to Stipulation and Order Authorizing Continued Use
of Cash Collateral and Adequate Protection ("Second Supplement to Stipulation").
RECITALS
The following recital is hereby acknowledged and agreed:
A. On or about February 17, 2000, this Court signed the Stipulation and
Order Authorizing Continued Use of Cash Collateral and Adequate Protection (the
"Stipulation and Order").
B. On or about March 20, 2000, this Court entered the Supplement to
Stipulation and Order Authorizing Continued Use of Cash Collateral and Adequate
Protection (the "Supplement to Stipulation and Order").
1
<PAGE> 2
C. Certain subsequent events have occurred which necessitate a modification
and supplementation to the Stipulation and Order.
AGREEMENT
NOW, THEREFORE, it is stipulated and agreed that the Stipulation and Order
and the Supplement to Stipulation and Order continue to remain in effect with
the following modification:
Paragraph 6 of the Stipulation and Order is replaced by the following
paragraph:
On or before April 18, 2000, the Debtors will accept a proposal
pursuant to a purchase agreement, letter of intent, term sheet or similar
document, acceptable in form and substance, to the Lender Group, including
a customary deposit, with a creditworthy purchaser acceptable to the Lender
Group (the "Purchaser") committing the Debtors to sell, and the Purchaser
to purchase, the Shoemaker for a net purchase price exceeding the sum of
(i) the remaining outstanding portion of the Lender Group's secured claim
at that time, and (ii) the outstanding portion of the post-petition loan
described in the next paragraph. The purchase agreement, letter of intent,
term sheet or similar document must provide that the sale of the Shoemaker
will close by no later than June 30. In order to consummate such a sale the
Debtors will file similar pleadings as those specified in paragraph 2
above, including a provision for continued use of cash collateral to the
extent available and the provision of the DIP Loan as specified in
paragraph 7 below.
WHEREFORE, the parties hereby respectfully request that the Bankruptcy
Court approve this Second Supplement to Stipulation and Order as an Order
of the Court.
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<PAGE> 3
Dated: April 4, 2000.
/s/ HARRY A. PERRIN
----------------------------------------
Harry A. Perrin
J. Hayden Kepner, Jr.
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002-2784
(713) 546-5000
(713) 224-9511 (fax)
ATTORNEYS FOR LEHMAN
COMMERCIAL PAPER INC.,
SYNDICATED LOAN FUNDING TRUST,
BHF (USA) CAPITAL CORPORATION,
HIBERNIA NATIONAL BANK,
MERRILL LYNCH PRIME RATE
PORTFOLIO BY MERRILL LYNCH
ASSET MANAGEMENT L.P., MERRILL
LYNCH SENIOR FLOATING RATE
FUND, INC., MERRILL LYNCH DEBT
STRATEGIES PORTFOLIO BY
MERRILL LYNCH ASSET
MANAGEMENT L.P., SENIOR HIGH
INCOME PORTFOLIO, INC., AND VAN
KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
(COLLECTIVELY, THE "LENDER
GROUP")
Dated: April 4, 2000.
/s/ JAN M. ABELL
----------------------------------------
H. Rey Stroube, III
Jan M. Abell
Akin, Gump, Strauss Hauer & Feld, L.P.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
(713) 220-5800
(713) 236-0822 (fax)
ATTORNEYS FOR RIGCO NORTH
AMERICA, L.L.C., FPS VI, L.L.C., FPS
III, INC., AND FPS V, INC., DEBTORS.
<PAGE> 4
SO ORDERED this _______ day of
April 2000.
/s/ RICHARD SCHMIDT
- ---------------------------------
Richard Schmidt
United States Bankruptcy Judge
