UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended June 30, 1996
Commission file number 1-13108
________________
VASTAR RESOURCES, INC.
(Exact name of registrant as specified in its charter)
________________
Delaware 95-4446177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15375 Memorial Drive
Houston, Texas 77079
(Address of principal executive offices) (Zip code)
__________________
(713) 584-6000
(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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $.01 par value, outstanding as of
June 30, 1996: 97,259,501.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars 1996 1995 1996 1995
except per share amounts) ----- ----- ----- -----
<S>
<C> <C> <C> <C>
REVENUES
Net sales and other operating
revenues $217.6 $177.7 $440.9 $344.8
Other revenues 12.1 7.0 15.6 13.2
----- ----- ----- -----
Net revenues 229.7 184.7 456.5 358.0
----- ----- ----- -----
EXPENSES
Operating expenses 33.6 31.5 66.1 63.3
Exploration expenses 35.2 44.5 75.0 71.9
Selling, general and administrative
expenses 14.9 15.1 27.1 27.6
Taxes other than income taxes 9.7 8.9 19.7 18.5
Depreciation, depletion and
amortization 72.3 60.7 135.6 124.8
Interest 12.3 14.0 25.7 29.1
----- ----- ----- -----
Total expenses 178.0 174.7 349.2 335.2
----- ----- ----- -----
Income before income taxes 51.7 10.0 107.3 22.8
Income tax benefit ( 2.0) (11.6) ( 2.0) (22.5)
----- ----- ----- -----
Net income $ 53.7 $ 21.6 $109.3 $ 45.3
===== ===== ===== =====
Earned per share $ 0.55 $ 0.22 $ 1.12 $ 0.47
===== ===== ===== =====
Cash dividends paid per share
of common stock $0.075 $ 0.075 $0.150 $0.150
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1996 1995
-------- --------
(Millions of dollars)
<S>
<C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33.6 $ 5.3
Accounts receivable:
Trade 225.5 257.7
Related parties 22.6 27.6
Inventories 9.2 9.3
Prepaid expenses and other assets 73.9 55.7
------- -------
Total current assets 364.8 355.6
Oil and gas properties and equipment, net 1,270.0 1,196.3
------- -------
Total assets $ 1,634.8 $ 1,551.9
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 298.0 $ 292.9
Accrued liabilities 74.2 68.8
------- -------
Total current liabilities 372.2 361.7
------- -------
Long-term debt 739.4 759.4
Deferred liabilities and credits 220.1 220.2
Deferred income taxes 105.9 108.2
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized,
110,000,000 shares as of June 30, 1996, and
100,000,000 shares as of December 31, 1995;
issued and outstanding,
97,259,501 shares as of June 30, 1996 and
97,250,001 shares as of December 31, 1995 1.0 1.0
Capital in excess of par value of stock 454.0 453.9
Accumulated deficit (257.8) (352.5)
------- -------
Total stockholders' equity 197.2 102.4
------- -------
Total liabilities and stockholders' equity $ 1,634.8 $ 1,551.9
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
VASTAR RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------
1996 1995
(Millions of dollars) ----- -----
<S>
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109.3 $ 45.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 135.6 124.8
Deferred income taxes (2.3) (24.1)
Dry hole expense and undeveloped leasehold amortization 35.8 44.9
Gain on asset sales (11.9) (3.7)
Net change in accounts receivable, inventories
and accounts payable 42.4 64.6
Other (13.9) 8.5
----- -----
Net cash provided by operating activities 295.0 260.3
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs (246.7) (165.9)
Proceeds from oil and gas property and equipment sales 13.8 8.1
Other 0.7 ---
----- -----
Net cash used by investing activities (232.2) (157.8)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance --- 149.3
Repayments of long-term debt (20.0) (450.0)
Dividends paid (14.6) (14.6)
Other 0.1 ---
----- -----
Net cash used by financing activities (34.5) (315.3)
----- -----
Net change in cash and cash equivalents 28.3 (212.8)
Cash and cash equivalents at beginning of period 5.3 268.6
----- -----
Cash and cash equivalents at end of period $ 33.6 $ 55.8
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Introduction.
The foregoing information is unaudited and has been prepared from the
records of Vastar Resources, Inc. ("Vastar" or the "Company"). In the opinion
of management, the financial information reflects all adjustments (consisting
only of items of a normal recurring nature) necessary for a fair presentation
of financial position and results of operations in conformity with generally
accepted accounting principles. Such statements are presented in accordance
with the requirements of Regulation S-X which does not require all disclosures
normally required by generally accepted accounting principles or those
normally on Form 10-K. These interim financial statements should be read in
conjunction with the annual financial statements for the year ended December
31, 1995, and the Notes thereto contained in the Company's Form 10-K. Certain
previously reported amounts have been restated to conform with classifications
adopted in 1996.
NOTE 2. Net sales and other operating revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
(Millions of dollars) 1996 1995 1996 1995
------ ------ ------ ------
<S>
<C> <C> <C> <C>
Sales and other operating revenues:
Unrelated parties $ 602.6 $ 389.7 $ 1,289.1 $ 771.5
Related parties (1)<F1> 65.4 103.2 137.6 210.0
----- ----- ------ -----
Total 668.0 492.9 1,426.7 981.5
Less:
Purchases (2) <F2> (433.7) (302.4) (956.8) (614.9)
Delivery expense (16.7) (12.8) (29.0) (21.8)
----- ----- ----- -----
Net sales and
other operating revenues $ 217.6 $ 177.7 $ 440.9 $ 344.8
===== ===== ===== =====
- - -----------------
<FN>
<F1>(1) Average lifting costs associated with these sales were $26.0 million
and $46.3 million for the three months ended June 30, 1996 and 1995,
respectively, and $57.0 million and $94.7 million for the six months ended
June 30, 1996 and 1995, respectively.
<F2>(2) Includes purchases from related parties at a cost of $3.6 million and
$6.7 million for the three months ended June 30, 1996 and 1995, respectively,
and $10.1 million and $22.5 million for the six months ended June 30, 1996 and
1995, respectively.
</FN>
</TABLE>
- 4 -
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 3. Per share data.
Earned per share is computed based upon the weighted average number of
common shares outstanding during the period. The dilutive effective of common
stock equivalents was not significant. The following table reflects the
weighted average number of common shares outstanding for the specified
periods.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S>
<C> <C>
Three months ended June 30 97,256,018 97,250,001
Six months ended June 30 97,253,009 97,250,001
</TABLE>
NOTE 4. Commitments and contingencies.
The Company and its subsidiaries are involved in a number of lawsuits,
all of which have arisen in the ordinary course of the Company's business.
The Company believes that any ultimate liability resulting from any of these
suits will not have a material adverse effect on the financial position or
results of operations of the Company.
The operations and financial position of Vastar continue to be affected
from time to time in varying degrees by domestic and foreign political
developments, as well as legislation and regulations pertaining to
restrictions on oil and gas production, imports and exports, natural gas
regulations, tax increases, environmental regulations and cancellation of
contract rights. Both the likelihood of such occurrences and their overall
effect on the Company vary greatly and are not predictable. These
uncertainties are part of a number of items that Vastar has taken and will
continue to take into account in periodically establishing accounting
reserves.
Vastar and Atlantic Richfield Company ("ARCO") have agreements whereby
Vastar will indemnify ARCO against certain claims or liabilities which ARCO
may incur relating to ARCO's historical ownership and operation of Vastar's
properties, including liabilities under law relating to the protection of the
environment and the workplace and liabilities arising out of certain
litigation. Under such agreements, ARCO will indemnify Vastar with respect to
other claims or liabilities and other matters of litigation not related to
Vastar's business or properties reflected in the consolidated financial
statements.
The Company has signed a letter of intent with Diamond Offshore Drilling,
Inc. for the major upgrade and operation of Diamond Offshore's semisubmersible
drilling rig, Ocean Victory, for a three-year deep water drilling program in
the Gulf of Mexico, commencing September 1997. Subject to the negotiation
and execution of a definitive agreement, the three-year contract is
anticipated to cost approximately $141 million.
- 5 -
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 5. Taxes.
The provision (benefit) for taxes on income is comprised of the
following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
(Millions of dollars) 1996 1995 1996 1995
------ ------ ------ ------
<S>
<C> <C> <C> <C>
Federal:
Current $ (1.0) $ 1.5 $ (1.9) $ ---
Deferred (2.2) (13.5) (2.7) (23.3)
------ ------ ------ ------
Total federal (3.2) (12.0) (4.6) (23.3)
State:
Current 1.5 0.8 2.2 1.6
Deferred (0.3) (0.4) 0.4 (0.8)
------ ------ ------ ------
Total state 1.2 0.4 2.6 0.8
------ ------ ------ ------
Total income tax benefit $ (2.0) $ (11.6) $ (2.0) $(22.5)
====== ====== ====== ======
</TABLE>
A reconciliation of the income tax benefit with tax at the federal
statutory rate for the specified period is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars) 1996 1995 1996 1995
------ ------ ------ ------
<S>
<C> <C> <C> <C>
Income before taxes $ 51.7 $ 10.0 $ 107.3 $ 22.8
====== ====== ====== ======
Tax at 35% $ 18.1 $ 3.5 $ 37.6 $ 8.0
Increase (reduction) in taxes
resulting from:
State income taxes (net 0.9 0.3 1.8 0.7
of federal effect)
Tax credits and other (21.0) (15.4) (41.4) (31.2)
------ ------ ------ ------
Income tax benefit $ (2.0) $ (11.6) $ (2.0) $ (22.5)
====== ====== ====== ======
</TABLE>
- 6 -
<PAGE>
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 6. Subsequent event.
On July 17, 1996, the Company declared a quarterly dividend of $0.075 per
share of common stock, payable on September 3, 1996 to stockholders of record
on August 9, 1996.
- 7 -
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and production volumes and average price statistics for the
specified periods are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
<S>
<C> <C> <C> <C>
Natural gas
Sales (MMcfd)*<F3> 2,562 2,117 2,539 2,122
Production (MMcfd) 882 816 885 822
Average sales price (per Mcf) $ 1.93 $ 1.57 $ 2.22 $ 1.54
Average wellhead price (per Mcf) $ 1.67 $ 1.41 $ 1.62 $ 1.33
Crude oil
Sales (MBbld) 106.8 104.4 102.8 109.4
Production (MBbld) 34.2 33.0 34.6 33.0
Average realized price (per Bbl) $21.02 $ 18.90 $ 20.19 $ 18.43
Natural gas liquids
Production (MBbld) 14.8 12.9 12.7 12.8
Average realized price (per Bbl) $12.92 $ 11.68 $ 13.47 $ 11.64
<FN>
- - ---------------------
<F3>* As used herein, the terms "Bcf," "MMcf" and "Mcf" mean billion,
million and thousand cubic feet, respectively; the terms "Bcfd," "MMcfd" and
"Mcfd" mean billion, million and thousand cubic feet per day, respectively;
the terms "MMBbl" and "MBbl" mean million and thousand barrels, respectively;
the term "Bbl" means barrel; the terms "MMBbld" and "MBbld" mean million and
thousand barrels per day, respectively. In calculating Mcf and Bbl
equivalents, one Bbl is equal to six Mcf.
</FN>
</TABLE>
- 8 -
<PAGE>
The following table sets forth the statements of income for the specified
periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars) 1996 1995 1996 1995
------ ------ ------ ------
<S>
<C> <C> <C> <C>
REVENUES
Natural gas
Sales $ 450.6 $ 301.6 $1,026.5 $ 590.6
Purchases (301.3) (183.3) (717.9) (364.2)
Delivery expense (14.6) (11.0) (25.8) (18.9)
------ ------ ------ ------
Net sales - natural gas 134.7 107.3 282.8 207.5
------ ------ ------ ------
Crude oil
Sales 197.8 174.6 368.4 354.9
Purchases (130.9) (116.1) (238.9) (241.8)
Delivery expense (1.4) (1.8) (2.5) (2.9)
------ ------ ------ ------
Net Sales - crude oil 65.5 56.7 127.0 110.2
------ ------ ------ ------
Natural gas liquids
Sales 19.6 16.7 31.8 36.0
Purchases and other costs (2.2) (3.0) (0.7) (8.9)
------ ------ ------ ------
Net sales - natural gas liquids 17.4 13.7 31.1 27.1
------ ------ ------ ------
Net sales and other operating,
revenues 217.6 177.7 440.9 344.8
Other revenues 12.1 7.0 15.6 13.2
------ ------ ------ ------
Net revenues 229.7 184.7 456.5 358.0
------ ------ ------ ------
EXPENSES
Operating expenses 33.6 31.5 66.1 63.3
Exploration expenses 35.2 44.5 75.0 71.9
Selling, general and administrative
expenses 14.9 15.1 27.1 27.6
Taxes other than income taxes 9.7 8.9 19.7 18.5
Depreciation, depletion and
amortization 72.3 60.7 135.6 124.8
Interest 12.3 14.0 25.7 29.1
------ ------ ------ ------
Total expenses 178.0 174.7 349.2 335.2
------ ------ ------ ------
Income before income taxes 51.7 10.0 107.3 22.8
Income tax benefit (2.0) (11.6) (2.0) (22.5)
------ ------ ------ ------
Net income $ 53.7 $ 21.6 $ 109.3 $ 45.3
====== ====== ====== ======
</TABLE>
- 9 -
<PAGE>
SECOND QUARTER 1996 vs. SECOND QUARTER 1995.
Net income for the second quarter of 1996 was $53.7 million, compared to
$21.6 million for the second quarter of 1995. The earnings increase primarily
reflected higher commodity prices, higher production volumes and lower
exploration dry hole expense, partially offset by higher depletion,
depreciation and amortization expense.
Net sales and other operating revenues increased by $39.9 million to
$217.6 million for the second quarter of 1996, primarily as a result of higher
natural gas, crude oil and natural gas liquids prices and volumes.
Natural gas sales increased by $149.0 million to $450.6 million in the
second quarter of 1996. The higher revenues were the result of a 23 percent
higher average natural gas sales price and a 21 percent higher sales volume in
the second quarter of 1996 as compared to the second quarter of 1995.
Reflected in the natural gas revenues for the second quarter 1996 was $11.3
million related to the Company's hedging losses.
Second quarter 1996 natural gas purchases increased by $118.0 million
from the second quarter of 1995 to $301.3 million. This increase was a result
of the combined effect of an increase in the cost of gas purchased and a 29
percent increase in natural gas purchased volumes to an average of
approximately 1.7 Bcfd necessary to meet higher sales levels.
Second quarter 1996 natural gas production averaged 882 MMcfd, up from
816 MMcfd during the same period last year. Contributing to the increase
were the continuing growth of San Juan Basin production; exploitation
programs in several offshore fields, including South Marsh Island 33, Eugene
Island 266 and Eugene Island 175; and the first quarter 1996 start-up of the
High Island 177 extension discovery. These increases more than offset natural
field declines during the quarter.
Crude oil sales in the second quarter of 1996 were $197.8 million, up 13
percent from the same period last year as a result of both higher prices and
volumes.
Second quarter 1996 crude oil production was 34.2 MBbld, up 1.2 MBbld
from the second quarter 1995 levels. The increase primarily resulted from
development offshore, most notably at West Delta 106/107 and South Marsh
Island 33.
The net revenue contribution from crude oil production and marketing
activities was $65.5 million, up 16 percent from the second quarter 1995,
resulting in an average realized price of $21.02 per Bbl for the second
quarter of 1996, an 11 percent increase over second quarter 1995.
Natural gas liquids net sales were $17.4 million for the second quarter
of 1996, reflecting a $3.7 million increase over the same period last year
This increase resulted from a combination of higher prices and volumes.
Natural gas liquids average price increased 11 percent to $12.92 per Bbl in
the second quarter of 1996 compared to the same period last year.
Natural gas liquids production averaged 14.8 MBbld, up from 12.9 MBbld in
the same period last year. The change reflects increased gas plant ownership
and higher production from High Island 177.
-10-
<PAGE>
Other revenues increased $5.1 million from $7.0 million in the second
quarter of 1995 to $12.1 million in the second quarter of 1996. The increase
was primarily associated with gains recorded in connection with the leasing of
undeveloped mineral fee acreage in East Texas.
Second quarter 1996 exploration expenses were $35.2 million compared to
$44.5 million reported in the same period in 1995. The $9.3 million decrease
was primarily related to lower dry hole expenditures, partially offset by
higher seismic costs.
Depreciation, depletion and amortization increased to $72.3 million in the
second quarter of 1996 versus $60.7 million in the prior year. The increase
reflected a $4.9 million charge associated with the closure of a shorebase
facility as well as increased production volumes.
The tax benefit of $2.0 million in the second quarter of 1996 is less than
the tax benefit of $11.6 million in 1995 due primarily to higher pre-tax
earnings as compared to the same period in 1995. The tax benefit for second
quarter 1996 and 1995 included $21.0 million and $15.4 million, respectively,
of Internal Revenue Code Section 29 tax credits for non-conventional fuels.
SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED JUNE 30, 1995.
Net income for the six months ended June 30, 1996 was $109.3 million,
compared to $45.3 million for the same period of 1995. The earnings increase
reflects higher volumes and commodity prices, partially offset by higher
overall expenses.
Net sales and other operating revenues increased by $96.1 million to
$440.9 million for the six months ended June 30, 1996, as compared to the same
period last year, primarily as a result of higher commodity prices for all
products, and increased natural gas and crude oil volumes.
Natural gas sales increased by $435.9 million to $1,026.5 million for the
first six months of 1996. The higher revenues were the result of higher
commodity prices for natural gas throughout the first six months of 1996. As
a result of market volatility and location differentials, the average sales
price for natural gas increased by $0.68 per Mcf to $2.22 per Mcf during the
first six months of 1996. Natural gas sales volumes rose 417 MMcfd to 2.5
Bcfd. Reflected in natural gas revenues for the first six months in 1996 was
$34.0 million in hedging losses.
For the first six months of 1996, gas purchases increased by $353.7
million to $717.9 million from the same period last year. This increase was a
result of the combined effect of an increase in the average price for natural
gas and a 27 percent increase in the natural gas purchased volumes to an
average of approximately 1.7 Bcfd necessary to meet higher sales levels.
Natural gas production increased 63 MMcfd to an average of 885 MMcfd for
the first six months of 1996. Key contributions to the increase were the
improvement of San Juan production rates, the January 1996 start-up of High
Island 177 extension discovery, the late 1995 start-up of South Timbalier 145
and ongoing exploitation successes, partially offset by natural field
declines.
-11-
<PAGE>
Crude oil sales for the first six months of 1996 were $368.4 million, up
by $13.5 million compared to the first six months of 1995. This increase
was primarily a result of higher sales prices, partially offset by lower sales
volumes.
During the first six months of 1996, crude oil production was 34.6
MBbld, up 1.6 MBbld from the first six months of 1995 level of 33.0 MBbld.
This increase was primarily a result of increased production from South Pass
60 and West Delta 106/107 and South Marsh Island 33, partially offset by the
sale of the Company's working interest in the Brookeland field in 1995 and
natural field declines.
Natural gas liquids net sales were $31.1 million for the first half of
this year, 15 percent higher than last year, primarily as a result of higher
natural gas liquids prices. Decreased supply and the strong demand for
natural gas liquid products, primarily during the first quarter of 1996,
resulted in a 16 percent higher average realized price for the first six
months of 1996 over the same period last year.
Depletion, depreciation and amortization expense increased $10.8 million
in the first six months of 1996 compared to the same period in 1995. The
increase was primarily associated with increased production volumes and a
charge of $4.9 million for the closure of an onshore shorebase facility.
The tax benefit of $2.0 million in the first six months of 1996 reflected
higher pre-tax earnings as compared to the same period in 1995. The tax
benefit for 1996 and 1995 included $41.4 million and $31.2 million,
respectively, of Internal Revenue Code Section 29 tax credits for non-
conventional fuels.
LIQUIDITY AND CAPITAL RESOURCES.
During the first half of 1996, net cash provided by operating activities
was $295.0 million, up from $260.3 million in the first half of 1995 primarily
as a result of higher net income, partially offset by higher working capital
uses. The net cash used for investing activities was $232.2 million during
the first half of 1996, compared to $157.8 million in the same period in 1995.
This increase was primarily a result of the Company's purchase of
approximately 174 thousand net acres in the April 24, 1996, Outer Continental
Shelf, Central Gulf of Mexico, Oil and Gas Lease Sale 157 for approximately
$34.0 million and a $29.2 million increase in development drilling activities,
primarily offshore at High Island Block 24-L and Eugene Island Block 175.
Net cash used by financing activities in the first half of 1996 was
$34.5 million compared to $315.3 million in the first half of 1995. The first
half of 1996 included the repayment of $20.0 million under Vastar's bank
facility compared to a first half of 1995 repayment of $450.0 million.
- 12 -
<PAGE>
RISK MANAGEMENT.
In 1995, the Company entered into a series of natural gas swap agreements
covering an average of 290 MMcfd of its natural gas production from January 1,
1996 to December 31, 1996. These swap agreements serve as a hedge which
secures sales prices averaging approximately $1.85 per Mcf (on a Henry Hub
basis). Net realized hedging losses related to these hedging activities were
$11.3 million during the second quarter of 1996 and $34.0 million for the
first six months of 1996.
During the first six months of 1996, the Company entered into an
additional series of natural gas swap and futures transactions whereby its
open positions for the second half of the year have been offset except for
approximately 78 MMcfd for the months of November and December 1996.
Additionally, the Company has entered into a series of natural gas swap
agreements covering an average of approximately 125 MMcfd of its natural gas
production from January 1, 1997 to December 31, 1997, and approximately 70
MMcfd of its natural gas production for the period January 1, 1998 through
December 31, 1998. These swap agreements serve as a hedge which secures sales
prices averaging approximately $1.92 per Mcf for 1997 and $2.02 per Mcf for
1998.
As of June 30, 1996, the Company had unrealized losses associated with
all open positions which extend through 1998 of $34.4 million.
As of June 30, 1996, the Company had no open crude oil hedging positions.
The Company realized losses of $2.9 million in the second quarter of 1996 and
a $2.3 million loss for the first six months of 1996 related to its crude oil
hedging program.
The Company continues to evaluate its open hedging positions in light of
current market conditions.
During the first half of 1996, the Company's long-term sales commitments
did not exceed the total of proprietary production and other natural gas
production controlled through call rights with third-party producers and
marketing agreements with the Company's royalty owners.
NEW ACCOUNTING STANDARD.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). SFAS No. 123 requires companies to
adopt its provisions for fiscal years beginning after December 15, 1995. SFAS
No. 123 encourages a fair value-based method of accounting for an employee
stock option or similar equity instrument, but allows continued use of the
intrinsic value-based method of accounting prescribed by Accounting Principles
Board No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Companies electing to continue to use APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value-based
method of accounting has been applied. The Company currently plans to
continue to follow the provisions of APB No. 25 and accordingly, will make the
pro forma disclosures required by SFAS No. 123 in its financial statements for
the year ended December 31, 1996.
- 13 -
<PAGE>
------------------------
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and form
of existing or future governmental regulations and other possible actions by
governments.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. In the opinion of Management, the
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and results of operations in conformity with generally accepted
accounting principles.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments with respect to the Company's
legal proceedings as previously reported in the Company's Form 10-K for the
year ending December 31, 1995 and the Company's Form 10-Q for the quarter
ending March 31, 1996, except as follows:
1. With respect to the suit filed by Tennessee Gas Pipeline Company
("TGPC") against Conoco, Inc. et al. (including ARCO, Vastar's predecessor in
interest with respect to the property which is the subject of the suit),
Case No. 402076, in the 19th Judicial District Court, Baton Rouge Parish,
Louisiana, Vastar and ARCO entered into an Agreement of Compromise and
Release with TGPC on August 5, 1996, that settled and resolved all issues in
the case and provided terms for the future operation of the Grand Chenier
plant. On August 6, 1996, the Court entered a Judgment of Dismissal with
prejudice, which terminated the litigation. While the terms of the
settlement are confidential, the settlement will not have a material adverse
effect on the operations, financial condition or results of operations of the
Company.
2. With respect to the Company's submission to the Environmental
Protection Agency ("EPA") under the EPA's "Voluntary Environmental
Self-Policing and Self-Disclosure Interim Policy Statement," the matter has
been referred to the Department of Justice (the "DOJ") pursuant to EPA policy.
The Company is currently engaged in settlement negotiations with the EPA and
DOJ and the Company anticipates that any ultimate resolution of the matter
will not have a material adverse effect on the operations, financial
condition or results of operations of the Company.
- 15 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on May 15, 1996, in
Houston, Texas. Stockholders voted on the election of nine directors for a one
year term expiring in 1997, the amendment of the Company's Restated
Certificate of Incorporation to expand the Company's business purpose and to
increase the number of authorized shares of the Company's Common Stock and the
appointment of independent auditors for the year 1996. The voting results on
these matters were as follows:
(a) Election of Directors:
<TABLE>
<CAPTION>
Nominee Votes Received Votes Broker
For Withheld Non-votes
- - ------------------ ------------- ------------- ---------
<S>
<C> <C> <C>
Ronald J. Arnault 93,471,655 135,147 0
Jimmie D. Callison 93,542,893 63,909 0
Terry G. Dallas 93,499,985 106,817 0
Charles D. Davidson 93,508,335 98,467 0
Linda G. Havard 93,502,018 104,784 0
Robert C. LeVine 93,541,258 65,544 0
William D. Schulte 93,541,383 65,419 0
Steven J. Shapiro 93,508,210 98,592 0
Michael E. Wiley 93,501,135 105,667 0
</TABLE>
(b) Approval of the amendment of the Company's Restated Certificate of
Incorporation:
For: 93,517,092
Against: 79,718
Abstaining: 9,992
Broker Non-Votes: 0
The Company's Restated Certificate of Incorporation was amended to
authorize an additional 10 million shares of Common Stock. After adoption of
the amendment the Company had 110 million shares of Common Stock authorized to
be issued, of which 97,259,501 shares were issued and outstanding as of June
30, 1996.
The Company's Restated Certificate of Incorporation was also amended to
expand the Company's business purpose. After adoption of the amendment, in
addition to the business activities theretofore permitted by the Restated
Certificate of Incorporation, the Company is permitted to engage in certain
business activities (i) in the Lower 48 states (including contiguous ocean
areas and waterways and the Gulf of Mexico) relating to electricity, steam,
coal or other energy products and the by-products associated therewith, (ii)
in Mexico and Canada (including contiguous ocean areas and waterways) relating
- 16 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders - continued.
to crude oil, electricity, steam, coal or other energy products and the by-
products associated therewith and (iii) ancillary to the foregoing activities
and the acquisition and disposition of properties, rights and interests for
the foregoing activities therewith.
(c) Approval of Appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company:
For: 93,584,400
Against: 6,682
Abstaining: 15,720
Broker Non-Votes: 0
Item 5. Other Information.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Vastar Resources, Inc. ("Vastar" or the "Company") desires to take
advantage of the new "safe harbor" provisions contained in Section 27A of the
Securities Act of 1933, as amended (the "1933 Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is
including this statement herein in order to do so.
From time to time, the Company's management or persons acting on the
Company's behalf may wish to make, either orally or in writing, forward-
looking statements (which may come within the meaning of Section 27A of the
1933 Act and Section 21E of the 1934 Act), to inform existing and potential
security holders regarding various matters including, without limitation,
projections regarding future income, oil and gas production, production and
sales volumes of the Company's products, oil and gas reserves and the
replacement thereof, capital spending, as well as predictions as to the timing
and success of specific projects. Such forward-looking statements are
generally accompanied by words such as "estimate," "project," "predict,"
"believes," "expect," "anticipate," "goal" or other words that convey the
uncertainty of future events or outcomes.
Forward-looking statements by their nature are subject to certain risks,
uncertainties and assumptions and will be influenced by various factors.
Should one or more of these forecasts or underlying assumptions prove
incorrect, actual results could vary materially.
The factors herein are believed to be important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made
by or on behalf of the Company. Unpredictable or unknown factors not discussed
herein could also have material adverse effects on actual results of matters
which are the subject of forward-looking statements. The Company does not
intend to update these cautionary statements.
- 17 -
<PAGE>
Item 5. Other Information - continued.
VOLATILITY AND LEVEL OF HYDROCARBON COMMODITY PRICES
The Company's projections as to the level of future earnings are based on
various assumptions as to the future prices of natural gas, natural gas
liquids and crude oil. These price assumptions are used for planning purposes
and the Company expects they will change over time. Any substantial or
extended decline in the actual prices of natural gas, natural gas liquids
and/or crude oil could have a material adverse effect on (i) the Company's
financial position and results of operations (including reduced cash flow and
borrowing capacity), (ii) quantities of natural gas, natural gas liquids and
crude oil reserves that may be economically produced and (iii) the quantity of
estimated proved reserves that may be attributed to the Company's properties.
These prices historically have been volatile and may vary based on factors
affecting commodities markets generally, changes in market demand and
fluctuations in political, regulatory and economic climates throughout the
world.
PRODUCTION RATES AND RESERVE REPLACEMENT
Projecting future rates of gas and oil production is inherently imprecise.
Producing gas and oil reservoirs generally have declining production rates.
Production rates depend on a number of factors, including geological,
geophysical and engineering factors, weather, production curtailments, prices
for natural gas, natural gas liquids and crude oil, market demand and the
political, economic and regulatory climate.
Another major factor affecting production rates is the Company's ability
to replace depleting reservoirs with new reserves through exploration success
or acquisitions. Exploration success is impossible to predict, particularly
over the short term, where results vary widely year to year; moreover, the
ability to replace reserves over an extended period depends not only on the
total volumes found, but on the cost of finding and developing such reserves.
Depending on the general natural gas, natural gas liquid and crude oil price
environment, the Company's finding and development costs may not justify the
use of resources to explore for and develop such reserves. There can be no
assurances as to the level or timing of success, if any, that the Company will
be able to achieve in finding and developing or acquiring additional reserves.
Acquisitions that yield cost-effective and successful exploration or
exploitation opportunities requires assessment of numerous factors, many of
which are beyond the Company's control. There can be no assurances that the
Company's acquisition of property interests will be successful and, if
unsuccessful, that such failure will not have an adverse effect on the
Company's future results of operations and financial condition.
RESERVE ESTIMATES
Proved gas and oil reserve quantities are based on estimates prepared by
the Company's engineers in accordance with guidelines established by the
Securities and Exchange Commission (which guidelines include a definition of
the term "proved").
- 18 -
<PAGE>
Item 5. Other Information - continued.
The reserve data disclosed by the Company, either orally or in writing,
represent estimates only. There are numerous uncertainties inherent in
estimating quantities of proved gas and oil reserves and in projecting future
rates of production and timing of development expenditures, including many
factors beyond the control of the producer. Reservoir engineering is a
subjective process of estimating underground accumulations of gas and oil that
cannot be measured in an exact way. The accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates made by different
engineers often vary. In addition, results of drilling, testing and production
subsequent to the date of an estimate may justify revision of such estimates,
and such revisions may be material. Accordingly, reserve estimates are
generally different from the quantities of gas and oil that are ultimately
recovered.
REGULATION
The Company's forward-looking statements are generally based upon the
assumption of a stable regulatory environment.
The Company's ability to produce and market its gas and oil production is
affected and restrained by a number of regulatory factors, including, but not
limited to, federal and state regulation of natural gas and oil production,
state limits on allowable rates of production by well or proration unit, the
amount of natural gas and oil available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing
of competitive fuels.
The Company's operations are also subject to extensive federal, state and
local laws and regulations relating to the generation, storage, handling,
emission, transportation and discharge of materials into the environment. It
is possible that increasingly strict requirements will be imposed by
environmental laws and enforcement policies thereunder. It is not anticipated
that the Company will be required in the near future to expend amounts that
are material in relation to its total capital expenditures program by reason
of environmental laws and regulations, but inasmuch as such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of such compliance.
DRILLING AND OPERATING RISKS
The Company's drilling operations are subject to various risks common to
the industry, including cratering, explosions, fires and uncontrollable flows
of oil, gas or well fluids. In addition, approximately half of the Company's
operations are currently offshore and subject to the additional hazards of
marine operations, such as capsizing, collision and damage or loss from severe
weather.
The Company's drilling operations involve numerous risks, including the
risk that no commercially productive natural gas or oil reserves will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as a
result of a variety of factors including drilling conditions, pressure or
irregularities in formations, equipment failures or accidents and adverse
weather conditions.
- 19 -
<PAGE>
Item 5. Other Information - continued.
COMPETITION
Competition in the oil and gas industry is intense. The Company actively
competes for reserve acquisitions and exploration leases, licenses and
concessions, as well as in the gathering and marketing of natural gas, natural
gas liquids and crude oil, sometimes against companies with greater financial
and other resources. The Company's competitors include the major oil
companies, independent oil and gas concerns, individual producers, gas
marketers and major pipeline companies, as well as participants in other
industries supplying energy and fuel to industrial, commercial and individual
consumers. To the extent the Company's exploration and exploitation budget is
lower than that of certain of its competitors, the Company may be
disadvantaged in effectively competing for certain reserves, leases, licenses
and concessions. From time to time, the level of industry activity may result
in a tight supply of labor or equipment required to operate and develop oil
and gas properties. For example, competition for drilling rigs is keen in
certain areas of the Gulf of Mexico. Recently, the Company began to experience
increases in drilling rig rental rates due to the tight rig market in the Gulf
of Mexico. The availability of drilling rigs as well as the level of drilling
rig rates will have an effect on the Company's ability to achieve success in
its exploration and production activities. In marketing its production, the
Company competes with other producers and suppliers on such factors as price,
product availability, contract terms and quality of service. In making
projections with respect to natural gas, natural gas liquids and crude oil
marketing, the Company assumes no material decrease in the availability of
natural gas, natural gas liquids and crude oil for purchase.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3 Second Restated Certificate of Incorporation.
10 Vastar Comprehensive Management Medical Plan, Summary of
Material Modifications, effective January 1, 1995.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed during the quarter ended
June 30, 1996 and through the date hereof.
- 20 -
<PAGE>
SIGNATURE
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.
VASTAR RESOURCES, INC.
(Registrant)
Dated: August 6, 1996 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 21 -
<PAGE>
Exhibit Index
Exhibit No. Description
- - ----------- --------------------------------
3 Second Restated Certificate of
Incorporation.
10 Vastar Comprehensive Management
Medical Plan, Summary of Material
Modifications, effective January 1,
1995.
27 Financial Data Schedule.
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
VASTAR RESOURCES, INC.
(Originally incorporated on September 27, 1993
under the name ARCO Southwest, Inc.)
ARTICLE I
Name
The name of the Company is VASTAR RESOURCES, INC.
ARTICLE II
Address and Registered Agent
The address of the Company's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801. The name of
the registered agent at such address is The Corporation Trust
Company.
ARTICLE III
Description of Business
The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of the State of Delaware, provided,
however, that if the Company shall engage, directly or indirectly
through one or more subsidiaries or affiliates, in business
activities ("Other Business Activities") other than business
activities (i) in the forty-eight contiguous States of the United
States of America (including contiguous ocean areas and waterways
and the Gulf of Mexico) consisting of exploring and drilling for,
and acquiring, developing, producing, gathering, processing,
storing, transporting, marketing, selling and trading in and
providing services relating to crude oil, natural gas, condensate,
natural gas liquids and other hydrocarbons, gases and by-products
associated therewith, electricity, steam, coal and other energy
products and the by-products associated therewith, (ii) in Mexico and
-1-
<PAGE>
Canada (including contiguous ocean areas and waterways)
consisting of the acquiring, storing, transporting, marketing,
selling and trading in and providing services relating to crude
oil, natural gas, condensate, natural gas liquids and other
hydrocarbons, gases and by-products associated therewith,
electricity, steam, coal and other energy products and the by-
products associated therewith and (iii) ancillary to the
foregoing activities and the acquisition and disposition of
properties, rights and interests for the foregoing activities
and, as a result of such Other Business Activities, as reported
in the audited and unaudited annual and quarterly financial
statements of the Company or recorded in books, records and
worksheets underlying such financial statements, during each of
any four (4) consecutive quarterly periods:
(x)the gross revenues of the Company derived from Other
Business Activities during such quarterly period shall
exceed three (3) percent of the aggregate gross revenues
of the Company derived from all of its business
activities during such quarterly period; or
(y)the aggregate of the operating expense and the
exploration expense of the Company in such Other
Business Activities during such quarterly period shall
exceed three (3) percent of the aggregate of the
operating expense and exploration expense of the Company
in all of its business activities during such quarterly
period; or
(z)the capital expenditures of the Company in such Other
Business Activities during such quarterly period shall
exceed three (3) percent of the aggregate of the capital
expenditures of the Company in all of its business
activities during such quarterly period;
then, in such event, the Company promptly after the
publication by the Company of its financial statements which
reflect (or the books, records or worksheets for such financial
statements which reflect) that any of the foregoing percentage
tests has not been met shall, except to the extent theretofore
committed by it, cease and refrain from any acquisition by it of
business opportunities, properties, leases, rights or interests
which comprise, include or represent Other Business Activities
until such time as none of the foregoing percentage tests, as
reflected in the Company's financial statements (or such books,
records and worksheets), shall have been exceeded during two (2)
consecutive quarterly periods; and
provided, further, that the Company shall not at any time
acquire a controlling interest in any business entity if any of
(i) the gross revenues, (ii) the aggregate of the operating
expense and exploration expense, or (iii) the capital expense of
such entity, as reported in such entity's most recent audited or
unaudited quarterly financial statements (or recorded in books,
records or worksheets underlying such financial statements),
-2-
<PAGE>
derived from or expended in Other Business Activities would
respectively exceed three (3) percent of the gross revenues, the
aggregate of the operating expense and exploration expense, or
the capital expense of the Company, as the case may be, during
the same quarterly period as reported in the Company's most
recent audited or unaudited financial statements (or recorded in
books, records or worksheets underlying such financial
statements).
ARTICLE IV
Capital Stock
A. Authorized Shares
The aggregate number of shares of Capital Stock which the
Company shall have authority to issue is one hundred thirty
million (130,000,000) shares ("Capital Stock"), to be divided
into two classes consisting of:
1. Twenty million (20,000,000) shares of Preferred Stock of
the par value of One Cent ($0.01) each (hereinafter
sometimes called "Preferred Stock"); and
2. One hundred ten million (110,000,000) shares of Common
Stock of the par value of One Cent ($0.01) each
(hereinafter sometimes called "Common Stock").
The following is a description of each class of Capital
Stock and a statement of the preferences, qualifications,
privileges, limitations, restrictions, and other special or
relative rights granted to or imposed upon the shares of each
class:
B. Common Stock
Each holder of Common Stock shall have the right to one vote
for each share of Common Stock held of record on the books of the
Company.
C. Preferred Stock
The Board of Directors is authorized, subject to any
limitations prescribed by law or set forth below, to provide for
the issuance of shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State
of Delaware, to establish from time to time the number of shares
to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof,
provided, however, that the Board of
-3-
<PAGE>
Directors is not authorized to issue any series or share of
Preferred Stock which, in the judgment of the Board of Directors
upon advice of legal counsel, would constitute "stock" as defined
by Subsection 1504(a)(4) of the United States Internal Revenue
Code, as amended from time to time (or any successor or
additional section of the Internal Revenue Code dealing with the
treatment of stock for purposes of determining whether a
consolidated return may be filed) and any regulations issued
thereunder. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders
of Capital Stock of the Company entitled to vote thereon having a
majority of the votes entitled to be cast, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless
a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of Preferred
Stock.
ARTICLE V
Annual and Special Meetings of Stockholders; Action by Consent
Any action required or permitted to be taken by the holders
of the Capital Stock of the Company may be effected at a duly
called annual or special meeting of such holders or by a consent
in writing by the holders of such number of shares as may be
required to take such action. Except as otherwise required by
law, special meetings of stockholders of the Company may be
called only by the holders of a majority of the Capital Stock
issued and outstanding and entitled to vote at such meeting or by
the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors or by the Chairman of
the Board. Proposals of business to be considered by the
stockholders at any annual or special meeting of stockholders
shall be made as provided in the By-Laws or as the Board of
Directors otherwise may direct.
ARTICLE VI
Directors
A. The number of the directors of the Company shall be
fixed from time to time by or pursuant to the By-Laws of the
Company. Nominations of persons for election to the Board of
Directors shall be made as provided in the By-Laws of the
Company, or as the Board of Directors otherwise may provide.
B. Except as otherwise provided by the By-Laws, by the
Board of Directors or by law, newly created directorships
resulting from any increase in the number of directors or any
vacancy on the Board of Directors resulting from death, resignation,
-4-
<PAGE>
disqualification, removal or other cause shall be filled solely
by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director and not by the
stockholders. A decrease in the number of directors constituting
the Board of Directors shall not shorten the term of any
incumbent director.
C. The Board of Directors shall have the power to adopt,
amend and repeal By-Laws of the Company.
ARTICLE VII
Directors' Liability
To the fullest extent permitted by the General Corporation
Law of Delaware as the same exists or may hereafter be amended, a
director of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as
a director. If the General Corporation Law of Delaware is
amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of
Delaware, as so amended. Any repeal or modification of this
Article VII by the stockholders of the Company shall not
adversely affect any right or protection of a director of the
Company existing at the time of such repeal or modification or
with respect to events occurring prior to such time.
Notwithstanding anything contained in this Certificate to the
contrary, the affirmative vote of the holders of not less than
66 2/3 percent of all votes entitled to be cast by the holders of
Capital Stock of the Company shall be required to amend or repeal
this Article VII or to adopt any provision inconsistent herewith.
ARTICLE VIII
Contractual Relations with Substantial Stockholder
The Company anticipates that (i) Atlantic Richfield Company,
a Delaware corporation ("ARCO"), will be and will remain a
substantial stockholder of the Company, (ii) ARCO will continue
to file a consolidated federal income tax return that includes
the Company within its "affiliated group", (iii) ARCO and the
Company may engage in the same or similar activities or lines of
business in the same geographic areas and may each have an
interest in the same business opportunities and (iv) the Company
and ARCO will maintain continued intercompany corporate and
business relations (including the provision of administrative and
other services and the service of officers and directors of
-5-
<PAGE>
ARCO as officers and directors of the Company). In connection
with the initial contribution of business properties by ARCO to
the Company and as a prerequisite to the Company's initial sale
of the Company's Common Stock to holders other than ARCO, ARCO
requires contractual agreement with the Company as to the
allocation of business opportunities between ARCO and its
subsidiaries and affiliates and the Company and its subsidiaries
and affiliates and as to the continuation of the Company within
ARCO's "affiliated group," as referred to in clause D(iii) of
this Article. In order to accommodate each of the foregoing, the
Company and ARCO have agreed as follows:
A. Any person purchasing or otherwise acquiring any
interest in shares of Capital Stock of the Company shall be
deemed to have notice of and to have consented to the contractual
relationships between the Company and ARCO provided for in this
Article VIII.
B. ARCO and the Company, subject to any agreement pursuant
to Section C of this Article VIII, may (i) engage in the same or
similar activities or lines of business, (ii) do business with
the same customers and suppliers or (iii) employ or otherwise
engage any person as a director, officer, employee or agent.
C. Any business opportunity that is communicated to, or
otherwise comes to the attention of, any director or officer of
the Company or of ARCO may potentially be of interest to either
or both companies or their respective subsidiaries or affiliates.
The Company and ARCO may agree upon a method for allocating such
business opportunities among them and their respective
subsidiaries and affiliates.
D. The Company and ARCO may enter into and from time to
time amend and revise agreements for (i) the provision of
administrative and other services by each company and its
subsidiaries and affiliates to the other and its subsidiaries and
affiliates, (ii) the preparation and filing of consolidated tax
returns and the allocation between ARCO and the Company of the
financial burdens and benefits of tax liabilities, credits and
the like, (iii) the grant to ARCO of options to acquire Capital
Stock of the Company from time to time for the purpose of
allowing ARCO to include the Company and its subsidiaries as part
of ARCO's "affiliated group" under United States Internal Revenue
Code provisions and rules and regulations thereunder, as
supplemented and amended, and (iv) the allocation between the
Company and ARCO, and provision of indemnities with respect to,
liabilities arising in the business and affairs of ARCO and the
Company whether arising prior to, at the time of, or subsequent
to the formation of the Company.
E. For purposes of this Article VIII, "ARCO" shall include
all successors to Atlantic Richfield Company by way of merger,
consolidation or sale of all or substantially all of its assets.
-6-
<PAGE>
* * * *
IN WITNESS WHEREOF, this Second Restated Certificate of
Incorporation, restates and integrates and does not further amend
the provisions of the Certificate of Incorporation of this
Corporation as heretofore amended or supplemented. There is no
discrepancy between the provisions of the Certificate of
Incorporation of this Corporation as heretofore amended or
supplemented and the provisions of this Second Restated
Certificate of Incorporation. This Second Restated Certificate
of Incorporation, having been duly adopted in accordance with
sections of the General Corporation Law of the State of Delaware,
has been accepted by its Vice President, General Counsel and
Secretary and attested by its Associate Secretary on this 15th
day of May, 1996.
VASTAR RESOURCES, INC.
By: /S/ ALBERT D. HOPPE
--------------------------
Albert D. Hoppe
Vice President, General Counsel
and Secretary
ATTEST:
By: /S/ JONATHAN D. EDELFELT
----------------------------
Jonathan D. Edelfelt
Associate Secretary
[SEAL]
l:\seccorp\mjs\corporate\vri\corpdata\rciamend.doc
-7-
VASTAR RESOURCES, INC. COMPREHENSIVE MANAGEMENT MEDICAL PLAN
MODIFICATION
ALL INFORMATION PRESENTED IN THIS MATERIAL MODIFICATION NOTICE IS
EFFECTIVE JANUARY 1, 1995.
Please place this material modification notice in your SPD binder in
the Medical Plan section for future reference.
SUBROGATION
If you or your dependent's injury or illness was caused by the
negligence or wrongdoing of another person, the plan will seek
recovery against the responsible third party and/or insurance company
up to the maximum amount of medical benefits received under the plan.
This provision will help the plan contain costs by recovering
duplicate payments.
The following information replaces the Vastar Resourses, Inc.
Comprehensive Management Medical Plan SPD sections How to Enroll (page
3) and How to Change Coverage (pages 5-6). They have been revised to
reflect enrollment capability through PipsPLUS. Please read them
carefully.
HOW TO ENROLL
YOU
For your coverage to be effective on your date of hire, you must
return a completed enrollment form to Human Resources, or enroll
through PipsPLUS, within 31 days of your date of hire. If you enroll
within 31 days of becoming eligible, coverage is effective the later
of:
- your date of hire; or
- the first day you're actively at work following your date of
hire.
If you apply after the initial 31-day deadline, except as specified
under "How to Change Coverage" (see page 5), or if you withdraw from
the plan and later reapply during open enrollment, you must provide
Vastar Resourses, Inc. with proof of your good health. That means
you'll need to complete an Evidence of Insurability application. Once
the application is approved, coverage begins on the date Aetna Health
Plans, the claims administrator, first received it.
If you're disabled and away from work when coverage would otherwise
begin, your coverage will begin after you return to work.
Once you're enrolled in the plan, your Human Resources representative
will issue you an ID card. Listed on the card are important -- and
valuable -- telephone numbers you'll need to call, depending on the
medical situation.
YOUR DEPENDENTS
You may obtain coverage for your dependents by electing family
coverage when you join the plan. You may be required to provide proof
of dependent status.
If you apply for family coverage more than 31 days after your first
day of work, you must provide Vastar Resourses, Inc. with proof that
your dependents are in good health subject to exceptions described
under "How to Change Coverage." Once your Evidence of Insurability
application is approved, coverage begins on the date Aetna first
received proof of your dependents' good health.
If you're disabled and away from work when coverage would otherwise
begin, your dependents' coverage will begin after you return to work.
If your dependent (other than a newborn) is confined to a hospital,
medical facility or the home due to illness or injury when coverage
would otherwise begin, coverage begins 31 days after the confinement
ends.
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<PAGE>
If you and your spouse are employees of Vastar Resourses, Inc., both
of you may elect family coverage -- in this plan or another Company-
sponsored medical plan -- for each other and for your eligible
children. In this case all claims will be paid according to the
provisions discussed in "Coordination of Benefits" (see page 23).
HOW TO CHANGE COVERAGE
Every year, the Company holds an Open Enrollment period. At that
time, you may elect to enroll in, discontinue or otherwise change your
health care coverage. If you add medical coverage for yourself, or
change from single to family coverage, you have to provide proof of
good health, except as noted below. If you have HMO coverage, you may
decide to be covered under this plan instead. If you do, you don't
have to provide proof of good health as long as you elect the same
type of coverage you had under the HMO -- that is, single or family.
BEFORE-TAX CONTRIBUTIONS
If you pay for medical coverage with before-tax contributions, you may
add and/or change coverage for yourself and/or your eligible
dependents only if one of the following events occurs:
- you marry (if you have single coverage, you may change to
family coverage);
- you divorce (you must have proof that you and/or your
dependents were covered under your spouse's plan and that
coverage has been dropped in order to add coverage under this
plan);
- you have a baby or adopt a child (if you have single coverage,
you may change to family coverage);
- you acquire other eligible dependents (e.g., through marriage;
if you have single coverage, you may change to family coverage);
- your dependent becomes ineligible for coverage (you may change
only from family coverage to single coverage);
- your spouse dies (you must have proof that you and/or your
dependents were covered under your spouse's plan and that
coverage has been dropped in order to add coverage under this
plan);
- one of your children dies (you may change only from family
coverage to single coverage);
- your spouse stops working (you must have proof that you and/or
your dependents were covered under your spouse's plan and that
coverage has been dropped in order to add coverage under this
plan); or
- your spouse starts working (you may change from family coverage
to single coverage).
You may discontinue coverage if it is necessary or appropriate as a
result of one of the events listed above.
If you experience any one of these events, you have 31 days in which
to change your coverage election without having to provide proof of
good health, either through PipsPLUS or by notifying Human Resources.
You may be asked to provide proof of the event, and, in certain cases,
proof of prior medical coverage.
AFTER-TAX CONTRIBUTIONS
If you pay for medical coverage with after-tax contributions, you may
change your coverage election as described under "Before-Tax
Contributions." You may also discontinue coverage at any time for
yourself or your dependents.
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V/CMM 1/95
<PAGE>
In addition you may add coverage at any time for areason other than
the ones described under "Before-Tax Contributions," but you'll be
asked to provide proof of good health.
ADDITIONAL POINTS TO KEEP IN MIND WHEN CHANGING COVERAGE:
- If you report an event within 31 days of its occurrence your
coverage will be adjusted as of the date of the event.
- If you request to add or change coverage after the initial 31-
day deadline, you must provide proof of good health.
- Your dependents won't be covered if your coverage isn't
approved.
- Proof of good health is always provided at your expense. If
your Evidence of Insurability application is approved, coverage
begins on the date Aetna first received the application.
- If you choose single coverage and have a child during the year,
that child is covered on his/her birth date, but only if you make
the change through PipsPLUS, or notify Human Resources within 31
days after the birth.
- If you and your spouse are both employed by the Company, elect
single coverage and later either or both of you request family
coverage, proof of good health will be required unless you're
changing your coverage election as described under "Before-Tax
Contributions" (see page 5). However, if one of you wishes to
drop single coverage and the other wishes to pick up family
coverage, you may do so, without proof of good health, at open
enrollment or at any other time, if you pay for medical coverage
with after-tax contributions.
CHANGING YOUR PLAN ELECTION
If you're enrolled in an HMO and move outside its service area, or for
circumstances beyond your control your HMO coverage is terminated,
within 31 days of the loss of coverage you may change your medical
coverage to an HMO that serves your residence or enroll in this plan.
If you change between a management grade and a non-management grade,
you have the option of dropping your HMO coverage and enrolling in
this plan within 31 days.
MANAGED SECOND OPINION
This information replaces the section Managed Second Opinion (pages 11-
12).
Unnecessary tests and procedures are expensive for you and the
Company. That's why the plan requires that you receive
precertification through the Managed Second Opinion Program for
selected non-emergency procedures.
This requirement is separate and in addition to the requirement to
call Healthline before any hospitalization.
You must call Healthline for approval and provide the information
listed on page 10 which is applicable to your case if your doctor
recommends one of the following procedures:
- bunionectomy - surgical removal of bunions;
- carpal tunnel release - surgery of wrist nerve;
- cholecystectomy - gall bladder removal;
- colonoscopy - scope exam of large intestine;
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V/CMM 1/95
<PAGE>
- coronary angiography - X-ray visualization of the heart
arteries and/or chambers by insertion of a catheter through an
artery into the heart;
- coronary angioplasty - procedure used to dilate stenosis in one
or more coronary arteries;
- coronary artery bypass - surgery performed to bypass one or
more coronary arteries with a length of vein;
- dilation and curettage (D&C) - examination of the cervix and
removal of tissue from the uterine lining;
- hemorrhoidectomy - surgical removal of hemorrhoids;
- hysterectomy - surgical removal of the uterus;
- inpatient treatment/back pain - any hospital admission for back
pain;
- knee arthroscopy - insertion of scope through a surgical
opening in the knee joint for diagnosis and/or treatment;
- laminectomy - surgical removal of a disc from the spinal
column;
- MRI-Spine - a test which images the spine;
- pelvic laparoscopy - insertion of scope through a small
surgical opening in the abdomen for diagnosis or treatment;
- septorhinoplasty - nose surgery;
- tympanostomy/tube insertion - surgical insertion of tubes in
the ears; or
- upper GI endoscopy - scope exam of esophagus, stomach and small
intestine.
Healthline will determine if a second exam is required before you have
the test or procedure performed. If a second exam is required,
Healthline will schedule it for you -- and the plan will pay the full
costs of the second exam.
If you call Healthline when your doctor recommends one of the tests or
procedures listed above -- and the test or procedure is approved --
the plan will reimburse your covered expenses at 90%.
If you fail to meet this requirement, the plan pays only 50% of the
charges and only if Healthline determines afterward that the procedure
or surgery was medically necessary. Otherwise, the plan may not pay
any of the charges. In addition these charges won't be counted toward
satisfaction of your deductible or coinsurance limit.
COINSURANCE LIMIT
This information applies to the section Coinsurance Limit (page 7).
To protect you against financial hardship, the plan places a limit on
the annual coinsurance you pay. After you reach that limit, the plan
starts paying 100% of costs for the rest of the calendar year. This
annual COINSURANCE LIMIT for covered expenses is $1,000 per covered
person and $2,000 per family. All other coinsurance limit provisions
remain the same.
THE INFORMATION CONTAINED HEREIN DOES NOT REPLACE THE OFFICIAL
DOCUMENTS THAT LEGALLY GOVERN THE PLAN'S OPERATION. IN THE EVENT OF
ANY CONFLICT BETWEEN THIS NOTICE AND THE OFFICIAL DOCUMENTS, THE
OFFICIAL DOCUMENTS WILL GOVERN.
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V/CMM 1/95
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Vastar Resources, Inc.: Financial Data Schedule for the six months ending
June 30, 1996. This schedule contains summary financial information
extracted from the Consolidated Statement of Income and the Consolidated
Balance Sheet and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,600
<SECURITIES> 0
<RECEIVABLES> 248,100
<ALLOWANCES> 0
<INVENTORY> 9,200
<CURRENT-ASSETS> 364,800
<PP&E> 4,441,500
<DEPRECIATION> 3,171,500
<TOTAL-ASSETS> 1,634,800
<CURRENT-LIABILITIES> 372,200
<BONDS> 739,400
0
0
<COMMON> 455,000
<OTHER-SE> 197,200
<TOTAL-LIABILITY-AND-EQUITY> 1,634,800
<SALES> 440,900
<TOTAL-REVENUES> 456,500
<CGS> 221,400
<TOTAL-COSTS> 296,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,700
<INCOME-PRETAX> 107,300
<INCOME-TAX> (2,000)
<INCOME-CONTINUING> 109,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,300
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
