UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 number 1-7179
SONAT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0647939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (205) 325-3800
NO CHANGE
(Former name, former address and former fiscal year, if changed since
last report)
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 _
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE:
86,377,731 SHARES OUTSTANDING ON APRIL 30, 1995
<PAGE>
<TABLE>
SONAT INC. AND SUBSIDIARIES
INDEX
<S> <C>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
March 31, 1995 and December 31, 1994 1
Condensed Consolidated Statements of Income--
Three Months Ended March 31, 1995 and 1994 2
Condensed Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1995 and 1994 3
Notes to Condensed Consolidated Financial
Statements 4 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 24
PART II. Other Information
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 8,130 $ 9,131
Accounts and note receivable 220,990 279,553
Inventories 26,345 26,722
Gas imbalance receivables 19,375 35,091
Other 39,035 36,344
------ ------
Total Current Assets 313,875 386,841
------- -------
Investments in Unconsolidated Affiliates and Other 716,203 704,308
-------- -------
Plant, Property and Equipment 4,875,268 4,741,296
Less accumulated depreciation, depletion
and amortization 2,514,760 2,497,691
--------- ---------
2,360,508 2,243,605
---------- ---------
Deferred Charges:
Gas supply realignment costs 196,620 160,850
Other 41,375 35,082
------ ------
237,995 195,932
------- -------
$3,628,581 $3,530,686
========== ==========
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Unsecured notes and long-term debt due
<S> <C> <C>
within one year $ 264,125 $ 219,250
Accounts payable 166,340 208,751
Accrued income taxes 19,153 22,029
Accrued interest 35,352 36,825
Gas imbalance payables 24,679 42,975
Other 34,839 40,371
------ ------
Total Current Liabilities 544,488 570,201
------- -------
Long-Term Debt 1,070,433 963,378
--------- ---------
Deferred Credits and Other:
Deferred income taxes 208,612 187,957
Reserves for regulatory matters 171,106 183,343
Other 230,036 233,921
---------- -------
609,754 605,221
---------- -------
Commitments and Contingencies
Stockholders' Equity:
Common stock and other capital 128,514 129,563
Retained earnings 1,301,642 1,287,339
---------- ---------
1,430,156 1,416,902
Less treasury stock (26,250) (25,016)
----------- -----------
Total Stockholders' Equity 1,403,906 1,391,886
---------- ----------
$3,628,581 $3,530,686
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands, Except
Per-Share Amounts)
<S> <C> <C>
Revenues $431,231 $479,507
-------- --------
Costs and Expenses:
Natural gas cost 190,728 213,575
Transition cost recovery and gas
purchase contract settlement costs 20,886 42,920
Operating and maintenance 44,544 38,410
General and administrative 33,637 31,025
Depreciation, depletion and amortization 74,391 66,294
Taxes, other than income 11,925 10,584
-------- --------
376,111 402,808
-------- --------
Operating Income 55,120 76,699
Other Income, Net:
Equity in earnings of
unconsolidated affiliates 12,953 4,822
Other 5,508 4,451
-------- --------
18,461 9,273
-------- --------
Interest:
Interest income 848 1,921
Interest expense (28,539) (21,429)
Interest capitalized 1,758 1,615
-------- --------
(25,933) (17,893)
-------- --------
Income before Income Taxes 47,648 68,079
Income Taxes 10,031 18,469
-------- --------
Net Income $ 37,617 $ 49,610
======== ========
Earnings Per Share of Common Stock $ .44 $ .57
======== ========
Weighted Average Shares Outstanding 86,352 87,177
======== ========
Dividends Paid Per Share $ .27 $ .27
======== ========
</TABLE>
See accompanying notes.
4
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 37,617 $ 49,610
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 74,391 66,294
Deferred income taxes 21,063 2,794
Equity in earnings of unconsolidated
affiliates, less distributions (12,197) (4,049)
Gain on sale of assets (2,376) (594)
Reserves for regulatory matters (12,237) 11,798
Gas supply realignment costs (35,770) 7,559
Natural gas purchase contract settlement costs - 16,502
Change in:
Accounts receivable 58,588 (29,497)
Inventories 377 2,024
Accounts payable (42,411) 15,145
Accrued interest and income taxes, net (4,347) 12,673
Other current assets and liabilities (10,804) (9,128)
Other (4,260) 31,616
----------- ---------
Net cash provided by operating activities 67,634 172,747
----------- ---------
Cash Flows from Investing Activities:
Plant, property and equipment additions (214,805) (78,740)
Net proceeds from disposal of assets 20,174 2,096
Advances to unconsolidated affiliates and other (251) (100,325)
----------- ---------
Net cash used in investing activities (194,882) (176,969)
----------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 1,453,000 835,000
Payments of long-term debt (1,346,070) (776,195)
Changes in short-term borrowings 45,000 (22,846)
----------- ---------
Net changes in debt 151,930 35,959
Dividends paid (23,314) (23,530)
Other (2,369) 773
----------- ---------
Net cash provided by financing activities 126,247 13,202
----------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (1,001) 8,980
Cash and Cash Equivalents at Beginning of Period 9,131 10,822
----------- ---------
Cash and Cash Equivalents at End of Period $ 8,130 $ 19,802
=========== =========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 23,978 $ 18,813
Income taxes (refunds received), net (8,376) 2,349
</TABLE>
See accompanying notes.
5
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Sonat Inc.
(Sonat) and its subsidiaries (the Company) have been prepared in accordance with
the instructions to Form 10-Q and include the information and footnotes required
by such instructions. In the opinion of management, all adjustments including
those of a normal recurring nature have been made that are necessary for a fair
presentation of the results for the interim periods presented herein.
In the first quarter of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which will become effective for years beginning after December 15, 1995. The
Company has not yet determined the effect of the new rules.
Certain amounts in the 1994 condensed consolidated financial statements have
been reclassified to conform with the 1995 presentation.
2. Derivative Financial Instruments
During the first quarter of 1995, the Company entered into several new swap
agreements. The status of the Company's swap agreements is disclosed below.
At March 31, 1995, Sonat Exploration had three oil price swap agreements to
exchange payments based on a total notional volume of 2,160,000 barrels over a
period of nine months. The average market price the Company was paying was
$18.56 per barrel and the fixed price the Company was receiving was $18.50 per
barrel at March 31, 1995.
At March 31, 1995, Sonat Marketing had a total of 26 natural gas price swap
agreements to exchange payments based on a total notional volume of 45,051,000
MMBtu of natural gas over periods ranging from one month to eight years. At
March 31, 1995, the average price the Company was paying was $1.54 per MMBtu and
the average price the Company was receiving was $1.46 per MMBtu.
The Company's credit exposure on swaps is limited to the value of swaps that
are in a favorable position to the Company. At March 31, 1995, the market value
of the Company's favorable swaps was $2.0 million. The net position of all
swaps, both favorable and unfavorable, was $4.0 million unfavorable.
4
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Unconsolidated Affiliates
The following table presents the components of equity in earnings of
unconsolidated affiliates.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands)
Company's Share of Reported Earnings (Losses):
<S> <C> <C>
Exploration and Production $ 186 $ 107
------- ------
Natural Gas Transmission and Marketing:
Citrus Corp. 6,382 317
Amortization of Citrus basis difference 346 347
Bear Creek Storage 2,532 2,281
Other natural gas transmission and
marketing affiliates 17 (25)
------- ------
9,277 2,920
------- ------
Other:
Sonat Offshore Drilling 2,884 1,695
Other affiliates 606 100
------- ------
3,490 1,795
------- ------
$12,953 $4,822
======= ======
</TABLE>
Natural Gas Transmission and Marketing Affiliates - Sonat owns 50
percent of Citrus Corp. (Citrus), the parent of Florida Gas Transmission
Company. Southern Natural Gas Company (Southern) owns 50 percent of Bear Creek
Storage Company (Bear Creek), an underground gas storage company.
The following is summarized income statement information for Citrus:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands)
<S> <C> <C>
Revenues $125,164 $103,484
Expenses (Income):
Natural gas cost 63,263 65,893
Operating expenses 28,917 26,222
Depreciation and amortization 8,096 9,693
Allowance for funds used during
construction (20,211) (10,363)
Other expenses, net 24,323 10,895
Income taxes 8,012 511
-------- --------
Income Reported $ 12,764 $ 633
======== ========
</TABLE>
5
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Unconsolidated Affiliates (Cont'd)
The significant increase in allowance for funds used during
construction relates to Florida Gas' Phase III expansion which went into service
on March 1, 1995.
The following is summarized income statement information for Bear
Creek. No provision for income taxes has been included since its income taxes
are paid directly by the joint-venture participants.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands)
<S> <C> <C>
Revenues $9,322 $9,030
Expenses:
Operating expenses 1,275 1,278
Depreciation 1,350 1,350
Other expenses, net 1,633 1,839
------ ------
Income Reported $5,064 $4,563
====== ======
</TABLE>
Other Affiliate - Since June 4, 1993, the Company owned approximately
40 percent of Sonat Offshore, which provides offshore drilling services. At
March 31, 1995, the Company held 11.3 million shares of Sonat Offshore common
stock. The Company's investment in Sonat Offshore is accounted for on the equity
method.
The following is summarized income statement information for Sonat
Offshore:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands)
<S> <C> <C>
Revenues $70,726 $66,107
Expenses (Income):
Operating expenses 53,740 53,715
Depreciation 6,278 5,818
Other (income) expenses, net (633) (69)
Income taxes 4,065 2,396
------- -------
Income Reported $ 7,276 $ 4,247
======= =======
</TABLE>
4. Long-Term Debt and Lines of Credit
During the first quarter of 1995, Sonat borrowed $1.5 billion and
repaid $1.3 billion under its revolving credit agreement, resulting in $488
million outstanding at a rate of 6.31 percent at March 31, 1995.
Short-Term Credit Facilities - At March 31, 1995, $150 million was
outstanding at a rate of 6.33 percent under Sonat's 364-day revolving credit
agreement and $95 million in commercial paper was outstanding at a rate of
6
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Long-Term Debt and Lines of Credit (Cont'd)
6.30 percent. Loans outstanding under all short-term credit facilities are
for a duration of less than three months.
5. Commitments and Contingencies
Rate Matters - Periodically, Southern and its subsidiaries make general
rate filings with the Federal Energy Regulatory Commission (FERC) to provide for
the recovery of cost of service and a return on equity. The FERC normally allows
the filed rates to become effective, subject to refund, until it rules on the
approved level of rates. Southern and its subsidiaries provide reserves relating
to such amounts collected subject to refund, as appropriate, and make refunds
upon establishment of the final rates.
On September 1, 1989, Southern implemented new rates, subject to
refund, reflecting a general rate decrease of $6 million. In January 1991
Southern implemented new rates, subject to refund, that restructured its rates
consistent with a FERC policy statement on rate design and increased its sales
and transportation rates by approximately $65 million annually. These two
proceedings have been consolidated for hearing. On October 7, 1993, the
presiding administrative law judge certified to the FERC a contested offer of
settlement pertaining to the consolidated rate cases that (1) resolved all
outstanding issues in the rate decrease proceeding, (2) resolved the cost of
service, throughput, billing determinant, and transportation discount issues in
the rate increase proceeding, and (3) provided a method to resolve all other
issues in the latter proceeding, including the appropriate rate design. Under
the settlement, the FERC will decide cost classification, cost allocation, and
rate design issues based on written submissions of the parties and the existing
record in the proceeding. By orders issued on December 16, 1993, and May 5,
1994, the FERC approved the settlement. One party has sought judicial review of
the FERC orders. Southern cannot predict the outcome of this appeal.
On September 1, 1992, Southern implemented another general rate change.
The rates reflected the continuing shift in the mix of throughput volumes away
from sales and toward transportation and a $5 million reduction in annual
revenues. On April 30, 1993, Southern submitted a proposed settlement in the
proceeding that would resolve the throughput and certain cost of service issues.
The cost allocation and rate design issues were consolidated with similar issues
in Southern's rate proceeding filed May 1, 1993, which is described below, and
will be resolved in that proceeding. This settlement was approved by the FERC
orders issued on December 16, 1993, and May 5, 1994. One party has sought
judicial review of these FERC orders as well. Southern also cannot predict the
outcome of this appeal.
On May 1, 1993, Southern implemented a general rate change, subject to
refund, that increased its sales and transportation rates by approximately $57
million annually. The filing is designed to recover increased operating costs
and to reflect the impact of competition. On January 9, 1995, Southern filed
with the presiding administrative law judge a trial stipulation that resolved
certain cost of service issues with the FERC staff in this proceeding. This
trial stipulation was not opposed by any party to the proceeding. A hearing
regarding all other outstanding issues concluded in February 1995. Southern
cannot predict the outcome of this hearing.
7
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Commitments and Contingencies (Cont'd)
Southern filed with the FERC on March 15, 1995, a proposed settlement
(the Customer Settlement) that would resolve all of Southern's pending rate
(described above) and gas supply realignment (GSR) cost recovery (described
below) proceedings. The FERC staff and customers representing more than 95
percent of the firm transportation capacity on Southern's pipeline system are in
support of the Customer Settlement. Pursuant to the Customer Settlement, which
must be approved by the FERC, all issues in Southern's current and prior rate
cases would be settled as to the supporting parties. Southern would credit in
the aggregate the full amount of Southern's rate reserves as of February 28,
1995 (approximately $155 million), less certain amounts withheld for potential
rate refunds to contesting parties, to reduce the GSR costs borne by Southern's
customers. Southern implemented reduced settlement rates for parties that
support the Customer Settlement on an interim basis effective March 1, 1995,
subject to reinstatement, pending FERC consideration and approval of the
Customer Settlement. The Customer Settlement provides that, except in certain
limited circumstances, Southern will not file a general rate case to be
effective prior to March 1, 1998. Southern's GSR costs are discussed below (see
Order No. 636).
In the fourth quarter of 1994, the Company recognized a $29 million
charge associated with the Customer Settlement, which includes anticipated
amounts for GSR costs that Southern would not recover from its customers, and a
$28 million provision relating to regulatory assets that may not be recovered as
a result of the Customer Settlement, including amounts for a corporate
restructuring undertaken in 1994.
The Customer Settlement has been contested by certain of Southern's
customers; thus, if approved by the FERC, the Customer Settlement will become
effective only as to supporting parties and any contesting parties the FERC
determines will be bound by it. Southern's rates and GSR costs applicable to the
contesting parties not bound by the Customer Settlement will be determined by
the outcome of Southern's pending rate and GSR proceedings, where Southern
anticipates that those contesting customers will continue to challenge both the
eligibility and prudence of Southern's GSR costs. It is also possible that the
Customer Settlement might not be approved by the FERC or, if approved, might be
modified in a way unacceptable to Southern or its customers.
Gas Purchase Contracts - Pursuant to a final and nonappealable FERC
order, Southern has collected from its customers over a five-year period that
ended on April 30, 1994, substantially all of its gas purchase contract
settlement payments relating to contract terminations or amendments entered into
in the 1980s. Southern currently is incurring no take-or-pay liabilities under
its gas purchase contracts. Southern regularly evaluates its position relative
to gas purchase contract matters, including the likelihood of loss from asserted
or unasserted take-or-pay claims or above-market prices. When a loss is probable
and the amount can be reasonably estimated, it is accrued.
Order No. 636 - In 1992 the FERC issued its Order No. 636 (the Order).
The Order required significant changes in interstate natural gas pipeline
services. Interstate pipeline companies, including Southern, are incurring
certain costs (transition costs) as a result of the Order, the principal one
being costs related to amendment or termination of, or purchasing gas at
above-market prices under existing gas purchase contracts, which are referred to
as GSR costs. The Order
8
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Commitments and Contingencies (Cont'd)
provided for the recovery of 100 percent of the GSR costs and other transition
costs to the extent the pipeline can prove that they are eligible, that is,
incurred as a result of customers' service choices in the implementation of the
Order, and were incurred prudently. The prudence review will extend both to the
prudence of the underlying gas purchase contracts, based on the circumstances
that existed at the time the contracts were executed, and to the prudence of the
amendments or terminations of the contracts. Numerous parties have appealed the
Order to the Circuit Courts of Appeal.
On September 3, 1993, the FERC generally approved a compliance plan for
Southern and directed Southern to implement its restructured services pursuant
to the Order on November 1, 1993 (the September 3 order). Pursuant to Southern's
compliance plan, GSR costs that are eligible for recovery include payments to
reform or terminate gas purchase contracts. Where Southern can show that it can
minimize transition costs by continuing to purchase gas under the contract
(i.e., it is more economic to continue to perform), eligible GSR costs would
also include the difference between the contract price and the higher of (a) the
sales price for gas purchased under the contract or (b) a price established by
an objective index of spot-market prices. Recovery of these "price differential"
costs is permitted for an initial period of two years.
Southern's compliance plan contains two mechanisms pursuant to which
Southern is permitted to recover 100 percent of its GSR costs. The first
mechanism is a monthly fixed charge designed to recover 90 percent of the GSR
costs from Southern's firm transportation customers. The second mechanism is a
volumetric charge designed to collect the remaining 10 percent of such costs
from Southern's interruptible transportation customers. These funding mechanisms
will continue until the GSR costs are fully recovered or funded. The FERC also
indicated that Southern could file to recover any GSR costs not recovered
through the volumetric charge after a period of two years. In addition,
Southern's compliance plan provides for the recovery of other transition costs
as they are incurred and any remaining transition costs may be recovered through
a regular rate filing.
Southern's customers have generally opposed the recovery of Southern's
GSR costs based on both eligibility and prudence grounds. The September 3 order
rejected the argument of certain customers that a 1988 take-or-pay recovery
settlement bars Southern from recovering GSR costs under gas purchase contracts
executed before March 31, 1989, which comprise most of Southern's GSR costs.
Those customers subsequently filed motions urging the FERC to reverse its ruling
on that issue. On December 16, 1993, the FERC affirmed its September 3 ruling
with respect to the 1988 take-or-pay recovery settlement (the December 16
order). The FERC's finding that the 1988 settlement is not a bar in general to
the recovery as GSR costs of payments made to amend or to terminate these
contracts does not prevent an eligibility challenge to specific payments,
however, on the theory that they are actually take-or-pay costs that would have
been unavoidable regardless of the Order. The December 16 order generally
approved Southern's restructuring tariff submitted pursuant to the September 3
order. Various parties have sought judicial review of the September 3 and
December 16 orders.
As of March 31, 1995, Southern had either paid or accrued $181 million
in GSR costs (including interest) either to reduce significantly the price
payable under or to terminate a number of gas supply contracts providing for
payment of above-
9
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Commitments and Contingencies (Cont'd)
market prices. On February 17, 1995, Southern reached an agreement to resolve
its remaining high-cost supply contracts with Exxon Corporation (Exxon) by
paying an additional $45 million in GSR costs and foregoing a claim against $19
million in price differential costs that have been paid to Exxon under an
interim agreement entered into between the parties pending resolution of
litigation contesting Southern's termination on March 1, 1994, of a gas purchase
contract with Exxon. This agreement is conditioned upon the Customer Settlement
becoming effective. These Exxon amounts are included in the amount for March 31,
1995, above. In addition, Southern also has an agreement under which another
high-cost contract price is reduced in exchange for monthly payments having a
present value of approximately $44 million. Southern has received permission
from the FERC to purchase an annuity in order to monetize this obligation.
In addition to its GSR costs relating to termination or amendment of
its remaining gas purchase contracts, Southern has incurred and expects to
continue to incur certain price differential GSR costs resulting from Southern's
continued purchase of gas under its remaining supply contracts that provide for
prices in excess of current market prices. As of March 31, 1995, Southern had
incurred $85 million in price differential costs.
Beginning in December 1993, Southern has made a number of filings with
the FERC seeking to recover GSR costs paid through various periods prior to the
filings. In each instance, the FERC has accepted Southern's filing subject to
refund, and subject to a determination through a hearing before an
administrative law judge regarding whether such costs were prudently incurred
and are eligible for recovery under the Order. Southern's customers are opposing
its recovery of its GSR costs in these proceedings based on both eligibility and
prudence grounds. These proceedings, which have all been consolidated, are in
the early stages of discovery and Southern cannot predict their outcome at this
time.
As described above, Southern's Customer Settlement would settle as to
supporting parties all of the proceedings pursuant to which Southern is seeking
recovery of its GSR costs as well as all of its other outstanding rate
proceedings. If the Customer Settlement is ultimately approved by the FERC, all
challenges to the recovery of Southern's GSR costs would be resolved as to those
customers supporting the Customer Settlement, including all issues related to
eligibility and prudence. Additionally, Southern would absorb an agreed-upon
portion of its total GSR costs, which was reflected in the provision for the
Customer Settlement noted above.
In its Customer Settlement discussions, Southern has advised its
customers that the amount of GSR costs that it actually incurs will depend on a
number of variables, including future natural gas and fuel oil prices, future
deliverability under Southern's existing gas purchase contracts, and Southern's
ability to renegotiate certain of these contracts. While the level of GSR costs
is impossible to predict with certainty because of these numerous variables,
based on current spot-market prices, a range of estimates of future oil and gas
prices, recent contract renegotiations, and price differential costs actually
incurred, the amount of GSR costs was estimated at December 31, 1994, to be
approximately $328 million on a present-value basis. This amount included the
$64 million cost that will be incurred under the settlement of existing
contracts with Exxon, which will become
10
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Commitments and Contingencies (Cont'd)
effective if the Customer Settlement becomes effective. These amounts do not
include an additional $87 million in projected GSR costs that would be incurred
if the settlement with Exxon does not become effective and Exxon prevails in its
lawsuit regarding Southern's March 1, 1994, termination of a contract relating
to Exxon's reserves in its Mississippi Canyon blocks (described below).
Until the Customer Settlement is approved, Southern plans to make
additional rate filings quarterly to recover its price differential costs and
any other GSR costs. Additionally, Southern will continue to make monthly
filings designed to adjust the billing determinants and associated surcharges
for its firm transportation customers to reflect changes in the level of
systemwide contract demands and effective carrying charges that occur from time
to time.
If the Customer Settlement is not approved, Southern cannot predict the
ultimate outcome of its Order No. 636 restructuring proceedings, its rate
filings to recover its GSR costs, or its other outstanding rate proceedings.
Administrative Law Judge Ruling Concerning Recoverability of Investment
in Offshore Gas Supply Facilities; Settlement with Exxon Corporation - In an
initial decision issued on May 2, 1994, which Southern appealed, an
administrative law judge ruled, in a rate case Southern had filed before the
FERC, that Southern could not include in its rates the approximately $45 million
cost of certain pipeline facilities placed in service by Southern in 1992 to
connect to its interstate pipeline system extensive new gas reserves developed
by Exxon in the Mississippi Canyon and Ewing Bank Area Blocks, offshore
Louisiana (the Mississippi Canyon Facilities). The judge ruled that Southern's
recovery of these costs was precluded by the 1988 settlement with Southern's
customers that limits the amount of take-or-pay payments Southern may recover in
its rates. The judge found that the cost of the facilities constitutes non-cash
consideration to Exxon for a 1989 take-or-pay settlement and is therefore
subject to the dollar "cap" on these payments contained in the 1988 settlement.
Southern has previously recovered the maximum amount permitted by the 1988
settlement in its rates. Southern has appealed the administrative law judge's
decision to the FERC but cannot predict the outcome of this appeal.
The Customer Settlement provides that, as to customers supporting the
settlement, the costs of the Mississippi Canyon Facilities will be recovered by
Southern on a rolled-in basis and the 1988 take-or-pay settlement cap will not
preclude Southern's recovery of such costs. On February 17, 1995, Southern
reached a settlement with Exxon pursuant to which, in return for an additional
cash payment by Southern of $45 million, plus allowing Exxon to retain $19
million in price differential costs already paid to Exxon, all existing gas
purchase contracts would be terminated, two new gas purchase contracts would be
entered into having three-year terms and providing for market-based index
prices, and a lawsuit regarding Southern's termination of the gas purchase
contract covering gas reserves connected by the Mississippi Canyon Facilities
(Mississippi Canyon Contract) would be dismissed. The settlement with Exxon is
contingent on FERC approval of the Customer Settlement.
If this settlement with Exxon does not become effective, total GSR
costs under the Mississippi Canyon Contract through the scheduled renegotiation
of its pricing provisions in 1997 were estimated at December 31, 1994, to be
approximately
11
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Commitments and Contingencies (Cont'd)
$125 million on a present-value basis, although such estimate is subject to
significant uncertainty since the assumptions inherent in the estimate
(including underlying reserves, future deliverability, and a range of estimated
future gas market prices) are not known today with certainty and there is a wide
range of possible outcomes for each assumption. In addition, Southern gave
notice to Exxon that effective March 1, 1994, it terminated the Mississippi
Canyon Contract pursuant to certain provisions of the contract. Such
termination, if effective, would reduce GSR costs associated with such contract
to $14 million. Exxon filed suit against Southern seeking a declaratory judgment
that Southern does not have the right to terminate the contract or alternatively
for damages of an unspecified amount arising out of the alleged repudiation or
breach of the contract by Southern. The court entered a summary judgment order
upholding Southern's termination of this contract, which Exxon appealed to the
Fifth Circuit Court of Appeals. Southern's customers are challenging the
recovery of GSR costs attributable to such contract on eligibility and prudence
grounds and on the basis that such costs also constitute non-cash consideration
for the 1989 take-or-pay settlement with Exxon and thus are not recoverable due
to the 1988 take-or-pay cost cap. If the settlement with Exxon does not become
effective, Southern cannot predict the outcome of pending or future proceedings
for the recovery of GSR costs related to the gas supplies connected by the
Mississippi Canyon Facilities or its pending litigation with Exxon regarding
Southern's notice of termination of the Mississippi Canyon Contract.
6. Changes in Operations
The Company has reached an agreement in principle with Atlanta Gas
Light Company (Atlanta) whereby Atlanta will acquire a 35 percent interest in
Sonat Marketing Company. The Company will contribute all of the assets and
liabilities of Sonat Marketing, except $32 million of accounts receivable, to a
new subsidiary and Atlanta will contribute $32 million in cash. The transaction
is subject to receipt of all necessary regulatory approvals and execution of
mutually acceptable definitive documents. Atlanta will have certain rights to
sell its interest in the new subsidiary, including a right for five years to
sell under a formula price, which will result in the deferral of the pre-tax
gain of approximately $23 million on the transaction.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SONAT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Income
Sonat Inc. and its subsidiaries (the Company) operate in the energy
industry through its Exploration and Production and Natural Gas Transmission and
Marketing segments.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
Operating Income (Loss):
<S> <C> <C>
Exploration and production $ 2 $22
Natural gas transmission and marketing 54 52
Other (1) 3
--- ---
Operating Income $55 $77
=== ===
</TABLE>
EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and the acquisition,
development, and production of oil and natural gas in the United States through
Sonat Exploration Company. Sonat Exploration's strategy is to acquire gas
properties with significant development potential. Since implementing this
strategy in 1988, proved reserves have grown to approximately 1.8 trillion cubic
feet of natural gas equivalent at March 31, 1995, more than a seven-fold
increase.
Sonat Exploration intends to continue aggressively to acquire domestic
gas properties with significant development potential. During 1995, Sonat
Exploration acquired oil and gas interests and properties for a total of $158
million, which increased proved reserves by approximately 260 billion cubic feet
of natural gas equivalent. Through these acquisitions, Sonat Exploration
extended its operations in north Louisiana and the Texas Panhandle area.
Developmental drilling programs continue to be very successful. In the
first quarter of 1995, Sonat Exploration completed 59 development wells. These
drilling programs added proved reserves of approximately 49 billion cubic feet
of natural gas equivalent.
In order to focus its exploration and production efforts and to minimize
administrative and other costs, Sonat Exploration disposed of certain
non-strategic oil and gas interests in the first quarter of 1995 in the states
of Arkansas, Colorado, Louisiana, Texas, and offshore Louisiana. These
properties were sold for approximately $21 million and included net proved
reserves of approximately 36.5 Bcf of natural gas equivalent. Sonat Exploration
expects that it will continue to dispose of non-strategic oil and gas interests
in the future.
13
<PAGE>
The decline in natural gas prices that began in 1994 continued into early
1995. Sonat Exploration's earnings and cash flow in the fourth quarter of 1994
and in the first quarter of 1995 were adversely impacted. Recently, natural gas
prices have shown some improvement and if they stabilize for the remainder of
the year, earnings should improve.
Total capital expenditures for Sonat Exploration are expected to
approximate $410 million in 1995, which would be up slightly from 1994. Capital
spending planned for 1995 includes approximately $250 million for producing
property acquisitions.
Natural gas production is marketed primarily in the spot-market by Sonat
Marketing Company, a subsidiary of the Company operating in the Natural Gas
Transmission and Marketing Segment.
Sonat Exploration, through Sonat Marketing, uses derivative financial
instruments to manage the risks associated with price volatility for its
production. (See Commodity Price Risk Management and Note 2 of the Notes to
Condensed Consolidated Financial Statements.)
EXPLORATION AND PRODUCTION OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
Revenues:
<S> <C> <C>
Sales to others $39 $ 31
Intersegment sales 55 75
--- ----
Total Revenues 94 106
--- ----
Costs and Expenses:
Operating and maintenance 17 15
Exploration expense 1 3
General and administrative 10 11
Depreciation, depletion and
amortization 58 49
Taxes, other than income 6 6
--- ----
92 84
--- ----
Operating Income $ 2 $ 22
=== ====
Net Sales Volumes:
Gas (Bcf) 50 43
Oil and condensate (MBbls) 1,073 953
Natural gas liquids (MBbls) 438 228
--------------------------- --- ---
Average Sales Prices:
Gas (Mcf) $ 1.44 $ 2.10
Oil and condensate (Bbl) 17.22 13.04
Natural gas liquids (Bbl) 8.72 9.06
------------------------- ---- ----
</TABLE>
14
<PAGE>
Quarter-to-Quarter Analysis
Operating income was $2 million in the first quarter of 1995, down $20
million from the same period in 1994 due primarily to a 31 percent decline in
natural gas prices, partially offset by increased production. Natural gas
production rose by 15 percent during the same period, while oil and condensate
production increased by 13 percent resulting from the continuing acquisition and
development program. Amortization expense was 18 percent higher in 1995 due to
larger production volumes. There were no exploratory well costs in 1995
resulting in a decrease in exploration expense of $2 million compared with the
1994 period. Revenues and average sales prices in the table above reflect the
hedging program's favorable effect of $2 million in the first quarter of 1995
and the unfavorable effect of $2 million in the first quarter of 1994.
NATURAL GAS TRANSMISSION AND MARKETING
The Company participates in the natural gas transmission and marketing
business through Southern Natural Gas Company, Citrus Corp. (a 50 percent-owned
company), and Sonat Marketing (see Note 6 of the Notes to Condensed Consolidated
Financial Statements).
Southern continues to pursue growth opportunities to expand the level of
services in its traditional market area and to connect new gas supplies. On
April 26, 1995, Southern received authorization from the Federal Energy
Regulatory Commission (FERC) to construct a 21-mile pipeline extension to a
delivery point near Chattanooga, Tennessee, that will deliver natural gas to a
group of new customers who have signed 10-year contracts for firm transportation
volumes totaling approximately 11 million cubic feet per day. Southern also
plans to seek approval in a filing with the FERC to be made in May 1995 to
expand its north main pipeline system to provide approximately 26 million cubic
feet per day of additional firm transportation. This increase in capacity is
supported by 10-year firm transportation agreements with 15 customers in
Alabama, Georgia, and Tennessee. If FERC approval is received, the in-service
date is expected to be November 1996.
In addition, Southern has initiated an open season to obtain customer
commitments to expand its system in order to meet the growing demand for natural
gas in the Southeast. In the open season, Southern is seeking requests for
additional firm transportation services and for a new liquefied natural gas
(LNG) service. The facilities to provide the firm transportation service will be
determined based on the service levels requested. The LNG service would be
provided at the existing LNG storage terminal near Savannah, Georgia, that is
owned by Southern Energy Company, a subsidiary of Southern. If sufficient
commitments are obtained and the necessary regulatory approvals are received,
the in-service date for both services is expected to be November 1997. The open
season will continue through July 31, 1995.
Southern also has some operations that are not regulated. Southern's
parent, Sonat Inc., transferred to Southern its investments in three small
unregulated companies effective January 1, 1995. In addition, Sea Robin Pipeline
Company, a wholly owned subsidiary of Southern, has filed a petition with the
FERC requesting it be declared an unregulated gas gathering system.
Sonat Marketing markets almost all of the natural gas production of Sonat
Exploration that is not sold under pre-existing term dedications, and has
15
<PAGE>
responsibility for the execution of Sonat Exploration's risk management program.
With the Sonat Exploration volumes, Sonat Marketing has been able to expand its
presence in Gulf Coast, Midwest, and Northeast markets and, in turn, provide
attractive markets to unaffiliated producers. As a result of these efforts,
Sonat Marketing's daily natural gas sales volumes have recently reached 1.9
billion cubic feet per day.
Sonat Marketing recently signed a 20-year contract to supply natural gas
to Brooklyn Navy Yard Cogeneration Partners, L.P. The gas will help fuel a 286
megawatt cogeneration facility that will provide energy to Consolidated Edison
Company of New York and to the Brooklyn Navy Yard. Natural gas deliveries are
scheduled to begin in April 1996. The contract provides for a volume of 10,000
MMBtu of natural gas per day and a fixed price for 20 years, but for the first
five years of the contract the lower of the fixed price or a market-related
price may be utilized.
Sonat Marketing uses derivative financial instruments to offer fixed
price contracts to its suppliers and customers. (See Commodity Price Risk
Management and Note 2 of the Notes to Condensed Consolidated Financial
Statements.)
Florida Gas, a subsidiary of Citrus, recently completed an expansion
project that went into service on March 1, 1995, known as Phase III, that
increased its system capacity by 530 million cubic feet per day to its present
capacity of 1.5 billion cubic feet per day. As part of Phase III, Florida Gas
contracted for 100 million cubic feet per day of new firm transportation to be
delivered from Southern's system. Also in connection with this expansion,
Florida Gas acquired an interest in an existing pipeline in the Mobile Bay area
that has been expanded to provide over 300 million cubic feet per day to Florida
Gas and is connected to Florida Gas' pipeline system.
It was recently announced that plans by other companies to build a
competitive pipeline into peninsular Florida, which would have been known as the
Sunshine Pipeline, had been abandoned at present. Florida Gas is currently
reviewing the prospects for further expansions of its pipeline system into the
Florida market.
NATURAL GAS TRANSMISSION AND MARKETING
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
Operating Income (Loss):
<S> <C> <C>
Southern Natural Gas Company $53 $49
Sonat Marketing Company 2 4
Other (1) (1)
--- ---
Total Operating Income $54 $52
=== ===
</TABLE>
16
<PAGE>
SOUTHERN NATURAL GAS COMPANY
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
Revenues:
<S> <C> <C>
Gas sales $ 47 $ 87
Market transportation and storage 93 88
Supply transportation 13 11
Other 32 50
---- ----
Total Revenues 185 236
---- ----
Costs and Expenses:
Natural gas cost 45 82
Transition cost recovery and
gas purchase contract
settlement costs 21 43
Operating and maintenance 25 23
General and administrative 21 18
Depreciation and amortization 15 16
Taxes, other than income 5 5
---- ----
132 187
---- ----
Operating Income $ 53 $ 49
==== ====
Equity in Earnings of
Unconsolidated Affiliates $ 3 $ 2
==== ====
</TABLE>
<TABLE>
(Billion Cubic Feet)
Volumes:
<S> <C> <C>
Intrastate gas sales 2 -
Market transportation 178 159
--- ---
Total Market Throughput 180 159
Supply transportation 87 79
--- ---
Total Volumes 267 238
=== ===
Transition Gas Sales 26 33
=== ===
</TABLE>
<TABLE>
SONAT MARKETING COMPANY
<S> <C> <C>
Gas Sales Revenues $229 $231
==== ====
Operating Income $ 2 $ 4
==== ====
</TABLE>
<TABLE>
(Billion Cubic Feet)
<S> <C> <C>
Gas Sales Volumes 142 100
=== ===
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
CITRUS CORP.
<S> <C> <C>
Equity in Earnings of
Citrus Corp. $ 7 $ 1
(Billion Cubic Feet)
Florida Gas Volumes (100%):
Market transportation 93 66
Supply transportation 8 5
--- --
Total Volumes 101 71
=== ==
</TABLE>
Quarter-to-Quarter Analysis
Operating income for the Natural Gas Transmission and Marketing segment
increased 4 percent in the first quarter of 1995 compared with the first quarter
of 1994 due to improved operating results at Southern discussed below partially
offset by lower operating results at Sonat Marketing.
Southern Natural Gas - Operating results for the first quarter of 1995
were up primarily due to higher margins. The positive effect on revenue of a $6
million adjustment to reflect actual interruptible transportation revenue and
cost recovery in the first year of post Order No. 636 operations and the
reduction of a take-or-pay liability was offset by a $6 million reduction in
fuel gas liability in 1994.
Gas sales revenue and gas cost at Southern decreased significantly
compared with the 1994 first quarter as transition gas sales from supply
remaining under contract declined (see Natural Gas Sales and Supply below).
Market transportation and storage revenues increased 6 percent in the
1995 period. Market throughput volumes increased 13 percent in the 1995 period.
Market throughput includes Sonat Intrastate-Alabama Inc. in 1995, ownership of
which was transferred to Southern by Sonat on January 1, 1995. Supply
transportation increased 10 percent due to increased volumes under existing
contracts at Sea Robin Pipeline Company and a new transportation contract at
Southern.
Other revenue decreased in the 1995 period due to a decrease in
take-or-pay cost recovery. Southern's billings for take-or-pay costs were
essentially completed in the first quarter of 1994.
Operating and maintenance expense, excluding the reduction in fuel gas
liability recognized in the 1994 period mentioned above, decreased in 1995
reflecting the impact of the fourth quarter restructuring, which reduced
Southern's staffing level by approximately 27 percent. General and
administrative expenses were up in the same period due to an increase in
stock-based compensation.
Sonat Marketing - Sales volumes increased significantly due to expanding
activities on non-affiliated pipelines. Operating income decreased in the 1995
period due to higher operating expenses associated with expanding activities and
lower unit margins.
18
<PAGE>
Citrus - Equity in earnings of Citrus for the first quarter of 1995
increased $6 million from earnings of $1 million in 1994, principally the result
of higher margins on a gas supply contract with one of its major customers which
was restructured during the second quarter of 1994. Other factors contributing
to higher earnings were the first month of operation of the Phase III expansion
project in March 1995, higher capitalization of financing costs (AFUDC) in 1995
related to Phase III and lower depreciation due to an increase in the estimated
useful life of the pre-Phase III pipeline system.
Transportation Contracts
If the Customer Settlement (described in Note 5 of the Notes to Condensed
Consolidated Financial Statements) becomes effective, Southern's largest
customer, Atlanta Gas Light Company, and its subsidiary, Chattanooga Gas Company
(collectively "Atlanta") will amend their firm transportation contracts for an
aggregate of 682 million cubic feet per day, 582 million cubic feet of which
currently expires on November 1, 1995, and 100 million cubic feet of which
currently expires on June 30, 1997, to extend their primary terms for a period
of three years beginning March 1, 1995. An additional 118 million cubic feet per
day would remain under its current term to April 30, 2007. If the Customer
Settlement becomes effective, South Carolina Pipeline Corporation (SCPL) will
amend its firm transportation contract for 28 million cubic feet per day, which
currently expires on July 31, 1997, to extend its primary term for a period of
three years beginning March 1, 1995. Such extension will be in addition to the
remaining 160 million cubic feet per day of SCPL's firm transportation services
that remain in effect under terms extending from 1997 through 2003. Alabama Gas
Corporation, Southern's second largest customer, had earlier executed firm
transportation contracts for 393 million cubic feet per day under terms
extending through October 31, 2008. Southern's other customers have contracted
for firm transportation services for terms ranging from one to ten or more
years. As a result, substantially all of the firm transportation capacity
currently available in Southern's largest market area is fully subscribed.
Natural Gas Sales and Supply
Sales by Southern of natural gas are anticipated to continue only until
Southern's remaining supply contracts expire, are terminated, or are assigned.
As a result of Order No. 636, Southern is attempting to terminate its remaining
supply contracts through which it had traditionally obtained its long-term gas
supply. Some of these contracts contain clauses requiring Southern either to
purchase minimum volumes of gas under the contract or to pay for it (take-or-pay
clauses). Although Southern currently is incurring no take-or-pay liabilities
under these contracts, the annual weighted average cost of gas under these
contracts is in excess of current spot-market prices. Pending the termination of
these remaining supply contracts, Southern sold a portion of its remaining gas
supply to a number of its firm transportation customers for a one-year term that
began November 1, 1993. A portion of these sales agreements were extended for an
additional one-year term, while the sales agreements with Atlanta were extended
through March 31, 1995. Certain customers, including Atlanta, have advised
Southern that if the Customer Settlement becomes effective, they will extend the
sales agreements with them through November 30, 1997. The remainder of
Southern's gas supply will continue to be sold on a month-to-month basis.
19
<PAGE>
Southern's purchase commitments under its remaining gas supply contracts
for the remainder of 1995 and the years 1996 through 1999 are estimated as
follows:
Estimated
Purchase
Commitments
(In Millions)
1995 $40
1996 50
1997 50
1998 52
1999 34
These estimates are subject to significant uncertainty due both to the
number of assumptions inherent in these estimates and to the wide range of
possible outcomes for each assumption. None of the three major factors that
determine purchase commitments (underlying reserves, future deliverability, and
future price) is known today with certainty. These estimates also exclude
estimated purchase commitments under certain contracts with Exxon that will be
terminated if the Customer Settlement becomes effective. If the Customer
Settlement does not become effective and Southern were therefore required to
perform these contracts, and further assuming that Exxon were to prevail in its
lawsuit contesting the Company's termination of the Mississippi Canyon Contract,
which litigation is described in Note 5 of the Notes to Condensed Consolidated
Financial Statements, these estimates would increase by $114 million in 1995,
$154 million in 1996, $65 million in 1997, $8 million in 1998, and $3 million in
1999. Of these amounts, $89 million in 1995, $126 million in 1996, and $49
million in 1997 is attributable to the Mississippi Canyon Contract. In addition,
as part of its settlement with Exxon, which as noted is contingent on the
effectiveness of the Customer Settlement, Southern and Exxon have agreed to
terminate all their existing gas purchase contracts and to enter into two new
gas purchase contracts having three-year terms and providing for market-based
index prices (which would not constitute gas supply realignment (GSR) costs).
Therefore, if the Customer Settlement becomes effective, these estimates could
increase by $76 million in 1995, $94 million in 1996, and $103 million in 1997
to include these two new contracts with Exxon.
See Note 5 of the Notes to Condensed Consolidated Financial Statements
for a discussion regarding Southern's rate proceedings to recover its GSR costs.
Rate Matters
Several general rate changes have been implemented by Southern and remain
subject to refund. If the Customer Settlement is approved by the FERC and
becomes effective, all outstanding rate and Order No. 636 transition cost
recovery proceedings would be resolved. The settlement would result in reducing
Southern's filed rates to more competitive levels, would reduce somewhat
reported revenues, and would reduce depreciation expense to approximately $40
million in 1995. Although the FERC staff and customers representing more than 95
percent of Southern's firm capacity are in support of the Customer Settlement,
there is no assurance that the settlement will be approved by the FERC. (See
Note 5 of the Notes to Condensed Consolidated Financial Statements for a
discussion of the Customer Settlement and other rate matters.)
20
<PAGE>
Citrus Corp.
The operating results of the Florida Gas Phase III expansion project,
combined with Florida Gas' Order No. 636 restructuring and resultant conversion
to a SFV rate methodology and Citrus' successful renegotiation in 1994 of an
unfavorable contract with one of its major customers, are expected to result in
stable revenues, earnings, and cash flow at Citrus. The results are expected to
be at somewhat lower levels than in 1994 due to the completion of the Phase III
expansion project and the resulting end of AFUDC recognition on the project.
Florida Gas has terminated its gas purchase contracts with a weighted
average cost in excess of current spot-market prices for aggregate costs that
are less than the $160 million maximum amount that it is entitled to recover
from its customers pursuant to its 1993 restructuring settlement under Order No.
636.
Citrus obtains its own financing independent of its parent companies.
Debt financing by Citrus with outside parties generally is nonrecourse to its
parent companies.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
Other Income - Equity in Earnings of Unconsolidated Affiliates:
<S> <C> <C>
Natural Gas Transmission
and Marketing $ 9 $ 3
Other 4 2
---- ----
$ 13 $ 5
==== ====
</TABLE>
Equity in earnings of unconsolidated affiliates increased in 1995 due
primarily to an increase in equity of Citrus (discussed earlier in the Natural
Gas Transmission and Marketing section). Equity in earnings of Sonat Offshore,
included in Other, increased from 1994 due to improved operating results in the
U.S. Gulf of Mexico and for the Polar Pioneer, partially offset by lower
operating income in Mexico.
<TABLE>
<S> <C> <C>
Other Income - Other $ 6 $ 4
</TABLE>
The increase in other income is due to the recognition of a $3 million
gain from the sale of oil and gas properties compared with $1 million in the
prior period.
<TABLE>
<S> <C> <C>
Interest Income (Expense), Net $(26) $(18)
</TABLE>
Interest expense on debt increased primarily due to higher debt levels.
The effect of higher rates in 1995 on the Company's floating rate debt was
offset by the redemption of Southern's $100 million 9 5/8 Percent Notes in June
1994. Higher revenue reserve levels in 1995 also resulted in an increase in
other interest expense.
21
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
<S> <C> <C>
Income Taxes $ 10 $ 18
</TABLE>
The decrease in income taxes resulted from a decrease in pre-tax income
and to a lower effective tax rate. The lower effective tax rate reflects a
higher portion of earnings receiving tax preferential rates in the current
period.
FINANCIAL CONDITION
CASH FLOWS
<TABLE>
<S> <C> <C>
Operating Activities $ 68 $ 173
</TABLE>
Net cash provided by operating activities in 1995 was $105 million lower
than in 1994. Increased outflows at Southern for the Exxon settlement discussed
in Note 5 of the Notes to Condensed Consolidated Financial Statements as well as
lower cash from operations in 1995 at Sonat Exploration contributed to the
decrease. The $17 million decrease in natural gas purchase contract settlement
costs reflects the completion of recoveries of take-or-pay costs in 1994. The
$43 million change in gas supply realignment costs was a result of the $45
million payment for the Exxon settlement described earlier. The primary reasons
for the decrease in cash flow from operations at Exploration were lower gas
prices in 1995 and a gas prepayment received in 1994.
The change in regulatory reserves reflects the reduction in 1995 of
amounts reserved for the volumetric take-or-pay surcharge collected from
December 18, 1993 through April 30, 1994, pursuant to the FERC's acceptance in
February 1995, of Southern's refund report. The improvement in the collection of
receivables at Sonat Marketing as well as the election of some of Southern's
customers to offset amounts they would have received under the provisions of the
take-or-pay refund against amounts they owed Southern for Order No. 636 cost
contributed to the favorable change in accounts receivable. Another factor in
the increase in the change in accounts receivable, which also contributed to the
decrease in the change in accounts payable, was an adjustment at Sonat
Exploration to recognize royalty and joint owners' share of revenue associated
with the estimate process for gas sold to Sonat Marketing. A $9 million tax
refund received in March at Sonat contributed to the fluctuation of accrued
income taxes. The amount in Other in 1995 includes an $8 million noncash change
in other transition costs at Southern as a result of reclassification from GSR
costs while the 1994 amount includes $15 million in gas prepayments at Sonat
Exploration and $9 million collected at Southern through interruptible
transportation services that was for recovery of allocated fixed cost and
amounts to be used to offset customers' GSR liabilities.
<TABLE>
<S> <C> <C>
Investing Activities $(195) $(177)
</TABLE>
Net cash used in investing activities increased $18 million over 1994.
Capital expenditures in 1995 increased $136 million due to the significant
acquisitions at Sonat Exploration discussed earlier. This increase was slightly
offset by higher proceeds in 1995 from disposal of assets at Sonat Exploration
and the net advances of $95.8 million made in 1994 to Citrus.
22
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Millions)
<S> <C> <C>
Financing Activities $126 $13
</TABLE>
Net cash provided by financing activities increased $113 million over
1994. The increase resulted from increased borrowings under Sonat's floating
rate facilities that supplemented cash flow from operations used in financing
acquisitions.
Capital Expenditures
Capital expenditures for the Company's business segments (excluding
unconsolidated affiliates) were as follows:
<TABLE>
<S> <C> <C>
Exploration and Production $206 $65
Natural Gas Transmission and Marketing 7 14
Other 2 -
---- ---
Total $215 $79
==== ===
</TABLE>
The Company's share of capital expenditures by its unconsolidated
affiliates was $59 million and $131 million in the first quarter of 1995 and
1994, respectively.
Liquidity and Capital Resources
At March 31, 1995, the Company had lines of credit and a revolving credit
agreement with a total capacity of $1.05 billion. Of this, $317 million was
unborrowed and available. The amount available under the lines of credit has
been reduced by the amount of commercial paper outstanding of $95 million to
reflect the Company's policy that credit line and commercial paper borrowings in
the aggregate will not exceed the maximum amount available under its lines of
credit and revolving credit agreement. In 1993 Sonat filed a shelf registration
with the Securities and Exchange Commission (SEC) for up to $500 million in debt
securities. The net proceeds from the sale of these debt securities are expected
to be used for general corporate purposes, which may include refinancing of
indebtedness, working capital increases, capital expenditures, possible future
acquisitions, and redemption of securities. Southern also has a shelf
registration with the SEC for up to $200 million in debt securities of which
$100 million has been issued. Southern expects to continue to use cash from
operations and borrowings on the public or private markets or loans from
affiliates to finance its capital and other corporate expenditures.
In 1994 the Board of Directors of the Company authorized the repurchase
of up to two million shares of the Company's common stock. Purchases are being
made from time-to-time on the open market or in privately negotiated
transactions. Shares purchased under the authorization are expected to be
reissued in connection with employee stock option and restricted stock programs.
At March 31, 1995, 1,090,000 shares of common stock had been purchased under the
program.
23
<PAGE>
Cash flow from operations and borrowings in the public or private markets
provide the Company with the means to fund operations and currently planned
investment and capital expenditures. The Company holds four million shares of
Baker Hughes Incorporated convertible preferred stock as well as 11.3 million
shares of Sonat Offshore common stock, both of which could be monetized.
Capitalization Information
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Debt to Capitalization 49% 46%
Book Value Per Share $16.26 $16.11
</TABLE>
COMMODITY PRICE RISK MANAGEMENT
Sonat Exploration and Sonat Marketing use natural gas futures contracts
and options on gas futures and oil and gas price swap agreements to hedge the
effects of spot-market price volatility on operating results.
The Company's use of these instruments is implemented under a set of
policies approved by the Board of Directors. These policies prohibit
speculation, determine approval levels for each transaction, and set limits
regarding volume relative to budgeted production or sales levels. All swap
counterparties are approved by the Board, and volume limits are set for any
single counterparty. Reports detailing each transaction and showing the
Company's aggregate hedge position are prepared daily and distributed to
management. In addition, all hedge activities are internally reviewed to ensure
compliance with all policies. (See Note 2 of the Notes to Condensed Consolidated
Financial Statements.)
NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which will become effective for years beginning after December 15, 1995. The
Company has not yet
determined the effect of the new rules.
24
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Southern Natural Gas Company v. ARCO Oil and Gas Company, d/b/a Vastar
Resources, Inc. and Vastar Resources,Inc. v. Southern Natural Gas Company,
which are described in Item 3 of Part I of the Company's Report on Form 10-K
for the year ending December 31, 1994, were both settled and dismissed.
Pursuant to the settlement, Southern paid Vastar the contract price claimed
by Vastar for all gas delivered.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1995 Annual Meeting of Stockholders in Houston,
Texas, on April 27, 1995. In addition to the election of Directors and an
Auditor, the following matters were voted upon at the Annual Meeting: (1)
approval of the Company's amended and restated Executive Award Plan ("Proposal
No. 2"); and (2) approval of a restricted stock grant program under the
Executive Award Plan ("Proposal No. 3"). The vote on such Proposals was as
follows:
================================================================================
Voted Voted
For Against Abstained
================================================================================
- --------------------------------------------------------------------------------
Proposal No. 2 53,149,737 20,235,764 934,775
- --------------------------------------------------------------------------------
Proposal No. 3 66,212,956 7,081,589 1,025,731
================================================================================
Proposals No. 2 and 3 were approved by the stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits1
Exhibit
Number Exhibits
10.1* Executive Award Plan of Sonat Inc. (as amended and
restated as of April 27, 1995)
- --------
1 The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of 10 cent per page up to a maximum of $5.00
per exhibit. Requests must be in writing and should be addressed to Beverley T.
Krannich, Secretary, Sonat Inc., P. O. Box 2563, Birmingham, Alabama 35202-
2563.
25
<PAGE>
(a) Exhibits (continued)
Exhibit
Number Exhibits
10.2* Amendatory Agreement dated March 1, 1994, to Service Agreements (Nos.
904480, 904481 and S20140) effective November 1, 1994 between Southern Natural
Gas Company and Atlanta Gas Light Company
10.3* Amendatory Agreement dated March 1, 1994 to Service Agreements (No.
902470) effective September 1, 1994 and (Nos. 904460, 904461 and S20150)
effective November 1, 1994, between Southern Natural Gas Company and Atlanta Gas
Light Company
10.4* Amendatory Agreement dated March 1, 1995, to Service Agreements (No.
901710) effective June 1, 1994 and (No. 902516) effective October 1, 1994
between Southern Natural Gas Company and South Carolina Pipeline Corporation
11* Computation of Earnings per Share
12* Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule for the period ended March 31, 1995
* Filed with this Report
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the quarter ended
March 31, 1995.
26
<PAGE>
SONAT INC. AND SUBSIDIARIES
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.
SONAT INC.
Date: May 12, 1995 By: /s/ Thomas W. Barker, Jr.
------------------------- ----------------------------
Thomas W. Barker, Jr.
Vice President-Finance and
Treasurer
Date: May 12, 1995 By: /s/ Ronald B. Pruet, Jr.
------------------------- ----------------------------
Ronald B. Pruet, Jr.
Vice President & Controller
27
<PAGE>
EXHIBIT 10.1
EXECUTIVE AWARD PLAN
OF
SONAT INC.
(As Amended and Restated as of April 27, 1995)
I. GENERAL
1.1 Purpose of the Plan
The Executive Award Plan (the "Plan") of Sonat Inc. (the "Company") is
intended to advance the best interests of the Company and its subsidiaries by
providing key employees with additional incentives through the grant of options
("Options") to purchase shares of Common Stock of the Company ("Common Stock")
and through the award of shares of restricted Common Stock ("Restricted Stock"),
thereby increasing the personal stake of such employees in the continued success
and growth of the Company and encouraging them to remain in the employ of the
Company.
The Plan was adopted effective May 1, 1981, and has been amended at
various times. The provisions of the Plan as hereby amended and restated may, at
the discretion of the Committee referred to below, be made available to all
grants outstanding on the effective date of this Amendment and Restatement, and
all awards granted after such date, except that no such provision shall alter
any outstanding grant in a manner unfavorable to the holder thereof without the
written consent of the holder.
1.2 Administration of the Plan
(a) The Plan shall be administered by the Executive Compensation
Committee or other designated committee (the "Committee") of the Board of
Directors of the Company (the "Board of Directors") which shall consist of at
least three Directors all of whom are not eligible to participate in the Plan
and are "disinterested" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934. The Committee shall have authority to interpret
conclusively the provisions of the Plan, to adopt such rules and regulations for
carrying out the Plan as it may deem advisable, to decide conclusively all
questions of fact arising in the application of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions and acts of the Committee shall be final and binding upon all affected
Plan participants.
(b) The Committee shall meet once each fiscal year, and at such
additional times as it may determine or at the request of the chief executive
officer of the Company, to designate the eligible employees, if any, to be
granted awards under the Plan and the type and amount of such awards and the
time when awards will be
<PAGE>
granted. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.3 Eligible Participants
Key employees, including officers, of the Company and its subsidiaries,
and of partnerships or joint ventures in which the Company and its subsidiaries
have a significant ownership interest as determined by the Committee (all of
such subsidiaries, partnerships and joint ventures being referred to as
"Subsidiaries") shall be eligible to participate in the Plan. Directors who are
not employees of the Company or its Subsidiaries shall not be eligible to
participate in the Plan.
1.4 Awards Under the Plan
Awards under the Plan may be in the form of (i) Options to purchase
shares of Common Stock, (ii) Stock Appreciation Rights issued in tandem with
such Options, (iii) shares of Restricted Stock, (iv) Supplemental Payments with
respect to Options, Stock Appreciation Rights and Restricted Stock, or (v) any
combination of the foregoing.
1.5 Shares Subject to the Plan
The aggregate number of shares of Common Stock which may be issued with
respect to Options or Restricted Stock granted after April 27, 1995 (including
Stock Appreciation Rights and Supplemental Payments related thereto) shall not
exceed (i) 4,000,000 shares plus (ii) the number of shares previously authorized
for use in the Plan which have not been issued or have again become available
for grants pursuant to the following paragraph. At no time shall the number of
shares issued plus the number of shares subject to outstanding awards under the
Plan exceed the number of shares that may be issued under the Plan. Options with
respect to more than 250,000 shares of Common Stock shall not be granted to any
optionee in any 12- month period. Shares distributed pursuant to the Plan may
consist of authorized but unissued shares or treasury shares of the Company, as
shall be determined from time to time by the Board of Directors.
If any Option under the Plan shall expire, terminate or be cancelled
(except upon the holder's exercise of a related Stock Appreciation Right) for
any reason without having been exercised in full, or if any shares of Restricted
Stock shall be forfeited to the Company, the unexercised Options and forfeited
shares of Restricted Stock shall not count against the above limit and shall
again become available for grants under the Plan (regardless of whether the
holder of such Options or shares received dividends or other economic benefits
with respect to such Options or shares). Shares of Common Stock equal in number
to the shares surrendered in payment of the option price, and shares of Common
Stock which are withheld in order to satisfy federal,
- 2 -
<PAGE>
state or local tax liability, shall not count against the above limit and shall
again become available for grants under the Plan. Notwithstanding the foregoing,
any shares which were authorized for issuance under the Plan as in effect on
April 25, 1985 shall not be available for issuance with respect to awards
granted after April 24, 1995.
1.6 Other Compensation Programs
The existence and terms of the Plan shall not limit the authority of
the Board of Directors in compensating employees of the Company and its
subsidiaries in such other forms and amounts, including compensation pursuant to
any other plans as may be currently in effect or adopted in the future, as it
may determine from time to time.
II. STOCK OPTIONS
2.1 Terms and Conditions of Options
Subject to the following provisions, all Options granted under the Plan
shall be in such form and shall have such terms and conditions as the Committee,
in its discretion, may from time to time determine.
(a) Option Price. The option price per share shall not be less than the
fair market value of the Common Stock (as determined by the Committee) on the
date the Option is granted.
(b) Term of Option. The term of an Option shall not exceed ten
years from the date of grant, and, notwithstanding any other provision
of this Plan, no Option shall be exercised after the expiration of its
term.
(c) Exercise of Options. Options shall be exercisable at such
time or times and subject to such terms and conditions as the Committee
shall specify in the Option grant. The Committee shall have discretion
to at any time declare all or any portion of the Options held by any
optionee to be immediately exercisable. An Option may be exercised in
accordance with its terms as to any or all shares purchasable
thereunder.
(d) Payment for Shares. Payment for shares as to which an
Option is exercised shall be made in such manner and at such time or
times as shall be provided by the Committee in the Option grant.
Payment may be made in cash or in such other manner as the Committee in
its discretion may authorize.
(e) Nontransferability of Options. No Option or any interest therein shall
be transferable by the optionee other than by will or by the laws of
- 3 -
PAGE>
descent and distribution. During an optionee's lifetime, all Options
shall be exercisable only by such optionee or by the guardian or legal
representative of the optionee.
(f) Shareholder Rights. The holder of an Option shall, as such, have none
of the rights of a shareholder.
(g) Termination of Employment. The Committee
shall have discretion to specify in the Option grant or an amendment thereof,
provisions with respect to the period, not extending beyond the term of the
Option, during which the Option may be exercised following the optionee's
termination of employment.
(h) Change of Control. Notwithstanding the exercisability schedule
governing any Option, upon the occurrence of a Change of Control (as defined in
Section 4.9) all Options outstanding at the time of such Change of Control and
held by optionees who are employees of the Company or its Subsidiaries at the
time of such Change of Control shall become immediately exercisable and, unless
the optionee agrees otherwise in writing, shall remain exercisable for a period
of three years following the optionee's termination of employment or such longer
period as may be provided in the Option.
2.2 Stock Appreciation Rights in Tandem with Options
(a) The Committee may, either at the time of grant of an Option or at
any time during the term of the Option, grant Stock Appreciation Rights with
respect to all or any portion of the shares of Common Stock covered by such
Option. A Stock Appreciation Right may be exercised at any time the Option to
which it relates is then exercisable, but only to the extent the Option to which
it relates is exercisable, and shall be subject to the conditions applicable to
such Option. When a Stock Appreciation Right is exercised, the Option to which
it relates shall cease to be exercisable to the extent of the number of shares
with respect to which the Stock Appreciation Right is exercised. Similarly, when
an Option is exercised, the Stock Appreciation Rights relating to the shares
covered by such Option exercise shall terminate. Any Stock Appreciation Right
which is outstanding on the last day of the term of the related Option (as
determined pursuant to Section 2.1(b)) shall be automatically exercised on such
date for cash without any action by the optionee.
(b) Upon exercise of a Stock Appreciation Right, the holder shall
receive, for each share with respect to which the Stock Appreciation Right is
exercised, an amount (the "Appreciation") equal to the difference between the
option price per share of the Option to which the Stock Appreciation Right
relates and the fair market value (as determined by the Committee) of a share of
Common Stock on the date of exercise of the Stock Appreciation Right. The
Appreciation shall be payable in cash,
- 4 -
<PAGE>
Common Stock, or a combination of both, at the option of the Committee, and
shall be paid within 30 days of the exercise of the Stock Appreciation Right.
(c) Notwithstanding the foregoing, if a Stock Appreciation Right is
exercised within 60 days of the occurrence of a Change of Control, (i) the
Appreciation and any Supplemental Payment (as defined in Section 2.3) to which
the holder is entitled shall be payable solely in cash if the Stock Appreciation
Right has been outstanding at least six months and solely in Common Stock in all
other cases, and (ii) in addition to the Appreciation and the Supplemental
Payment (if any), the holder shall receive (in cash, if the Stock Appreciation
Right has been outstanding for at least six months, and in Common Stock in all
other cases) (1) the amount by which the greater of (a) the highest market price
per share of Common Stock during the 60-day period preceding exercise of the
Stock Appreciation Right or (b) the highest price per share of Common Stock (or
the cash-equivalent thereof as determined by the Board of Directors) paid by an
acquiring person during the 60-day period preceding a Change of Control, exceeds
the Appreciation, plus (2) if the holder is entitled to a Supplemental Payment,
an additional payment, calculated under the same formula as used for calculating
such holder's Supplemental Payment, with respect to the amount referred to in
clause (1) of this sentence.
2.3 Supplemental Payment on Exercise of Options or Stock Appreciation Rights
The Committee, either at the time of grant or at the time of exercise
of any Option or related Stock Appreciation Right, may provide for a
supplemental payment (the "Supplemental Payment") by the Company to the optionee
with respect to the exercise of any Option or related Stock Appreciation Right.
The Supplemental Payment shall be in the amount specified by the Committee,
which shall not exceed, but may be equal to, the amount necessary to pay the
federal income tax payable with respect to both exercise of the Option or
related Stock Appreciation Right and receipt of the Supplemental Payment,
assuming the optionee is taxed at the maximum effective federal income tax rate
applicable thereto. The Supplemental Payment shall be paid in cash, Common
Stock, or a combination of both, at the option of the Committee. The
Supplemental Payment shall be paid within 30 days of the date of exercise of an
Option or Stock Appreciation Right (or, if later, within 30 days of the date on
which income is recognized for federal income tax purposes with respect to such
exercise).
2.4 Statutory Options
Subject to the limitations on Option terms set forth in Section 2.1,
the Committee shall have the authority to grant (i) incentive stock options
within the meaning of Section 422 of the Code and (ii) Options containing such
terms and conditions as shall be required to qualify such Options for
preferential tax treatment under the Code as in effect at the time of such
grant. Options granted pursuant to
- 5 -
<PAGE>
this Section 2.4 may contain such other terms and conditions permitted by
Article II of this Plan as the Committee, in its discretion, may from time to
time determine (including, without limitation, provision for Stock Appreciation
Rights and Supplemental Payments), to the extent that such terms and conditions
do not cause the Options to lose their preferential tax treatment. To the extent
the Code and Regulations promulgated thereunder require a plan to contain
specified provisions in order to qualify options for preferential tax treatment,
such provisions shall be deemed to be stated in this Plan.
III. RESTRICTED STOCK
3.1 Terms and Conditions of Restricted Stock Awards
Subject to the following provisions, all awards of Restricted Stock
shall be in such form and shall have such terms and conditions as the Committee,
in its discretion, may from time to time determine:
(a) The Restricted Stock award shall specify the number of
shares of Restricted Stock to be awarded, the price, if any, to be paid
by the recipient of the Restricted Stock, and the date or dates on
which the Restricted Stock will vest. The vesting of Restricted Stock
may be conditioned upon the completion of a specified period of service
with the Company or its Subsidiaries, upon the attainment of specified
performance goals, or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Stock certificates representing the Restricted Stock
granted to an employee shall be registered in the employee's name. Such
certificates shall either be held by the Company on behalf of the
employee, or delivered to the employee bearing a legend to restrict
transfer of the certificate until the Restricted Stock has vested, as
determined by the Committee. The Committee shall determine whether the
employee shall have the right to vote and/or receive dividends on the
Restricted Stock before it has vested. No share of Restricted Stock may
be sold, transferred, assigned, or pledged by the employee until such
share has vested in accordance with the terms of the Restricted Stock
award. In the event of an employee's termination of employment before
all of his Restricted Stock has vested, or in the event other
conditions to the vesting of Restricted Stock have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth
in the award, the shares of Restricted Stock which have not vested
shall be forfeited and any purchase price paid by the employee shall be
returned to the employee. At the time Restricted Stock vests (and, if
the employee has been issued legended certificates of Restricted Stock,
upon the return of such certificates to the Company), a certificate for
such vested shares shall be delivered to the
- 6 -
<PAGE>
employee (or the beneficiary designated by the employee in the
event of death), free of all restrictions.
(c) Notwithstanding the vesting conditions set forth in the
Restricted Stock award, (i) the Committee may in its discretion
accelerate the vesting of Restricted Stock at any time, and (ii) all
shares of Restricted Stock shall vest upon a Change of Control of the
Company.
3.2 Supplemental Payment on Vesting of Restricted Stock
The Committee, either at the time of grant or at the time of vesting of
Restricted Stock, may provide for a Supplemental Payment by the Company to the
employee in an amount specified by the Committee which shall not exceed, but may
be equal to, the amount necessary to pay the federal income tax payable with
respect to both the vesting of the Restricted Stock and receipt of the
Supplemental Payment, assuming the employee is taxed at the maximum effective
federal income tax rate applicable thereto and has not elected to recognize
income with respect to the Restricted Stock before the date such Restricted
Stock vests. The Supplemental Payment shall be paid within 30 days of each date
that Restricted Stock vests. The Supplemental Payment shall be paid in cash or
Common Stock, in the discretion of the Committee, except that in the event of a
Change of Control the Supplemental Payment shall be paid in cash.
IV. ADDITIONAL PROVISIONS
4.1 General Restrictions
Each award under the Plan shall be subject to the requirement that, if
at any time the Committee shall determine that (i) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by the
recipient of an award with respect to the disposition of shares of Common Stock
is necessary or desirable (in connection with any requirement or interpretation
of any federal or state securities law, rule or regulation) as a condition of,
or in connection with, the granting of such award or the issuance, purchase or
delivery of shares of Common Stock thereunder, such award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
- 7 -
<PAGE>
4.2 Adjustments for Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off, sale of assets, payment of an extraordinary cash
dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate adjustment
in the number and kind of shares authorized by the Plan (including any
limitations on individual awards), in the number, price or kind of shares
covered by the awards and in any outstanding awards under the Plan.
4.3 Amendments
(a) The Board of Directors may amend the Plan from time to time. No
such amendment shall require approval by the stockholders unless stockholder
approval is required by applicable law or stock exchange requirements.
(b) The Committee shall have the authority to amend any grant to
include any provision which, at the time of such amendment, is authorized under
the terms of the Plan; however, no outstanding award may be revoked or altered
in a manner unfavorable to the holder without the written consent of the holder.
4.4 Cancellation of Awards
Any award granted under the Plan may be cancelled at any time with the
consent of the holder and a new award may be granted to such holder in lieu
thereof, which award may, in the discretion of the Committee, be on more
favorable terms and conditions than the cancelled award.
4.5 Withholding
(a) Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax liability prior to the delivery of any
certificate for such shares. Whenever under the Plan payments are to be made in
cash, such payments shall be net of an amount sufficient to satisfy any federal,
state or local withholding tax liability.
(b) An employee entitled to receive Common Stock under the Plan who has
not received a cash Supplemental Payment may elect to have the federal, state
and local tax liability (or a specified portion thereof) with respect to such
Common Stock satisfied by having the Company withhold from the shares otherwise
deliverable to the employee shares of Common Stock having a value equal to the
amount of the tax
- 8 -
<PAGE>
liability to be satisfied with respect to the Common Stock. An election to have
all or a portion of the tax liability satisfied using Common Stock shall comply
with such requirements as may be imposed by the Committee and shall be subject
to the disapproval of the Committee (expressed either prior to or within two
days after the making of such election).
4.6 Non-Assignability
Except as expressly provided in the Plan, no award under the Plan shall
be assignable or transferable by the holder thereof except by will or by the
laws of descent and distribution. During the life of the holder, awards under
the Plan shall be exercisable only by such holder or by the guardian or legal
representative of such holder.
4.7 Non-Uniform Determinations
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive awards; the form, amount
and timing of such awards; the terms and provisions of such awards and the
agreements evidencing same; and provisions with respect to termination of
employment) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated.
4.8 No Guarantee of Employment
The grant of an award under the Plan shall not constitute an assurance
of continued employment for any period.
4.9 Change of Control
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as in effect on March 1, 1985)
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934 as in effect on March
1, 1985) of securities of the Company representing 35% or more of the
voting power of the outstanding securities of the Company having the
right under ordinary circumstances to vote at an election of the Board
of Directors,
(ii) there shall occur a change in the composition of a
majority of the Board of Directors within any period of three
consecutive years which change shall not have been approved by a
majority of the Board of Directors as constituted immediately prior to
the commencement of such period, or
- 9 -
<PAGE>
(iii) at any meeting of the stockholders of the Company called
for the purpose of electing directors, all persons nominated by the
Board of Directors for election as directors shall fail to be elected.
4.10 Duration and Termination
(a) The Plan shall be of unlimited duration. Notwithstanding the
foregoing, no incentive stock option (within the meaning of Section 422 of the
Code) shall be granted under the Plan after April 26, 2005, but awards granted
prior to such date may extend beyond such date, and the terms of this Plan shall
continue to apply to all awards granted hereunder.
(b) The Board of Directors may discontinue or terminate the Plan at any
time. Such action shall not impair any of the rights of any holder of any award
outstanding on the date of the Plan's discontinuance or termination without the
holder's written consent.
This document (a) incorporates into a single document the provisions of
the Plan as amended and restated as of December 3, 1993, (b) amends the Plan to
increase the number of shares available for issuance by 4,000,000, (c) extends
the period during which incentive stock options may be granted under the Plan,
and (d) makes certain technical amendments regarding the manner of determining
the number of shares available under the Plan.
IN WITNESS WHEREOF, this document has been executed as of April 27,
1995.
SONAT INC.
by: /s/ Ronald L. Kuehn, Jr.
Ronald L. Kuehn, Jr.
Chairman of the Board,
President and Chief Executive Officer
- 10 -
<PAGE>
EXHIBIT 10.2
AMENDATORY AGREEMENT
This Amendment is entered into this 1st day of March, 1995, between
SOUTHERN NATURAL GAS COMPANY ("Company") and ATLANTA GAS LIGHT COMPANY
("Shipper").
W I T N E S S E T H:
WHEREAS, Company and Shipper are parties to a firm transportation
agreement dated November 1, 1994, (#904480) for 5,173 Mcf per day ("FT
Agreement"), a firm transportation-no notice agreement dated November 1, 1994,
(#904481) for 6,764 Mcf per day ("FT-NN Agreement"), and a contract storage
service agreement dated November 1, 1994, (#S20140) for 334,997 Mcf ("CSS
Agreement"); and
WHEREAS, Shipper has agreed to support the Stipulation and Agreement
filed by Company in Docket Nos. RP89-224, et al., on March 15, 1995
("Stipulation"); and
WHEREAS, under the terms of the Stipulation, Shipper has agreed to
extend the primary terms of the FT Agreement, the FT-NN Agreement and the CSS
Agreement, all as more specifically provided herein;
NOW THEREFORE, in consideration for the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Section 4.1 of the FT Agreement, FT-NN Agreement and CSS Agreement,
respectively, shall be deleted in their entirety and the following Section 4.1
substituted therefor in each agreement:
4.1 Subject to the provisions hereof, this Agreement
shall become effective as of the date first
hereinabove written and shall be in full force and
effect for a primary term through February 28, 1998,
and shall continue and remain in force and effect for
successive terms of one year each thereafter if the
parties mutually agree in writing to each such yearly
extension at least 60 days prior to the end of the
primary term or any subsequent yearly extension.
2. This Amendment is conditioned on the Stipulation becoming effective
as provided in Article XVIII thereof and the Stipulation not otherwise being
terminated pursuant to its terms. If the Stipulation does not become effective,
or if it terminates pursuant to the terms of the Stipulation, then either party
may give prior written notice to
<PAGE>
Amendatory Agreement
Page 2
the other party that it wishes to amend Section 4.1 of the FT Agreement, the
FT-NN Agreement and the CSS Agreement to provide that the respective primary
terms under such agreements shall extend through the later of October 31, 1995,
or ninety (90) days after the date that the Stipulation terminates. Within
fifteen (15) days after the Stipulation terminates, the parties shall execute
any documents necessary to effectuate the foregoing provision. If the
Stipulation becomes effective, then within fifteen (15) days after such
effective date, the parties shall execute such other amendments to the firm
transportation service agreements provided for in paragraph 1(b) of Article XV
of the Stipulation.
3. As provided in paragraph 2(a) of Article IV of the Stipulation, this
amendment is subject to the provisions of Articles III, paragraph 4 and XII,
paragraph 5 of the Stipulation.
4. Except as provided herein, the FT Agreement, the FT-NN Agreement and the
CSS Agreement shall remain in full force and effect as written.
5. This Amendment is subject to all applicable, valid laws, orders,
rules and regulations of any governmental entity having jurisdiction over the
parties or the subject matter hereof.
WHEREFORE, the parties have executed this Amendment through their duly
authorized representatives to be effective as of the date first written above.
ATTEST: SOUTHERN NATURAL GAS COMPANY
By: /s/ R. David Hendrickson By: /s/ Joel Anderson
Title: Secretary Title: Vice President
ATTEST: ATLANTA GAS LIGHT COMPANY
By: /s/ Melanie M. Platt By: /s/ Stephen J. Gunther
Title: Corporate Secretary Title: Vice President /EGD
<PAGE>
EXHIBIT 10.3
AMENDATORY AGREEMENT
This Amendment is entered into this 1st day of March, 1995, between
SOUTHERN NATURAL GAS COMPANY ("Company") and ATLANTA GAS LIGHT COMPANY
("Shipper").
W I T N E S S E T H:
WHEREAS, Company and Shipper are parties to a firm transportation
agreement dated September 1, 1994, (#902470) for 100,000 Mcf per day ("September
FT Agreement"), a firm transportation agreement dated November 1, 1994,
(#904460) for 259,812 Mcf per day ("November FT Agreement"), a firm
transportation-no notice agreement dated November 1, 1994, (#904461) for 406,222
Mcf per day ("FT-NN Agreement"), and a contract storage service agreement dated
November 1, 1994, (#S20150) for 20,117,674 Mcf ("CSS Agreement"); and
WHEREAS, Shipper has agreed to support the Stipulation and Agreement
filed by Company in Docket Nos. RP89-224, et al., on March 15, 1995
("Stipulation"); and
WHEREAS, under the terms of the Stipulation, Company has agreed to
discount Shipper's rates and charges under the September FT Agreement and
Shipper has agreed to extend the primary terms of the September FT Agreement,
the November FT Agreement, the FT-NN Agreement and the CSS Agreement, all as
more specifically provided herein;
NOW THEREFORE, in consideration for the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Section 4.1 of the September FT Agreement, FT-NN Agreement and CSS
Agreement, respectively, shall be deleted in their entirety and the following
Section 4.1 substituted therefor in each agreement:
4.1 Subject to the provisions hereof, this Agreement
shall become effective as of the date first
hereinabove written and shall be in full force and
effect for a primary term through February 28, 1998,
and shall continue and remain in force and effect for
successive terms of one year each thereafter if the
parties mutually agree in writing to each such yearly
extension at least 60 days prior to the end of the
primary term or any subsequent yearly extension.
<PAGE>
Amendatory Agreement
Page 2
2. Section 4.1 of the November FT Agreement shall be deleted in its
entirety and the following Section 4.1 substituted therefor:
4.1 Subject to the provisions hereof, this Agreement shall become
effective as of the date first hereinabove written and shall
be in full force and effect for a primary term through the
following dates: (a) April 30, 2007 for 114,905 Mcf per day of
Transportation Demand and June 30, 2007 for 1,000 Mcf per day
of Transportation Demand, and shall continue and remain in
force and effect for successive terms of one year each after
the end of each primary term for the specified volume, unless
and until cancelled with respect to the associated volume by
either party giving 180 days written notice to the other party
prior to the end of the specified primary term or any yearly
extension thereof; and (b) February 28, 1998, for 143,907 Mcf
per day of Transportation Demand, and shall continue and
remain in force and effect for successive terms of one year
each thereafter if the parties mutually agree in writing to
each such yearly extension at least 60 days prior to the end
of the primary term or subsequent yearly extension.
3. The current Exhibit E to the September FT Agreement shall be deleted
in its entirety and the 1st Revised Exhibit E attached hereto effective March 1,
1995, shall be substituted therefor.
4. This Amendment is conditioned on the Stipulation becoming effective
as provided in Article XVIII thereof and the Stipulation not otherwise being
terminated pursuant to its terms. If the Stipulation does not become effective
or if it terminates pursuant to its terms, then either party may give prior
written notice to the other party to (a) reinstate the primary term and Exhibit
E which were in effect under the September FT Agreement prior to the date of
this Amendment, and (b) amend Section 4.1 of the November FT Agreement, the
FT-NN Agreement, and the CSS Agreement to provide that the respective primary
terms under such agreements which were extended herein through February 28,
1998, shall extend through the later of October 31, 1995, or ninety (90) days
after the date that the Stipulation terminates. Within fifteen (15) days after
the Stipulation terminates, the parties shall execute any documents necessary to
effectuate the foregoing provision. If the Stipulation becomes effective, then
within fifteen (15) days after such effective date, the parties shall execute
such other amendments to the firm transportation service agreements provided for
in paragraph 1(b) of Article XV of the Stipulation.
<PAGE>
Amendatory Agreement
Page 3
5. As provided in paragraph 2(a) of Article IV of the Stipulation, this
amendment is subject to the provisions of Articles III, paragraph 4 and XII,
paragraph 5 of the Stipulation.
6. Except as provided herein, the September FT Agreement, the November
FT Agreement, the FT-NN Agreement and the CSS Agreement shall remain in full
force and effect as written.
7. This Amendment is subject to all applicable, valid laws, orders,
rules and regulations of any governmental entity having jurisdiction over the
parties or the subject matter hereof.
WHEREFORE, the parties have executed this Amendment through their duly
authorized representatives to be effective as of the date first written above.
ATTEST: SOUTHERN NATURAL GAS COMPANY
By: /s/ R. David Hendrickson By: /s/ Joel Anderson
Title: Secretary Title: Vice President
ATTEST: ATLANTA GAS LIGHT COMPANY
By: /s/ Melanie M. Platt By: /s/ Stephen J. Gunther
Title: Corporate Secretary Title: Vice Presid/EGD
<PAGE>
Service Agreement No. 902470
FIRST REVISED
EXHIBIT E
DISCOUNT INFORMATION
Discounted Rates:
(1) The Reservation Charge under this Agreement shall be $10.50/Mcf;
(2) The applicable GSR Cost Surcharge and GSR Volumetric Surcharge shall be
capped at 50% each;
(3) All other surcharges shall be assessed at full rate under this
Agreement.
Discounted Rate Effective from 3/1/95 to 2/28/98,
subject to the termination provisions of the Amendatory Agreement
between the parties dated March 1, 1995, pursuant to which this revised
Exhibit E was established.
/s/ Stephen J. Gunther /s/ Joel Anderson
ATLANTA GAS LIGHT COMPANY SOUTHERN NATURAL GAS COMPANY
<PAGE>
EXHIBIT 10.4
AMENDATORY AGREEMENT
This Amendment is entered into this 1st day of March, 1995, between
SOUTHERN NATURAL GAS COMPANY ("Company") and SOUTH CAROLINA PIPELINE CORPORATION
("Shipper").
W I T N E S S E T H:
WHEREAS, Company and Shipper are parties to a firm transportation
agreement dated June 1, 1994, (#901710) for 77,217 Mcf per day ("June FT
Agreement"), and a firm transportation agreement dated October 1, 1994,
(#902516) for 28,000 Mcf per day ("October FT Agreement"); and
WHEREAS, Shipper has agreed to support the Stipulation and Agreement
filed by Company in Docket Nos. RP89-224, et al., on March 15, 1995
("Stipulation"); and
WHEREAS, under the terms of the Stipulation, Company has agreed to
discount Shipper's rates and charges under the October FT Agreement and Shipper
has agreed to extend the primary terms of the June FT Agreement and the October
FT Agreement, all as more specifically provided herein;
NOW THEREFORE, in consideration for the premises and the mutual
promises and covenants contained herein, the parties agree as follows:
1. Section 4.1 of the June FT Agreement shall be deleted in its entirety
and the following Section 4.1 substituted therefor:
4.1 Subject to the provisions hereof, this Agreement
shall become effective as of the date first
hereinabove written and shall be in full force and
effect for a primary term through the following
dates: October 31, 2003 for 17,217 Mcf per day of
Transportation Demand, October 31, 2000 for 5,000 Mcf
per day of Transportation Demand, October 31, 1998
for 5,000 Mcf per day of Transportation Demand, and
March 31, 1997 for 50,000 Mcf per day of
Transportation Demand; and shall continue and remain
in force and effect for successive terms of one year
each after the end of each primary term for the
specified volume, unless and until cancelled with
respect to the associated volume by either party
giving 180 days written notice to the other party
prior to the
<PAGE>
Amendatory Agreement
Page 2
end of the specified primary term or any yearly
extension thereof.
2. Section 4.1 of the October FT Agreement shall be deleted in its entirety
and the following Section 4.1 substituted therefor:
4.1 Subject to the provisions hereof, this Agreement
shall become effective as of the date first
hereinabove written and shall be in full force and
effect for a primary term through February 28, 1998,
and shall continue and remain in force and effect for
successive terms of one year each thereafter unless
and until cancelled by either party giving 180 days
written notice to the other party prior to the end of
the primary term or any yearly extension thereof.
3. The current Exhibit E to the October FT Agreement shall be deleted
in its entirety and the 1st Revised Exhibit E attached hereto effective March 1,
1995, shall be substituted therefor.
4. This Amendment is conditioned on the Stipulation becoming effective
as provided in Article XVIII thereof and the Stipulation not otherwise being
terminated pursuant to its terms. If the Stipulation does not become effective,
or if it terminates pursuant to the terms of the Stipulation, then either party
may give prior written notice to the other party that it wishes to reinstate the
primary term of the June FT Agreement and the primary term and Exhibit E which
were in effect under the October FT Agreement prior to the date of this
Amendment. The parties agree to execute an appropriate amendment to the June FT
Agreement and the October FT Agreement to reinstate the foregoing provisions as
of the first day of the month following such notice.
5. Except as provided herein, the June FT Agreement and the October FT
Agreement shall remain in full force and effect as written.
6. This Amendment is subject to all applicable, valid laws, orders,
rules and regulations of any governmental entity having jurisdiction over the
parties or the subject matter hereof.
<PAGE>
Amendatory Agreement
Page 3
WHEREFORE, the parties have executed this Amendment through their duly
authorized representatives to be effective as of the date first written above.
ATTEST: SOUTHERN NATURAL GAS COMPANY
By: /s/ R. David Hendrickson By: /s/ Greg P. Meyers
Title: Secretary Title: Vice Presid/JHP
ATTEST: SOUTH CAROLINA PIPELINE CORPORATION
By: /s/ Sara A. Davis By: /s/ H. Thomas Arthur
Title: Assistant Secretary Title: Vice President and General Counsel
<PAGE>
Service Agreement No. 902516
FIRST REVISED
EXHIBIT E
DISCOUNT INFORMATION
Discounted Rates:
(1) The Reservation Charge under this Agreement shall be $10.50/Mcf;
(2) The applicable GSR Cost Surcharge and GSR Volumetric Surcharge
shall each be capped at 50% of the maximum applicable GSR Cost
Surcharge and GSR Volumetric Surcharge in effect under
Company's FERC Gas Tariff, Seventh Revised Volume No. 1;
(3) All other surcharges shall be assessed at full rate under this
Agreement.
Discounted Rate Effective from 3/1/95 to 2/28/98,
subject to the termination provisions of the Amendatory Agreement
between the parties dated March 1, 1995, pursuant to which this revised
Exhibit E was established.
/s/ H. Thomas Arthur /s/ Greg P. Meyers
SOUTH CAROLINA PIPELINE CORPORATION SOUTHERN NATURAL GAS COMPANY/ JHP
<PAGE>
Exhibit 11
SONAT INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
(In Thousands Except
Per-Share Amounts)
Primary Earnings Per Share(1)
<S> <C> <C>
Net Income $37,617 $49,610
======= =======
Common Stock and Common Stock Equivalents:
Weighted Average Number of Shares
of Common Stock Outstanding 86,352 87,177
Common Stock Equivalents Applicable
to Outstanding Stock Options 747 947
------- -------
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalents Outstanding 87,099 88,124
======= =======
Primary Earnings Per Share $ .43 $ .56
======= =======
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%. For this
reason, the primary earnings per share amounts shown for both periods do
not agree with primary earnings per share shown on the Condensed
Consolidated Statements of Income in Part I.
<PAGE>
EXHIBIT 12
SONAT INC. AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
---------------------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $45,187 $67,323 $154,871 $364,198 $133,728 $ 98,374 $127,811
Fixed charges (see computation below) 44,342 30,355 125,916 128,468 156,428 175,980 165,021
Less allowance for interest capitalized (1,758) (1,615) (6,692) (4,101) (8,422) (7,951) (6,184)
------- ------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed Charges $87,771 $96,063 $274,095 $488,565 $281,734 $266,403 $286,648
======= ======= ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $42,061 $28,541 $120,295 $122,204 $149,165 $168,510 $158,550
Rentals(b) 2,281 1,814 5,621 6,264 7,263 7,470 6,471
------- ------- -------- -------- -------- -------- --------
$44,342 $30,355 $125,916 $128,468 $156,428 $175,980 $165,021
======= ======= ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.0 3.2 2.2 3.8 1.8 1.5 1.7
======= ======= ======== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Amounts include the Company's portion of the captions as they relate to
persons accounted for by the equity method.
(b) These amounts represent 1/3 of rentals which approximate the interest
factor applicable to such rentals of the Company and its subsidiaries and
continuing unconsolidated affiliates.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 8,130
<SECURITIES> 0
<RECEIVABLES> 220,990
<ALLOWANCES> 0
<INVENTORY> 26,345
<CURRENT-ASSETS> 313,875
<PP&E> 4,875,268
<DEPRECIATION> 2,514,760
<TOTAL-ASSETS> 3,628,581
<CURRENT-LIABILITIES> 544,488
<BONDS> 1,070,433
<COMMON> 87,252
0
0
<OTHER-SE> 1,316,654
<TOTAL-LIABILITY-AND-EQUITY> 3,628,581
<SALES> 259,335
<TOTAL-REVENUES> 431,231
<CGS> 190,728
<TOTAL-COSTS> 256,158
<OTHER-EXPENSES> 74,391
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,781
<INCOME-PRETAX> 47,648
<INCOME-TAX> 10,031
<INCOME-CONTINUING> 37,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,617
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
