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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25058
OCEAN ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1277752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8440 JEFFERSON HIGHWAY, SUITE 420
BATON ROUGE, LOUISIANA 70809
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 927-1450
Securities Registered Pursuant to Section 12 (b) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $842,443,274 as of February 12, 1998.
22,896,787 shares of the registrant's Common Stock were outstanding as of
February 12, 1998.
DOCUMENT INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference from the definitive Proxy Statement/Prospectus for the Annual Meeting
of Stockholders of the Company to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1997. Such definitive Proxy
Statement/Prospectus will be filed as part of a Registration Statement of the
Company on Form S-4 (No. 333-43933) filed with the Securities and Exchange
Commission.
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TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 11
Item 3. Legal Proceedings............................................................... 16
Item 4. Submission of Matters to Vote of Security Holders............................... 16
Item 4 (A) Executive Officers of Registrant................................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 19
Item 6. Selected Financial Data......................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 22
Item 8. Financial Statements and Supplementary Data..................................... 33
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure.......... 57
PART III
Item 10. Directors and Executive Officers of the Registrant.............................. 58
Item 11. Executive Compensation.......................................................... 58
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 58
Item 13. Certain Relationships and Related Transactions.................................. 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K................ 58
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K, including without
limitation the statements under "Business", "Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the nature of the Company's oil and gas reserves, productive wells,
acreage, and drilling activities, the adequacy of the Company's financial
resources, current and future industry conditions and the potential effects of
such matters on the Company's business strategy, results of operations and
financial position, are forward-looking statements. Although the Company
believes that the expectations reflected in the forward-looking statements
contained herein are reasonable, no assurance can be given that such
expectations will prove to have been correct. Certain important factors that
could cause actual results to differ materially from expectations ("Cautionary
Statements"), including without limitation fluctuations of the prices received
for the Company's oil and natural gas, uncertainty of drilling results and
reserve estimates, competition from other exploration, development, and
production companies, operating hazards, abandonment costs, the effects of
governmental regulation and the highly leveraged nature of the Company, are
stated herein in conjunction with the forward-looking statements or are included
elsewhere in this Form 10-K. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
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PART I
ITEM 1: BUSINESS
GENERAL
Ocean Energy, Inc. (the "Company") is an independent energy company engaged
in the exploration, development, acquisition and production of crude oil and
natural gas with operations focused primarily in the Gulf of Mexico, one of the
most prolific oil and gas producing regions in the United States. As of December
31, 1997, the Company had estimated proved reserves of approximately 68.8 MMBbls
of oil and 237.7 Bcf of natural gas, or an aggregate of approximately 108.4
MMBOE, with a Present Value of Future Net Revenues of approximately $619.5
million and a Standardized Measure of Discounted Future Net Cash Flows of
approximately $548.5 million. On a BOE basis, approximately 63% of the Company's
proved reserves on such date were oil. The majority of the Company's existing
proved reserves are attributable to Company operated wells or leases and
approximately 76% of these reserves were classified as proved developed at
December 31, 1997.
In order to reduce risk, the Company uses state-of-the-art 3-D (three
dimensional) seismic evaluation technology in its exploration and development
activities. The seismic evaluation technology is integrated with subsurface data
to improve the Company's ability to properly define the structural and
stratigraphic features which potentially contain accumulation of hyrdrocarbons.
3-D seismic technology provides a method of seismic acquisition and processing
that results in superior resolution of subsurface seismic events indicating
faults and stratigraphy. After the grid of 3-D seismic data has been acquired,
seismic processing can take advantage of a three dimensional cube of data by
migrating the reflected image to the appropriate position in space. This results
in a much clearer picture of the subsurface as compared to 2-D (two dimensional)
seismic data which is collected and processed along a single line on the
surface. As of December 31, 1997, the Company owned or licensed over 2,000
square miles of 3-D seismic data and approximately 45,458 linear miles of 2-D
seismic data on and around its core properties.
The Company's activities have historically been focused primarily in three
geographically distinct areas in the Gulf of Mexico region, consisting of the
Company's holdings in the Mississippi River Delta area (the "Delta Area"), the
Central Gulf of Mexico (the "Central Gulf Area"), and onshore Louisiana (the
"Onshore Exploratory Area"). Most recently, the Company has become active in
deepwater (water depth over 1,000 feet) areas of the Gulf of Mexico (the
"Deepwater Gulf") through both its joint venture with Conoco, Inc.("Conoco") and
its high bid in a recent federal lease sale on six blocks in the Keathley Canyon
area of the Deepwater Gulf ("Keathley Canyon").
The Company's largest area of focus is the Delta Area, which is located
primarily in federal and state waters offshore in the Mississippi River deltaic
region, consisting of interests in 10 producing fields and 162,606 gross
(123,972 net) acres. The Delta Area contains approximately 633 gross productive
wells and includes three of the top 20 fields in the Gulf of Mexico based on
total historical production. The Central Gulf Area, which contains approximately
82 gross productive wells, consists of interests in 10 producing oil and gas
fields and related production facilities primarily situated in the shallow
federal waters of the central Gulf of Mexico, offshore Louisiana. The Central
Gulf Area consists of 91,748 gross (61,910 net) acres. The Onshore Exploratory
Area consists of leasehold and seismic lease options totaling 51,209 gross
(36,434 net) acres. These 20 producing offshore fields, together with other
offshore acreage outside of these producing fields and the Onshore Exploratory
Area, provide significant opportunities to enhance current production and
ultimate reserve recoveries through exploratory and development drilling,
recompletions and infill and horizontal drilling.
As part of an increased emphasis on reserve additions through exploratory
drilling, the Company has begun to focus on the deepwater areas of the Gulf of
Mexico. Based on the magnitude of recent discoveries by other companies, the
Company believes that exploration in the Deepwater Gulf affords it the
opportunity to discover significantly larger potential reserves and to earn a
high rate of return, complementing its lower risk opportunities in the shallower
waters of the Gulf of Mexico. In February 1997, the Company entered a Deepwater
Gulf exploration venture with Conoco encompassing 155,520 gross (57,658 net)
acres located off the coast of Louisiana in water depths ranging from 2,500 to
7,500 feet (the "Deepwater Venture"). In addition, in a federal lease sale
conducted in August 1997, the Company was awarded six blocks located in Keathley
Canyon, encompassing 34,560 gross and net acres.
The Company's major acquisitions to date include the acquisition from
Shell Oil Company, its affiliates and subsidiaries ("Shell") of its interest in
the Main Pass 69 field ("Main Pass 69") in June 1992 and its interest in
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the South Pass 24 and 27 fields (the "East Bay Fields", and together with the
related platforms and facilities, the "East Bay Complex") in June 1993. In
September 1996, the Company acquired from Mobil Oil Exploration & Producing
Southeast Inc. ("Mobil") certain interests in eleven oil and gas producing
fields and related production facilities primarily situated in the shallow
federal waters of the central Gulf of Mexico, offshore Louisiana (the "Central
Gulf Properties"). On March 7, 1997, the Company acquired certain interests in
various state leases in the Main Pass 69 field for a net purchase price of $55.9
million (the "Main Pass Acquisition"). On October 15, 1997, the Company acquired
certain oil and gas interests in various federal leases in the South Pass 61 and
65 fields (the "South Pass Properties") from Shell for a net purchase price of
$59.9 million. On October 15, 1997, the Company also entered into an exploratory
joint venture agreement (the "Delta Exploration Joint Venture") with Shell which
establishes and Area of Mutual Interest ("AMI") covering approximately 240
square miles located in coast and offshore areas of Plaquemines Parish,
Louisiana. Under the terms of the oil and gas exploration agreement, the Company
and Shell have agreed to contribute existing leasehold, project inventory and
proprietary 3-D seismic data within the AMI. The above acquisitions coupled with
the Company's successful exploration and exploitation efforts on the acquired
properties have resulted in substantial increases in production and reserve
growth. The Company manages its field costs by combining administrative
functions relating to its properties, controlling the number of operating
personnel and providing incentive compensation.
The Company is a Delaware corporation formerly known as Flores & Rucks,
Inc., and was formed in September 1994 to acquire and own 100% of the
outstanding Common Stock of Ocean Energy, Inc., formerly Flores & Rucks, Inc., a
Louisiana corporation ("Ocean Louisiana"). Ocean Louisiana was formed in April
1992 to take advantage of opportunities to acquire and develop certain offshore
properties in the Gulf of Mexico. Unless otherwise indicated, all references to
the "Company" are to Ocean Energy, Inc., a Delaware corporation, its
predecessors and their respective subsidiaries.
RECENT DEVELOPMENTS
On December 23, 1997, the Company announced that it has entered into a
merger agreement (the "Merger Agreement") with United Meridian Corporation
("UMC") that provides in part for a stock-for-stock merger of UMC with and into
the Company (the "Merger"). The Company will be the surviving company in the
Merger and will retain the name Ocean Energy, Inc. Pursuant to the Merger
Agreement at the effective time of the Merger, the Company's stockholders will
receive 2.34 shares of the combined company's common stock for each share of the
Company's common stock then owned and UMC stockholders will receive 1.30 shares
of the combined company's common stock for each share of UMC common stock then
owned. Total shares outstanding following the Merger will be approximately 100
million, of which approximately 53.6% will be owned by the Company's historic
shareholders and 46.4% by UMC shareholders. The Merger is expected to be treated
as pooling of interests for accounting purposes and is expected to close by
April 1998. The Merger is subject to approval by the shareholders of both
companies, and to customary regulatory approvals. On January 9, 1998, the
Company filed with the Securities and Exchange Commission a registration
statement under the 1933 Act that includes a joint proxy statement and
prospectus relating to the Company's 1998 Annual Meeting of Stockholders and
including a proposal to approve the Merger. Total costs relating to the Merger
for both the Company and UMC are expected to be approximately $28.0 to $32.0
million, and will be expensed upon the closing of the Merger.
The combination of the Company and UMC ("New Ocean") will create a
stronger, better positioned independent oil and gas company with a portfolio
including many exploration and exploitation opportunities that are high
growth, providing the opportunity for rapid increases in reserves and
cash flows, as well as high impact, having a significant positive impact on New
Ocean if successful. As a result of the Mergers, New Ocean will become one of
the largest independent oil and gas companies, with total proved reserves of
approximately 270.6 MMBOE as of December 31, 1997, and combined average
production of approximately 116,784 BOEPD in December of 1997. The larger scale
provided by the combination will allow New Ocean the financial flexibility
necessary to retain a larger share of the existing high impact exploration
prospects contained in each company's portfolio, and therefore a larger
proportion of the related upside potential. Acceleration of several of these
projects is expected given the financial strength provided by the increased size
and diversification of a larger entity. The Company and UMC believe that the
larger scale will facilitate the securing of scarce drilling rigs and other oil
field services critical to exploration and exploitation activities, especially
in respect of the combined deepwater operations.
Each of the Company and UMC are liable to the other for a $40.0 million
termination fee (the "Termination Fee") if the Merger Agreement is terminated
under certain circumstances. In general, the Termination Fee is payable by the
Company if: (i) UMC terminates the Merger Agreement due to the Company's breach
of its
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covenant not to solicit or negotiate the acquisition by a third party of
stock or assets of the Company; (ii) either party terminates the Merger
Agreement due to failure to obtain the necessary stockholders' approvals or to
consummate the Merger prior to July 31, 1998, and the Company has received a
Takeover Proposal (as defined) and the UMC stockholders have not voted to
disapprove the Merger; provided, no Termination Fee is payable unless within 12
months of the termination the Company or any of its subsidiaries consummates any
Takeover Proposal (as defined); or (iii) the Company terminates the Merger
Agreement because it has received a Superior Proposal (as defined), and the
Company's board determines in good faith that there is a substantial probability
that the Company's stockholders will not approve the Merger. In general, the
Termination Fee is payable by UMC under similar circumstances.
OIL AND GAS MARKETING AND MAJOR CUSTOMERS
The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and natural gas. The price received by
the Company for its oil and natural gas production depends on numerous factors
beyond the Company's control, including seasonality, the condition of the United
States economy, particularly the manufacturing sector, foreign imports,
political conditions in other oil-producing and natural gas-producing countries,
the actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of oil
and natural gas could have an adverse effect on the carrying value of the
Company's proved reserves and the Company's revenues, profitability and cash
flow. Although the Company is not currently experiencing any significant
involuntary curtailment of its oil or natural gas production, market, economic
and regulatory factors may in the future materially affect the Company's ability
to sell its oil or natural gas production. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company has a long term contract to sell all crude oil volumes produced
from its East Bay Fields to Shell at a price based on the highest monthly posted
price of a number of principal purchasers of crude oil in the South Louisiana
area. The contract expires in June 2003. The Company markets its remaining crude
oil and natural gas production pursuant to short-term contracts.
Sales to Shell, NGC Trading & Transportation, Enron Capital & Trade
Resources Corp. and Plains Marketing accounted for 35%, 14% and 14%, and 12%,
respectively, of the Company's oil and gas revenues for the year ended December
31, 1997. Sales to Shell, Murphy Oil USA, Inc. and Enron Capital & Trade
Resources Corp. accounted for 54%, 11% and 17%, respectively, of the Company's
oil and gas revenues for the year ended December 31, 1996.
Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single crude oil or natural gas
customer would adversely affect the Company's results of operations.
COMPETITION
The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of producing properties. The Company's
competitors include major integrated oil and natural gas companies and numerous
independent oil and natural gas companies, individuals and drilling and income
programs. Many of its competitors are large, well established companies with
substantially larger operating staffs and greater capital resources than the
Company's and which, in many instances, have been engaged in the energy business
for a much longer time than the Company. Such companies may be able to pay more
for productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment.
Capital available for investment in the oil and natural gas industry
may decline significantly as a result of decreases in product prices, future
changes in federal income tax laws and adverse economic conditions generally
affecting the industry and the country as a whole.
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OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures, and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims,
and other damage to properties of the Company and others. Additionally, the
Company's oil and gas operations are located in an area that is subject to
tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possibly interrupt production. As
protection against operating hazards, the Company maintains insurance coverage
against some, but not all, potential losses. The Company's coverages include,
but are not limited to, operator's extra expense, physical damage on certain
assets, employer's liability, comprehensive general liability, automobile,
workers' compensation and loss of production income insurance. The Company
believes that its insurance is adequate and customary for companies of a similar
size engaged in operations similar to those of the Company, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on the Company's financial condition and
results of operations.
EMPLOYEES
As of December 31, 1997, the Company had 377 full-time employees, none of
whom is represented by any labor union. Included in the total were 167 corporate
employees located in the Company's Baton Rouge, Lafayette, and New Orleans,
Louisiana offices, as well as 210 employees who work in the Company's operating
areas. The Company considers its relations with its employees to be good.
GOVERNMENTAL REGULATION
The Company's oil and gas exploration, production and related operations
are subject to extensive rules and regulations promulgated by Federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
laws.
The State of Louisiana and many other states require permits for drilling
operations, drilling bonds, and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging, and abandonment of such wells.
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 (the "NGPA"), and the regulations promulgated
thereunder by the Federal Energy Regulatory Commission (the "FERC"). In the
past, the federal government has regulated the wellhead price of natural gas.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was
enacted, which amended the NGPA to remove wellhead price controls on all
domestic natural gas as of January 1, 1993. While sales by producers of natural
gas, and all sales of crude oil, condensate and natural gas liquids, can
currently be made at uncontrolled market prices, Congress could re-enact price
controls in the future.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that have had a major impact on natural gas pipeline
operations, services and rates and thus have significantly altered the marketing
and price of natural gas. Commencing in April 1992, the FERC issued Order Nos.
636, 636-A and 636-B (collectively, "Order No. 636"), which, among other things,
require each interstate pipeline company to "restructure" to provide
transportation separate or "unbundled" from the sale of gas and to make
available on an open and nondiscriminatory basis numerous constituent services
(such as gathering services, storage services, firm and interruptible
transportation services, and stand-by sales and gas balancing services) and to
adopt a new ratemaking methodology to determine appropriate rates for those
services. To the extent the pipeline company or its sales affiliate makes gas
sales as a merchant in the future, it does so in direct competition with all
other sellers pursuant to private contracts; however,
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pipeline companies and their affiliates were not required to remain "merchants"
of gas and several of the interstate pipeline companies have become
"transporters" only. Following the conclusion of individual restructuring
proceedings for each interstate pipeline pursuant to Order No. 636, the FERC has
approved, with modifications, all of the restructuring plans and generally
accepted compliance filings implementing Order No. 636 on every interstate
pipeline as of the end of 1994.
On July 16, 1996, the Court of Appeals for the District of Columbia Circuit
("D.C. Circuit") issued its opinion on review of Order No. 636. The opinion
upheld most elements of Order No. 636 including the unbundling of sales and
transportation services, curtailment of pipeline capacity, implementation of the
capacity release program and the mandatory imposition of straight-fixed-variable
("SFV") rate design for interstate pipeline companies. The D.C. Circuit did
remand certain aspects of Order No. 636 to the FERC for further explanation
including, inter alia, the FERC's decision to exempt pipelines from sharing in
gas supply realignment ("GSR") costs caused by restructuring; FERC's selection
of a twenty-year term matching cap for the right-of-first-refusal mechanism; the
FERC's restriction on the entitlement of no-notice transportation service to
only those customers receiving bundled sales service at the time of
restructuring; and FERC's determination that pipelines should focus on
individual customers, rather than customer classes, in mitigating the effects of
SFV rate design. On February 27, 1997, the FERC issued its order on remand. The
order reaffirmed the holding of Order No. 636 that pipelines should be entitled
to recover 100 percent of their prudently incurred GSR costs. Moreover, since
Order No. 636, few, if any, pipeline customers have been willing, or required,
to commit to twenty-year contracts for existing capacity. Thus, FERC reduced the
contract matching cap for the right-of-first-refusal mechanism to five years. In
light of the varied post-restructuring experience with no-notice service, the
FERC also decided to no longer limit a pipeline's no-notice service to its
bundled sales customers at the time of restructuring. Finally, the FERC
reaffirmed that pipelines should focus on individual customers, rather than
customer classes, in mitigating the effects of SFV rate design. Appeals of
individual pipeline restructuring orders are still pending before the D.C.
Circuit.
On May 31, 1995, the FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. The
policy statement focused on whether projects would be priced on a rolled-in
basis (rolling in the expansion costs with the existing facilities) or on an
incremental basis (establishing separate cost-of-services and separate rates for
the existing and expansion facilities). The policy statement established a
presumption in favor of rolled-in rates when the rate increase to existing
customers from rolling in the new facilities is 5% or less. While this policy
statement affects the Company only indirectly, the new policy should enhance
competition in natural gas markets and facilitate construction of gas supply
laterals. In the policy statement, the FERC contemplated that the resolution of
pricing methodology would take place in individual proceedings based on the
facts and circumstances of the project. The Company cannot predict what action
the FERC will take in the individual proceedings.
In October of 1992 Congress passed the Energy Policy of 1992 ("Energy
Policy Act"). The Energy Policy Act deemed petroleum pipeline rates in effect
for the 365-day period ending on the date of enactment of the Energy Policy Act
or that were in effect on the 365th day preceding enactment and had not been
subject to complaint, protest or investigation during the 365-day period to be
just and reasonable under the Interstate Commerce Act. The Energy Policy Act
also provides that complaints against such rates may only be filed under the
following limited circumstances: (i) a substantial change has occurred since
enactment in either the economic circumstances or the nature of the services
which were a basis for the rate; (ii) the complainant was contractually barred
from challenging the rate prior to enactment; or (iii) the rate is unduly
discriminatory or preferential. The Energy Policy Act further required FERC to
issue rules establishing a simplified and generally applicable ratemaking
methodology for petroleum pipelines, and to streamline procedures in petroleum
pipeline proceedings. On October 22, 1993, the FERC responded to the Energy
Policy Act directive by issuing Order No. 561, which adopts a new indexing rate
methodology for petroleum pipelines. Under the new regulations, which were
effective January 1, 1995, petroleum pipelines are able to change their rates
within prescribed ceiling levels that are tied to the Producer Price Index for
Finished Goods, minus one percent. Rate increases made pursuant to the index
will be subject to protest, but such protests must show that the portion of the
rate increase resulting from application of the index is substantially in excess
of the pipeline's increase in costs. The new indexing methodology can be applied
to any existing rate, even if the rate is under investigation. If such rate is
subsequently adjusted, the ceiling level established under the index must be
likewise adjusted.
In Order No. 561, FERC said that as a general rule pipelines must utilize
the indexing methodology to change their rates. FERC indicated, however, that it
was retaining cost-of-service ratemaking, market-based rates, and settlement as
alternatives to the indexing approach. A cost-of-service proceeding will be
instituted to determine just and reasonable initial rates for new services. A
pipeline can also follow a cost-of-service approach when seeking to
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increase its rates above index levels for uncontrollable circumstances. A
pipeline can seek to charge market-based rates if it can establish that it lacks
market power. Finally, a pipeline can establish rates pursuant to settlement if
agreed upon by all current shippers.
On May 10, 1996, the D.C. Circuit affirmed Order No. 561. The Court held
that by establishing a general indexing methodology along with limited
exceptions to indexed rates, FERC had reasonably balanced its dual
responsibilities of ensuring just and reasonable rates and streamlining
ratemaking through generally applicable procedures. Because of the novelty and
uncertainty surrounding the indexing methodology, as well as the possibility of
the use of cost-of-service ratemaking and market-based rates, the Company is not
able at this time to predict the effects of Order No. 561, if any, on the
transportation costs associated with oil production from the Company's oil
producing operations.
Under the Outer Continental Shelf Lands Act ("OCSLA"), the FERC also
regulates certain activities on the Outer Continental Shelf (the "OCS"). Under
OCSLA, all gathering and transporting of oil and natural gas on the OCS must be
performed on an "open and non-discriminatory" basis. Consequently, the Company's
gathering and transportation facilities located on the OCS must be made
available to third parties. In addition, the MMS imposes regulations relating to
development and production of oil and gas properties in federal waters. Under
certain circumstances, the MMS may require any Company operations on federal
leases to be suspended or terminated. Any such suspensions or terminations could
materially and adversely affect the Company's financial condition and
operations.
Certain of the Company's businesses are subject to regulation by the
Federal Natural Gas Pipeline Safety Act of 1968 and other state and Federal
environmental statutes and regulations.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
is generally toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness or wetlands and other protected areas; and
impose substantial liabilities for pollution resulting from the Company's
operations. The permits required for various of the Company's operations are
subject to revocation, modification and renewal by issuing authorities. The
Company believes that its operations currently are in substantial compliance
with applicable environmental regulations.
Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines, injunction, or both. The
Company does not expect environmental compliance matters to have a material
adverse effect on its financial position. It is also not anticipated that the
Company will be required in the near future to expend amounts that are material
to the financial condition or operations of the Company by reason of
environmental laws and regulations, but because such laws and regulations are
frequently changed, and may impose increasingly stricter requirements, the
Company is unable to predict the ultimate cost of complying with such laws and
regulations.
The following are examples of environmental, safety and health laws that
potentially relate to the Company's operations:
Solid Waste. The Company's operations may generate and result in the
transportation, treatment, and disposal of both hazardous and nonhazardous solid
wastes that are subject to the requirements of the federal Resource Conservation
and Recovery Act and comparable state and local requirements. The Environmental
Protection Agency ("EPA") is currently considering the adoption of stricter
disposal standards for nonhazardous waste. Further, it is possible that some
wastes that are currently classified as nonhazardous, perhaps including wastes
generated during pipeline, drilling and production operations, may in the future
be designated as "hazardous wastes," which are subject to more rigorous and
costly disposal requirements. Such changes in the regulations may result in
additional expenditures or operating expenses by the Company.
8
<PAGE> 9
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. These persons include the owner
or operator of a site, and companies that transport, dispose of or arrange for
the disposal of, the hazardous substances found at the site. CERCLA also
authorizes the EPA, and in some cases, third parties to take actions in response
to threats to the public health or the environment and to seek to recover from
the classes of responsible persons the costs they incur. Although "petroleum" is
excluded from CERCLA's definition of a "hazardous substance," in the course of
its ordinary operations the Company may generate other materials which may fall
within the definition of a "hazardous substance." The Company may be responsible
under CERCLA for all or part of the costs required to clean up sites at which
such wastes have been disposed and for natural resource damages. The Company has
not received any notification that it may be potentially responsible for cleanup
costs under CERCLA or any comparable state law.
Air. The Company's operations may be subject to the Clean Air Act ("CAA")
and comparable state and local requirements. Amendments to the CAA were adopted
in 1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from the
operations of the Company. The EPA has been developing regulations to implement
these requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, the Company does not
believe its operations will be materially adversely affected by any such
requirements.
Water. The Federal Water Pollution Control Act ("FWPCA") imposes
restrictions and strict controls regarding the discharge of produced waters and
other oil and gas wastes into navigable waters. Such discharges are typically
authorized by National Pollutant Discharge Elimination System ("NPDES") permits.
The FWPCA provides for civil, criminal and administrative penalties for any
unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the Oil Pollution Act of 1990, imposes substantial
potential liability for the costs of removal, remediation and damages. State
laws for the control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of petroleum
or its derivatives into state waters. In addition, the Coastal Zone Management
Act authorizes state implementation and development of programs of management
measures for non-point source pollution to restore and protect coastal waters.
As of January 1, 1997, the federal NPDES permits prohibit the discharge of
produced water, and some other substances related to the oil and gas industry,
from wells located in the coastal waters of Louisiana. The Louisiana Department
of Environmental Quality ("LDEQ"), as administrator of the NPDES permits in
Louisiana, issued on December 30, 1996, and reissued on February 28, 1997, an
emergency rule to allow continued discharge of produced waters in the coastal
area, subject to a zero discharge requirement by no later than December 31, 1999
for produced water being currently discharged into major deltaic passes of the
Mississippi River. On February 24, 1997, LDEQ issued to the Company a compliance
order allowing it to temporarily discharge produced water into Southwest Pass, a
major deltaic pass of the Mississippi River. The Company has submitted to LDEQ a
compliance plan for achievement of zero discharge of produced water at its East
Bay Central Facilities by no later than July 1, 1999, and has commenced
operations to drill injection wells and install miscellaneous equipment. The
Company is also in the process of reformatting a portion of its East Bay
facilities to allow for discharge of produced water in the offshore areas, to
the extent allowed by NPDES permits. Although the costs to reformat Company
operations to comply with these zero discharge mandates under federal or state
law may be significant, the Company believes that these costs will not have a
material adverse impact on the Company's financial conditions and operations.
In February 1998, the Tulane Environmental Law Clinic ("Clinic"), claiming
to represent several southeastern Louisiana environmental groups, gave notice
that it intends to file a Clean Water Act citizens' suit against the Company
after a sixty-day waiting period expires in connection with the discharge of
produced water in East Bay. The Clinic claims that the Company is violating the
Clean Water Act by discharging produced water from its East Bay Central
Facilities into Southwest Pass, and has stated that it will seek an injunction
to require the Company to cease its discharge of produced water, and will seek
civil penalties and attorney's fees. If the Clinic were to successfully obtain
an injunction, certain production operations at the Company's East Bay
Facilities could be interrupted until favorable resolution of the issue in court
or accelerated completion of the Company's plan to reformat operations to
provide for alternative produced water disposal. The Company believes that its
zero discharge compliance plan, which permits the temporary continued discharge
of produced water into Southwest Pass through July 1, 1999, is completely lawful
as authorized by a Compliance Order issued by the LDEQ, and intends to
vigorously defend any such citizens' suit, if filed. The Clinic has delivered
similar notices to other Louisiana coastal producers.
9
<PAGE> 10
The Oil Pollution Act of 1990 (the "OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills and liability
for damages resulting from such spills in United States waters. A "responsible
party" includes the owner or operator of a facility or vessel, or the lessee or
permittee of an area in which an offshore facility is located. The OPA assigns
liability to each responsible party for oil removal costs and a variety of
public and private damages. While liability limits apply in some circumstances,
a party cannot take advantage of liability limits if the spill was caused by
gross negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in its cleanup, liability limits likewise do not
apply. Few defenses exist to the liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party including
proof of financial responsibility to cover at least some costs in a potential
spill. For tank vessels, including mobile offshore drilling rigs, the OPA
imposes on owners, operators and charterers of the vessels, an obligation to
maintain evidence of financial responsibility of up to $10.0 million depending
on gross tonnage. With respect to offshore facilities, proof of greater levels
of financial responsibility may be applicable. For offshore facilities that have
a worst case oil spill potential of more than 1,000 barrels (which includes may
of the Company's offshore producing facilities), certain amendments to the OPA
that were enacted in 1996 provide that the amount of financial responsibility
that must be demonstrated by most facilities range from $10.0 million in
specified state waters to $35.0 million in federal OCS waters, with higher
amounts, up to $150.0 million in certain limited circumstances where the MMS
believes such a level is justified by the risks posed by the quantity or quality
of oil that is handled by the facility. On March 25, 1997, the MMS promulgated a
proposed rule implementing these OPA financial responsibility requirements.
Under the proposed rule, the amount of financial responsibility required for a
facility would depend on the "worst case" oil spill discharge volume calculated
for the facility. For oil and gas producers such as the Company operating
offshore facilities in OCS waters, worst case discharge volumes of up to 35,000
barrels will require a financial responsibility demonstration on $35.0 million,
while worst case discharge volumes in excess of 35,000 barrels will require
demonstrations ranging from $70.0 million to $150.0 million.
The Company believes that it currently has established adequate proof of
financial responsibility for its offshore facilities at no significant increase
in expense over recent prior years. However, the Company cannot predict whether
these financial responsibility requirements under the OPA amendments or proposed
rule will result in the imposition of substantial additional annual costs to the
Company in the future or otherwise materially adversely effect the Company. The
impact, however, should not be any more adverse to the Company than it will be
to other similarly situated or less capitalized owners or operators in the Gulf
of Mexico. OPA also imposes other requirements on facility operators, such as
the preparation of an oil spill contingency plan. The Company has such plans in
place. The failure to comply with ongoing requirements or inadequate cooperation
in a spill event may subject a responsible party to civil or even criminal
liability.
Protected Species. The Endangered Species Act ("ESA") seeks to ensure that
activities do not jeopardize endangered or threatened animal, fish and plant
species, nor destroy or modify the critical habitat of such species. Under the
ESA, exploration and production operations, as well as actions by federal
agencies, may not significantly impair or jeopardize the species or its habitat.
The ESA provides for criminal penalties for willful violations of the act. Other
statutes which provide protection to animal and plant species and which may
apply to the Company's operations which include, but are not necessarily limited
to, the Marine Mammal Protection Act, the Marine Protection and Sanctuaries Act,
the Fish and Wildlife Coordination Act, the Fishery Conservation and Management
Act, the Migratory Bird Treaty Act and the National Historic Preservation Act.
Wetlands. Pursuant to the FWPCA, the United States Corps of Engineers, with
oversight by the EPA, administers a complex program that regulates activities in
wetland areas. Some of the Company's operations are in areas that have been
designated as wetlands and, as such, are subject to permitting requirements.
Failure to properly obtain a permit or violation of permit terms could result in
the issuance of compliance orders, restorative injunctions and a host of civil,
criminal and administrative penalties. The Company believes that it is currently
in substantial compliance with these permitting requirements.
Wildlife Refuges/Bird Sanctuaries. Portions of the Company's properties
are located in or adjacent to federal and state wildlife refuges and bird
sanctuaries. The Company's operations in such areas must comply with regulations
10
<PAGE> 11
governing air and water discharge which are more stringent than its other areas
of operations. The Company has not been, and does not anticipate that it will
be, materially affected by any such requirements.
Safety and Health. The Company's operations are subject to the requirements
of the federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The OSHA hazard communication standard, the EPA
community-right-to-know regulations under Title III of the Federal Superfund
Amendment and Reauthorization Act, and similar state statutes require that
certain information be organized and maintained about hazardous materials used
or produced in the operations. Certain of this information must be provided to
employees, state and local government authorities and citizens.
The Company incurred approximately $0.7 million, $1.0 million and $1.1
million relating to environmental compliance during 1995, 1996 and 1997,
respectively. These increases relate primarily to increased activity and
acquisition of additional properties. The Company has included $10.0 million in
its 1998 exploration and development capital budget to reformat operations for
alternative disposal of water produced from its offshore wells in accordance
with an approved zero discharge disposal plan.
ABANDONMENT COSTS
The Company is responsible for payment of abandonment costs on the oil and
gas properties it operates. As of December 31, 1997, total abandonment costs on
the Company's oil and gas properties estimated to be incurred through the year
2007 were approximately $112.4 million. Estimates of abandonment costs and their
timing may change due to many factors including actual production results,
inflation rates, and changes in environmental laws and regulations.
In connection with its acquisition of the East Bay Complex and Main Pass
69, the Company entered into two escrow agreements to provide for the future
plugging and abandonment costs of these properties. The East Bay agreement
requires the Company to make monthly deposits of $100,000 through June 30, 1998,
and $350,000 thereafter until the balance in the escrow account equals $40.0
million unless the Company commits to the plug and abandonment of a certain
number of wells in which case the increase will be deferred. The Main Pass 69
agreement requires monthly deposits of $50,000 until the balance in the escrow
account equals $7.5 million. Such funds are restricted as to withdrawal by the
agreement. With respect to any specifically planned plugging and abandoning
operation, funds are partially released to the Company when it presents to the
escrow agent the planned plugging and abandonment operations approved by the
applicable governmental agency, with the balance to be released upon the
presentation by the Company to the trustee of evidence from the governmental
agency that the operation was conducted in compliance with applicable laws and
regulations. As of December 31, 1997, the escrow balances totaled $8.5 million.
In addition, the MMS requires lessees of OCS properties to post bonds in
connection with the plugging and abandonment of wells located offshore and the
removal of all production facilities. Operators in the OCS waters of the Gulf of
Mexico are currently required to post area wide bonds of $3 million or $500,000
per producing lease and supplemental bonds at the discretion of the MMS. The
Company has posted with the MMS an area wide bond of $3.0 million and
supplemental bonds totaling $39.8 million. The Company does not anticipate that
the cost of any such bonding requirements will materially affect the Company's
financial position. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspensions
or terminations could have a material adverse effect on the Company's financial
condition and operations.
ITEM 2: PROPERTIES
Mississippi Delta Area
The Company's Delta Area is comprised of eight Company operated fields -
South Pass 1, South Pass 24, South Pass 27, South Pass 39, South Pass 61, South
Pass 65, Main Pass 69 and Main Pass 138, as well as two non-operated fields -
South Pass 41 and Main Pass 140, encompassing approximately 112,046 gross leased
acres in state and federal waters situated near the mouth of the Mississippi
River in the Gulf of Mexico. The Company also has interests in approximately
26,120 gross leased acres in the Chandeleur Sound, West Delta, Breton Sound, and
Main Pass areas, and 24,440 gross leased acres in connection with the Delta
Exploration Joint Venture with Shell, where there are currently no producing
wells.
At the core of the Mississippi Delta Area is the East Bay Complex. The East
Bay Complex is a major oil production facility with daily production capacity
for 70 MBbls of oil, 240 MMcf of gas and 240 MBbls of water.
11
<PAGE> 12
Within the East Bay Complex, the South Pass 24 field, discovered in 1950, has
production established from 63 horizons and 260 reservoirs with cumulative
production through December 31, 1997, of 325,338 MBbls of oil and 408,462 MMcf
of gas. The South Pass 27 field, discovered in 1954, has production established
from 81 horizons and 436 reservoirs with cumulative production through December
31, 1997, of 336,943 MBbls of oil and 813,553 MMcf of gas.
The Company owns an average 89% working interest in these fields, and for
the three months ended December 31, 1997, the Mississippi Delta Area averaged
daily net sales to the Company of 24.7 MBbls of oil and 62.5 MMcf of gas from
633 gross productive wells.
Central Gulf Area
The Company's Central Gulf Area includes nine Company operated fields -
Eugene Island 45, Eugene Island 100, Eugene Island 126, Eugene Island 128, South
Marsh Island 243, Vermilion 215, Vermilion 273, Shoal 46 and Ship Shoal 64 as
well as one non-operated field - Vermilion 76. The Central Gulf Area consists of
approximately 91,748 gross leased acres in federal waters situated in the
shallow federal waters of the Central Gulf of Mexico, offshore Louisiana.
The Company owns an average 74% working interest in these fields, and for
the three months ended December 31, 1997, the Central Gulf Area averaged daily
net sales to the Company of 7.9 MBbls of oil and 54.9 MMcf of gas from 82 gross
productive wells.
Onshore Louisiana
During 1997, the Company extended its operations to include several coastal
onshore exploration projects. In eastern Cameron Parish, Louisiana, the Company
is currently exploring on its Mallard Bay prospect area ("Mallard Bay"), where
the Company owns 70 square miles of 3-D seismic data, 17,101 gross leased acres
and lease options on 10,869 gross acres. Six miles north of Mallard Bay is the
Company's Lacassine Refuge prospect area ("Lacassine"). In 1998, drilling
operations are planned to begin in Lacassine where the Company owns 52 square
miles of 3-D seismic data and 4,988 gross leased acres.
Deepwater Gulf
As a result of the Company's increased emphasis on reserve additions
through exploratory drilling, the Company has begun to focus on the Deepwater
Gulf. In February 1997, the Company entered the Deepwater Venture with Conoco
encompassing 155,520 gross (57,658 net) acres located off the coast of Louisiana
in water depths ranging from 2,500 to 7,500 feet. In addition, in a federal
lease sale conducted in August 1997, the Company was awarded six blocks located
in Keathley Canyon, encompassing 34,560 gross and net acres. The Company
believes that the Deepwater Gulf provides it with substantial reserve and
production growth opportunities in the Company's Gulf of Mexico focus area.
OIL AND NATURAL GAS RESERVES
Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of crude oil and natural gas and the Present Value of
Future Net Revenues (before income taxes) owned by the Company as of December
31, 1997. The information set forth in the following table is based in part upon
reserve reports prepared by Netherland, Sewell & Associates, Inc., independent
petroleum engineers, ("NSA"), and in part upon reserve reports prepared by the
Company, in each case in accordance with the rules and regulations of the
Securities and Exchange Commission (the "Commission"). The Company includes as
proven reserves, future gas production estimated by NSA to be used as fuel gas.
In accordance with the rules and regulations of the Commission, the pre-tax
estimate of future net revenues and the pretax present value of future net
revenues was increased by approximately $6.4 million and $6.1 million,
respectively, representing the effect of hedging transactions entered into as of
December 31, 1997.
12
<PAGE> 13
<TABLE>
<CAPTION>
PROVED RESERVES AT
DECEMBER 31, 1997
--------------------------------------------------
DEVELOPED DEVELOPED
PRODUCING NONPRODUCING UNDEVELOPED TOTAL
--------- ------------ ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net proved reserves:
Oil (Mbbls) 37,287 16,002 15,493 68,782
Gas (Mmcf) 89,862 84,371 63,451 237,684
MBOE (6 Mcf per Bbl) 52,264 30,064 26,068 108,396
Estimated future net revenues (before income taxes) $248,503 $257,776 $243,861 $750,140
Present value of future net revenues (before income
taxes; discounted at 10%) (1) $285,625 $182,763 $151,063 $619,451
Standardized measure of discounted future net
cash flows (2) $548,537
</TABLE>
- -----------
(1) Approximately 80% of the Present Value of Future Net Revenues as
determined by the Company (before income taxes; discounted at 10%) is
supported by reserve reports which were prepared by NSA, with the
remainder supported by reserve reports which were prepared by the
Company.
(2) The Standardized Measure of Discounted Future Net Cash Flows
represents the Present Value of Future Net Revenues after income taxes
discounted at 10%.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
The quantities of oil and natural gas that are ultimately recovered, production
and operating costs, the amount and timing of future development expenditures
and future oil and natural gas sales prices may all differ from those assumed in
these estimates. Therefore, the Present Value of Future Net Revenue figures
shown above should not be construed as the current market value of the estimated
oil and natural gas reserves attributable to the Company's properties. The
information set forth in the foregoing table includes revisions of certain
volumetric reserve estimates attributable to proved properties included in the
preceding year's estimates. Such revisions are the result of additional
information from subsequent completions and production history from the
properties involved or the result of a decrease (or increase) in the projected
economic life of such properties resulting from changes in product prices.
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are depleted,
except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. In order to increase reserves and production, the Company must continue
its development and exploration drilling and recompletion programs or undertake
other replacement activities. The Company's current strategy includes increasing
its reserve base through acquisitions of producing properties and by continuing
to exploit its existing properties. There can be no assurance, however, that the
Company's planned development and exploration projects and acquisition
activities will result in significant additional reserves or that the Company
will have continuing success drilling productive wells at low finding and
development costs. Furthermore, while the Company's revenues may increase if
prevailing oil and gas prices increase significantly, the Company's finding
costs for additional reserves could also increase.
In accordance with the Commission's guidelines, the foregoing estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenue thereof are made using oil and natural gas sales prices in
effect as of the date of such estimates and are held constant throughout the
life of the properties except where such guidelines permit alternate treatment,
including the use of fixed and determinable contractual price escalations. The
average prices as of December 31, 1997 for the Company's properties were $17.14
per Bbl of crude oil and $2.17 per Mcf of natural gas. The foregoing prices
exclude the effect of net price hedging positions.
13
<PAGE> 14
Prices for natural gas and, to a lesser extent, oil are subject to substantial
seasonal fluctuations and prices for each are subject to substantial
fluctuations as a result of numerous other factors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business--Oil and Gas Marketing and Major Customers."
PRODUCTIVE WELLS AND ACREAGE
Productive Wells
The following table sets forth the Company's existing productive wells as
of December 31, 1997:
<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C> <C>
Oil 623 547
Gas 98 75
---- ----
Total Productive Wells 721 622
==== ====
</TABLE>
Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, 53 had multiple completions.
Acreage Data
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
following table sets forth the approximate developed and undeveloped acreage in
which the Company held a leasehold mineral or other interest at December 31,
1997.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------------- -----------------------
GROSS NET GROSS NET
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal waters 122,157 74,688 230,069 125,039
State waters and onshore 60,954 56,851 97,747 70,700
------- ------- ------- -------
Total 183,111 131,539 327,816 195,739
======= ======= ======= =======
</TABLE>
As of December 31, 1997, the Company holds options covering approximately
10,869 gross acres (5,435 net) in Cameron Parish, Louisiana, and 16,727 gross
and net acres in Plaquemines Parish, Louisiana, which allow the Company to
conduct 3-D seismic operations on such acreage and to subsequently acquire oil
and gas leases.
DRILLING ACTIVITIES
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating, and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment and services.
14
<PAGE> 15
The following table sets forth the drilling activity of the Company on its
properties for the years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
--------------- ------------- --------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive 1 1.0 6 5.5 17 14.9
Nonproductive 3 2.0 6 4.6 8 7.4
Development Wells
Productive 17 17.0 24 23.7 36 32.4
Nonproductive -- -- 1 1.0 -- --
---- ---- ---- ---- ---- ----
Total 21 20.0 37 34.8 61 54.7
==== ==== ==== ==== ==== ====
</TABLE>
NET PRODUCTION, UNIT PRICES AND COSTS
The following table presents certain information with respect to oil and
gas production and lease operating expenses attributable to all oil and gas
property interests owned by the Company for the years ended December 31, 1995,
1996 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Production:
Oil (MBbls) 6,057 7,149 9,945
Gas (MMcf) 12,393 18,720 38,916
MBOE 8,123 10,269 16,431
Average Sales Prices (1):
Oil (per Bbl) $17.39 $21.58 $19.09
Gas (per Mcf) 1.82 2.79 2.63
Per BOE 15.75 20.10 17.79
Average lease operating
expenses (per BOE) $3.70 $3.52 $3.46
</TABLE>
(1) Excludes results of hedging activities. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $17.27,
$19.70 and $19.08 in the years ended December 31, 1995, 1996 and 1997,
respectively, and the average gas price per Mcf received was $1.84, $2.50
and $2.63 in the years ended December 31, 1995, 1996 and 1997,
respectively.
OTHER FACILITIES
The Company currently leases approximately 8,600 square feet of office
space in Baton Rouge, Louisiana, where its administrative offices are located,
approximately 71,300 square feet of office space in Lafayette, Louisiana and
approximately 2,800 square feet of office space in New Orleans, Louisiana, where
the Company's technical personnel are collectively located. The Company also
leases dock and warehouse space in Venice, Louisiana and Morgan City, Louisiana.
TITLE TO PROPERTIES
The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. The Company's Revolving Credit Facility
is secured by substantially all of the Company's oil and gas properties. The MMS
and Louisiana State Mineral Board
15
<PAGE> 16
must approve all transfers of record title or operating rights on its respective
leases. The MMS and Louisiana State Mineral Board approval process can in some
cases delay the requested transfer for a significant period of time.
ITEM 3: LEGAL PROCEEDINGS
The Company has been named as a defendant in two purported class action
lawsuits described below filed by alleged stockholders of UMC against the
UMC directors and the Company alleging, among other things, breaches of the
duties of the UMC directors to the stockholders of UMC in connection with the
approval of the Merger Agreement, pursuant to which UMC would be merged with and
into the Company. No specific damages have been alleged against the Company in
the pleadings. The Company believes, and has been advised that management of UMC
believes, that the lawsuits are without merit and the Company and UMC intend to
defend vigorously the actions.
On December 29, 1997, a class action complaint (Newman v. Carson, et.al.,
Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of
Delaware, by a person claiming to represent the stockholders of UMC against UMC,
each of its directors and the Company. The complaint alleges, among other
things, that (i) the members of the UMC Board of Directors breached their
fiduciary duties in considering and approving the Merger Agreement, (ii) the
consideration offered to UMC stockholders for the sale of control of UMC is
inadequate because the intrinsic value of the common stock of UMC is materially
in excess of the amount offered for those securities in the Merger giving due
consideration to, among other things, anticipated operating results, proven
reserves and profitability of the Company, and (iii) the UMC Board of Directors
approved the proposed Merger without taking steps to accurately ascertain UMC's
market value. The complaint states that the Company was named as defendant to
permit the court to grant complete relief. Among other things, the complaint
seeks to (i) preliminary and permanently enjoin the Merger; (ii) require the UMC
directors to maximize stockholder value by placing UMC up for auction and/or to
conduct a "market-check"; (iii) require the defendants to make a full and fair
disclosure of all material facts to the class members before the consummations
of the Merger; (iv) rescind the Merger should it be consummated prior to the
resolution of the lawsuit; and/or (v) recover unspecified damages and costs from
the UMC directors for their alleged breach of their fiduciary duties.
On January 9, 1998, a second class action lawsuit (Robert E. Ross and Betsy
S. Ross v. John B. Brock, et al., Cause No. 98-00845) was filed in the 164the
Judicial District Court of Harris County, Texas, by purported stockholders of
UMC against the UMC directors and the Company in connection with the proposed
UMC Merger. To date, with one exception the allegations of plaintiffs and relief
sought in this Texas lawsuit are substantively identical to the allegations set
forth in the Delaware case. In the Texas case, however, plaintiffs have asserted
a separate claim against the Company for aiding and abetting the alleged breach
of duties to UMC stockholders by the UMC directors.
The Company has received a notice of intent to file a citizens' suit
against the Company by a purported representative of several Louisiana
environmental groups regarding the discharge of produced water from the
Company's East Bay Facilities. See "Business -- Environmental Matters" for a
description of this matter and the Company's position on such claims.
The Company is not a party to any other material pending legal proceedings,
other than ordinary routine litigation incidental to its business that
management believes would not have a material adverse effect on its financial
condition or results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
<PAGE> 17
ITEM 4(A): EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of the Company serve until their resignation or termination,
or until a successor is appointed by the Board of Directors. The following table
sets forth certain information concerning the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --- --- --------
<S> <C> <C>
James C. Flores 38 Chairman of the Board of Directors, President & Chief Executive Officer
Richard G. Zepernick, Jr. 37 Executive Vice President -- Exploration & Production and Director
Robert L. Belk 48 Executive Vice President, Chief Financial Officer, Treasurer and Director
Robert K. Reeves 40 Executive Vice President -- Administration, General Counsel & Secretary
David J. Morgan 50 Executive Vice President -- Geology
Michael O. Aldridge 39 Vice President -- Corporate Communications
William S. Flores, Jr. 41 Vice President -- Operations
Doss R. Bourgeois 40 Vice President -- Production
Clint P. Credeur 41 Vice President -- Reservoir Engineering
Stephen T. Laperouse 41 Vice President -- Land and Business Development
Stephen H. Green 42 Vice President -- Exploration Geology
James H. Painter 40 Vice President -- Exploitation Geology
Frank D. Willoughby 32 Vice President -- Controller
John V. Flores 31 Vice President & Assistant General Counsel
</TABLE>
The following biographies describe the business experience of the executive
officers of the Company.
James C. Flores has served as Chairman of the Board of the Company since
its inception in 1992 and as Chief Executive Officer since July 1995. Mr. Flores
became President of the Company in 1997. From 1985 to 1992, Mr. Flores served as
Vice President of FloRuxco, Inc., an oil and gas exploration company.
Richard G. Zepernick, Jr. has been with the Company since its inception,
presently serving as Executive Vice President -- Exploration & Production. Mr.
Zepernick became a director of the Company in September 1994. From May 1993
until June 1997, Mr. Zepernick served as Executive Vice President and Chief
Operating Officer. From June 1992 until May 1993, Mr. Zepernick served as Senior
Vice President and Secretary of Flores & Rucks, Inc. From 1985 to 1992, Mr.
Zepernick served as General Manager of FloRuxco, Inc.
Robert L. Belk presently serves as Executive Vice President, Chief
Financial Officer and Treasurer. From May 1993 until June 1997, Mr. Belk served
as Senior Vice President, Chief Financial Officer and Treasurer of the Company.
Mr. Belk became a director of the Company in September 1994. Prior to joining
the Company, Mr. Belk worked in public accounting for H.J. Lowe & Company from
1988 to 1993. Mr. Belk is a Certified Public Accountant.
Robert K. Reeves presently serves as Executive Vice President --
Administration, General Counsel & Secretary of the Company. From May 1994 until
June 1997, Mr. Reeves served as the Company's Senior Vice President, General
Counsel and Secretary. From November 1993 to May 1994, Mr. Reeves served as the
Company's Vice President and General Counsel. Prior to joining the Company in
1993, he was a partner in the law firm of Onebane, Bernard, Torian, Diaz,
McNamara & Abell in Lafayette, Louisiana.
David J. Morgan presently serves as Executive Vice President -- Geology.
Mr. Morgan joined the Company in 1993 as Vice President Geology and served as
Senior Vice President from December 1995 until June 1997. Mr. Morgan has 27
years of experience in the oil and gas industry. From 1983 to 1993, Mr. Morgan
served as a geologist for and President of Morgan Resources, LTD., an oil and
gas exploration company.
17
<PAGE> 18
Michael O. Aldridge joined the Company in 1992 as Vice President and
Controller, and became Vice President -- Corporate Communications in September
1996. From 1991 until 1992, he was Vice President and Chief Financial Officer of
Fleet Petroleum Partners. Mr. Aldridge is a Certified Public Accountant.
William S. Flores, Jr. joined the Company in 1993 as its Vice President --
Operations. Mr. Flores worked from 1988 to 1993 at CNG Producing Co. where he
served as a Senior Operations Engineer.
Doss R. Bourgeois has served as Vice President -- Production of the Company
since August 1993. From 1982 to 1993 Mr. Bourgeois worked for CNG Producing Co.
until he joined the Company. His positions at CNG Producing Co. included
Production Engineer, Manager Offshore Production, Supervisor Drilling
Engineering, and finally Workovers & Completion/Workover Superintendent.
Clint P. Credeur has served the Company as Vice President -- Reservoir
Engineering since 1993. Mr. Credeur served as a Reservoir Engineer and Special
Projects Engineer with Chevron U.S.A. from November 1987 to December 1992.
Stephen T. Laperouse presently serves as Vice President -- Land & Business
Development. Mr. Laperouse joined the Company in 1995 as Land Manager. From 1980
until 1995, Mr. Laperouse worked as a landman for Conoco, Inc.
Stephen H. Green presently serves as Vice President -- Exploration Geology.
Mr. Green joined the Company in 1995 as Manager of Exploration Geology. From
1988 until 1995, Mr. Green was employed as a geologist with Newfield
Exploration.
James H. Painter presently serves as Vice President -- Exploitation
Geology. Mr. Painter joined the Company in 1995 as Manager of Exploitation
Geology. Prior to joining the Company, Mr. Painter was employed as a staff
geologist with Forest Oil Company from 1985 until 1995.
Frank D. Willoughby presently serves as Vice President -- Controller. Mr.
Willoughby joined the Company in 1993 as Manager of Financial Reporting and was
promoted to Assistant Controller in 1994 and Controller in 1996. Mr. Willoughby
is a Certified Public Accountant.
John V. Flores joined the Company in 1997 and presently serves as Vice
President & Assistant General Counsel. From 1992 to 1997, Mr. Flores was in the
private practice of law.
James C. Flores, William S. Flores, Jr. and John V. Flores are brothers;
there are no other family relationships between any of the executive officers of
the Company.
18
<PAGE> 19
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the NYSE under the symbol "OEI." The
following table represents the quarterly high and low sales prices for the
Common Stock on the NYSE since March 25, 1996 and, during the prior periods
indicated, the high and low bid quotations in the over-the-counter market as
quoted by the Nasdaq National Market since the shares became publicly traded
(which quotations reflect the inter-dealer prices, without retail mark-up,
mark-down or commission an may not necessarily represent actual transactions).
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1996
First Quarter 18 3/4 13 1/2
Second Quarter 36 3/8 17 7/8
Third Quarter 41 1/2 28 3/4
Fourth Quarter 54 3/8 38 3/8
1997
First Quarter 56 38
Second Quarter 53 1/8 38 7/8
Third Quarter 70 1/8 41 1/4
Fourth Quarter 70 9/16 46 1/4
</TABLE>
As of February 12, 1998 there were approximately 163 holders of record of
the Common Stock.
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company expects that it will retain all available
earnings generated by the Company's operations for the development and growth of
its business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will depend
upon the Company's operating results, financial condition, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant. The Company's debt instruments include certain restrictions on
the payment of cash dividends on the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
19
<PAGE> 20
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended December
31, 1993, 1994, 1995, 1996 and 1997 for the Company are derived from the audited
financial statements. The selected historical financial data are qualified in
their entirety by, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes thereto included elsewhere in this Form
10-K. For additional information relating to the Company's operations, see
"Business" and "Properties."
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
STATEMENT OF OPERATIONS AND
OTHER FINANCIAL AND
OPERATING DATA:
REVENUE & EXPENSE DATA:
<S> <C> <C> <C> <C> <C>
Revenues $47,483 $75,395 $127,970 $188,451 $292,180
Direct Operating Expenses 19,201 30,324 40,047 47,098 67,902
General & Administrative Expenses 5,032 10,351 11,312 16,154 19,137
Depreciation, Depletion & Amortization 20,140 36,459 54,084 74,652 121,623
Interest Expense 1,055 4,507 17,620 17,954 27,385
Loss on Production Payment Repurchase
and Refinancing (1) -- 16,681 -- -- --
Net Income (Loss) Before Income Tax
Benefit and Extraordinary Item 2,227 (22,179) 5,210 32,988 57,639
Income Tax Expense (Benefit) (2) -- -- (4,692) 12,037 20,189
Net Income (Loss) Before Extraordinary
Item 2,227 (22,179) 9,902 20,951 37,450
Extraordinary Loss on Early Extinguishment
of Debt, Net of Tax -- -- -- -- 19,301
Net Income (Loss) 2,227 (22,179) 9,902 20,951 18,149
Earnings per Common Share Before
Extraordinary Item (3)
Basic $0.18 $(2.06) $0.66 $ 1.13 $ 1.86
Diluted 0.18 (2.06) 0.66 1.09 1.79
Earnings per Common Share After Extraordinary
Item (3)
Basic $0.18 $(2.06) $0.66 $ 1.13 $ 0.90
Diluted 0.18 (2.06) 0.66 1.09 0.87
BALANCE SHEET DATA:
Oil and Gas Assets, Net $ 122,374 $ 160,311 $ 179,944 $ 355,698 $ 722,666
Total Assets 131,613 181,344 215,457 460,710 822,938
Long - Term Debt 13,448 154,039 171,692 284,142 389,652
Deferred Revenue on Production Payments 108,784 -- -- -- --
Stockholders' Equity (825) 9,703 19,976 105,153 305,272
OTHER FINANCIAL DATA:
EBITDA (4) $ 23,422 $ 35,855 $ 77,645 $ 129,100 $ 208,322
Net Cash Provided By (Used In):
Operating Activities (5) 103,112 (115,485) 59,489 126,753 173,622
Investing Activities (100,741) (46,607) (77,699) (293,132) (465,428)
Financing Activities (2,400) 162,462 17,853 171,926 286,047
Capital Expenditures (6) 123,600 74,477 73,652 251,305 488,591
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales Volumes:
Oil (MBbls) 2,850 4,286 6,057 7,149 9,945
Gas (MMcf) 3,704 7,234 12,393 18,720 38,916
MBOE 3,467 5,492 8,123 10,269 16,431
Average Prices (7):
Oil (per Bbl) $13.82 $14.24 $17.39 $21.58 $19.09
Gas (per MCF) 1.81 1.76 1.82 2.79 2.63
BOE (per BOE) 13.30 13.42 15.75 20.10 17.79
Lease Operating Expenses (per BOE) $4.10 $4.29 $3.70 $3.52 $3.46
</TABLE>
- ---------
(1) The amount shown for the year ended December 31, 1994 represents
primarily the excess of the purchase price of certain non-recourse
volumetric production payments over the book value of the production
payments liability as of December 7, 1994.
(2) The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through the date of the initial public offerings
closed by the Company in December 1994 (the "Initial Offerings"), no
historical federal or state income tax expense has been provided for in the
financial statements. In conjunction with the Initial Offerings, the
Company converted to a C corporation under the Internal Revenue Code. The
Company recorded a deferred tax asset of $6.3 million, offset by a
valuation allowance of $6.3 million at December 31, 1994 and a deferred tax
asset of $4.7 million at December 31, 1995. As a result of the reversal of
the valuation allowance, the Company recorded a net income tax benefit of
$4.7 million in the year ended December 31, 1995. See Note 5 to the
Consolidated Financial Statements.
(3) If the Company had recognized a tax provision at statutory rates for the
year ended December 31, 1995, rather than an income tax benefit, earnings
per common share would have been $0.22 for such period.
(4) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the recognition of noncash revenues
associated with production payments. EBITDA is not intended to represent
cash flow in accordance with generally accepted accounting principles and
does not represent the measure of cash available for distribution. EBITDA
is not intended as an alternative to earnings from continuing operations or
net income. EBITDA may not be comparable to similarly titled measures
presented by other companies and could be misleading unless all companies
and analysts calculate them in the same fashion.
(5) Cash flow from operating activities in 1993 includes $95.7 million from
the sale of production payments. Cash flow from operating activities for
the year ended December 31, 1994 was reduced by $123.6 million related to
the repurchase of production payments.
(6) Includes $115.5 million in the year ended December 31, 1993 related to the
acquisition of the East Bay Complex, $117.6 million in the year ended
December 31, 1996 related to the acquisition of the Central Gulf Properties
and $55.9 million and $59.9 million in the year ended December 31, 1997
related to the Main Pass Acquisition and the acquisition of the South Pass
Properties, respectively.
(7) Excludes results of hedging activities which increased (decreased)
revenue recognized in the 1993, 1994, 1995, 1996 and 1997 periods by
$1.2 million, $1.7 million, $(0.5) million, $(18.7) million and $(0.1)
million, respectively. Including the effect of hedging activities, the
Company's average oil price per Bbl received was $14.23, $14.56, $17.27,
$19.70 and $19.08 in the years ended December 31, 1993, 1994, 1995, 1996
and 1997, respectively, and the average gas price per Mcf received was
$1.81, $1.84 and $2.50 in the years ended December 31, 1994, 1995 and 1996,
respectively. The Company did not enter into any hedging activities
relating to gas during 1993 and 1997.
21
<PAGE> 22
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in or incorporated by reference into this Form 10-K.
GENERAL
The Company is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas with
operations focused primarily in the Gulf of Mexico, one of the most prolific oil
and gas producing regions in the United States. As of December 31, 1997, the
Company had estimated proved reserves of approximately 68.8 MMBbls of oil and
237.7 Bcf of natural gas, or an aggregate of approximately 108.4 MMBOE, with a
Present Value of Future Net Revenues of approximately $619.5 million and a
Standardized Measure of Discounted Future Net Cash Flows of approximately $548.5
million. On a BOE basis, approximately 63% of the Company's proved reserves on
such date were oil. The majority of the Company's existing proved reserves are
attributable to Company operated wells or leases and approximately 76% of these
reserves were classified as proved developed at December 31, 1997.
The Company's activities have historically been focused primarily in three
geographically distinct areas in the Gulf of Mexico region, consisting of the
Company's holdings in the Delta Area, Central Gulf Area and the Onshore
Exploratory Area. Most recently, the Company has become active in the Deepwater
Gulf through both its joint venture with Conoco, Inc. and its high bid in a
recent federal lease sale on six blocks in the Keathley Canyon area of the
Deepwater Gulf. For a detailed description of the Company's operations, see
"Business."
On December 23, 1997, the Company announced that it has entered into the
Merger Agreement with UMC that provides in part for a stock-for-stock merger of
UMC with and into the Company. The Company will be the surviving company in the
Merger and will retain the name Ocean Energy, Inc. Pursuant to the Merger
Agreement at the effective time of the Merger, the Company's stockholders will
receive 2.34 shares of the combined company's common stock for each share of the
Company's common stock then owned and UMC stockholders will receive 1.30 shares
of the combined company's common stock for each share of UMC common stock then
owned. Total shares outstanding following the Merger will be approximately 100
million, of which approximately 53.6% will be owned by the Company's historic
shareholders and 46.4% by UMC shareholders. The Merger is expected to be treated
as pooling of interests for accounting purposes and is expected to close by
April 1998. The Merger is subject to approval by the shareholders of both
companies, and to customary regulatory approvals. On January 9, 1998, the
Company filed with the Securities and Exchange Commission a registration
statement under the 1933 Act that includes a joint proxy statement and
prospectus relating to the Company's 1998 Annual Meeting of Stockholders and
including a proposal to approve the Merger. Total costs relating to the Merger
for both the Company and UMC are expected to be approximately $28.0 to $32.0
million, and will be expensed upon the closing of the Merger.
Each of the Company and UMC are liable to the other for a $40.0 million
termination fee (the "Termination Fee") if the Merger Agreement is terminated
under certain circumstances. In general, the Termination Fee is payable by the
Company if: (i) UMC terminates the Merger Agreement due to the Company's breach
of its covenant not to solicit or negotiate the acquisition by a third party of
stock or assets of the Company; (ii) either party terminates the Merger
Agreement due to failure to obtain the necessary stockholders' approvals or to
consummate the Merger prior to July 31, 1998, and the Company has received a
Takeover Proposal (as defined below) and the UMC stockholders have not voted to
disapprove the Merger; provided, no Termination Fee is payable unless within 12
months of the termination the Company or any of its subsidiaries consummates any
Takeover Proposal (as defined below); or (iii) the Company terminates the Merger
Agreement because it has received a Superior Proposal (as defined below), and
the Company's board determines in good faith that there is a substantial
probability that the Company's stockholders will not approve the Merger. In
general, the Termination Fee is payable by UMC under similar circumstances.
22
<PAGE> 23
The following table reflects certain information with respect to the
Company's oil and gas properties.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- -------- -------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
SALES VOLUMES
Oil (MBbls) 6,057 7,149 9,945
Gas (MMcf) 12,393 18,720 38,916
Oil and Gas (MBOE) 8,123 10,269 16,431
REVENUES (1)
Total Oil Revenues $105,360 $154,284 $189,839
Total Gas Revenues 22,581 52,175 102,437
AVERAGE SALES PRICES (1)
Oil (per Bbl) $ 17.39 $ 21.58 $ 19.09
Gas (per Mcf) 1.82 2.79 2.63
Per BOE 15.75 20.10 17.79
Severance Taxes $ 10,023 $ 10,906 $ 11,077
Lease Operating Expenses $ 30,023 $ 36,192 $ 56,825
Lease Operating Expenses (per BOE) $ 3.70 $ 3.52 $ 3.46
</TABLE>
- --------
(1) Excludes results of hedging activities which decreased revenue recognized
in the 1995, 1996 and 1997 periods by $(0.5) million, $(18.7) million and
$(0.1) million, respectively. Including the effect of hedging activities,
the Company's average oil price received was $17.27, $19.70 and $19.08 in
the years ended December 31, 1995, 1996 and 1997, respectively, and the
average gas price received was $1.84, $2.50 and $2.63 in the years ended
December 31, 1995, 1996 and 1997, respectively.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues between the year ended December 31, 1997, and the
comparable 1996 period:
<TABLE>
<CAPTION>
YEAR ENDED 1997
COMPARED TO
YEAR ENDED 1996
---------------
(IN THOUSANDS)
<S> <C>
Increase (decrease) in oil and gas revenues resulting from
differences in:
Crude oil and condensate--
Price $ (25,769)
Production 60,612
---------
34,843
Natural gas--
Price (6,030)
Production 56,292
50,262
Hedging, net 18,624
Increase in oil and gas revenues $ 103,729
=========
</TABLE>
The Company's total revenues increased approximately $103.7 million, or
55%, to $292.2 million for the year ended December 31, 1997, from $188.5 million
for the comparable period in 1996. Production levels for the year
23
<PAGE> 24
ended December 31, 1997, increased 60% to 16,431 MBOE from 10,269 MBOE for the
comparable period in 1996. The Company's average sales prices (excluding hedging
activities) for oil and natural gas for the year ended December 31, 1997 were
$19.09 per Bbl and $2.63 per Mcf versus $21.58 per Bbl and $2.79 per Mcf in the
prior period. Revenues increased (decreased) by $116.9 million due to the
aforementioned production increases, partially offset by $(31.8) million as a
result of decreased oil and gas prices. For the year ended December 31, 1997,
the Company recognized production of 5,078 MBOE and related revenues of $90.0
million associated with the Central Gulf Properties, versus 680 MBOE and related
revenues of $14.8 million for the period of September 26, 1996 (the date of the
acquisition of such properties) through December 31, 1996.
For the year ended December 31, 1997, the Company's total revenues were
further affected by a $18.6 million increase in hedging revenues. In order to
manage its exposure to price risks in the sale of its crude oil and natural gas,
the Company from time to time enters into price hedging arrangements. See
"--Other Matters - Energy Swap Agreements." The Company's average sales prices
(including hedging activities) for oil and natural gas for the year ended
December 31, 1997 were $19.08 per Bbl and $2.63 per Mcf versus $19.70 per Bbl
and $2.50 per Mcf in the prior period.
Lease operating expenses. Lease operating expenses decreased to $3.46 per
BOE for the year ended December 31, 1997, from $3.52 per BOE in the comparable
1996 period. This decrease is primarily the result of increased production in
the Company's oil and gas fields, which have substantial fixed operating costs
due to the capital intensive nature of the facilities and the underutilization
of capacity. For the year ended December 31, 1997, total lease operating
expenses were $56.8 million, as compared to $36.2 million in the 1996 period.
This increase primarily results from fluctuations in normal operating expenses,
including operating expenses associated with increased production and an
increase of approximately $11.8 million relating to lease operating expenses of
the Central Gulf Properties acquired in September 1996. In addition, workover
expenses for the year ended December 31, 1997, increased by $0.3 million to $2.8
million, as compared to $2.5 million in the comparable 1996 period.
Severance taxes. The effective severance tax rate as a percentage of oil
and gas revenues (excluding the effect of hedging activities) decreased to 3.8%
in the year ended December 31, 1997, from 5.3% in the comparable 1996 period.
The decrease was primarily due to increased production from new wells on federal
leases, including wells located on the Central Gulf Properties, and from state
leases which were exempt from state severance tax under Louisiana's severance
tax abatement program.
General and administrative expenses. General and administrative expenses
per BOE decreased to $1.16 per BOE for the year ended December 31, 1997, from
$1.57 per BOE for the comparable 1996 period. For the year ended December 31,
1997, general and administrative expenses were $19.1 million as compared to
$16.2 million in the comparable 1996 period. This increase is primarily due to
costs of increased corporate staffing associated with both an increase in
drilling activities and the Company's acquisitions in 1996 and 1997, as well as
an increase in franchise taxes due to the issuance of $160 million of the
Company's 9 3/4% Senior Subordinated Notes due 2006 (the "9 3/4% Notes") on
September 26, 1996 and an increase in advertising as a result of the Company's
name change on June 17, 1997, partially offset in the 1997 period by an increase
in the capitalization of a portion of the salaries paid to employees directly
engaged in the acquisition, exploration and development of oil and gas
properties. In addition, in the 1996 period, the Company expensed $0.9 million
associated with efforts to purchase and oil and gas property outside of its
United States cost center.
Depreciation, depletion, and amortization expense. For the year ended
December 31, 1997, depreciation, depletion and amortization ("DD&A") expense was
$121.6 million as compared to $74.7 million in the comparable 1996 period. On a
BOE basis, DD&A for the year ended December 31, 1997, was $7.40 per BOE as
compared to $7.27 per BOE for the year ended December 31, 1996. This variance
can primarily be attributed to the Company's increased production and related
current and future capital costs from the 1996 and 1997 drilling programs and
the Company's purchase of the Central Gulf Properties, partially offset by the
increase in proved reserves resulting from the programs and the acquisition.
Interest expense. For the year ended December 31, 1997, interest expense
increased approximately $9.4 million to $27.4 million, from $18.0 million in the
comparable 1996 period. This increase is primarily a result of an increase of
approximately $11.5 million from the comparable 1996 period relating to the
9 3/4% Notes issued in September 1996 and interest expense of approximately
$8.9 million related to the issuance of $200 million of the Company's 8 7/8%
Senior Subordinated Notes due 2007 (the "8 7/8% Notes") in July 1997. In
addition, interest
24
<PAGE> 25
expense increased in both periods due to a higher average balance on the
Company's $250.0 million senior revolving bank credit facility (the "Revolving
Credit Facility"). The increase was partially offset by a decrease in interest
expense of approximately $7.0 million as a result of the Company's purchase of
$124.8 million of the $125.0 million in original principal amount of the
Company's 13 1/2% Senior Notes due 2004 (the "13 1/2% Notes") on July 22, 1997,
and by an increase in the amount of interest capitalized in the 1997 period, as
a result of an increase in the Company's unevaluated assets, including
additional acreage and seismic data.
Income tax expense (benefit). For the year ended December 31, 1997, the
Company recorded income tax expense of $20.2 million, as compared to $12.0
million in the comparable 1996 period.
Extraordinary loss on early extinguishment of debt. On July 22, 1997, the
Company purchased approximately $124.8 million of the $125.0 million in original
principal amount of the 13 1/2% Notes for approximately $151.5 million. This
repurchase resulted in an after tax extraordinary charge of $19.3 million,
representing the difference between the purchase price and the net carrying
value of the 13 1/2% Notes.
Net income. Due to the factors described above, net income before an
extraordinary charge for the year ended December 31, 1997, increased to $37.5
million, an increase of $16.5 million or 79% from net income of $21.0 million
for the comparable 1996 period. Including the effect of the extraordinary
charge, the Company recorded net income of $18.1 million for the year ended
December 31, 1997.
25
<PAGE> 26
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues between the year ended December 31, 1996, and the
comparable 1995 period:
<TABLE>
<CAPTION>
YEAR ENDED 1996
COMPARED TO
YEAR ENDED 1995
---------------
(IN THOUSANDS)
<S> <C>
Increase (decrease) in oil and gas revenues resulting from
differences in:
Crude oil and condensate--
Price $ 29,929
Production 18,995
---------
48,924
Natural gas--
Price 18,067
Production 11,527
29,594
---------
Hedging and other, net (18,037)
---------
Increase in oil and gas revenues $ 60,481
=========
</TABLE>
The Company's total revenues increased approximately $60.5 million, or 47%,
to $188.5 million for the year ended December 31, 1996, from $128.0 million for
the comparable period in 1995. Production levels for the year ended December 31,
1996, increased 26% to 10,269 MBOE from 8,123 MBOE for the comparable period in
1995. The Company's average sales prices (excluding hedging activities) for oil
and natural gas for the year ended December 31, 1996 were $21.58 per Bbl and
$2.79 per Mcf versus $17.39 per Bbl and $1.82 per Mcf in the prior period.
Revenues increased by $30.5 million due to the aforementioned production
increases and by $48.0 million as a result of increased oil and gas prices. For
the year ended December 31, 1996, the Company recognized additional production
of 680 MBOE and related revenues of $14.8 million associated with the
acquisition of the Central Gulf Properties.
For the year ended December 31, 1996, the Company's total revenues were
further affected by a $18.2 million decrease in hedging revenues. This decrease
is the result of significant increases in product prices in 1996. In order to
manage its exposure to price risks in the sale of its crude oil and natural gas,
the Company from time to time enters into price hedging arrangements. See
"--Other Matters - Energy Swap Agreements." The Company's average sales prices
(including hedging activities) for oil and natural gas for the year ended
December 31, 1996, were $19.70 per Bbl and $2.50 per Mcf versus $17.27 per Bbl
and $1.84 per Mcf in the prior period.
Lease operating expenses. Lease operating expenses decreased to $3.52 per
BOE for the year ended December 31, 1996, from $3.70 per BOE in the comparable
1995 period. This decrease is primarily the result of increased production in
the Company's oil and gas fields, which have substantial fixed operating costs
due to the capital intensive nature of the facilities and the underutilization
of capacity. For the year ended December 31, 1996, total lease operating
expenses were $36.2 million, as compared to $30.0 million in the 1995 period.
This increase primarily results from fluctuations in normal operating expenses,
including operating expenses associated with increased production and an
increase of approximately $2.8 million relating to lease operating expenses of
the newly acquired Central Gulf Properties. In addition, workover expenses for
the year ended December 31, 1996, increased by $1.1 million to $2.5 million, as
compared to $1.4 million in the comparable 1995 period.
Severance taxes. The effective severance tax rate as a percentage of oil
and gas revenues (excluding the effect of hedging activities) decreased to 5.3%
in the year ended December 31, 1996, from 7.8% in the comparable 1995 period.
The decrease was primarily due to increased production from new wells on federal
leases, including wells located on the Central Gulf Properties, and from state
leases which were exempt from state severance tax under Louisiana's severance
tax abatement program.
26
<PAGE> 27
General and administrative expenses. For the year ended December 31, 1996,
general and administrative expenses were $16.2 million as compared to $11.3
million in the comparable 1995 period. This increase is primarily due to costs
of increased corporate staffing associated with both an increase in drilling
activities and the Company's acquisition of the Central Gulf Properties,
partially offset in the 1996 period by an increase in the capitalization of a
portion of the salaries paid to employees directly engaged in the acquisition,
exploration and development of oil and gas properties. In addition, the Company
expensed $0.9 million relating to costs associated with efforts to purchase an
oil and gas property outside of its United States cost center.
Depreciation, depletion, and amortization expense. For the year ended
December 31, 1996, DD&A expense was $74.7 million as compared to $54.1 million
in the comparable 1995 period. On a BOE basis, DD&A for the year ended December
31, 1996, was $7.27 per BOE as compared to $6.66 per BOE for the year ended
December 31, 1995. This variance can primarily be attributed to the Company's
increased production and related current and future capital costs from the 1995
and 1996 drilling programs and the Company's purchase of the Central Gulf
Properties, partially offset by the increase to proved reserves resulting from
the programs and the acquisition.
Interest expense. For the year ended December 31, 1996, interest expense
increased approximately $0.4 million to $18.0 million, from $17.6 million in the
comparable 1995 period. This increase is primarily a result of interest expense
of approximately $4.1 million related to the issuance of the Company's 9 3/4%
Notes in September 1996. The increase was partially offset by the repayment of a
portion of the Company's debt with proceeds from the public offering of 4.5
million shares of common stock at $14.75 per share in March 1996 and the
issuance of the 9 3/4% Notes. The increase was also partially offset by
increases in the amount of interest capitalized in the 1996 period, as a result
of an increase in the Company's unevaluated assets, including additional acreage
and seismic data.
Income tax expense (benefit). For the year ended December 31, 1996, the
Company recorded income tax expense of $12.0 million, as compared to a $4.7
million benefit in the comparable 1995 period. During 1995, the Company
eliminated the valuation allowance related to a deferred tax asset based on
management's belief that it was more likely than not that the Company would
realize such asset in future periods. See Note 5 to the Consolidated Financial
Statements.
Net income. Due to the factors described above, net income for the year
ended December 31, 1996, increased to $21.0 million, an increase of $11.1
million or 112% from net income of $9.9 million for the comparable 1995 period.
27
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities $59,489 $126,753 $173,622
Net cash used in investing activities (77,699) (293,132) (465,428)
Net cash provided by financing activities 17,853 171,926 286,047
</TABLE>
For the year ended December 31, 1997, net cash provided by operating
activities increased by $46.9 million as compared to the year ended December 31,
1996. This increase related primarily to an increase in revenues, partially
offset by increases in lease operating expenses, severance taxes, general and
administrative expenses, interest expense and the extraordinary loss related to
the purchase of substantially all of the 13 1/2% Notes. In addition, timing
differences with respect to payment on certain receivable and payable balances
affect cash provided by operating activities at any period end.
Cash used in investing activities during the year ended December 31, 1997,
increased to $465.4 million as compared to $293.1 million in the comparable 1996
period. This increase relates primarily to the Company's Main Pass Acquisition
on March 7, 1997, for a net purchase price of approximately $55.9 million, the
acquisition of the South Pass Properties for a net purchase price of $59.9
million and increased drilling activity, leasehold purchases and seismic
purchases in the 1997 period. These increases were partially offset by the sale
of the Company's interest in the South Marsh Island 269 field which generated
cash of $33.5 million in the 1997 period. Cash used in investing activities
during the year ended December 31, 1996 included $117.6 million for the
Company's purchase of the Central Gulf Properties.
Financing activities during the year ended December 31, 1997, generated
cash of $286.0 million, as compared to $171.9 million in the comparable 1996
period. On July 2, 1997, the Company completed the offering of its 8 7/8% Notes
at a discount for proceeds of approximately $199.7 million (before offering
costs). Net proceeds to the Company were approximately $195.2 million, which
were used primarily to finance the purchase of substantially all of the 13 1/2%
Notes and to repay indebtedness on the Revolving Credit Facility. On November
18, 1997, the Company completed a public offering of 3.1 million shares of
common stock at a price of $59.875 per share. Net proceeds to the Company were
approximately $178.2 million, which were used to repay outstanding indebtedness
under the Revolving Credit Facility, a portion of which was incurred to finance
the acquisition of the South Pass Properties. The increase in cash during the
1996 period was primarily a result of the completion of a public offering of 4.5
million shares of common stock at a price of $14.75 per share and the issuance
of the 9 3/4% Notes, which yielded net proceeds to the Company of $62.2 million
and $154.0 million, respectively. The increase in cash for the 1997 period was
partially offset by the repayment of (i) a $13.0 million note to Shell Offshore,
Inc. and (ii) the Company's net borrowing of $30.5 million on its Revolving
Credit Facility in the 1997 period as compared to its net repayments $32.2
million in the 1996 period.
28
<PAGE> 29
Capital requirements. The Company's capital investments to date have
focused primarily on exploration, acquisitions and development of proved
properties. The Company's expenditures for property acquisition, exploration and
development for the years ended December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs of evaluated properties $ 624 $ 59,419 $ 67,458
Property acquisition costs of unevaluated properties 2,381 69,766 90,095
Reclass of properties held for resale - (37,200) -
Exploration costs (drilling and completion) 12,153 31,767 96,718
Development costs (drilling and completion) 42,443 81,616 128,638
Abandonment costs 236 352 230
Geological and geophysical costs 5,953 13,999 18,904
Capitalized interest and general and administrative costs 4,476 9,191 20,217
Other capital costs 5,386 22,395 66,331
------- -------- --------
$73,652 $251,305 $488,591
======= ======== ========
</TABLE>
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, production and
abandonment of its oil and natural gas reserves. The Company intends to finance
capital expenditures related to this strategy primarily with funds provided by
operations and borrowings under the Revolving Credit Facility. During the year
ended December 31, 1997, the Company spent $225.4 million on exploration and
development drilling and $18.9 million on 3-D seismic surveys and other
geological and geophysical costs. Substantially all of other capital costs for
the year ended December 31, 1997 related to capital costs incurred on production
facilities and flowlines. The Company is also a party to two escrow agreements
that provide for the future plugging and abandonment costs associated with oil
and gas properties. The first agreement, related to the East Bay Fields,
requires monthly deposits of $100,000 through June 30, 1998, and $350,000
thereafter until the balance in the escrow account equals $40.0 million, unless
the Company commits to the plugging and abandonment of a certain number of wells
in which case the increase will be deferred. The second agreement, related to
Main Pass 69, required an initial deposit of $250,000 and monthly deposits
thereafter of $50,000 until the balance in the escrow account equals $7.5
million. As of December 31, 1997, the escrow balances totaled $8.5 million.
The Company has budgeted $303.7 million for 1998 exploration and
development drilling activities and an additional $21.3 million for other direct
capital expenditures including lease acquisitions and seismic purchases. In
addition, included in other assets at December 31, 1997, is $23.9 million of
advance payments for seismic data which will not be received until 1998. The
Company's other primary capital requirements include approximately $15.6 million
for payment of interest on the 9 3/4% Notes, approximately $17.8 million for
payment of interest on the 8 7/8% Notes and amounts for interest payments on any
borrowings the Company may incur under the Revolving Credit Facility. The
Company expects to fund its obligations with operating cash flow and borrowings
under the Revolving Credit Facility.
Upon the closing of the Merger, the capital budgets of the Company and UMC
will be modified, and the combined total will be approximately $600.0 million
for 1998. In addition, the credit facilities of the Company and UMC will be
combined and initial discussions with certain banks have indicated that the
borrowing base will be approximately $500.0 million (the "New Revolving Credit
Facility").
In addition to developing its existing reserves, the Company attempts to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and gas properties. In order to finance other
possible future acquisitions, the Company may seek to obtain additional debt or
equity financing. The availability and attractiveness of these sources of
financing will depend upon a number of factors, some of which will relate to the
financial condition and performance of the Company, and some of which will be
beyond the Company's control, such as prevailing interest rates, oil and gas
prices and other market conditions. There can be no assurance that the Company
will acquire any additional producing properties. In addition, the ability of
the Company to incur additional indebtedness and grant security interests with
respect thereto will be subject to the terms of the Indentures (as defined
herein).
29
<PAGE> 30
Liquidity. The ability of the Company to satisfy its obligations and fund
planned capital expenditures both independently and upon closing of the Merger
will be dependent upon its future performance, which will be subject to
prevailing economic conditions, including oil and gas prices, and to financial
and business conditions and other factors, many of which are beyond its control,
supplemented if necessary with existing cash balances and borrowings under the
Revolving Credit Facility or the New Revolving Credit Facility. The Company
expects that both independently and upon closing of the Merger its cash flow
from operations and availability under the Revolving Credit Facility or the New
Revolving Credit Facility will be adequate to execute its 1998 business plan.
However, no assurance can be given that the Company will not experience
liquidity problems from time to time in the future or on a long-term basis. If
the Company's cash flow from operations and availability under the Revolving
Credit Facility are not sufficient to satisfy its cash requirements, there can
be no assurance that additional debt or equity financing will be available to
meet its requirements.
The Revolving Credit Facility has a borrowing base of $200.0 million. The
lenders may redetermine the borrowing base at their option once within any
12-month period as well as on scheduled redetermination dates as outlined in the
Revolving Credit Facility. The Revolving Credit Facility terminates on October
31, 2000, unless the Company requests and is granted a one-year deferral of such
termination.
Under the terms of the Revolving Credit Facility, the Company is required
to comply with certain financial tests, which may reduce the $200.0 million
borrowing base. As of December 31, 1997, these financial tests did not operate
to reduce the borrowing base. As of February 12, 1998, the Company's outstanding
balance on its Revolving Credit Facility was $81.5 million. The Company had
remaining availability of $118.5 million under the Revolving Credit Facility as
of February 12, 1998.
Effects of Leverage. The Company has outstanding indebtedness of
approximately $389.7 million as of December 31, 1997. The Company's level of
indebtedness has several important effects on its future operations, including
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes, (ii) the covenants contained in the Indentures (as
defined herein) require the Company to meet certain financial tests, and contain
other restrictions which limit the Company's ability to borrow additional funds
or to dispose of assets and may affect the Company's flexibility in planning
for, and reacting to, changes in its business, including possible acquisition
activities and (iii) the Company's ability to obtain additional financing in the
future for working capital, expenditures, acquisitions, general corporate
purposes or other purposes may be impaired.
The Company is required to make semi-annual interest payments of $7.8
million on its 9 3/4% Notes each April 1 and October 1 through the year 2006 and
semi-annual interest payments of approximately $8.9 million on its 8 7/8% Notes
each January 15 and July 15 through the year 2007. In addition, the Company is
required to make quarterly interest payments on the Revolving Credit Facility
based on outstanding borrowings for the quarterly period. The Company may also,
at its discretion, make principal payments on the Revolving Credit Facility.
Pursuant to the indenture governing the 9 3/4% Notes (together with the
indenture governing the 8 7/8% Notes, the "Indentures"), the Company may not
incur any Indebtedness other than Permitted Indebtedness (as defined in the
Indentures) unless the Company's Consolidated Fixed Charge Coverage Ratio (as
defined in the Indentures) for the four full fiscal quarters preceding the
proposed new Indebtedness is greater than 2.5 to 1.0, after giving pro forma
effect to the proposed new Indebtedness, the application of the proceeds of such
Indebtedness and other significant transactions during the period.
In accordance with the terms of the Indentures, if the Company disposes of
oil and gas assets, it must apply such proceeds to permanently pay down certain
indebtedness or within a specified time from the date of the asset sale,
purchase additional oil and gas assets. If proceeds not applied as indicated
above exceed $15.0 million ($20.0 million with respect to the 8 7/8% Notes), the
Company shall be required to offer to purchase outstanding 9 3/4% Notes, 8 7/8%
Notes or other pari passu indebtedness in an amount equal to the unapplied
proceeds. A similar provision exists with respect to the 13 1/2% Notes, of which
only $245,000 in principal amount currently remains outstanding.
The Company believes it is currently in compliance with all covenants
contained in the respective Indentures and has been in compliance since the
issuance of the 13 1/2% Notes, the 9 3/4% Notes and the 8 7/8% Notes.
30
<PAGE> 31
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to oil and gas prices, general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors.
OTHER MATTERS
Energy swap agreements. The Company engages in futures contracts with
certain of its production through master swap agreements ("Swap Agreements").
The Company considers these futures contracts to be hedging activities and, as
such, monthly settlements on these contracts are reflected in oil and gas sales.
In order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future production and (ii) the
contract must reduce the Company's exposure to the risk of changes in prices.
Changes in the market value of futures contracts treated as hedges are not
recognized in income until the hedged item is also recognized in income. If the
above criteria are not met, the Company will record the market value of the
contract at the end of each month and recognize a related gain or loss. Proceeds
received or paid relating to terminated contracts or contracts that have been
sold are amortized over the original contract period and reflected in oil and
gas sales. The Company enters into hedging activities in order to secure an
acceptable future price relating to a portion of future production. The primary
objective of these activities is to protect against decreases in price during
the term of the hedge.
The Swap Agreements provide for separate contracts tied to the NYMEX light
sweet crude oil and natural gas futures contracts. The Company has contracts
which contain specific contracted prices ("Swaps") that are settled monthly
based on the differences between the contract prices and the average NYMEX
prices for each month applied to the related contract volumes. To the extent the
average NYMEX price exceeds the contract price, the Company pays the spread, and
to the extent the contract price exceeds the average NYMEX price the Company
receives the spread. Under the terms of the Swap Agreements, each counterparty
has extended the Company a $5.0 million line of credit for use in conjunction
with its hedging activities. As of December 31, 1997, the fair market value of
all contracts covered by the Swap Agreements was approximately $6.8 million.
As of December 31, 1997, after giving effect to three hedges that were
unwound in January 1998, the Company's open forward position on its outstanding
crude oil Swaps was 4,500 MBbls at an average price of $19.88 per Bbl for the
year ended December 31, 1998. The Company currently has no outstanding natural
gas Swaps.
As a result of hedging activity under the Swap Agreements, the Company
estimates that on a BOE basis, approximately 20% of its estimated 1998
production which is classified as proved reserves as of December 31, 1997, will
not be subject to price fluctuation for 1998.
Currently, it is the Company's intention to commit no more than 50% of its
production on a BOE basis to such arrangements at any point in time. Moreover,
under the Revolving Credit Facility the Company is prohibited from committing
more than 80% of its production estimates for the next 24 months to such
arrangements at any point in time. As the current swap agreements expire, the
portion of the Company's oil and natural gas production which is subject to
price fluctuations will increase substantially, unless the Company enters into
additional hedging transactions.
Price fluctuations and volatile nature of markets. Despite the measures
taken by the Company to attempt to control price risk, the Company remains
subject to price fluctuations for natural gas and oil sold in the spot market.
Prices received for natural gas sold on the spot market are volatile due
primarily to seasonality of demand and other factors beyond the Company's
control. Domestic oil prices generally follow worldwide oil prices which are
subject to price fluctuations resulting from changes in world supply and demand.
Any significant decline in prices for oil and gas could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Gas balancing. It is customary in the industry for various working interest
partners to produce more or less than their entitlement share of natural gas
from time to time. The Company's net overproduced position decreased from
2,059,954 Mcf at December 31, 1996, to 478,507 Mcf at December 31, 1997. This
decrease is primarily the result of the Company's Main Pass Acquisition. During
the 4th quarter of 1997, the Company changed its method of recognizing revenue
and imbalance obligations to the entitlement method of accounting. The impact of
this change was not material.
31
<PAGE> 32
Environmental. The Company's business is subject to certain federal, state,
and local laws and regulations relating to the exploration for, and the
development, production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have become
more stringent in recent years, often imposing greater liability on a larger
number of potentially responsible parties. Although the Company believes it is
in substantial compliance with all applicable laws and regulations, the
requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations.
Under certain circumstances, the MMS may require any Company operations on
federal leases to be suspended or terminated. Any such suspensions, terminations
or inability to meet applicable bonding requirements could materially and
adversely affect the Company's financial condition and operations. Although
significant expenditures may be required to comply with governmental laws and
regulations applicable to the Company, to date such compliance has not had a
material adverse effect on the earnings or competitive position of the Company.
It is possible that such regulations in the future may add to the cost of
operating offshore drilling equipment or may significantly limit drilling
activity. The Company has included $10.0 million in its 1998 exploration and
development capital budget to reformat operations for alternative disposal of
water produced from its offshore wells in accordance with an approved zero
discharge disposal plan. See "Business - Governmental Regulation," "-
Environmental Matters" and "- Abandonment Costs."
The OPA imposes ongoing requirements on a responsible party including proof
of financial responsibility to cover at least some costs in a potential spill.
For tank vessels, including mobile offshore drilling rigs, the OPA imposes on
owners, operators and charterers of the vessels, an obligation to maintain
evidence financial responsibility of up to $10.0 million depending on gross
tonage. With respect to offshore facilities, proof of greater levels of
financial responsibility may be applicable. This amount is subject to upward
regulatory adjustment up to $150.0 million.
Year 2000 compliance. The Company is currently in the process of evaluating
its information technology infrastructure for the year 2000 ("Year 2000")
compliance. The Company's primary information systems are in the process of
being replaced with fully compliant new systems as part of a regularly scheduled
upgrade to meet the Company's growing capacity and performance requirements.
These replacements are expected to be completed by early 1999.
The Company does not expect that the cost to modify and replace its
information technology infrastructure to be Year 2000 compliant will be material
to its financial condition or results of operations. The Company does not
anticipate any material disruption in its operations as a result of any failure
by the Company to be in compliance. The costs of these projects and the date on
which the Company plans to complete modifications and replacements are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.
The Company does not currently have any information concerning the Year
2000 compliance status of its suppliers and customers. In the event that any of
the Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
The Company has not incurred significant costs related to Year 2000
compliance prior to December 31, 1997, other than internal costs to evaluate the
extent of compliance.
32
<PAGE> 33
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. 34
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. 35
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.................................. 36
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995...................... 37
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................. 38
Notes to Consolidated Financial Statements................................ 39
</TABLE>
33
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ocean Energy, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Ocean
Energy, Inc. (a Delaware corporation) and subsidiaries, as of December 31, 1997
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ocean Energy, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 16, 1998
34
<PAGE> 35
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 5,759
Joint interest receivables 5,819 2,002
Oil and gas sales receivables 39,077 33,770
Accounts receivable - other 1,007 1,500
Assets held for resale -- 37,200
Prepaid expenses 992 1,213
Other current assets 3,763 2,415
--------- ---------
Total current assets 50,658 83,859
Oil and gas properties - full cost method
Evaluated 851,993 464,485
Less accumulated depreciation, depletion, and
amortization (310,315) (188,692)
--------- ---------
541,678 275,793
Unevaluated properties excluded from amortization 180,988 79,905
Other assets:
Furniture and equipment, less accumulated depreciation of
$5,272 and $2,773 in 1997 and 1996, respectively 6,772 4,287
Restricted deposits 8,497 6,323
Deferred financing costs 10,468 10,543
Other assets 23,877 --
--------- ---------
Total assets $ 822,938 $ 460,710
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 93,830 $ 47,718
Oil and gas sales payable 7,559 7,831
Accrued interest 12,778 5,521
Current notes payable -- 127
Deposit on assets held for resale -- 3,720
--------- ---------
Total current liabilities 114,167 64,917
Long-term debt 389,652 284,142
Deferred tax liability 12,337 6,098
Other liabilities 1,510 400
Stockholders' equity:
Preferred stock, $.01 par value; authorized 10 million shares,
no shares issued or outstanding at December 31, 1997 and 1996 -- --
Common stock, $.01 par value; authorized 100 million shares
issued and outstanding 22.897 million shares and 19.641 million
shares at December 31, 1997 and 1996, respectively 229 196
Paid-in capital 273,757 91,820
Retained earnings 31,286 13,137
--------- ---------
Total stockholders' equity 305,272 105,153
--------- ---------
Total liabilities and stockholders' equity $ 822,938 $ 460,710
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
35
<PAGE> 36
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Oil and gas sales $ 292,180 $ 188,451 $ 127,970
Operating expenses:
Lease operations 56,825 36,192 30,023
Severance taxes 11,077 10,906 10,023
Depreciation, depletion and amortization 121,623 74,652 54,084
--------- --------- ---------
Total operating expenses 189,525 121,750 94,130
General and administrative expenses 19,137 16,154 11,312
Interest expense 27,385 17,954 17,620
Interest income and other (1,506) (395) (302)
--------- --------- ---------
Income before taxes and extraordinary item 57,639 32,988 5,210
Income tax expense (benefit) 20,189 12,037 (4,692)
--------- --------- ---------
Income before extraordinary item 37,450 20,951 9,902
Extraordinary loss on early extinguishment
of debt, net of taxes 19,301 -- --
--------- --------- ---------
Net income $ 18,149 $ 20,951 $ 9,902
========= ========= =========
Earnings (loss) per common share - basic
Income before extraordinary item $ 1.86 $ 1.13 $ 0.66
Extraordinary item (0.96) -- --
--------- --------- ---------
Net income $ 0.90 $ 1.13 $ 0.66
Earnings (loss) per common share - diluted
Income before extraordinary item $ 1.79 $ 1.09 $ 0.66
Extraordinary item (0.92) -- --
--------- --------- ---------
Net income $ 0.87 $ 1.09 $ 0.66
Weighted average common and common
equivalent shares outstanding
Basic 20,106 18,601 15,043
Diluted 20,934 19,251 15,115
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
36
<PAGE> 37
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance at December 31,1994 $ 150 $ 27,269 $(17,716) $ 9,703
Sale of stock -- 370 -- 370
Net income -- -- 9,902 9,902
-------- -------- -------- --------
Balance at December 31,1995 $ 150 $ 27,639 $ (7,814) $ 19,975
Sale of stock - public offering 45 62,146 -- 62,191
Sale of stock - exercise of stock options 1 2,035 -- 2,036
Net income -- -- 20,951 20,951
-------- -------- -------- --------
Balance at December 31,1996 $ 196 $ 91,820 $ 13,137 $105,153
Sale of stock - public offering 31 177,715 -- 177,746
Sale of stock - exercise of stock options 2 4,222 -- 4,224
Net income -- -- 18,149 18,149
-------- -------- -------- --------
Balance at December 31,1997 $ 229 $273,757 $ 31,286 $305,272
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
37
<PAGE> 38
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income $ 18,149 $ 20,951 $ 9,902
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization
Oil and gas properties 121,623 74,652 54,084
Furniture and equipment 2,499 1,515 667
Amortization of deferred financing costs 1,381 764 610
Deferred hedge revenue (133) (470) 204
Deferred tax expense (benefit) 6,238 10,790 (4,692)
Changes in operating assets and liabilities:
Accrued interest 7,257 1,570 1,555
Receivables (8,631) (19,206) (7,055)
Prepaid expenses 221 (823) 126
Other current assets (1,348) (1,990) (352)
Accounts payable and accrued liabilities 26,637 32,627 1,957
Oil and gas sales payable (271) 2,653 2,483
Deposit on assets held for resale -- 3,720 --
--------- --------- ---------
Net cash provided by operating activities 173,622 126,753 59,489
--------- --------- ---------
Investing activities:
Additions to oil and gas properties and furniture
and equipment (472,857) (291,068) (75,740)
Increase in restricted deposits (2,173) (2,064) (1,959)
Increase in other assets (23,878) -- --
Proceeds from sale of oil and gas properties 33,480 -- --
--------- --------- ---------
Net cash used in investing activities (465,428) (293,132) (77,699)
--------- --------- ---------
Financing activities:
Sale of stock 181,970 64,227 370
Borrowings on notes payable 649,660 242,120 99,000
Payments of notes payable (544,382) (128,264) (81,358)
Deferred financing costs (1,201) (6,157) (159)
--------- --------- ---------
Net cash provided by financing activities 286,047 171,926 17,853
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (5,759) 5,547 (357)
Cash and cash equivalents, beginning of the period 5,759 212 569
--------- --------- ---------
Cash and cash equivalents, end of the period $ -- $ 5,759 $ 212
========= ========= =========
Interest paid during the period $ 31,550 $ 20,897 $ 18,288
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
38
<PAGE> 39
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Ocean Energy, Inc., a Delaware corporation, its predecessors and their
respective subsidiaries (the "Company"), is an independent energy company
engaged in the exploration, development, acquisition and production of crude oil
and natural gas, with operations primarily in the coastal onshore and shallow
offshore regions of Louisiana (the "Louisiana Gulf"). The Company was formed in
April 1992 to take advantage of opportunities to acquire and develop certain
offshore properties in the Louisiana Gulf. Since its inception, the Company has
grown primarily through purchases (primarily from major oil and gas companies)
of oil and gas properties having substantial production histories, complex
geographical structures and substantial exploration potential. These properties
are situated primarily in the Louisiana Gulf. In order to reduce risk, the
Company uses state-of-the-art seismic evaluation technology in its exploration
and development activities. The seismic evaluation technology is integrated with
subsurface data to improve the Company's ability to properly define the
structural and stratigraphic features which potentially contain accumulation of
hydrocarbons.
In December 1994, the Company closed initial public offerings (the "Initial
Offerings") issuing 5,750,000 shares of common stock at $10 per share and $125
million of 13 1/2% Senior Notes due December 1, 2004 (the "13 1/2% Notes").
On December 23, 1997, the Company announced that it has entered into a
merger agreement (the "Merger Agreement") with United Meridian Corporation
("UMC") that provides in part for a stock-for-stock merger of UMC with and into
the Company (the "Merger"). The Company will be the surviving company in the
Merger and will retain the name Ocean Energy, Inc. Pursuant to the Merger
Agreement at the effective time of the Merger, the Company's stockholders will
receive 2.34 shares of the combined company's common stock for each share of the
Company's common stock then owned and UMC stockholders will receive 1.30 shares
of the combined company's common stock for each share of UMC common stock then
owned. Total shares outstanding following the Merger will be approximately 100
million, of which approximately 53.6% will be owned by the Company's historic
shareholders and 46.4% by UMC shareholders. The Merger is expected to be treated
as pooling of interests for accounting purposes and is expected to close by
April 1998. The Merger is subject to approval by the shareholders of both
companies, and to customary regulatory approvals. On January 9, 1998, the
Company filed with the Securities and Exchange Commission a registration
statement under the 1933 Act that includes a joint proxy statement and
prospectus relating to the Company's 1998 Annual Meeting of Stockholders and
including a proposal to approve the Merger. Included in prepaid expenses is
approximately $0.4 million of accumulated merger costs. Upon completion or
termination of the merger, such costs, as well as costs incurred during 1998,
will be expensed. Total costs related to the Merger for both the Company and
UMC, if consummated, are expected to be approximately $28.0 to $32.0 million.
The Company and UMC are liable to the other for a $40.0 million termination
fee (the "Termination Fee") if the Merger Agreement is terminated under certain
circumstances. In general, the Termination Fee is payable by the Company if: (i)
UMC terminates the Merger Agreement due to the Company's breach of its covenant
not to solicit or negotiate the acquisition by a third party of stock or assets
of the Company; (ii) either party terminates the Merger Agreement due to failure
to obtain the necessary stockholders' approvals or to consummate the Merger
prior to July 31, 1998, and the Company has received a Takeover Proposal (as
defined) and the UMC stockholders have not voted to disapprove the Merger;
provided, no Termination Fee is payable unless within 12 months of the
termination the Company or any of its subsidiaries consummates any Takeover
Proposal (as defined); or (iii) the Company terminates the Merger Agreement
because it has received a Superior Proposal (as defined), and the Company's
board determines in good faith that there is a substantial probability that the
Company's stockholders will not approve the Merger. In general, the Termination
Fee is payable by UMC under similar circumstances.
As with other independent oil and gas producers, the Company is subject to
numerous uncertainties and commitments associated with its operations. For
example, the Company's results of operations are highly dependent
39
<PAGE> 40
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
upon the prices received for oil and gas. In addition, the Company will be
required to make substantial future capital expenditures for the acquisition,
exploration, development, production and abandonment of its oil and gas
properties.
Subsidiary Guaranty
All of the Company's operating income and cash flow is generated by Ocean
Energy, Inc., a Louisiana corporation ("Ocean Louisiana"), a wholly owned
subsidiary and the Subsidiary Guarantor of the Company. The separate financial
statements of Ocean Louisiana are not included herein because (i) Ocean
Louisiana is the only direct active subsidiary of the Company; (ii) Ocean
Louisiana has fully and unconditionally guaranteed the 13 1/2% Notes, the $160
million of 9 3/4% Senior Subordinated Notes due 2006 (the "9 3/4% Notes") and
the $200 million of 8 7/8% Senior Subordinated Notes due 2007 (the "8 7/8%
Notes"), (iii) the aggregate assets, liabilities, earnings, and equity of Ocean
Louisiana are substantially equivalent to the assets, liabilities, earnings and
equity of the Company on a consolidated basis; and (iv) the presentation of
separate financial statements and other disclosures concerning Ocean Louisiana
are not deemed material.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil and Gas Properties
The Company's exploration and production activities are accounted for under
the full cost method. Under this method, all acquisition, exploration and
development costs, including certain related employee costs, incurred for the
purpose of finding oil and gas are capitalized. Such amounts include the cost of
drilling and equipping productive wells, dry hole costs, lease acquisition
costs, delay rentals, and costs related to such activities. Employee costs
associated with production operations and general corporate activities are
expensed in the period incurred. The Company capitalized $7.6 million, $3.9
million and $1.6 million of employee related costs directly associated with the
acquisition, development or exploration of oil and gas properties during the
years ended December 31, 1997, 1996 and 1995, respectively. The Company's
proportionate interests in properties held under joint venture, partnership or
similar arrangements are included in oil and gas properties. Transactions
involving sales of reserves in place, unless unusually significant, are recorded
as adjustments to oil and gas properties. Capitalized costs are limited to the
sum of the present value of future net revenues discounted at 10% related to
estimated production of proved reserves (which includes deferred hedge revenue)
and the lower of cost or estimated fair value of unevaluated properties.
Depreciation, depletion and amortization of oil and gas properties are
computed on a composite unit-of-production method based on estimated proved
reserves. All costs associated with evaluated oil and gas properties, including
an estimate of future development, restoration, dismantlement and abandonment
costs associated therewith, are included in the computation base. A majority of
the oil and gas reserves are estimated periodically by independent petroleum
engineers. The Company evaluates all unevaluated oil and gas properties on a
quarterly basis to determine if any impairment has occurred or if the property
has been otherwise evaluated. If a property has been evaluated, or if there is
determined to be any impairment, costs related to the particular unevaluated
properties are reclassified as an evaluated oil and gas property, and thus
subject to amortization if there are proved reserves associated with the related
cost center. Otherwise, such impairment will be recognized in the period in
which it occurs.
40
<PAGE> 41
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Furniture and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from 3 to 5 years.
Oil and Gas Revenue
During the fourth quarter of 1997, the Company converted to the entitlement
method of accounting from the sales method of accounting for gas imbalances. The
Company believes the entitlement method more closely follows the accrual basis
of accounting. The conversion did not materially impact the Company's results of
operations or financial position on a cumulative basis or for any of the periods
presented. Under the entitlement method, the Company records as revenue only
that portion of gas production sold and allocable to its ownership interest in
the related well. Any gas production proceeds received in excess of its
ownership interest are reflected as a liability in the accompanying consolidated
financial statements. As of December 31, 1997, the Company is in a net
overdelivered position of 478,507 Mcf.
The Company records as oil and gas revenue the payments received from (or
made to) a third party under contracts to hedge future oil and gas production
(See Note 11).
Statements of Cash Flows
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Earnings Per Common Share
In February 1997, the FASB issued Statement No. 128 ("SFAS 128"), "Earnings
Per Share", which simplifies the computation of earnings per share ("EPS"). SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, and requires restatement for all prior period EPS data
presented. Under SFAS 128, the Company computes two earnings per share amounts -
basic EPS and EPS assuming dilution. Basic EPS is calculated based on the
weighted average number of shares of common stock outstanding for the periods.
Weighted average number of shares of common stock outstanding for the 1997, 1996
and 1995 periods were 20,106,475, 18,601,445 and 15,043,122, respectively. EPS
assuming dilution is based on the weighted average number of shares of common
stock outstanding for the periods, including common equivalent shares which
reflect the dilutive effect of stock options granted to certain employees and
outside directors on various dates through December 31, 1997. Dilutive options
that are issued during a period or that expire or are canceled during a period
are reflected in EPS assuming dilution computations for the time they were
outstanding during the periods being reported. Common equivalent shares for the
1997, 1996 and 1995 periods were 827,945, 649,061 and 72,120, respectively. For
the years ended December 31, 1997 and 1995, the Company had 473,000 and 645,000
options which were considered antidilutive as a result of the exercise price of
the options exceeding the average price for the period, and therefore are not
included in the calculation of common equivalent shares. There were no options
considered antidilutive for the year ended December 31, 1996.
Deferred Financing Costs
Deferred financing costs are reflected net of accumulated amortization of
approximately $2.8 million as of December 31, 1997, and are related to the sale
of the 9 3/4% Notes and the 8 7/8% Notes and the senior revolving bank credit
facility (the "Revolving Credit Facility"). Deferred financing costs are being
amortized on a straight-line basis over the life of the related loans.
41
<PAGE> 42
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other assets
Included in other assets at December 31, 1997, is $23.9 million of advance
payments for seismic data which will not be received until 1998.
Fair Value of Financial Instruments
Fair value of cash, cash equivalents, accounts receivable and accounts
payable approximate book value at December 31, 1997. Fair value of debt is
determined based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt.
Reclassifications
Certain reclassifications have been made to conform financial statement
presentation between periods.
Accounting Standards
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income", and Statement No. 131 ("SFAS 131"), "Disclosures About
Segments of an Enterprise and Related Information". SFAS 130 establishes
standards for reporting and display of comprehensive income in the financial
statements. Comprehensive income is the total of net income and all other
non-owner changes in equity. SFAS 131 requires that companies disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance. In addition, in February 1998 the FASB
issued Statement No. 132 ("SFAS 132"), "Employers' Disclosures About Pensions
and Other Postretirement Benefits", concerning employer disclosure about pension
plans and other postretirement benefits. SFAS 130, SFAS 131 and SFAS 132 are
effective for 1998. Adoption of these standards is not expected to have an
effect on the Company's financial statements, financial position or results of
operations.
2. STOCKHOLDERS' EQUITY
In January 1995, the Company issued 40,000 shares of common stock relating
to the exercise of the over allotment option granted to the underwriters for the
Initial Offerings for net proceeds of $0.4 million.
On March 19, 1996, the Company completed a public offering of 4.5 million
shares of common stock at a price of $14.75 per share. Net proceeds of the to
the Company were approximately $62.2 million.
On November 18, 1997, the Company completed a public offering of 3.1
million shares of common stock at a price of $59.875 per share. Net proceeds to
the Company were approximately $178.2 million.
In 1997, the Company adopted a shareholder rights plan (the "Rights Plan"),
pursuant to which preferred stock purchase rights (the "Rights") have been
distributed to holders of the Company's common stock. The Rights Plan is
designed to deter coercive takeover tactics and to prevent an acquirer from
attempting to gain control of the Company without negotiating with the Board of
Directors. The Company is not aware of any effort to acquire control of the
Company, but adopted the Rights Plan concurrently with its execution of the
Merger Agreement with UMC.
The Rights will expire on December 22, 2007. The Rights will be exercisable
only if a person acquires beneficial ownership of 15 percent or more of the
Company's common stock (an "Acquiring Person"), or commences a tender offer
which would result in ownership of 15 percent or more of such stock. Under the
Rights Plan, one Right to purchase one one-hundredth of a share of a new series
of junior preferred stock of the Company at an exercise price of $240.00 per one
one-hundredth of a share (subject to adjustment) was issued for each
42
<PAGE> 43
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
outstanding share of the Company's common stock held at the close of business on
January 9, 1998 (the "Record Date").
Under certain circumstances the Rights "flip in" and enable the holders
(other than an Acquiring Person) to buy the Company's common stock at a 50
percent discount. Under other circumstances, the Rights "flip over" and entitle
the holders (other than an Acquiring Person) to buy shares of the acquirer's
common stock at a 50 percent discount.
The Company will generally be entitled to redeem the Rights in whole, but
not in part, at $0.001 per Right payable in cash or common stock, subject to
adjustment, at any time until 10 business days (subject to extension) after the
first public announcement that an Acquiring Person has become such.
3. INVESTMENT IN OIL AND GAS PROPERTIES
On September 26, 1996, the Company acquired from Mobil Oil and Producing
Southeast, Inc. ("Mobil"), certain interests in eleven oil and gas producing
fields and related production facilities primarily situated in the shallow
federal waters of the central Gulf of Mexico, offshore Louisiana (the "Central
Gulf Properties"), for approximately $117.6 million. At December 31, 1996, one
of the eleven Central Gulf Properties was reclassified as "Assets held for
resale". The subject property was sold on January 3, 1997, for $37.2 million. No
gain or loss was recognized on the sale.
On March 7, 1997, the Company completed an acquisition of certain interests
in various state leases in the Main Pass Block 69 field, offshore Plaquemines
Parish, Louisiana, for a net purchase price of $55.9 million (the "Main Pass
Acquisition"). The acquisition included interests situated contiguous to the
Company's pre-existing Main Pass 69 holdings, acquired from Shell Oil Company,
its affiliates and subsidiaries ("Shell") in June 1992 ("Main Pass 69").
On October 15, 1997, the Company acquired certain oil and gas interests in
various federal leases in the South Pass 61 and 65 fields (the "South Pass
Properties") from Shell for a net purchase price of $59.9 million. The Company
has acquired a 50% working interest in the fields and has become operator of the
properties. The acquisition includes interest in 95 producing wells located on
approximately 26,250 gross acres. Also on October 15, 1997, the Company entered
into an exploratory joint venture agreement with Shell which establishes an Area
of Mutual Interest ("AMI") covering approximately 240 square miles located in
coastal and offshore areas of Plaquemines Parish, Louisiana. Under the terms of
the oil and gas exploration agreement, the Company and Shell have agreed to
contribute existing leasehold, project inventory and proprietary 3-D seismic
data within the AMI. The Company expects the venture to spud the initial
exploratory well in 1998.
43
<PAGE> 44
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table discloses certain financial data relative to the
Company's oil and gas producing activities, substantially all of which are
located in the offshore waters of the continental United States.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
Costs incurred during period:
Capitalized
Purchase of producing properties $ 67,458 $ 59,419 $ 624
Purchase of unevaluated properties 90,095 69,766 2,381
Properties held for resale -- (37,200) --
Exploration costs 115,621 45,766 18,106
Development costs, including capitalized
workovers 194,970 104,011 47,829
Plugging and abandonment costs 230 352 236
Capitalized interest on unevaluated properties
and capitalized general and administrative
costs 20,217 9,191 4,476
---------- ---------- ----------
$ 488,591 $ 251,305 $ 73,652
========== ========== ==========
Charged to expense
Operating costs:
Recurring lease operating expenses $ 54,017 $ 33,709 $ 28,648
Major maintenance expenses 2,808 2,483 1,375
---------- ---------- ----------
Total operating costs $ 56,825 $ 36,192 $ 30,023
========== ========== ==========
Severance taxes $ 11,077 $ 10,906 $ 10,023
========== ========== ==========
Oil and gas properties:
Balance, beginning of period $ 544,390 $ 293,984 $ 220,331
Additions 488,591 287,606 73,653
Properties held for resale -- (37,200) --
---------- ---------- ----------
Balance, end of period $1,032,981 $ 544,390 $ 293,984
========== ========== ==========
Accumulated depreciation, depletion and
Amortization ("DD&A"):
Balance, beginning of period $ 188,692 $ 114,040 $ 60,020
Provision for depreciation, depletion and
amortization 121,623 74,652 54,020
---------- ---------- ----------
Balance, end of period 310,315 188,692 114,040
---------- ---------- ----------
Net capitalized costs $ 722,666 $ 355,698 $ 179,944
========== ========== ==========
DD&A per BOE $ 7.40 $ 7.27 $ 6.66
</TABLE>
44
<PAGE> 45
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table discloses financial data (expressed in thousands of
dollars) associated with capitalized unevaluated costs as of December 31, 1997.
These costs relate primarily to acquisition, lease and seismic costs, the
majority of which will be evaluated over a four year period.
<TABLE>
<CAPTION>
BALANCE AT COSTS INCURRED DURING THE
DECEMBER 31, YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Acquisition costs $129,248 $ 88,774 $ 32,699 $ 1,789 $ 5,986
Exploration costs 38,350 23,845 10,672 3,833 --
Development costs 1,072 1,072 -- -- --
Capitalized interest 12,318 8,550 2,685 1,031 52
-------- -------- -------- -------- --------
$180,988 $122,241 $ 46,056 $ 6,653 $ 6,038
======== ======== ======== ======== ========
</TABLE>
4. RESTRICTED DEPOSITS
The Company, as the operator of certain oil and gas properties, is a party
to two escrow agreements. The first, related to its interest in the South Pass
24 and 27 fields acquired from Shell in June 1993 (the "East Bay Fields"),
requires monthly deposits of $100,000 through June 30, 1998, and $350,000
thereafter until the balance in the escrow account equals $40.0 million unless
the Company commits to the plug and abandonment of a certain number of wells in
which case the increase will be deferred. The second agreement, related to its
interest in the Main Pass 69 field, required an initial deposit of $250,000 and
monthly deposits thereafter of $50,000 until the balance in the escrow account
equals $7.5 million. These deposits are to provide for the future plugging and
abandonment costs associated with the oil and gas properties. Such funds are
restricted as to withdrawal by the agreements. With respect to any specifically
planned plugging and abandoning operation, funds are partially released when the
Company presents to the escrow agent the planned plugging and abandoning
operations approved by the applicable governmental agency, with the balance
released upon the presentation by the Company to the escrow agent of evidence
from the governmental agency that the operation was conducted in compliance with
applicable laws and regulations. The escrow agent for both agreements is an
unrelated financial institution. As of December 31, 1997 and 1996, the escrow
balances were approximately $8.5 million and $6.3 million, respectively.
5. INCOME TAXES
The components of the income tax provision (benefit) before the
extraordinary charge for each of the periods presented are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current $ -- $ -- $ --
Deferred 20,189 12,037 (4,692)
------- ------- -------
Total $20,189 $12,037 $(4,692)
======= ======= =======
</TABLE>
Deferred income taxes are provided to reflect temporary differences in the
basis of net assets for income tax and financial reporting purposes. The tax
effected temporary differences and tax loss carryforwards which comprise
deferred taxes are as follows:
45
<PAGE> 46
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforward $ 14,182 $ 11,271 $ 3,849
Temporary differences:
Oil and gas properties (26,519) (17,369) 1,735
Other -- -- (892)
-------- -------- --------
Total deferred tax (liability) asset $(12,337) $ (6,098) $ 4,692
======== ======== ========
</TABLE>
The Company was originally formed as an S corporation under the Internal
Revenue Code and, as such, all income taxes were the obligation of the Company's
stockholders. In conjunction with the Initial Offerings, the Company converted
to a C corporation under the Internal Revenue Code. Because the Company was only
formed in 1992, did not have a long earnings history and incurred a loss in
1994, a valuation allowance was provided against the deferred tax asset at
December 31, 1994. During 1995, due in part to drilling successes, increases in
realized prices and reductions in unit production costs, the Company generated
income from operations. At December 31, 1995, management evaluated recent
operating performance, reserves, expectations for continued higher realized
product prices and increased operational efficiencies. Based upon these factors,
management believed it was more likely than not the Company would generate
sufficient future income such that the deferred tax asset would be realized. As
a result, in 1995 the Company reversed the valuation allowance and recognized a
tax benefit of $4.7 million.
The principal reasons for the differences between income taxes before the
extraordinary charge computed at the statutory federal income tax rate and the
income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ------------------------ ------------------------
% OF NET % OF NET % OF NET
INCOME INCOME INCOME
BEFORE BEFORE BEFORE
AMOUNT TAXES AMOUNT TAXES AMOUNT TAXES
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense computed
at the statutory federal income
tax rate $ 20,174 35 $ 11,546 35 $ 1,824 35
Change in valuation allowance -- -- -- -- (6,304) (121)
Other, net 15 -- 491 1 (212) (4)
-------- -------- -------- -------- -------- --------
Income tax provision (benefit) $ 20,189 35 $ 12,037 36 $ (4,692) (90)
======== ======== ======== ======== ======== ========
</TABLE>
At December 31, 1997, the Company had regular tax net operating loss
carryforwards of approximately $37.8 million and alternative minimum tax net
operating loss carryforwards of approximately $12.9 million. These loss
carryforward amounts will expire during the years 2009 through 2112.
6. RELATED PARTY TRANSACTIONS
During 1996, the Company purchased a working interest ownership in a field
where the Company had an existing working interest from an officer of the
Company for $0.2 million.
During 1997, 1996 and 1995, the Company paid $1.5 million , $1.4 million
and $1.0 million, respectively, to an affiliate of a stockholder associated with
an overriding royalty interest owned by it.
46
<PAGE> 47
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During 1994, the Company obtained a loan from Union Planters Bank in
connection with the purchase of a seaplane. During 1995, Mr. Flores was named a
member of the Board of Directors of that bank. The loan was made to the Company
for the amount of $132,500, bearing interest at the Wall Street Prime rate.
Principal and interest payments were payable monthly, with the balance due on
February 10, 1997. The outstanding principal balance plus accrued interest at
December 31, 1996, was $92,133. On February 10, 1997, the balance of the loan
was paid in full. In addition, Union Planters Bank is a member of the syndicate
under the Revolving Credit Facility. Effective December 31, 1996, Mr. Flores
resigned as a member of the Board of Directors of Union Planters Bank.
Effective November 1, 1995, the Company entered into a consulting agreement
for geological services with a party related to an officer of the Company. The
original term of this agreement expired on October 31, 1997, and the term has
been extended such that the new expiration date of the agreement is October 31,
1998. In 1995, the Company paid $5,200 pursuant to the agreement as well as
$5,000 for other miscellaneous geological consulting services received. In
addition, in 1995 the Company paid $50,000 for services rendered in connection
with an oil and gas prospect assigned to it by such party. In 1997 and 1996, the
Company paid $107,952 and $110,565, respectively, relating to the agreement.
7. LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
$250.0 million revolving bank facility, bearing interest
as described below, collateralized by first mortgage on
substantially all of the Company's proven producing properties $ 30,500 $ --
Senior unsecured notes bearing interest at 13 1/2% payable
semi-annually on June 1 and December 1 of each year, commencing
June 1, 1995, due December 1, 2004 245 125,000
$160.0 million senior subordinated unsecured notes bearing interest at
9 3/4% payable semi-annually on April 1 and October 1 of each year,
commencing April 1, 1997, due October 1, 2006,
issued at a discount for proceeds of $159.1 million 159,230 159,142
$200.0 million senior subordinated unsecured notes bearing interest at
8 7/8% % payable semi-annually on January 15 and July 15 of each
year, commencing January 15, 1998, due July 15, 2007,
issued at a discount for proceeds of $199.7 million 199,677 --
Promissory note to Union Planters Bank bearing interest at Wall Street
Prime due February 10, 1997, collateralized by a Company
owned seaplane -- 91
Capital lease from Green Tree Vendor Services Corp. due August
1997, collateralized by certain computer equipment -- 36
-------- --------
Total debt 389,652 284,269
Less: Current portion -- 127
-------- --------
Total long-term debt $389,652 $284,142
======== ========
</TABLE>
47
<PAGE> 48
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Revolving Credit Facility, governed by the Second Amended and Restated
Credit Agreement among Ocean Energy, Inc. and The Chase Manhattan Bank
("Chase"), as Agent, (the "Credit Agreement"), is a three year term facility
maturing on October 31, 2000, unless the maturity date is extended in accordance
with the Credit Agreement. The banks associated with the Revolving Credit
Facility have committed to a $250.0 million facility and currently have agreed
to a $200.0 million borrowing base. The Company and Chase can redetermine the
borrowing base at its option once within any twelve month period as well as on
scheduled redetermination dates as outlined in the Credit Agreement. Upon the
closing of the Merger, it is expected that the credit facilities of the Company
and UMC will be combined (the "New Revolving Credit Facility").
The Company's ability to draw additional amounts on the Revolving Credit
Facility is limited to the extent that the Company cannot meet certain financial
tests which are outlined in the Credit Agreement. As of December 31, 1997, the
Company meets these tests. The loan agreement for the Revolving Credit Facility
contains restrictive covenants substantially similar to those for the 9 3/4%
Notes and the 8 7/8% Notes. The Revolving Credit Facility also includes certain
additional covenants and restrictions relating to the activities of the Company
which are customary for similar credit facilities and are not expected to have a
material adverse effect on the conduct of the Company's business.
At the Company's option, borrowings under the Revolving Credit Facility
bear interest either at the base rate (the higher of the federal funds rate plus
0.5% per annum or the Agent's prime commercial lending rate) or the London
Interbank Offered Rate ("LIBOR"), in the latter case plus an applicable margin
of 125 to 175 basis points, depending upon the percentage of usage on the
Revolving Credit Facility. As of December 31, 1997, the Company had no
outstanding letters of credit under its Revolving Credit Facility.
On September 26, 1996, the Company completed the offering of the 9 3/4%
Notes at a discount for proceeds of approximately $159.1 million (before
offering costs). Interest on the notes is payable semi-annually on April 1 and
October 1 of each year. Net proceeds to the Company were approximately $154.0
million, which was used primarily to complete the acquisition of the Central
Gulf Properties (See Note 3). On July 2, 1997, the Company completed the
offering of the 8 7/8% Notes at a discount for proceeds of approximately $199.7
million (before offering costs). Interest is payable semi-annually on January 15
and July 15 of each year. Proceeds to the Company were approximately $195.2
million, which were used primarily to finance the purchase of the 13 1/2% Notes
and to repay outstanding indebtedness under the Company's Revolving Credit
Facility. On July 22, 1997, the Company amended the Indenture governing its 13
1/2% Notes, removing the principal restrictive covenants and purchased
approximately $124.8 million of the $125.0 million in original principal amount
of the 13 1/2% Notes for approximately $151.5 million. This purchase resulted in
an extraordinary charge of $19.3 million, net of a deferred tax benefit of $11.6
million. The extraordinary charge represented the difference between the
purchase price and related expenses and the net carrying value of the 13 1/2%
Notes.
The Indentures relating to the 13 1/2% Notes, 9 3/4% Notes and the 8 7/8%
Notes contain certain covenants, including, with limitation, covenants with
respect to the following matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation on issuances and sales of
restricted subsidiary stock; (iv) limitation on sale/leaseback transactions (v)
limitation on transactions with affiliates (vi) limitation on liens; (vii)
disposition of proceeds of asset sales; (viii) limitation on dividends and other
payment restrictions affecting subsidiaries; and (ix) limitation of mergers,
consolidations and transfers of assets.
During 1997, 1996 and 1995, the Company capitalized interest of $12.8
million, $5.3 million and $2.8 million, respectively, on interest costs
associated with unevaluated assets (i) on which exploration and development
activities are in progress and (ii) are not currently being depreciated.
48
<PAGE> 49
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Aggregate minimum principal payments for debt (expressed in thousands of
dollars) at December 31, 1997, for the next five years and thereafter are as
follows:
<TABLE>
<S> <C>
1998 $ --
1999 --
2000 30,500
2001 --
2002 --
Thereafter 359,152
--------
$389,652
</TABLE>
8. EMPLOYEE BENEFIT PLANS
The Company has a 401(K) plan which covers all employees. The Company's
contributions to the plan during 1997, 1996 and 1995 were $0.7 million, $0.5
million and $0.5 million, respectively.
Stock-Based Compensation Plans
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
companies can either record expense based on the fair value of stock-based
compensation upon issuance or elect to remain under the "APB Opinion No. 25"
method whereby no compensation cost is recognized upon grant if certain
requirements are met. The Company is continuing to account for its stock-based
compensation plans under APB Opinion No. 25. However, proforma disclosures as if
the Company adopted the cost recognition requirements under SFAS 123 are
presented below.
Had compensation for the Company's 1997, 1996 and 1995 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net income and earnings per common share for the years ended December
31, 1997, 1996 and 1995 would have approximated the proforma amounts below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ----------------------
AS AS AS
REPORTED PROFORMA REPORTED PROFORMA REPORTED PROFORMA
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income before
extraordinary item $37,450 $33,301 $20,951 $19,544 $9,902 $9,779
Net income after
extraordinary item $18,149 $14,000 $20,951 $19,544 $9,902 $9,779
Earnings per common share
before extraordinary item
Basic $1.86 $1.66 $1.13 $1.05 $0.66 $0.65
Diluted 1.79 1.59 1.09 1.02 0.66 0.65
Earnings per common share
after extraordinary item
Basic $0.90 $0.70 $1.13 $1.05 $0.66 $0.65
Diluted 0.87 0.67 1.09 1.02 0.66 0.65
</TABLE>
49
<PAGE> 50
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to grants prior to 1995,
and additional awards in the future are anticipated.
Prior to consummation of the Initial Offerings, the Company's Board of
Directors adopted and the stockholders approved a long-term incentive plan. The
plan provided for not more than 1,500,000 shares of common stock to be issued to
employees and directors of the Company. In 1995, the Board of Directors also
adopted and the stockholders approved a long-term incentive plan for
non-executive employees. This plan has an evergreen provision that replenishes
options available for grant to 300,000 on January 1 of each year. Effective in
January 1998, the evergreen provision was amended to provide for the
replenishment of the options available for grant to 600,000 on January 1 of each
year. In 1996, the Board of Directors adopted a plan that provides for not more
than 1,000,000 shares of common stock to be issued to employees of the Company.
Substantially all outstanding options will vest upon consummation of the Merger.
A summary of the Company's stock options under both plans as of December 31,
1997, 1996 and 1995 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------- ------------------------
NUMBER OF WGTD. AVG. NUMBER OF WGTD. AVG. NUMBER OF WGTD. AVG.
OPTIONS EXER. PRICE OPTIONS EXER. PRICE OPTIONS EXER. PRICE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,897,302 $16.23 1,495,500 $11.13 645,000 10.00
Granted 748,500 46.13 693,500 24.91 856,500 11.97
Canceled (5,334) 16.37 (195,167) 11.09 (6,000) 9.38
Exercised (156,131) 11.97 (96,531) 10.06 -- --
--------- --------- --------
Outstanding at end of year 2,484,337 $24.81 1,897,302 $16.23 1,495,500 $11.13
Options exercisable at year-end 1,067,216 $13.93 565,580 $11.01 261,667 $10.31
Options available for future grant 545,476 542 131,042
Weighted average fair value of
options granted during the year $21.55 $11.48 $4.66
</TABLE>
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (i) dividend yield of 0%, (ii) expected volatility of
42.67%, 41.16%, 35.07% in the years 1997, 1996 and 1995, respectively, (iii)
risk-free interest rate of 6.39%, 6.21% and 5.58% in the years 1997, 1996 and
1995, respectively, and (iv) expected life of 5 years.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------------
RANGE OF NUMBER WGTD. AVG. WGTD. AVG. NUMBER WGTD AVG.
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$9 - $19 1,072,132 7 $11.32 856,022 $11.13
$19 - $29 374,105 9 19.40 116,661 19.40
$29 - $39 289,600 9 32.59 94,533 32.60
$39 - $49 706,500 10 45.75 -- --
$49 - $59 42,000 10 52.38 -- --
--------- -- ------ --------- ------
$9 - $59 2,484,337 9 $25.50 1,067,216 $13.93
========= == ====== ========= ======
</TABLE>
50
<PAGE> 51
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In addition, in 1995, the Company issued 4,125 shares of stock which are
considered bonus shares.
The Company is self-insured for employee medical benefits up to annual
stop-loss limits of $25,000 per covered person, subject to an annual aggregate
stop-loss limit of $1.0 million. The Company accrued $0.3 million for incurred
but unreported claims as of December 31, 1997, calculated based upon estimates
from its third-party administrator.
The Company has no other significant formal benefit plans.
9. MAJOR CUSTOMERS
The Company sold the majority of its oil and gas to a few customers based
on long-term contracts in 1997 and prior years. Sales to the following customers
exceeded 10% of revenues during the years indicated (expressed in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Enron Corp., its subsidiaries and affiliates $ 44,808 $ 33,074 $ 17,431
Shell Oil Company 114,045 110,131 79,927
Murphy Oil USA, Inc. -- 23,338 24,193
NGC Trading & Transportation 44,555 -- --
Plains Marketing 39,745 -- --
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in two purported class action
lawsuits described below filed by alleged stockholders of UMC against the
UMC directors and the Company alleging, among other things, breaches of the
duties of the UMC directors to the stockholders of UMC in connection with the
approval of the Merger Agreement, pursuant to which UMC would be merged with and
into the Company. No specific damages have been alleged against the Company in
the pleadings. The Company believes, and has been advised that management of UMC
believes, that the lawsuits are without merit and the Company and UMC intend to
defend vigorously the actions.
On December 29, 1997, a class action complaint (Newman v. Carson, et.al.,
Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of
Delaware, by a person claiming to represent the stockholders of UMC against UMC,
each of its directors and the Company. The complaint alleges, among other
things, that (i) the members of the UMC Board of Directors breached their
fiduciary duties in considering and approving the Merger Agreement, (ii) the
consideration offered to UMC stockholders for the sale of control of UMC is
inadequate because the intrinsic value of the common stock. of UMC is materially
in excess of the amount offered for those securities in the Merger giving due
consideration to, among other things, anticipated operating results, proven
reserves and profitability of the Company, and (iii) the UMC Board of Directors
approved the proposed Merger without taking steps to accurately ascertain UMC's
market value. The complaint states that the Company was named as defendant to
permit the court to grant complete relief. Among other things, the complaint
seeks to (i) preliminary and permanently enjoin the Merger; (ii) require the UMC
directors to maximize stockholder value by placing UMC up for auction and/or to
conduct a "market-check"; (iii) require the defendants to make a full and fair
disclosure of all material facts to the class members before the consummations
of the Merger; (iv) rescind the Merger should it be consummated prior to the
resolution of the lawsuit; and/or (v) recover unspecified damages and costs from
the UMC directors for their alleged breach of their fiduciary duties.
On January 9, 1998, a second class action lawsuit (Robert E. Ross and Betsy
S. Ross v. John B. Brock, et al., Cause No. 98-00845) was filed in the 164th
Judicial District Court of Harris County, Texas, by purported stockholders of
UMC against the UMC directors and the Company in connection with the proposed
UMC Merger. To date, with one exception the allegations of plaintiffs and relief
sought in this Texas lawsuit are substantively identical to the
51
<PAGE> 52
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
allegations set forth in the Delaware case. In the Texas case, however,
plaintiffs have asserted a separate claim against the Company for aiding and
abetting the alleged breach of duties to UMC stockholders by the UMC directors.
While the Company is a defendant in various lawsuits in the ordinary course
of business, management believes the potential liability in such lawsuits is not
material. The Company maintains liability and other insurance customary in its
industry. The Company is also subject to contingencies as a result of
environmental laws and regulations. The related future cost is indeterminable
due to such factors as the unknown timing and extent of the corrective actions
that may be required and the application of joint and several liability.
However, the Company believes that such costs will not have a material adverse
effect on its operations or financial position.
The Company, as working interest owner, is responsible for payment of its
share of plugging and abandonment costs on its properties. As of December 31,
1997, the total estimate of these costs on the Company's oil and gas properties
was approximately $112.4 million, estimated to be incurred through the year
2007. The estimates of plugging and abandonment costs and their timing may
change due to many factors including, among others, actual production results,
inflation rates, and changes in environmental laws and regulations.
In August 1993, the Minerals Management Service ("MMS") provided notice to
lessees of Outer Continental Shelf ("OCS") leases that new levels of lease and
area wide bonds would be required effective November 26, 1993, in connection
with the plugging and abandoning of wells located offshore and the removal of
all production facilities. The coverage is designed to reflect an appropriate
balance between encouraging the maximum economic recovery of oil and natural gas
from federal offshore leases while providing the federal government an adequate
level of protection in the event the lessee defaults on its obligations to
properly abandon lease wells and remove platforms and other structures from the
property.
The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore and the removal of all
production facilities. Operators in the OCS waters of the Gulf of Mexico are
currently required to post area wide bonds of $3 million or $500,000 per
producing lease and supplemental bonds at the discretion of the MMS. On January
17, 1995, the Company entered into an agreement with Planet Indemnity Company
("Planet") whereby Planet agreed to issue $11.7 million of MMS surety bonds for
the Company and the Company agreed to post collateral for same in favor of
Planet. The collateral includes a mortgage on the Company's federal OCS leases
in the amount of $8.2 million, a letter of credit for $2.0 million and a pledge
of certain rights to escrowed funds. The Company has posted with the MMS an area
wide bond of $3.0 million and supplemental bonds totaling $17.1 million.
Pursuant to a schedule previously imposed by the MMS, the Company will be
required to post additional supplemental bonds up to a level of $24.6 million by
January 1999, unless the Company is determined by the MMS to be exempt from such
requirement due to certain financial tests. In addition, the Company is
currently working with the MMS to determine the level of supplemental bonding
(and the timing thereof) which will be required for some of the recently
acquired Central Gulf Properties. The Company does not anticipate that the cost
of any such bonding requirements will materially affect the Company's financial
position. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspensions
or terminations could have a material adverse effect on the Company's financial
condition and operations. The MMS also intends to adopt financial responsibility
regulations under the Oil Pollution Act of 1990 (the "OPA"). The OPA regulations
impose a variety of regulations on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
United States waters. A "responsible party" includes the owner or operator of a
facility or vessel, or the lessee or permittee of an area in which an offshore
facility is located. The OPA assigns liability to each responsible party for oil
removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA.
52
<PAGE> 53
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. For tank vessels, including mobile offshore drilling rigs, the OPA
imposes on owners, operators and charterers of the vessels, an obligation to
maintain evidence financial responsibility of up to $10.0 million depending on
gross tonage. With respect to offshore facilities, proof of greater levels of
financial responsibility may be applicable. This amount is subject to upward
regulatory adjustment up to $150.0 million.
In February 1998, the Tulane Environmental Law Clinic ("Clinic"), claiming
to represent several southeastern Louisiana environmental groups, gave notice
that it intends to file a Clean Water Act citizens' suit against the Company
after a sixty-day waiting period expires in connection with the discharge of
produced water in East Bay. The Clinic claims that the Company is violating the
Clean Water Act by discharging produced water from its East Bay Central
Facilities into Southwest Pass, and has stated that it will seek an injunction
to require the Company to cease its discharge of produced water, and will seek
civil penalties and attorney's fees. If the Clinic were to successfully obtain
an injunction, certain production operations at the Company's East Bay
Facilities could be interrupted until favorable resolution of the issue in court
or accelerated completion of the Company's plan to reformat operations to
provide for alternative produced water disposal. The Company believes that its
zero discharge compliance plan, which permits the temporary continued discharge
of produced water into Southwest Pass through July 1, 1999, is completely lawful
as authorized by a Compliance Order issued by the Louisiana Department of
Environmental Quality, and intends to vigorously defend any such citizens' suit,
if filed. The Clinic has delivered similar notices to other Louisiana coastal
producers.
In 1996, Statement of Position 96-1 ("SOP 96-1") - Environmental
Remediation Liabilities was issued. The Company adopted SOP 96-1 in 1997. The
adoption of SOP 96-1 did not have a material effect on its results of operations
or financial position.
Total rental expenses under operating leases amounted to approximately $0.9
million, $0.7 million and $0.5 million in 1997, 1996 and 1995, respectively.
The Company is a party to two Registration Rights Agreements, pursuant to
which it is obligated to register under the Securities Act of 1933 up to a total
of 1,600,000 shares of outstanding common stock under certain circumstances and
to pay substantially all of the costs associated with such registration.
11. HEDGING ACTIVITIES
The Company engages in futures contracts with certain of its production
through master swap agreements ("Swap Agreements"). The Company considers these
futures contracts to be hedging activities and, as such, monthly settlements on
these contracts are reflected in oil and gas sales. In order to consider these
futures contracts as hedges, (i) the Company must designate the futures contract
as a hedge of future production and (ii) the contract must reduce the Company's
exposure to the risk of changes in prices. Changes in the market value of
futures contracts treated as hedges are not recognized in income until the
hedged item is also recognized in income. If the above criteria are not met, the
Company will record the market value of the contract at the end of each month
and recognize a related gain or loss. Proceeds received or paid relating to
terminated contracts or contracts that have been sold are amortized over the
original contract period and reflected in oil and gas sales. The Company enters
into hedging transactions for the purpose of securing a price for a portion of
future production that is acceptable at the time the transaction is entered
into. The primary objective of these activities is to protect against decreases
in price during the term of the hedge.
The Swap Agreements provide for separate contracts tied to the NYMEX light
sweet crude oil and natural gas futures contracts. The Company has contracts
which contain specific contracted prices ("Swaps") that are settled monthly
based on the differences between the contract prices and the average NYMEX
prices for each month applied to the related contract volumes. To the extent the
average NYMEX price exceeds the contract price, the Company pays the spread, and
to the extent the contract price exceeds the average NYMEX price the Company
53
<PAGE> 54
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
receives the spread. Under the terms of the Swap Agreements, each counterparty
has extended the Company a $5 million line of credit for use in conjunction with
its hedging activities. As of December 31, 1997, the fair market value of all
contracts covered by the Swap Agreements was approximately $6.8 million.
As of December 31, 1997, after giving effect to three hedges that were
unwound in January 1998, the Company's open forward position on its outstanding
crude oil Swaps was 4,500 MBbls at an average price of $19.88 per Bbl for the
year ended December 31, 1998. The Company currently has no outstanding natural
gas Swaps.
Revenue was decreased under the Swap Agreements by approximately $(0.1)
million, $(18.7) million and $(0.5) million, respectively, for the years ended
December 31, 1997, 1996 and 1995.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value as of December 31, 1997 and 1996, of financial
instruments other than current assets and liabilities is presented in the
following table:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1997 1996
------------------------- -------------------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt:
13 1/2% Notes $ (245) $ (297) $(125,000) $(149,375)
9 3/4% Notes (159,230) (175,600) (159,142) (168,691)
8 7/8% Notes (199,677) (212,500) -- --
Revolving Credit Facility (30,500) (30,500) -- --
--------- --------- --------- ---------
$(389,652) $(418,897) $(284,142) $(318,066)
========= ========= ========= =========
Hedges:
Oil -- $ 6,846 -- $ (4,556)
--------- --------- --------- ---------
$ -- $ 6,846 $ -- $ (4,556)
========= ========= ========= =========
</TABLE>
13. OIL AND GAS RESERVE INFORMATION - UNAUDITED
Approximately 80% of the Company's net proved oil and gas reserves at
December 31, 1997, have been determined by independent petroleum consultants in
accordance with guidelines established by the Securities and Exchange Commission
(the "Commission") and the FASB, with the remaining 20% determined by the
Company in accordance with such standards. The Company's net proved oil and gas
reserves at December 31, 1996 and 1995, have been determined by independent
petroleum consultants in accordance with guidelines established by the
Commission and the FASB. Accordingly, the following reserve estimates are based
upon existing economic and operating conditions at the respective dates. Future
cash flows from oil and natural gas reserves were computed on the basis of
prices being received at year end for oil and natural gas, adjusted for hedges
in place at that date and the Company's policy regarding fuel gas.
There are many uncertainties inherent in estimating quantities of proved
reserves and in providing the future rates of production and timing of
development expenditures. The following reserve data represent estimates only
and should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil and gas
properties or the cost that would be incurred to obtain equivalent reserves.
54
<PAGE> 55
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tables set forth an analysis of the Company's estimated
quantities of net proved and proved developed oil (includes condensate) and gas,
all located offshore in the continental United States:
<TABLE>
<CAPTION>
OIL NATURAL GAS (1)
(MBBL) (MMCF)
-------- ---------------
<S> <C> <C>
Proved reserves as of December 31, 1994 33,044 83,348
Revisions of previous estimates 4,857 9,093
Extensions, discoveries, and other additions 1,640 10,647
Purchase of producing properties 345 85
Production (sold by the Company) (6,057) (12,393)
Production (consumed by the Company) -- (3,576)
-------- --------
Proved reserves as of December 31, 1995 33,829 87,204
Revisions of previous estimates 2,546 23,935
Extensions, discoveries, and other additions 9,766 31,060
Sale of producing properties (450) (9,929)
Purchase of producing properties 12,234 35,171
Production (sold by the Company) (7,149) (18,720)
Production (consumed by the Company) -- (3,363)
-------- --------
Proved reserves as of December 31, 1996 50,776 145,358
Revisions of previous estimates 373 12,066
Extensions, discoveries, and other additions 14,669 95,635
Sale of producing properties -- --
Purchase of producing properties 12,908 27,864
Production (sold by the Company) (9,944) (38,916)
Production (consumed by the Company) -- (4,323)
-------- --------
Proved reserves as of December 31, 1997 68,782 237,684
Proved developed reserves:
As of December 31, 1995 31,702 84,258
As of December 31, 1996 38,347 109,574
As of December 31, 1997 53,289 174,233
</TABLE>
(1) The Company includes as proven reserves at December 31, 1997 future gas
production estimated by Netherland, Sewell & Associates, Inc., to be used
as fuel gas.
<PAGE> 56
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table presents the standardized measure of future net cash
flows related to proved oil and gas reserves together with changes therein, as
defined by the FASB. The oil, condensate and gas price structure utilized to
project future net cash flows reflects current prices at each year end and have
been escalated only where known and determinable price changes are provided by
contracts and law. Crude prices have declined significantly from December 31,
1997. Accordingly, the discounted future net cash flows would be reduced if the
standardized measure was calculated at the latter date. Future production and
development costs are based on current costs with no escalations. Estimated
future cash flows have been discounted to their present values based on a 10%
annual discount rate.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE AS OF DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash flows $ 1,730,869 $ 1,789,544 $ 762,488
Future production, development and abandonment costs (980,729) (907,770) (482,658)
Income tax provision (85,875) (204,733) (36,712)
----------- ----------- -----------
Future net cash flows 664,265 677,041 243,188
10% annual discount (115,728) (144,549) (39,178)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 548,537 $ 532,492 $ 203,940
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN STANDARDIZED MEASURE
PERIODS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure at beginning of period $ 532,492 $ 203,940 $ 164,978
Sales and transfers of oil and gas produced, net of
production costs (225,376) (159,361) (87,924)
Changes in price, net of future production costs (353,937) 242,943 61,865
Extensions and discoveries, net of future production
and development costs 314,228 215,013 46,429
Reserves transferred for resale -- (10,009) --
Previously estimated development and abandonment
costs incurred during the period 25,931 10,453 19,132
Revisions of quantity estimates 21,687 88,994 46,761
Accretion of discount 53,249 20,394 17,474
Net change in income taxes 90,108 (130,226) (21,034)
Purchase of reserves in place 103,135 123,284 3,193
Changes in production rates (timing), estimated
development and abandonment costs, and other (12,980) (72,933) (46,934)
----------- ----------- -----------
Standardized measure at end of year $ 548,537 $ 532,492 $ 203,940
=========== =========== ===========
</TABLE>
56
<PAGE> 57
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. QUARTERLY FINANCIAL DATA - UNAUDITED
Summarized unaudited quarterly financial data for 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 64,477 $ 65,592 $ 74,328 $ 87,784
Gross profit 26,198 19,699 26,035 30,722
Net income before extraordinary item 9,931 6,196 8,625 12,698
Extraordinary item -- -- 19,301 --
Net income (loss) after extraordinary item 9,931 6,196 (10,676) 12,698
Earnings per common share before
extraordinary item:
Basic $ 0.51 $ 0.32 $ 0.44 $ 0.59
Diluted 0.49 0.30 0.42 0.57
Earnings (loss) per common share after
extraordinary item:
Basic $ 0.51 $ 0.32 $ (0.54) $ 0.59
Diluted 0.49 0.30 (0.52) 0.57
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales $ 36,829 $ 32,253 $ 47,589 $ 71,780
Gross profit 11,147 6,918 16,487 32,148
Net income before extraordinary item 1,901 435 5,363 13,252
Earnings per common share:
Basic $ 0.12 $ 0.02 $ 0.27 $ 0.68
Diluted 0.12 0.02 0.26 0.65
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
57
<PAGE> 58
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is partially included under Item 4A
of this Form 10-K with the remainder of the required information incorporated by
reference from the sections entitled "Management" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy
Statement/Prospectus for its 1998 Annual Meeting of Stockholders (the "Proxy
Statement") to be filed with the Securities and Exchange Commission no later
than April 30, 1998. Such definitive Proxy Statement/Prospectus will be filed as
part of a Registration Statement of the Company on Form S-4 (No. 333-43933)
filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement. Nothing in
this report shall be construed to incorporate by reference the Board
Compensation Committee Report on Executive Compensation or the Performance Graph
which are contained in the Proxy Statement, but expressly not incorporated
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section entitled "Certain Relationships and Other Transactions" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Supplementary Data, Financial Statement
Schedules and Exhibits
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................. 34
Consolidated Balance Sheets.............................. 35
Consolidated Statements of Operations.................... 36
Consolidated Statements of Stockholders' Equity.......... 37
Consolidated Statements of Cash Flows.................... 38
Notes to Consolidated Financial Statements............... 39
</TABLE>
2. Consolidated Financial Statement Schedules
All consolidated financial statement schedules have been
omitted because they are not required, are not applicable or
the information required has been included elsewhere herein.
58
<PAGE> 59
3. Exhibits and Financial Statement Schedules (except as
otherwise designated below, all exhibits have been previously
filed.)
a . Exhibits
2.1 Agreement and Plan of Merger, dated as of December 22,
1997 among the Company, OEI Holding Corporation and
United Meridian Corporation (incorporated by reference
to Exhibit 2.1 to United Meridian Corporation's Current
Report on Form 8-K filed on December 23, 1997).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated
as of January 7, 1997 (filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-4
(333-43933) and incorporated herein by reference)
2.3 Amendment No. 2 to the Agreement and Plan of Merger,
dated as of February 20, 1998 (filed as Exhibit 2.3 to
the Company's Registration Statement on Form S-4
(333-43933) and incorporated herein by reference).
3.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (33-84308) and incorporated herein by
reference)
3.2 Amendment to Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein by reference).
+3.3 Amended and Restated Bylaws of the Company
4.1 Indenture among the Company, OEI Louisiana and Shawmut
Bank Connecticut, National Association, as Trustee,
relating to the 13 1/2% Senior Notes due 2004 (filed as
Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated
herein by reference)
4.2 First Supplemental Indenture, dated as of September 19,
1996, among the Company, the Subsidiary Guarantors
named therein, and Fleet National Bank (formerly
Shawmut Bank Connecticut, National Association), as
Trustee (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated September 26, 1996, and
incorporated herein by reference)
4.3 Second Supplemental Indenture, dated as of July 14,
1997, among the Company, the Subsidiary Guarantors
named therein, and State Street Bank & Trust Company
(formerly Fleet National Bank), as Trustee (filed as
Exhibit 4.1 to the Company `s Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference).
4.4 Indenture among the Company, the Subsidiary Guarantors
named therein and Fleet National Bank, as Trustee
relating to the 9 3/4% Senior Subordinated Notes due
2006 (filed as Exhibit 4.1 to the Company's Quarterly
Report Form 10-Q for the quarter ended September 30,
1996 and incorporated herein by reference)
4.5 Indenture, dated as of July 2, 1997 between the
Company, the Subsidiary Guarantors named therein and
State Street Bank & Trust Company, as Trustee relating
to the 8 7/8% Senior Subordinated Notes due 2007 (filed
as Exhibit 4.1 to the Company's Registration Statement
on Form S-4 (333-32715) and incorporated herein by
reference).
4.6 Rights Agreement, dated as of December 22, 1997,
between the Company and Harris Trust and Savings Bank,
as Rights Agent (incorporated by reference to Exhibit 1
to the Company's Form 8-A filed on December 23, 1997).
+4.7 First Amendment to Rights Agreement, dated as of
February 20, 1998, between the Company and Harris Trust
and Savings Bank, as Rights Agent.
*10.1 1994 Long-Term Incentive Plan (filed as Exhibit 10.3
to the Company's Registration Statement on Form S-1
(33-84308) and incorporated herein by reference)
*10.2 1996 Long Term Incentive Plan (filed as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and incorporated
herein by reference).
*10.3 Form of Indemnification Agreement among the Company
and certain executive officers and directors (filed as
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (33-84308) and incorporated herein by
reference)
59
<PAGE> 60
10.4 Second Amended and Restated Credit Agreement among
Ocean Louisiana and certain lenders in the amount of
$200,000,000, as amended (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference)
+10.4.1 First Amendment to Second Amended and Restated
Credit Agreement, dated as of January 27, 1998
10.5 Mortgage, Assignment of Production, Security Agreement
and Financing Statement (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.5.1 First Amendment and Supplement to Mortgage,
Assignment of Production, Security Agreement and
Financing Statement by OEI Louisiana, dated March 27,
1997 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997, and incorporated herein by reference).
10.5.2 Second Amendment and Supplement to Mortgage,
Assignment of Production, Security Agreement and
Financing Statement by OEI Louisiana, dated October 15,
1997 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
10.6 Second Amended and Restated Guaranty Agreement by the
Company in favor of certain lenders dated October 15,
1997 (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
+10.6.1 First Amendment to Second Amended and Restated Guaranty
Agreement, dated as of January 27, 1998.
*10.7 Assignment and Bill of Sale between OEI Louisiana (as
assignor), Franks Petroleum, Inc. (as assignee), and
Sable Minerals, Inc. dated May 22, 1992, as amended by
that Act of Correction dated December 14, 1992 (filed
as Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (33-84308) and incorporated
herein by reference)
*10.8 Assignment and Bill of Sale between OEI Louisiana (as
assignor), Franks Petroleum, Inc. (as assignee), and
Sable Minerals, Inc. dated June 9, 1993 (state leases,
private leases and BLM lease) (filed as Exhibit 10.26
to the Company's Registration Statement on Form S-1
(33-84308) and incorporated herein by reference)
*10.9 Assignment of Record Title Interest in a Lease for Oil
and Gas or Geothermal Resources between OEI Louisiana
(as assignor), and Franks Petroleum, Inc. and Sable
Minerals, Inc. (as assignees) dated May 12, 1993 (BLM
Form) (filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-1 (33-84308) and
incorporated herein by reference)
*10.10 Overriding Royalty Assignment and Bill of Sale
between OEI Louisiana (as assignor) and Sable Minerals,
Inc. (as assignee) dated June 9, 1993 (OCS leases)
(filed as Exhibit 10.28 to the Company's Registration
Statement on Form S-1 (33-84308) and incorporated
herein by reference)
10.11 Pledge of Production Proceeds and Trust Agreement
dated May 12, 1992, by and among Shell Offshore, Inc.,
OEI Louisiana and First National Bank of Commerce, New
Orleans, Louisiana (filed as Exhibit 10.31 to the
Company's Registration Statement on Form S-1 (33-84308)
and incorporated herein by reference)
10.12 Pledge of Production Proceeds and Trust Agreement
dated May 12, 1993, by and among Shell Offshore, Inc.,
OEI Louisiana and First National Bank of Commerce, New
Orleans, Louisiana (filed as Exhibit 10.32 to the
Company's Registration Statement on Form S-1 (33-84308)
and incorporated herein by reference)
10.13 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (13 1/2% Notes) (filed as Exhibit
10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and incorporated
herein by reference)
10.14 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (9 3/4% Notes) (filed as Exhibit
10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated
herein by reference).
10.15 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (8 7/8% Notes) (filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated
herein by reference).
60
<PAGE> 61
10.16 Crude Oil Purchase Contract, dated May 12, 1993,
between OEI Louisiana and Shell Oil Company, as amended
(filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.17 MMS Bonding Agreement, dated January 17, 1995, between
OEI Louisiana and Planet Indemnity Company, with
related Act of Mortgage and Financing Statement (filed
as Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.18 Modification Agreement effective May 1, 1996 to that
MMS Bonding Agreement, dated January 17, 1995, between
OEI Louisiana and Planet Indemnity Company (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and
incorporated herein by reference)
10.19 Gas Purchase Agreement, dated January 1, 1995, between
OEI Louisiana and Enron Capital & Trade Resources Corp.
(filed as Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
*10.20 Form of Employment Agreement entered into between the
Company and its executive officers effective as of
September 1, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein by
reference)
*10.21 Form of First Amendment to Employment Agreements
dated May 8, 1996 and effective as of September 1, 1995
(filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference)
*10.22 Form of Second Amendment to Employment Agreements
dated December 6, 1996 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference).
*10.23 Form of Third Amendment to Employment Agreements
dated August 6, 1997 (filed as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).
*+10.24 Ocean Energy, Inc. Deferred Compensation Plan
10.25 Stock Option Agreement, dated as of December 22, 1997,
between the Company, as Issuer, and United Meridian
Corporation, as Grantee (filed as Exhibit 1 to United
Meridian Corporation's Schedule 13D with respect to the
Company's Common Stock, dated December 22, 1997, and
incorporated herein by reference).
*+10.26 Registration Rights Agreement between the Company
and James C. Flores, dated August 11, 1996.
*+10.27 Registration Rights Agreement between the Company
and William W. Rucks, IV, dated August 11, 1996.
+18.1 Preferability Letter of Arthur Andersen LLP
+21.1 Subsidiaries of Registrant
+23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Netherland, Sewell & Associates, Inc.
+27.1 Financial Data Schedule
*Management contract or compensatory plan.
+Filed herewith.
61
<PAGE> 62
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.
OCEAN ENERGY, INC.
By: /s/ James C. Flores
---------------------
James C. Flores
Chairman of the Board and
Chief Executive Officer
Date: February 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/James C. Flores Chairman of the Board, Chief Executive
- ---------------------------- Officer and Director February 20, 1998
James C. Flores
/s/Robert L. Belk Executive Vice President, Chief Financial February 20, 1998
- ---------------------------- Officer, Treasurer and Director
Robert L. Belk
/s/Richard G. Zepernick, Jr. Executive Vice President - Exploration & February 20, 1998
- ---------------------------- Production and Director
Richard G. Zepernick, Jr.
/s/Thomas D. Clark Director February 20, 1998
- ----------------------------
Thomas D. Clark
/s/Lodwrick M. Cook Director February 20, 1998
- ----------------------------
Lodwrick M. Cook
/s/Charles F. Mitchell Director February 20, 1998
- ----------------------------
Charles F. Mitchell
/s/William W. Rucks, IV Director February 20, 1998
- ----------------------------
William W. Rucks, IV
/s/Milton J. Womack Director February 20, 1998
- ----------------------------
Milton J. Womack
</TABLE>
62
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 22,
1997 among the Company, OEI Holding Corporation and
United Meridian Corporation (incorporated by reference
to Exhibit 2.1 to United Meridian Corporation's Current
Report on Form 8-K filed on December 23, 1997).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated
as of January 7, 1997 (filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-4
(333-43933) and incorporated herein by reference)
2.3 Amendment No. 2 to the Agreement and Plan of Merger,
dated as of February 20, 1998 (filed as Exhibit 2.3 to
the Company's Registration Statement on Form S-4
(333-43933) and incorporated herein by reference).
3.1 Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (33-84308) and incorporated herein by
reference)
3.2 Amendment to Certificate of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein by reference).
+3.3 Amended and Restated Bylaws of the Company
4.1 Indenture among the Company, OEI Louisiana and Shawmut
Bank Connecticut, National Association, as Trustee,
relating to the 13 1/2% Senior Notes due 2004 (filed as
Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated
herein by reference)
4.2 First Supplemental Indenture, dated as of September 19,
1996, among the Company, the Subsidiary Guarantors
named therein, and Fleet National Bank (formerly
Shawmut Bank Connecticut, National Association), as
Trustee (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated September 26, 1996, and
incorporated herein by reference)
4.3 Second Supplemental Indenture, dated as of July 14,
1997, among the Company, the Subsidiary Guarantors
named therein, and State Street Bank & Trust Company
(formerly Fleet National Bank), as Trustee (filed as
Exhibit 4.1 to the Company `s Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference).
4.4 Indenture among the Company, the Subsidiary Guarantors
named therein and Fleet National Bank, as Trustee
relating to the 9 3/4% Senior Subordinated Notes due
2006 (filed as Exhibit 4.1 to the Company's Quarterly
Report Form 10-Q for the quarter ended September 30,
1996 and incorporated herein by reference)
4.5 Indenture, dated as of July 2, 1997 between the
Company, the Subsidiary Guarantors named therein and
State Street Bank & Trust Company, as Trustee relating
to the 8 7/8% Senior Subordinated Notes due 2007 (filed
as Exhibit 4.1 to the Company's Registration Statement
on Form S-4 (333-32715) and incorporated herein by
reference).
4.6 Rights Agreement, dated as of December 22, 1997,
between the Company and Harris Trust and Savings Bank,
as Rights Agent (incorporated by reference to Exhibit 1
to the Company's Form 8-A filed on December 23, 1997).
+4.7 First Amendment to Rights Agreement, dated as of
February 20, 1998, between the Company and Harris Trust
and Savings Bank, as Rights Agent.
*10.1 1994 Long-Term Incentive Plan (filed as Exhibit 10.3
to the Company's Registration Statement on Form S-1
(33-84308) and incorporated herein by reference)
*10.2 1996 Long Term Incentive Plan (filed as Exhibit 10.4
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, and incorporated
herein by reference).
*10.3 Form of Indemnification Agreement among the Company
and certain executive officers and directors (filed as
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (33-84308) and incorporated herein by
reference)
</TABLE>
<PAGE> 64
<TABLE>
<S> <C>
10.4 Second Amended and Restated Credit Agreement among
Ocean Louisiana and certain lenders in the amount of
$200,000,000, as amended (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by
reference)
+10.4.1 First Amendment to Second Amended and Restated
Credit Agreement, dated as of January 27, 1998
10.5 Mortgage, Assignment of Production, Security Agreement
and Financing Statement (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.5.1 First Amendment and Supplement to Mortgage,
Assignment of Production, Security Agreement and
Financing Statement by OEI Louisiana, dated March 27,
1997 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1997, and incorporated herein by reference).
10.5.2 Second Amendment and Supplement to Mortgage,
Assignment of Production, Security Agreement and
Financing Statement by OEI Louisiana, dated October 15,
1997 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
10.6 Second Amended and Restated Guaranty Agreement by the
Company in favor of certain lenders dated October 15,
1997 (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997, and incorporated herein by reference).
+10.6.1 First Amendment to Second Amended and Restated Guaranty
Agreement, dated as of January 27, 1998.
*10.7 Assignment and Bill of Sale between OEI Louisiana (as
assignor), Franks Petroleum, Inc. (as assignee), and
Sable Minerals, Inc. dated May 22, 1992, as amended by
that Act of Correction dated December 14, 1992 (filed
as Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (33-84308) and incorporated
herein by reference)
*10.8 Assignment and Bill of Sale between OEI Louisiana (as
assignor), Franks Petroleum, Inc. (as assignee), and
Sable Minerals, Inc. dated June 9, 1993 (state leases,
private leases and BLM lease) (filed as Exhibit 10.26
to the Company's Registration Statement on Form S-1
(33-84308) and incorporated herein by reference)
*10.9 Assignment of Record Title Interest in a Lease for Oil
and Gas or Geothermal Resources between OEI Louisiana
(as assignor), and Franks Petroleum, Inc. and Sable
Minerals, Inc. (as assignees) dated May 12, 1993 (BLM
Form) (filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-1 (33-84308) and
incorporated herein by reference)
*10.10 Overriding Royalty Assignment and Bill of Sale
between OEI Louisiana (as assignor) and Sable Minerals,
Inc. (as assignee) dated June 9, 1993 (OCS leases)
(filed as Exhibit 10.28 to the Company's Registration
Statement on Form S-1 (33-84308) and incorporated
herein by reference)
10.11 Pledge of Production Proceeds and Trust Agreement
dated May 12, 1992, by and among Shell Offshore, Inc.,
OEI Louisiana and First National Bank of Commerce, New
Orleans, Louisiana (filed as Exhibit 10.31 to the
Company's Registration Statement on Form S-1 (33-84308)
and incorporated herein by reference)
10.12 Pledge of Production Proceeds and Trust Agreement
dated May 12, 1993, by and among Shell Offshore, Inc.,
OEI Louisiana and First National Bank of Commerce, New
Orleans, Louisiana (filed as Exhibit 10.32 to the
Company's Registration Statement on Form S-1 (33-84308)
and incorporated herein by reference)
10.13 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (13 1/2% Notes) (filed as Exhibit
10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and incorporated
herein by reference)
10.14 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (9 3/4% Notes) (filed as Exhibit
10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated
herein by reference).
10.15 Indenture Assumption Agreement by OEI Louisiana in
favor of the Company (8 7/8% Notes) (filed as Exhibit
10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated
herein by reference).
</TABLE>
<PAGE> 65
<TABLE>
<S> <C>
10.16 Crude Oil Purchase Contract, dated May 12, 1993,
between OEI Louisiana and Shell Oil Company, as amended
(filed as Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.17 MMS Bonding Agreement, dated January 17, 1995, between
OEI Louisiana and Planet Indemnity Company, with
related Act of Mortgage and Financing Statement (filed
as Exhibit 10.17 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference)
10.18 Modification Agreement effective May 1, 1996 to that
MMS Bonding Agreement, dated January 17, 1995, between
OEI Louisiana and Planet Indemnity Company (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 and
incorporated herein by reference)
10.19 Gas Purchase Agreement, dated January 1, 1995, between
OEI Louisiana and Enron Capital & Trade Resources Corp.
(filed as Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference)
*10.20 Form of Employment Agreement entered into between the
Company and its executive officers effective as of
September 1, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein by
reference)
*10.21 Form of First Amendment to Employment Agreements
dated May 8, 1996 and effective as of September 1, 1995
(filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996
and incorporated herein by reference)
*10.22 Form of Second Amendment to Employment Agreements
dated December 6, 1996 (filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference).
*10.23 Form of Third Amendment to Employment Agreements
dated August 6, 1997 (filed as Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).
*+10.24 Ocean Energy, Inc. Deferred Compensation Plan
10.25 Stock Option Agreement, dated as of December 22, 1997,
between the Company, as Issuer, and United Meridian
Corporation, as Grantee (filed as Exhibit 1 to United
Meridian Corporation's Schedule 13D with respect to the
Company's Common Stock, dated December 22, 1997, and
incorporated herein by reference).
*+10.26 Registration Rights Agreement between the Company
and James C. Flores, dated August 11, 1996.
*+10.27 Registration Rights Agreement between the Company
and William W. Rucks, IV, dated August 11, 1996.
+18.1 Preferability Letter of Arthur Andersen LLP
+21.1 Subsidiaries of Registrant
+23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Netherland, Sewell & Associates, Inc.
+27.1 Financial Data Schedule
</TABLE>
*Management contract or compensatory plan.
+Filed herewith.
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
OCEAN ENERGY, INC.
ADOPTED JUNE 17, 1997
<PAGE> 2
ARTICLE I
OFFICES
Section 1. The registered office of Ocean Energy, Inc. (the
"Corporation") shall be in the City of Wilmington, County of New Castle, State
of Delaware.
Section 2. The Corporation may also have offices at such
other places both within and without the state of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of Directors shall be held at such place as may be fixed from time to time by
the Board of Directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on
such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. At the annual
meeting, the stockholders shall elect by a plurality vote the Directors
pursuant to Article III of these Bylaws, and transact such other business as
may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to a vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed to and
received at the principal executive offices of the Corporation not less than 80
days prior to the meeting; provided, however, that in the event that less than
90 days' notice or prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the
date on which such notice of the date of the annual meeting was mailed or such
public disclosure made.
A stockholder's notice to the secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 3.
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<PAGE> 3
The presiding officer of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with this Section 3, and if the
presiding officer should so determine, the presiding officer shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 4. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders for any
purpose may be called only by the Chairman of the Board of Directors and shall
be called within 10 days after receipt of the written request of the Board of
Directors, pursuant to a resolution approved by a majority of the entire Board
of Directors. The business permitted to be conducted at any special meeting of
the stockholders is limited to the business brought before the meeting by the
Chairman or by the Secretary at the request of a majority of the entire Board
of Directors.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting, and the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
Section 7. The holders of a majority of the stock issued,
outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented.
Section 8. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting, except as otherwise
required by this Section 8, if the time and place thereof are announced at the
meeting at which the adjournment is taken. At such adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
except as provided to the contrary by statute, the Company's certificate of
incorporation or these Bylaws.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period.
Section 11. Any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing of such stockholders.
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<PAGE> 4
Section 12. At each meeting of stockholders, the Chairman of
the Board of Directors shall preside, and the secretary shall keep records, and
in the absence of either such officer their duties shall be performed by the
person appointed as provided in Article V.
ARTICLE III
DIRECTORS
Number, Nomination, Removal
Section 1. The number of Directors shall be fixed from time
to time by the Board of Directors, but shall not be less than 2 nor more than
15 persons. The Directors shall be elected at the annual meeting of the
stockholders in accordance with the provisions of Section 2 of this Article,
and each Director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Subject to the rights of holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, nominations for the election of Directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of Directors generally. Any
stockholder entitled to vote in the election of Directors generally may
nominate one or more persons for election as Directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the Corporation not later than 80
days prior to the date of any annual or special meeting. In the event that the
date of such annual or special meeting was not publicly announced by the
Corporation by mail, press release or otherwise more than 90 days prior to the
meeting, notice by the stockholder to be timely must be delivered to the
secretary of the Corporation not later than the close of business on the tenth
day following the day on which such announcement of the date of the meeting was
communicated to the stockholders.
Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (b) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a Director of the Corporation if so elected.
If the presiding officer of the meeting for the election of
Directors determines that a nomination of any candidate for election as a
Director at such meeting was not made in accordance with the applicable
provisions of these Bylaws, such nomination shall be void.
Section 3. Subject to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional Directors under specified circumstances,
newly created directorships resulting from any increase in the number of
Directors and any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors, or by a sole
remaining Director. Any Director elected or chosen as provided herein shall
hold office until the sooner of the following events: (i) the expiration of the
term of the directorship to which he is appointed, (ii) such time as his
successor is elected and qualified or (iii) his resignation or removal. No
decrease in the number of Directors constituting the Board of Directors shall
shorten the term of an incumbent Director.
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<PAGE> 5
Section 4. Subject to the rights of the holders of any class
or series of stock having preference over the Common Stock as to dividends or
upon liquidation to elect additional Directors under specified circumstances,
any Director may be removed from office only for cause by the stockholders in
the manner provided in this Section 4. At any annual meeting of the
stockholders of the Corporation or at any special meeting of the stockholders
of the Corporation, the notice of which shall state that the removal of a
Director or Directors is among the purposes of the meeting, the affirmative
vote of the holders of at least 66 2/3 percent of the combined voting power of
the outstanding shares of Voting Stock (as defined below), voting together as a
single class, may remove such Director or Directors for cause.
For the purpose of this Section 4, "Voting Stock" shall mean
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors. In any vote required by or provided
for in this Section 4, each share of Voting Stock shall have the number of
votes granted to it generally in the election of Directors.
Section 5. The business of the Corporation shall be managed
by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Meetings of the Board of Directors
Section 6. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 7. Meetings of the Board of Directors may be held at
such time and place as shall be specified in a notice given in the manner
hereinafter provided, or as shall be specified in a written waiver signed by
all of the Directors.
Section 8. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time
be determined by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be
called by the Chairman of the Board on 24 hours notice to each Director, either
personally or by mail, telecopy, or telegram; special meetings shall be called
by the president, chief executive officer or secretary in like manner and on
like notice on the written request of three Directors.
Section 10. Except as provided in these Bylaws to the
contrary, at all meetings of the board a majority of the total number of
Directors shall constitute a quorum for the transaction of business and the
vote of a majority of the Directors entitled to vote and present at a meeting
at which a quorum is present shall be the act of the Board of Directors, unless
the certificate of incorporation shall require a vote of a greater number. If
a quorum shall not be present at any meeting of the Board of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 12. At all meetings of the Board of Directors,
business shall be transacted in such order as from time to time the Board of
Directors may determine.
At all meetings of the Board of Directors, the Chairman of the
Board of Directors shall preside, and in the absence of the Chairman his duties
shall be performed by the person appointed as provided in Article V.
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<PAGE> 6
The secretary of the Corporation (or an assistant secretary in
the absence of the secretary) shall act as secretary of the meeting of the
Board of Directors, but in the absence of the secretary and an assistant
secretary, the presiding officer may appoint any person to act as secretary of
the meeting.
Committees of Directors
Section 13. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one (1) or more of the Directors of the Corporation.
The board may designate one (1) or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the certificate of incorporation (except pursuant to a resolution
relating to the issuance of capital stock pursuant to Section 151 of Title 8 of
the Delaware General Corporation Law); adopting an agreement of merger or
consolidation; recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets; recommending
to the stockholders the dissolution of the Corporation or a revocation of a
dissolution; or amending the bylaws of the Corporation and, unless the
resolution, certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
members as may be determined from time to time by resolution adopted by the
Board of Directors.
Section 14. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors.
Compensation of Directors
Section 15. The Directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
or retainer as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever notice is required to be given to any
Director or stockholder pursuant to a statutory provision or the certificate of
incorporation or these bylaws, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
Director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to Directors may also be given by telegram or telecopy.
Section 2. Whenever notice is required to be given pursuant to
a statutory provision or the certificate of incorporation or bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
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<PAGE> 7
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a Chairman of the Board of Directors,
a chief executive officer, a president, a secretary and a treasurer. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a Chairman of the Board of
Directors, a chief executive officer, a president, a secretary and a treasurer.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary, including one or more executive
vice presidents, senior vice presidents, vice presidents, assistant secretaries
and assistant treasurers. Any such additional officers shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the
Corporation shall be fixed from time to time by the Board of Directors.
Section 5. The officers of the Corporation shall hold office
until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the Corporation shall be filled by the Board of
Directors.
The Chairman of the Board of Directors
Section 6. The Chairman of the Board of Directors of the
Corporation shall preside at all meetings of stockholders and the Board of
Directors. He shall have the authority to execute all documents and
instruments necessary to carry out the management of the business of the
Corporation. He shall perform such other duties and have such other powers as
usually appertain to the office or as the Board of Directors may from time to
time prescribe. In the absence of the Chairman of the Board of Directors, the
Board of Directors shall appoint another Director to preside at any meetings of
stockholders and the Board of Directors during such absence.
The Chief Executive Officer
Section 7. The Chief Executive Officer shall be the senior
officer of the Corporation and shall perform such duties and have such powers
as usually appertain to the office or as the Board of Directors may from time
to time prescribe.
The President
Section 8. The president of the Corporation shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. He shall have the authority to execute all documents and instruments
necessary to carry out the management of the business of the Corporation. He
shall execute bonds, mortgages and other contracts requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of this Corporation. He shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
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<PAGE> 8
The Executive Vice Presidents, Senior Vice Presidents and Vice Presidents
Section 9. In the absence of the president or in the event of
his inability or refusal to act, an executive vice president or, in the absence
of an executive vice president, a senior vice president or a vice president (in
either case in the order determined by the Board of Directors, or, if there be
no such determination, then in the order of their election), shall perform the
duties of the president, and when so acting, shall have all the powers of and
be subject to all the restrictions imposed upon the president. The executive
vice presidents, senior vice presidents and vice presidents shall perform such
other duties and have such other powers as the president or Board of Directors
may from time to time prescribe.
The Secretary and the Assistant Secretary
Section 10. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of
the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or president, under whose supervision he
shall be. He shall have custody of the corporate seal of the Corporation, if
any such seal be adopted by resolution of the Board of Directors, and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing thereof by his signature.
Section 11. The assistant secretary (or if there be more than
one, the assistant secretaries in the order determined by the Board of
Directors, or, if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
The Treasurer and Assistant Treasurer
Section 12. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation.
Section 13. The assistant treasurer (or, if there shall be
more than one, the assistant treasurers in the order determined by the Board of
Directors, or, if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be
entitled to a certificate, signed by, or in the name of the Corporation by, the
president or a vice president and the secretary or an assistant secretary of
the Corporation, certifying the number of shares owned by him in the
Corporation. If the Corporation shall be authorized
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<PAGE> 9
to issue more than one class of stock or more than one series of any class, the
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation
Law of Delaware, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a
transfer agent other than the Corporation or its employee or, (2) by a
registrar other than the Corporation or its employee, any signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Lost Certificates
Section 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Transfers of Stock
Section 4. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by a proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Registered Stock Holders
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote at such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable
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<PAGE> 10
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meetings, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall think conducive to the interest of
the Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Annual Statement
Section 3. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Checks
Section 4. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Fiscal Year
Section 5. The fiscal year of the Corporation shall begin on
the first day of January of each year and end on the last day of December of
each year, unless otherwise determined by the Board of Directors.
Seal
Section 6. The corporate seal, if any such seal be adopted by
resolution of the Board of Directors in such form as the Board of Directors may
prescribe. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise placed thereon.
Interested Directors and Officers
Section 7.
(a) No contract or transaction between the Corporation
and one or more of its Directors or officers, or between the Corporation and
any other corporation, partnership, association, or other organization in which
one or more of its Directors or officers are Directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purposes, if;
-9-
<PAGE> 11
(1) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even
though the disinterested Directors be less than a quorum; or
(2) The material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon, and the contract
for transaction is specifically approved in good faith by vote of the
shareholders; or
(3) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee thereof, or the shareholder.
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed,
or new bylaws may be adopted by the affirmative vote of a majority of the
entire Board of Directors at any meeting and without the consent or vote of the
stockholders. These Bylaws may be altered, amended or repealed, or new bylaws
may be adopted by the stockholders at any regular meeting of the stockholders
or at any special meeting of the stockholders, if notice of such alteration,
amendment, repeal or adoption of new bylaws is contained in the notice of such
meeting, by the holders of at least 66 2/3% of the total voting power of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for purposes of this Article VIII as one class.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 1. The Corporation shall, to the full extent
permitted by Section 145 of Title 8 of the General Corporation Law of the State
of Delaware, as amended from time to time, indemnify all officers and directors
of the Corporation whom it may indemnify pursuant thereto. The provisions of
this Article IX shall apply to acts or omissions occurring before or after the
adoption hereof. The right of indemnification herein provided for shall not be
exclusive of any other right to which any Director or officer may now or
hereafter be entitled under any statute, bylaw, agreement, vote of stockholders
or disinterested Directors or otherwise, shall continue as to a person who has
ceased to be such Director or officer entitled to indemnification pursuant to
this Article IX and shall inure to the benefit of the heirs, executors and
administrators of such Director or officer.
Section 2. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article IX or
of Section 145 of the General Corporation Law of the State of Delaware.
Section 3. The indemnification provided by this Article IX
shall be subject to all valid and applicable laws, and, in the event this
Article IX or any of the provisions hereof or the indemnification contemplated
hereby are found to be inconsistent with or contrary to any such valid laws,
the latter shall be deemed to control, and this Article IX shall be regarded as
modified accordingly and, as so modified, shall continue in full force and
effect.
-10-
<PAGE> 1
EXHIBIT 4.7
FIRST AMENDMENT TO THE RIGHTS AGREEMENT BETWEEN
OCEAN ENERGY, INC.
AND
HARRIS TRUST AND SAVINGS BANK, AS RIGHTS AGENT
THIS FIRST AMENDMENT ("First Amendment") to the Rights Agreement, dated as of
December 22, 1997 (the "Rights Agreement"), is by and between Ocean Energy,
Inc., a Delaware corporation (the "Company"), and Harris Trust and Savings
Bank, as Rights Agent (the "Rights Agent"). This First Amendment is dated as
of February 20, 1998. Capitalized terms used herein but not defined shall have
the meanings assigned to such terms in the Rights Agreement.
R E C I T A L S
WHEREAS, the Company and the Rights Agent have heretofore executed the
Rights Agreement; and
WHEREAS, the Company desires to amend the Rights Agreement to revise
Section 1(p) thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and in accordance with Section 27 of the Rights
Agreement, the parties hereby agree as follows:
1. Section 1(p) of the Rights Agreement is hereby
amended, effective as of the date set forth above, by revising such
Section to read in its entirety as follows:
"Exempt Person" shall mean (i) the Company or any
Subsidiary (as such term is hereinafter defined) of
the Company or any employee benefit plan of the
Company, (ii) James C. Flores, his spouse, lineal
descendants and ascendants, heirs, executors or other
legal representatives and any trusts established for
the benefit of the foregoing, or any other person or
entity in which the foregoing persons or entities are
at the time of determination the direct record and
beneficial owners of all outstanding voting
securities (each a "Flores Stockholder") or (iii) any
Person that is not a Flores Stockholder but who or
which is the Beneficial Owner of Common Stock
Beneficially Owned by a Flores Stockholder (a "Second
Tier Flores Stockholder"), but only if the shares of
Common Stock otherwise Beneficially Owned by such
Second Tier Flores Stockholder ("Second Tier Holder
Shares") do not exceed the sum of
<PAGE> 2
(A) such holder's Second Tier Holder Shares held on
the date hereof and (B) 1% of the shares of Common
Stock of the Company then outstanding; provided,
however, that in the event that James C. Flores and
all other Flores Stockholders shall at any time cease
to collectively beneficially own 15% or more of the
Common Stock of the Company then outstanding, then
James C. Flores, all Flores Stockholders and all
Second Tier Flores Stockholders shall, upon the
occurrence of such event and thereafter, cease to be
Exempt Persons.
2. Section 11(n) of the Rights Agreement is hereby
amended, effective as of the date set forth above, by revising such
Section to read in its entirety as follows:
In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the
Company shall (i) declare or pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a
subdivision, combination or consolidation of the
Common Stock (by reclassification or otherwise than
by payment of dividends in Common Stock) into a
greater or lesser number of shares of Common Stock,
then in any such case the Rights associated with each
share of Common Stock following any such event shall
equal the result obtained by multiplying the number
of Rights associated with each share of Common Stock
immediately prior to such event by a fraction, of
which the numerator shall be equal to the number of
shares of Common Stock outstanding immediately prior
to the occurrence of the event and of which the
denominator shall be equal to the total number of
shares of Common Stock outstanding immediately
following the occurrence of such event. The
adjustments provided for in this Section 11(n) shall
be made successively whenever such a dividend is
declared or paid or such a subdivision, combination
or consolidation is effected.
3. Except to the extent amended by this First Amendment,
the Rights Agreement shall continue in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and attested, all as of the day and year first
above written.
OCEAN ENERGY, INC.
By: /s/ JAMES C. FLORES
-------------------------------------
Name: James C. Flores
Title: Chairman, President and
Chief Executive Officer
HARRIS TRUST AND SAVINGS BANK,
as Rights Agent
By: /s/ RAY G. ROSENBAUM
-------------------------------------
Name: Ray G. Rosenbaum
Title: Vice President
<PAGE> 1
EXHIBIT 10.4.1
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
among
OCEAN ENERGY, INC.,
as the Borrower,
THE CHASE MANHATTAN BANK,
as Agent,
and
THE LENDERS SIGNATORY HERETO
Effective as of January 27, 1998
<PAGE> 2
FIRST AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "First Amendment") executed effective as of the 27th day of January, 1998
(the "Effective Date"), is among Ocean Energy, Inc., a corporation duly
organized and validly existing under the laws of the State of Louisiana (the
"Borrower"); each of the lenders under the Credit Agreement (hereinafter
defined) (individually, a "Lender" and, collectively, the "Lenders"); and THE
CHASE MANHATTAN BANK, as agent for the Lenders under the Credit Agreement (in
such capacity, together with its successors in such capacity, the "Agent").
RECITALS.
A. The Borrower, the Agent and the Lenders are parties to that
certain Second Amended and Restated Credit Agreement dated as of October 15,
1997 (as amended, restated, modified or otherwise supplemented from time to
time, the "Credit Agreement"), pursuant to which the Lenders have made certain
credit available to and on behalf of the Borrower; and
B. The Borrower has requested and the Agent and the Lenders have
agreed to amend certain provisions of the Credit Agreement; and
C. Now, therefore, in consideration of the premises and the
mutual covenants herein contained, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. All capitalized terms which are
defined in the Credit Agreement, but which are not defined in this First
Amendment, shall have the same meanings as defined in the Credit Agreement.
Unless otherwise indicated, all section references in this First Amendment
refer to the Credit Agreement.
Section 2. Amendments to Credit Agreement.
2.1 Section 1.02. Section 1.02 is hereby amended to add the
following definitions of "First Amendment" and "First Amendment Effective Date"
where alphabetically appropriate:
"First Amendment" shall mean that certain First Amendment to
Second Amended and Restated Credit Agreement dated as of January __,
1998 among the Borrower, the Agent and the Lenders.
"First Amendment Effective Date" shall mean the "Effective
Date" as such term is defined in the First Amendment.
2.2 Section 8.07(a). Section 8.07(a) is hereby deleted in its
entirety and the following is inserted in lieu thereof:
1
<PAGE> 3
(a) Not less than 30 days prior to each Scheduled
Redetermination Date, commencing with the Scheduled Redetermination
Date to occur on April 1, 1998, the Borrower shall furnish to the
Agent (who shall promptly notify each of the Lenders) a Reserve
Report. The January 1 Reserve Report of each year shall be comprised
of two reports; one being prepared by or under the supervision of
certified independent petroleum engineers or other independent
petroleum consultant(s) acceptable to the Agent and evaluating Oil and
Gas Properties comprising not less than eighty percent (80%) of the
PV10 of the Borrower's and its Subsidiaries' Oil and Gas Properties,
and the other being prepared by or under the supervision of the chief
petroleum engineer of the Borrower (utilizing substantially similar
procedures to those used by its independent petroleum engineers) and
evaluating the Oil and Gas Properties comprising the remaining PV10 of
its and its Subsidiaries' Oil and Gas Properties. The July 1 Reserve
Report of each year shall be prepared by or under the supervision of
the chief petroleum engineer of the Borrower who shall certify such
Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately proceeding
January 1 Reserve Report.
Section 3. Conditions Precedent. The effectiveness of this
First Amendment is subject to the receipt by the Agent of the following
documents and satisfaction of the conditions provided in this Section 3, each
of which shall be satisfactory to the Agent in form and substance:
3.1 Loan Documents. The Agent shall have received multiple
counterparts, as requested of this First Amendment, executed and delivered by a
duly authorized officer of each party.
3.2 No Default. No Default or Event of Default shall have
occurred and be continuing as of the Effective Date.
Section 4. Representations and Warranties. The Borrower and the
Parent Company hereby affirms that as of the date of execution and delivery of
this First Amendment, all of the representations and warranties contained in
the Credit Agreement are true and correct in all material respects as though
made on and as of the Effective Date and after giving effect to this First
Amendment and to the transactions contemplated hereby and that no Defaults
exist under the Credit Agreement or will exist under the Credit Agreement after
giving effect to the aforesaid transactions.
Section 5. Miscellaneous.
5.1 Confirmation. The provisions of the Credit Agreement (as
amended by this First Amendment) shall remain in full force and effect in
accordance with their terms following the effectiveness of this First
Amendment.
5.2 Ratification and Affirmation of Parent Company. The Parent
Company hereby expressly (i) acknowledges the terms of this First Amendment,
(ii) ratifies and affirms its obligations under the Guaranty Agreement, (iii)
acknowledges, renews and extends its continued liability under the Guaranty
Agreement and agrees that said Guaranty Agreement remains in full force and
effect with respect to the Indebtedness.
2
<PAGE> 4
5.3 Counterparts. This First Amendment may be executed by one or
more of the parties hereto in any number of separate counterparts, and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument.
5.4 No Oral Agreement. THIS WRITTEN FIRST AMENDMENT, THE CREDIT
AGREEMENT AND THE OTHER SECURITY INSTRUMENTS EXECUTED IN CONNECTION THEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
5.5 GOVERNING LAW. THIS FIRST AMENDMENT (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed effective as of the date first written above.
BORROWER: OCEAN ENERGY, INC., a Louisiana corporation
By: /s/ ROBERT L. BELK
------------------------------------------
Robert L. Belk
Executive Vice President and Chief Financial
Officer
PARENT COMPANY OCEAN ENERGY, INC.,a Delaware corporation
By: /s/ ROBERT L. BELK
------------------------------------------
Robert L. Belk
Executive Vice President and Chief Financial
Officer
4
<PAGE> 6
AGENT: THE CHASE MANHATTAN BANK, as Agent
By: /s/ ILLEGIBLE
------------------------------------------
Name: ILLEGIBLE
Title: Vice President
LENDER: THE CHASE MANHATTAN BANK
By: /s/ ILLEGIBLE
------------------------------------------
Name: ILLEGIBLE
Title: Vice President
LENDER: BANQUE PARIBAS
By: /s/ DOUGLAS R. LIFTMAN
------------------------------------------
Name: Douglas R. Liftman
Title: Vice President
By: /s/ MARIAN LIVINGSTON
------------------------------------------
Name: Marian Livingston
Title: Vice President
LENDER: BANK ONE, TEXAS, N.A.
By: /s/ DAVID W. PHILLIPS
------------------------------------------
Name: David W. Phillips
Title: Vice President
5
<PAGE> 7
LENDER: BANK OF MONTREAL
By: /s/ ILLEGIBLE
------------------------------------------
Name: ILLEGIBLE
Title:
LENDER: FIRST NATIONAL BANK OF COMMERCE
By: /s/ DAVID R. REID
-----------------------------------------
David R. Reid
Senior Vice President
LENDER: SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ ELIZABETH WILBY HUNTER
------------------------------------------
Elizabeth Wilby Hunter
Vice President
LENDER: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ RONALD E. MCKAIG
------------------------------------------
Name: Ronald E. McKaig
Title: Vice President
6
<PAGE> 8
LENDER: HIBERNIA NATIONAL BANK
By: /s/ COLLEEN MCEVOY
------------------------------------------
Colleen McEvoy
Vice President
7
<PAGE> 1
EXHIBIT 10.6.1
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED
GUARANTY AGREEMENT
among
OCEAN ENERGY, INC.,
as the Guarantor,
THE CHASE MANHATTAN BANK,
as Agent,
and
THE LENDERS SIGNATORY HERETO
Effective as of January 27, 1998
<PAGE> 2
FIRST AMENDMENT TO SECOND AMENDED AND
RESTATED GUARANTY AGREEMENT
This FIRST AMENDMENT TO SECOND AMENDED AND RESTATED GUARANTY AGREEMENT
(this "First Amendment") executed effective as of January 27, 1998 (the
"Effective Date"), is among Ocean Energy, Inc., a corporation duly organized
and validly existing under the laws of the State of Delaware (the "Guarantor");
each of the lenders under the Credit Agreement (hereinafter defined)
(individually, a "Lender" and, collectively, the "Lenders"); and THE CHASE
MANHATTAN BANK, as agent for the Lenders under the Credit Agreement (in such
capacity, together with its successors in such capacity, the "Agent").
Recitals
A. Ocean Energy, Inc., a Louisiana corporation (the "Borrower"),
the Agent and the Lenders are parties to that certain Second Amended and
Restated Credit Agreement dated as of October 15, 1997, as amended by that
certain First Amendment to Second Amended and Restated Credit Agreement (as
amended and as further amended, restated, modified or otherwise supplemented
from time to time, the "Credit Agreement"), pursuant to which the Lenders have
made certain credit available to and on behalf of the Borrower; and
B. To secure the obligations of the Borrower under the Credit
Agreement, the Guarantor executed and delivered that certain Second Amended and
Restated Guaranty Agreement dated as of October 15, 1997 (as amended, restated,
modified or otherwise supplemented from time to time, the "Credit Agreement");
C. The Guarantor has requested and the Agent and the Lenders have
agreed to amend certain provisions of the Guaranty Agreement; and
D. Now, therefore, in consideration of the premises and the
mutual covenants herein contained, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Defined Terms. All capitalized terms which are
defined in the Guaranty Agreement or the Credit Agreement but which are not
defined in this First Amendment, shall have the same meanings as defined in the
Guaranty Agreement or the Credit Agreement, as appropriate.
Section 2. Amendment to Guaranty Agreements.
2.1 Exhibit A. Exhibit A to the Guaranty Agreement is hereby
deleted and inserted in lieu thereof is Exhibit A to this First Amendment.
1
<PAGE> 3
Section 3. Miscellaneous.
3.1 Confirmation and Ratification. The Guarantor hereby affirms
that as of the Effective Date of this First Amendment, all of the
representations and warranties contained in the Guaranty Agreement are true and
correct as though made on and as of the Effective Date, except as such
representations and warranties are modified to give effect to transactions
expressly permitted by the Security Instruments and that no Default or Event of
Default exists. The Guarantor hereby agrees that its liabilities under the
Guaranty Agreement shall remain enforceable against it in accordance with its
terms and shall not be reduced, altered, limited, lessened or in any way
affected by the execution and delivery of this First Amendment. The Guarantor
hereby confirms and ratifies its liabilities under the Security Instruments to
which it is a party in all respects.
3.2 Continuation of Guaranty Agreement. The provisions of the
Guaranty Agreement (as amended by this First Amendment) shall remain in full
force and effect in accordance with its terms following the effectiveness of
this First Amendment.
3.3 No Oral Agreements. THIS WRITTEN FIRST AMENDMENT, THE
GUARANTY AGREEMENT AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION THEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
3.4 GOVERNING LAW. THIS FIRST AMENDMENT (INCLUDING, BUT NOT
LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND THEREOF) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
3.5 Counterparts. This First Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this First
Amendment by signing any such counterpart.
2
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed effective as of the date first written above.
GUARANTOR: OCEAN ENERGY, INC.,a Delaware corporation
By: /s/ ROBERT L. BELK
------------------------------------
Robert L. Belk
Executive Vice President and
Chief Financial Officer
AGENT: THE CHASE MANHATTAN BANK, as Agent
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
LENDER: THE CHASE MANHATTAN BANK
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
LENDER: BANQUE PARIBAS
By: /s/ DOUGLAS R. LIFTMAN
------------------------------------
Name: Douglas R. Liftman
Title: Vice President
By: /s/ MARIAN LIVINGSTON
------------------------------------
Name: Marian Livingston
Title: Vice President
3
<PAGE> 5
LENDER: BANK ONE, TEXAS, N.A.
By: /s/ DAVID W. PHILLIPS
------------------------------------
Name: David W. Phillips
Title: Vice President
LENDER: BANK OF MONTREAL
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
LENDER: FIRST NATIONAL BANK OF COMMERCE
By: /s/ DAVID R. REID
------------------------------------
David R. Reid
Senior Vice President
LENDER: SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ ELIZABETH WILBY HUNTER
------------------------------------
Elizabeth Wilby Hunter
Vice President
4
<PAGE> 6
LENDER: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ RONALD E. McKAIG
------------------------------------
Name: Ronald E. McKaig
Title: Vice President
LENDER: HIBERNIA NATIONAL BANK
By: /s/ COLLEEN McEVOY SMITH
------------------------------------
Colleen McEvoy Smith
Vice President
5
<PAGE> 7
Exhibit A
[Form of]
Officer's Certificate
The undersigned hereby certify that he is the ____________________
of OCEAN ENERGY, INC., a Delaware corporation (the "Guarantor"), and that as
such he is authorized to execute this certificate on behalf of the Guarantor.
This Certificate is delivered pursuant to Section 3.02 of that certain Second
Amended and Restated Guaranty Agreement dated as of October 15, 1997 (as amended
by that certain First Amendment to Second Amended and Restated Guaranty
Agreement dated as of January __, 1998, and as further amended or supplemented
from time to time, the "Guaranty Agreement") by the Guarantor in favor of THE
CHASE MANHATTAN BANK, AS AGENT (the "Agent"), and the Lenders. All capitalized
terms not defined herein shall have the meaning assigned such terms in the
Guaranty Agreement and in that certain Second Amended and Restated Credit
Agreement dated as of October 15, 1997 among OCEAN ENERGY, INC., a Louisiana
corporation (the "Borrower"), the Agent and the Lenders (as amended by that
certain First Amendment to Second Amended and Restated Credit Agreement dated
as of January __, 1998, and as further amended or supplemented from time to
time, the "Credit Agreement"), as such terms are incorporated by reference into
the Guaranty Agreement.
The undersigned hereby represents and warrants as follows:
(a) No Default has occurred and is continuing under the Credit
Agreement, the Guaranty Agreement or any of the Loan Documents [or if a Default
exists, specify the nature and status thereof and the Guarantor's or the
Borrower's proposed response].
(b) The Guarantor is in compliance with the following negative
covenants:
(i) Current Ratio. (Show Calculation)
(ii) Tangible Net Worth. (Show Calculation)
(iii) Interest Coverage Ratio. (Show Calculation)
(iv) Leverage Ratio. (Show Calculation)
(v) Dividends, Distributions and Redemptions. (Show
Amount of Dividends and Calculation)
(c) If quarterly borrowings and LC Exposure exceed $100,000,000 at
any time, show calculations for each of the Indenture and the Subordinated
Indenture demonstrating (i) that such borrowings and LC Exposure constitute
"Permitted Indebtedness" (as defined in the 9-3/4% Subordinated Indenture)
and/or that the Guarantor has not violated Section 10.11 of the 9-3/4%
Subordinated Indenture (i.e., demonstrate that Consolidated Fixed Charge
Coverage Ratio is at least 3.0 to 1.0).
<PAGE> 8
EXECUTED AND DELIVERED this ____ day of ______________, 199__.
GUARANTOR:
OCEAN ENERGY, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.24
OCEAN ENERGY, INC.
DEFERRED COMPENSATION PLAN
<PAGE> 2
OCEAN ENERGY, INC.
DEFERRED COMPENSATION PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1 Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 2 Administration . . . . . . . . . . . . . . . . . . . 2
Section 3 Participants . . . . . . . . . . . . . . . . . . . . 2
Section 4 Benefits . . . . . . . . . . . . . . . . . . . . . . 3
Section 5 General Provisions . . . . . . . . . . . . . . . . . 4
</TABLE>
-i-
<PAGE> 3
OCEAN ENERGY, INC.
DEFERRED COMPENSATION PLAN
PREAMBLE
WHEREAS, Ocean Energy, Inc. (the "Company") desires to
establish the Ocean Energy, Inc. Deferred Compensation Plan (the "Plan") to
assist the Company in attracting and retaining highly qualified key employees
by permitting them to defer all or part of their annual bonuses on a voluntary
basis;
NOW, THEREFORE, the Company does hereby adopt the Plan as set
forth herein, effective as of December 10, 1997.
SECTION 1
DEFINITIONS
For purposes of the Plan, the following terms shall have the
meanings indicated:
1.1 Account means a ledger Account as provided in Section 4.2.
1.2 Beneficiary means the Participant's surviving spouse or, if none, his
or her estate.
1.3 Board means the Board of Directors of the Company.
1.4 Bonus means the Bonus, if any, otherwise payable to the Participant
with respect to a specified Plan Year pursuant to the Company's annual
bonus program.
1.5 Compensation Committee means the Compensation Committee of the Board.
1.6 Key Employee means an employee of the Company or any subsidiary who is
designated by the Committee, either by name or position, to be a Key
Employee for purposes of this Plan.
1.7 Participant means each Key Employee who elects to participate in the
Plan in accordance with Section 3.
<PAGE> 4
1.8 Plan Year means the calendar year.
SECTION 2
ADMINISTRATION
2.1 Committee. The Plan shall be administered by the Committee. The
Committee shall have the complete authority and power to interpret the
Plan, prescribe, amend and rescind rules relating to its
administration, determine which Key Employees shall be eligible to be
Participants for any Plan Year, determine a Participant's (or
Beneficiary's) right to a payment and the amount of such payment, and
to take all other actions necessary or desirable for the
administration of the Plan. All actions and decisions of the Committee
shall be final and binding upon all Participants and Beneficiaries.
SECTION 3
PARTICIPANTS
3.1 Participants. Each employee who is designated a Key Employee by the
Committee for a Plan Year shall be eligible to be a Participant for
such Plan Year. A designation of Key Employee status may be made in
any manner the Committee deems appropriate and, in the Committee's
discretion, may be an ongoing designation applicable for future Plan
Years until revoked by the Committee. A designation of an employee as
a Key Employee for a Plan Year shall not entitle the employee to be a
Key Employee for any other Plan Years, except to the extent so
provided by the Committee. The Committee, in its discretion, may
revoke an employee's designation as a Key Employee at any time.
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<PAGE> 5
SECTION 4
BENEFITS
4.1 Voluntary Deferrals. Before the date the Committee establishes the
Bonus, if any, to be paid to a Key Employee for a specified Plan Year,
the Key Employee may elect to have the payment of all or a portion of
any such Bonus deferred under the Plan Year; provided, however, the
minimum amount that a Participant may defer for any Plan Year is
$50,000. The Participant's election shall be irrevocable and shall be
made on a form prescribed by the Company. If a Key Employee has not
made a deferral election with respect to a Plan Year, any Bonus
payable to him or her for that Plan Year shall be paid in accordance
with the Company's normal practice.
4.2 Accounts. The Company shall establish a ledger or notional account
(the "Account") for each Participant who defers payment of all or part
of his or her Bonus with respect to a Plan Year to reflect the
Company's obligation to pay to the Participant (or the Participant's
Beneficiary) the amount deferred and the interest, if any, credited
thereon as provided in Section 4.3.
4.3 Interest Credited to Accounts. No interest shall accrue on any
deferred Bonus amounts credited to an Account except to the extent the
Committee, in its sole discretion, expressly provides for the
crediting of interest on the Account. The rate of such interest, if
any, shall be determined by the Committee and shall be credited to the
Account at the end of each calendar quarter or at such other times as
may be determined by the Committee.
4.4 Payment of Accounts. On or as soon as reasonably practical following
the earlier of (i) the date a Participant ceases for any reason to be
an employee of the Company and its
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subsidiaries or (ii) the first business day of the January following
the Plan Year with respect to which the deferral of the Bonus is made
by a Participant, the Company shall pay to a Participant a lump sum
amount in cash equal to the balance then credited to his or her
Account.
SECTION 5
GENERAL PROVISIONS
5.1 Unfunded Obligation. The amounts to be paid to Participants pursuant
to this Plan are unfunded general obligations of the Company. The
Company is not required to segregate any monies from its general
funds, to create any trusts, or to make any special deposits with
respect to this obligation. Title to and beneficial ownership of any
investments, including trust investments, which the Company may make
to fulfill this obligation shall at all times remain in the Company.
Any investments and the creation or maintenance of any trust or
notional accounts shall not create or constitute a trust or a
fiduciary relationship between the Committee or the Company and a
Participant, or otherwise create any vested or beneficial interest in
any Participant or his or her Beneficiary or his or her creditors in
any assets of the Company whatsoever. The Participants (and
Beneficiaries) shall be general unsecured creditors of the Company
with respect to any payment due under this Plan.
5.2 Incapacity of Participant or Beneficiary. If the Committee finds that
any Participant or Beneficiary to whom a payment is due under the Plan
is under a legal disability and a legal representative or guardian has
been properly appointed for such person, such payment shall be made to
the duly appointed legal representative or guardian of such
Participant or Beneficiary and shall be a complete discharge of the
obligations of the Company under the Plan.
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<PAGE> 7
5.3 Nonassignment. The right of a Participant or Beneficiary to the
payment of any amounts under the Plan may not be assigned,
transferred, pledged or encumbered in any manner nor shall such right
or other interests be subject to attachment, garnishment, execution or
other legal process.
5.4 No Right to Continued Employment. Nothing in the Plan shall be
construed to confer upon any Participant any right to continued
employment with the Company or any subsidiary, nor interfere in any
way with the right of the Company or any subsidiary to terminate the
employment of such Participant at any time without assigning any
reason therefor.
5.5 Withholding Taxes. Unless a Participant makes other arrangements that
are satisfactory to the Company, appropriate taxes shall be withheld
by the Company or the employing subsidiary from the Participant's
current compensation with respect to all deferrals made under the Plan
and from all payments made to Participants and Beneficiaries pursuant
to the Plan.
5.6 Termination and Amendment. The Board may from time to time amend or
terminate the Plan, in whole or in part; provided, however, that no
amendment or termination of the Plan may impair the rights of a
Participant or his or her Beneficiary with respect to an Account;
provided further, however, upon a termination of the Plan all Accounts
shall be paid immediately.
5.7 Applicable Law. The Plan shall be construed and governed in accordance
with the laws of the State of Louisiana.
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EXHIBIT 10.26
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of the
11th day of August, 1996 among Flores & Rucks, Inc., a Delaware corporation
("FRI" or the "Company"), James C. Flores ("Flores") and the Flores Family
Limited Partnership (the "Partnership").
W I T N E S S E T H:
WHEREAS, Flores is Chairman of the Board of Directors and
Chief Executive Officer of the Company; and
WHEREAS, Flores has entered into that certain agreement (the
"Option Agreement"), dated the date hereof, pursuant to which William W. Rucks,
IV and the Rucks Family Limited Partnership have granted Flores the option to
purchase up to 1,600,000 shares of Common Stock (as hereinafter defined)
currently owned by such Persons; and
WHEREAS, the Company believes that the execution of the Option
Agreement by Flores will benefit the Company by providing for continuity of
control by the Company's major stockholders; and
WHEREAS, in order to induce Flores to enter into the Option
Agreement, FRI has agreed to enter into this Agreement and to grant the Rights
(as hereinafter defined) contained herein to Flores and the Partnership;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
The following terms have the meanings indicated:
"Commission" means the Securities and Exchange Commission or
any successor thereof.
"Common Stock" means the common stock, par value $.01 per
share, of FRI.
"Enron/Merrill Agreement" means that certain Registration
Rights Agreement, dated December 7, 1994, as amended, by and among FRI, Flores
& Rucks, Inc., a Louisiana corporation, Enron Finance Corp. and Merrill Lynch
Capital Markets plc.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
<PAGE> 2
"Holder" means Flores, the Partnership and any other Person
holding Registrable Shares; provided, that such Person acquired such
Registrable Shares in accordance with Section 7 of this Agreement.
"Option Shares" means the 1,600,000 shares of Common Stock
subject to the Option Agreement, 1,000,000 of which are currently owned of
record by the Rucks Family Limited Partnership and 600,000 of which are
currently owned of record by William W. Rucks, IV.
"Permitted Transferee" means (i) Flores, (ii) Flores' spouse,
(iii) Flores' children, (iv) Flores' estate or the estates of Flores' spouse or
children, and (v) any trust, partnership, corporation or similar entity
controlled by or for the benefit of the Persons named in clauses (i) through
(iv) hereof, including the Partnership, the James Flores Children's Trust and
the Cherie Flores Children's Trust.
"Person" means any individual, firm, corporation, trust,
association, partnership, joint venture or other entity.
"Registrable Shares" means the Option Shares.
"Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement.
"Rights" means all rights, remedies, powers, benefits, and
privileges granted to the Holders pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
SECTION 2. REGISTRATION RIGHTS.
(a) Any Holder or Holders shall hereby have the right to
request, in writing specifying that such request is made pursuant to this
Section 2(a), that FRI file a registration statement under the Securities Act
covering not less than 250,000 Registrable Shares (unless fewer Registrable
Shares are held by the Holders, in which case, covering all such Registrable
Shares). Such request shall set forth the proposed plan of distribution for
the Registrable Shares to be registered. Within thirty days of such request,
or, in the event that Form S-3 under the Securities Act is available to FRI to
effect such registration, within twenty-one days of such request, FRI shall
file a registration statement to register under the Securities Act all
Registrable Shares subject to such request; provided, however, that FRI may
defer its obligations under this Section 2(a) for a period of no more than
thirty days (which thirty days shall be in addition to the 30-day or 21-day
period, as applicable, permitted above) if FRI's Board of Directors adopts a
resolution or obtains written
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<PAGE> 3
advice from FRI outside securities counsel (which counsel shall be a nationally
recognized securities law firm or a law firm acceptable to the Holders) that
filing such a registration statement would require public disclosure by FRI of
any material non-public development; and provided further, that once such
information has been publicly disclosed by FRI, FRI shall promptly proceed to
fulfill its obligations under this Section 2(a).
Notwithstanding the foregoing, in the event FRI reasonably
expects to file, within 60 days of a request made pursuant to this Section
2(a), a registration statement pertaining to securities for the account of FRI
(except a registration statement on Form S-8 or any successor form thereto)
then such request shall constitute a request made pursuant to Section 2(b)
hereof to include in such registration statement all Registrable Shares subject
to such request and FRI shall not be obligated to file a separate registration
statement for the Registrable Shares subject to such request; provided, that
FRI is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that FRI's estimate of the date
of filing of such registration statement is made in good faith. If FRI has not
filed a registration statement pertaining to securities for the account of FRI
and the Registrable Shares during this 60 day period, then FRI shall promptly
proceed to fulfill its obligations under this Section 2(a).
FRI shall be obligated to effect only two registrations
pursuant to this Section 2(a) with respect to all Holders; provided, however,
that a registration requested pursuant to this Section 2(a) shall not be deemed
to be a "registration" for such purposes, (i) if a registration statement with
respect thereto has not been declared effective by the Commission, (ii) if
after such registration statement has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not the
fault of a holder of Registrable Shares and the Registrable Shares covered
thereby have not been sold, or (iii) if the conditions to closing specified in
the selling agreement or underwriting agreement entered into in connection with
such registration are not satisfied or waived by the parties thereto other than
a holder of Registrable Shares.
Distribution by the Holder or Holders of the Registrable
Shares registered pursuant to this Section 2(a) may be made in any lawful
manner, including underwritten public offerings and non-underwritten "at the
market" distributions. If any such offering is to be an underwritten public
offering, the Holder or Holders of such Registrable Shares shall have the right
to select the managing underwriter or underwriters, subject to the approval of
FRI, which approval shall not be unreasonably withheld.
The Holders shall not make a request to FRI to effect any
registration pursuant to this Section 2(a) during (i) the 180-day period
beginning on the effective date of the first registration of Registrable Shares
made pursuant to this Section 2(a), (ii) the 90-day period beginning on the
effective date of any registration of Registrable Shares made pursuant to
Section 2(b) of this Agreement and (iii) the 14-day period prior to, and during
the 90-day period beginning on, the effective date of a registration statement
filed pursuant to Section 2(a) of the Enron/Merrill Agreement.
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<PAGE> 4
Whenever FRI shall effect a registration pursuant to this
Section 2(a), securities that may be included among the securities covered by
such registration include (i) securities subject to registration rights granted
by the Company or (ii) such other securities as the Company may desire to
include.
(b) If at any time FRI proposes to register any of its
Common Stock under the Securities Act (other than registrations on Forms S-4 or
S-8 or any successor forms thereto or registrations of securities in connection
with a Rule 145 transaction), whether of its own accord or at the request of
any holder or holders of its securities, it shall each such time promptly give
written notice to all Holders of its intention to do so.
Upon the written request of a Holder or Holders delivered to
FRI within five business days after receipt of any such notice, FRI shall use
its best efforts (subject to the provisions of this Section 2(b)) to cause all
Registrable Shares, the Holders of which shall have so requested registration
thereof, to be registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by the Holder or Holders of such
Registrable Shares; provided, however, FRI may elect not to file a registration
statement pursuant to this Section 2(b) or may withdraw any registration
statement filed pursuant to this Section 2(b) at any time prior to the
effective date thereof.
If the managing underwriter for the respective offering
advises that marketing factors require the inclusion in such registration of
some or all of the Registrable Shares sought to be registered by the Holders to
be limited or that the number of securities to be registered at the insistence
of FRI and any other selling shareholders plus the number of Registrable Shares
sought to be registered by the Holders should be limited due to marketing
factors, the number of Registrable Shares sought to be registered by each
Holder, FRI and such other selling shareholders shall be reduced pro rata,
based on the number of securities sought to be registered by each such Holder,
FRI or such other selling shareholder, to the number recommended by the
managing underwriter, provided, that in the event such registration is
initiated by FRI, the number of shares offered by FRI shall not be reduced.
(c) If and whenever FRI is required by the provisions of
this Section 2 to effect the registration of any Registrable Shares under the
Securities Act, FRI shall, as expeditiously as possible,
(1) cooperate with any underwriters for, and the
Holders of, such Registrable Shares, and shall enter into a usual and
customary underwriting agreement with respect thereto and take all
such other reasonable actions as are necessary or advisable to permit,
expedite and facilitate the disposition of such Registrable Shares in
the manner contemplated by the related registration statement,
including without limitation, the inclusion in such registration
statement of any information relating to FRI or its subsidiaries which
such holders or underwriters deem reasonably necessary to facilitate
such disposition, in each case to the same extent as if all the
securities then being offered were for the account of FRI,
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<PAGE> 5
and FRI shall provide to any Holder of such Registrable Shares, any
underwriter participating in any distribution thereof pursuant to a
registration statement, and any attorney, accountant or other agent
retained by any Holder or underwriter, reasonable access to
appropriate FRI officers and employees to answer questions and to
supply information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such
registration statement; provided, however, that each such party shall
be required to maintain in confidence and not disclose to any other
person any information or records reasonably designated by FRI in
writing as being confidential, until such time as (A) such information
becomes a matter of public record (whether by virtue of its inclusion
in such registration statement or otherwise), or (B) such person shall
be required so to disclose such information pursuant to the subpoena
or order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
order, and only after such persons shall have given FRI prompt prior
written notice of such requirement), or (C) such information is
required to be set forth in such registration statement or the
prospectus included therein or in an amendment to such registration
statement or an amendment or supplement to such prospectus in order
that such registration statement, prospectus, amendment or supplement,
as the case may be, does not contain an untrue statement of a material
fact or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(2) furnish or cause to be furnished to each
Holder of the Registrable Shares covered by such registration
statement, on the date that such Registrable Shares are to be
delivered to the underwriters for sale pursuant to such registration
or, if such Registrable Shares are not being sold through
underwriters, on the date the registration statement with respect to
such Registrable Shares becomes effective (i) an opinion, dated such
date, of the outside counsel representing FRI for the purposes of such
registration, addressed to the underwriters, if any, and to the
Holders, stating that such registration statement has become effective
under the Securities Act and that (A) to the knowledge of such
counsel, no stop order suspending the effectiveness of such
registration statement has been instituted or is pending or
contemplated under the Securities Act; and (B) the registration
statement, the related prospectus, and each amendment or supplement
thereto, including all documents incorporated by reference therein,
comply as to form in all material respects with the requirements of
the Securities Act and the applicable rules and regulations of the
Commission thereunder (except that such counsel need express no
opinion as to financial statements or other financial or statistical
or reserve data contained or incorporated by reference therein); and
such counsel shall state in customary form that no facts have come to
the attention of such counsel that caused such counsel to believe
(with customary qualifications) that either the registration statement
or the prospectus, or any amendment or supplement thereto, including
all documents incorporated by reference therein, in light of the
circumstances under which they were made, contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel need express no
belief as to
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<PAGE> 6
financial statements or other financial or statistical or reserve data
contained or incorporated by reference therein or as to any
information provided by the Holders or any underwriter for inclusion
therein); and (ii) a letter, dated such date, from the independent
certified public accountants of FRI, addressed to the underwriters, if
any, and to the Holders, stating that they are independent certified
public accountants within the meaning of the Securities Act and that
in the opinion of such accountants, the financial statements and other
financial data of FRI included in the registration statement or the
prospectus, or any amendment or supplement thereto, including all
documents incorporated by reference therein, comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act. Such letter from the independent certified public
accountants shall additionally cover such other customary financial
matters (including information as to the period ending not more than
five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as
such underwriters, if any, or the Holders may reasonably request;
(3) prepare and file with the Commission a
registration statement with respect to such Registrable Shares and use
its best efforts to cause such registration statement to become and
remain effective for a period of not more than 180 days (or in the
event of a firm underwritten offering such longer period as may be
customary), and prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective during such period and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement;
provided that no such registration statement or amendment thereto
shall be filed by FRI until the Holders of the Registrable Shares
included therein and their counsel shall have had a reasonable
opportunity to review the same, to exercise their rights under clause
(1) above with respect thereto and to approve or disapprove any
portion of such registration statement describing or referring to such
Holders; provided, further, that if, after a registration statement
becomes effective, the Company advises the Holders that the Company
considers it appropriate for the registration statement to be amended,
the Holders shall suspend any further sales of their registered shares
until the Company advises them that the registration statement has
been amended. The 180-day time period referred to herein during which
the registration statement must be kept current after its effective
date shall be extended for an additional number of business days equal
to the number of business days during which the rights to sell shares
was suspended pursuant to the preceding sentence;
(4) furnish to each Holder and to each
underwriter, if any, such numbers of copies of a summary prospectus or
other prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents,
as such Holder may reasonably request in order to facilitate the
public sale or other disposition of such Holder's Registrable Shares;
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<PAGE> 7
(5) use its best efforts to register or qualify
the Registrable Shares covered by such registration statement under
the state securities of blue sky laws of such United States
jurisdictions as each Holder shall request, and do any and all other
acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the public sale or other disposition
in such United States jurisdictions of the Registrable Shares owned by
such Holder, except that FRI shall not for any such purpose be
required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any
general consent to service;
(6) in the event of the issuance of any stop
order suspending the effectiveness of any registration statement or of
any order suspending or preventing the use of any prospectus or
suspending the qualification of such Registrable Shares for sales in
any jurisdiction, use its reasonable efforts promptly to obtain its
withdrawal;
(7) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission in connection
with such registration and related transactions, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, beginning
with the first fiscal quarter beginning after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(8) list such securities on any securities
exchange or consolidated reporting system on which the Common Stock of
FRI is then listed, if the listing of such securities is then
permitted under the rules of such exchange or consolidated reporting
system; and
(9) furnish unlegended certificates representing
ownership of the Registrable Shares being sold in such denominations
as shall be requested by each Holder or the managing underwriter,
provided such request is made at least two business days prior to the
closing of the sale of such Registrable Shares.
(d) In connection with any offering involving an
underwriting of shares being issued by FRI, FRI shall not be required to
include any of the Holders' Registrable Shares in such underwriting pursuant to
Section 2(b) unless the Holders accept the terms of the underwriting as agreed
upon between FRI and the underwriters; provided, however, that the only
representations and warranties any Holder shall be required to make in
connection therewith shall be with respect to such Holder's ownership of the
Registrable Shares to be sold by it and its ability to convey title thereto
free and clear of all liens, encumbrances or adverse claims and such other
customary representations and warranties reasonably requested by the
underwriters; and provided further, that the only indemnity any Holder shall be
required to make in connection therewith shall be to the effect of Sections
4(b) and 4(c) hereof.
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<PAGE> 8
(e) The Registrable Shares proposed to be registered
under any registration statement under Section 2(b) hereof shall be offered for
sale at the same public offering price as the shares of Common Stock offered
for sale by FRI or any other selling shareholder covered thereby.
SECTION 3. EXPENSES OF REGISTRATION.
All expenses incurred in connection with the registration of
Registrable Shares pursuant to this Agreement, including without limitation (i)
the Commission registration fee, (ii) the fee payable to the National
Association of Securities Dealers, Inc., (iii) all state registration and
qualification fees, (iv) all printing, engineering and accounting fees, (v) all
fees and disbursements of counsel for FRI and (vi) all fees and disbursements
of one law firm selected by the Holders to represent all the Holders, shall be
borne by FRI; provided, however, that FRI shall not be required to pay, and the
Holders shall pay any underwriter discounts, commissions and other underwriter
compensation, to the extent such fees, discounts, commissions and compensation,
relate to the Registrable Shares.
SECTION 4. INDEMNIFICATION.
(a) In the event of any registration of Registrable
Shares under the Securities Act pursuant to this Agreement, FRI shall indemnify
and hold harmless the Holder of such Registrable Shares, such Holder's
directors, officers and partners, if any, and each other Person, if any, who
controls such Holder within the meaning of the Securities Act (a "Controlling
Person"), against any losses, claims, damages or liabilities, joint or several,
to which such Holder or any such director, officer, partner or Controlling
Person may become subject under the Securities Act or other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any alleged untrue
statement of any material fact contained, on the effective date thereof, in any
registration statement under which such Registrable Shares were registered
under the Securities Act, or in any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (ii) any alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse
such Holder or such director, officer, partner or Controlling Person for any
legal or any other expenses reasonably incurred by such Holder, director,
officer, partner or Controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that FRI shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any alleged
untrue statement or alleged omission made in such registration statement,
preliminary prospectus, prospectus, or amendment or supplement in reliance upon
and in conformity with written information furnished to FRI through an
instrument duly executed or provided by such Holder or an underwriter
specifically for use therein. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Holder,
director, officer, partner or Controlling Person, and shall survive the
transfer of such Registrable Shares by such Holder.
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<PAGE> 9
(b) It shall be a condition to FRI's obligation to
register the Registrable Shares of any Holder that such Holder shall enter into
an agreement to indemnify and hold harmless FRI, its directors and officers and
each other Person, if any, who controls FRI against any losses, claims, damages
or liabilities, joint or several, to which FRI or any such director or officer
or any such Person may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement or omission of any material fact contained, on the
effective date thereof, in any registration statement under which such Holder's
Registrable Shares were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
alleged untrue statement or omission was contained in written information
furnished to FRI through an instrument duly executed or provided by such Holder
specifically for use therein, and to reimburse FRI or such director, officer or
other Person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Indemnification similar to that specified in (i) and
(ii) in paragraphs 4(a) and 4(b) above shall be given by FRI and each Holder
(with such modifications as shall be appropriate) to any underwriter with
respect to any required registration or other qualification of any Registrable
Shares registered under this Agreement under any federal or state law or
regulation of governmental authority. The indemnity and expense reimbursements
obligations of FRI and the Holders under (i) and (ii) in paragraphs 4(a) and
4(b) above shall be in addition to any liability FRI and the Holders may
otherwise have.
(d) Each Person (an "Indemnitor") who under the preceding
provisions of this Section 4 agrees to indemnify another Person (an
"Indemnitee") shall have the rights, subject to the provisions hereto, to
designate counsel (which counsel shall be a nationally recognized securities
law firm or a law firm acceptable to the Holders) or to defend any case or
proceeding against the Indemnitee arising in respect of any claim of liability
for which such indemnification may be claimed, to the end that duplication of
legal expense may be minimized; provided that, if the Indemnitee notifies the
Indemnitor that the former has been advised by its counsel that any single
counsel in such case or proceeding would have a conflict of interest in
representing both the Indemnitor and the Indemnitee, the Indemnitee may
designate one counsel of its own in such case or proceeding and, to the extent
so provided above in this Section 4, shall be entitled to be reimbursed for its
legal expenses reasonably incurred in connection with defending itself in such
case or proceeding.
(e) The Indemnitee shall give notice to the Indemnitor
promptly after such Indemnitee has actual knowledge of any claim as to which
indemnity may be sought, provided that the failure of any Indemnitee to give
notice as provided herein shall not relieve the Indemnitor of its obligations
hereunder except to the extent that the Indemnitor's defense of such claim is
prejudiced thereby.
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<PAGE> 10
SECTION 5. CONTRIBUTION.
(a) In the event the indemnity provisions provided for in
Section 4 of this Agreement are for any reason held to be unenforceable by the
indemnified parties, FRI, the Holders and the underwriters, if any, shall
contribute to the aggregate losses, liabilities, claims, damages and expenses
of the nature contemplated by said indemnity provisions incurred by FRI, the
Holders and the underwriters in proportion to the relative fault of each such
party in connection with the statements or omissions that resulted in such
losses, liabilities, claims, damages and expenses. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by one of the parties and
such parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. Notwithstanding the
foregoing, no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total price at which the
Registrable Shares sold by it exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(b) Notwithstanding the foregoing provisions of this
Section 5, no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls an underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such underwriter, and each director of FRI, each officer of FRI
who signed such registration statement and each person, if any, who controls
FRI or any Holder within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as FRI or such Holder, as the case may be.
SECTION 6. SALES PURSUANT TO RULE 144.
Upon written request, FRI shall deliver to any Holder a
written statement as to whether it has complied with all rules and regulations
of the Commission applicable in connection with the use of Rule 144 (or any
successor thereto), including the timely filing of all reports required to be
filed by FRI with the Commission. Upon receipt of an opinion of counsel
satisfactory to FRI, FRI shall cause any restrictive legends to be removed and
any transfer restrictions to be rescinded with respect to any sale of
Registrable Shares which is exempt from registration under the Securities Act
pursuant to Rule 144.
SECTION 7. TRANSFER OF REGISTRATION RIGHTS.
The Rights of Holders under this Agreement may be assigned or
transferred upon written notice to the Company to any Permitted Transferee in
connection with the transfer of all or a portion of the Registrable Shares. In
the event that the Rights under this Agreement are assigned or transferred by a
Holder to a Permitted Transferee in connection with the transfer of a portion
of the Registrable Shares, any registration rights exercised by such Holder or
any such Permitted
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<PAGE> 11
Transferee must be exercised collectively as one Holder and, for purposes of
this Agreement, including without limitation, with respect to providing notices
and payment of any expenses, such Holder and such Permitted Transferee will be
treated as one Holder. Any transferee hereunder must acknowledge in writing
its acceptance of all terms, conditions and obligations of this Agreement.
SECTION 8. TERMINATION.
FRI shall not be obligated to take any action to effect any
registration, qualification or compliance pursuant to this Agreement, and this
Agreement shall terminate and be of no force and effect (except any obligations
of FRI under Section 6 of this Agreement), with respect to any Holder (and such
Holder only) who may sell all of such Holder's Registrable Shares in reliance
upon Rule 144(k) (or any successor rule) promulgated under the Securities Act.
SECTION 9. REMEDIES.
FRI recognizes that money damages may be inadequate to
compensate the Holders for a breach by FRI of its obligations under this
Agreement, and FRI agrees that in the event of such a breach any of the Holders
may apply for an injunction of specific performance or the granting of such
other equitable remedies as may be awarded by a court of competent jurisdiction
in order to afford the Holders the benefits of this Agreement and that FRI
shall not object to such application, entry of such injunction or granting of
such other equitable remedies on the grounds that money damages shall be
sufficient to compensate the Holders.
SECTION 10. MISCELLANEOUS.
(a) Notices.
(1) All communications under this Agreement shall
be in writing and shall be mailed by first class mail, postage
prepaid, or sent by facsimile,
(i) if to any party hereto at its
address or facsimile number for notices specified beneath its
name on the signature page hereof, or at such other address or
facsimile number as it may have furnished in writing to each
other party hereto;
(ii) if to any other person or entity who
is the registered holder of any Registrable Shares to the
address or facsimile number of such holder as it appears in
the stock ledger of FRI.
(2) Any notice shall be deemed to have been duly given
and received (i) at the time of delivery when delivered by hand, if
personally delivered, (ii) if sent by mail, two business days after
being deposited in the mail, postage prepaid and (iii) when sent by
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<PAGE> 12
facsimile so long as a duplicate of such notice is deposited in the
mail, first class postage prepaid, on the date such facsimile is sent.
(b) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the permitted successors and assigns of
each of the parties whether so expressed or not.
(c) Amendment and Waiver, etc. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, but
only with the unanimous written consent of FRI and the Holders. No failure or
delay on the part of the Holders in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Holders at law or in equity or otherwise.
No waiver of or consent to any departure by FRI from any provision of this
Agreement shall be effective unless in writing and signed by the Holders.
(d) Duplicate Originals. Two or more duplicate originals
of this Agreement may be signed in counterpart by the parties, each of which
shall be an original but all of which together shall constitute one and the
same instrument.
(e) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(f) Governing Law. This Agreement shall be governed by
and construed in accordance with the substantive law of Delaware without giving
effect to the principles of conflicts of law thereof.
(g) Entire Agreement. This Agreement constitutes and
contains the entire agreement of the parties and supersedes any and all prior
negotiations, correspondence, undertakings and agreements between the parties
hereto respecting the subject matter hereof.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
FLORES & RUCKS, INC.,
a Delaware corporation
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Facsimile: (504) 927-1109
Attention: Chairman of the Board
By: /s/ RICHARD G. ZEPERNICK, JR.
-----------------------------------------
Name: Richard G. Zepernick, Jr.
Title: Executive Vice President and
Chief Operating Officer
/s/ JAMES C. FLORES
--------------------------------------------
James C. Flores
FLORES FAMILY LIMITED PARTNERSHIP,
a Texas Limited Partnership
c/o James C. Flores
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Facsimile: (504) 927-1109
By: /s/ JAMES C. FLORES
-------------------------------------
James C. Flores
General Partner
By: /s/ CHERIE H. FLORES
-------------------------------------
Cherie H. Flores
General Partner
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<PAGE> 1
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of the 11th day
of August, 1996 among Flores & Rucks, Inc., a Delaware corporation ("FRI" or the
"Company"), William W. Rucks, IV ("Rucks") and the Rucks Family Limited
Partnership (the "Partnership").
W I T N E S S E T H:
WHEREAS, Rucks is Vice-Chairman of the Board of Directors and
President of the Company; and
WHEREAS, Rucks and the Partnership are currently the record owners
of not fewer than 3,450,000 shares of Common Stock (as hereinafter defined); and
WHEREAS, FRI and Rucks have entered into that certain agreement (the
"Termination Agreement"), dated the date hereof, pursuant to which Rucks agrees,
for the consideration set forth therein, to resign as an officer of FRI; and
WHEREAS, in connection with the Termination Agreement, Rucks, the
Partnership and James C. Flores ("Flores") have entered into that certain
agreement (the "Option Agreement"), dated the date hereof, pursuant to which
Rucks and the Partnership have granted Flores the option to purchase the Option
Shares (as hereinafter defined); and
WHEREAS, as partial consideration for, and in order to induce Rucks
to enter into, the Termination Agreement and the Option Agreement, FRI has
agreed to enter into this Agreement and to grant the Rights (as hereinafter
defined) contained herein to Rucks and the Partnership;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
The following terms have the meanings indicated:
"Commission" means the Securities and Exchange Commission or any
successor thereof.
"Common Stock" means the common stock, par value $.01 per share, of
FRI.
"Enron/Merrill Agreement" means that certain Registration Rights
Agreement, dated December 7, 1994, as amended, by and among FRI, Flores & Rucks,
Inc., a Louisiana corporation, Enron Finance Corp. and Merrill Lynch Capital
Markets plc.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Holder" means Rucks, the Partnership and any other Person holding
Registrable Shares; provided, that such Person acquired such Registrable Shares
in accordance with Section 7 of this Agreement.
"Option" means the option to purchase the Option Shares granted to
Flores by Rucks and the Partnership pursuant to the Option Agreement.
"Option Expiration Date" means the date that the Option expires in
accordance with the terms of the Option Agreement.
"Option Shares" means the 1,600,000 shares of Common Stock subject
to the Option Agreement, 1,000,000 of which are currently owned of record by the
Partnership and 600,000 of which are currently owned of record by Rucks.
"Permitted Transferee" means (i) Rucks, (ii) Rucks' spouse, (iii)
Rucks' children, (iv) Rucks' estate or the estates of Rucks' spouse or children,
and (v) any trust, partnership or similar entity controlled by or for the
benefit of the Persons named in clauses (i) through (iv) hereof, including the
Partnership, the 1996 William Rucks Children Trust and the 1996 Catherine Rucks
Children Trust.
"Person" means any individual, firm, corporation, trust,
association, partnership, joint venture or other entity.
"Registrable Shares" means the Option Shares.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of effectiveness of such
registration statement.
"Rights" means all rights, remedies, powers, benefits, and
privileges granted to the Holders pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECTION 2. REGISTRATION RIGHTS.
(a) On any date after the Option Expiration Date, any Holder or
Holders shall have the right to request, in writing specifying that such request
is made pursuant to this Section
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<PAGE> 3
2(a), that FRI file a registration statement under the Securities Act covering
not less than 250,000 Registrable Shares (unless fewer Registrable Shares are
held by the Holders, in which case, covering all such Registrable Shares). Such
request shall set forth the proposed plan of distribution for the Registrable
Shares to be registered. Within thirty days of such request, or, in the event
that Form S-3 under the Securities Act is available to FRI to effect such
registration, within twenty-one days of such request, FRI shall file a
registration statement to register under the Securities Act all Registrable
Shares subject to such request; provided, however, that FRI may defer its
obligations under this Section 2(a) for a period of no more than thirty days
(which thirty days shall be in addition to the 30-day or 21-day period, as
applicable, permitted above) if FRI's Board of Directors adopts a resolution or
obtains written advice from FRI outside securities counsel (which counsel shall
be a nationally recognized securities law firm or a law firm acceptable to the
Holders) that filing such a registration statement would require public
disclosure by FRI of any material non-public development; and provided further,
that once such information has been publicly disclosed by FRI, FRI shall
promptly proceed to fulfill its obligations under this Section 2(a).
Notwithstanding the foregoing, in the event FRI reasonably expects
to file, within 60 days of a request made pursuant to this Section 2(a), a
registration statement pertaining to securities for the account of FRI (except a
registration statement on Form S-8 or any successor form thereto) then such
request shall constitute a request made pursuant to Section 2(b) hereof to
include in such registration statement all Registrable Shares subject to such
request and FRI shall not be obligated to file a separate registration statement
for the Registrable Shares subject to such request; provided, that FRI is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that FRI's estimate of the date
of filing of such registration statement is made in good faith. If FRI has not
filed a registration statement pertaining to securities for the account of FRI
and the Registrable Shares during this 60 day period, then FRI shall promptly
proceed to fulfill its obligations under this Section 2(a).
FRI shall be obligated to effect only two registrations pursuant to
this Section 2(a) with respect to all Holders; provided, however, that a
registration requested pursuant to this Section 2(a) shall not be deemed to be a
"registration" for such purposes, (i) if a registration statement with respect
thereto has not been declared effective by the Commission, (ii) if after such
registration statement has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not the fault of
a holder of Registrable Shares and the Registrable Shares covered thereby have
not been sold, or (iii) if the conditions to closing specified in the selling
agreement or underwriting agreement entered into in connection with such
registration are not satisfied or waived by the parties thereto other than a
holder of Registrable Shares.
Distribution by the Holder or Holders of the Registrable Shares
registered pursuant to this Section 2(a) may be made in any lawful manner,
including underwritten public offerings and non-underwritten "at the market"
distributions. If any such offering is to be an underwritten public offering,
the Holder or Holders of such Registrable Shares shall have the right to select
the managing
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<PAGE> 4
underwriter or underwriters, subject to the approval of FRI, which approval
shall not be unreasonably withheld.
The Holders shall not make a request to FRI to effect any
registration pursuant to this Section 2(a) during (i) the 180-day period
beginning on the effective date of the first registration of Registrable Shares
made pursuant to this Section 2(a), (ii) the 90-day period beginning on the
effective date of any registration of Registrable Shares made pursuant to
Section 2(b) of this Agreement and (iii) the 14-day period prior to, and during
the 90-day period beginning on, the effective date of a registration statement
filed pursuant to Section 2(a) of the Enron/Merrill Agreement.
Whenever FRI shall effect a registration pursuant to this Section
2(a), securities that may be included among the securities covered by such
registration include (i) securities subject to registration rights granted by
the Company or (ii) such other securities as the Company may desire to include.
(b) If at any time after the Option Expiration Date FRI proposes to
register any of its Common Stock under the Securities Act (other than
registrations on Forms S-4 or S-8 or any successor forms thereto or
registrations of securities in connection with a Rule 145 transaction), whether
of its own accord or at the request of any holder or holders of its securities,
it shall each such time promptly give written notice to all Holders of its
intention to do so.
Upon the written request of a Holder or Holders delivered to FRI
within five business days after receipt of any such notice, FRI shall use its
best efforts (subject to the provisions of this Section 2(b)) to cause all
Registrable Shares, the Holders of which shall have so requested registration
thereof, to be registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by the Holder or Holders of such
Registrable Shares; provided, however, FRI may elect not to file a registration
statement pursuant to this Section 2(b) or may withdraw any registration
statement filed pursuant to this Section 2(b) at any time prior to the effective
date thereof.
If the managing underwriter for the respective offering advises that
marketing factors require the inclusion in such registration of some or all of
the Registrable Shares sought to be registered by the Holders to be limited or
that the number of securities to be registered at the insistence of FRI and any
other selling shareholders plus the number of Registrable Shares sought to be
registered by the Holders should be limited due to marketing factors, the number
of Registrable Shares sought to be registered by each Holder, FRI and such other
selling shareholders shall be reduced pro rata, based on the number of
securities sought to be registered by each such Holder, FRI or such other
selling shareholder, to the number recommended by the managing underwriter,
provided, that in the event such registration is initiated by FRI, the number of
shares offered by FRI shall not be reduced.
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<PAGE> 5
(c) If and whenever FRI is required by the provisions of this
Section 2 to effect the registration of any Registrable Shares under the
Securities Act, FRI shall, as expeditiously as possible,
(1) cooperate with any underwriters for, and the Holders of,
such Registrable Shares, and shall enter into a usual and customary
underwriting agreement with respect thereto and take all such other
reasonable actions as are necessary or advisable to permit, expedite and
facilitate the disposition of such Registrable Shares in the manner
contemplated by the related registration statement, including without
limitation, the inclusion in such registration statement of any
information relating to FRI or its subsidiaries which such holders or
underwriters deem reasonably necessary to facilitate such disposition,
in each case to the same extent as if all the securities then being
offered were for the account of FRI, and FRI shall provide to any Holder
of such Registrable Shares, any underwriter participating in any
distribution thereof pursuant to a registration statement, and any
attorney, accountant or other agent retained by any Holder or
underwriter, reasonable access to appropriate FRI officers and employees
to answer questions and to supply information reasonably requested by
any such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement; provided, however, that
each such party shall be required to maintain in confidence and not
disclose to any other person any information or records reasonably
designated by FRI in writing as being confidential, until such time as
(A) such information becomes a matter of public record (whether by
virtue of its inclusion in such registration statement or otherwise), or
(B) such person shall be required so to disclose such information
pursuant to the subpoena or order of any court or other governmental
agency or body having jurisdiction over the matter (subject to the
requirements of such order, and only after such persons shall have given
FRI prompt prior written notice of such requirement), or (C) such
information is required to be set forth in such registration statement
or the prospectus included therein or in an amendment to such
registration statement or an amendment or supplement to such prospectus
in order that such registration statement, prospectus, amendment or
supplement, as the case may be, does not contain an untrue statement of
a material fact or omit to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(2) furnish or cause to be furnished to each Holder of the
Registrable Shares covered by such registration statement, on the date
that such Registrable Shares are to be delivered to the underwriters for
sale pursuant to such registration or, if such Registrable Shares are
not being sold through underwriters, on the date the registration
statement with respect to such Registrable Shares becomes effective (i)
an opinion, dated such date, of the outside counsel representing FRI for
the purposes of such registration, addressed to the underwriters, if
any, and to the Holders, stating that such registration statement has
become effective under the Securities Act and that (A) to the knowledge
of such counsel, no stop order suspending the effectiveness of such
registration statement has been instituted or is pending or contemplated
under the Securities Act; and (B) the
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<PAGE> 6
registration statement, the related prospectus, and each amendment or
supplement thereto, including all documents incorporated by reference
therein, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need
express no opinion as to financial statements or other financial or
statistical or reserve data contained or incorporated by reference
therein); and such counsel shall state in customary form that no facts
have come to the attention of such counsel that caused such counsel to
believe (with customary qualifications) that either the registration
statement or the prospectus, or any amendment or supplement thereto,
including all documents incorporated by reference therein, in light of
the circumstances under which they were made, contains any untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading (except that such counsel need express no belief as to
financial statements or other financial or statistical or reserve data
contained or incorporated by reference therein or as to any information
provided by the Holders or any underwriter for inclusion therein); and
(ii) a letter, dated such date, from the independent certified public
accountants of FRI, addressed to the underwriters, if any, and to the
Holders, stating that they are independent certified public accountants
within the meaning of the Securities Act and that in the opinion of such
accountants, the financial statements and other financial data of FRI
included in the registration statement or the prospectus, or any
amendment or supplement thereto, including all documents incorporated by
reference therein, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act. Such letter
from the independent certified public accountants shall additionally
cover such other customary financial matters (including information as
to the period ending not more than five business days prior to the date
of such letter) with respect to the registration in respect of which
such letter is being given as such underwriters, if any, or the Holders
may reasonably request;
(3) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become and remain
effective for a period of not more than 180 days (or in the event of a
firm underwritten offering such longer period as may be customary), and
prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective during such period and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement; provided that no such
registration statement or amendment thereto shall be filed by FRI until
the Holders of the Registrable Shares included therein and their counsel
shall have had a reasonable opportunity to review the same, to exercise
their rights under clause (1) above with respect thereto and to approve
or disapprove any portion of such registration statement describing or
referring to such Holders; provided, further, that if, after a
registration statement becomes effective, the Company advises the
Holders that the Company considers it appropriate for the registration
statement to be amended, the Holders shall suspend any further sales of
their registered shares until the Company advises them that the
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<PAGE> 7
registration statement has been amended. The 180-day time period
referred to herein during which the registration statement must be kept
current after its effective date shall be extended for an additional
number of business days equal to the number of business days during
which the rights to sell shares was suspended pursuant to the preceding
sentence;
(4) furnish to each Holder and to each underwriter, if any, such
numbers of copies of a summary prospectus or other prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of
such Holder's Registrable Shares;
(5) use its best efforts to register or qualify the Registrable
Shares covered by such registration statement under the state securities
of blue sky laws of such United States jurisdictions as each Holder
shall request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the public sale or other disposition in such United States jurisdictions
of the Registrable Shares owned by such Holder, except that FRI shall
not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified
or to file therein any general consent to service;
(6) in the event of the issuance of any stop order suspending
the effectiveness of any registration statement or of any order
suspending or preventing the use of any prospectus or suspending the
qualification of such Registrable Shares for sales in any jurisdiction,
use its reasonable efforts promptly to obtain its withdrawal;
(7) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission in connection with such
registration and related transactions, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, beginning with
the first fiscal quarter beginning after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(8) list such securities on any securities exchange or
consolidated reporting system on which the Common Stock of FRI is then
listed, if the listing of such securities is then permitted under the
rules of such exchange or consolidated reporting system; and
(9) furnish unlegended certificates representing ownership of
the Registrable Shares being sold in such denominations as shall be
requested by each Holder or the managing underwriter, provided such
request is made at least two business days prior to the closing of the
sale of such Registrable Shares.
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<PAGE> 8
(d) In connection with any offering involving an underwriting of
shares being issued by FRI, FRI shall not be required to include any of the
Holders' Registrable Shares in such underwriting pursuant to Section 2(b) unless
the Holders accept the terms of the underwriting as agreed upon between FRI and
the underwriters; provided, however, that the only representations and
warranties any Holder shall be required to make in connection therewith shall be
with respect to such Holder's ownership of the Registrable Shares to be sold by
it and its ability to convey title thereto free and clear of all liens,
encumbrances or adverse claims and such other customary representations and
warranties reasonably requested by the underwriters; and provided further, that
the only indemnity any Holder shall be required to make in connection therewith
shall be to the effect of Sections 4(b) and 4(c) hereof.
(e) The Registrable Shares proposed to be registered under any
registration statement under Section 2(b) hereof shall be offered for sale at
the same public offering price as the shares of Common Stock offered for sale by
FRI or any other selling shareholder covered thereby.
SECTION 3. EXPENSES OF REGISTRATION.
All expenses incurred in connection with the registration of
Registrable Shares pursuant to this Agreement, including without limitation (i)
the Commission registration fee, (ii) the fee payable to the National
Association of Securities Dealers, Inc., (iii) all state registration and
qualification fees, (iv) all printing, engineering and accounting fees, (v) all
fees and disbursements of counsel for FRI and (vi) all fees and disbursements of
one law firm selected by the Holders to represent all the Holders, shall be
borne by FRI; provided, however, that FRI shall not be required to pay, and the
Holders shall pay any underwriter discounts, commissions and other underwriter
compensation, to the extent such fees, discounts, commissions and compensation,
relate to the Registrable Shares.
SECTION 4. INDEMNIFICATION.
(a) In the event of any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, FRI shall indemnify and hold harmless
the Holder of such Registrable Shares, such Holder's directors, officers and
partners, if any, and each other Person, if any, who controls such Holder within
the meaning of the Securities Act (a "Controlling Person"), against any losses,
claims, damages or liabilities, joint or several, to which such Holder or any
such director, officer, partner or Controlling Person may become subject under
the Securities Act or other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which such
Registrable Shares were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse such Holder or such director, officer,
partner or Controlling Person for any legal or any other expenses reasonably
incurred by such Holder, director, officer, partner or Controlling
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<PAGE> 9
Person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that FRI shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon any alleged untrue statement or alleged
omission made in such registration statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to FRI through an instrument duly executed or
provided by such Holder or an underwriter specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder, director, officer, partner or Controlling
Person, and shall survive the transfer of such Registrable Shares by such
Holder.
(b) It shall be a condition to FRI's obligation to register the
Registrable Shares of any Holder that such Holder shall enter into an agreement
to indemnify and hold harmless FRI, its directors and officers and each other
Person, if any, who controls FRI against any losses, claims, damages or
liabilities, joint or several, to which FRI or any such director or officer or
any such Person may become subject under the Securities Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement or omission of any material fact contained, on the effective
date thereof, in any registration statement under which such Holder's
Registrable Shares were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
alleged untrue statement or omission was contained in written information
furnished to FRI through an instrument duly executed or provided by such Holder
specifically for use therein, and to reimburse FRI or such director, officer or
other Person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Indemnification similar to that specified in (i) and (ii) in
paragraphs 4(a) and (b) above shall be given by FRI and each Holder (with such
modifications as shall be appropriate) to any underwriter with respect to any
required registration or other qualification of any Registrable Shares
registered under this Agreement under any federal or state law or regulation of
governmental authority. The indemnity and expense reimbursements obligations of
FRI and the Holders under (i) and (ii) in paragraphs 4(a) and 4(b) above shall
be in addition to any liability FRI and the Holders may otherwise have.
(d) Each Person (an "Indemnitor") who under the preceding provisions
of this Section 4 agrees to indemnify another Person (an "Indemnitee") shall
have the rights, subject to the provisions hereto, to designate counsel (which
counsel shall be a nationally recognized securities law firm or a law firm
acceptable to the Holders) or to defend any case or proceeding against the
Indemnitee arising in respect of any claim of liability for which such
indemnification may be claimed, to the end that duplication of legal expense may
be minimized; provided that, if the Indemnitee notifies the Indemnitor that the
former has been advised by its counsel that any single counsel in such case or
proceeding would have a conflict of interest in representing both the
-9-
<PAGE> 10
Indemnitor and the Indemnitee, the Indemnitee may designate one counsel of its
own in such case or proceeding and, to the extent so provided above in this
Section 4, shall be entitled to be reimbursed for its legal expenses reasonably
incurred in connection with defending itself in such case or proceeding.
(e) The Indemnitee shall give notice to the Indemnitor promptly
after such Indemnitee has actual knowledge of any claim as to which indemnity
may be sought, provided that the failure of any Indemnitee to give notice as
provided herein shall not relieve the Indemnitor of its obligations hereunder
except to the extent that the Indemnitor's defense of such claim is prejudiced
thereby.
SECTION 5. CONTRIBUTION.
(a) In the event the indemnity provisions provided for in Section 4
of this Agreement are for any reason held to be unenforceable by the indemnified
parties, FRI, the Holders and the underwriters, if any, shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity provisions incurred by FRI, the Holders and the
underwriters in proportion to the relative fault of each such party in
connection with the statements or omissions that resulted in such losses,
liabilities, claims, damages and expenses. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by one of the parties and such parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. Notwithstanding the foregoing, no Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the total price at which the Registrable Shares sold by it
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission.
(b) Notwithstanding the foregoing provisions of this Section 5, no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section,
each person, if any, who controls an underwriter within the meaning of Section
15 of the 1933 Act shall have the same rights to contribution as such
underwriter, and each director of FRI, each officer of FRI who signed such
registration statement and each person, if any, who controls FRI or any Holder
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as FRI or such Holder, as the case may be.
SECTION 6. SALES PURSUANT TO RULE 144.
Upon written request, FRI shall deliver to any Holder a written
statement as to whether it has complied with all rules and regulations of the
Commission applicable in connection with the use of Rule 144 (or any successor
thereto), including the timely filing of all reports required to be filed by FRI
with the Commission. Upon receipt of an opinion of counsel satisfactory to FRI,
-10-
<PAGE> 11
FRI shall cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Registrable Shares
which is exempt from registration under the Securities Act pursuant to Rule 144.
SECTION 7. TRANSFER OF REGISTRATION RIGHTS.
The Rights of Holders under this Agreement may be assigned or
transferred upon written notice to the Company to any Permitted Transferee in
connection with the transfer of all or a portion of the Registrable Shares. In
the event that the Rights under this Agreement are assigned or transferred by a
Holder to a Permitted Transferee in connection with the transfer of a portion of
the Registrable Shares, any registration rights exercised by such Holder or any
such Permitted Transferee must be exercised collectively as one Holder and, for
purposes of this Agreement, including without limitation, with respect to
providing notices and payment of any expenses, such Holder and such Permitted
Transferee will be treated as one Holder. Any transferee hereunder must
acknowledge in writing its acceptance of all terms, conditions and obligations
of this Agreement.
SECTION 8. TERMINATION.
FRI shall not be obligated to take any action to effect any
registration, qualification or compliance pursuant to this Agreement, and this
Agreement shall terminate and be of no force and effect (except any obligations
of FRI under Section 6 of this Agreement), with respect to any Holder (and such
Holder only) who may sell all of such Holder's Registrable Shares in reliance
upon Rule 144(k) (or any successor rule) promulgated under the Securities Act.
SECTION 9. REMEDIES.
FRI recognizes that money damages may be inadequate to compensate
the Holders for a breach by FRI of its obligations under this Agreement, and FRI
agrees that in the event of such a breach any of the Holders may apply for an
injunction of specific performance or the granting of such other equitable
remedies as may be awarded by a court of competent jurisdiction in order to
afford the Holders the benefits of this Agreement and that FRI shall not object
to such application, entry of such injunction or granting of such other
equitable remedies on the grounds that money damages shall be sufficient to
compensate the Holders.
SECTION 10. MISCELLANEOUS.
(a) Notices.
(1) All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid, or sent by
facsimile,
(i) if to any party hereto at its address or facsimile
number for notices specified beneath its name on the signature page
hereof, or at such other
-11-
<PAGE> 12
address or facsimile number as it may have furnished in writing to
each other party hereto;
(ii) if to any other person or entity who is the registered
holder of any Registrable Shares to the address or facsimile number of
such holder as it appears in the stock ledger of FRI.
(2) Any notice shall be deemed to have been duly given and received
(i) at the time of delivery when delivered by hand, if personally
delivered, (ii) if sent by mail, two business days after being deposited in
the mail, postage prepaid and (iii) when sent by facsimile so long as a
duplicate of such notice is deposited in the mail, first class postage
prepaid, on the date such facsimile is sent.
(b) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the permitted successors and assigns of each of the
parties whether so expressed or not.
(c) Amendment and Waiver, etc. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, but only with the
unanimous written consent of FRI and the Holders. No failure or delay on the
part of the Holders in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Holders at law or in equity or otherwise. No waiver of or
consent to any departure by FRI from any provision of this Agreement shall be
effective unless in writing and signed by the Holders.
(d) Duplicate Originals. Two or more duplicate originals of this
Agreement may be signed in counterpart by the parties, each of which shall be an
original but all of which together shall constitute one and the same instrument.
(e) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the substantive law of Delaware without giving effect to the
principles of conflicts of law thereof.
(g) Entire Agreement. This Agreement constitutes and contains the
entire agreement of the parties and supersedes any and all prior negotiations,
correspondence, undertakings and agreements between the parties hereto
respecting the subject matter hereof.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
FLORES & RUCKS, INC.,
a Delaware corporation
8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
Facsimile: (504) 927-1109
Attention: Chairman of the Board
By:/s/ JAMES C. FLORES
--------------------------------
Name: James C. Flores
------------------------------
Title: Chairman and CEO
-----------------------------
/s/ WILLIAM W. RUCKS, IV
--------------------------------
William W. Rucks, IV
RUCKS FAMILY LIMITED PARTNERSHIP,
a Texas limited partnership
c/o William W. Rucks, IV
120 Shannon Road
Lafayette, Louisiana 70503
Facsimile: ________________
By:/s/ WILLIAM W. RUCKS, IV
--------------------------------
William W. Rucks, IV
General Partner
By:/S/ CATHERINE MAY RUCKS
--------------------------------
Catherine May Rucks
General Partner
-13-
<PAGE> 1
EXHIBIT 18.1
February 16, 1998
Ocean Energy, Inc.
8440 Jefferson Highway
Suite 420
Baton Rouge, LA 70809
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
Effective January 1, 1997, the Company changed from the sales method of
accounting to the entitlement method of accounting for gas production revenue.
Under the entitlement method, the Company records as revenue only that portion
of gas production sold and allocable to its ownership interest in the related
production. Proceeds received in excess of its ownership interest are reflected
as a liability to the applicable joint owners. According to the management of
the Company, this change was made to more closely follow the accrual basis of
accounting as the entitlement method results in better matching because both
revenues and costs are recognized on an "as produced" basis.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis, and our opinion stated
below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is
to an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF OCEAN ENERGY, INC.
Ocean Energy, Inc., a Delaware corporation
Owns 100% of:
Ocean Energy, Inc., a Louisiana corporation
F&R International Petroleum Company, a Cayman Islands corporation
Owns 50% of:
OEI Holding Corporation, a Delaware corporation*
* The remaining 50% is owned by United Meridian Corporation, a Delaware
corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 333-45117, 333-45119,
33-89516, 33-94704, and 33-97154).
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 20, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
---------------------------------------------------------
We hereby consent to the reference to our firm and to our reports effective
December 31, 1995; December 31, 1996; and December 31, 1997, in the Annual
Report on Form 10-K of Ocean Energy, Inc. to be filed with the Securities and
Exchange Commission on or about February 20, 1998.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
-----------------------------------
Frederic D. Sewell
President
Dallas, Texas
February 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 35 AND 36 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000930550
<NAME> OCEAN ENERGY, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 45,903
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,658
<PP&E> 1,032,981
<DEPRECIATION> 310,315
<TOTAL-ASSETS> 822,938
<CURRENT-LIABILITIES> 114,167
<BONDS> 389,652
0
0
<COMMON> 229
<OTHER-SE> 305,043
<TOTAL-LIABILITY-AND-EQUITY> 822,938
<SALES> 292,180
<TOTAL-REVENUES> 292,180
<CGS> 67,902
<TOTAL-COSTS> 208,662
<OTHER-EXPENSES> (1,506)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,385
<INCOME-PRETAX> 57,639
<INCOME-TAX> 20,189
<INCOME-CONTINUING> 37,450
<DISCONTINUED> 0
<EXTRAORDINARY> 19,301
<CHANGES> 0
<NET-INCOME> 18,149
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.87
</TABLE>
