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1998
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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, 1998
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.)
1201 LOUISIANA, SUITE 1400
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (713) 420-1000
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $0.01 Par Value New York Stock Exchange
Rights to Purchase Series A Junior Preferred Stock New York Stock Exchange
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 .
--- ---
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. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT WAS APPROXIMATELY $429,457,293 AS OF FEBRUARY 4, 1999.
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, ALL OF
WHICH COMPRISE A SINGLE CLASS WITH A $0.01 PAR VALUE, AS OF FEBRUARY 11, 1999,
THE LATEST PRACTICABLE DATE, WAS 101,753,646.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement pertaining to the Registrant's
1999 Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
<TABLE>
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Page
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PART I
Items 1. & 2. Business and Properties
General................................................................................. 1
Recent Developments..................................................................... 1
Oil and Gas Properties.................................................................. 1
Gulf of Mexico Region................................................................... 2
International Region.................................................................... 2
North American Onshore Region........................................................... 3
Oil and Natural Gas Reserves............................................................ 4
Productive Wells and Acreage............................................................ 5
Drilling Activities..................................................................... 5
Oil and Gas Marketing and Major Customers............................................... 6
Competition............................................................................. 6
Operating Hazards and Uninsured Risks................................................... 6
Employees............................................................................... 7
Other Facilities........................................................................ 7
Title to Properties..................................................................... 7
Governmental Regulation................................................................. 7
U.S. Environmental Matters.............................................................. 10
Canadian Environmental Matters.......................................................... 12
Abandonment Costs....................................................................... 12
Item 3. Legal Proceedings....................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders..................................... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............. 14
Item 6. Selected Financial Data................................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 16
General................................................................................. 16
Anticipated Effect of Seagull Merger.................................................... 17
Results of Operations for the Years Ended December 31, 1998 and 1997.................... 17
Results of Operations for the Years Ended December 31, 1997 and 1996.................... 19
Liquidity and Capital Resources......................................................... 21
Other Matters........................................................................... 23
Item 7.a. Quantitative and Qualitative Disclosures About Market Risk.............................. 25
Item 8. Financial Statements and Supplementary Data............................................. 27
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................. 61
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 61
Item 11. Executive Compensation.................................................................. 61
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 61
Item 13. Certain Relationships and Related Transactions.......................................... 61
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 61
</TABLE>
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PART I
ITEMS 1 AND 2: BUSINESS AND PROPERTIES
GENERAL
Ocean Energy, Inc. (OEI or the Company) is one of the largest independent
oil and gas exploration and production companies in the U.S. The Company was
created in March 1998 by the strategic merger (the Merger) of OEI and United
Meridian Corporation (UMC). As of December 31, 1998, the Company had estimated
proved reserves of approximately 134.3 MMBbls of oil (46% of total proved
reserves) and 945.8 Bcf of natural gas (54% of total proved reserves) for a
total of 291.9 MMBOE, with a Present Value of Future Net Revenues of
approximately $916.7 million and a Standardized Measure of Discounted Future Net
Cash Flows of approximately $903.8 million. The Company holds a diversified
portfolio of properties with both domestic and international exposure organized
into three primary operating units: (i) the continental shelf and deepwater
areas of the Gulf of Mexico (the Gulf of Mexico Region); (ii) the West African
countries of Cote d'Ivoire, Equatorial Guinea and Angola, the Asian Basin
countries of Pakistan and Bangladesh and the Middle East country of the Republic
of Yemen (the International Region); and (iii) certain onshore areas of North
America, including Western Canada and the Midcontinent and Rocky Mountain
regions of the U.S. (the North American Onshore Region).
RECENT DEVELOPMENTS
On November 24, 1998, OEI and Seagull Energy Corporation (Seagull) entered
into a merger agreement that provides for a stock-for-stock merger (Seagull
Merger) of OEI with and into Seagull. In connection with the Seagull Merger,
which is anticipated to close by the end of the first quarter of 1999, OEI
stockholders will receive one share of common stock of Seagull for each existing
outstanding share of OEI. Seagull will amend its Articles of Incorporation to
change its name to Ocean Energy, Inc. (New Ocean). After the Seagull Merger, the
stockholders of OEI will own approximately 61.5% of the outstanding common stock
of New Ocean and the stockholders of Seagull will own the remaining 38.5% of the
outstanding common stock of New Ocean. The Seagull Merger is expected to qualify
as a tax-free transaction with no gain or loss recognized for U.S. federal
income tax purposes by the stockholders of OEI upon receipt of New Ocean common
stock in exchange for shares of OEI common stock and is subject to each
Company's stockholders' approval and certain other conditions.
The combination of OEI and Seagull will create the seventh largest United
States independent oil and gas company based on production and the tenth largest
based on total proved reserves, in each case based on 1997 information. On a pro
forma basis, New Ocean will have estimated proved reserves of approximately
496 MMBOE at year end 1998 and combined 1998 estimated production of
approximately 68 MMBOE. The larger size and scale provided by the merger will
allow New Ocean to capitalize on a wider range of opportunities and to develop
and operate larger exploration and development projects than either OEI or
Seagull would be able to do on a stand-alone basis. This larger size will also
allow New Ocean to operate more competitively in the current low commodity price
environment and to make opportunistic acquisitions.
OEI and Seagull are developing plans to integrate their operations
immediately after the merger to take full advantage of the benefits and
synergies the merger will create that would not have been available to either
company on a stand-alone basis. Those benefits include substantial cost savings,
a more geographically diversified reserve composition, a larger capital base,
greater financial strength and flexibility and an enhanced ability to make
further acquisitions.
OIL AND GAS PROPERTIES
The Company's operating activities are focused primarily in three operating
units: (i) the continental shelf and deepwater areas (water depth of over 1,500
feet) of the Gulf of Mexico (Deepwater Gulf), (ii) the West African countries of
Cote d'Ivoire, Equatorial Guinea and Angola, the Asian Basin countries of
Pakistan and Bangladesh and the Middle East country of the Republic of Yemen,
and (iii) certain onshore areas of North America, including Western Canada and
the Midcontinent and Rocky Mountain regions of the U.S. The following table
summarizes the Company's proved reserves by operational area:
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<TABLE>
<CAPTION>
PROVED RESERVES AT DECEMBER 31, 1998
----------------------------------------------------------------
DISCOUNTED
PRESENT % OF
VALUE BEFORE TOTAL
NATURAL INCOME TAX DISCOUNTED
OIL GAS TOTAL (DOLLARS IN PRESENT
REGION (MBBLS) (MMCF) (MBOE) THOUSANDS) (1) VALUE
--------------------------------- --------- ------------ ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Gulf of Mexico Region............ 64,306 318,963 117,467 $ 380,566 41%
International Region............. 47,485 167,743 75,442 133,935 15%
North American Onshore Region.... 22,530 459,060 99,040 402,209 44%
------- ------- ------- ---------- ---
Total................... 134,321 945,766 291,949 $ 916,710 100%
======= ======= ======= ========== ===
</TABLE>
(1) Discounted (at 10%) present value as of December 31, 1998 (year-end prices
held constant). The amounts are before income taxes and therefore are not
the same as the "Standardized Measure" disclosed in Note 16 of the Notes to
Consolidated Financial Statements.
GULF OF MEXICO REGION
In the Gulf of Mexico Region, the Company held interests in approximately
1.0 million gross (0.6 million net to the Company) acres as of December 31,
1998, and currently holds 138 outer continental shelf and 48 deepwater blocks as
well as approximately 90 state leases. On the continental shelf, the Company's
operations are in three primary areas: (i) the Mississippi River Delta located
in state and federal waters near the mouth of the Mississippi River; (ii) the
Central Gulf of Mexico located in the shallow federal waters offshore Louisiana;
and (iii) the western portion of the Gulf of Mexico. In the deepwater Gulf of
Mexico, the Company's blocks are located offshore Louisiana in water depths
ranging from 2,500 to 7,500 feet, where the Company expects to commence drilling
operations in 1999. The following is a description of each of the Company's
major operating areas in the Gulf of Mexico Region:
Continental Shelf. The Company's current production operations in the
continental shelf area are comprised of 32 Company operated fields, as well as
15 non-operated fields. These production operations encompass approximately
300,000 gross (180,000 net to the Company) acres, representing approximately
117.5 MMBOE, or 40% of the Company's total proved reserves. For 1998, the
Company's average daily production was 32.9 MBbls of oil and 166.9 MMcf of gas
or 60.7 MBOE. Some of the Company's premier properties in this area include the
South Pass 24 field and the South Pass 27 field located in the highly prolific
area of the East Bay Complex. The Company owns an average 99% working interest
in these fields.
On March 3, 1998, the Company announced that it was expanding its
exploration program through an exclusive Gulf of Mexico Exploration Alliance
(the Alliance) with Shell Offshore, Inc. (SOI). Pursuant to the terms of the
Alliance, the Company and SOI will initially drill 25 exploration prospects, all
delineated by 3-D seismic, on over 141,000 gross acres across the continental
shelf in the Gulf of Mexico. Ten of the wells under the Alliance have been
drilled through December, 1998. Under the Alliance, the Company will participate
for 25% of SOI's working interest in the Alliance's 25 exploration prospects.
Deepwater Gulf. The Company is a party to the Deepwater Gulf exploration
venture with Conoco encompassing 155,520 gross (57,658 net to the Company) acres
located off the coast of Louisiana in water depths ranging from 2,500 to 7,500
feet. The Company began drilling the first deepwater well in this venture in
February, 1999. The Company's working interest in this well is 25%. In addition
to the Conoco venture, the Company acquired leases for six blocks located in
Keathley Canyon, encompassing 34,560 gross and net acres, and the Company is a
party to two separate joint venture arrangements encompassing 57,600 gross
(28,800 net to the Company) acres in water depths ranging from 7,000 to 9,000
feet. The Company believes that the Deepwater Gulf provides substantial reserve
and production growth opportunities.
INTERNATIONAL REGION
In the International Region, the Company currently holds interests in 12
West African blocks (two of which are currently under production). In addition,
the Company has interests in the Asian Basin countries of Pakistan and
Bangladesh where seismic and geophysical evaluations are ongoing. The Company's
acreage in the International Region is generally held pursuant to PSCs with host
governments. Under the Company's 19 PSCs (16 of which the Company operates), the
Company holds contract interests ranging from 15% to 100%. As of December 31,
1998, the
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Company had approximately 75.4 MMBOE of proved reserves attributable to the
International Region (approximately 26% of the Company's total proved reserves)
with average daily production during 1998 of 24.4 MBOE per day. The following is
a description of each of the Company's major operating areas in the
International Region:
Cote d'Ivoire. In Cote d'Ivoire, the Company has five PSCs through which it
holds contract interests ranging from 35% to 80% in five blocks totaling
approximately 1.8 million gross (1.0 million net to the Company) acres. As of
December 31, 1998, the Company operated all five PSCs in Cote d'Ivoire. As a
result of the successful discoveries and subsequent production history, the
Company recognized net proved reserves of 6.4 MMBbls of oil and 167.7 Bcf of
natural gas at December 31, 1998. In addition, the Company's net production from
the blocks totaled 1,080 MBbls and 7,824 MMcf for the year ended December 31,
1998. During 1998 in Cote d'Ivoire, the Company participated in four exploratory
wells, two of which were successful. No development wells have been drilled in
1998.
In 1997, the Company constructed a liquid propane gas (LPG) plant to
extract liquids (propane, butane and natural gasoline) from the current natural
gas production in the country. The plant is capable of handling 75 to 95 MMcf
per day of natural gas flow producing up to 45,000 metric tons of LPG per year
and commenced operations in the fourth quarter of 1998. Total costs incurred on
such plant through December 31, 1998 were approximately $21.4 million.
Equatorial Guinea. In Equatorial Guinea, the Company has four PSCs through
which the Company holds contract interests ranging from 24% to 94% totaling
approximately 1.7 million gross (1.2 million net to the Company) acres. In
addition, the Company's net production from Block B averaged 17.9 MBOE per day
in 1998. As of December 31, 1998, the Company operated three of the four PSCs in
Equatorial Guinea.
At December 31, 1998, the Company recognized net proved reserves of 41.0
MMBbls of oil in Equatorial Guinea. In 1998, the Company participated in eight
exploratory wells, three of which were successful, and three development wells,
each of which was successful.
Work on a new development project on one of the blocks in Equatorial Guinea
began in 1998 to provide additional production capacity to develop the existing
field discoveries in such block. Extensive 3-D seismic shoots are currently
under review to further evaluate opportunities on these blocks.
Angola. In February and May 1998, the government of the Republic of Angola
awarded the Company participations in two exploration blocks with 20% and 15%
contract interests, respectively. In addition, in May 1998, the government of
the Republic of Angola consented to the Company's participation in an additional
exploration block with a 30% interest. In the aggregate, the three blocks cover
2.7 million gross (0.5 million net to the Company) acres, two of which are
located in the high potential deepwater basins offshore Angola where several
major discoveries have been announced. The Company will operate one of the
blocks.
Pakistan. The Company has signed five PSCs with the government of Pakistan,
covering 7.7 million gross (6.7 million net to the Company) acres. The Company
holds contract interests of 85% in each of four blocks and 95% in the remaining
block. The Company operates all five of these PSCs. Geological and geophysical
studies have begun and will be conducted during the next two years of the
exploration license on the five blocks, with possible drilling by the end of
1999.
Bangladesh. In February 1997, the Company signed a PSC covering a block in
the Chittagong Hills tracts onshore Bangladesh, which PSC the Company currently
operates. The Company has geological and geophysical work currently underway
toward possible drilling in 1999. The block covers 3.3 million gross (3.0
million net to the Company) acres. The Company currently holds a 90% contract
interest in this PSC.
Republic of Yemen. In August 1998, the Company acquired a 60% contract
interest in South Howarime Block 43. The contract covers 0.7 million gross (0.4
million net to the Company) acres and the Company is the operator. The Company
anticipates acquiring seismic data and drilling two exploratory wells over the
next several years.
NORTH AMERICAN ONSHORE REGION
In its North American Onshore Region, the Company had interests in 3.0
million gross (1.2 million net to the Company) acres in 15 states and Western
Canada as of December 31, 1998. Domestically, the Company conducts
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activities in two primary areas: (i) certain Midcontinent areas, including the
Anadarko Basin and onshore Texas; and (ii) certain Rocky Mountain areas,
including operations in Montana and Wyoming. The Company's Canadian assets are
generally located in Western Alberta, Canada. As of December 31, 1998, the
Company had approximately 99.0 MMBOE of proved reserves attributable to the
North American Onshore Region (approximately 34% of the Company's total proved
reserves) with average daily production during 1998 of 30.7 MBOE per day. The
following is a description of each of the Company's major producing areas in the
North America Onshore Region:
Rocky Mountains. The Rocky Mountain area comprises approximately 550,000
net acres and represents approximately 40.7 MMBOE, or 14% of the Company's
proved reserves. The Company's largest property in the Rocky Mountain area is
the Bearpaw field in the north central portion of Montana where shallow,
low-cost development drilling has made the Company the largest producer of
natural gas in the state. The Company holds interests in nearly 500 wells,
currently producing in excess of 62.3 MMcf of natural gas gross (36.6 MMcf net
to the Company) per day. Other properties of importance in the area include
projects that are underway in the Powder River Basin and the East Triangle Field
in Wyoming.
Midcontinent. The Company's Midcontinent area comprises approximately
262,000 net acres and represents approximately 36.0 MMBOE, or 12% of the
Company's total proved reserves. Projects in this area include continued
low-risk development drilling in the Anadarko Basin and West Texas and several
waterflood oil projects. Some of the Company's most significant properties in
the Midcontinent area are in the Young Mendota Field in Texas, and the Buffalo
and Longhorn areas of West Texas.
Canada. The Western Canada area comprises approximately 359,000 net acres
and represents approximately 22.4 MMBOE, or nearly 8% of the Company's total
proved reserves. On February 8, 1999, Company announced its intention to divest
its interests in all Canadian oil and gas properties and related assets during
1999.
OIL AND NATURAL GAS RESERVES
Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of oil and natural gas and the Present Value of Future Net
Revenues (before income taxes) owned by the Company as of December 31, 1998.
Information set forth in the following table is based upon reserve reports of
the Company, prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the Commission).
<TABLE>
<CAPTION>
Proved Reserves at December 31, 1998
----------------------------------------
Developed Undeveloped Total
--------- ----------- -----
(dollars in millions)
<S> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)......................................... 80,954 53,367 134,321
Gas (MMcf).......................................... 631,814 313,952 945,766
MBOE (6 Mcf per Bbl)................................ 186,256 105,693 291,949
Estimated Future Net Revenues
(before income taxes)............................... $ 1,353
Present Value of Future Net Revenues
(before income taxes, discounted at 10%)............ $ 917
Standardized Measure of Discounted
Future Net Cash Flows (1)........................... $ 904
</TABLE>
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(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company 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 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 Revenues 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
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foregoing tables 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.
In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenues thereof are made using oil and natural gas sales prices in
effect as of the dates 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.
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 "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, 1998:
<TABLE>
<CAPTION>
Gross Net
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<S> <C> <C>
Oil................................ 4,145 905
Gas................................ 2,265 1,022
----- -----
Total Productive Wells... 6,410 1,927
===== =====
</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, 113 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,
1998.
<TABLE>
<CAPTION>
Developed Undeveloped
Acres Acres
----------------------- -------------------------
Region Gross Net Gross Net
------ ----- --- ----- ---
(in thousands)
<S> <C> <C> <C> <C>
Gulf of Mexico Region................ 329 189 658 383
International Region................. 49 13 17,796 12,754
North American Onshore Region........ 1,279 508 1,730 663
----- --- ------- --------
Total...................... 1,657 710 20,184 13,800
===== === ====== ======
</TABLE>
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. Many of the
Company's prospects are located in deepwater areas, and exploration and
development of these prospects requires use of deepwater drilling rigs.
Availability of such deepwater rigs may be limited in certain parts of the
world.
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The following table sets forth the drilling activity of the Company on its
properties for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1998 1997 1996
--------------------- -------------------- ---------------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive............... 58 36.7 47 28.7 29 13.3
Nonproductive............ 37 23.0 39 20.3 31 13.2
Development Wells:
Productive............... 264 112.4 289 102.3 137 50.5
Nonproductive............ 19 13.8 23 12.9 10 5.4
--- ----- --- ----- --- ----
Total............ 378 185.9 398 164.2 207 82.4
=== ===== === ===== === ====
</TABLE>
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 U.S.
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. Declines in the prices of oil
and natural gas have had 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 markets its oil and gas production to numerous purchasers under
a combination of short and long-term contracts. During 1998, Mobil Sales and
Supply Corporation accounted for 15% of the Company's oil and gas revenues as
the purchaser of the Company's production in Equatorial Guinea. In addition,
sales to SOI accounted for 12% of the Company's oil and gas revenues for the
year ended December 31, 1998. The Company had no other purchasers that accounted
for greater than 10% of its oil and gas revenues for the year ended December 31,
1998. See Note 9 to the Company's Consolidated Financial Statements.
Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single 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.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and
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transportation of oil and natural gas, such as uncontrollable flows of oil, gas
or well fluids, fires, natural disasters, explosions, encountering formations
with abnormal pressures, blowouts, cratering, pipeline ruptures, spills,
pollution, releases of toxic gas and other environmental hazards and risks, any
of which can result in loss of hydrocarbons, environmental pollution, personal
injury claims, and other damage to properties of the Company and others. In
addition, the Company may be liable for environmental damages caused by previous
owners of property purchased by the Company or its predecessors. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce or eliminate the funds available for
exploration, development or acquisitions, or result in loss of the Company's
properties. Additionally, certain of 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 and in
accordance with customary industry practices, 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, 1998, the Company had approximately 800 full-time
employees, none of whom is represented by any labor union. Included in the total
were approximately 500 corporate employees located in the Company's Houston,
Texas; Lafayette, Louisiana; Denver, Colorado; Calgary, Alberta; Abidjan, Cote
d'Ivoire; and Malabo, Equatorial Guinea offices and in various field locations
whose functions are associated with management, engineering, geology,
geophysics, operations, land, legal, accounting, financial planning and
administration. Of this amount, approximately 300 full-time employees are
responsible for the supervision and operation of its field activities. The
Company considers its relations with its employees to be good.
OTHER FACILITIES
The Company leases its Houston, Texas headquarters under a lease covering
approximately 112,000 square feet, expiring in December 2006. In addition, the
Company leases approximately 33,000 square feet of office space in Denver,
Colorado, approximately 8,600 square feet of office space in Baton Rouge,
Louisiana, approximately 71,000 square feet of office space in Lafayette,
Louisiana and approximately 1,150 square feet of office space in New Orleans,
Louisiana, where some of the Company's technical personnel are collectively
located. The Company also leases additional space in its Calgary, Alberta office
and for its division and field operating offices in the U.S and certain foreign
locations.
The Company also leases dock and warehouse space in Venice, Louisiana;
Morgan City, Louisiana; and Abidjan, Cote d'Ivoire.
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 Minerals Management Service (MMS)
and Louisiana State Mineral Board 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.
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
7
<PAGE> 10
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 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 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, 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 implementing Order
No. 636 on every interstate pipeline.
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 May 12, 1997, the United States Supreme Court denied
certiorari of the D.C. Circuit's decision.
On February 27, 1997, the FERC issued its order on remand (Order No.
636-C). 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, the FERC determined that since Order No. 636, the average length of
transportation contracts was substantially less than 20 years. 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 that
customer classes, in mitigating the effects of SFV rate design. On May 28, 1998,
FERC denied requests for rehearing of Order No. 636-C. 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
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<PAGE> 11
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. 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 pipeliners must utilize
the indexing methodology to change their rates. FERC indicated, however, that it
was retaining cost-of-service ratemaking, market-based rates, and settlements as
alternatives to the indexing approach. A cost-of-service methodology will also
continue to be used to determine just and reasonable initial rates for new
services. A pipeline can also follow a cost-of-service approach when seeking to
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 (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.
The Oil Pollution Act (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 U.S. waters. A "responsible party"
includes the owner or operator of an onshore facility, vessel or pipeline, 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
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<PAGE> 12
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 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 many
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 million in specified
state waters to $35 million in federal OCS waters, with higher amounts, up to
$150 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 of $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 Region. 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.
U.S. 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 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 (RCRA) and comparable state and local requirements. The
Environmental Protection
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<PAGE> 13
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
treatment, storage, transportation and disposal requirements. Such changes in
the regulations may result in additional expenditures or operating expenses by
the Company. On August 8, 1998, the EPA added four petroleum refining wastes to
the list of RCRA hazardous wastes. While the full impact of the rule has yet to
be determined, the rule may, as of February 1999, impose increased expenditures
and operating expenses on the Company, which may take on increased obligations
relating to the treatment, storage, transportation and disposal of certain
petroleum refining wastes that previously were not regulated as hazardous
wastes.
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 or
threatened release of a "hazardous substance" into the environment. These
persons include the current and past 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 or state agency,
and in some cases, third parties to take actions in response to releases or
threats of releases of hazardous substances 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", and certain petroleum refining
wastes that previously were not regulated as hazardous waste may now fall within
the definition of CERCLA 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 are 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, particularly where a company constructs a new facility or
modifies an existing facility. 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) or Clean Water Act
(CWA) 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 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, its derivatives or
hazardous substances 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 Company's federal NPDES permits prohibit the
discharge of produced water, and other substances generated by 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 its 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.
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<PAGE> 14
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 ESA. Other
statutes which provide protection to animal and plant species and which may
apply to the Company's operations include, but are not necessarily limited to,
the Marine Mammal Protection Act, the Marine Protection, Research 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
governing air and water discharge which are more stringent than in 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 operations. Certain of this information must be provided to
employees, state and local government authorities and citizens.
CANADIAN ENVIRONMENTAL MATTERS
The oil and natural gas industry is subject to environmental regulation
pursuant to local, provincial and federal legislation in Canada. Environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced in association with certain oil and gas industry
operations. In addition, legislation requires that well and facility sites be
abandoned and reclaimed to the satisfaction of provincial authorities. A breach
of such legislation may result in the imposition of fines and penalties.
Environmental legislation in Alberta was substantially revised in 1993 to update
and consolidate the various acts applicable to environmental protection. The
various acts were consolidated into the Environmental Protection and Enhancement
Act, proclaimed April 22, 1993 and became effective September 1, 1993. Under the
new Act, environmental standards and compliance for releases, clean-up and
reporting are stricter. Also, the range of enforcement actions available and
severity of penalties are significantly increased. The changes had an
incremental but not material effect on the cost of conducting operations in
Alberta. The full extent of the impact will not be known until the Government of
Alberta releases its enforcement policy. Federal environmental regulations are
generally restricted to the use and transport of certain restricted and
prohibited substances and the environmental assessment of projects which require
an approval from a federal authority. The Company anticipates making necessary
expenditures of both a capital and expense nature as a result of the
increasingly stringent laws relating to the protection of the environment. The
Company believes that it is in material compliance with applicable environmental
laws and regulations in Canada.
ABANDONMENT COSTS
The Company is typically responsible for payment of abandonment costs on
the oil and gas properties it operates. As of December 31, 1998, total future
abandonment costs on the Company's oil and gas properties estimated to be
incurred were approximately $156.5 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 certain properties in the Mississippi
River Delta, the Company entered into two escrow agreements to provide for the
future plugging and abandonment costs of these properties. One agreement
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<PAGE> 15
requires the Company to make monthly deposits until the escrow account equals
$40.0 million. The other agreement requires monthly deposits until 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 abandonment
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, 1998, the escrow balances totaled $10.8 million.
The Company is currently in negotiations to release these escrow balances.
In addition, the MMS requires lessees of OCS properties to post bonds to
cover the costs of 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 $3.0 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
during 1998 became exempt from any requirement to post supplemental bonds. 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 3. LEGAL PROCEEDINGS
The two lawsuits brought on behalf of stockholders of UMC, Newman v.
Carson, et al. (Civil Action No. 16109-NC) in the Court of Chancery of the State
of Delaware and Ross v. Brock, et al. (Cause No. 98-00845) in the 164th Judicial
District Court of Harris County, Texas were settled and dismissed during the
fourth quarter 1998. As part of the settlements, the Company made additional
disclosures concerning the merger with UMC and paid certain legal fees. The
effects of the settlements are not considered material to the Company.
The EPA has indicated that the Company may be potentially responsible for
costs and liabilities associated with alleged releases of hazardous substances
at two sites in Louisiana under CERCLA. Given the extremely large number of
companies that have been identified as potentially responsible for releases of
hazardous substances at the sites and the small volume of hazardous substances
allegedly disposed of by the companies whose properties the Company acquired,
management believes that the Company's potential liability arising from these
sites, if any, will not have a material adverse impact on the Company.
In February 1998, the Tulane Environmental Law Clinic (Clinic), claiming to
represent several southeastern Louisiana environmental groups, gave notice that
it intended to file a CWA citizens' suit against the Company after a sixty-day
waiting period expired in connection with the discharge of produced water in
East Bay. As of June 1, 1998, this sixty-day waiting period has expired and no
such suit has been filed by the Clinic. The Clinic claimed that the Company was
violating the CWA by discharging produced water from its East Bay Central
Facilities into Southwest Pass, and stated that it would seek an injunction to
require the Company to cease its discharge of produced water, and would 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.
The Company is a named defendant in lawsuits and is a party in governmental
proceedings from time to time arising in the ordinary course of business. While
the outcome of such lawsuits or other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial position or results of operations of
the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1998.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "OEI." The following table represents the quarterly high and low sales
prices for the Common Stock for the last two years, after giving effect to the
2.34-for-one stock split of OEI Common Stock which occurred in connection with
the Merger on March 27, 1998.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
QUARTER ENDED, 1997
March 31................................................. $23.93 $16.24
June 30.................................................. $22.70 $16.61
September 30............................................. $29.97 $17.63
December 31.............................................. $30.16 $19.77
QUARTER ENDED, 1998
March 31................................................. $24.57 $16.24
June 30.................................................. $25.88 $15.94
September 30............................................. $20.44 $7.88
December 31.............................................. $14.06 $5.06
</TABLE>
As of February 4, 1999 there were approximately 336 holders of record of
the Common Stock.
The Company has never paid and 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 Series A
Convertible Preferred Stock and 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."
14
<PAGE> 17
ITEM 6: SELECTED FINANCIAL DATA
The selected historical financial data set forth below as of and for the
years ended December 31, 1998, 1997, 1996, 1995 and 1994 are derived from the
Company's audited consolidated financial statements and notes thereto giving
effect to the Merger under the pooling of interests method of accounting. 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,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
STATEMENT OF OPERATIONS AND ---------------------------------------------------------------------
OTHER FINANCIAL AND OPERATING DATA: (DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
REVENUE & EXPENSE DATA:
Operating revenues ....................................... $ 523,259 $ 552,194 $ 395,834 $ 243,827 $ 172,536
Production costs ......................................... 162,874 124,394 98,396 82,937 67,262
General & administrative expenses ........................ 41,411 30,218 27,366 21,070 22,469
Depreciation, depletion & amortization ................... 293,905 248,423 147,643 101,116 91,603
Write-down of oil and gas properties ..................... 539,915 -- -- -- 150,834
Interest expense ......................................... 62,852 49,134 40,765 35,565 13,547
Merger costs (1) ......................................... 39,000 -- -- -- --
Loss on production payment repurchase and refinancing .... -- -- -- -- 16,681
Income (loss) before taxes and extraordinary item ........ (616,578) 103,212 81,215 3,816 (189,253)
Income tax provision (benefit) .......................... (209,699) 40,992 26,215 (1,736) (67,076)
Net income (loss) before extraordinary item .............. (406,879) 62,220 55,000 5,552 (122,177)
Extraordinary loss on early extinguishment of
debt, net of taxes ..................................... -- (19,301) -- -- --
Net income (loss) ........................................ (406,879) 42,919 55,000 5,552 (122,177)
Earnings (loss) per common share before extraordinary item
Basic .................................................. $ (4.04) $ 0.67 $ 0.65 $ 0.06 $ (2.20)
Diluted ................................................ $ (4.04) $ 0.64 $ 0.62 $ 0.06 $ (2.20)
Earnings (loss) per common share after extraordinary item
Basic .................................................. $ (4.04) $ 0.46 $ 0.65 $ 0.06 $ (2.20)
Diluted ................................................ $ (4.04) $ 0.44 $ 0.62 $ 0.06 $ (2.20)
OTHER FINANCIAL DATA:
EBITDA (2) ............................................... $ 319,094 $ 400,769 $ 269,623 $ 140,497 $ 66,731
Net cash provided by (used in) operating activities ...... 232,200 339,675 209,313 105,313 (71,918)
Net cash used in investing activities .................... (970,665) (803,679) (428,007) (160,224) (226,723)
Net cash provided by financing activities ................ 737,482 414,992 265,597 56,316 310,340
Capital expenditures ..................................... 948,125 834,358 441,709 236,679 385,740
OPERATING DATA:
SALES VOLUMES:
Oil (MBbls) .............................................. 22,728 18,078 11,543 8,817 6,064
Gas (MMcf) ............................................... 117,305 93,723 74,165 56,846 46,903
MBOE ..................................................... 42,279 33,699 23,904 18,291 13,881
AVERAGE PRICES (3):
Oil (per Bbl) ............................................ $ 12.13 $ 18.54 $ 21.42 $ 17.06 $ 14.44
Gas (per MCF) ............................................ 1.89 2.30 2.30 1.54 1.72
Production & Operating Costs (per BOE) (4) ............... 3.35 3.02 3.26 3.55 3.85
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas assets, net .................................. $ 1,581,639 $ 1,423,837 $ 831,225 $ 574,076 $ 509,774
Total assets ............................................. 2,006,960 1,642,995 1,121,241 724,460 627,692
Long - term debt ......................................... 1,371,890 672,298 440,974 416,491 393,673
Stockholders' equity ..................................... 376,943 725,337 493,072 171,326 126,628
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Nonrecurring merger costs of $39.0 million have been recorded in the first
quarter of 1998. These costs consist primarily of investment banking and
other transaction fees, employee severances and relocation costs as well as
the write-off of deferred financing costs related to the former credit
facilities replaced by the Existing Credit Facility in March 1998. Before
consideration of the $39.0 million of nonrecurring merger costs and the
$539.9 million write-down of oil and gas properties, net income (loss) would
have been $(39.2) million for the year ended December 31, 1998.
(2) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the nonrecurring merger costs incurred in
the quarter ended March 31, 1998, the write-downs of oil and gas properties
in 1998 or the extraordinary loss for the year ended December 31, 1997.
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 a generally accepted accounting
principle measure, but provides additional information for evaluating the
Company's ability to make payments in respect of the Notes. EBITDA is not
intended as an alternative to earnings from continuing operations or net
income.
(3) Excludes results of hedging activities which increased (decreased) revenue
recognized in the year ended December 31, 1998, 1997, 1996, 1995 and 1994 by
$24.5 million, $(1.3) million, $(22.6) million, $3.6 million and $1.4
million, respectively. Including the effect of hedging activities, the
Company's average oil price per Bbl received was $13.21, $18.54, $20.24,
$17.05 and $14.67 in the years ended December 31, 1998, 1997, 1996, 1995 and
1994, respectively, and the average gas price per Mcf received was $1.89,
$2.28, $2.18, $1.60 and $1.72 in the years ended December 1998, 1997, 1996,
1995 and 1994, respectively.
(4) Excludes production and ad valorem taxes.
15
<PAGE> 18
The following is a condensed summary of the results of operations for the
quarters of 1998 and 1997 (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarters Ended (Unaudited)
--------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1998
- ----
Revenues ......................................... $ 141,883 $ 133,207 $ 123,989 $ 124,180
Income (loss) from operations .................... 22,164 (207,394) (908) (328,708)
Net loss ......................................... (28,133) (134,846) (14,417) (229,483)
Loss per common share, basic (1) ................. (0.28) (1.34) (0.14) (2.27)
Loss per common share, diluted (1) ............... (0.28) (1.34) (0.14) (2.27)
1997
- ----
Revenues ......................................... $ 128,655 $ 119,716 $ 136,048 $ 167,775
Income from operations ........................... 45,689 25,022 31,574 46,874
Net income (loss) ................................ 21,385 9,599 (9,775) 21,710
Earnings (loss) per common share, basic (1)....... 0.23 0.10 (0.11) 0.22
Earnings (loss) per common share, diluted (1)..... 0.22 0.10 (0.11) 0.22
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) The sum of the quarterly reported amounts for earnings per share do not
equal full year amounts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective March 27, 1998, pursuant to that certain Agreement and Plan of
Merger dated December 22, 1997 (as amended, the "UMC Merger Agreement"), UMC was
merged with and into the Company. As a result of the Merger, the separate
existence of UMC ceased and the Company succeeded to all of the rights and
obligations of UMC. Pursuant to the UMC Merger Agreement, at the effective time
of the Merger, the Company's stockholders received 2.34 shares of the combined
Company's common stock for each share of the Company's common stock then owned,
and UMC stockholders received 1.30 shares of the combined Company's common stock
for each share of UMC stock then owned. The Merger, completed on March 27, 1998,
was treated as a pooling of interests for accounting purposes.
This financial review summarizes the combined financial condition and
results of operations giving retroactive effect to the Merger and should be read
in conjunction with the Company's consolidated financial statements and the
notes thereto included elsewhere in this Form 10-K.
GENERAL
The Company's operating activities are organized into three primary
operating units: (i) the continental shelf and deepwater areas of the Gulf of
Mexico, (ii) the West African countries of Cote d'Ivoire, Equatorial Guinea and
Angola, the Asian Basin countries of Pakistan and Bangladesh, and the Middle
East country of the Republic of Yemen and (iii) certain onshore areas of North
America, including Western Canada and the Midcontinent and Rocky Mountain
regions of the U.S. As of December 31, 1998, the Company had estimated proved
reserves of approximately 134.3 MMBbls of oil and 945.8 Bcf of natural gas, or
an aggregate of approximately 291.9 MMBOE, with a Present Value of Future Net
Revenues before income taxes of approximately $916.7 million and a Standardized
Measure of Discounted Future Net Cash Flows of approximately $903.8 million. On
a BOE basis, approximately 46% of the Company's proved reserves at December 31,
1998 were oil.
16
<PAGE> 19
The following table sets forth information with respect to the Company's
production and average unit prices and costs for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Production:
Oil (MBbls)
United States ........................ 14,660 12,159 9,171
Canada ............................... 450 439 511
Cote d'Ivoire ........................ 1,081 1,027 894
Equatorial Guinea .................... 6,537 4,453 967
------- ------ ------
Total ........................... 22,728 18,078 11,543
======= ====== ======
Natural gas (MMcf)
United States ........................ 99,346 81,154 66,439
Canada ............................... 10,135 7,630 5,339
Cote d'Ivoire ........................ 7,824 4,939 2,387
------- ------ ------
Total ........................... 117,305 93,723 74,165
======= ====== ======
Average net sales price, including hedging:
Oil ($ per Bbl)
United States ........................ $ 14.13 $ 18.87 $ 20.05
Canada ............................... $ 11.78 $ 17.97 $ 19.43
Cote d'Ivoire ........................ $ 12.56 $ 18.35 $ 20.56
Equatorial Guinea .................... $ 11.57 $ 17.71 $ 22.17
Average ......................... $ 13.21 $ 18.54 $ 20.24
Natural gas ($ per Mcf)
United States ........................ $ 1.97 $ 2.40 $ 2.25
Canada ............................... $ 1.37 $ 1.40 $ 1.44
Cote d'Ivoire ........................ $ 1.64 $ 1.81 $ 1.80
Average ......................... $ 1.89 $ 2.28 $ 2.18
Other data ($ per BOE):
Production and operating costs(1) ....... $ 3.35 $ 3.02 $ 3.26
Ad valorem and production taxes ......... $ 0.50 $ 0.67 $ 0.86
Oil and natural gas DD&A(2) ............. $ 6.80 $ 7.23 $ 6.06
- -------------------------------------------------------------------------------------
</TABLE>
(1) Costs incurred to operate and maintain wells and related equipment,
excluding ad valorem and production taxes.
(2) Does not include depreciation and amortization of corporate assets.
ANTICIPATED EFFECT OF SEAGULL MERGER
New Ocean intends to account for the Seagull Merger as a purchase under
generally accepted accounting principles. Because OEI stockholders will own a
majority of the New Ocean common stock, the accounting treatment of the Seagull
Merger will reflect OEI acquiring Seagull in a "reverse purchase". Under this
method of accounting, New Ocean's historical results for periods prior to the
Seagull Merger will be the same as OEI's historical results. On the date of the
Seagull Merger, New Ocean will record the assets acquired and liabilities
assumed from OEI based upon their historical costs and the assets and
liabilities of Seagull will be recorded at their estimated fair market values.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Operating revenues. The Company's total operating revenues decreased $28.9
million, or 5%, to $523.3 million for the year ended December 31, 1998, from
$552.2 million for 1997. Production levels for 1998 increased 25% to 42,279 MBOE
from 33,699 for 1997 in spite of significant storm-related shut-ins of
production in the Gulf of Mexico during the third quarter of 1998. The decrease
in oil and gas revenues is due to the precipitous decline in world crude oil and
natural gas prices experienced in 1998 offset by increased oil volumes in the
Gulf of Mexico and Equatorial Guinea and overall higher gas volumes.
Oil revenues decreased $34.9 million, or 10%, to $300.2 million for 1998
from $335.1 million for 1997, the result of increased worldwide production
volumes more than offset by a decline in the average realized price
17
<PAGE> 20
received. Oil production increased 26% to 22,728 MBbls for 1998 as compared to
1997 due primarily to increased oil production in the Gulf of Mexico and
Equatorial Guinea. The average sales price before hedging for oil decreased 35%
to $12.13 for 1998 compared to $18.54 for 1997.
Natural gas revenues increased $7.9 million, or 4%, to $222.0 million for
1998 from $214.1 million for 1997, the result of increased worldwide production
which more than offset the decline in prices received for gas. Natural gas
production for 1998 was 117,305 MMcf, an increase of 25% over 1997 volumes due
primarily to increased production in the Gulf of Mexico, Cote d'Ivoire and
Canada and the impact of acquisitions, offset by property sales, storm-related
shut-ins in the Gulf of Mexico and natural production declines in North America.
The average sales price before hedging for natural gas decreased 18% to $1.89
per Mcf for 1998 as compared to $2.30 for 1997.
For the year ended December 31, 1998, the Company's total revenues were
further affected by a $25.8 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. The
Company's average sales prices including hedging for oil and natural gas for
1998 were $13.21 per Bbl and $1.89 per Mcf compared to $18.54 per Bbl and $2.28
per Mcf for 1997.
Production costs. Total production costs increased $38.5 million, or 31%,
to $162.9 million for 1998 from $124.4 million for 1997. This increase primarily
results from fluctuations in normal operating expenses, including operating
expenses associated with increased production from new facilities, timing of
workover and maintenance activities, and the impact of property acquisitions.
Production and operating costs (costs incurred to operate and maintain wells and
related equipment, excluding ad valorem and production taxes) increased $0.33
per BOE, or 11%, to $3.35 per BOE for 1998, from $3.02 per BOE for 1997. This
unit increase is primarily the result of the timing of certain workover and
maintenance activities.
General and administrative expenses. General and administrative expenses
increased $11.2 million, or 37%, to $41.4 million for 1998 from $30.2 million
for 1997. This increase is primarily due to costs of increased corporate
staffing associated with both an increase in drilling activities and the
Company's property acquisitions in 1997. In addition, costs related to a new
systems implementation, partially offset 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 accordance with the
full cost method of accounting, contributed to the increase. As a result of
these factors, general and administrative expenses per BOE increased by $0.08
per BOE, or 9%, to $0.98 per BOE for 1998, from $0.90 per BOE for 1997.
Depreciation, depletion and amortization expense. Depreciation, depletion
and amortization (DD&A) expense increased $45.5 million, or 18%, to $293.9
million for 1998, from $248.4 million for 1997. This variance is primarily
attributable to the Company's increased production and related current and
future capital costs from the 1997 and 1998 Gulf of Mexico and international
drilling programs and acquisitions, partially offset by the effect of an
increase in proved reserves resulting from such programs and acquisitions. Oil
and gas DD&A decreased $.43 per BOE, or 6%, to $6.80 per BOE for 1998, from
$7.23 per BOE for 1997. The non-cash write-downs of oil and gas properties
recognized in 1998 contributed to the decrease.
Write-down of oil and gas properties. As required under the full cost
method of accounting, capitalized costs are limited to the sum of the present
value of future net revenues using current unescalated pricing discounted at 10%
related to estimated production of proved reserves and the lower of cost or
estimated fair value of unevaluated properties, all net of expected income tax
effects. At June 30, 1998, the Company recognized a non-cash impairment of oil
and gas properties in the amount of $218.4 million pre-tax ($135.4 million
after-tax) pursuant to this ceiling limitation required by the full cost method
of accounting for oil and gas properties, using certain improvements in pricing
experienced after period end. The Company recognized an additional write-down at
December 31, 1998 in the amount of $321.5 million pre-tax ($199.3 million after
tax). The write-downs are primarily the result of the precipitous decline in
world crude oil and natural gas prices experienced during 1998.
Interest and debt expense. Reported interest and debt expense increased
$13.7 million, or 28%, to $62.8 million for 1998, from $49.1 million for 1997.
This increase is primarily the result of an increase in debt levels during 1998
resulting from the capital spending program for 1998 and lower than expected
cash flows due to the deterioration in product prices, offset by an increase in
capitalized interest on significant projects in process. Average total debt
outstanding for 1998 was $1,022.1 million as compared to $556.6 million for
1997.
18
<PAGE> 21
Merger Costs. Merger costs of $39.0 million relating to the Company's
merger with UMC were recorded in the first quarter of 1998. These costs consist
primarily of investment banking and other transaction fees, employee severance
and relocation costs as well as the write-off of deferred financing costs
related to the former credit facilities replaced by the OEI Credit Facility in
March 1998. All such costs were paid in 1998. See "-- Liquidity and Capital
Resources."
Income tax provision (benefit). An income tax benefit of $209.7 million (of
which $3.8 million is a current provision and $213.5 million is a deferred
benefit) was recognized for 1998, compared to a provision of $41.0 million (of
which $6.2 million was a current provision and $34.8 million was a deferred
provision) for 1997. Current taxes include a $3.6 million non-cash provision
representing current taxes incurred in Cote d'Ivoire which, under the terms of
the production sharing contract, will be paid by the Ivorian government from
their production proceeds. During the fourth quarter, the Company determined
that a valuation allowance would be required relating to the probability that
certain NOLs would expire in 1999 unutilized. As such, a valuation allowance of
$4.5 million was recorded as of December 31, 1998. The deferred tax benefit for
1998 is further impacted by the non-cash write-down of oil and gas properties
and the tax treatment of certain merger costs, a portion of which is not
deductible for tax purposes. Consistent with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, the deferred income tax
provision or benefit was derived primarily from changes in deferred income tax
assets and liabilities recorded on the balance sheet.
Net income (loss). Due to the factors described above, the net loss for
1998 was $406.9 million, a decrease of $449.8 million from net income of $42.9
million for 1997.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Operating revenues. The Company's total operating revenues increased
approximately $156.4 million, or 40%, to $552.2 million for the year ended
December 31, 1997, from $395.8 million for the comparable period in 1996.
Production levels for the year ended December 31, 1997, increased 41% to 33,699
MBOE from 23,904 MBOE for the comparable period in 1996. The increase in oil and
gas revenues is due to increased oil volumes in the Gulf of Mexico Region and
Equatorial Guinea, resulting from a full year's production from the Central Gulf
Properties and Block B in Equatorial Guinea ("Block B") and higher U.S. gas
volumes.
Oil revenues increased 43% to $335.1 million, the result of significantly
increased worldwide production volumes offset by a drop in the average realized
price received. Oil production increased 57% to 18,078 MBbls in 1997 due
primarily to increased oil production in the Gulf of Mexico Region and
Equatorial Guinea. The average sales price before hedging for oil decreased 13%
to $18.54 in 1997 compared to 1996.
Natural gas revenues increased 33% to $214.1 million, the result of slight
increases in natural gas prices and the impact of certain hedging activities,
offset by certain property sales. The average sales price before hedging for
natural gas remained constant at $2.30 per Mcf in 1997 and 1996. Natural gas
production for 1997 was 93,723 MMcf, an increase of 26% over 1996 volumes due
primarily to acquisitions and increased production in the Gulf of Mexico Region,
Cote d'Ivoire and Canada, offset by property sales and natural production
declines in North America.
For the year ended December 31, 1997, the Company's total revenues were
further affected by a $1.3 million decrease in hedging revenues. In order to
manage its exposure to price risks in the sale of its oil and natural gas, the
Company from time to time enters into price hedging arrangements. The Company's
average sales prices including hedging for oil and natural gas for the year
ended December 31, 1997 were $18.54 per Bbl and $2.28 per Mcf compared with
$20.24 per Bbl and $2.18 per Mcf in the prior period.
Production costs. For the year ended December 31, 1997, total production
costs were $124.4 million, as compared to $98.4 million in the 1996 period, an
increase of 26%. This increase primarily results from fluctuations in normal
operating expenses, including operating expenses associated with increased
production from new facilities and an increase of approximately $11.8 million
relating to production costs of the Central Gulf Properties acquired in 1996.
Production and operating costs (costs incurred to operate and maintain wells and
related equipment, excluding ad valorem and production taxes) decreased to $3.02
per BOE for the year ended December 31, 1997, from $3.26 per BOE in the
comparable 1996 period. This decrease is primarily the result of increased
production in the Company's offshore Gulf of Mexico Region and Equatorial Guinea
fields, which have substantial fixed operating costs due to the capital
intensive nature of the facilities, further impacted by the under-utilization of
capacity in the Gulf of Mexico Region fields.
19
<PAGE> 22
General and administrative expenses. For the year ended December 31, 1997,
general and administrative expenses were $30.2 million as compared to $27.4
million in the comparable 1996 period, an increase of 10%. 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.
In addition, a new systems implementation partially offset by an increase in
1997 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 accordance with the full cost method of accounting contributed to
the increase. General and administrative expenses per BOE decreased to $0.90 per
BOE for the year ended December 31, 1997, from $1.14 per BOE for the comparable
1996 period. This unit decrease is primarily the result of increased production
in the Gulf of Mexico Region and Equatorial Guinea fields.
Depreciation, depletion and amortization expense. For the year ended
December 31, 1997, DD&A expense was $248.4 million as compared to $147.6 million
in the comparable 1996 period, an increase of 68%. This variance can primarily
be attributed to the Company's increased production and related current and
future capital costs from the 1996 and 1997 Gulf of Mexico Region and
international drilling programs and acquisitions, partially offset by the
increase in proved reserves resulting from such programs and acquisitions. On a
BOE basis, oil and gas DD&A for the year ended December 31, 1997, was $7.23 per
BOE as compared to $6.06 per BOE for the year ended December 31, 1996. This unit
increase is primarily the result of increased production in the Gulf of Mexico
Region and Equatorial Guinea fields.
Interest and debt expense. For the year ended December 31, 1997, interest
and debt expense increased 20% to $49.1 million, from $40.8 million in the
comparable 1996 period. This increase is primarily the 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 and debt expense of
approximately $8.9 million related to the issuance of $200 million of the 8 7/8%
Notes in July 1997. In addition, interest and debt expense increased in both
periods due to a higher average balance on the Company's bank credit facilities.
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 "Existing Senior Notes") on July 22, 1997,
and by an increase in the amount of interest capitalized in the 1997 period
resulting from an increase in the Company's unevaluated assets, including
additional acreage and seismic data.
Income tax expense (benefit). An income tax provision of $41.0 million (of
which $6.2 million is a current provision and $34.8 million is a deferred
provision) was recognized for 1997, compared to a provision of $26.2 million (of
which $0.8 million was a current provision and $25.4 million was a deferred
provision) for 1996. A significant portion of current taxes in 1997 is a $4.6
million non-cash provision representing current taxes incurred in Cote d'Ivoire
which, under the terms of the production sharing contract, will be paid by the
Ivorian government from their production proceeds. Consistent with SFAS No. 109,
Accounting for Income Taxes, the deferred income tax provision was derived
primarily from changes in deferred income tax assets and liabilities recorded on
the balance sheet. The 1996 deferred tax provision was affected by the use of
$13.0 million of net operating loss ("NOL") carryforwards to essentially
eliminate 1996 taxable income and the deferred tax effect of exercised stock
options. At December 31, 1997, the Company had $122.7 million of U.S. NOL
carryforwards, $67.0 million of Equatorial Guinea NOL carryforwards and $32.2
million of Canadian federal tax pools. The Company paid cash income taxes in
1997 and 1996 of $1.8 million and $0.4 million, respectively, to several states,
Canada and the U.S.
Extraordinary loss on early extinguishment of debt. On July 22, 1997, the
Company purchased approximately $124.8 million of the $125.0 million original
principal amount of the Existing Senior 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 Existing Senior Notes.
Net income. Due to the factors described above, net income before an
extraordinary charge for the year ended December 31, 1997, increased to $62.2
million, an increase of $7.2 million or 13% from net income of $55.0 million for
the comparable 1996 period. Including the effect of the extraordinary charge,
the Company recorded net income of $42.9 million for the year ended December 31,
1997.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Net cash provided by operating activities...... $ 232,200 $ 339,675 $ 209,313
Net cash used in investing activities.......... (970,665) (803,679) (428,007)
Net cash provided by financing activities...... 737,482 414,992 265,597
</TABLE>
For the year ended December 31, 1998, net cash provided by operating
activities decreased by $107.5 million, or 32% as compared to the year ended
December 31, 1997, resulting primarily from the precipitous drop in the price of
oil and gas experienced during the year and the $39.0 million in nonrecurring
merger costs.
Cash used in investing activities during the year ended December 31, 1998,
increased to $970.7 million, as compared to $803.7 million for 1997. This
increase relates primarily to the Company's exploration and development project
expenditures.
Financing activities during the year ended December 31, 1998, generated
cash of $737.5 million as compared to $415.0 million in the comparable 1997
period, resulting from increased incurrences of long-term debt, including bank
debt and the $500.0 million offering of Senior and Senior Subordinated Notes,
and the issuance of the $50.0 million of Series A Preferred Stock.
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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- ---------- --------
(in thousands)
<S> <C> <C> <C>
Property acquisition costs:
Proved......................................... $ 64,731 $130,074 $ 66,105
Unproved....................................... 73,667 107,817 75,365
Properties held for resale....................... -- -- (37,200)
Exploration costs................................ 362,134 250,698 108,430
Development costs................................ 389,598 317,975 211,068
Capitalized interest on unevaluated properties... 30,031 12,802 7,408
Capitalized general and administrative costs..... 27,964 14,992 10,533
-------- -------- --------
Total costs incurred..................... $948,125 $834,358 $441,709
======== ======== ========
</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 has historically
funded its operations, acquisitions, exploration and development expenditures
from cash flows from operating activities, bank borrowings, sales of equity and
debt securities, sales of non-strategic oil and natural gas properties, sales of
partial interests in exploration concessions and project finance borrowings.
Due to the current pricing environment, the Company's stand-alone capital
expenditure budget for 1999 is expected to decrease to approximately $150.0
million focused on the Company's three operating regions. In addition, the
Company will evaluate its level of capital spending throughout the year based
upon drilling results, commodity prices, cash flows from operations and property
acquisitions. Actual capital spending may vary from the capital expenditure
budget.
Upon the closing of the merger with Seagull, the capital budgets of the
Company and Seagull will be modified, and the combined total is expected to be
approximately $400.0 to $500.0 million for 1999. In addition, the credit
facilities of the Company and Seagull will be combined and initial discussions
with certain banks have indicated that
21
<PAGE> 24
the gross available credit will be approximately $800.0 million. See "Business
and Properties -- Recent Developments."
The Company's debt to total capitalization ratio increased to 78.5% at
December 31, 1998, from 48.1% at December 31, 1997. The Company's interest
coverage ratio (calculated as the ratio of income from operations plus DD&A and
impairment of proved oil and gas properties to reported interest expense plus
capitalized interest less non-cash amortization of debt issue costs) was 3.8 to
1 for 1998 compared with 6.8 to 1 for 1997. The Company plans to pursue
additional property sales in 1999 to pay down amounts outstanding under the
Credit Facility as a means of improving this ratio.
Concurrent with the closing of the Merger on March 27, 1998, the Company
entered into a $750.0 million five-year unsecured revolving credit facility (OEI
Credit Facility) which combined and replaced the Company's and UMC's existing
credit facilities. The OEI Credit Facility, which is with a group of commercial
banks, provides for various borrowing options under either a base rate or
Eurodollar margin rates and provided a $600.0 million initial borrowing base.
Borrowings against the facility were repaid in July 1998 with the proceeds from
a $500.0 million Notes Offering made by the Company pursuant to Rule 144A, which
notes were subsequently exchanged for publicly-traded instruments with identical
terms. At that time, the credit facility was amended and restated to a $400.0
million, five-year revolving credit facility with an initial borrowing base of
$300.0 million. On November 10, 1998, the Company received commitments to
increase the borrowing base under the facility to $400.0 million. As of December
31, 1998, total borrowings outstanding against the facility were approximately
$357.0 million, leaving approximately $43.0 million of available credit. In
February 1999, the Company put in place a $20.0 million facility, primarily to
support certain outstanding letters of credit.
The OEI Credit Facility contains certain financial and ratio covenants. The
Company's financial results through December 31, 1998 did not comply with one of
these covenant tests. This event of noncompliance, and subsequent application of
this covenant, was waived by the lenders until the Company's planned merger with
Seagull or the September 30, 1999 reporting date. The Company has planned and
potential asset sales and other financing opportunities believed available which
could be used to achieve compliance with this covenant. Accordingly, the Company
believes it is probable it will comply with this covenant throughout 1999. The
amount outstanding under the OEI Credit Facility has been classified as
long-term in the accompanying December 31, 1998 balance sheet.
On November 10, 1998, the Company completed a private placement of 50,000
shares of Series A Convertible Preferred Stock for $38.0 million of oil and gas
properties and $12.0 million in cash from one of its institutional investors.
The Series A shares have a 6.5% cumulative dividend payable semi-annually
beginning April 1, 1999.
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 governing the
Company's public debt and the OEI Credit Facility, while the ability of the
Company to grant certain liens will be subject to the terms of the Indentures.
Liquidity. The Company currently expects that its cash flow from
operations, proceeds from asset dispositions and availability under the OEI
Credit Facility will be adequate to execute its 1999 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. There can be no
assurance that the Company will be successful in its proposed asset
dispositions. If the Company's cash flow from operations, proceeds from asset
dispositions and availability under the OEI 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, especially in
light of the Company's existing leverage and the state of the applicable capital
markets.
Effects of Leverage. The Company has outstanding long-term indebtedness of
approximately $1,371.9 million as of December 31, 1998. The Company's level of
indebtedness has several important effects on its future operations,
22
<PAGE> 25
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 various
indentures 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. None of the indentures place
significant restrictions on a wholly-owned subsidiary's ability to make
distributions to the parent company.
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
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 on 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.
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 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 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. This amount is subject to upward
regulatory adjustment up to $150.0 million.
Year 2000 compliance. Historically, most computer systems, including
microprocessors embedded into field equipment and other machinery, utilized
software that recognized a calendar year by its last two digits. Beginning in
the year 2000, these systems will require modification to recognize a calendar
year by four digits.
Accordingly, the Company has initiated a comprehensive plan to address the
year 2000 issues associated with its operations and business. OEI's board has
been briefed about the year 2000 problem generally and as it may affect OEI. The
board has assigned its Audit Committee to oversee the adoption and
implementation of a year 2000 plan. A committee of senior executives has been
created to develop a plan and manage its implementation. The aim of the plan is
to take reasonable steps to prevent OEI's mission-critical functions from being
impaired due to the year 2000 problem.
23
<PAGE> 26
The plan includes several phases - (a) assessment of all of the Company's
systems and technology; (b) implementation and testing of modifications to or
replacements of existing systems and technology, both financial and operational;
(c) communication with key business partners; and (d) contingency planning.
In planning and developing the project, OEI has considered both its
information technology ("IT") and its non-IT systems. The term "computer
equipment and software" includes systems that are commonly thought of as IT
systems, including accounting, data processing, telephone systems, scanning
equipment, and other miscellaneous systems. Those items not considered IT
technology include alarm systems, metering devices, monitors for field
operations, and other miscellaneous systems. Both IT and non-IT systems may
contain embedded technology, which complicates OEI's year 2000 identification,
assessment, remediation, and testing efforts. Based upon its identification and
assessment efforts to date, OEI is in the process, where necessary, of
reprogramming or replacing the computer equipment and software it currently uses
to become year 2000 compliant. In addition, 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. The testing of the systems under consideration should
be completed by April 1999.
The Company is utilizing both internal and external resources to reprogram,
or replace, and test much of its IT systems, primarily financial and operational
software, for necessary modifications identified in its assessment of year 2000
issues. As of the date of this filing, the Company estimates that approximately
60% of its year 2000 plan for these IT systems has been implemented and
anticipates that the remainder of the plan, including any necessary remedial
action, will be completed by June 30, 1999. During July 1998, the Company began
utilizing internal and external resources to evaluate its vulnerability to year
2000 issues related to its non-IT systems, primarily field operational systems
and equipment. The Company has also initiated formal communications with all of
its key business partners to determine the extent to which the Company is
vulnerable to those third parties' potential failure to remediate their own year
2000 issues. The evaluation of non-IT systems and communications with key
business partners is well underway, and the Company estimates that the remainder
of the year 2000 plan concerning these areas will be completed by June 1999.
The Company is currently in the process of developing contingency plans for
both financial and operational systems. OEI's contingency plans are being
designed to minimize the disruptions or other adverse effects resulting from
year 2000 incompatibilities regarding these systems, and to facilitate the early
identification and remediation of year 2000 problems that first manifest
themselves after January 1, 2000.
The failure to correct a material year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities, thereby
having a material, adverse effect on the Company's results of operations,
liquidity and financial position. The Company's remediation efforts are expected
to significantly reduce the Company's level of uncertainty about year 2000
compliance and the possibility of interruptions of normal operations. However,
there can be no guarantee that the systems of other companies, on which the
Company's systems rely, will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. Disruptions to
the oil and gas transportation networks controlled by third-party carriers could
result in reduced production volumes delivered to market. In addition, risks
association with foreign operations may increase with the uncertainty of year
2000 compliance by foreign governments and their supporting infrastructures.
The total costs for the year 2000 compliance review, evaluation, assessment
and remediation efforts are not expected to be in excess of $1,000,000. Of this
amount, approximately $200,000 had been incurred as of December 31, 1998.
The costs of these projects and the dates 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.
Forward-looking statements. Certain statements in this report, including
statements of the Company's and management's expectation, intentions, plans and
beliefs, including those contained in or implied by "Business," "Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and
24
<PAGE> 27
the Notes to Consolidated Financial Statements, are "forward-looking
statements", within the meaning of Section 21E of the Securities Exchange Act of
1934, that are subject to certain events, risk and uncertainties that may be
outside the Company's control. These forward-looking statements include
statements of management's plans and objectives for the Company's future
operations and statements of future economic performance, information regarding
the Seagull Merger, information regarding drilling schedules, expected or
planned production or transportation capacity, future production levels of
international and domestic fields, the Company's capital budget and future
capital requirements, the Company's meeting its future capital needs, the
Company's realization of its deferred tax assets, the level of future
expenditures for environmental costs and the outcome of regulatory and
litigation matters, and the assumptions described in this report underlying such
forward-looking statements. Actual results and developments could differ
materially from those expressed in or implied by such statements due to a number
of factors, including, without limitation, those described in the context of
such forward-looking statements, fluctuations in the price of crude oil and
natural gas, the success rate of exploration efforts, timeliness of development
activities, risk incident to the drilling and completion for oil and gas wells,
future production and development costs, the political and economic climate in
which the Company conducts operations and the risk factors described from time
to time in the Company's other documents and reports filed with the Securities
and Exchange Commission.
ITEM 7.a. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
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 New York
Mercantile Exchange (NYMEX) light sweet 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. In addition, the Company has combined contracts
which have agreed upon price floors and ceilings (Costless Collars). To the
extent the average NYMEX price exceeds the contract ceiling, the Company pays
the spread between the ceiling and the average NYMEX price applied to the
related contract volumes. To the extent the contract floor exceeds the average
NYMEX price, the Company receives the spread between the contract floor and the
average NYMEX price applied to the related contract volumes. Under the terms of
the Swap Agreements, certain counterparties have extended the Company a $5.0
million line of credit for use in conjunction with its hedging activities. As of
December 31, 1998, the Company had no outstanding oil or natural gas Swaps and
the fair market value of the natural gas Costless Collars was approximately $7.3
million.
As of December 31, 1998, the Company's open forward position on its
outstanding natural gas Costless Collars was as follows:
<TABLE>
<CAPTION>
Effective Contracted Contracted Contracted
----------------- Volumes Floor Ceiling
Year From Through (MMBTU/day) Price Price
---- ---- ------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
1999 January December 30,000 $2.10 $2.550
1999 January December 20,000 $2.10 $2.605
1999 January December 40,000 $2.10 $2.630
1999 January December 10,000 $2.10 $2.650
</TABLE>
These Costless Collars were cancelled in January 1999, resulting in net
proceeds of $6.9 million.
25
<PAGE> 28
The Company currently has no outstanding hedging arrangements and it
intends to commit no more than 50% of its production on a BOE basis to such
arrangements at any point in time. A portion of the Company's oil and natural
gas production will be subject to price fluctuations unless the Company enters
into additional hedging transactions.
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants....................................................................... 28
Consolidated Statement of Income, Years Ended December 31, 1998, 1997 and 1996................................. 29
Consolidated Balance Sheet, December 31, 1998 and 1997......................................................... 30
Consolidated Statement of Changes in Stockholders' Equity, Years Ended December 31, 1998, 1997 and 1996........ 32
Consolidated Statement of Cash Flows, Years Ended December 31, 1998, 1997 and 1996............................. 33
Notes to Consolidated Financial Statements..................................................................... 34
</TABLE>
27
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ocean Energy, Inc.:
We have audited the accompanying consolidated balance sheets of Ocean
Energy, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of income, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 15, 1999
28
<PAGE> 31
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Gas sales ..................................................... $ 221,973 $ 214,100 $ 161,369
Oil sales ..................................................... 300,177 335,094 233,611
Contract settlements and other ................................ 1,109 3,000 854
------------ ------------ ------------
523,259 552,194 395,834
------------ ------------ ------------
Costs and expenses:
Production costs .............................................. 162,874 124,394 98,396
General and administrative .................................... 41,411 30,218 27,366
Depreciation, depletion and amortization ...................... 293,905 248,423 147,643
Write-down of oil and gas properties .......................... 539,915 -- --
------------ ------------ ------------
1,038,105 403,035 273,405
------------ ------------ ------------
Income (loss) from operations ...................................... (514,846) 149,159 122,429
Other income, expenses and deductions:
Interest and debt expense ..................................... 62,852 49,134 40,765
Merger costs .................................................. 39,000 -- --
Interest and other expense (income) ........................... (120) (3,187) 449
------------ ------------ ------------
Income (loss) before income taxes .................................. (616,578) 103,212 81,215
Income tax provision (benefit):
Current ....................................................... 3,815 6,220 785
Deferred ...................................................... (213,514) 34,772 25,430
------------ ------------ ------------
Net income (loss) before extraordinary item, net of income taxes ... (406,879) 62,220 55,000
Extraordinary loss on early extinguishment of debt,
net of income taxes ........................................... -- (19,301) --
------------ ------------ ------------
Net income (loss) .................................................. (406,879) 42,919 55,000
Preferred stock dividends .......................................... (454) -- (1,531)
------------ ------------ ------------
Net income (loss) available to common stockholders ................. $ (407,333) $ 42,919 $ 53,469
============ ============ ============
Basic earnings (loss) per share before extraordinary item,
net of income taxes ........................................... $ (4.04) $ 0.67 $ 0.65
Extraordinary item per share, net of income taxes .................. -- (0.21) --
------------ ------------ ------------
Basic earnings (loss) per share .................................... $ (4.04) $ 0.46 $ 0.65
============ ============ ============
Weighted average number of common shares outstanding ............... 100,705 93,315 82,684
============ ============ ============
Diluted earnings (loss) per share before extraordinary item,
net of income taxes ........................................... $ (4.04) $ 0.64 $ 0.62
Extraordinary item per share, net of income taxes .................. -- (0.20) --
------------ ------------ ------------
Diluted earnings (loss) per share .................................. $ (4.04) $ 0.44 $ 0.62
============ ============ ============
Weighted average number of common shares and
common share equivalents outstanding .......................... 100,705 96,646 85,905
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
29
<PAGE> 32
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 10,706 $ 11,689
Accounts receivable, net of allowance for doubtful
accounts of $1,190 at December 31, 1998 and 1997:
Oil and gas sales .................................... 68,384 75,642
Joint interest and other ............................. 43,445 49,289
Deferred income taxes .................................. -- 1,547
Inventory .............................................. 16,802 11,097
Prepaid expenses and other ............................. 14,444 10,630
------------ ------------
153,781 159,894
------------ ------------
Property and equipment, at cost:
Oil and gas (full cost method)
Evaluated properties ................................. 2,759,686 2,018,319
Unevaluated properties excluded from amortization .... 488,689 258,107
Other .................................................. 44,960 28,182
------------ ------------
3,293,335 2,304,608
Accumulated depreciation, depletion and amortization ... (1,711,696) (880,771)
------------ ------------
1,581,639 1,423,837
------------ ------------
Other assets:
Gas imbalances receivable .............................. 6,491 6,227
Deferred income taxes .................................. 217,824 130
Deferred financing costs ............................... 31,821 19,661
Restricted deposits .................................... 10,773 8,497
Other .................................................. 4,631 24,749
------------ ------------
271,540 59,264
------------ ------------
TOTAL ASSETS ..................................... $ 2,006,960 $ 1,642,995
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
30
<PAGE> 33
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 184,828 $ 188,429
Advances from joint owners .................................................. 5,920 8,491
Interest payable ............................................................ 36,206 16,476
Accrued liabilities ......................................................... 9,392 6,572
Current maturities of long-term debt ........................................ 836 911
------------ ------------
237,182 220,879
------------ ------------
Long-term debt ................................................................... 1,371,890 672,298
------------ ------------
Deferred credits and other liabilities:
Deferred income taxes ....................................................... 8,010 11,159
Gas imbalances payable ...................................................... 5,286 5,861
Other ....................................................................... 7,649 7,461
------------ ------------
20,945 24,481
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 50,000
shares issued and outstanding at December 31, 1998, no shares issued and
outstanding at December 31, 1997 .......................................... 1 --
Common stock, $0.01 par value, 250,000,000 shares
authorized, 101,753,646 and 100,109,241 shares issued
and outstanding at December 31, 1998 and
1997, respectively ........................................................ 1,018 1,001
Additional paid-in capital .................................................. 892,339 823,956
Deferred compensation ....................................................... (5,581) --
Accumulated other comprehensive income (loss) -
foreign currency translation adjustment ................................... (10,720) (6,839)
Retained earnings (deficit) ................................................. (500,114) (92,781)
------------ ------------
376,943 725,337
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................................... $ 2,006,960 $ 1,642,995
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
31
<PAGE> 34
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 1998, 1997, AND 1996
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A AND F
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------------ ----------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ................. 1,166,667 $ 12 71,798,544 $ 718 $ 363,822
OEI common stock offering ................ -- -- 10,530,000 106 62,086
Automatic conversion of Series F
preferred stock to common stock ........ (1,166,667) (12) 2,398,869 24 (12)
UMC common stock offering ................ -- -- 5,315,625 53 182,617
Exercise of common stock options ......... -- -- 1,391,991 14 19,980
Exercise of warrants ..................... -- -- 306,474 3 3,618
Preferred stock dividends ................ -- -- -- -- --
Comprehensive income:
Net income ............................... -- -- -- -- --
Other comprehensive income (loss): .........
Foreign currency translation adjustment .. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 ................. -- $ -- 91,741,503 $ 918 $ 632,111
OEI common stock offering ................ -- -- 7,254,000 73 177,674
Common shares issued in exchange for
shares tendered from a prior acquisition -- -- 3,461 -- --
Exercise of common stock options ......... -- -- 1,110,277 10 14,171
Comprehensive income:
Net income ............................... -- -- -- -- --
Other comprehensive income (loss): .........
Foreign currency translation adjustment .. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 ................. -- $ -- 100,109,241 $ 1,001 $ 823,956
Exercise of common stock options ........... -- -- 1,084,405 11 12,696
Issuance of preferred stock ................ 50,000 1 -- -- 49,953
Preferred stock dividends .................. -- -- -- -- --
Issuance of restricted stock ............... -- -- 560,000 6 5,734
Comprehensive income:
Net loss ................................. -- -- -- -- --
Other comprehensive income (loss):
Foreign currency translation adjustment .. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 ................. 50,000 $ 1 101,753,646 $ 1,018 $ 892,339
============ ============ ============ ============ ============
<CAPTION>
ACCUMULATED
OTHER RETAINED TOTAL
DEFERRED COMPREHENSIVE EARNINGS STOCKHOLDERS' COMPREHENSIVE
COMPENSATION INCOME (DEFICIT) EQUITY INCOME
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ................. $ -- $ (4,057) $ (189,169) $ 171,326
OEI common stock offering ................ -- -- -- 62,192
Automatic conversion of Series F
preferred stock to common stock ........ -- -- -- --
UMC common stock offering ................ -- -- -- 182,670
Exercise of common stock options ......... -- -- -- 19,994
Exercise of warrants ..................... -- -- -- 3,621
Preferred stock dividends ................ -- -- (1,531) (1,531)
Comprehensive income:
Net income ............................... -- -- 55,000 55,000 $ 55,000
Other comprehensive income (loss): .........
Foreign currency translation adjustment .. -- (200) -- (200) (200)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 ................. $ -- $ (4,257) $ (135,700) $ 493,072 $ 54,800
OEI common stock offering ................ -- -- -- 177,747 ============
Common shares issued in exchange for
shares tendered from a prior acquisition -- -- -- --
Exercise of common stock options ......... -- -- -- 14,181
Comprehensive income:
Net income ............................... -- -- 42,919 42,919 $ 42,919
Other comprehensive income (loss): .........
Foreign currency translation adjustment .. -- (2,582) -- (2,582) (2,582)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 ................. $ -- $ (6,839) $ (92,781) $ 725,337 $ 40,337
Exercise of common stock options ........... -- -- -- 12,707 ============
Issuance of preferred stock ................ -- -- -- 49,954
Preferred stock dividends .................. -- -- (454) (454)
Issuance of restricted stock ............... (5,581) -- -- 159
Comprehensive income:
Net loss ................................. -- -- (406,879) (406,879) $ (406,879)
Other comprehensive income (loss):
Foreign currency translation adjustment .. -- (3,881) -- (3,881) (3,881)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 ................. $ (5,581) $ (10,720) $ (500,114) $ 376,943 $ (410,760)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
32
<PAGE> 35
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................. $ (406,879) $ 42,919 $ 55,000
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation, depletion and amortization ...................... 293,905 248,423 147,643
Write-down of proved oil and gas properties ................... 539,915 -- --
Amortization of debt issue cost ............................... 8,125 2,957 2,891
Deferred income tax provision (benefit) ....................... (213,514) 20,821 24,183
Deferred hedge revenue ........................................ (201) (133) (470)
----------- ----------- -----------
221,351 314,987 229,247
Changes in assets and liabilities:
Decrease (increase) in receivables .............................. 23,724 (17,338) (42,074)
Increase in inventory ........................................... (5,705) (1,099) (7,589)
Increase (decrease) in payables and other current liabilities ... (10,018) 39,418 35,355
Increase (decrease) in net gas imbalances ....................... (839) 1,342 (2,233)
Other ........................................................... 3,687 2,365 (3,393)
----------- ----------- -----------
Net cash provided by operating activities ..................... 232,200 339,675 209,313
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties ............................... (956,589) (819,465) (472,021)
Additions to other property and equipment ......................... (13,854) (11,018) (4,074)
Net proceeds from sale of assets .................................. 2,054 52,855 50,152
Increase in restricted deposits ................................... (2,276) (2,173) (2,064)
Increase in other assets .......................................... -- (23,878) --
----------- ----------- -----------
Net cash used in investing activities ........................... (970,665) (803,679) (428,007)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of total debt ........................................... (1,219,356) (594,977) (403,095)
Additions to total debt ........................................... 1,918,873 826,081 419,052
Deferred financing costs .......................................... (20,230) (3,648) (6,408)
Net proceeds from issuance of convertible preferred stock ......... 49,954 -- --
Net proceeds from common stock offerings .......................... -- 178,108 245,178
Preferred stock dividends ......................................... (454) -- (1,531)
Proceeds from common stock options and warrants exercised ......... 8,695 9,428 12,401
----------- ----------- -----------
Net cash provided by financing activities ..................... 737,482 414,992 265,597
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ................. (983) (49,012) 46,903
Cash and cash equivalents, beginning of period ....................... 11,689 60,701 13,798
----------- ----------- -----------
Cash and cash equivalents, end of period ............................. $ 10,706 $ 11,689 $ 60,701
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE> 36
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
The accompanying consolidated financial statements of Ocean Energy, Inc.
(OEI or the Company), a Delaware corporation, have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).
The Company is an independent energy company engaged in the exploration,
development, production and acquisition of oil and natural gas offshore Gulf of
Mexico, across North America and in the oil and natural gas producing regions of
Cote d'Ivoire, Equatorial Guinea, Pakistan, Bangladesh, Angola and the Republic
of Yemen.
Effective March 27, 1998, pursuant to the Agreement and Plan of Merger
dated December 22, 1997, United Meridian Corporation (UMC) was merged into the
Company (the Merger). As a result of the Merger, each outstanding share of UMC
common stock was converted into 1.3 shares of OEI common stock with
approximately 46 million shares issued to the shareholders of UMC representing
approximately 46% of all of the issued and outstanding shares of OEI. The
Company's shareholders received 2.34 shares of OEI common stock for each share
outstanding immediately preceding the Merger representing approximately 54% of
all of the issued and outstanding shares of OEI. The Merger was accounted for as
a pooling of interests. Accordingly, the accompanying consolidated financial
statements for periods prior to the Merger have been restated to combine the
historical results of OEI and UMC. All common share data throughout these
financial statements have been restated to reflect the impact of the respective
stock splits resulting from the Merger.
On November 24, 1998, OEI and Seagull Energy Corporation (Seagull) entered
into a merger agreement that provides for a stock-for-stock merger (Seagull
Merger) of OEI with and into Seagull. In connection with the Seagull Merger OEI
stockholders will receive one share of common stock of Seagull for each existing
outstanding share of OEI. Seagull will amend its Articles of Incorporation to
change its name to Ocean Energy, Inc. (New Ocean). After the Seagull Merger, the
stockholders of OEI will own approximately 61.5% of the outstanding common stock
of New Ocean and the shareholders of Seagull will own the remaining 38.5% of the
outstanding common stock of New Ocean. The Seagull Merger is expected to qualify
as a tax-free transaction and is subject to each Company's stockholders'
approval and certain other conditions. The transaction will be treated as a
purchase business combination for accounting purposes and is anticipated to
close by the end of the first quarter of 1999.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned affiliates. Interests in joint ventures, limited
liability companies and partnerships are accounted for under the proportional
consolidation method. All significant intercompany balances and transactions
have been eliminated in consolidation.
The consolidated financial statements reflect all adjustments that, in the
opinion of management, are necessary for a fair presentation.
Certain reclassifications of amounts previously reported have been made to
conform to current year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
INVENTORY
The Company conducts a portion of its oil and gas activities with a small
group of institutional and corporate investors. In connection therewith, the
Company periodically acquires oil and gas properties with the intention of
selling a portion of its interests to such investors or industry partners. To
the extent those properties are to be resold, costs are carried as a current
asset and classified as inventory. No gain or loss is recognized on inventoried
properties.
34
<PAGE> 37
At December 31, 1998 and 1997, costs of properties to be resold included in
inventory were not significant. The remaining inventory consists of tubular
goods and other equipment.
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 and a portion of
interest expense, 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. 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 using current unescalated
pricing discounted at 10%, related to estimated production of proved reserves
and the lower of cost or estimated fair value of unevaluated properties, all net
of expected income tax effects.
Depreciation, depletion and amortization of oil and gas properties is
computed on a country-by-country basis using a 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. At June 30,
1998, the Company recognized a non-cash impairment of oil and gas properties in
the amount of $218.4 million pre-tax ($135.4 million after-tax) pursuant to this
ceiling limitation required by the full cost method of accounting for oil and
gas properties. The Company recognized an additional write-down at December 31,
1998, in the amount of $321.5 million pre-tax ($199.3 million after tax). The
write-downs were primarily the result of the precipitous decline in world crude
oil and natural gas prices experienced during 1998.
OTHER PROPERTY AND EQUIPMENT
Other property consists primarily of furniture, office equipment, leasehold
improvements and computers. The majority of these assets are depreciated on a
straight-line basis with estimated useful lives ranging from three to seven
years.
GAS IMBALANCES
The Company follows the entitlements method of accounting for gas
imbalances. Under this method, the Company records as revenue only that portion
of gas production sold and allocable to its ownership interest in the related
well. Imbalance payables are recorded at historical amounts and imbalance
receivables are valued at the lower of (i) the price in effect at the time of
production, (ii) the current market value or (iii) the contract price net of
selling expenses. Gas imbalances arise when a purchaser takes delivery of more
or less gas volume from a well than the Company's actual interest in the
production from that well. Such imbalances are reduced either by subsequent
recoupment of over-and-under deliveries or by cash settlement, as required by
applicable contracts. Under-deliveries are included in Other assets and
over-deliveries are included in Deferred credits and other liabilities.
HEDGING
The Company periodically enters into contracts in order to hedge against
the volatility of oil and gas prices. The Company enters into such transactions
for the purpose of managing the overall impact of commodity price volatility.
These transactions generally take the form of swaps or price collars, and are
placed with major financial institutions. The results of such transactions are
included as Oil or Gas sales in the Consolidated Statement of Income as the
related production volumes are sold.
35
<PAGE> 38
The Company enters into interest rate hedge contracts from time to time
with major financial institutions. These transactions are made to protect
against higher future interest costs on the Company's floating rate long-term
debt. The results of interest rate hedges are included in Interest and debt
expense on the Consolidated Statement of Income.
FEDERAL INCOME TAXES
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, under which deferred tax
assets or liabilities are estimated at the financial statement date based upon
(i) temporary differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements and (ii) net operating loss
and tax credit carryforwards for tax purposes.
EARNINGS PER SHARE
The Company adopted SFAS No. 128, Earnings Per Share, during the fourth
quarter of 1997. In accordance with this new pronouncement, basic earnings per
share is computed by dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is determined on the assumption that outstanding
stock options have been converted using the average price for the period. For
purposes of computing earnings per share in a loss year, common stock
equivalents have been excluded from the computation of weighted average common
shares outstanding because their effect is antidilutive. Prior period amounts
have been restated in accordance with the requirements of the pronouncement.
STATEMENT OF CASH FLOWS
Cash flows from operating activities for 1998, 1997 and 1996, include cash
payments for interest of $54.8 million, $49.6 million, and $42.9 million and
income taxes of $0.3 million, $1.8 million and $0.4 million, respectively.
FOREIGN CURRENCY TRANSLATION
The United States (U.S.) dollar is the functional currency for all
international locations except for Canada, which uses the Canadian dollar. The
financial position and results of operations attributable to the Company's
Canadian operations are translated into U.S. currency in accordance with SFAS
No. 52, Foreign Currency Translation. Accordingly, the assets and liabilities of
the financial statements are translated using the currency exchange rate in
effect at the balance sheet date while the revenues, expenses, gains and losses
are translated using the exchange rate for the periods in which they occurred.
The effects of such translations are reflected as adjustments to stockholders'
equity as shown in the Consolidated Statement of Changes in Stockholders' Equity
and are included as a component of Comprehensive Income.
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 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
This statement requires a company to report financial information by operating
segment. Operating segments are defined as the basis on which the chief
operating decision maker disaggregates the company for making operating
decisions and assessing performance. The Company, which has one reportable
segment, adopted the provisions of SFAS No. 131 and has included geographic
information in Notes 15 and 16 to the Consolidated Financial Statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes a new model for accounting
for derivatives and hedging activities. SFAS 133, which will be effective for
the Company's fiscal year 2000, requires that all derivatives be recognized in
the balance sheet as either assets or liabilities and measured at fair value.
The statement also requires that changes in fair value be reported in earnings
36
<PAGE> 39
unless specific hedge accounting criteria are met. The Company is currently
evaluating the effect of the adoption of the Statement on its consolidated
financial position and results of operations.
NOTE 3 OIL AND GAS PROPERTY COSTS
Capitalized costs at December 31, 1998 and 1997 relating to the Company's
oil and gas activities are shown below (in thousands):
<TABLE>
<CAPTION>
UNITED COTE EQUATORIAL OTHER
STATES CANADA D'IVOIRE GUINEA FOREIGN TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
Proved properties ...................... $ 2,119,574 $ 127,163 $ 203,822 $ 309,127 $ -- $ 2,759,686
Unproved oil and gas interests ......... 327,015 6,948 1,003 74,681 79,042 488,689
----------- ----------- ----------- ----------- ----------- -----------
Total capitalized costs ................ 2,446,589 134,111 204,825 383,808 79,042 3,248,375
Less: Accumulated depreciation,
depletion and amortization ........ (1,385,738) (54,868) (81,484) (167,740) (1,893) (1,691,723)
----------- ----------- ----------- ----------- ----------- -----------
Net capitalized costs .................. $ 1,060,851 $ 79,243 $ 123,341 $ 216,068 $ 77,149 $ 1,556,652
=========== =========== =========== =========== =========== ===========
AS OF DECEMBER 31, 1997
Proved properties ...................... $ 1,604,809 $ 114,190 $ 109,801 $ 189,519 $ -- $ 2,018,319
Unproved oil and gas interests ......... 212,531 48 18,272 18,850 8,406 258,107
----------- ----------- ----------- ----------- ----------- -----------
Total capitalized costs ................ 1,817,340 114,238 128,073 208,369 8,406 2,276,426
Less: Accumulated depreciation,
depletion and amortization ........ (731,275) (51,396) (25,984) (57,335) (1,893) (867,883)
----------- ----------- ----------- ----------- ----------- -----------
Net capitalized costs .................. $ 1,086,065 $ 62,842 $ 102,089 $ 151,034 $ 6,513 $ 1,408,543
=========== =========== =========== =========== =========== ===========
</TABLE>
Costs incurred during 1998, 1997, and 1996 in the Company's oil and gas
activities were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED COTE EQUATORIAL OTHER
STATES CANADA D'IVOIRE GUINEA FOREIGN TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Property acquisition costs:
Proved ........................................ $ 59,534 $ 5,197 $ -- $ -- $ -- $ 64,731
Unproved ...................................... 27,868 1,958 -- -- 43,841 73,667
Exploration costs ................................ 246,522 8,874 41,886 47,014 17,838 362,134
Development costs ................................ 232,222 12,107 26,436(1) 118,833 -- 389,598
Capitalized interest on unevaluated properties ... 24,641 -- 3,010 2,380 -- 30,031
Capitalized general and administrative costs ..... 9,740 676 1,859 6,437 9,252 27,964
--------- --------- --------- --------- --------- ---------
Total costs incurred ............................. $ 600,527 $ 28,812 $ 73,191(1) $ 174,664 $ 70,931 $ 948,125
========= ========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1997
Property acquisition costs:
Proved ........................................ $ 120,520 $ 9,554 -- $ -- $ -- $ 130,074
Unproved ...................................... 105,394 2,423 -- -- -- 107,817
Exploration costs ................................ 139,824 5,811 15,344 89,719 -- 250,698
Development costs ................................ 248,363 9,308 23,462 (1) 36,842 -- 317,975
Capitalized interest on unevaluated properties ... 12,802 -- -- -- -- 12,802
Capitalized general and administrative costs ..... 9,037 452 896 513 4,094 14,992
--------- --------- --------- --------- --------- ---------
Total costs incurred ............................. $ 635,940 $ 27,548 $ 39,702 (1) $ 127,074 $ 4,094 $ 834,358
========= ========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1996
Property acquisition costs:
Proved ........................................ $ 65,658 $ 447 $ -- $ -- $ -- $ 66,105
Unproved ...................................... 74,043 865 -- -- 457 75,365
Properties held for resale ....................... (37,200) -- -- -- -- (37,200)
Exploration costs ................................ 72,241 1,833 9,253 23,013 2,090 108,430
Development costs ................................ 140,420 4,572 9,369 56,707 -- 211,068
Capitalized interest on unevaluated properties ... 5,299 -- -- 2,109 -- 7,408
Capitalized general and administrative costs ..... 6,360 537 (34) 3,670 -- 10,533
--------- --------- --------- --------- --------- ---------
Total costs incurred ............................. $ 326,821 $ 8,254 $ 18,588 $ 85,499 $ 2,547 $ 441,709
========= ========= ========= ========= ========= =========
</TABLE>
(1) Amounts do not include $4,125 and $17,229 incurred on the LPG plant in Cote
d'Ivoire in 1998 and 1997, respectively.
37
<PAGE> 40
Of the $488,689 of net unproved property costs (primarily seismic and lease
acquisition costs) at December 31, 1998, being excluded from the amortizable
base, $299,795 was incurred in 1998, $134,930 was incurred in 1997, $40,927 was
incurred in 1996 and $13,037 was incurred in prior years. The majority of the
costs will be evaluated over a five-year period.
As part of its on-going operations, the Company continually sells producing
and undeveloped reserves and related assets. Significant acquisitions and
dispositions for the three years ending December 31, 1998 are discussed below.
1998 TRANSACTIONS
On September 15, 1998, the Company acquired additional contract interests
in certain production sharing contracts in Cote d'Ivoire for a net purchase
price of $20.2 million.
On November 10, 1998, the Company completed the acquisition of incremental
interests in several North American oil and gas properties in which it already
owned a working interest. The properties were acquired from John Hancock Mutual
Life Insurance Company for a net purchase price of $38.0 million. The
acquisition was financed through the issuance of Series A Convertible Preferred
Stock (see Note 6).
In December 1998, the Company completed its acquisition of certain contract
interests in Angola for $38.6 million and in Yemen for $5.0 million.
Merger costs of $39.0 million relating to the Company's merger with UMC
were recorded in the first quarter of 1998. These costs consist primarily of
investment banking and other transaction fees, employee severance and relocation
cots as well as the write-off of deferred financing costs related to the former
credit facilities replaced by the OEI Credit Facility in March 1998. All such
costs were paid in 1998.
1997 TRANSACTIONS
On March 7, 1997, the Company completed an acquisition of certain interests
in various state leases in the Main Pass Block 69 field (the Main Pass
Acquisition), offshore Plaquemines Parish, Louisiana, for a net purchase price
of $55.9 million. The Main Pass Acquisition included interests situated
contiguous to the Company's existing Main Pass 69 holdings acquired from Shell
Oil Company, its affiliates and subsidiaries (Shell) in June 1992.
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
acquired a 50% working interest in the fields and became operator of the
properties. The acquisition included interests 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.
In 1997, the Company acquired additional interests in various properties it
operates and in which it holds an existing working interest position from
several of its institutional partners. The net cost of the additional interests
acquired from the Company's institutional partners was approximately $49.6
million. In addition, the Company acquired interests in other North American
properties for total consideration of $13.0 million.
During 1997, the Company sold additional non-strategic North American
properties for total proceeds of $19.4 million.
38
<PAGE> 41
1996 TRANSACTIONS
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 included in Inventory. The subject
property was sold on January 3, 1997, for $37.2 million. No gain or loss was
recognized on the sale.
In 1995, the Company agreed to assign to Yukong Limited a portion of its
interests in Blocks CI-01 and CI-02 in Cote d'Ivoire and Blocks B, C and D in
Equatorial Guinea. Mobil Equatorial Guinea, Inc. subsequently exercised its
preferential right to purchase the interest in Block B in lieu of the proposed
assignment to Yukong Limited. Under the agreements, the Company received $40.1
million in cash in 1996 and 1995.
In June 1996, Ocean Energy Resources Canada, Ltd. (Resources), the
Company's wholly-owned Canadian subsidiary, sold all of its interest in the
Rocanville area in the province of Saskatchewan, effective May 1, 1996. Net
proceeds from the sale were $6.7 million.
In September 1996, the Company executed an agreement with Shell Exploration
Africa B.V. to sell a 55% contract interest in Block CI-105 in Cote d'Ivoire for
total cash proceeds of $3.3 million, including $0.9 million relating to
reimbursement of certain exploration costs.
During 1996, the Company sold various other non-strategic North American
properties for total proceeds of $22.1 million.
NOTE 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 East Bay
Fields, requires monthly deposits until the escrow account equals $40.0 million.
The second agreement, related to its interest in the Main Pass 69 field,
required an initial deposit of $250,000 and monthly deposits thereafter until
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,
1998 and 1997, the escrow balances were approximately $10.8 million and $8.5
million, respectively. The Company is currently in negotiations to release the
escrow balances.
39
<PAGE> 42
NOTE 5 DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OEI Credit Facility ............................... $ 357,000 $ --
Revolving Credit Facility ......................... -- 30,500
Global credit facility ............................ -- 126,496
13 1/2% senior notes .............................. 245 245
8 1/4% senior notes .............................. 125,000 --
7 5/8% senior notes .............................. 125,000 --
10 3/8% senior subordinated notes ................. 150,000 150,000
9 3/4% senior subordinated notes ................. 159,318 159,230
8 7/8% senior subordinated notes ................. 199,711 199,677
8 3/8% senior subordinated notes ................. 250,000 --
Other ............................................ 6,452 7,061
----------- -----------
1,372,726 673,209
Less: current maturities ......................... (836) (911)
----------- -----------
$ 1,371,890 $ 672,298
=========== ===========
</TABLE>
Current maturities of long-term debt at December 31, 1998 by calendar year
are as follows (in thousands):
<TABLE>
<S> <C> <C>
1999.......................................... $ 836
2000.......................................... 779
2001.......................................... 779
2002.......................................... 779
2003.......................................... 357,779
Thereafter.................................... 1,011,774
-------------
$ 1,372,726
=============
</TABLE>
OEI CREDIT FACILITY
Concurrent with the closing of the Merger on March 27, 1998, the Company
entered into a $750.0 million five-year unsecured revolving credit facility (OEI
Credit Facility) which provided for a $600.0 million initial borrowing base and
which combined and replaced both the Revolving Credit Facility and the Global
Credit Facility discussed below. The OEI Credit Facility, which is with a group
of commercial banks, provides for various borrowing options under either a base
rate or Eurodollar margin rates. Total borrowings outstanding against the
facility were repaid in July 1998 with the proceeds from a $500.0 million Notes
Offering, discussed below, made by the Company pursuant to Rule 144A. At that
time, the OEI Credit Facility was restated and amended to a $400.0 million,
five-year revolving credit facility, with an initial borrowing base of $300.0
million. In November 1998, the borrowing base was increased to $400.0 million.
As of December 31, 1998, total borrowings outstanding against the OEI Credit
Facility were approximately $357.0 million, leaving approximately $43.0 million
of available credit. In February 1999, the Company put in place a $20.0 million
facility, primarily to support certain outstanding letters of credit.
The OEI Credit Facility contains certain financial and ratio covenants. The
Company's financial results through December 31, 1998 did not comply with one of
these covenant tests. This event of noncompliance, and subsequent application of
this covenant, was waived by the lenders until the Company's planned merger with
Seagull or the September 30, 1999 reporting date. The Company has planned and
potential asset sales and other financing opportunities believed available which
could be used to achieve compliance with this covenant. Accordingly, the Company
believes it is probable it will comply with this covenant throughout 1999. The
amount outstanding under the OEI Credit Facility has been classified as
long-term in the accompanying December 31, 1998 balance sheet.
NOTES OFFERING
On July 8, 1998, the Company closed an offering of $500.0 million Senior
and Senior Subordinated Notes receiving net proceeds of approximately $487.8
million, after deducting underwriting discounts and expenses. The
40
<PAGE> 43
offering, made pursuant to Rule 144A, comprised three separate indentures
including $125.0 million of 7 5/8% Senior Notes due July 1, 2005, $125.0 million
of 8 1/4% Senior Notes due July 1, 2018, and $250.0 million of 8 3/8% Senior
Subordinated Notes due July 1, 2008. The proceeds from the offering were used to
pay off amounts then outstanding under the OEI Credit Facility at the closing of
the offering. The excess net proceeds of the offering over the amounts
outstanding under the OEI Credit Facility have since been used for capital
expenditures and general corporate purposes. On September 21, 1998, the Company
filed a registration statement on Form S-4 with the SEC to exchange the Notes
for publicly-traded instruments with identical terms. Such exchange offer was
completed on October 23, 1998.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility was a three-year $250.0 million facility with
a $200.0 million borrowing base, maturing on October 31, 2000.
At the Company's option, borrowings under the Revolving Credit Facility
bore 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.
GLOBAL CREDIT FACILITY
As of January 1997, the Global Credit Facility provided a borrowing base
amount of $200.0 million. In November 1997, the borrowing base was increased to
$300.0 million.
During 1997 and 1996, the Global Credit Facility provided the Company with
various interest rate options based upon prime and LIBOR rates.
13 1/2% SENIOR NOTES
On December 7, 1994, in conjunction with the OEI initial public offerings,
the Company completed an offering of $125.0 million of 13 1/2% Senior Notes due
December 1, 2004 (the 13 1/2% Notes). Interest was payable semi-annually on June
1 and December 1 of each year, commencing June 1, 1995. On July 22, 1997, the
Company amended the indenture governing its 13 1/2% Notes 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.
10 3/8% SENIOR SUBORDINATED NOTES
On October 30, 1995, the Company completed a public offering of $150.0
million of 10 3/8% Senior Subordinated Notes (10 3/8% Notes) due 2005 at an
initial price of 99.5% of face value. Proceeds of $144.9 million (after
deducting underwriting discounts, commission and expenses of the offering) were
used to reduce debt under the Global Credit Facility. Interest is payable
semi-annually on April 15 and October 15 of each year, commencing April 15,
1996. The 10 3/8% Notes are general unsecured senior obligations of the Company
and are guaranteed by Ocean Louisiana, but are subordinate to the OEI Credit
Facility. The 10 3/8% Notes are redeemable at the option of the Company, in
whole or in part, at any time after October 15, 2000 at certain premiums to face
value.
9 3/4% SENIOR SUBORDINATED NOTES
On September 26, 1996, the Company completed the offering of $160.0 million
of 9 3/4% Senior Subordinated Notes due 2006 (9 3/4% Notes) at a discount for
net proceeds of approximately $154.0 million (after offering costs). Interest on
the 9 3/4% Notes is payable semi-annually on April 1 and October 1 of each year.
The 9 3/4% Notes are general unsecured senior obligations of the Company and are
guaranteed by Ocean Louisiana, but are subordinate to the OEI Credit Facility.
Proceeds to the Company were used primarily to complete the acquisition of the
Central Gulf Properties.
41
<PAGE> 44
8 7/8% SENIOR SUBORDINATED NOTES
On July 2, 1997, the Company completed the offering of $200.0 million of
8 7/8% Senior Subordinated Notes due 2007 (8 7/8% Notes) at a discount for
proceeds of approximately $195.2 million (after offering costs). Interest is
payable semi-annually on January 15 and July 15 of each year. The 8 7/8% Notes
are general unsecured senior obligations of the Company and are guaranteed by
Ocean Louisiana, but are subordinate to the OEI Credit Facility. Proceeds to the
Company were used primarily to finance the purchase of the 13 1/2% Notes and to
repay outstanding indebtedness under the Revolving Credit Facility.
OTHER LONG-TERM DEBT
Havre Pipeline Company LLC, a limited liability corporation in which the
Company had a 58% interest at December 31, 1998, entered into a credit agreement
(Havre Credit Agreement) which provided a Term Loan due September 30, 2005. The
Company's proportionate share outstanding at December 31, 1998 is $6.5 million,
including current maturities. A new credit agreement was executed in January,
1999. The term note has a three-year draw down period and a ten-year payment
schedule with payments required quarterly. Additional principal payments may be
required under the Havre Credit Agreement if operating cash flows of the limited
liability corporation exceed predetermined levels. The Havre Credit Agreement is
currently guaranteed by a subsidiary of the Company.
OTHER DISCLOSURES
Effective January 18, 1994, the Company entered into five-year fixed LIBOR
interest rate swap contracts that provided for fixed interest rates to be
realized on notional amounts of $45.0 million from 1995 through 1998. The
agreement included varying annual fixed interest rates ranging from 3.66% in
1994 to 6.40% in 1998, plus interest rate margins. In 1995 and 1996, the Company
had in place a two-year LIBOR interest rate cap contract on an additional
notional amount of $45.0 million at interest rate caps of 7.60% and 8.30%,
respectively, plus interest rate margins. The contracts expired in January,
1999.
NOTE 6 CAPITAL STOCK
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
Agreement and Plan of Merger 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 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.
The Company has authorized 250,000,000 shares of common stock, 8,000,000
shares of preferred stock and 2,000,000 shares of junior preferred stock.
The following table summarizes the calculation of annual weighted average
common shares outstanding for purposes of the computations of earnings per share
(in thousands):
42
<PAGE> 45
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Shares outstanding from beginning of period ................ 100,109 91,742 71,799
Exercise of stock options and warrants ..................... 596 600 795
Conversion of Series F Preferred Stock ..................... -- -- 1,043
Common shares issued in November 1997 offering ............. -- 973 --
Common shares issued in March 1996 offering ................ -- -- 8,258
Common shares issued in November 1996 offering ............. -- -- 789
------- ------- -------
Weighted average number of common shares outstanding ....... 100,705 93,315 82,684
Common stock equivalents of stock options .................. -- 3,331 3,221
------- ------- -------
Weighted average number of common shares and
common share equivalents outstanding ..................... 100,705 96,646 85,905
======= ======= =======
</TABLE>
On November 10, 1998, the Company completed a private placement of 50,000
shares of Series A Convertible Preferred Stock for $38.0 million of oil and gas
properties and $12.0 million cash from one of its institutional investors and an
affiliate of such investor. The Series A shares have a 6.5% cumulative dividend
payable semi-annually beginning April 1, 1999. The conversion price of the
Series A shares is $15.00.
NOTE 7 INCOME TAXES
Under the provisions of SFAS No. 109, the components of the net deferred
income tax assets and liabilities recognized in the Company's Consolidated
Balance Sheet at December 31, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1998
--------------------------------------------------
FEDERAL FOREIGN STATE TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets -
Excess of tax basis in oil and gas
properties over basis for financial
reporting purposes ...................... $ 136,820 $ -- $ -- $ 136,820
Net operating loss carryforward ........... 67,550 34,393 6,640 108,583
Percentage depletion carryforward ......... 2,688 -- 281 2,969
Investment tax credit carryforward ........ 25 -- -- 25
Alternative minimum tax
credit carryforward ..................... 4,187 -- -- 4,187
Deferred foreign tax
credit carryforward ..................... -- -- -- --
Other ..................................... 802 -- 84 886
Valuation allowance ....................... (6,595) -- (91) (6,686)
--------- --------- --------- ---------
205,477 34,393 6,914 246,784
--------- --------- --------- ---------
Deferred tax liabilities -
Excess of basis in oil and gas
properties for financial reporting
purposes over the tax basis ............. -- 29,373 6,155 35,528
Other ..................................... 1,187 -- 1,489 2,676
--------- --------- --------- ---------
1,187 29,373 7,644 38,204
--------- --------- --------- ---------
Net deferred tax asset (liability) .......... 204,290 5,020 (730) 208,580
Current portion of deferred tax assets
classified as current asset (liability) ... (1,104) -- (130) (1,234)
--------- --------- --------- ---------
Total non-current deferred tax
asset (liability) ......................... $ 205,394 $ 5,020 $ (600) $ 209,814
========= ========= ========= =========
<CAPTION>
1997
----------------------------------------- ---------
FEDERAL FOREIGN STATE TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets -
Excess of tax basis in oil and gas
properties over basis for financial
reporting purposes ...................... $ -- $ -- $ -- $ --
Net operating loss carryforward ........... 42,952 16,774 4,956 64,682
Percentage depletion carryforward ......... 2,508 -- 131 2,639
Investment tax credit carryforward ........ 989 -- -- 989
Alternative minimum tax
credit carryforward ..................... 3,964 -- -- 3,964
Deferred foreign tax
credit carryforward ..................... 920 -- -- 920
Other ..................................... 79 -- 4 83
Valuation allowance ....................... (2,971) -- (70) (3,041)
--------- --------- --------- ---------
48,441 16,774 5,021 70,236
--------- --------- --------- ---------
Deferred tax liabilities -
Excess of basis in oil and gas
properties for financial reporting
purposes over the tax basis ............. 45,760 25,436 5,911 77,107
Other ..................................... 1,186 -- 1,425 2,611
--------- --------- --------- ---------
46,946 25,436 7,336 79,718
--------- --------- --------- ---------
Net deferred tax asset (liability) .......... 1,495 (8,662) (2,315) (9,482)
Current portion of deferred tax assets
classified as current asset (liability) ... 1,365 -- 182 1,547
--------- --------- --------- ---------
Total non-current deferred tax
asset (liability) ......................... $ 130 $ (8,662) $ (2,497) $ (11,029)
========= ========= ========= =========
</TABLE>
As of December 31, 1998 and 1997, the Company and its subsidiaries had U.S.
federal net operating loss (NOL) carryforwards of approximately $193.0 million
and $122.7 million, respectively, and Equatorial Guinea NOL carryforwards of
approximately $137.6 million and $67.0 million, respectively. The Company's
Canadian subsidiary also had $55.1 million and $32.2 million in Canadian Tax
Pool carryforwards as of December 31, 1998 and 1997, respectively.
The Company is subject to taxation under the laws of Cote d'Ivoire,
Equatorial Guinea and other foreign jurisdictions. Income taxes in these
jurisdictions will be taken as a credit or deduction against the Company's
United States tax liability.
43
<PAGE> 46
A valuation allowance is provided for that portion of a tax asset for which
it is deemed more likely than not that it will not be realized. Due to the
recent decrease in oil and gas prices, management provided a $4.5 million
valuation allowance for the deferred tax asset related to the NOL that will
expire in 1999. The Company has recognized a deferred tax asset relating to the
remaining NOL carryforwards. The U.S. federal NOLs expire as follows (in
thousands):
<TABLE>
<S> <C>
1999................................................................ $ 12,788
2000................................................................ 16,499
2001................................................................ 6,305
2002................................................................ 1,227
2003................................................................ 19,435
2004................................................................ 3,186
2005................................................................ 1,624
2006................................................................ 6,597
Beyond 2006......................................................... 125,338
-----------
$ 192,999
===========
</TABLE>
For federal income tax purposes, certain limitations are imposed on an
entity's ability to utilize its NOLs in future periods if a change of control,
as defined for federal income tax purposes, has taken place. In general terms,
the limitation on utilization of NOLs and other tax attributes during any one
year is determined by the value of an acquired entity at the date of the change
of control multiplied by the then-existing long-term, tax-exempt interest rate.
The manner of determining an acquired entity's value has not yet been addressed
by the Internal Revenue Service. The Company has determined that, for federal
income tax purposes, a change of control occurred as a result of the stock
purchases made by the Company's shareholders, and future utilization of NOLs
will be limited in the manner described above. The use of NOLs acquired as a
result of corporate acquisitions were already subject to limitations computed at
the time of each acquisition. While the effect of such limitations may be to
defer the use of existing NOL carryforwards, the Company does not believe such
limitations will significantly impact the Company's ability to utilize the NOLs.
As of December 31, 1997, the Company and its subsidiaries had investment
tax credit carryforwards of approximately $1.0 million. The amount of investment
tax credit carryfowards at December 31, 1998, was not significant. To the extent
not utilized, these carryforwards will expire in the years 1998 through 2001.
For purposes of computing the net deferred tax liability as of December 31,
1997, none of these carryforwards were utilized.
The components of the Income tax provision (benefit) recognized on the
Consolidated Statement of Income are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current taxes -
Federal .............................. $ 321 $ 169 $ 455
Foreign .............................. 3,512 4,716 98
State ................................ (18) 1,335 232
--------- --------- ---------
3,815 6,220 785
--------- --------- ---------
Deferred taxes -
Federal .............................. (198,798) 28,278 21,769
Foreign .............................. (13,131) 5,408 3,888
State ................................ (1,585) 1,086 (227)
--------- --------- ---------
(213,514) 34,772 25,430
--------- --------- ---------
Total income tax provision (benefit) ... $(209,699) $ 40,992 $ 26,215
========= ========= =========
</TABLE>
44
<PAGE> 47
The following is a reconciliation of the income tax provision (benefit)
computed by applying the federal statutory income tax rate to net income (loss)
before income taxes to the income tax provision (benefit) shown on the
Consolidated Statement of Income (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision (benefit) computed at the
federal statutory rate of 35% ................................ $(215,802) $ 36,125 $ 28,425
State and local taxes (net of federal effect) ................... (1,575) 1,430 (610)
Foreign income taxes (net of federal effect) .................... 2,309 2,977 --
Tax effect of:
Provision for net book deductions not available
for tax due to differences in book/tax basis ............... 2,337 329 499
Provision for net taxable income not available for books ..... 2,310 -- --
Provision for nondeductible merger costs ..................... 7,103 -- --
Foreign deferred tax benefit (net of federal effect) ......... (12,509) -- --
Excess of taxes on foreign income over federal
statutory rate ............................................. 86 43 291
Provision (benefit) resulting from adjustments from
estimate to actual in estimating taxable income ............ 1,072 459 (2,139)
Alternative minimum tax-credit carryforward benefit .......... (112) (151) (193)
Change in valuation allowance ................................ 4,476 -- --
Other ........................................................ 606 (220) (58)
--------- --------- ---------
Income tax provision (benefit) .................................. $(209,699) $ 40,992 $ 26,215
========= ========= =========
</TABLE>
45
<PAGE> 48
NOTE 8 EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
At December 31, 1998, the Company had seven non-qualified stock option
plans:
<TABLE>
<CAPTION>
Authorized Available
Shares Outstanding for Issuance
---------- ---------- ----------
<S> <C> <C> <C>
1987 Employee Plan ......................................... 2,210,000 376,385 --
1994 Employee Plan ......................................... 5,265,000 2,090,121 --
1994 Outside Directors Plan ................................ 325,000 195,000 --
1994 Long Term Incentive Plan .............................. 3,510,000 2,734,079 --
1996 Long Term Incentive Plan .............................. 2,340,000 947,711 --
1998 Long Term Incentive Plan .............................. 2,900,000 1,850,000 490,000
Long Term Incentive Plan for Non-Executive Employees ....... -- 4,474,687 --
---------- ---------- ----------
16,550,000 12,667,983 490,000
========== ========== ==========
</TABLE>
The plans provide that directors, officers and key employees may be awarded
options to purchase Common Stock of the Company at a price equal to the market
value of OEI Common Stock on the award date. New options granted will vest over
a three-year period. As a result of the Merger, virtually all options
outstanding became fully vested and are exercisable by the optionees. On
November 23, 1998, the Company cancelled options which had been issued during
fiscal year 1998 under the Long Term Incentive Plan for Non-Executive Employees
and reissued them at an option price which reflected current market value of the
Company's stock as of that date. No compensation expense was recognized by the
Company for fiscal year 1998 as a result of the transaction. The following table
reflects summarized information about stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercisable Exercisable Exercisable
Exercise Price at 12/31/98 Life (in years) Price at 12/31/98 Price
-------------- -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 2.00 to $ 6.75 2,590,966 5.9 $ 4.64 2,590,966 $ 4.64
$ 7.60 to $12.00 4,638,285 8.6 $ 8.85 1,879,385 $ 9.28
$13.80 to $18.37 1,456,746 8.0 $ 15.84 1,456,746 $ 15.84
$19.50 to $29.25 3,647,886 9.0 $ 22.63 1,747,966 $ 21.95
$33.90 to $36.55 334,100 8.8 $ 33.99 334,100 $ 33.99
---------- ---------
12,667,983 8,009,163
========== =========
</TABLE>
A summary of actual options granted and exercised follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Option shares outstanding -
Beginning of year .............................. 9,334,600 8,090,322 7,592,666
Granted ........................................ 7,960,300 2,423,590 2,510,690
Exercised ...................................... (1,084,405) (1,111,886) (1,393,281)
Cancelled ...................................... (3,542,512) (67,426) (619,753)
----------- ---------- ----------
End of year .................................... 12,667,983 9,334,600 8,090,322
=========== ========== ==========
Shares available for grant at end of year ........ 490,000 2,896,678 678,687
Shares exercisable at end of year ................ 8,009,163 4,167,056 3,237,673
Average price of options exercised
during the year ................................ $ 8.07 $ 7.07 $ 5.78
Average exercise price of options outstanding
at end of year ................................. $ 13.42 $ 12.34 $ 9.30
Weighted average fair value of options
granted during the year ........................ $ 11.42 $ 10.56 $ 7.78
Weighted average exercise price for options
granted during the year ........................ $ 17.80 $ 20.87 $ 15.49
</TABLE>
46
<PAGE> 49
The Company accounts for these plans under Accounting Principles Board
Opinion (APB) Opinion No. 25, Accounting for Stock Issued to Employees, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS 123, Accounting for Stock-Based
Compensation, the Company's reported net income (loss) and earnings (loss) per
share would have been adjusted to the following pro forma amounts (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
1998 1997
------------------------- -------------------------
As As
Reported Pro Forma Reported Pro Forma
----------- ----------- ----------- -----------
Net income (loss) before
extraordinary item ........ $(406,879) $(427,166) $ 62,220 $ 55,302
Net income (loss) after
extraordinary item ........ $(406,879) $(427,166) $ 42,919 $ 36,001
Earnings (loss) per
common share before
extraordinary item
Basic .................. $ (4.04) $ (4.43) $ 0.67 $ 0.59
Diluted ................ $ (4.04) $ (4.43) $ 0.64 $ 0.57
Earnings (loss) per
common share after
extraordinary item
Basic .................. $ (4.04) $ (4.43) $ 0.46 $ 0.39
Diluted ................ $ (4.04) $ (4.43) $ 0.44 $ 0.37
<CAPTION>
For the Years Ended
December 31,
------------------------
1996
------------------------
As
Reported Pro Forma
----------- -----------
<S> <C> <C>
Net income (loss) before
extraordinary item ........ $ 55,000 $ 50,676
Net income (loss) after
extraordinary item ........ $ 55,000 $ 50,676
Earnings (loss) per
common share before
extraordinary item
Basic .................. $ 0.65 $ 0.60
Diluted ................ $ 0.62 $ 0.58
Earnings (loss) per
common share after
extraordinary item
Basic .................. $ 0.65 $ 0.60
Diluted ................ $ 0.62 $ 0.58
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following assumptions used for
grants in 1998, 1997 and 1996, respectively; risk-free interest rates of 4.73%
to 5.75%, 6.16% to 6.83%, and 5.40% to 6.76%; expected dividend yields of 0%, 0%
and 0%; expected lives of 5.0 years to 6.5 years, 5.0 years to 6.5 years and 5.0
years to 6.5 years; and expected volatility of 61.03%, 42.67% to 54.13%, and
39.34% to 43.14%. Under SFAS 123, the acceleration of vesting of options due to
the Merger resulted in the recognition of all remaining unamortized compensation
expense relating to those options.
RESTRICTED STOCK
On November 24, 1998, the Company, under its 1998 Long Term Incentive Plan,
awarded a total of 560,000 shares of restricted stock with a fair market value
of $10.25 per share to six executive officers at no cost to the employees. The
stock will vest over a period of three years and any unvested shares must be
forfeited in the event employment is terminated for any reason other than death,
disability or retirement. Upon a change in control of the Company any unvested
shares automatically become vested and all restrictions lapse. The Company
accounts for this stock in accordance with APB Opinion No. 25.
SAVINGS PLAN
The Company maintains defined contribution savings plans for the benefit of
its U.S. employees. During 1998, 1997 and 1996, the Company made contributions
to the Plans on behalf of all participants totaling $2.3 million, $1.6 million
and $1.3 million, respectively.
Resources maintains a separate group savings plan for its employees. During
1998, 1997 and 1996, this subsidiary contributed $73,000, $76,000, and $67,000,
respectively, to the Plan for the benefit of its employees.
NOTE 9 MAJOR CUSTOMERS
The Company markets its oil and gas production to numerous purchasers under
a combination of short and long-term contracts. During 1998, 1997 and 1996,
Shell Oil Company accounted for 12%, 21% and 28%, respectively, of the Company's
oil and gas revenues. Mobil Sales and Supply Corporation accounted for 15% of
the Company's oil and gas revenues in 1998 and 1997 as the purchaser of the
Company's production in Equatorial Guinea. During 1998, 1997 and 1996, the
Company had no other purchasers that accounted for greater than 10% of its oil
and gas revenues. The Company believes that the loss of any single customer
would not have a material adverse effect on the results of operations of the
Company.
47
<PAGE> 50
NOTE 10 COMMITMENTS AND CONTINGENCIES
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,
1998, the total future abandonment costs on the Company's oil and gas properties
estimated to be incurred were approximately $156.5 million. 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 $3.0 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 in 1998 became
exempt from supplemental bonding requirements. 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 (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.
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. This amount is subject to upward
regulatory adjustment up to $150.0 million.
The Company has entered into operating leases for office space and
equipment for which $3.6 million, $3.1 million, and $1.9 million, in rental
expense has been included in the accompanying financial statements for the years
ended December 31, 1998, 1997 and 1996, respectively. Future minimum rental
payments required for the years ending December 31, 1999 through 2003 are $3.0
million, $3.1 million, $3.4 million, $3.4 million and $3.6 million,
respectively.
Resources has an agreement with Nova Corporation, a natural gas pipeline
company, to transport specified quantities of natural gas. Future minimum
transportation expense payments required for years ending December 31, 1999
through 2003 are $0.9 million, $0.6 million, $0.5 million, $0.3 million and $0.3
million, respectively.
The Company has entered into agreements for transportation of specified
quantities of natural gas across Canada for sales to the Great Lakes region.
Future minimum transportation expense payments required for years ending
December 31, 1999 through 2003 are $5.4 million, $3.0 million, $3.0 million,
$2.8 million, and $1.6 million, respectively.
48
<PAGE> 51
NOTE 11 RELATED PARTY TRANSACTIONS
The Company currently conducts a portion of its oil and gas activities in
conjunction with a group of institutional and corporate investors that
participate in certain of the Company's acquisition, development and exploration
programs, and provide the Company with certain carried interests and management
fees. Management fee income of $3.0 million, $3.0 million and $1.8 million,
related to the years ended December 31, 1998, 1997 and 1996, respectively, is
included in the Consolidated Statement of Income.
During 1998, 1997 and 1996, the Company paid $0.8 million, $1.5 million and
$1.4 million, respectively, to an affiliate of a stockholder associated with an
overriding royalty interest owned by it.
In 1996, the Company executed agreements with various entities controlled
by two former directors of UMC covering coventures in Pakistan, Bangladesh and
possible other international exploration opportunities.
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 was
extended such that the new expiration date of the agreement was October 31,
1999. In 1998, 1997, and 1996, the Company paid $134,823, $107,952, and
$110,565, respectively, relating to the agreement.
All transactions with the aforementioned entities are under normal industry
terms and conditions.
NOTE 12 LITIGATION AND CLAIMS
The U.S. Environmental Protection Agency has indicated that the Company may
be potentially responsible for costs and liabilities associated with alleged
releases of hazardous substances at two sites in Louisiana under the
Comprehensive Environmental Response, Compensation and Liability Act. Given the
extremely large number of companies that have been identified as potentially
responsible for releases of hazardous substances at the sites and the small
volume of hazardous substances allegedly disposed of by the companies whose
properties the Company acquired, management believes that the Company's
potential liability arising from these sites, if any, will not have a material
adverse impact on the Company.
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.
The Company is a named defendant in lawsuits and is a party in governmental
proceedings from time to time arising in the ordinary course of business. While
the outcome of such lawsuits or other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial position or results of operations of
the Company.
NOTE 13 CREDIT RISK AND PRICE PROTECTION AGREEMENTS
TRADE RECEIVABLES AND PAYABLES
Substantially all of the Company's accounts receivable at December 31,
1998, result from oil and gas sales and joint interest billings to other
companies in the oil and gas industry and institutional partners. This
concentration of customers and joint interest owners may impact the Company's
overall credit risk, either positively or negatively, in
49
<PAGE> 52
that these entities may be similarly affected by industry-wide changes in
economic or other conditions. Receivables from oil and gas sales are generally
not collateralized. Credit losses incurred by the Company on receivables
generally have not been significant in prior years.
OIL AND GAS MARKET HEDGES
The Company's revenues are primarily the result of sales of its oil and
natural gas production. Market prices of oil and natural gas fluctuate and may
adversely affect operating results. To mitigate this risk, the Company has, from
time to time, entered into oil and natural gas price hedging contracts to reduce
its exposure to price reductions on its production. These transactions have been
entered into with major financial institutions, thereby minimizing credit risk.
The Company hedges 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 New York
Mercantile Exchange (NYMEX) light sweet 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. In addition, the Company has combined contracts
which have agreed upon price floors and ceilings (Costless Collars). To the
extent the average NYMEX price exceeds the contract ceiling, the Company pays
the spread between the ceiling and the average NYMEX price applied to the
related contract volumes. To the extent the contract floor exceeds the average
NYMEX price, the Company receives the spread between the contract floor and the
average NYMEX price applied to the related contract volumes. Under the terms of
the Swap Agreements, certain counterparties have extended the Company a $5
million line of credit for use in conjunction with its hedging activities. As of
December 31, 1998, the Company had no outstanding oil or natural gas Swaps and
the fair market value of the natural gas Costless Collars was approximately $7.3
million.
As of December 31, 1998, the Company's open forward position on its
outstanding natural gas Costless Collars was as follows:
<TABLE>
<CAPTION>
Effective Contracted Contracted Contracted
---------------- Volumes Floor Ceiling
Year From Through (MMBTU/day) Price Price
---- ---- ------- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
1999 January December 30,000 $2.10 $2.550
1999 January December 20,000 $2.10 $2.605
1999 January December 40,000 $2.10 $2.630
1999 January December 10,000 $2.10 $2.650
</TABLE>
These Collars were cancelled in January 1999, resulting in net proceeds of
$6.9 million. The Company currently has no outstanding hedging arrangements.
The results of hedging increased (decreased) natural gas and oil revenues
by $24.5 million, ($1.3) million and ($22.6) million for the years ended
December 31, 1998, 1997 and 1996, respectively.
50
<PAGE> 53
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables and payables, long-term debt, interest rate hedging
agreements and natural gas and oil hedging agreements. As of December 31, 1998
and 1997, the fair market values of the Company's financial instruments are
shown below:
CASH, TRADE RECEIVABLES AND PAYABLES: The carrying amount approximates fair
market value due to the highly liquid nature of these short-term instruments.
OEI CREDIT FACILITY: As of December 31, 1998, the carrying amount of the
OEI Credit Facility approximates fair value due to the nature of the facility,
whereby the interest rates offered by the member banks are floating rates which
reflect market rates.
REVOLVING CREDIT FACILITY: As of December 31, 1997, the carrying amount of
the Revolving Credit Facility approximated fair value due to the nature of the
facility, whereby the interest rates offered by the member banks are floating
rates which reflect market rates.
GLOBAL CREDIT FACILITY: As of December 31, 1997, the carrying amount of the
Global Credit Facility approximated fair value due to the nature of the
facility, whereby the interest rates offered by the member banks are floating
rates which reflect market rates.
13 1/2% SENIOR NOTES: As of December 31, 1998 and 1997, the carrying amount
of the 13 1/2% Notes was $0.2 million and the fair value was $0.3 million.
8 1/4% SENIOR NOTES: As of December 31, 1998, the carrying amount of the
8 1/4% Notes was $125.0 million and the fair value was $116.3 million.
7 5/8% SENIOR NOTES: As of December 31, 1998, the carrying amount of the
7 5/8% Notes was $125.0 million and the fair value was $120.0 million.
10 3/8% SENIOR SUBORDINATED NOTES: As of December 31, 1998 and 1997, the
carrying amount of the 10 3/8% Notes was $150.0 million and the fair value was
$157.5 million and $164.3 million, respectively.
9 3/4% SENIOR SUBORDINATED NOTES: As of December 31, 1998 and 1997, the
carrying amount of the 9 3/4% Notes was $159.3 million and $159.2 million,
respectively, and the fair value was $164.1 million and $175.6 million,
respectively.
8 7/8% SENIOR SUBORDINATED NOTES: As of December 31, 1998 and 1997, the
carrying amount of the 8 7/8% Notes was $199.7 million and the fair value was
$193.7 million and $212.5 million, respectively.
8 3/8% SENIOR SUBORDINATED NOTES: As of December 31, 1998, the carrying
amount of the 8 3/8% Notes was $250.0 million and the fair value was $233.8
million.
NATURAL GAS AND OIL HEDGING AGREEMENTS: The fair market value of the
natural gas and oil hedging contracts at December 31, 1998 and 1997, was $7.3
million and $6.8 million, respectively.
51
<PAGE> 54
NOTE 15 GEOGRAPHIC DATA
The Company is an independent oil and gas company engaged in the
exploration, development, production and acquisition of oil and natural gas
properties. Information about the Company's operations by geographic area for
the years ended December 31, 1998, 1997, and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED COTE EQUATORIAL OTHER
STATES CANADA D'IVOIRE GUINEA INTERNATIONAL TOTAL
---------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues ................................. $ 403,853 $ 19,233 $ 25,953 $ 74,220 $ -- $ 523,259
Depreciation, depletion and amortization . $ 224,154 $ 7,442 $ 12,049 $ 50,178 $ 82 $ 293,905
Write-down of oil and gas properties ..... $ 435,768 $ -- $ 43,723 $ 60,424 $ -- $ 539,915
Operating profit (loss) .................. $ (431,585) $ 3,874 $ (37,660) $ (49,393) $ (82) $ (514,846)
Capital expenditures ..................... $ 614,381 $ 29,192 $ 77,316 $ 174,664 $ 70,931 $ 966,484
Identifiable assets ...................... $1,383,843 $ 87,495 $ 160,606 $ 295,897 $ 79,119 $2,006,960
YEAR ENDED DECEMBER 31, 1997
Revenues ................................. $ 426,901 $ 18,629 $ 27,803 $ 78,861 $ -- $ 552,194
Depreciation, depletion and amortization . $ 179,492 $ 7,642 $ 14,638 $ 46,600 $ 51 $ 248,423
Operating profit (loss) .................. $ 111,514 $ 3,392 $ 7,564 $ 26,740 $ (51) $ 149,159
Capital expenditures ..................... $ 642,756 $ 27,832 $ 56,931 $ 127,074 $ 4,094 $ 858,687
Identifiable assets ...................... $1,563,384 $ 52,619 $ 4,684 $ 30,897 $ (8,589) $1,642,995
YEAR ENDED DECEMBER 31, 1996
Revenues ................................. $ 334,485 $ 17,238 $ 22,680 $ 21,431 $ -- $ 395,834
Depreciation, depletion and amortization . $ 122,651 $ 4,910 $ 9,129 $ 10,916 $ 37 $ 147,643
Operating profit (loss) .................. $ 102,309 $ 5,200 $ 8,181 $ 6,776 $ (37) $ 122,429
Capital expenditures ..................... $ 326,821 $ 8,254 $ 18,588 $ 85,557 $ 2,489 $ 441,709
Identifiable assets ...................... $1,035,540 $ 45,887 $ 14,459 $ 26,901 $ (1,546) $1,121,241
</TABLE>
NOTE 16 DISCLOSURE OF OIL AND GAS OPERATIONS (UNAUDITED)
PROVED RESERVES
Substantially all reserve estimates presented herein were prepared by
either Ryder Scott Company, Netherland, Sewell & Associates, Inc., or McDaniel &
Associates Consultants Ltd., independent petroleum engineers. The Company
cautions that there are many uncertainties inherent in estimating proved reserve
quantities, in projecting future production rates and in the timing of future
development expenditures. In addition, reserve estimates of new discoveries are
more imprecise than those of properties with a production history. Accordingly,
these estimates are subject to change as additional information becomes
available.
Proved oil and gas reserves are the estimated quantities of oil,
condensate, natural gas and natural gas liquids that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
developed oil and gas reserves are those reserves expected to be recovered
through existing wells with existing equipment and operating methods.
Information presented for the Company's international locations relates to
contract interests held in multiple production sharing contracts between the
Company, its joint venture partners and the governments of Cote d'Ivoire and
Equatorial Guinea. The Company has no ownership interest in the oil and gas
reserves but does have the right to share revenues and/or production and is
entitled to recover most field and other operating costs. The reserve estimates
are subject to revision as prices fluctuate due to the cost recovery feature
under the production sharing contract.
Net quantities of proved reserves and proved developed reserves of oil
(including condensate and natural gas liquids) and natural gas, as well as the
changes in proved reserves during the periods indicated, are set forth in the
tables below:
52
<PAGE> 55
<TABLE>
<CAPTION>
EQUATORIAL
UNITED STATES CANADA COTE D'IVOIRE GUINEA TOTAL
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NATURAL GAS (MMcf)
PROVED:
December 31, 1995 .................. 381,230 62,438 82,461 -- 526,129
Revisions of previous estimates .... 43,640 (3,764) 7,848 -- 47,724
Extensions, discoveries and
other additions .................. 53,960 8,567 2,488 -- 65,015
Purchases .......................... 53,040 894 -- -- 53,934
Sales of reserves-in-place ......... (19,178) (15) -- -- (19,193)
Production (sold by the Company) ... (66,439) (5,339) (2,387) -- (74,165)
Production (consumed by
the Company) ..................... (3,363) -- -- -- (3,363)
------------- ------------- ------------- ------------- -------------
December 31, 1996 .................. 442,890 62,781 90,410 -- 596,081
Revisions of previous estimates .... 38,557 533 14,174 -- 53,264
Extensions, discoveries and
other additions .................. 110,547 21,102 3,370 -- 135,019
Purchases .......................... 69,740 21,377 33,275 -- 124,392
Sales of reserves-in-place ......... (12,474) (301) -- -- (12,775)
Production (sold by the Company) ... (81,154) (7,630) (4,939) -- (93,723)
Production (consumed by
the Company) ..................... (4,323) -- -- -- (4,323)
------------- ------------- ------------- ------------- -------------
December 31, 1997 .................. 563,783 97,862 136,290 797,935
Revisions of previous estimates .... 46,503 2,121 18,256 -- 66,880
Extensions, discoveries and
other additions .................. 126,388 15,262 566 -- 142,216
Purchases .......................... 35,291 7,308 20,455 -- 63,054
Sales of reserves-in-place ......... (243) (1,414) -- -- (1,657)
Production (sold by the Company) ... (99,346) (10,135) (7,824) -- (117,305)
Production (consumed by
the Company) ..................... (5,357) -- -- -- (5,357)
------------- ------------- ------------- ------------- -------------
December 31, 1998 .................. 667,019 111,004 167,743 -- 945,766
============= ============= ============= ============= =============
PROVED DEVELOPED:
December 31, 1996 .................. 355,421 62,781 21,433 -- 439,635
============= ============= ============= ============= =============
December 31, 1997 .................. 446,472 97,862 40,313 -- 584,647
============= ============= ============= ============= =============
December 31, 1998 .................. 476,522 105,401 49,891 -- 631,814
============= ============= ============= ============= =============
OIL (MBbls)
PROVED:
December 31, 1995 .................. 50,376 4,782 7,354 3,756 66,268
Revisions of previous estimates .... 5,351 (297) (2,538) 1,564 4,080
Extensions, discoveries and
other additions .................. 9,867 530 228 15,587 26,212
Purchases .......................... 12,334 4 -- -- 12,338
Sales of reserves-in-place ......... (1,040) (1,009) -- -- (2,049)
Production ......................... (9,171) (511) (894) (967) (11,543)
------------- ------------- ------------- ------------- -------------
December 31, 1996 .................. 67,717 3,499 4,150 19,940 95,306
Revisions of previous estimates .... 404 192 854 441 1,891
Extensions, discoveries and
other additions .................. 16,809 181 218 24,086 41,294
Purchases .......................... 17,344 45 1,062 -- 18,451
Sales of reserves-in-place ......... (1,167) (95) -- -- (1,262)
Production ......................... (12,159) (439) (1,027) (4,453) (18,078)
------------- ------------- ------------- ------------- -------------
December 31, 1997 .................. 88,948 3,383 5,257 40,014 137,602
Revisions of previous estimates .... (11,818) 397 902 (1,659) (12,178)
Extensions, discoveries and
other additions .................. 14,515 230 373 9,230 24,348
Purchases .......................... 6,256 360 986 -- 7,602
Sales of reserves-in-place ......... (305) (20) -- -- (325)
Production ......................... (14,660) (450) (1,081) (6,537) (22,728)
------------- ------------- ------------- ------------- -------------
December 31, 1998 .................. 82,936 3,900 6,437 41,048 134,321
============= ============= ============= ============= =============
PROVED DEVELOPED:
December 31, 1996 .................. 53,148 3,499 1,926 4,353 62,926
============= ============= ============= ============= =============
December 31, 1997 .................. 70,632 3,383 1,861 11,482 87,358
============= ============= ============= ============= =============
December 31, 1998 .................. 64,183 3,900 2,251 10,620 80,954
============= ============= ============= ============= =============
</TABLE>
53
<PAGE> 56
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following table sets forth the standardized measure of the discounted
future net cash flows attributable to the Company's proved oil and gas reserves.
Future cash inflows were computed by applying year-end prices of oil and gas to
the estimated future production of proved oil and gas reserves. Gas prices were
escalated only where existing contracts contained fixed and determinable
escalation clauses. Contractually provided gas prices in excess of estimated
market clearing prices were used in computing the future cash inflows only if
the Company expects to continue to receive higher prices under legally
enforceable contract terms. Future prices actually received may differ from the
estimates in the standardized measure.
Future production and development costs represent the estimated future
expenditures (based on current costs) to be incurred in developing and producing
the proved reserves, assuming continuation of existing economic conditions.
Future income tax expenses were computed by applying statutory income tax rates
to the difference between pre-tax net cash flows relating to the Company's
proved oil and gas reserves and the tax basis of proved oil and gas properties.
In addition, the effects of statutory depletion in excess of tax basis,
available net operating loss carryforwards and investment tax credit
carryforwards were used in computing future income tax expense. The resulting
annual net cash inflows were then discounted using a 10% annual rate (in
thousands):
<TABLE>
<CAPTION>
EQUATORIAL
UNITED STATES CANADA COTE D'IVOIRE GUINEA TOTAL(1)(2)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1996
Future cash inflows .................. $ 3,235,416 $ 206,041 $ 305,988 $ 450,785 $ 4,198,230
------------- ------------- ------------- ------------- -------------
Future production, development and
abandonment costs .................. 1,339,933 60,494 128,884 255,055 1,784,366
Future income taxes .................. 425,786 44,263 45,833 49,782 565,664
------------- ------------- ------------- ------------- -------------
Total future costs ................. 1,765,719 104,757 174,717 304,837 2,350,030
------------- ------------- ------------- ------------- -------------
Future net cash inflows .............. 1,469,697 101,284 131,271 145,948 1,848,200
Discount at 10% per annum ............ (397,980) (42,431) (40,465) (40,810) (521,686)
------------- ------------- ------------- ------------- -------------
Standardized measure of discounted
future net cash flows .............. $ 1,071,717 $ 58,853 $ 90,806 $ 105,138 $ 1,326,514
============= ============= ============= ============= =============
AT DECEMBER 31, 1997
Future cash inflows .................. $ 2,765,682 $ 178,899 $ 384,217 $ 573,360 $ 3,902,158
------------- ------------- ------------- ------------- -------------
Future production, development and
abandonment costs .................. 1,361,424 60,612 195,764 351,572 1,969,372
Future income taxes .................. 188,623 26,464 41,001 37,417 293,505
------------- ------------- ------------- ------------- -------------
Total future costs ................. 1,550,047 87,076 236,765 388,989 2,262,877
------------- ------------- ------------- ------------- -------------
Future net cash inflows .............. 1,215,635 91,823 147,452 184,371 1,639,281
Discount at 10% per annum ............ (274,783) (35,489) (58,883) (49,719) (418,874)
------------- ------------- ------------- ------------- -------------
Standardized measure of discounted
future net cash flows .............. $ 940,852 $ 56,334 $ 88,569 $ 134,652 $ 1,220,407
============= ============= ============= ============= =============
AT DECEMBER 31, 1998
Future cash inflows .................. $ 2,115,600 $ 217,662 $ 328,562 $ 416,710 $ 3,078,534
------------- ------------- ------------- ------------- -------------
Future production, development and
abandonment costs .................. 1,138,206 66,760 216,576 303,977 1,725,519
Future income taxes .................. 47,056 28,259 6,735 -- 82,050
------------- ------------- ------------- ------------- -------------
Total future costs ................. 1,185,262 95,019 223,311 303,977 1,807,569
------------- ------------- ------------- ------------- -------------
Future net cash inflows .............. 930,338 122,643 105,251 112,733 1,270,965
Discount at 10% per annum ............ (245,465) (40,626) (43,207) (37,844) (367,142)
------------- ------------- ------------- ------------- -------------
Standardized measure of discounted
future net cash flows .............. $ 684,873 $ 82,017 $ 62,044 $ 74,889 $ 903,823
============= ============= ============= ============= =============
</TABLE>
(1) Total future net cash flows before income taxes are $1,353,000, $1,933,000
and $2,414,000 as of December 31, 1998, 1997 and 1996, respectively.
(2) Total future net cash flows before income taxes discounted at 10% per annum
are $917,000, $1,343,000 and $1,660,000, as of December 31, 1998, 1997 and
1996, respectively.
54
<PAGE> 57
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following are the principal sources of change in the standardized
measure of discounted future net cash flows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance ........................................ $ 1,220,407 $ 1,326,514 $ 667,941
----------- ----------- -----------
Revisions to reserves proved in prior years -
Net changes in prices and production costs ............. (507,478) (793,915) 547,292
Net changes due to revisions in quantity estimates ..... (19,572) 72,113 142,229
Net changes in estimated future development costs ...... 236,170 75,484 19,698
Accretion of discount .................................. 133,906 149,599 70,889
Changes in production rates (timing) and other ......... (110,424) (106,198) (113,080)
----------- ----------- -----------
Total revisions .................................... (267,398) (602,917) 667,028
New field discoveries and extensions, net of future
production and development costs ....................... 126,854 558,737 437,284
Purchases of reserves in-place ........................... 47,290 180,707 153,155
Sale of reserves in-place ................................ (377) (28,976) (23,569)
Sales of oil and gas produced, net of production costs ... (333,978) (424,286) (314,592)
Net change in income taxes ............................... 111,025 210,628 (260,733)
----------- ----------- -----------
Net change in standardized measure of discounted
future net cash flows ................................. (316,584) (106,107) 658,573
----------- ----------- -----------
Ending balance ........................................... $ 903,823 $ 1,220,407 $ 1,326,514
=========== =========== ===========
</TABLE>
55
<PAGE> 58
SUPPLEMENTAL OIL AND GAS DISCLOSURES (IN THOUSANDS)
The following table sets forth revenue and direct cost, excluding interest
expense, general and administrative expense and other items, information
relating to the Company's oil and gas exploration and production activities. The
Company has no long-term supply or purchase agreements with governments or
authorities in which it acts as producer.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
UNITED STATES
Oil and gas revenues ....................... $ 402,301 $ 423,935 $ 333,255
--------- --------- ---------
Operating costs:
Production cost ............................ 136,152 107,191 84,088
Depreciation, depletion and amortization ... 224,154 179,492 122,651
Write-down of oil and gas properties ....... 435,768 -- --
Income tax provision (benefit) ............. (149,634) 52,156 48,076
--------- --------- ---------
646,440 338,839 254,815
--------- --------- ---------
Results of operations .................. $(244,139) $ 85,096 $ 78,440
========= ========= =========
COTE D'IVOIRE
Oil and gas revenues ....................... $ 26,397 $ 27,803 $ 22,680
--------- --------- ---------
Operating costs:
Production cost ............................ 7,837 5,602 5,370
Depreciation, depletion and amortization ... 12,049 14,638 9,129
Write-down of oil and gas properties ....... 43,723
Income tax provision (benefit) ............. (14,141) 2,874 3,109
--------- --------- ---------
49,468 23,114 17,608
--------- --------- ---------
Results of operations .................. $ (23,071) $ 4,689 $ 5,072
========= ========= =========
EQUATORIAL GUINEA AND OTHER FOREIGN
Oil and gas revenues ....................... $ 74,220 $ 78,861 $ 21,430
--------- --------- ---------
Operating costs:
Production cost ............................ 13,010 5,520 3,738
Depreciation, depletion and amortization ... 50,260 46,651 10,953
Write-down of oil and gas properties ....... 60,424
Income tax provision (benefit) ............. (18,800) 10,142 2,561
--------- --------- ---------
104,894 62,313 17,252
--------- --------- ---------
Results of operations .................. $ (30,674) $ 16,548 $ 4,178
========= ========= =========
CANADA
Oil and gas revenues ....................... $ 19,232 $ 18,595 $ 17,615
--------- --------- ---------
Operating costs:
Production cost ............................ 5,875 6,081 5,200
Depreciation, depletion and amortization ... 7,442 7,642 4,910
Income tax provision (benefit) ............. 2,248 1,851 2,852
--------- --------- ---------
15,565 15,574 12,962
--------- --------- ---------
Results of operations .................. $ 3,667 $ 3,021 $ 4,653
========= ========= =========
TOTAL
Oil and gas revenues ....................... $ 522,150 $ 549,194 $ 394,980
--------- --------- ---------
Operating costs:
Production cost ............................ 162,874 124,394 98,396
Depreciation, depletion and amortization ... 293,905 248,423 147,643
Write-down of oil and gas properties ....... 539,915 -- --
Income tax provision (benefit) ............. (180,327) 67,023 56,598
--------- --------- ---------
816,367 439,840 302,637
--------- --------- ---------
Results of operations .................. $(294,217) $ 109,354 $ 92,343
========= ========= =========
</TABLE>
56
<PAGE> 59
NOTE 17 SUPPLEMENTAL GUARANTOR INFORMATION
Ocean Louisiana, the Company's only direct subsidiary, has unconditionally
guaranteed the full and prompt performance of the Company's obligations under
the 10 3/8% Notes, the 13 1/2%, the 9 3/4% Notes and the 8 7/8% Notes and
related indentures, including the payment of principal, premium (if any) and
interest. None of the referenced indentures places significant restrictions on a
wholly-owned subsidiaries' ability to make distributions to the parent. Other
than intercompany arrangements and transactions, the consolidated financial
statements of Ocean Louisiana are equivalent in all material respects to those
of the Company and therefore the separate consolidated financial statements of
Ocean Louisiana are not material to investors and have not been included herein.
However, in an effort to provide meaningful financial data relating to the
guarantor (i.e., Ocean Louisiana on an unconsolidated basis), the following
condensed consolidating financial information has been provided following the
policies set forth below:
(1) Investments in subsidiaries are accounted for by the Company on the
cost basis. Earnings of subsidiaries are therefore not reflected in the
related investment accounts.
(2) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal eliminating entries eliminate investments in subsidiaries and
intercompany balances.
Certain intercompany notes and the related accrued interest were
transferred from the Company to a newly formed non-guarantor subsidiary
effective as of January 1, 1997.
57
<PAGE> 60
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
For the years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
UNCONSOLIDATED
-----------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
OEI SUBSIDIARY SUBSIDIARY OEI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1998
Revenues ...................................... $ -- $ 306,670 $ 216,589 $ 523,259
------------- ------------- ------------- -------------
Costs and expenses:
Production costs ........................... -- 99,347 63,527 162,874
General and administrative ................. 249 35,193 5,969 41,411
Depreciation, depletion and amortization ... -- 160,353 133,552 293,905
Write-down of oil and gas properties ....... -- 399,768 140,147 539,915
------------- ------------- ------------- -------------
Loss from operations .......................... (249) (387,991) (126,606) (514,846)
Interest income (expense), net ............. (36,545) (42,950) 16,643 (62,852)
Merger costs ............................... -- (39,000) -- (39,000)
Other credits, net ......................... -- 96 24 120
------------- ------------- ------------- -------------
Loss before income taxes ...................... (36,794) (469,845) (109,939) (616,578)
Income tax benefit ............................ 16,847 151,444 41,408 209,699
------------- ------------- ------------- -------------
Net loss ...................................... $ (19,947) $ (318,401) $ (68,531) $ (406,879)
============= ============= ============= =============
1997
Revenues ...................................... $ -- $ 343,263 $ 208,931 $ 552,194
------------- ------------- ------------- -------------
Costs and expenses:
Production costs ........................... -- 78,924 45,470 124,394
General and administrative ................. 120 23,003 7,095 30,218
Depreciation, depletion and amortization ... -- 125,003 123,420 248,423
------------- ------------- ------------- -------------
Income (loss) from operations ................. (120) 116,333 32,946 149,159
Interest income (expense), net ............. (16,115) (65,670) 32,651 (49,134)
Other credits, net ......................... -- 2,753 434 3,187
------------- ------------- ------------- -------------
Income (loss) before income taxes ............. (16,235) 53,416 66,031 103,212
Income tax benefit (provision) ................ 20,585 (57,556) (4,021) (40,992)
Extraordinary item, net of taxes .............. -- (19,301) -- (19,301)
------------- ------------- ------------- -------------
Net income (loss) ............................. $ 4,350 $ (23,441) $ 62,010 $ 42,919
============= ============= ============= =============
1996
Revenues ...................................... $ -- $ 248,495 $ 147,339 $ 395,834
------------- ------------- ------------- -------------
Costs and expenses:
Production costs ........................... -- 52,018 46,378 98,396
General and administrative ................. 180 19,657 7,529 27,366
Depreciation, depletion and amortization ... -- 91,809 55,834 147,643
------------- ------------- ------------- -------------
Income (loss) from operations ................. (180) 85,011 37,598 122,429
Interest income (expense), net ............. 18,052 (50,021) (8,796) (40,765)
Other credits, net ......................... -- (639) 190 (449)
------------- ------------- ------------- -------------
Income before income taxes .................... 17,872 34,351 28,992 81,215
Income tax provision .......................... (6,208) (12,886) (7,121) (26,215)
------------- ------------- ------------- -------------
Net income .................................... $ 11,664 $ 21,465 $ 21,871 $ 55,000
============= ============= ============= =============
</TABLE>
58
<PAGE> 61
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
UNCONSOLIDATED
---------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
OEI SUBSIDIARY SUBSIDIARIES ENTRIES OEI
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1998
ASSETS
Current assets ................................. $ -- $ 49,680 $ 104,101 $ -- $ 153,781
Intercompany investments ....................... 1,645,933 174,608 (410,255) (1,410,286) --
Property and equipment, net .................... -- 674,598 907,041 -- 1,581,639
Other assets ................................... 24,686 214,868 31,986 -- 271,540
------------- ------------- ------------- ------------- -------------
Total assets ................................. $ 1,670,619 $ 1,113,754 $ 632,873 $ (1,410,286) $ 2,006,960
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................ $ 31,271 $ 187,878 $ 18,033 $ -- $ 237,182
Long-term debt ................................. 1,009,274 357,000 5,616 -- 1,371,890
Deferred credits and other liabilities ......... -- 981 19,964 -- 20,945
Stockholders' equity ........................... 630,074 567,895 589,260 (1,410,286) 376,943
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity ... $ 1,670,619 $ 1,113,754 $ 632,873 $ (1,410,286) $ 2,006,960
============= ============= ============= ============= =============
1997
ASSETS
Current assets ................................. $ 11,480 $ 50,658 $ 109,234 $ (11,478) $ 159,894
Intercompany investments ....................... 1,094,737 369,982 (54,437) (1,410,282) --
Property and equipment, net .................... -- 672,560 751,277 -- 1,423,837
Other assets ................................... 5,395 68,906 (15,037) -- 59,264
------------- ------------- ------------- ------------- -------------
Total assets ................................. $ 1,111,612 $ 1,162,106 $ 791,037 $ (1,421,760) $ 1,642,995
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................ $ 14,804 $ 114,167 $ 103,386 $ (11,478) $ 220,879
Long-term debt ................................. 509,152 147,800 15,346 -- 672,298
Deferred credits and other liabilities ......... -- 13,848 10,633 -- 24,481
Stockholders' equity ........................... 587,656 886,291 661,672 (1,410,282) 725,337
------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity ... $ 1,111,612 $ 1,162,106 $ 791,037 $ (1,421,760) $ 1,642,995
============= ============= ============= ============= =============
</TABLE>
59
<PAGE> 62
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
UNCONSOLIDATED
-----------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
OEI SUBSIDIARY SUBSIDIARIES OEI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1998
Cash flows from operating activities:
Net loss ................................................ $ (19,947) $ (318,401) $ (68,531) $ (406,879)
Adjustments to reconcile net income
(loss) to cash from operating activities ................ (15,157) 414,530 228,857 628,230
Changes in assets and liabilities ....................... 28,030 70,907 (88,088) 10,849
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities ... (7,074) 167,036 72,238 232,200
Cash flows provided by investing activities ................ -- (502,399) (468,266) (970,665)
Cash flows provided by financing activities ................ 7,072 332,710 397,700 737,482
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ....... (2) (2,653) 1,672 (983)
Cash and cash equivalents at beginning of period ........... 2 2,653 9,034 11,689
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period ................. $ -- $ -- $ 10,706 $ 10,706
============= ============= ============= =============
1997
Cash flows from operating activities:
Net income (loss) ....................................... $ 4,350 $ (23,441) $ 62,010 $ 42,919
Adjustments to reconcile net income
(loss) to cash from operating activities .............. (20,033) 165,347 126,754 272,068
Changes in assets and liabilities ....................... (1) 37,286 (12,597) 24,688
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities ... (15,684) 179,192 176,167 339,675
Cash flows used in investing activities .................... -- (512,911) (290,768) (803,679)
Cash flows provided by financing activities ................ 15,683 288,854 110,455 414,992
------------- ------------- ------------- -------------
Net decrease in cash and cash equivalents .................. (1) (44,865) (4,146) (49,012)
Cash and cash equivalents at beginning of period ........... 3 47,518 13,180 60,701
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period ................. $ 2 $ 2,653 $ 9,034 $ 11,689
============= ============= ============= =============
1996
Cash flows from operating activities:
Net income .............................................. $ 11,664 $ 21,465 $ 21,871 $ 55,000
Adjustments to reconcile net income
to cash from operating activities ..................... 6,746 105,096 62,405 174,247
Changes in assets and liabilities ....................... 40 60,120 (80,094) (19,934)
------------- ------------- ------------- -------------
Net cash provided by operating activities ............. 18,450 186,681 4,182 209,313
Cash flows used in investing activities .................... -- (326,757) (101,250) (428,007)
Cash flows provided by (used in) financing activities ...... (18,478) 180,751 103,324 265,597
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ....... (28) 40,675 6,256 46,903
Cash and cash equivalents at beginning of period ........... 31 6,843 6,924 13,798
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period ................. $ 3 $ 47,518 $ 13,180 $ 60,701
============= ============= ============= =============
</TABLE>
60
<PAGE> 63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by Items 10, 11, 12 and 13, reference is
made to the Company's definitive proxy statement for its 1999 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 1998, and portions of which are incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Public
Accountants are filed as a part of this report on the pages indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................................................. 28
Consolidated Statement of Income -- For the years ended December 31, 1998, 1997 and 1996.................. 29
Consolidated Balance Sheet -- December 31, 1998 and 1997.................................................. 30
Consolidated Statement of Changes in Stockholders' Equity --
For the years ended December 31, 1998, 1997 and 1996................................................. 32
Consolidated Statement of Cash Flows -- For the years ended December 31, 1998, 1997 and 1996.............. 33
Selected Quarterly Financial Data for the years ended December 31, 1998 and 1997......................... 16
Selected Financial Data for the five years ended December 31, 1998....................................... 15
</TABLE>
(a) 2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
applicable or the information required therein is included elsewhere in the
financial statements or notes thereto.
61
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of November 24, 1998
among the Company and Seagull Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Company's
current report on Form 8-K filed on November 25, 1998.
2.2 Amendment No. 1 to Agreement and Plan of Merger between
Seagull Energy Corporation and the Company dated as of
December 8, 1998, incorporated by reference to Exhibit 2.2 to
Seagull Energy Corporation's Registration Statement on Form
S-4 (No. 333-68679) filed with the Securities and Exchange
Commission on December 10, 1998.
3.1 Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 99.1 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
March 31, 1998.
3.2 Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 99.2 to the Company's Form 8-K filed
with the Securities and Exchange Commission on March 31,
1998.
4.1 Certificate of Designations for the Series A Convertible
Preferred Stock of Ocean Energy, Inc., incorporated by
reference to Exhibit 4.1 of the Company's Form 10-Q for the
period ended September 30, 1998 filed with the Securities and
Exchange Commission on November 16, 1998.
4.2 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and U.S. Bank Trust National
Association, relating to the 8 3/8 Series A Senior
Subordinated Notes due 2008 and the 8 3/8 Series B Senior
Subordinated Notes due 2008, incorporated by reference to
Exhibit 10.22 to the Company's Form 10-Q for the period
ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998.
4.3 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and Norwest Bank Minnesota, National
Association (Norwest Bank) as Trustee, relating to the 7 5/8
Senior Notes due 2005, incorporated by reference to Exhibit
10.23 to the Company's Form 10-Q for the period ended June
30, 1998 filed with the Securities and Exchange Commission on
August 14, 1998.
4.4 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and Norwest Bank as Trustee, relating
to the 8 1/4% Senior Notes due 2018, incorporated by
reference to Exhibit 10.24 to the Company's Form 10-Q for the
period ended June 30, 1998 filed with the Securities and
Exchange Commission on August 14, 1998.
4.5 Indenture, dated as of July 2, 1997, among Ocean Energy,
Inc., the Subsidiary Guarantors Named Therein and State
Street Bank and Trust Company, as Trustee, relating to the
8 7/8 Senior Subordinated Notes due 2007, incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (No. 333-32715) filed with the
Securities and Exchange Commission on August 1, 1997.
4.6 Indenture, dated as of September 26, 1996, among Ocean
Energy, Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary
Guarantors Named Therein and Fleet National Bank, as Trustee,
relating to the 9 3/4% Senior Subordinated Notes Due 2006,
incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
4.7 Indenture, dated as of October 30, 1995, among Ocean Energy,
Inc., a Delaware corporation (successor by merger to United
Meridian Corporation), Ocean Energy, Inc., a Louisiana
corporation (successor by merger to UMC Petroleum
Corporation) and Bank of Montreal Trust Company, as Trustee,
relating to the 10 3/8 Senior Subordinated Notes Due 2005,
incorporated by reference to Exhibit 4.20 to United Meridian
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.8 Indenture, dated as of December 1, 1994, among Ocean Energy,
Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary Guarantors
Named Therein and Shawmut Bank Connecticut, National
Association, as Trustee, relating to the 13 1/2% Senior Notes
Due 2004, incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
4. 9 First Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 8 7/8% Senior Subordinated
Notes due 2007, incorporated by reference to Exhibit 10.11 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
4.10 First Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc. a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 9 3/4% Senior Subordinated
Notes due 2006, incorporated by reference to Exhibit 10.10 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
4.11 First Supplemental Indenture, dated as of November 4, 1997,
among Ocean Energy, Inc., a Delaware corporation (successor
by merger to United Meridian Corporation), Ocean Energy,
Inc., a Louisiana corporation (successor by merger to UMC
Petroleum Corporation), and First Trust of New York, National
Association (successor to Bank of Montreal Trust Company),
relating to the 10 3/8% Senior Subordinated Notes Due 2005,
incorporated by reference to Exhibit 4.11 of the Company's
Form 10-Q for the quarter ended September 30, 1998.
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.12 Second Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc. a Delaware corporation (successor by
merger to United Meridian Corporation), Ocean Energy, Inc., a
Louisiana corporation, (successor by merger to UMC Petroleum
Corporation), and U.S. Bank Trust National Association,
relating to the 10 3/8% Senior Subordinated Notes due 2005,
incorporated by reference to Exhibit 10.12 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
March 31, 1998.
4.13 First Supplemental Indenture, dated as of September 19, 1996,
among Ocean Energy, Inc. (f/k/a Flores & Rucks, Inc.), the
Subsidiary Guarantors and Fleet National Bank (formerly known
as Shawmut Bank Connecticut, National Association), relating
to the 13 1/2% Senior Notes Due 2004, incorporated by
reference to Exhibit 4.1 to the Company's Form 8-K filed with
the Securities and Exchange Commission on October 10, 1996.
4.14 Second Supplemental Indenture, dated as of July 14, 1997,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 13 1/2% Senior Notes Due
2004, incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
4.15 Third Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 13 1/2% Senior Notes due
2004, incorporated by reference to Exhibit 10.9 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
10.1 Employment Agreement, dated as of March 27, 1998, among the
Company and John B. Brock, incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
10.2 Employment Agreement, dated as of March 27, 1998, among the
Company and James C. Flores, incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
10.3 Petroleum Production Sharing Contract on Block CI-11 dated
June 27, 1992 among the Republic of Cote d'Ivoire, UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations
Petrolieres de la Cote d'Ivoire (including English
translation), incorporated herein by reference to Exhibit
10.5 to Amendment No. 3 to United Meridian Corporation's Form
S-1 (No. 33-63532) filed with the Securities and Exchange
Commission on July 20, 1993.
10.4 Production Sharing Contract dated August 18, 1992 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area A - Offshore NE Bioco),
incorporated herein by reference to Exhibit 10.6 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No.
33-63532) filed with the Securities and Exchange Commission
on June 18, 1993.
10.5 Production Sharing Contract dated June 29, 1992 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area B - Offshore NW Bioco),
incorporated herein by reference to Exhibit 10.7 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No.
33-63532) filed with the Securities and Exchange Commission
on June 18, 1993.
10.6 Production Sharing Contract dated June 29, 1994 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area C - Offshore Bioco),
incorporated herein by reference to Exhibit 10.15 to United
Meridian Corporation's 1994 Form 10-K filed with the
Securities and Exchange Commission on March 10, 1995.
10.7 Production Sharing Contract on Block CI-01 dated December 5,
1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and Societe Nationale d'Operations Petrolieres de
la Cote d'Ivoire (English translation), incorporated by
reference to Exhibit 10.16 to United Meridian Corporation's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.8 Production Sharing Contract on Block CI-02 dated December 5,
1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and Societe Nationale d'Operations Petrolieres de
la Cote d'Ivoire (English translation), incorporated by
reference to Exhibit 10.17 to United Meridian Corporation's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.9 Production Sharing Contract of Block CI-12 dated April 27,
1995 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and others (English translation), incorporated by
reference to Exhibit 10.18 to United Meridian Corporation's
1995 Form 10-K filed with the Securities and Exchange
Commission on March 7, 1996.
10.10 Production Sharing Contract dated April 5, 1995 between The
Republic of Equatorial Guinea and UMIC Equatorial Guinea
Corporation (Area D - Offshore Bioco), incorporated by
reference to Exhibit 10.20 to United Meridian Corporation's
Form 10-Q for the period ended September 30, 1995 filed with
the Securities and Exchange Commission on August 10, 1995.
10.11 The UMC Petroleum Savings Plan as amended and restated
incorporated herein by reference to Exhibit 4.10 to United
Meridian Corporation's (UMC) Form S-8 (No. 33-73574) filed
with the Securities and Exchange Commission on December 29,
1993.
</TABLE>
63
<PAGE> 66
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.12 First Amendment to the UMC Petroleum Savings Plan, as Amended
and Restated as of January 1, 1993, dated April 18, 1994,
incorporated by reference to Exhibit 10.3 to United Meridian
Corporation's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.13 UMC 1987 Nonqualified Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.3 to UMC's
Form S-1 (No. 33-63532) filed with the Securities and
Exchange Commission on May 28, 1993.
10.14 Third Amendment to UMC 1987 Nonqualified Stock Option Plan
dated November 16, 1993 incorporated herein by reference to
Exhibit 10.4 to UMC's 1993 Form 10-K filed with the
Securities and Exchange Commission on March 7, 1994.
10.15 Fourth Amendment to UMC 1987 Nonqualified Stock Option Plan
dated April 6, 1994, incorporated by reference to Exhibit
10.6 to UMC's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.16 UMC 1994 Employee Nonqualified Stock Option Plan incorporated
by reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160)
filed with the Securities and Exchange Commission on May 19,
1994.
10.17 First Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 16, 1994, incorporated by
reference to Exhibit 4.11.1 to UMC's Form S-8 (No. 33-86480)
filed with the Securities and Exchange Commission on November
18, 1994.
10.18 Second Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated May 22, 1996, incorporated by reference to
Exhibit 4.3.2 to UMC's Form S-8 (No. 333-05401) filed with
the Securities and Exchange Commission on June 6, 1996.
10.19 Third Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 13, 1996, incorporated by
reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017)
filed with the Securities and Exchange Commission on May 29,
1997.
10.20 UMC 1994 Outside Directors' Nonqualified Stock Option Plan
incorporated herein by reference to Exhibit 4.15 to UMC's
Form S-8 (No. 33-79160) filed with the Securities and
Exchange Commission on May 19, 1994.
10.21 First Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated May 22, 1996,
incorporated by reference to Exhibit 4.4.1 to UMC's Form S-8
(No. 333-05401) filed with the Securities and Exchange
Commission on June 6, 1996.
10.22 UMC Petroleum Corporation Supplemental Benefit Plan effective
January 1, 1994, approved by the Board of Directors on March
29, 1994, incorporated by reference to Exhibit 10.10 to UMC's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.23 Amendment to United Meridian Corporation 1994 Non-Qualified
Stock Option Agreement for Former Employees of General
Atlantic Resources, Inc. dated as of April 16, 1996 among UMC
and Donald D. Wolf, incorporated by reference to Exhibit
10.22 to UMC's Form 10-Q for the period ended September 30,
1996 filed with the Securities and Exchange Commission on
August 8, 1996.
10.24 Fourth Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated May 29, 1997, incorporated herein by
reference to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017)
filed with the Securities and Exchange Commission on May 29,
1997.
10.25 Second Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated November 13, 1996,
incorporated herein by reference to Exhibit 4.4 to UMC's Form
S-8 (No. 333-28017) filed with the Securities and Exchange
Commission on May 29, 1997.
10.26 Fifth Amendment to the UMC 1987 Nonqualified Stock Option
Plan dated November 19, 1997, incorporated by reference to
Exhibit 4.7 to UMC's Form S-3 (No. 333-42467) filed with the
Securities and Exchange Commission on December 17, 1997.
10.27 Fifth Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 19, 1997, incorporated by
reference to Exhibit 4.8 to UMC's Form S-3 (No. 333-42467)
filed with the Securities and Exchange Commission on December
17, 1997.
10.28 Third Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated November 19, 1997,
incorporated by reference to Exhibit 4.9 to UMC's Form S-3
(No. 333-42467) filed with the Securities and Exchange
Commission on December 17, 1997.
10.29 1994 Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.3 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (No. 33-84308) filed with the
Securities and Exchange Commission on October 31, 1994.
10.30 1996 Long-Term Incentive Plan, as amended, incorporated by
reference to Exhibit 99.1 to the Company's Form S-8
(333-45117) filed with the Securities and Exchange Commission
on January 29, 1998.
</TABLE>
64
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.31 Long-Term Incentive Plan for Non-Executive Employees, as
amended, incorporated by reference to Exhibit 99.1 to the
Company's Form S-8 (333-45119) filed with the Securities and
Exchange Commission on January 29, 1998.
10.32 Ocean Energy, Inc. Deferred Compensation Plan incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.33* Amendment No. 1 to Employment Agreement, dated as of November
24, 1998, between the Company and John B. Brock.
10.34* Amendment No. 1 to Employment Agreement, dated as of November
24, 1998, between the Company and James C. Flores.
10.35 Severance Protection Agreement, dated as of December 20,
1997, by and between United Meridian Corporation, UMC
Petroleum Corporation and the Executives named therein
incorporated by reference to Exhibit 10.1 to United
Meridian's Form 8-K filed with the Securities and Exchange
Commission on December 23, 1997.
10.36* Amendment No. 1 to Severance Protection Agreement, dated as
November 24, 1998 by and between the Company and Jonathan M.
Clarkson.
10.37* Second Amended and Restated Global Credit Agreement, dated as
of November 20, 1998, among the Company, Chase Bank of Texas,
National Association ("Chase Texas") as Administrative Agent
Morgan Guaranty Trust Company of new York ("Morgan Guaranty")
as syndication Agent, Bank of American National Trust &
Savings Association ("Bank of America") as Documentation
Agent, Barclays Bank PLC ("Barclays") as Managing Agent, and
the other Lenders named therein.
10.38* Guaranty Agreement, dated as of November 20, 1998, by Ocean
Energy, Inc., a Louisiana corporation, and Chase Texas as
Administrative Agent, Morgan Guaranty as Syndication Agent,
Bank of America as Documentation Agent, Barclays as Managing
Agent, and the other Lenders named therein.
10.39 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and John B. Brock, incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.40 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and James C. Flores, incorporated
by reference to Exhibit 10.2 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.41 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and Flores Family Limited
Partnership, incorporated by reference to Exhibit 10.3 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998.
10.42 Voting Agreement, dated as of November 24, 1998 between the
Company and Prudential Insurance Company of America,
incorporated by reference to Exhibit 10.4 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
November 25, 1998.
10.43 Voting Agreement, dated as of November 24, 1998 between the
Company and James T. Hackett, incorporated by reference to
Exhibit 10.5 to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 25, 1998.
10.44 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and Barry S. Galt, incorporated by
reference to Exhibit 10.6 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.45 Amendment No. 2 to Long-Term Incentive Plan for
Non-Executive Employees, incorporated by reference to Exhibit
99.2 to the Company's Form S-8 (333-49185) filed with the
Securities and Exchange Commission on April 1, 1998.
10.46* Amendment No. 3 to Long-Term Incentive Plan for
Non-Executive Employees, dated as of May 20, 1998.
10.47 1998 Long-Term Incentive Plan, incorporated by reference to
Appendix E to the Company's Joint Proxy Statement Prospectus
on Form S-4 (333-43933) filed with the Securities and
Exchange Commission on January 9, 1998.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of McDaniel & Associates Consultants, Ltd.
23.4* Consent of Ryder Scott Company.
27.1* Financial Data Schedule, included solely in the form 10-K
filed electronically with the Securities and Exchange
Commission.
</TABLE>
- ------------
* Filed herewith
65
<PAGE> 68
b) REPORTS ON FORM 8-K
A Form 8-K dated November 25, 1998 was filed containing the Agreement and
Plan of Merger, dated as of November 24, 1998, by and between the Company and
Seagull Energy Corporation; the Press Release dated November 25, 1998,
containing a description of the Merger; and Voting Agreements.
66
<PAGE> 69
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.
REGISTRANT OCEAN ENERGY, INC.
February 15, 1999 By: /s/ John B. Brock
-------------------------------------
John B. Brock
Chairman of the Board
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
--------- -----
<S> <C>
/s/ John B. Brock Chairman of the Board and Director
- ---------------------------------
John B. Brock
/s/ James C. Flores President, Chief Executive Officer
- --------------------------------- and Director
James C. Flores
/s/ James L. Dunlap Vice Chairman of the Board and Director
- ---------------------------------
James L. Dunlap
/s/ Robert L. Belk Director
- ---------------------------------
Robert L. Belk
/s/ Thomas D. Clark, Jr. Director
- ---------------------------------
Thomas D. Clark, Jr.
/s/ Lodwrick M. Cook Director
- ---------------------------------
Lodwrick M. Cook
/s/ Robert L. Howard Director
- ---------------------------------
Robert L. Howard
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
/s/ Elvis L. Mason Director
- ---------------------------------
Elvis L. Mason
/s/ Charles F. Mitchell, M.D. Director
- ---------------------------------
Charles F. Mitchell, M.D.
/s/ David K. Newbigging Director
- ---------------------------------
David K. Newbigging
/s/ William W. Rucks, IV Director
- ---------------------------------
William W. Rucks, IV
/s/ Milton J. Womack Director
- ---------------------------------
Milton J. Womack
/s/ Jonathan M. Clarkson Executive Vice President and
- --------------------------------- Chief Financial Officer
Jonathan M. Clarkson
/s/ Christopher E. Cragg Vice President, Controller and
- --------------------------------- Chief Accounting Officer
Christopher E. Cragg
</TABLE>
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of November 24, 1998
among the Company and Seagull Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Company's
current report on Form 8-K filed on November 25, 1998.
2.2 Amendment No.1 to Agreement and Plan of Merger between
Seagull Energy Corporation and the Company dated as of
December 8, 1998, incorporated by reference to Exhibit 2.2 to
Seagull Energy Corporation's Registration Statement on Form
S-4 (No. 333-68679) filed with the Securities and Exchange
Commission on December 10, 1998.
3.1 Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 99.1 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
March 31, 1998.
3.2 Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 99.2 to the Company's Form 8-K filed
with the Securities and Exchange Commission on March 31,
1998.
4.1 Certificate of Designations for the Series A Convertible
Preferred Stock of Ocean Energy, Inc., incorporated by
reference to Exhibit 4.1 of the Company's Form 10-Q for the
period ended September 30, 1998 filed with the Securities and
Exchange Commission on November 16, 1998.
4.2 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and U.S. Bank Trust National
Association, relating to the 8 3/8% Series A Senior Subordinated
Notes due 2008 and the 8 3/8% Series B Senior Subordinated Notes
due 2008, incorporated by reference to Exhibit 10.22 to the
Company's Form 10-Q for the period ended June 30, 1998 filed
with the Securities and Exchange Commission on August 14,
1998.
4.3 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and Norwest Bank Minnesota, National
Association (Norwest Bank) as Trustee, relating to the 7 5/8%
Senior Notes due 2005, incorporated by reference to Exhibit
10.23 to the Company's Form 10-Q for the period ended June
30, 1998 filed with the Securities and Exchange Commission on
August 14, 1998.
4.4 Indenture, dated as of July 8, 1998, among the Company, its
Subsidiary Guarantors, and Norwest Bank as Trustee, relating
to the 8 1/4% Senior Notes due 2018, incorporated by
reference to Exhibit 10.24 to the Company's Form 10-Q for the
period ended June 30, 1998 filed with the Securities and
Exchange Commission on August 14, 1998.
4.5 Indenture, dated as of July 2, 1997, among Ocean Energy,
Inc., the Subsidiary Guarantors Named Therein and State
Street Bank and Trust Company, as Trustee, relating to the
8 7/8% Senior Subordinated Notes due 2007, incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (No. 333-32715) filed with the
Securities and Exchange Commission on August 1, 1997.
4.6 Indenture, dated as of September 26, 1996, among Ocean
Energy, Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary
Guarantors Named Therein and Fleet National Bank, as Trustee,
relating to the 9 3/4% Senior Subordinated Notes Due 2006,
incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996.
4.7 Indenture, dated as of October 30, 1995, among Ocean Energy,
Inc., a Delaware corporation (successor by merger to United
Meridian Corporation), Ocean Energy, Inc., a Louisiana
corporation (successor by merger to UMC Petroleum
Corporation) and Bank of Montreal Trust Company, as Trustee,
relating to the 10 3/8% Senior Subordinated Notes Due 2005,
incorporated by reference to Exhibit 4.20 to United Meridian
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.
4.8 Indenture, dated as of December 1, 1994, among Ocean Energy,
Inc. (f/k/a Flores & Rucks, Inc.), the Subsidiary Guarantors
Named Therein and Shawmut Bank Connecticut, National
Association, as Trustee, relating to the 13 1/2% Senior Notes
Due 2004, incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
4. 9 First Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 8 7/8% Senior Subordinated
Notes due 2007, incorporated by reference to Exhibit 10.11 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
4.10 First Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc. a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 9 3/4% Senior Subordinated
Notes due 2006, incorporated by reference to Exhibit 10.10 to
the Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
4.11 First Supplemental Indenture, dated as of November 4, 1997,
among Ocean Energy, Inc., a Delaware corporation (successor
by merger to United Meridian Corporation), Ocean Energy,
Inc., a Louisiana corporation (successor by merger to UMC
Petroleum Corporation), and First Trust of New York, National
Association (successor to Bank of Montreal Trust Company),
relating to the 10 3/8% Senior Subordinated Notes Due 2005,
incorporated by reference to Exhibit 4.11 of the Company's
Form 10-Q for the quarter ended September 30, 1998.
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.12 Second Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc. a Delaware corporation (successor by
merger to United Meridian Corporation), Ocean Energy, Inc., a
Louisiana corporation, (successor by merger to UMC Petroleum
Corporation), and U.S. Bank Trust National Association,
relating to the 10 3/8% Senior Subordinated Notes due 2005,
incorporated by reference to Exhibit 10.12 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
March 31, 1998.
4.13 First Supplemental Indenture, dated as of September 19, 1996,
among Ocean Energy, Inc. (f/k/a Flores & Rucks, Inc.), the
Subsidiary Guarantors and Fleet National Bank (formerly known
as Shawmut Bank Connecticut, National Association), relating
to the 13 1/2% Senior Notes Due 2004, incorporated by
reference to Exhibit 4.1 to the Company's Form 8-K filed with
the Securities and Exchange Commission on October 10, 1996.
4.14 Second Supplemental Indenture, dated as of July 14, 1997,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 13 1/2% Senior Notes Due
2004, incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
4.15 Third Supplemental Indenture, dated as of March 27, 1998,
among Ocean Energy, Inc., a Delaware corporation, Ocean
Energy, Inc., a Louisiana corporation, and State Street Bank
and Trust Company, relating to the 13 1/2% Senior Notes due
2004, incorporated by reference to Exhibit 10.9 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on March 31, 1998.
10.1 Employment Agreement, dated as of March 27, 1998, among the
Company and John B. Brock, incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
10.2 Employment Agreement, dated as of March 27, 1998, among the
Company and James C. Flores, incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K filed with the
Securities and Exchange Commission on March 31, 1998.
10.3 Petroleum Production Sharing Contract on Block CI-11 dated
June 27, 1992 among the Republic of Cote d'Ivoire, UMIC Cote
d'Ivoire Corporation and Societe Nationale d'Operations
Petrolieres de la Cote d'Ivoire (including English
translation), incorporated herein by reference to Exhibit
10.5 to Amendment No. 3 to United Meridian Corporation's Form
S-1 (No. 33-63532) filed with the Securities and Exchange
Commission on July 20, 1993.
10.4 Production Sharing Contract dated August 18, 1992 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area A - Offshore NE Bioco),
incorporated herein by reference to Exhibit 10.6 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No.
33-63532) filed with the Securities and Exchange Commission
on June 18, 1993.
10.5 Production Sharing Contract dated June 29, 1992 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area B - Offshore NW Bioco),
incorporated herein by reference to Exhibit 10.7 to Amendment
No. 1 to United Meridian Corporation's Form S-1 (No.
33-63532) filed with the Securities and Exchange Commission
on June 18, 1993.
10.6 Production Sharing Contract dated June 29, 1994 between the
Republic of Equatorial Guinea and United Meridian
International Corporation (Area C - Offshore Bioco),
incorporated herein by reference to Exhibit 10.15 to United
Meridian Corporation's 1994 Form 10-K filed with the
Securities and Exchange Commission on March 10, 1995.
10.7 Production Sharing Contract on Block CI-01 dated December 5,
1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and Societe Nationale d'Operations Petrolieres de
la Cote d'Ivoire (English translation), incorporated by
reference to Exhibit 10.16 to United Meridian Corporation's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.8 Production Sharing Contract on Block CI-02 dated December 5,
1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and Societe Nationale d'Operations Petrolieres de
la Cote d'Ivoire (English translation), incorporated by
reference to Exhibit 10.17 to United Meridian Corporation's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.9 Production Sharing Contract of Block CI-12 dated April 27,
1995 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire
Corporation and others (English translation), incorporated by
reference to Exhibit 10.18 to United Meridian Corporation's
1995 Form 10-K filed with the Securities and Exchange
Commission on March 7, 1996.
10.10 Production Sharing Contract dated April 5, 1995 between The
Republic of Equatorial Guinea and UMIC Equatorial Guinea
Corporation (Area D - Offshore Bioco), incorporated by
reference to Exhibit 10.20 to United Meridian Corporation's
Form 10-Q for the period ended September 30, 1995 filed with
the Securities and Exchange Commission on August 10, 1995.
10.11 The UMC Petroleum Savings Plan as amended and restated
incorporated herein by reference to Exhibit 4.10 to United
Meridian Corporation's (UMC) Form S-8 (No. 33-73574) filed
with the Securities and Exchange Commission on December 29,
1993.
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.12 First Amendment to the UMC Petroleum Savings Plan, as Amended
and Restated as of January 1, 1993, dated April 18, 1994,
incorporated by reference to Exhibit 10.3 to United Meridian
Corporation's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.13 UMC 1987 Nonqualified Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.3 to UMC's
Form S-1 (No. 33-63532) filed with the Securities and
Exchange Commission on May 28, 1993.
10.14 Third Amendment to UMC 1987 Nonqualified Stock Option Plan
dated November 16, 1993 incorporated herein by reference to
Exhibit 10.4 to UMC's 1993 Form 10-K filed with the
Securities and Exchange Commission on March 7, 1994.
10.15 Fourth Amendment to UMC 1987 Nonqualified Stock Option Plan
dated April 6, 1994, incorporated by reference to Exhibit
10.6 to UMC's 1994 Form 10-K filed with the Securities and
Exchange Commission on March 10, 1995.
10.16 UMC 1994 Employee Nonqualified Stock Option Plan incorporated
by reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160)
filed with the Securities and Exchange Commission on May 19,
1994.
10.17 First Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 16, 1994, incorporated by
reference to Exhibit 4.11.1 to UMC's Form S-8 (No. 33-86480)
filed with the Securities and Exchange Commission on November
18, 1994.
10.18 Second Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated May 22, 1996, incorporated by reference to
Exhibit 4.3.2 to UMC's Form S-8 (No. 333-05401) filed with
the Securities and Exchange Commission on June 6, 1996.
10.19 Third Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 13, 1996, incorporated by
reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017)
filed with the Securities and Exchange Commission on May 29,
1997.
10.20 UMC 1994 Outside Directors' Nonqualified Stock Option Plan
incorporated herein by reference to Exhibit 4.15 to UMC's
Form S-8 (No. 33-79160) filed with the Securities and
Exchange Commission on May 19, 1994.
10.21 First Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated May 22, 1996,
incorporated by reference to Exhibit 4.4.1 to UMC's Form S-8
(No. 333-05401) filed with the Securities and Exchange
Commission on June 6, 1996.
10.22 UMC Petroleum Corporation Supplemental Benefit Plan effective
January 1, 1994, approved by the Board of Directors on March
29, 1994, incorporated by reference to Exhibit 10.10 to UMC's
1994 Form 10-K filed with the Securities and Exchange
Commission on March 10, 1995.
10.23 Amendment to United Meridian Corporation 1994 Non-Qualified
Stock Option Agreement for Former Employees of General
Atlantic Resources, Inc. dated as of April 16, 1996 among UMC
and Donald D. Wolf, incorporated by reference to Exhibit
10.22 to UMC's Form 10-Q for the period ended September 30,
1996 filed with the Securities and Exchange Commission on
August 8, 1996.
10.24 Fourth Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated May 29, 1997, incorporated herein by
reference to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017)
filed with the Securities and Exchange Commission on May 29,
1997.
10.25 Second Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated November 13, 1996,
incorporated herein by reference to Exhibit 4.4 to UMC's Form
S-8 (No. 333-28017) filed with the Securities and Exchange
Commission on May 29, 1997.
10.26 Fifth Amendment to the UMC 1987 Nonqualified Stock Option
Plan dated November 19, 1997, incorporated by reference to
Exhibit 4.7 to UMC's Form S-3 (No. 333-42467) filed with the
Securities and Exchange Commission on December 17, 1997.
10.27 Fifth Amendment to the UMC 1994 Employee Nonqualified Stock
Option Plan dated November 19, 1997, incorporated by
reference to Exhibit 4.8 to UMC's Form S-3 (No. 333-42467)
filed with the Securities and Exchange Commission on December
17, 1997.
10.28 Third Amendment to the UMC 1994 Outside Directors'
Nonqualified Stock Option Plan dated November 19, 1997,
incorporated by reference to Exhibit 4.9 to UMC's Form S-3
(No. 333-42467) filed with the Securities and Exchange
Commission on December 17, 1997.
10.29 1994 Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.3 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (No. 33-84308) filed with the
Securities and Exchange Commission on October 31, 1994.
10.30 1996 Long-Term Incentive Plan, as amended, incorporated by
reference to Exhibit 99.1 to the Company's Form S-8
(333-45117) filed with the Securities and Exchange Commission
on January 29, 1998.
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.31 Long-Term Incentive Plan for Non-Executive Employees, as
amended, incorporated by reference to Exhibit 99.1 to the
Company's Form S-8 (333-45119) filed with the Securities and
Exchange Commission on January 29, 1998.
10.32 Ocean Energy, Inc. Deferred Compensation Plan incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.33* Amendment No. 1 to Employment Agreement, dated as of November
24, 1998, between the Company and John B. Brock.
10.34* Amendment No. 1 to Employment Agreement, dated as of November
24, 1998, between the Company and James C. Flores.
10.35 Severance Protection Agreement, dated as of December 20,
1997, by and between United Meridian Corporation, UMC
Petroleum Corporation and the Executives named therein
incorporated by reference to Exhibit 10.1 to United
Meridian's Form 8-K filed with the Securities and Exchange
Commission on December 23, 1997.
10.36* Amendment No. 1 to Severance Protection Agreement, dated as
November 24, 1998 by and between the Company and Jonathan M.
Clarkson.
10.37* Second Amended and Restated Global Credit Agreement, dated as
of November 20, 1998, among the Company, Chase Bank of Texas,
National Association ("Chase Texas") as Administrative Agent
Morgan Guaranty Trust Company of new York ("Morgan Guaranty")
as syndication Agent, Bank of American National Trust &
Savings Association ("Bank of America") as Documentation
Agent, Barclays Bank PLC ("Barclays") as Managing Agent, and
the other Lenders named therein.
10.38* Guaranty Agreement, dated as of November 20, 1998, by Ocean
Energy, Inc., a Louisiana corporation, and Chase Texas as
Administrative Agent, Morgan Guaranty as Syndication Agent,
Bank of America as Documentation Agent, Barclays as Managing
Agent, and the other Lenders named therein.
10.39 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and John B. Brock, incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.40 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and James C. Flores, incorporated
by reference to Exhibit 10.2 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.41 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and Flores Family Limited
Partnership, incorporated by reference to Exhibit 10.3 to the
Company's Form 8-K filed with the Securities and Exchange
Commission on November 25, 1998.
10.42 Voting Agreement, dated as of November 24, 1998 between the
Company and Prudential Insurance Company of America,
incorporated by reference to Exhibit 10.4 to the Company's
Form 8-K filed with the Securities and Exchange Commission on
November 25, 1998.
10.43 Voting Agreement, dated as of November 24, 1998 between the
Company and James T. Hackett, incorporated by reference to
Exhibit 10.5 to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 25, 1998.
10.44 Voting Agreement, dated as of November 24, 1998 between
Seagull Energy Corporation and Barry S. Galt, incorporated by
reference to Exhibit 10.6 to the Company's Form 8-K filed
with the Securities and Exchange Commission on November 25,
1998.
10.45 Amendment No. 2 to Long-Term Incentive Plan for
Non-Executive Employees, incorporated by reference to Exhibit
99.2 to the Company's Form S-8 (333-49185) filed with the
Securities and Exchange Commission on April 1, 1998.
10.46* Amendment No. 3 to Long-Term Incentive Plan for
Non-Executive Employees, dated as of May 20, 1998.
10.47 1998 Long-Term Incentive Plan, incorporated by reference to
Appendix E to the Company's Joint Proxy Statement Prospectus
on Form S-4 (333-43933) filed with the Securities and
Exchange Commission on January 9, 1998.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of McDaniel & Associates Consultants, Ltd.
23.4* Consent of Ryder Scott Company.
27.1* Financial Data Schedule, included solely in the form 10-K
filed electronically with the Securities and Exchange
Commission.
</TABLE>
- ------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.33
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (this "Amendment") to that certain Employment
Agreement entered into effective as of March 27, 1998, by and between Ocean
Energy, Inc., a Delaware corporation ("Company"), and John B. Brock ("Employee,"
and such employment agreement, the "Employment Agreement") is entered into as of
November 24, 1998 (the "Amendment Date") between the Company and Employee.
WHEREAS, the Company anticipates entering into an Agreement and Plan of
Merger with Seagull Energy Corporation, a Texas corporation ("Seagull"),
pursuant to which the Company will merge with and into Seagull, with Seagull
being the surviving corporation (the "Merger"); and
WHEREAS, in anticipation of the Merger, the Company and Employee desire
to amend certain provisions of the Employment Agreement, with all such
amendments to be effective as of the consummation of the Merger, except the
amendment to Section 7(b) of the Employment Agreement which shall be effective
as of the Amendment Date;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Amendment, and for
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Upon the consummation of the Merger, Section 2 of the Employment
Agreement shall be amended by adding the following sentence at the end of such
section:
"Furthermore, notwithstanding any other sentence of this
Section 2, Employee shall retire as an employee of the Company
(the "Retirement") effective as of the consummation of the
merger of the Company with and into Seagull Energy Corporation
("Seagull"), with Seagull being the surviving corporation (the
"Surviving Company," and the transaction being referred to as
the "Merger") at which time the retirement shall be treated as
a resignation for Good Reason pursuant to Section 7(e)
hereof."
2. Upon the consummation of the Merger, Section 3 of the Employment
Agreement shall be amended by adding the following sentence at the end of such
section:
"Subject to any retirement requirements for members of the
Board of Directors of the Surviving Company, upon the
expiration of Employee's term as member of the Board of
Directors of the Surviving Company, a position to which he is
to be elected effective as of the consummation of the Merger,
the Surviving Company agrees to use its reasonable best
efforts to cause Employee to be re-elected or re-appointed as
member of the Board of Directors of the Surviving Company for
a three year term."
<PAGE> 2
3. Upon the consummation of the Merger, Section 6 of the Employment
Agreement shall be amended by adding the following sentence at the end of such
section:
"The Surviving Company agrees to amend the Company's
Supplemental Benefit Plan (the "SBP") to permit up to
twenty-two percent (22%) of any payments made under clause (A)
of Section 7(c) hereof to be deferrable under the SBP. In the
event of a Termination, the Company agrees, if necessary, to
provide for the establishment of a rabbi trust for the
accounts covered by the SBP in the event of a change in
control. In addition, the Surviving Company also agrees to
amend the SBP to provide for the establishment of a rabbi
trust for the accounts covered by the SBP in the event of a
Change in Control. A "Change in Control" for purposes of the
preceding sentence shall occur if (i) the Surviving Company
shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of another
entity), (ii) the Surviving Company sells all or substantially
all of its assets to any other person or entity (other than a
wholly-owned subsidiary), (iii) the Surviving Company is to be
dissolved and liquidated, or (iv) as a result of or in
connection with a contested election for the members of the
Board of Directors of the Surviving Company such that the
members constituting the Board of Directors of the Surviving
Company immediately following the consummation of the Merger
shall cease to constitute a majority of the Board of Directors
of the Surviving Company."
4. As of the Amendment Date, Section 7(b) of the Employment Agreement
is deleted in its entirety and replaced with the following:
"(b) Death. If Employee's employment is terminated due to his
death, Employee's spouse or estate, as the case may be, shall
receive the same compensation and benefits set forth in
Section 7(c)(i)."
5. Upon the consummation of the Merger, Section 7(c)(i) of the
Employment Agreement is deleted in its entirety and replaced with the following:
"(i) The Surviving Company may terminate this Agreement and
Employee's employment for any reason deemed sufficient by the
Surviving Company upon notice as provided in Section 10.
However, in the event that Employee's employment is terminated
during the Term by the Surviving Company for any reason other
than his Misconduct or Disability (as such terms are defined
below), then, subject to Section 7(h) below: (A) within five
2
<PAGE> 3
business days of the Date of Termination, the Surviving
Company shall pay to Employee a lump sum amount in cash equal
to three times the sum of (1) Employee's Base Compensation and
(2) Employee's Target Bonus; (B) for the 36-month period after
such Date of Termination, the Surviving Company, at its sole
expense, shall continue to provide or arrange to provide
Employee (and Employee's dependents) with health insurance
benefits no less favorable than the health plan benefits
provided by the Surviving Company (or any successor) during
such 36-month period to any senior executive officer of the
Surviving Company (including after Employee's death if it
occurs at the beginning of or during the 36-month period);
provided, further, to the extent the coverage or benefits
received are taxable to Employee, the Surviving Company shall
make Employee "whole" on a net after tax basis; (C) on the
Date of Termination all then outstanding Company or Surviving
Company stock-based awards of Employee, whether under this
Agreement, a Company or Surviving Company stock plan or
otherwise, shall become immediately exercisable and payable in
full, as the case may be, with any performance goals
associated therewith being deemed to have been achieved at the
maximum levels; (D) for the 36-month period after the Date of
Termination, the Surviving Company shall pay, at a monthly
rate of $6,250 for Employee's office rent, expenses,
secretarial assistance, computers, and parking; (E) for the
36-month period after the Date of Termination, the Surviving
Company shall continue to pay for the same club dues and
Company related expenses of Employee for which the Surviving
Company is paying on the Date of Termination, and, (F) in the
case of Retirement only, and contingent upon continued service
on the Board of Directors of the Surviving Company or the
Surviving Company's successor, the Surviving Company shall
grant Employee a stock option covering 25,000 shares of
Surviving Company stock on terms and conditions substantially
similar to those granted to outside directors on March 27,
1998 under the Company's 1998 Long Term Incentive Plan.
Notwithstanding anything in this Agreement to the contrary, if
any payment to Employee in respect of a Company or Surviving
Company stock-based award would give rise to a short-swing
profit liability to Employee under Section 16(b) of the
Securities Exchange Act of 1934, then both the payment and the
entitlement to payment thereof shall automatically be deferred
until the earliest date at which the payment of such benefit
would not result in a short-swing profit liability to
Employee. The Surviving Company shall deem Employee "retired"
for the purposes of all options granted to the Employee under
all stock option plans sponsored by the Surviving Company or
its-predecessors in order to permit Employee to have the
maximum term possible under such plans in which to exercise
such options."
3
<PAGE> 4
6. Capitalized terms used in this Amendment, but not otherwise defined,
shall have the meanings ascribed in the Employment Agreement.
7. Unless otherwise expressly modified by this Amendment, all terms and
conditions set forth in the Employment Agreement shall remain in full force and
effect. The parties acknowledge that the only terms and conditions modified by
this Amendment are those expressly set forth herein.
8. The validity, interpretation, construction and performance of this
Amendment shall be governed by the laws of the State of Texas without reference
to rules relating to conflicts of law.
9. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each party has executed, or has caused a duly
authorized officer to execute, this Amendment as of the Amendment Date.
OCEAN ENERGY, INC.
By: /s/ Robert K. Reeves
----------------------------------------
Name: Robert K. Reeves
-----------------------------------
Position: Exec. V.P. & General Counsel
-------------------------------
EMPLOYEE
By: /s/ John B. Brock
----------------------------------------
JOHN B. BROCK
4
<PAGE> 1
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (this "Amendment") to that certain Employment
Agreement entered into effective as of March 27, 1998, by and between Ocean
Energy, Inc., a Delaware corporation ("Company"), and James C. Flores
("Employee," and such employment agreement, the "Employment Agreement") is
entered into as of November 24, 1998 (the "Amendment Date") between the Company
and Employee.
WHEREAS, the Company anticipates entering into an Agreement and Plan of
Merger with Seagull Energy Corporation, a Texas corporation ("Seagull"),
pursuant to which the Company will merge with and into Seagull, with Seagull
being the surviving corporation (the "Merger"); and
WHEREAS, in anticipation of the Merger, the Company and Employee desire
to amend certain provisions of the Employment Agreement, with all such
amendments to be effective as of the consummation of the Merger, except the
amendment to Section 7(b) of the Employment Agreement which shall be effective
as of the Amendment Date;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Amendment, and for
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Upon the consummation of the Merger, Section 3 of the Employment
Agreement is deleted in its entirety and replaced with the following:
"3. Employee's Duties. During the Term, Employee
shall serve as the Chairman of the Board of Directors of
Seagull Energy Corporation, the surviving corporation of the
merger between the Company and Seagull Energy Corporation (the
"Surviving Company"), with such customary duties and
responsibilities as may from time to time be assigned to him
by the Board, provided that such duties are at all times
consistent with the duties of such position. Employee shall
report directly to the Board.
Employee agrees to devote his full attention and time
during normal business hours to the business affairs of the
Surviving Company and to use reasonable best efforts to
perform faithfully and efficiently such duties and
responsibilities. Notwithstanding the foregoing, during the
Term Employee may engage in the following activities so long
as they do not interfere in any material respect with the
performance of Employee's duties and responsibilities
hereunder: (i) serve on corporate, civic or charitable boards
or committees, (ii) deliver lectures, fulfill speaking
engagements or teach on a part-time basis at educational
<PAGE> 2
institutions, and (iii) manage his personal investments
including, but not limited to, Sable Minerals, Inc., a
Louisiana corporation; provided, however, in no event shall
the conduct of any of such activities by Employee be deemed to
materially interfere with Employee's duties hereunder until
Employee has been notified in writing thereof by the Board and
given a reasonable period in which to cure such interference."
2. As of the Amendment Date, Section 7(b) of the Employment Agreement
is deleted in its entirety and replaced with the following:
"b. Death. If Employee's employment is terminated due to his
death, Employee's spouse or estate, as the case may be, shall
receive the same compensation and benefits set forth in
Section 7(c)(i)."
3. Upon the consummation of the Merger, Section 7(e) of the Employment
Agreement is amended by deleting the word "or" after paragraph (v), and
inserting the word "or" and the following paragraph after paragraph (vi):
"(vii) A material breach of any provision of this Agreement by
the Surviving Company."
4. Capitalized terms used in this Amendment, but not otherwise defined,
shall have the meanings ascribed in the Employment Agreement.
5. Unless otherwise expressly modified by this Amendment, all terms and
conditions set forth in the Employment Agreement shall remain in full force and
effect. The parties acknowledge that the only terms and conditions modified by
this Amendment are those expressly set forth herein.
6. The validity, interpretation, construction and performance of this
Amendment shall be governed by the laws of the State of Texas without reference
to rules relating to conflicts of law.
7. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, each party has executed, or has caused a duly
authorized officer to execute, this Amendment as of the Amendment Date.
OCEAN ENERGY, INC.
BY: /s/ Robert K. Reeves
----------------------------------------
Name: Robert K. Reeves
-----------------------------------
Position: Exec. V.P. & Gen. Counsel
-------------------------------
EMPLOYEE:
BY: /s/ James C. Flores
----------------------------------------
JAMES C. FLORES
3
<PAGE> 1
AMENDMENT NO. 1 TO
SEVERANCE PROTECTION AGREEMENT
This Amendment No. 1 (this "Amendment") to that certain Severance
Protection Agreement, dated as of December 20, 1997, by and among United
Meridian Corporation, UMC Petroleum Company (a wholly-owned subsidiary of United
Meridian Corporation ) and Jonathan M. Clarkson ("Executive," and such severance
protection agreement, the "Severance Protection Agreement") is entered into as
of November 24, 1998 (the "Amendment Date") between Executive and Ocean Energy,
Inc., a Delaware corporation (the "Company").
WHEREAS, the obligations of the Severance Protection Agreement were
assumed by the Company by operation of law in connection with the merger of the
Company and United Meridian Corporation;
WHEREAS, the Company anticipates entering into an Agreement and Plan of
Merger with Seagull Energy Corporation, a Texas corporation ("Seagull"),
pursuant to which the Company will merge with and into Seagull, with Seagull
being the surviving corporation (the "Merger"); and
WHEREAS, in anticipation of the Merger, the Company and Executive
desire to amend certain provisions of the Severance Protection Agreement, with
all such amendments to be effective as of the consummation of the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained in this Amendment, and for
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Upon the consummation of the Merger, Section 2(b)(3) of the
Severance Protection Agreement is amended so that the number "thirty-six (36)"
replaces the number "twenty-four (24)" in the first line thereof.
2. Upon the consummation of the Merger, the following paragraphs are
added after Section 2(b)(4) and before Section 2(c) of the Severance Protection
Agreement:
"(5) Seagull Energy Corporation, as the surviving
corporation (the "Surviving Company") of the merger of Ocean
Energy, Inc. with and into Seagull Energy Corporation, shall
deem Executive "retired" for the purposes of all options
granted to the Executive under all stock option plans
sponsored by the Company, the Surviving Company or any of
their predecessors in order to permit Executive to have the
maximum term possible under such plans in which to exercise
such options.
(6) The Surviving Company shall pay to Executive a
cash amount equal to $54,000, which amount represents the
total
<PAGE> 2
cost of continuing Executive's current car allowance for
thirty-six (36) months plus a $3,600 for gasoline costs.
(7) During the term of the Consultancy (as defined
below), the Surviving Company shall continue to pay the same
club dues for which the Company (or the Surviving Company, as
the case may be) is paying on the date of termination of
Executive's employment.
(8) The Surviving Company shall reimburse Executive
in an amount of up to $10,000 for any outplacement costs.
(9) The Surviving Company shall reimburse Executive
in an amount of up to $20,000 for the cost of any financial or
tax consulting.
(10) From and after the date of termination of
employment upon which benefits become payable under this
Section 2(b), the Surviving Company and the Executive agree
that the Executive shall be employed by the Surviving Company
as a consultant reporting to [Chairman/CEO/President/Board]
(the "Consultancy") on a month to month basis for up to twelve
(12) months after which the Consultancy shall end. The
Consultancy may be earlier terminated by Executive with one
month's prior notice at any time during the Consultancy. In
consideration for Executive's employment for each month of the
Consultancy, Executive shall receive one-twelfth (1/12) of the
Base Amount, which shall be payable at the end of each such
month (if any). In addition, during the period of the
Consultancy, the Surviving Company shall provide the Executive
with an allowance for office space, equipment, computers,
parking and secretarial assistance of $6,250 per month.
(11) Any amount payable under this Section 2(b) shall
include an additional amount of cash which will equal any
taxes withheld on the portion not deferred such that the net
amount of the total payment shall equal the result obtained as
if no withholding taxes applied. Should any taxes be due upon
the provision of any benefits hereunder (other than taxes due
under the operation of Section 4999 of the Code which Section
of the Code is addressed in Section 2(d) hereof), the
Surviving Company shall pay Executive an amount equal to such
taxes (and any taxes thereon) so that Executive incurs no
taxes on any benefits received hereunder."
2
<PAGE> 3
3. Capitalized terms used in this Amendment, but not otherwise defined,
shall have the meanings ascribed in the Severance Protection Agreement.
4. Unless otherwise expressly modified by this Amendment, all terms and
conditions set forth in the Severance Protection Agreement shall remain in full
force and effect. The parties acknowledge that the only terms and conditions
modified by this Amendment are those expressly set forth herein.
5. The validity, interpretation, construction and performance of this
Amendment shall be governed by the laws of the State of Texas without reference
to rules relating to conflicts of law.
6. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each party has executed, or has caused a duly
authorized officer to execute, this Amendment as of the Amendment Date.
OCEAN ENERGY, INC.
BY: /s/ Robert K. Reeves
----------------------------------------
Name: Robert K. Reeves
-----------------------------------
Position: Exec. V.P. & General Counsel
-------------------------------
EXECUTIVE
BY: /s/ Jonathan M. Clarkson
-------------------------------------
JONATHAN M. CLARKSON
<PAGE> 1
SECOND AMENDED AND RESTATED
GLOBAL CREDIT AGREEMENT
Dated as of November 20, 1998
among
OCEAN ENERGY, INC.,
a Delaware corporation,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Syndication Agent,
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
as Documentation Agent,
BARCLAYS BANK PLC,
as Managing Agent,
PARIBAS
SOCIETE GENERALE, SOUTHWEST AGENCY,
AND
CREDIT SUISSE FIRST BOSTON
as Co-Agents,
and
THE LENDERS NOW OR HEREAFTER PARTIES HERETO
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION
CO-ARRANGERS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions and Accounting Matters
<S> <C> <C>
Section 1.01 Terms Defined in Recitals..............................................................1
Section 1.02 Certain Defined Terms..................................................................1
Section 1.03 Accounting Terms and Determinations...................................................17
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit...........................................................18
Section 2.02 Borrowings, Continuations and Conversions; Issuance of Letters of
Credit................................................................................19
Section 2.03 Extensions and Changes of Commitments.................................................20
Section 2.04 Facility Fee and Other Fees...........................................................21
Section 2.05 Lending Offices.......................................................................22
Section 2.06 Several Obligations...................................................................22
Section 2.07 Notes.................................................................................22
Section 2.08 Prepayments...........................................................................23
Section 2.09 Borrowing Base........................................................................24
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans....................................................................26
Section 3.02 Interest..............................................................................26
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
Section 4.01 Payments..............................................................................27
Section 4.02 Pro Rata Treatment....................................................................27
Section 4.03 Computations..........................................................................28
Section 4.04 Non-receipt of Funds by the Administrative Agent......................................28
Section 4.05 Sharing of Payments, Etc..............................................................28
Section 4.06 Assumption of Risks...................................................................29
Section 4.07 Obligation to Reimburse and to Prepay.................................................30
Section 4.08 Obligations for Letters of Credit.....................................................31
ARTICLE V
Yield Protection and Illegality
Section 5.01 Additional Costs......................................................................31
Section 5.02 Limitation on Eurodollar Loans........................................................32
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.03 Illegality............................................................................33
Section 5.04 Base Rate Loans pursuant to Sections 5.01, 5.02 and 5.03..............................33
Section 5.05 Compensation..........................................................................33
Section 5.06 Additional Cost in Respect of Tax.....................................................34
Section 5.07 Avoidance of Taxes and Additional Costs...............................................34
Section 5.08 Lender Tax Representation.............................................................35
Section 5.09 Limitation on Right to Compensation...................................................35
Section 5.10 Compensation Procedure................................................................35
ARTICLE VI
Conditions Precedent
Section 6.01 Effectiveness.........................................................................36
Section 6.02 All Loans and Letters of Credit.......................................................37
Section 6.03 Conditions Relating to Letters of Credit..............................................38
ARTICLE VII
Representations and Warranties
Section 7.01 Corporate Existence...................................................................38
Section 7.02 Financial Condition...................................................................39
Section 7.03 Litigation............................................................................39
Section 7.04 No Breach.............................................................................39
Section 7.05 Corporate Action; Binding Obligation..................................................39
Section 7.06 Approvals.............................................................................39
Section 7.07 Use of Loans and Letters of Credit....................................................40
Section 7.08 ERISA.................................................................................40
Section 7.09 Taxes.................................................................................40
Section 7.10 Insurance.............................................................................40
Section 7.11 Titles, etc...........................................................................40
Section 7.12 No Material Misstatements.............................................................41
Section 7.13 Investment Company Act................................................................41
Section 7.14 Public Utility Holding Company Act....................................................41
Section 7.15 Subsidiaries and Partnerships.........................................................41
Section 7.16 Location of Business and Offices......................................................41
Section 7.17 Rate Filings..........................................................................41
Section 7.18 Environmental Matters.................................................................42
Section 7.19 Defaults..............................................................................43
Section 7.20 Compliance with the Law...............................................................43
Section 7.21 Risk Management Agreements............................................................43
Section 7.22 Gas Imbalances........................................................................43
Section 7.23 Solvency..............................................................................43
Section 7.24 Year 2000 Compliance..................................................................43
ARTICLE VIII
Affirmative Covenants
Section 8.01 Financial Statements..................................................................44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.02 Litigation............................................................................46
Section 8.03 Corporate Existence, Etc..............................................................46
Section 8.04 Environmental Matters.................................................................48
Section 8.05 Engineering Reports...................................................................48
Section 8.06 Stock of Restricted Subsidiaries......................................................49
Section 8.07 Further Assurances....................................................................49
Section 8.08 Performance of Obligations............................................................49
ARTICLE IX
Negative Covenants
Section 9.01 Debt..................................................................................49
Section 9.02 Liens.................................................................................51
Section 9.03 Investments, Loans and Advances.......................................................52
Section 9.04 Dividends, Distributions and Redemptions..............................................54
Section 9.05 Financial Covenants...................................................................55
Section 9.06 Nature of Business....................................................................55
Section 9.07 Limitation on Operating Leases and Sale-Leaseback Transactions........................55
Section 9.08 Mergers, Etc..........................................................................55
Section 9.09 Proceeds of Notes.....................................................................56
Section 9.10 ERISA Compliance......................................................................56
Section 9.11 Sale or Discount of Receivables.......................................................56
Section 9.12 Risk Management Agreements............................................................56
Section 9.13 Transactions with Affiliates..........................................................56
Section 9.14 Negative Pledge Agreements............................................................56
Section 9.15 Subsidiaries and Partnerships.........................................................57
Section 9.16 Sale of Oil and Gas Properties........................................................57
Section 9.17 Environmental Matters.................................................................57
Section 9.18 Payment Restrictions..................................................................57
Section 9.19 Subordinated and Pari Passu Debt......................................................58
Section 9.20 Maintenance of Deposits...............................................................58
Section 9.21 Unrestricted Subsidiaries.............................................................58
Section 9.22 Gas Imbalances, Take-or-Pay or Other Prepayments......................................59
ARTICLE X
Events of Default
Section 10.01 Events of Default.....................................................................59
Section 10.02 Remedies; Application of Proceeds.....................................................62
ARTICLE XI
The Agents
Section 11.01 Appointment, Powers and Immunities....................................................62
Section 11.02 Reliance by Agents....................................................................63
Section 11.03 Defaults..............................................................................63
Section 11.04 Rights as a Lender....................................................................63
Section 11.05 Indemnification.......................................................................63
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.06 Non-Reliance on Agents and other Lenders..............................................64
Section 11.07 Action by Agents......................................................................64
Section 11.08 Resignation or Removal of Agents......................................................64
ARTICLE XII
Miscellaneous
Section 12.01 Waiver................................................................................65
Section 12.02 Notices...............................................................................65
Section 12.03 Payment of Expenses, Indemnities, etc.................................................65
Section 12.04 Amendments, Etc.......................................................................67
Section 12.05 Successors and Assigns................................................................67
Section 12.06 Assignments and Participations........................................................67
Section 12.07 Invalidity............................................................................69
Section 12.08 Entire Agreement......................................................................69
Section 12.09 References............................................................................69
Section 12.10 Survival..............................................................................69
Section 12.11 Captions..............................................................................69
Section 12.12 Counterparts..........................................................................69
Section 12.13 GOVERNING LAW.........................................................................69
Section 12.14 Confidentiality.......................................................................70
Section 12.15 Interest..............................................................................71
Section 12.16 Effectiveness.........................................................................72
Section 12.17 Survival of Obligations...............................................................72
Section 12.18 Debt Characterization for Indenture Purposes; Specified or Designated
Senior Indebtedness...................................................................72
Section 12.19 EXCULPATION PROVISIONS................................................................73
Section 12.20 Intercreditor Agreement...............................................................73
</TABLE>
iv
<PAGE> 6
ANNEX, EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Annex I - List of Commitments and Commitment Percentages
Exhibit A - Form of Note
Exhibit B-1 - Form of Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Exhibit B-2 - Form of Opinion of Onebane, Bernard, Torian, Diaz, McNamara & Abell
Exhibit C - Form of Borrowing Request
Exhibit D - Restricted and Unrestricted Subsidiaries
Exhibit E - Name of Partnerships
Exhibit F - List of Loan Documents
Exhibit G - Form of Assignment and Acceptance
Exhibit H - Form of Master Release
Schedule 2.01 - Assumed Letters of Credit
Schedule 7.03 - Litigation
Schedule 7.18 - Environmental Matters
Schedule 7.21 - Risk Management Agreements
Schedule 7.22 - Gas Imbalances
</TABLE>
v
<PAGE> 7
This Second Amended and Restated Global Credit Agreement dated as of
November 20, 1998 is among: OCEAN ENERGY, INC., a corporation duly organized and
validly existing under the laws of the state of Delaware (the "Company"); each
of the financial institutions that is now or hereafter a signatory hereto
(individually, a "Lender" and, collectively, the "Lenders"); CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT for the Lenders (in such
capacity, the "Administrative Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, AS SYNDICATION AGENT for the Lenders (in such capacity, the "Syndication
Agent"), BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, AS DOCUMENTATION
AGENT for the Lenders (in such capacity, the "Documentation Agent"), BARCLAYS
BANK PLC, as Managing Agent (in such capacity, the "Managing Agent"), and
PARIBAS, SOCIETE GENERALE, SOUTHWEST AGENCY and CREDIT SUISSE FIRST BOSTON AS
CO-AGENTS for the Lenders (in such capacity, the "Co-Agents").
RECITALS
A. The Company, and certain of the Agents and the Lenders entered into
that certain Amended and Restated Global Credit Agreement dated as of July 8,
1998 (such credit agreement, the "Prior Credit Agreement").
B. The Company has requested that the Agents and the Lenders amend,
restate and restructure the Prior Credit Agreement and make credit available on
the terms and conditions stated herein.
C. The Agents and the Lenders, subject to the terms and conditions
stated herein, are willing to amend, restate and restructure the Prior Credit
Agreement and to make such credit facilities available.
D. NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Agreement, the
terms defined in the Recitals shall have the meanings indicated in the Recitals.
SECTION 1.02 CERTAIN DEFINED TERMS. As used herein, including the
Recitals, the following terms shall have the following meanings:
"Additional Costs" shall have the meaning assigned to that term in
Section 5.01(a).
"Affected Loans" shall have the meaning assigned to that term in
Section 5.04.
"Affiliate" of any Person shall mean (a) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person and (b) any director or executive officer of such first Person.
1
<PAGE> 8
"Agent" shall mean any one or more of the Administrative Agent, the
Syndication Agent, the Documentation Agent, the Managing Agent, the Technical
Agents and/or the Co-Agents, or if the context so indicates, all of the
foregoing collectively. References to any Agent shall include its successors.
"Aggregate Commitments" at any time shall equal the sum of the
Commitments of all of the Lenders.
"Agreement" shall mean this Second Amended and Restated Global Credit
Agreement, as amended, supplemented or modified from time to time.
"Applicable Lending Office" shall mean, for each Lender and for each
Type of Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
office of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Administrative Agent and the Company as the
office at which its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean the following rate per annum as is
applicable based upon the Percentage Usage as of the date of determination:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Percentage Usage Eurodollar Applicable Margin Base Rate Applicable Margin
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than or equal to 40% 0.750% 0.000%
- -----------------------------------------------------------------------------------------------------------------
Greater than 40%, but 1.000% 0.000%
less than or equal to 60%
- -----------------------------------------------------------------------------------------------------------------
Greater than 60%, but 1.200% 0.250%
less than or equal to 75%
- -----------------------------------------------------------------------------------------------------------------
Greater than 75%, but 1.400% 0.500%
less than or equal to 90%
- -----------------------------------------------------------------------------------------------------------------
Greater than 90%, but 1.600% 0.750%
less than or equal to 100%
- -----------------------------------------------------------------------------------------------------------------
Greater than 100%, but 1.750% 1.000%
less than or equal to 115%
- -----------------------------------------------------------------------------------------------------------------
Greater than 115% 2.000% 1.250%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
"Assignment and Acceptance" shall have the meaning assigned such term
in Section 12.06(b).
"Available Commitment" shall mean the obligation of the Lenders to make
Loans to the Company and to participate in Letters of Credit issued by the
Administrative Agent for the account of the Company and its Subsidiaries in an
aggregate amount not to exceed the lesser of either (a) the Aggregate
Commitments, as then in effect, or (b) the then applicable Borrowing Base.
2
<PAGE> 9
"Base Rate" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (a) the Federal Funds Rate for any such day plus 1/2 of 1% or
(b) the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans which bear interest at rates based
upon the Base Rate.
"Borrowing Base" shall mean at any time an amount equal to the amount
determined in accordance with Section 2.09.
"Borrowing Base Deficiency" shall have the meaning assigned to that
term in Section 2.08(c).
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in Houston, Texas; and where such term is used
in the definition of "Quarterly Date" in this Section 1.02 or if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, a continuation of, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Company with respect to any such borrowing,
payment, prepayment, continuation, conversion or Interest Period, any day which
is also a day on which dealings in Dollar deposits are carried out in the London
interbank market.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment" shall mean, as to each Lender, the obligation of such
Lender to make Loans to the Company and to participate in the Letters of Credit
issued by the Administrative Agent for the account of the Company or any of its
Subsidiaries, in an aggregate amount at any one time outstanding equal to the
amount set forth opposite such Lender's name on Annex I under the caption
"Commitment," as the same may be reduced pursuant to Section 2.03 or may be
modified pursuant to Assignment and Acceptances pursuant to Section 12.06(b).
"Commitment Percentage" shall mean, as of any date of determination, as
to any Lender, the percentage of the Commitments to be provided by a Lender
under this Agreement as indicated on Annex I under the caption "Commitment
Percentage," as modified from time to time to reflect any assignments permitted
by Section 12.06(b).
"Consolidated Net Income" shall mean, for any period, the consolidated
net income (or loss) of the Company and its Consolidated Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any extraordinary or non-recurring net gains or losses
together with any related provision for taxes on such gain or loss, realized in
connection with any extraordinary or nonrecurring gains or losses, (b) any
expenses associated with the Merger to the extent such expenses occur prior to
December 31, 1998 and are not in excess of $40,000,000 in the aggregate, (c) the
amount of noncash write downs of long-lived assets in compliance with GAAP or
SEC guidelines, and (d) foreign currency translation adjustments.
"Consolidated Restricted Subsidiary" shall mean a Consolidated
Subsidiary that is a Restricted Subsidiary.
3
<PAGE> 10
"Consolidated Subsidiary" shall mean, with respect to any Person, any
Subsidiary of such Person (whether now existing or hereafter acquired) whose
financial statements should be (or should have been) consolidated with the
financial statements of such Person in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, with respect to the
Company and its Consolidated Subsidiaries, the sum of preferred stock (if any),
par value of common stock, capital in excess of par value of common stock and
retained earnings, less treasury stock (if any), goodwill, cost in excess of
fair value of net assets acquired and all other assets that are properly
classified as intangible assets, but plus any expenses associated with the
Merger occurring prior to December 31, 1998 and not in excess of $40,000,000 in
the aggregate, the amount of noncash write downs of long-lived assets in
compliance with GAAP or SEC guidelines, and excluding any extraordinary or
non-recurring net gains or losses together with any related provision for taxes
on such gain or loss, realized in connection with any extraordinary or
nonrecurring gains or losses, and plus or minus, as appropriate, foreign
currency translation adjustments, all as determined on a consolidated basis.
Notwithstanding the foregoing, "Consolidated Tangible Net Worth" shall not be
reduced to reflect redemptions or repurchases of equity securities permitted by
the terms of Section 9.04.
"Debt" shall mean, for any Person the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments; (b) all obligations of
such Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments; (c) all
obligations of such Person to pay the deferred purchase price of Property or
services, except trade accounts payable (other than for borrowed money) arising
in the ordinary course of business of such Person; (d) all obligations under
leases which shall have been, or should have been, in accordance with GAAP,
recorded as capital leases in respect of which such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise; (e) all Debt of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person, provided that if such Debt is Non-recourse except
with respect to the asset subject to such Lien, then only that portion of such
Debt equal to the lesser of the amount of such Debt and the fair market value of
such asset; (f) all Debt of others guaranteed by such Person or upon which such
Person is otherwise liable as a partner or otherwise to the extent of the lesser
of the amount of such Debt and the maximum stated amount of such guarantee or
other liability; (g) the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or indirectly
received payment; and (h) obligations to deliver goods or services including
Hydrocarbons in consideration of advance payments other than (1) obligations to
sell or purchase Hydrocarbons, (2) obligations with pipelines for firm
transportation of natural gas of such Person, and (3) oil and gas balancing
agreements, take or pay agreements or other prepayment obligations in respect of
Hydrocarbons, in each case, incurred in the ordinary course of business and
which are customary in the oil and gas industry.
"Debt Coverage Ratio" shall mean the ratio, calculated as of any date
of determination, of (a) Total Debt as of such date of determination to (b)
EBITDA of the Company and its Consolidated Restricted Subsidiaries for the
immediately preceding four (4) fiscal quarters of the Company and its
Consolidated Restricted Subsidiaries ending on the date of determination, after
giving effect to the pooling of interests treatment of the Merger.
"Default" shall mean an event which with notice or lapse of time or
both would become an Event of Default.
4
<PAGE> 11
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, with respect to the Company and its Consolidated
Restricted Subsidiaries, net earnings (excluding, without duplication, gains and
losses resulting from the sale or retirement of assets, non-cash write downs,
charges resulting from accounting convention changes and any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with any extraordinary or nonrecurring gains or losses, any expenses
associated with the Merger occurring prior to December 31, 1998 and not in
excess of $40,000,000 in the aggregate, and foreign currency translation
adjustments) before deduction for taxes, interest expenses, exploration
expenses, depreciation, and depletion and amortization expenses, all determined
on a consolidated basis in accordance with GAAP; provided that if the Company or
any Restricted Subsidiary shall acquire any Person or sell any Subsidiary or
acquire or dispose of any Properties outside the ordinary course of business or
engage in any other material transaction, EBITDA for the preceding four fiscal
quarter period prior to such transaction may be determined on a pro forma basis
using or excluding, as applicable, the revenue attributable to such Properties
or Person's Properties, as appropriate, net of operating expenses, severance and
ad valorem taxes incurred with respect to such Properties during the relevant
period, as appropriate, and otherwise as if such transaction had occurred at the
start of such four fiscal quarter period.
"Effective Date" shall have the meaning assigned such term in Section
12.16.
"Engineering Reports" shall have the meaning assigned to that term in
Section 2.09(c).
"Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Governmental Authority
pertaining to health or the environment in effect in any and all jurisdictions
in which the Company or any of its Subsidiaries are conducting or at any time
have conducted business, or where any Property of the Company or any of its
Subsidiaries is located, or where any hazardous substances generated by or
disposed of by the Company or any of its Subsidiaries are located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as
amended, the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe
Drinking Water Act, as amended, the Toxic Substances Control Act, as amended,
the Superfund Amendments and Reauthorization Act of 1986, as amended. For
purposes of this definition, the term "oil" shall have the meaning specified in
OPA; the terms "hazardous substance," "release" and "threatened release" have
the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") have the meanings specified in RCRA; provided that, in the event
either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment with respect to all provisions of this Agreement other
than Article VII hereof, and provided further that, to the extent the laws of
the state in which any Property of the Company or its Subsidiaries is located
establish a meaning for "oil," "hazardous substance," "release," "solid waste"
or "disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
5
<PAGE> 12
"ERISA Affiliate" shall mean any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Loans" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Eurodollar
Rate" in this Section 1.02.
"Eurodollar Rate" shall mean, with respect to a Eurodollar Loan, the
rate per annum (rounded upwards, if necessary to the nearest 1/100 of 1%) quoted
by the Administrative Agent at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) two (2) Business Days prior to the first day of the
Interest Period for such Loan for the offering by the Administrative Agent to
leading banks in the London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to the principal
amount of the Eurodollar Loan to be made by the Lenders for such Interest
Period.
"Event of Default" shall have the meaning assigned to that term in
Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age pension
or public liability obligations not yet due or which are being contested in good
faith by appropriate action; (iii) (A) vendors', carriers', operators',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction,
maritime, landlords' and other like Liens arising by operation of law and (B)
Liens arising by agreement (provided that no such Liens secure any obligations
constituting Debt for borrowed money or contingent obligations relating to
borrowed money), in each case, in the ordinary course of business or incident to
the exploration, development, operation and maintenance of Oil and Gas
Properties (including without limitation, Liens created in the ordinary course
of business under oil and gas leases, farm-out agreements, divisions orders,
partnership agreements, production sharing contracts or other petroleum
concessions, licenses or similar agreements, royalty agreements, contracts for
the sale or transportation of Hydrocarbons, operating agreements, development
agreements or compulsory pooling or unitization orders, declarations and
agreements and contractual landlord's liens), in any such case, in respect of
obligations which have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings; (iv) Liens securing the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money or for the deferred purchase price of Property or services),
leases (other than leases which constitute Debt) and government contracts,
statutory or regulatory obligations, surety and appeal bonds, and other Liens of
like nature, in each case made in the ordinary course of business; (v) any Liens
securing Debt, neither assumed nor guaranteed by the Company or any of its
Subsidiaries nor on which any one of them pays interest, existing upon real
estate or rights in or relating to real estate acquired by the Company or any
Subsidiary for substation, metering station, pump station, storage, gathering
line, transmission line, transportation line, distribution line or right of way
purposes, and any Liens reserved in leases for rent and for compliance with the
terms of the leases in the case of leasehold estates, to the extent that any
such Lien referred to in this clause (v) does not materially impair the use of
the Property covered by such Lien for the purposes for which such Property is
held by the Company or such Subsidiary; (vi) encumbrances (other than to secure
the payment of borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any rights of way or other Property of
6
<PAGE> 13
the Company or any of its Subsidiaries for the purpose of roads, pipelines,
transmission lines, transportation lines, distribution lines for the removal of
gas, oil, coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, rights of way, facilities and equipment, and
defects, irregularities and deficiencies in title of any rights of way or other
Property which in the aggregate do not materially impair the use of such rights
of way or other Property for the purposes of which such rights of way and other
Property are held by the Company or any of its Subsidiaries; (vii) inchoate
Liens on pipelines or pipeline facilities that arise by operation of law which
have not attached to the Property subject of such Lien, (viii) rights of
collecting banks having rights of setoff, revocation, refund or chargeback with
respect to money or instruments of the Company or any of its Subsidiaries or on
deposit with or in the possession of such banks, and (ix) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceedings that are currently being
contested in good faith by appropriate proceedings, promptly instituted and
diligently conducted, and for which adequate reserves have been made to the
extent required by GAAP.
"Excluded Taxes" shall have the meaning assigned such term in Section
5.01(a).
"Facility Fee Rate" shall mean the following rate per annum as is
applicable based upon the Percentage Usage as of the date of determination:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Percentage Usage Facility Fee Rate
- ------------------------------------------------------------------------------------
<S> <C>
Less than or equal to 60% 0.250%
- ------------------------------------------------------------------------------------
Greater than 60%,but less than 0.300%
or equal to 75%
- ------------------------------------------------------------------------------------
Greater than 75%,but less than 0.350%
or equal to 90%
- ------------------------------------------------------------------------------------
Greater than 90%,but less than 0.400%
or equal to 100%
- ------------------------------------------------------------------------------------
Greater than 100% 0.500%
- ------------------------------------------------------------------------------------
</TABLE>
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (i) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions for the next preceding day as so published on the
next succeeding Business Day, and (ii) if such rate is not so published for any
Business Day, the Federal Funds Rate for such day shall be the average rate
charged to the Administrative Agent on such day on such similar transactions as
determined by the Administrative Agent.
7
<PAGE> 14
"Fee Letters" shall mean (i) that certain letter agreement dated
November 20, 1998 among, inter alia, the Company, the Administrative Agent and
an Affiliate of the Administrative Agent; and (ii) that certain letter agreement
dated November 20, 1998 among the Company and the Administrative Agent.
"Financial Statements" shall mean the annual consolidated financial
statements of the Company and its Consolidated Subsidiaries described or
referred to in Section 7.02(a).
"GAAP" shall mean generally accepted accounting principles as in effect
on the Effective Date.
"Governmental Authority" shall mean (a) any governmental authority
wherever located, including the federal governments of the United States, Canada
and any other foreign country or nation, and any state, county, parish,
province, municipal and political subdivisions in which any Property of the
Company or any of its Subsidiaries is located or which exercises jurisdiction
over any such Property; and (b) any court, agency, department, commission,
board, bureau or instrumentality of any of them which exercises jurisdiction
over any such Person or Property.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other direction or requirement
(including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any Governmental
Authority.
"Guaranty Agreement" shall mean the guaranty agreement executed by
OEI-Louisiana in form and substance satisfactory to the Administrative Agent and
the Documentation Agent guarantying payment of the Indebtedness.
"Havre" shall mean Havre Pipeline Company, LLC, a limited liability
company established under the laws of the State of Texas of which the Company or
a Subsidiary of the Company is the manager and a majority member.
"Havre Credit Facility" shall mean any credit agreement by and between
Havre and the lender or lenders party thereto, the promissory notes described
therein, the Pledge and Estoppel Agreement executed by OEI-Louisiana (as
successor by merger to UMC), as assumed by OERI, in connection therewith, all
guarantees of any of the foregoing by the Company or any of its Subsidiaries and
all amendments, restatements, refinancings (whether with the same lender or
other lenders) and other modifications (including increases so long as the
aggregate principal amount owing in connection therewith is less than
$20,000,000) to the foregoing from time to time.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged or received on the Notes or on
other Indebtedness under laws applicable to such Lender which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles, interests and
estates in and to oil and gas leases; oil, gas and mineral leases; other liquid
or gaseous hydrocarbon leases; production sharing contracts or other petroleum
concessions, licenses or similar agreements made by or on behalf of a
8
<PAGE> 15
sovereign; mineral fee interests; overriding royalty and royalty interests; net
profit interests and production payment interests in Hydrocarbons, including any
reserve or residual interest of whatever nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined therefrom and all other minerals.
"Indebtedness" shall mean any and all amounts owing or to be owing by
the Company or OEI-Louisiana to any Agent and/or the Lenders in connection with
the Notes or any Loan Document, including this Agreement and the Letter of
Credit Agreements, and all renewals, extensions and/or rearrangements thereof.
"Indemnity Matters" shall mean actions, suits, proceedings (including
any investigations, litigation or inquiries), claims, demands, causes of action,
costs, losses, liabilities, damages or expenses of any kind or nature
whatsoever.
"Indentures" shall mean any or all of the following, as the context
requires: (a) the 95 Indenture, (b) the 96 Indenture, (c) the 97 Indenture and
(d) the 98 Indentures.
"Initial Reserve Reports" shall mean: the reports of (a) Ryder Scott
Company Petroleum Engineers and McDaniel & Associates Consultants Ltd. with
respect to Oil and Gas Properties formerly owned by UMC evaluating such
Properties as of January 1, 1998; (b) McDaniel & Associates Consultants Ltd.
with respect to the Oil and Gas Properties of Ocean Canada evaluating such
Properties as of January 1, 1998; (c) Netherland, Sewell & Associates, Inc. with
respect to the Oil and Gas Properties of certain Subsidiaries of the Company
named therein conducting operations in Africa evaluating such Properties as of
January 1, 1998; (d) Netherland, Sewell & Associates with respect to the Oil and
Gas Properties of the Company evaluating such Properties as of December 31,
1997; and (e) the chief petroleum engineer of the Company with respect to its
Oil and Gas Properties evaluating such Properties as of December 31, 1997.
"Intercreditor Agreement" shall mean that certain Amended and Restated
Intercreditor Agreement dated as of July 8, 1998, among the Agents, the Lenders,
the Canadian Agent, the Canadian Lenders, the Company, OEI-Louisiana and Ocean
Canada, as amended from time to time.
"Interest Coverage Ratio" shall mean the ratio, calculated as of the
last day of any fiscal quarter of the Company, of (a) EBITDA for the immediately
preceding four (4) fiscal quarters of the Company and its Consolidated
Restricted Subsidiaries ending on the date of determination to (b) interest
expenses (including capitalized interest expenses and excluding to the extent
included in the calculation of interest expenses, amortization of capitalized
debt issuance costs of the Company and its Consolidated Restricted Subsidiaries)
on all Debt of the Company and its Consolidated Restricted Subsidiaries for the
immediately preceding four (4) fiscal quarters of the Company and its
Consolidated Restricted Subsidiaries ending on the date of determination, after
giving effect to the pooling of interests treatment of the Merger; provided that
if the Company or any Restricted Subsidiary shall acquire any Person or dispose
of any Subsidiary or acquire or dispose of any Properties outside the ordinary
course of business or engage in any other material transaction, interest expense
for the preceding four fiscal quarter period prior to such transaction may be
determined on a pro forma basis as if such transaction had occurred at the start
of such four fiscal quarter period.
9
<PAGE> 16
"Interest Period" shall mean, with respect to any Eurodollar Loan, the
period commencing on the date such Eurodollar Loan is made or converted from a
Base Rate Loan or the last day of the next preceding Interest Period with
respect to such Loan and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Company may
select as provided in Section 2.02 (or, in the case of a Loan that is a
Eurodollar Loan, such longer period as may be requested by the Company and
agreed to by all of the Lenders, except that each Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing (unless agreed to by the Company and all
of the Lenders): (i) no Interest Period for a Loan may end after the Termination
Date; (ii) each Interest Period which would otherwise end on a day which is not
a Business Day shall end on the next succeeding Business Day unless the next
succeeding Business Day falls in the next succeeding calendar month, then on the
next preceding Business Day; and (iii) notwithstanding clause (i) above, no
Interest Period for any Eurodollar Loans shall have a duration of less than one
month and, if the Interest Period for any Eurodollar Loans would otherwise be a
shorter period, such Loans shall not be available hereunder.
"LC Exposure" shall mean at any time the aggregate undrawn face amount
of all outstanding Letters of Credit and the aggregate of all amounts drawn
under Letters of Credit and not yet reimbursed or funded as a Loan pursuant to
Section 4.07(b), minus the aggregate face amount of all letters of credit issued
for the benefit of the Company or the Administrative Agent, which in each
instance has been specifically accepted by the Administrative Agent as
acceptable collateral supporting the Letters of Credit.
"LC Fee Rate" shall mean, as of any date of determination, the
Applicable Margin for Eurodollar Loans as of such date.
"Letter of Credit Agreements" shall mean the written agreements between
the Company and the Administrative Agent or one of its Affiliates executed or
hereafter executed in connection with the issuance by the Administrative Agent
or its Affiliate of the Letters of Credit, such agreements to be on the
Administrative Agent's or such Affiliate's customary form for letters of credit
of comparable amount and purpose, as from time to time in effect or as otherwise
agreed to by the Company and the Administrative Agent or its Affiliate.
"Letters of Credit" shall mean: (a) the letters of credit hereafter
issued by the Administrative Agent or one of its Affiliates on behalf of the
Lenders pursuant to Section 2.01(b), (b) all letters of credit heretofore issued
by the Administrative Agent, as agent, or one of its Affiliates under the Prior
Credit Agreement, which are outstanding on the Effective Date, and (c) all
reimbursement obligations pertaining to any such letters of credit; and "Letter
of Credit" shall mean any one of the Letters of Credit and the reimbursement
obligation pertaining thereto.
"Liens" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge (including, without limitation, production payments and the like
payable out of Oil and Gas Properties), security interest or encumbrance of any
kind in respect of such asset. For the purposes of this Agreement, the Company
and its Subsidiaries shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
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"Lion" shall mean Lion GPL, S.A.
"Loan Documents" shall mean this Agreement, the Notes, the Letter of
Credit Agreements, the Guaranty Agreement, the Fee Letters, the agreements or
instruments described or referred to in Exhibit F, and any and all other
agreements or instruments now or hereafter executed and delivered by the Company
or any other Person (other than participation or similar agreements between any
Lender and any other lender or creditor with respect to any Indebtedness) in
connection with, or as security for the payment or performance of, the Notes,
the Letter of Credit Agreements or this Agreement, as such agreements may be
amended or supplemented from time to time.
"Loans" shall mean the loans provided for by Section 2.01.
"Majority Lenders" shall mean: (a) if no Event of Default has occurred
and is continuing, Lenders (who are not in default of their obligations under
this Agreement ) having, without duplication, greater than fifty percent (50%)
of the Aggregate Commitments; and (b) if an Event of Default has occurred and is
continuing, Lenders (who are not in default of their obligations under this
Agreement ) holding (or, as to Letters of Credit, participating in) greater than
fifty percent (50%) of the outstanding aggregate principal amount of the Loans
and Letters of Credit (without regard to any sale by a Lender of a participation
in any Loan or Letter of Credit).
"Material Adverse Effect" shall mean any material and adverse effect
on: (a) the business, condition (financial or otherwise), results of operations,
assets, liabilities or prospects of the Company and its Restricted Subsidiaries
on a consolidated basis, (b) the ability of the Company and its Restricted
Subsidiaries to perform their obligations under the Loan Documents to which they
are party, taken as a whole, or (c) the rights and remedies of the Agents and
the Lenders under the Loan Documents, taken as a whole.
"Merger" shall mean the merger pursuant to the Merger Agreement of
United Meridian into the Company, with the Company being the surviving Person.
"Merger Agreement" shall mean that certain Agreement and Plan of Merger
dated as of December 22, 1997 between the Company and United Meridian, as
amended by amendments thereto dated as of January 7, 1998 and February 20, 1998.
"Multiemployer Plan" shall mean a Plan defined as such in Section 3(37)
of ERISA to which contributions have been made by the Company or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"95 Indenture" shall mean that certain Indenture among the Company (as
successor by merger to United Meridian), as issuer, OEI-Louisiana (as successor
by merger to UMC), as initial subsidiary guarantor, and U.S. Bank Trust National
Association (formerly known as First Bank of New York, National Association), as
trustee, dated as of October 30, 1995, providing for the issuance of the
Company's $150,000,000 10-3/8% Senior Subordinated Notes due 2005, as amended by
the First Supplemental Indenture thereto dated as of November 4, 1997 and the
Second Supplemental Indenture thereto dated as of March 27, 1998, and all notes
or securities issued under any of the foregoing, any subsidiary guarantees
issued pursuant to the terms of any of the foregoing, and all amendments and
supplements to the foregoing permitted under Section 9.19(b) or a consent
thereunder.
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"96 Indenture" shall mean that certain Indenture dated as of September
26, 1996 among the Company (formerly known as Flores & Rucks, Inc.), as issuer,
the subsidiary guarantor named therein, and State Street Bank and Trust Company,
as trustee, providing for the issuance of the Company's $160,000,000 9-3/4%
Senior Subordinated Notes due 2006, as amended by the First Supplemental
Indenture thereto dated as of March 27, 1998, and all notes or securities issued
under any of the foregoing, any subsidiary guarantees issued pursuant to the
terms of any of the foregoing, and all amendments and supplements to the
foregoing permitted under Section 9.19(b) or a consent thereunder.
"97 Indenture" shall mean that certain Indenture dated as of July 2,
1997 among the Company, as issuer, the subsidiary guarantor named therein, and
State Street Bank and Trust Company, as trustee, providing for the issuance of
the Company's $200,000,000 8-7/8% Senior Subordinated Notes due 2007, as amended
by the First Supplemental Indenture thereto dated as of March 27, 1998, and all
notes or securities issued under any of the foregoing, any subsidiary guarantees
issued pursuant to the terms of any of the foregoing, and all amendments and
supplements to the foregoing permitted under Section 9.19(b) or a consent
thereunder.
"98 Indentures" shall mean the 98 Senior (7-year) Indenture, 98 Senior
(20-year) Indenture and the 98 Senior Subordinated Indenture.
"98 Senior (7-year) Indenture" shall mean shall mean that certain
Indenture dated as of July 8, 1998 among the Company, as issuer, the subsidiary
guarantor named therein, and Norwest Bank Minnesota, National Association, as
trustee, providing for the issuance of the Company's $125,000,000 7-5/8% Senior
Notes due 2005 and all notes or securities issued under any of the foregoing,
any subsidiary guarantees issued pursuant to the terms of any of the foregoing,
and all amendments and supplements to the foregoing permitted under Section
9.19(b) or a consent thereunder.
"98 Senior (20-year) Indenture" shall mean shall mean that certain
Indenture dated as of July 8, 1998 among the Company, as issuer, the subsidiary
guarantor named therein, and Norwest Bank Minnesota, National Association, as
trustee, providing for the issuance of the Company's $125,000,000 8-1/4% Senior
Notes due 2018 and all notes or securities issued under any of the foregoing,
any subsidiary guarantees issued pursuant to the terms of any of the foregoing,
and all amendments and supplements to the foregoing permitted under Section
9.19(b) or a consent thereunder.
"98 Senior Subordinated Indenture" shall mean that certain Indenture
dated as of July 8, 1998 among the Company, as issuer, the subsidiary guarantor
named therein, U.S. Bank Trust National Association, as trustee, providing for
the issuance of the Company's $250,000,000 8-3/8% Senior Subordinated Notes due
2008 and all notes or securities issued under any of the foregoing, any
subsidiary guarantees issued pursuant to the terms of any of the foregoing, and
all amendments and supplements to the foregoing permitted under Section 9.19(b)
or a consent thereunder.
"Non-recourse" with respect to an obligation and a Person shall mean
that such Person has no liability to the holder of such obligation for the
payment or repayment of such obligation, except that such Person may have
liability to the holder of such obligation for damages with respect to such
obligation arising out of fraudulent acts or omissions, willful
misrepresentations, willful misconduct and similar acts or omissions by such
Person.
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"Non-Recourse Debt" shall mean Debt as to which neither the Company nor
any of its Restricted Subsidiaries (a) provides any guarantee or credit support
of any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Debt), or (b) is directly or indirectly liable
(as guarantor or otherwise), in each case, other than Debt permitted by Section
9.01(m).
"Note" shall mean a promissory note, described in Section 2.07(a) and
being substantially in the form of Exhibit A, issued by the Company to the order
of any Lender evidencing the Loans made to the Company by such Lender, together
with any and all renewals, extensions for any period, increases, rearrangements
or replacements thereof.
"Ocean Canada" shall mean Ocean Energy Resources Canada, Ltd., a
company amalgamated under the laws of the Province of British Columbia.
"OEI-Louisiana" shall mean Ocean Energy, Inc., a corporation duly
formed and existing under the laws of the state of Louisiana, which is a
wholly-owned Subsidiary of the Company.
"OERI" shall mean Ocean Energy Resources, Inc., a Delaware corporation,
formerly known as Norfolk Holdings Inc., which is the parent of Ocean Canada and
a Subsidiary of OEI-Louisiana.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization or pooling agreements and declarations
of pooled units and the units created thereby (including without limitation all
units created under orders, regulations and rules of any Governmental Authority
having jurisdiction) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, contracts and other agreements which relate
to any of the Hydrocarbon Interests or the production, sale, purchase, exchange
or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and Properties in any way appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Pari Passu Debt" shall mean, as of any date of determination, any Debt
of the Company or OEI-Louisiana that is pari passu in right of payment to the
Indebtedness other than Debt outstanding under Section 9.01(j), (k), (l) and (n)
(as long as any Debt incurred under clause (n) is contingent, for example, the
undrawn amount of outstanding letters of credit).
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<PAGE> 20
"Partnerships" shall mean the general and limited partnerships listed
on Exhibit E.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Percentage Usage" shall mean as of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the sum of Loans,
the LC Exposure outstanding as of such date of determination and all Pari Passu
Debt outstanding as of such date of determination and the denominator of which
is the Threshold Amount in effect as of such date of determination.
"Person" shall mean any individual, corporation, limited liability
company, voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof, or any other form of entity.
"Plan" shall mean an employee pension benefit or other plan established
or maintained by the Company or any ERISA Affiliate and which is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"Pledge of Production and Trust Agreements" shall mean collectively,
(i) that certain Pledge of Production Proceeds and Trust Agreements dated as of
May 12, 1993 among Shell Offshore Inc., OEI-Louisiana and First National Bank of
Commerce, New Orleans, Louisiana, as Trustee, as the same may from time to time
be amended, and (ii) that certain Pledge of Production Proceeds and Trust
Agreements dated as of May 12, 1992 among Shell Offshore Inc., OEI-Louisiana and
First National Bank of Commerce, New Orleans, Louisiana, as Trustee, as amended,
and as the same may be further amended from time to time.
"Post-Default Rate" shall mean, in respect of any principal of any Loan
or any other amount payable by the Company or OEI-Louisiana under this
Agreement, any Note or any Loan Document which is not paid when due (whether at
stated maturity, by acceleration or otherwise), a rate per annum during the
period commencing on the due date until such amount is paid in full or the
default is cured or waived equal to 2% per annum above the Base Rate as in
effect from time to time plus the Applicable Margin (if any), but in no event to
exceed the Highest Lawful Rate; provided that, if such amount in default is
principal of a Eurodollar Loan and the due date is a day other than the last day
of the Interest Period therefor, the "Post-Default Rate" for such principal
shall be, for the period commencing on the due date and ending on the last day
of the Interest Period therefor, 2% per annum above the interest rate for such
Loan as provided in Section 3.02(a), but in no event to exceed the Highest
Lawful Rate, and thereafter, the rate provided for above in this definition.
"Prime Rate" shall mean the rate of interest from time to time
announced by the Administrative Agent at the Principal Office as its prime
commercial lending rate. Such rate is set by the Administrative Agent as a
general reference rate of interest, taking into account such factors as it may
deem appropriate, it being understood that many of the Administrative Agent's
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
the Administrative Agent may make various commercial or other loans at rates of
interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the
Administrative Agent, presently located at 707 Travis, Houston, Texas 77002.
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<PAGE> 21
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each March, June,
September and December in each year, commencing December 31, 1998; provided that
if any such day is not a Business Day, then such Quarterly Date shall be the
next succeeding Business Day.
"Redetermination Date" shall mean the annual, semi-annual or other date
that the redetermined Borrowing Base becomes effective.
"Redetermination Period" shall mean the period between any two
consecutive Redetermination Dates, regardless of the length of such period.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulations T, U and X" shall mean Regulations T, U and X of the Board
of Governors of the Federal Reserve System (or any successor), as the same may
be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the date of this Agreement in United States Federal, state or foreign law
or regulations (including Regulation D) or the adoption or making after such
date of any interpretations, directives or requests applying to a class of
lenders or insurance companies, including such Lender or its Applicable Lending
Office, of or under any United States Federal, state or foreign law or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Required Lenders" shall mean: (a) if no Event of Default has occurred
and is continuing, Lenders (who are not in default of their obligations under
this Agreement ) having, without duplication, greater than sixty-six and
two-thirds percent (66-2/3%) of the Aggregate Commitments; and (b) if an Event
of Default has occurred and is continuing, Lenders (who are not in default of
their obligations under this Agreement ) holding (or, as to Letters of Credit,
participating in) greater than sixty-six and two-thirds percent (66-2/3%) of the
outstanding aggregate principal amount of the Loans and Letters of Credit
(without regard to any sale by a Lender of a participation in any Loan or Letter
of Credit).
"Required Payment" shall have the meaning assigned to that term in
Section 4.04.
"Reserve Report" shall mean a report, in form and substance reasonably
satisfactory to the Technical Agents, setting forth, as of each January 1 and
July 1 (or such other date in the event of an unscheduled redetermination): (i)
the oil and gas reserves attributable to Oil and Gas Properties of the Company
and its Restricted Subsidiaries which the Company desires to include in the
Borrowing Base, together with a projection of the rate of production and future
net income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the pricing assumptions consistent with SEC
reporting requirements at the time; and (ii) such other information as the
Technical Agents may reasonably request. The term "Reserve Report" shall also
include the information to be provided by the Company pursuant to Section
8.05(c).
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"Restricted Subsidiary" shall at all times mean OEI-Louisiana, OERI,
Ocean Canada and any other Subsidiary of the Company, whether existing on or
after the Effective Date, unless such Subsidiary is (i) an Unrestricted
Subsidiary as of the Effective Date or is thereafter designated as an
Unrestricted Subsidiary in accordance with Section 9.21 or (ii) a Subsidiary of
an Unrestricted Subsidiary.
"Risk Management Agreements" shall mean any commodity, interest rate or
currency swap, rate cap, rate floor, rate collar, forward agreement or other
exchange, price or rate protection or risk management agreements or any option
with respect to any such transaction.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency thereto.
"SEC Value" shall mean the future net revenues before income taxes from
proved reserves, estimated assuming that oil and natural gas prices and
production costs remain constant, then discounted at the rate of 10% per year to
obtain the present value.
"Subordinated Debt" shall mean: (a) the Debt of the Company and
OEI-Louisiana under the 95 Indenture, the 96 Indenture, the 97 Indenture, the 98
Senior Subordinated Indenture and other Debt permitted under Section 9.01(e)(i);
(b) the obligations under or in connection with the Pledge of Production and
Trust Agreements; and (c) any Debt of the Company or OEI-Louisiana incurred in
accordance with the terms of Section 9.01(e)(iii).
"Subsidiary" shall mean, with respect to any Person, any corporation or
limited liability company of which at least a majority of the outstanding shares
of stock or interests having by the terms thereof ordinary voting power to elect
a majority of the board of directors of such corporation or a manager of such
limited liability company (irrespective of whether or not at the time stock or
interests of any other class or classes shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more of its Subsidiaries
or by such Person and one or more of the Subsidiaries.
"Tax" shall mean any present or future tax, levy, impost, duty, charge,
assessment or fee of any nature (including interest, penalties and additions
thereto) that is imposed by any government or other taxing authority in respect
of any payment under this Agreement other than a stamp, registration,
documentation or similar tax.
"Tax Partnerships" shall mean partnerships or joint ventures arising
out of routine joint operating agreements or farmout agreements entered into
with the Company or any of its Restricted Subsidiaries with respect to Oil and
Gas Properties.
"Technical Agents" shall mean Chase Bank of Texas, National
Association, Morgan Guaranty Trust Company of New York, Bank of America National
Trust & Savings Association, Barclays Bank PLC, Paribas, Societe Generale,
Southwest Agency and Credit Suisse First Boston.
"Termination Date" shall mean March 31, 2003, unless the Commitments
are sooner terminated pursuant to Section 2.03(b) or Section 10.01, or extended
pursuant to Section 2.03(a).
"Threshold Amount" shall mean (i) during the period from and including
the Effective Date to and including the date of the redetermination of the
Borrowing Base scheduled to occur March 31,
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1999, the amount determined as such by the Technical Agents and approved by the
requisite Lenders pursuant to Section 2.09(a), and (ii) thereafter, the amount
equal to the Borrowing Base.
"Total Debt" shall mean as of any date of determination, all Debt of
the Company and its Consolidated Restricted Subsidiaries of the types described
in clauses (a), (b) (but only letters of credit and bankers' acceptances), (c),
(d), (e) and (f) of the definition of "Debt", determined on a consolidated basis
in accordance with GAAP.
"Type" shall mean, with respect to any Loan, a Eurodollar Loan or a
Base Rate Loan, each being a "Type" of Loan.
"UMC" shall mean UMC Petroleum Corporation, a Delaware corporation
which merged into OEI-Louisiana in connection with the Merger Agreement.
"United Meridian" shall mean United Meridian Corporation, a Delaware
corporation which merged into the Company pursuant to the Merger Agreement.
"Unrestricted Subsidiary" shall mean, as of the Effective Date, each
Subsidiary of the Company specified as such on Exhibit D, and any other
Subsidiary of the Company which (i) the Board of Directors of the Company has
determined will be designated an Unrestricted Subsidiary as provided in Section
9.21 and (ii) is a Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" shall mean, with respect to any Person, any class or
classes of capital stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of any Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" shall mean any Restricted
Subsidiary to the extent (i) all of the capital stock or other ownership
interests in such Restricted Subsidiary, other than any directors' qualifying
shares mandated by applicable law, is owned directly or indirectly by the
Company or (ii) such Restricted Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individuals or corporate citizens of such foreign jurisdiction
in order for such Restricted Subsidiary to transact business in such foreign
jurisdiction, provided that the Company, directly or indirectly, owns the
remaining capital stock or ownership interest in such Restricted Subsidiary and,
by contract or otherwise, controls the management and business of such
Restricted Subsidiary to substantially the same extent as if such Restricted
Subsidiary were a wholly owned Subsidiary.
SECTION 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to any Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
Financial Statements. Unless otherwise specified, all amounts referred to herein
and in the other Loan Documents are in Dollars.
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ARTICLE II
COMMITMENTS
SECTION 2.01 LOANS AND LETTERS OF CREDIT.
(a) LOANS.
(i) Each Lender severally agrees, on the terms and conditions of this
Agreement, to make revolving credit loans (each a "Loan") to the
Company during the period from and including the Effective Date to and
including the Termination Date, in an aggregate principal amount at any
one time outstanding up to but not exceeding such Lender's Commitment
as then in effect minus such Lender's Commitment Percentage of the LC
Exposure; provided that the aggregate principal amount of all Loans
made by all of the Lenders hereunder at any one time outstanding shall
not exceed the Available Commitment as then in effect minus the LC
Exposure then outstanding; and provided further that the aggregate
principal amount of all Loans made by all of the Lenders hereunder at
any one time outstanding shall not exceed an amount equal to the excess
of the Borrowing Base over the sum of the LC Exposure and the amount of
Pari Passu Debt then outstanding. Subject to the terms of this
Agreement, during the period from the Effective Date to and including
the Termination Date, the Company may borrow, repay and reborrow the
amount of the Available Commitment as then in effect. Loans may be Base
Rate Loans or Eurodollar Loans.
(ii) Unless consented to in writing by the Administrative Agent, no
more than seven (7) Eurodollar Loans may be outstanding from each
Lender at any time. For purposes of this Section 2.01(a)(ii),
Eurodollar Loans having different Interest Periods, regardless of
whether they commence on the same date, shall be considered separate
Loans.
(b) LETTERS OF CREDIT.
(i) During the period from and including the Effective Date to and
including the Termination Date, the Administrative Agent agrees, on
behalf of the Lenders, to extend credit to the Company by issuing,
renewing, extending or reissuing Letters of Credit for the account of
the Company or any of its Subsidiaries; provided that the aggregate LC
Exposure at any one time outstanding shall not exceed the lesser of (A)
the Available Commitment as then in effect minus the aggregate amount
of all Loans then outstanding or (B) $50,000,000; and provided further
that the aggregate principal amount of the LC Exposure hereunder at any
one time shall not exceed an amount equal to the excess of the
Borrowing Base over the sum of the Loans and the amount of Pari Passu
Debt then outstanding.
(ii) Each of the Letters of Credit shall (A) be issued by the
Administrative Agent or The Chase Manhattan Bank, an Affiliate of the
Administrative Agent, (B) contain such terms and provisions as are
reasonably required by the Administrative Agent in accordance with its
customary procedures, (C) be for the account of the Company or one of
its Subsidiaries, and (D) expire not later than the earlier of three
(3) years after the issue date of such Letter of Credit or five (5)
days before the Termination Date.
(iii) In conjunction with the issuance of a Letter of Credit, the
Company shall execute a Letter of Credit Agreement. In the event of any
conflict between any provision of a Letter of
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Credit Agreement and this Agreement, the Company, the Agents and the
Lenders hereby agree that the provisions of this Agreement shall
govern. Such conflicts include, without limitation, provisions in a
Letter of Credit Agreement providing for an interest rate different
from the interest rate provided in this Agreement and provisions in a
Letter of Credit Agreement requiring or relating to collateral to
secure the obligations thereunder.
(c) LOANS UNDER PRIOR CREDIT AGREEMENT. On the Effective Date:
(i) the Company shall pay all accrued and unpaid fees outstanding under
the Prior Credit Agreement for the account of each "Lender" under the
Prior Credit Agreement;
(ii) to the extent outstanding on the Effective Date, each "Base Rate
Loan" and "Eurodollar Loan" under the Prior Credit Agreement shall be
repaid and the Company shall pay to the lenders thereunder any amounts
due under Section 5.05 of the Prior Credit Agreement;
(iii) all letters of credit issued under the Prior Credit Agreement
(which are scheduled on Schedule 2.01) shall be deemed to be issued
under Section 2.02(d) hereof as of the Effective Date; and
(iv) the Prior Credit Agreement and the commitments thereunder shall be
superseded by this Agreement and such commitments shall be amended and
restated as set forth herein.
SECTION 2.02 BORROWINGS, CONTINUATIONS AND CONVERSIONS; ISSUANCE OF
LETTERS OF CREDIT.
(a) BORROWINGS. The Company shall give the Administrative Agent (which
shall promptly notify the Lenders) advance notice as hereinafter provided of
each borrowing, continuation, and conversion hereunder of a Loan, which shall
specify the aggregate amount of such borrowing, continuation or conversion, the
Type and date (which shall be a Business Day) of the Loans to be borrowed,
continued or converted, and (in the case of Eurodollar Loans) the duration of
the Interest Period therefor.
(b) MINIMUM AMOUNTS. All Base Rate Loans (as part of the same
borrowing) shall be in aggregate amounts among all Lenders of at least
$1,000,000 (or whole multiples thereof) or the remaining unused portion of the
Commitments. All Eurodollar Loans (as part of the same borrowing) shall be in
aggregate amounts among all Lenders of at least $3,000,000 (or a whole multiple
of $1,000,000 in excess thereof).
(c) NOTICES, ETC. FOR LOANS. All borrowings, continuations and
conversions relating to Loans shall require advance written notice from the
Company to the Administrative Agent, in the form of Exhibit C, or such other
form as may be accepted by the Administrative Agent from time to time, which in
each case shall be irrevocable and effective only upon receipt by the
Administrative Agent not later than (i) in the case of a Base Rate Loan, 11:00
a.m. Houston time on the date of such borrowing, continuation or conversion; and
(ii) in the case of a Eurodollar Loan, 12:00 noon Houston time on a day which is
not less than three (3) Business Days prior to the date of such borrowing,
continuation or conversion. Not later than 12:00 noon Houston time on the date
specified for each borrowing hereunder of a Loan, each Lender shall make
available the amount of the Loan to be made by such Lender on such date to the
Administrative Agent, at an account maintained by the Administrative Agent at
the Principal Office, in immediately available funds for the account of the
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<PAGE> 26
Company. The amounts so received by the Administrative Agent shall, subject to
the terms and conditions of this Agreement, be made available to the Company by
depositing the same, in immediately available funds, in an account of the
Company designated by the Company and maintained with the Administrative Agent
at the Principal Office.
(d) LETTERS OF CREDIT. The Company shall give the Administrative Agent
(which shall promptly notify the Lenders) advance notice as provided in Section
2.02(c) not less than one (1) Business Day prior thereto of each request for the
issuance, renewal, or extension of a Letter of Credit hereunder which request
shall specify the amount of such Letter of Credit, the date (which shall be a
Business Day) such Letter of Credit is to be issued, renewed or extended, the
duration thereof, the beneficiary thereof, and such other terms as the
Administrative Agent may reasonably request, all of which shall be reasonably
satisfactory to the Administrative Agent. Subject to the terms and conditions of
this Agreement, on the date specified for the issuance, renewal or extension of
a Letter of Credit, the Administrative Agent shall issue such Letter of Credit
to the beneficiary thereof.
(e) CONTINUATION OPTIONS. Subject to the terms of this Agreement, the
Company may elect to continue all or any part of any Eurodollar Loan beyond the
expiration of the then current Interest Period relating thereto by giving
advance notice to the Administrative Agent of such election, specifying the
amount of such Eurodollar Loan to be continued and the Interest Period therefor.
In the absence of such a timely and proper election, the Company shall be deemed
to have elected to convert such Eurodollar Loan to a Base Rate Loan. All or any
part of any Eurodollar Loan may be continued as provided herein, provided that
(i) the principal amount of all or any part of a Loan so continued shall be not
less than $3,000,000 in the aggregate for all Lenders and (ii) no Default shall
have occurred and be continuing. If a Default shall have occurred and be
continuing, each Eurodollar Loan shall be converted to a Base Rate Loan on the
last day of the Interest Period applicable thereto.
(f) CONVERSION OPTIONS. The Company may elect to convert any Eurodollar
Loan on the last day of the then current Interest Period relating thereto to a
Base Rate Loan by giving advance notice to the Administrative Agent of such
election. Subject to the terms of this Agreement, the Company may elect to
convert all or any part of a Base Rate Loan at any time and from time to time to
a Eurodollar Loan by giving advance notice to the Administrative Agent of such
election. All or any part of any outstanding Loan may be converted as provided
herein, provided that any conversion of any Base Rate Loan into a Eurodollar
Loan shall be (as to each such Loan into which there is a conversion for an
applicable Interest Period) in the principal amount not less than $3,000,000 in
the aggregate for all Lenders. If no Default shall have occurred and be
continuing, each Loan may be converted as provided in this Section. If a Default
shall have occurred and be continuing, no Loan may be converted into a
Eurodollar Loan.
SECTION 2.03 EXTENSIONS AND CHANGES OF COMMITMENTS.
(a) EXTENSION OF TERMINATION DATE.
(i) At any time during the 60-day period beginning February
1st of a year and ending on April 1st of such year, the Company may request in
writing that, in connection with the forthcoming redetermination of the
Borrowing Base, the Lenders extend the Termination Date for a period of one (1)
additional year; provided, that any such extension shall require the consent of
all of the Lenders, which consent may be withheld in each such Person's sole
discretion; and provided, further, that if any
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Lender has not responded to such request in writing within 45 days after receipt
of the written request of the Company by the Administrative Agent, such failure
shall be deemed a denial of said request.
(ii) Notwithstanding the foregoing clause (i), if the Required
Lenders (but not all Lenders) have agreed to extend the then applicable
Termination Date as provided in Section 2.03(a)(i), then the Company may
terminate, in whole but not in part, the Commitment of any Lender which has
refused to grant such extension (a "Terminated Lender") upon five (5) Business
Days' notice, during the period commencing on the expiration of the 45-day
notice period referred to above (or, if earlier, the date of receipt by the
Company of notice of such Terminated Lender's refusal) and ending on the date
thirty (30) days after the end of such 45-day period, by giving written notice
to the Terminated Lender and the Administrative Agent (such notice referred to
herein as a "Notice of Termination"). In order to effect the termination of the
Commitment of the Terminated Lender, the Company shall: (1) obtain an agreement
with one or more Lenders to increase its respective Commitment and/or (2)
request any one or more other financial institutions to become parties to this
Agreement in place of such Terminated Lender; provided, that any such financial
institution is reasonably acceptable to the Administrative Agent and becomes
party to this Agreement by executing an Assignment and Acceptance (the Lender or
other financial institutions that agree to accept in whole or in part the
Commitment of the Terminated Lender being referred to herein as the "Replacement
Lender") and to assume the Commitment and Loans of the Terminated Lender, such
that the aggregate increased and/or accepted Commitments of the Replacement
Lender(s) under clauses (1) and (2) equal the Commitment of the Terminated
Lender. If the Company is unable to obtain one or more Replacement Lenders to
accept the Commitment and to assume the Loans of the Terminated Lender, then, if
no Default or Event of Default has occurred at the time of such proposed
extension, the Company shall either elect by written notice to the
Administrative Agent to forego the requested extension or reduce the Aggregate
Commitments by an amount equal to the Commitment of the Terminated Lender. (The
failure to give such notice will be deemed an election by the Company to forego
the requested extension.) If a Default or Event of Default has occurred and is
continuing, no extension will be permitted without the consent of all Lenders.
Any assignment to a Replacement Lender shall be effected pursuant to Section
12.06(b).
(b) OPTIONAL REDUCTION. The Company shall have the right to terminate
or to reduce the Aggregate Commitments at any time or from time to time upon not
less than one (1) Business Day's prior written notice to the Administrative
Agent (which shall promptly notify the Lenders) of each such termination or
reduction, which notice shall specify the effective date thereof and the amount
of any such reduction (which shall not be less than $5,000,000, or any whole
multiple of $1,000,000 in excess thereof). Such notice shall be irrevocable and
effective only upon receipt by the Administrative Agent.
(c) REINSTATEMENT. The Aggregate Commitments once terminated or reduced
may not be reinstated. The amount of the Available Commitment may increase or
decrease from time to time in accordance with the terms hereof, including, but
not limited to Section 2.09.
SECTION 2.04 FACILITY FEE AND OTHER FEES.
(a) FACILITY FEE. The Company shall pay to the Administrative Agent for
the account of the Lenders a facility fee (the "Facility Fee") in an aggregate
amount equal to the Facility Fee Rate times an amount equal to the average daily
Available Commitment. The Facility Fee will accrue for the period from and
including the Effective Date to and including the Termination Date, without
regard
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to the outstanding principal amount of Loans outstanding. Accrued Facility Fees
shall be payable in arrears on each Quarterly Date and on the Termination Date.
(b) LETTER OF CREDIT FEE. The Company agrees to pay to the
Administrative Agent for the account of the Lenders a quarterly fee for issuing
the Letters of Credit, calculated separately for each Letter of Credit, in an
aggregate amount for each Letter of Credit equal to 1/4 of the product of (i)
the LC Fee Rate, as then in effect, and (ii) the daily average balance during
such quarter of the amount of the Letter of Credit upon which drafts may be
drawn from time to time commencing on the date of issuance of such Letter of
Credit (or on the Effective Date for Letters of Credit issued under the Prior
Credit Agreement and outstanding on the Effective Date); provided that each
respective Letter of Credit shall bear an aggregate minimum quarterly fee equal
to $350, or such other fee as may be specifically agreed by the Company and the
Administrative Agent in each respective Letter of Credit Agreement. All fees for
all Letters of Credit (including all fees incurred for any amendments to Letters
of Credit) shall be payable in arrears on each Quarterly Date.
(c) ISSUING FEE. In addition to the fees described in Section 2.04(b),
the Company shall pay to the Administrative Agent for its own account a
quarterly fee for issuing each Letter of Credit, calculated separately for each
Letter of Credit, in an aggregate amount for each Letter of Credit equal to 1/4
of the product of (i) .125% per annum and (ii) the daily average balance during
such quarter of the amount of the Letter of Credit upon which drafts may be
drawn from time to time commencing on the date of issuance of such Letter of
Credit (or on the Effective Date for Letters of Credit issued under the Prior
Credit Agreement and outstanding on the Effective Date). All fees for all
Letters of Credit (including all fees incurred for any amendments to Letters of
Credit) shall be payable in arrears on each Quarterly Date.
(d) FEE LETTERS. The Company shall pay to the Administrative Agent and
its Affiliates and the Lenders such other amounts as are set forth in the Fee
Letters on the dates set forth therein.
SECTION 2.05 LENDING OFFICES. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
SECTION 2.06 SEVERAL OBLIGATIONS. The failure of any Lender to make any
Loan to be made by such Lender or to provide funds for disbursements under
Letters of Credit on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan or provide such funds on such date,
but no Lender shall be responsible for the failure of any other Lender to make a
Loan to be made by such other Lender or to provide funds to be provided by such
other Lender.
SECTION 2.07 NOTES.
(a) NOTES. The Loans made by each Lender shall be evidenced by a single
promissory note of the Company in substantially the form of Exhibit A, dated as
of the Effective Date or such later date that a Lender becomes a party hereto,
payable to the order of such Lender in a principal amount equal to the maximum
amount of its Commitment as originally in effect and otherwise duly completed.
The date, amount, Type and interest rate of each Loan made by each Lender, and
all payments made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of the Note held by it, endorsed
by such Lender on the schedule attached to such Note or any continuation
thereof; provided that the failure of a Lender to make any notation shall not
affect the Company's obligations in respect of such Loan.
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(b) NO RIGHT TO SUBDIVIDE. No Lender shall be entitled to have its
Notes subdivided, by exchange for promissory notes of lesser denominations or
otherwise, except in connection with a permitted assignment of all or any
portion of such Lender's Commitment, Loans and Notes pursuant to Section
12.06(b).
SECTION 2.08 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. The Company may prepay Loans on any Business
Day upon notice to the Administrative Agent (which shall promptly notify the
Lenders), which notice (i) shall be given by the Company not later than 12:00
noon Houston time on such Business Day, (ii) shall specify the amount of the
prepayment (which shall be not less than $1,000,000 or the remaining balance of
Base Rate Loans outstanding, if less) and (iii) shall be irrevocable and
effective only upon receipt by the Administrative Agent. Interest on the
principal prepaid, accrued to the prepayment date, shall be paid on the
prepayment date. Any prepayment of any Eurodollar Loans shall be subject to the
provisions of Section 5.05.
(b) MANDATORY PREPAYMENT UPON REDUCTION OF COMMITMENT. If, after giving
effect to any termination or reduction of the Aggregate Commitments pursuant to
Section 2.03, the sum of the outstanding aggregate principal amount of the Loans
and the LC Exposure exceeds the Aggregate Commitments, then the Company shall on
the date of such termination or reduction pay or prepay the amount of such
excess for application first, towards reduction of all amounts previously drawn
under Letters of Credit, but not yet funded as a Loan pursuant to Section
4.07(b) or reimbursed, second, if necessary, towards reduction of the
outstanding principal balance of the Notes by prepaying Base Rate Loans, if any,
then outstanding, third, if necessary, toward a reduction of the outstanding
principal balance of the Notes by prepaying Eurodollar Loans, if any, then
outstanding, and fourth, if necessary, paying such amount to the Administrative
Agent as cash collateral for outstanding Letters of Credit, which amount shall
be held by the Administrative Agent as cash collateral to secure the Company's
obligation to reimburse the Administrative Agent and the Lenders for drawings
under the Letters of Credit. The Company shall on the date of such termination
or reduction also pay any amounts payable pursuant to Section 5.05 in connection
therewith.
(c) MANDATORY PREPAYMENT UPON REDETERMINATION. Upon any adjustment or
redetermination of the amount of the Borrowing Base in accordance with (1)
Section 2.09, (2) Section 8.05(d), (3) Section 9.01(e), (4) Section 9.01(o), (5)
Section 9.16(b) or (6) Section 9.21 or otherwise, if the adjusted or
redetermined Borrowing Base is less than the sum of the aggregate outstanding
principal amount of the Loans, the LC Exposure and all Pari Passu Debt then
outstanding (a "Borrowing Base Deficiency"), then the Company shall within 90
days of receipt of written notice thereof either (i) take such steps as may be
approved by the Administrative Agent to increase the Borrowing Base by an amount
equal to or greater than the amount of such Borrowing Base Deficiency or (ii)
prepay the amount of such Borrowing Base Deficiency for application first,
towards reduction of all amounts previously drawn under Letters of Credit, but
not yet funded as a Loan pursuant to Section 4.07(b) or reimbursed, second, if
necessary, towards reduction of the outstanding principal balance of the Notes
by prepaying Base Rate Loans, if any, then outstanding, third, if necessary,
towards a reduction of the outstanding principal balance of the Notes by
prepayment of Eurodollar Loans, if any, then outstanding, and fourth, if
necessary, towards payment of such amount to the Administrative Agent as cash
collateral for outstanding Letters of Credit, which amount shall be held by the
Administrative Agent as cash collateral to secure the Company's obligation to
reimburse the Administrative Agent and the Lenders for drawings under the
Letters of Credit; provided however that
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if a Borrowing Base Deficiency occurs during the period from and after the
Effective Date up to and including the redetermination to occur as of March 31,
1999, such Borrowing Base Deficiency must be repaid within 30 days. The Company
shall also pay any amounts payable pursuant to Section 5.05 in connection
therewith.
(d) MANDATORY PAYMENTS UPON ISSUANCE OF EQUITY. If the Company shall
issue any shares of capital stock, on or prior to March 31, 1999, then on the
date not less than 30 days after such issuance, the Company shall make a payment
on the Loans and/or post cash collateral for Letters of Credit by an amount
equal to the lesser of (i) the net cash proceeds of such issuance or (ii) the
excess of the sum of the Loans then outstanding, the LC Exposure and the Pari
Passu Debt over the Threshold Amount; provided that the foregoing requirement
will be waived following a written certification from the Company setting forth
that such net cash proceeds have been or are being contemporaneously utilized by
it or one of its Restricted Subsidiaries to purchase Oil and Gas Properties
which are substantially all proved producing.
(e) NO PENALTY OR PREMIUMS. Subject to compensation requirements of
Section 5.05, all prepayments shall be without premium or penalty.
SECTION 2.09 BORROWING BASE.
(a) (i) The initial Borrowing Base shall be $650,000,000 and the
initial Threshold Amount shall be $550,000,000. From and after the
redetermination of the Borrowing Base scheduled to occur on March 31,
1999, the Borrowing Base, as redetermined, shall be equal to the
Threshold Amount and thereafter, the rights and obligations of the
parties hereunder shall be determined with reference to the Borrowing
Base only.
(ii) Subject to the terms of Section 2.09(a)(i), the Borrowing Base
shall be determined in accordance with Sections 2.09(b), (c) and (d) by
the Technical Agents with the approval or deemed approval of the
Required Lenders (provided that any increase in the Borrowing Base
shall require the approval or deemed approval of all the Lenders).
Subject to the rights of the parties under Section 2.09(e), the
Borrowing Base will initially be redetermined as of March 31, 1999 in
accordance with Section 2.09(b), and thereafter, the Borrowing Base
will be redetermined semi-annually on May 1st and November 1st of each
year in accordance with Section 2.09(b), commencing November 1, 1999.
Upon any redetermination of the Borrowing Base, such redetermination
shall remain in effect until the next successive Redetermination Date.
(iii) Notwithstanding the fact that the Borrowing Base exceeds or may
from time to time exceed the Aggregate Commitments, the obligations of
the Lenders hereunder is limited as contemplated in the definition of
"Available Commitment."
(b) REDETERMINATION. On or before March 15, 1999, and thereafter, on or
before April 1st and October 1st of each year, commencing October 1, 1999, the
Technical Agents shall propose in writing to the Company and the Lenders a new
Borrowing Base in accordance with Section 2.09(c) (assuming receipt by the
Technical Agents of the Engineering Reports in a timely and complete manner).
After having received notice of such proposal by the Technical Agents, each
Lender shall have ten (10) days to agree with such proposal or disagree by
proposing an alternate Borrowing Base. If at the end of ten (10) days, any
Lender has not communicated its approval or disapproval, such
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silence shall be deemed to be an approval. If, however, at the end of such
10-day period, all of the Lenders in the case of the redetermination scheduled
for March 31, 1999, and thereafter, the Required Lenders, have not approved or
deemed to have approved, as aforesaid, the proposed Borrowing Base, then the
Borrowing Base shall be determined in accordance with Section 2.09(d). After
such redetermined Borrowing Base is approved by the requisite Lenders or is
otherwise determined as provided in Section 2.09(d), it shall become effective
and applicable to the Company, the Agents, the Lenders as of March 31, 1999 (in
the case of the March 1999 redetermination only) or the next succeeding May 1st
or November 1st, as applicable.
(c) ENGINEERING REPORTS. Upon receipt of the Reserve Reports and such
other reports, data, and supplemental information as may, from time to time, be
reasonably requested by the Required Lenders (the "Engineering Reports"),
together with a certificate from the President or chief financial officer of the
Company that, to the best of his knowledge and in all material respects, (i) the
information contained in the Engineering Reports is true and correct, (ii) the
certificate identifies the Properties covered by the Engineering Reports that
have not been previously included in any prior Engineering Reports, and (iii) no
other Oil and Gas Properties have been sold since the date of the last Borrowing
Base determination except as set forth on an exhibit to the certificate, which
certificate shall list all Oil and Gas Properties sold or disposed of in
compliance with Section 9.16 (or pursuant to a waiver thereof) and in such
detail as reasonably required by the Technical Agents, the Technical Agents will
evaluate such information. The Technical Agents, with the approval or deemed
approval of the requisite Lenders as set forth in Section 2.09(b), but subject
to the terms of Section 2.09(d), shall redetermine the Borrowing Base based upon
such information and such other information (including, without limitation, the
Indebtedness) as the Technical Agents deem appropriate and consistent with their
normal oil and gas lending criteria as it exists at the particular time
(including, without limitation, the status of title information with respect to
Properties in the Engineering Reports and the existence of any other Debt). Such
redetermination shall be accomplished not later than and effective as of March
31, 1999, in the case of the initial redetermination, and thereafter as of the
first (1st) day of each May and November of each calendar year, assuming that
the Company shall have furnished the Engineering Reports in a timely and
complete manner.
(d) CONSENSUS AND FAILURE OF CONSENSUS. Except as otherwise provided in
this Section 2.09, the decision of the Required Lenders with respect to any
Borrowing Base determination shall control; however, if the Required Lenders
have not approved or are not deemed to have approved the Borrowing Base as of
the date such a determination is called for in Section 2.09(b), the Technical
Agents shall poll the Lenders to ascertain the highest Borrowing Base then
acceptable to a number of Lenders sufficient to constitute the Required Lenders
for purposes of this Section 2.09 and such amounts shall then become the
Borrowing Base for the next Redetermination Period. Notwithstanding the
foregoing, however, (i) approval of the Borrowing Base determined any time after
the Effective Date to and including the Borrowing Base determined as of March
31, 1999, and (ii) thereafter any increase in the Borrowing Base, shall require
the consent of all the Lenders.
(e) INTERIM REDETERMINATIONS. The Company may, at its option one time
during a 12 month period, initiate an interim redetermination of the Borrowing
Base and the Threshold Amount. The Administrative Agent (at the direction of the
Required Lenders, in their option) may, one time during any 12 month period,
initiate an interim redetermination of the Borrowing Base; provided however that
the Agents and the Lenders hereby waive their right to do so prior to the
redetermination under Section 2.09(b) occurring on or before March 31, 1999.
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(f) OTHER ADJUSTMENTS. The Borrowing Base is also subject to adjustment
as set forth in Sections 8.05(d), 9.01(e)(iii), 9.01(o), 9.16(b) and 9.21. If
during any Redetermination Period prior to and including the date of the
redetermination of the Borrowing Base scheduled to occur March 31, 1999, the
Borrowing Base is adjusted pursuant to any of the foregoing sections, then the
Threshold Amount shall also automatically reduce by an amount equal to the
Threshold Amount prior to such adjustment times a fraction the numerator of
which is the amount of the Borrowing Base outstanding after giving effect to
such adjustment and the denominator of which is the Borrowing Base outstanding
prior to giving effect to such adjustment.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
SECTION 3.01 REPAYMENT OF LOANS. The Company will pay on the
Termination Date to the Administrative Agent for the account of each Lender the
then-outstanding principal amount of each Loan made by such Lender.
SECTION 3.02 INTEREST.
(a) The Company will pay to the Administrative Agent for the account of
each Lender interest on the unpaid principal amount of each Loan made by such
Lender for the period commencing on the date of such Loan to but excluding the
date such Loan shall be paid in full, at the following rates per annum:
(i) if such Loan is a Base Rate Loan, the Base Rate (as in effect from
time to time) plus the Applicable Margin for Base Rate Loans, but in no
event to exceed the Highest Lawful Rate; and
(ii) if such Loan is a Eurodollar Loan, for each Interest Period
relating thereto, the Eurodollar Rate for such Loan plus the Applicable
Margin for Eurodollar Loans, but in no event to exceed the Highest
Lawful Rate.
Notwithstanding the foregoing, the Company will pay to the
Administrative Agent for the account of each Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such Lender, and, to the
fullest extent permitted by law, on any other amount payable by the Company or
OEI-Louisiana hereunder or under any Loan Document, that shall not be paid in
full when due (whether at stated maturity, by acceleration or otherwise), for
the period commencing on the due date thereof until the same is paid in full,
but in no event to exceed the Highest Lawful Rate.
(b) Accrued interest on each Base Rate Loan shall be payable quarterly
on each Quarterly Date. Accrued interest on each Eurodollar Loan shall be
payable on the last day of the Interest Period therefor and, if such Interest
Period is longer than three months or ninety (90) days, at three-month or ninety
(90) day intervals, as appropriate, following the first day of such Interest
Period. In any event, interest payable at the Post-Default Rate shall be payable
from time to time on demand and interest on any Eurodollar Loan that is
converted into a Base Rate Loan pursuant to Section 5.04 shall be payable on the
date of conversion (but only to the extent so converted).
(c) Promptly after the determination of any interest rate provided for
herein or any change therein, the Administrative Agent shall notify the Company
and the Lenders to which such interest is
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payable thereof. Upon notice to the Administrative Agent of the incurrence of
Debt pursuant to Section 8.01(g), the incurrence of any Pari Passu Debt or
Subordinated Debt and/or any change in the amount of the Indebtedness (including
the LC Exposure) outstanding hereunder, the Administrative Agent shall promptly
determine the Percentage Usage and, in the event such circumstances result in a
change in the Applicable Margin, the Facility Fee Rate and the LC Fee Rate, the
Administrative Agent shall notify the Lenders and the Company. Such new
Applicable Margin, the Facility Fee Rate and the LC Fee Rate will be applicable
until the next day on which events described in this Section 3.02(c) result in a
change and notice thereof is given by the Administrative Agent.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
SECTION 4.01 PAYMENTS. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Company
under this Agreement, the Notes and other Loan Documents shall be made in
Dollars, in immediately available funds, to the Administrative Agent at an
account maintained by the Administrative Agent at the Principal Office, not
later than 1:00 p.m. Houston time on the date on which such payments shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). The Company shall,
subject to Section 4.02, at the time of making each payment under this
Agreement, any Note or any other Loan Document, specify to the Administrative
Agent the Loans, Letters of Credit or other amounts payable by the Company
hereunder to which such payment is to be applied (and in the event that it fails
to so specify, and such day is not a Quarterly Date or other day on which a
payment of either interest or principal is due, then such payments shall be
applied in the following order: first, to interest accrued on Loans maintained
as Base Rate Loans, second, any excess to reduce the aggregate principal amount
then outstanding on Loans maintained as Base Rate Loans, third, any excess to
interest accrued on Loans maintained as Eurodollar Loans, and fourth any excess
to reduce the aggregate principal amount then outstanding on Loans maintained as
Eurodollar Loans; provided that if an Event of Default has occurred and is
continuing, the Administrative Agent may distribute such payment to the Lenders
in such manner as it or the Majority Lenders may determine to be appropriate,
subject to Section 4.02). Each payment received by the Administrative Agent
under this Agreement, any Note or any other Loan Document for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for account of such Lender's Applicable Lending Office for the Loan, Letter of
Credit or other amount in respect of which such payment is made. Except as
provided in clause (ii) of the provisions of the definition of Interest Period,
if the due date of any payment under this Agreement, any Note or any other Loan
Document would otherwise fall on a day which is not a Business Day such date
shall be extended to the next succeeding Business Day and interest shall be
payable for any principal so extended for the period of such extension.
SECTION 4.02 PRO RATA TREATMENT. Except as set forth in Sections
2.03(a)(ii) or Section 5.07(b) or to the extent otherwise provided herein: (a)
(i) each borrowing from the Lenders under Section 2.01 shall be made from the
Lenders in such amounts as may be necessary so that, after giving effect to such
borrowing, the outstanding Loans shall have been made pro rata by the Lenders
based on their respective Commitment Percentages as then in effect, (ii) each
payment of Facility Fee or other fees under Sections 2.04(a) and (b) shall be
made for the account of the Lenders pro rata according to their respective
Commitment Percentages, and (iii) each termination or reduction of the amount of
the Commitments under Section 2.03 shall be applied to the Commitments of the
Lenders pro rata according to their respective Commitment Percentage; (b) each
payment of principal of Loans by the Company shall be made for the account of
the Lenders pro rata in accordance with the
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respective unpaid principal amount of the Loans held by the Lenders; (c) each
payment of interest on Loans by the Company shall be made for the account of the
Lenders pro rata in accordance with the amounts of interest due and payable on
such Loans to the respective Lenders; and (d) each reimbursement by the Company
of disbursements under Letters of Credit shall be made for the account of the
Lenders pro rata in accordance with the amounts of reimbursement obligations due
and payable on such Letters of Credit to the respective Lenders.
SECTION 4.03 COMPUTATIONS. Interest on Eurodollar Loans shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which such
interest is payable (unless such calculation would result in a rate of interest
that would exceed the Highest Lawful Rate for any Lender in which event such
calculation for such Lender shall be computed on the basis of a year of 365 or
366 days, as the case may be). Interest on Base Rate Loans and fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.
SECTION 4.04 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Administrative Agent shall have been notified by a Lender or the Company
prior to the date on which a payment is scheduled to be made to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by it hereunder or under a Letter of Credit or (in the case of the Company)
a payment to the Administrative Agent for account of one or more of the Lenders
hereunder (such payment being herein called a "Required Payment"), which notice
shall be effective upon receipt, that it does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date. If such Lender or the Company (as the case
may be) has not in fact made the Required Payment to the Administrative Agent,
the recipient(s) of such payment shall, on demand, repay to the Administrative
Agent the amount so made available together with interest thereon in respect of
each day during the period commencing on the date such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Base Rate for such day,
but in no event to exceed the Highest Lawful Rate.
SECTION 4.05 SHARING OF PAYMENTS, ETC.
(a) The Company agrees that, in addition to (and without limitation of)
any right of set-off, bankers' lien or counterclaim a Lender may otherwise have,
each Lender shall be entitled (after consultation with the Administrative
Agent), at its option, during the existence of an Event of Default, to offset
balances held by it for account of the Company at any of its offices, in Dollars
or in any other currency, against any principal of or interest on any of such
Lender's Loans or any other amount payable to such Lender hereunder or under any
other Loan Document which is not paid when due (regardless of whether such
balances are then due to the Company), in which case such Lender shall promptly
notify the Company and the Administrative Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or interest
on any Loan made by it to the Company under this Agreement or payment of any
reimbursement obligation under a Letter of Credit Agreement through the exercise
of any right of set-off, banker's lien or counterclaim or similar right or
otherwise, and, as a result of such payment, such Lender shall have received a
greater
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percentage of the principal or interest or reimbursement obligation then due
hereunder or under the respective Letter of Credit Agreement, as the case may
be, by the Company to such Lender than the percentage received by any other
Lenders, such Lender shall promptly purchase from such other Lenders
participations in (or, if and to the extent specified by such Lender, direct
interests in) the Loans made by such other Lenders (or in interest due thereon,
as the case may be) or reimbursement obligations under the Letter of Credit
Agreements in such amounts, and make such other adjustments from time to time as
shall be equitable, to the end that all the Lenders shall share the benefit of
such excess payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal and/or interest on the Loans held by each of the Lenders or pro
rata in accordance with the unpaid reimbursement obligation owed to each of the
Lenders. To such end, all the Lenders shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored. The Company agrees that any Lender
so purchasing a participation (or direct interest) in the Loans made by other
Lenders (or in interest due thereon, as the case may be) or in the reimbursement
obligations owed to the other Lenders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender were a direct holder of Loans or reimbursement
obligations, as the case may be, in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of the Company. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a set-off to which this
Section 4.05 applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section 4.05 to share the benefits of any
recovery on such secured claim.
SECTION 4.06 ASSUMPTION OF RISKS. The Company assumes all risks of the
acts or omissions of beneficiaries of any of the Letters of Credit with respect
to its use of the Letters of Credit. Except in the case of gross negligence or
willful misconduct on the part of such Person or any of its employees, neither
the Administrative Agent, the Administrative Agent's correspondents, any other
Agent, nor any Lender shall be responsible: (a) for the validity or genuineness
of certificates or other documents, even if such certificates or other documents
should in fact prove to be invalid, fraudulent or forged; (b) for errors,
omissions, interruptions or delays in transmissions or delivery of any messages
by mail, telex, or otherwise, whether or not they be in code; (c) for errors in
translation or for errors in interpretation of technical terms; or (d) for any
other consequences arising from causes beyond the Administrative Agent's
control. In addition, neither the Administrative Agent, any other Agent nor any
Lender shall be responsible for any error, neglect, or default of any of the
Administrative Agent's correspondents which were chosen in good faith; and none
of the above shall affect, impair or prevent the vesting of any of the
Administrative Agent's rights or any Lender's rights or powers hereunder or
under the Letter of Credit Agreements, all of which rights shall be cumulative.
The Administrative Agent and the Administrative Agent's correspondents may
accept certificates or other documents that appear on their face to be in order,
without responsibility for further investigation. In furtherance and not in
limitation of the foregoing provisions, the Company agrees that any action,
inaction or omission taken or not taken by the Administrative Agent or any
correspondent in the absence of gross negligence or willful misconduct by the
Administrative Agent or any correspondent in connection with any Letter of
Credit, or any related drafts, certificates, documents or instruments, shall be
binding on the Company and shall not put the Administrative Agent or its
correspondents or any Lender under any resulting liability to the Company.
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SECTION 4.07 OBLIGATION TO REIMBURSE AND TO PREPAY.
(a) If any draft or claim shall be presented for payment under a Letter
of Credit, after confirming that such draft or claim complies with all
requirements of the relevant Letter of Credit, the Administrative Agent shall
promptly notify the Company and each Lender orally (confirming such notice
promptly in writing) of the date and the amount of the draft or claim presented
for payment, the Business Day on which such draft or claim is to be honored and,
in the case of each Lender, the ratable share of such draft or claim
attributable to such Lender on the basis of its Commitment Percentage then in
effect.
(b) If a disbursement by the Administrative Agent is made under any
Letter of Credit and no Default under this Agreement shall have occurred and be
continuing, the Company may elect, and if no election is made, the Company shall
be deemed to have elected, to have the amount of such disbursement treated as a
Loan to the Company as provided, and subject to the limitations, in Section
2.01(a), subject to the terms and conditions set forth in this Agreement. With
respect to any disbursement under a Letter of Credit after and during the
continuance of a Default, the amount of such disbursement shall be due and
payable immediately and the Company shall pay to the Administrative Agent,
promptly after notice of such disbursement is received by the Company, in
federal or other immediately available funds, the amount of such disbursement,
together with interest on the amount disbursed from and including the date of
disbursement until payment in full of such disbursed amount at a varying rate
per annum equal to (i) the Base Rate (as in effect from time to time) plus the
Applicable Margin for Base Rate Loans (but in no event to exceed the Highest
Lawful Rate) for the first Business Day following the date of such disbursement
and (ii) the Post-Default Rate for Base Rate Loans for the period from and
including the second Business Day following the date of such disbursement to and
including the date of repayment in full of such disbursed amount.
(c) The Company's obligation to make each such payment shall be
absolute and unconditional and shall not be subject to any defense or be
affected by any right of setoff, counterclaim or recoupment which the Company
may now or hereafter have against any beneficiary of any Letter of Credit, the
Administrative Agent, any other Agent, any Lender or any other Person for any
reason whatsoever (but, without prejudice to any other provisions hereof, any
such payment shall not waive, impair or otherwise adversely affect any claim, if
any, that the Company may have against any beneficiary of a Letter of Credit,
the Administrative Agent, any other Agent, any Lender or any other Person).
(d) If an Event of Default shall have occurred and be continuing, the
Company shall, upon request of the Majority Lenders, pay to the Administrative
Agent as cash collateral an amount equal to the LC Exposure. The Company's
obligation to provide such cash collateral shall be absolute and unconditional
without regard to whether any beneficiary of any such Letter of Credit has
attempted to draw down all or a portion of such amount under the terms of a
Letter of Credit. In addition, the Company's obligation shall not be subject to
any defense or be affected by a right of setoff, counterclaim or recoupment
which the Company may now or hereafter have against any such beneficiary, any
Agent, any Lender or any other Person for any reason whatsoever (but, without
prejudice to any other provisions hereof, any such payment shall not waive,
impair or otherwise adversely affect any claim, if any, that the Company may
have against any beneficiary of a Letter of Credit, the Administrative Agent,
any other Agent, any Lender or any other Person). The Company hereby grants to
the Administrative Agent, for the benefit of the Agents and the Lenders, a
security interest in all such cash to secure the LC Exposure and any and all
other Indebtedness now or hereafter
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owing hereunder. If the Company shall provide cash collateral under this Section
4.07 or shall prepay any Letter of Credit pursuant to Section 2.08 and
thereafter either (i) drafts or other demands for payment complying with the
terms of such Letters of Credit are not made prior to the respective expiration
dates thereof, or (ii) such Event of Default shall have been waived or cured,
then the Agents and the Lenders agree that the Administrative Agent is hereby
authorized, without further action by any other Agent or Lender, to release the
Lien in such cash and will direct the Administrative Agent to remit to the
Company amounts for which the contingent obligations evidenced by such Letters
of Credit have ceased.
SECTION 4.08 OBLIGATIONS FOR LETTERS OF CREDIT.
(a) Immediately, (i) upon issuance of any Letter of Credit by the
Administrative Agent and (ii) effective on the Effective Date with respect to
Letters of Credit outstanding under the Prior Credit Agreement on the Effective
Date, each Lender shall be deemed to be a participant through the Administrative
Agent in the obligation of the Administrative Agent under such Letter of Credit.
Upon the delivery by such Lender to the Administrative Agent of funds requested
for a disbursement pursuant to Section 4.08(c), such Lender shall be deemed as
having purchased a participating interest in the Company's reimbursement
obligations with respect to such Letter of Credit in an amount equal to such
funds delivered to the Administrative Agent.
(b) Each Lender severally agrees with the Administrative Agent and the
Company that it shall be unconditionally liable to the Administrative Agent,
without regard to the occurrence of any Default or Event of Default, for its pro
rata share, based upon its Commitment Percentage, of disbursements under any
Letter of Credit, and agrees to reimburse on demand the Administrative Agent for
its pro rata share of each such disbursement.
(c) The Administrative Agent shall promptly request from each Lender
its ratable share of any disbursement under any Letter of Credit that the
Company has not elected hereunder to treat as a Loan pursuant to Section 4.07,
which amount shall be made available by each Lender to the Administrative Agent
at the Principal Office in immediately available funds no later than 2:00 p.m.
Houston time on the date requested. If such amount due to the Administrative
Agent is made available later than 2:00 p.m. Houston time on the date requested,
then such Lender shall pay to the Administrative Agent such amount with interest
thereon in respect of each day during the period commencing on the date such
amount was requested until the date the Administrative Agent receives such
amount at a rate per annum equal to the Base Rate (but not to exceed the Highest
Lawful Rate).
ARTICLE V
YIELD PROTECTION AND ILLEGALITY
SECTION 5.01 ADDITIONAL COSTS.
(a) EURODOLLAR REGULATIONS. The Company shall pay directly to each
Lender such amounts as such Lender may determine to be necessary to compensate
it for any increased costs incurred by the Lender which such Lender determines
are attributable to its making or maintaining any Eurodollar Loans or its
obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such Loans or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable
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to such Lender under this Agreement or its Notes in respect of any of such Loans
(other than franchise taxes, taxes on capital and/or gross receipts or taxes
imposed on the overall net income of such Lender or of its Applicable Lending
Office for any of such Loans by the jurisdiction in which such Lender has its
principal office or such Applicable Lending Office ("Excluded Taxes")); or (ii)
imposes or modifies any reserve, special deposit, minimum capital, capital ratio
or similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of, such Lender (including any of such
Loans or any deposits referred to in the definition of "Eurodollar Rate" in
Section 1.02 hereof), or any Commitment of such Lender; or (iii) imposes any
other condition affecting this Agreement or its Notes (or any of such extensions
of credit or liabilities) or Commitment.
(b) SUSPENSION OF EURODOLLAR LOANS. If any Lender requests
compensation from the Company under Section 5.01(a), the Company may, by notice
to such Lender (with a copy to the Administrative Agent), suspend the obligation
of such Lender to make additional Loans of the Type with respect to which such
compensation is requested until the Regulatory Change giving rise to such
request ceases to be in effect (in which case the provisions of Section 5.04
shall be applicable). Without limiting the effect of the foregoing provisions of
this Section 5.01(b), in the event that, by reason of any Regulatory Change, any
Lender either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Lender which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender which includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets which it may hold, then, such Lender may elect
by notice to the Company (with a copy to the Administrative Agent), to suspend
its obligation to make additional Eurodollar Loans until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 5.04 shall be
applicable).
(c) CAPITAL ADEQUACY. Without limiting the effect of Section 5.01(a)
and (b), but without duplication, after any Regulatory Change, the Company shall
pay directly to each Lender such amounts as such Lender may reasonably determine
to be necessary as a result of such Regulatory Change to compensate such Lender
(or its parent or holding company) for any costs which it determines are
attributable to the maintenance by such Lender (or its parent or holding company
or its Applicable Lending Office) of its capital in respect of its Commitment,
its Note, any Loans and/or any interest held by it in any Letter of Credit. Such
compensation shall include, without limitation, an amount equal to any reduction
of the rate of return on assets or equity of such Lender (or any Applicable
Lending Office) to a level below that which such Lender (or any Applicable
Lending Office) could have achieved but for such law, regulation,
interpretation, directive or request.
SECTION 5.02 LIMITATION ON EURODOLLAR LOANS. Notwithstanding any other
provision of this Agreement, if, on or prior to the determination of any
Eurodollar Rate for any Interest Period:
(a) the Administrative Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.02 are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar Loans as
provided herein; or
(b) the Administrative Agent shall determine (which determination shall
be conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in Section 1.02 upon the
basis of which the rate of interest for Eurodollar Loans for such Interest
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Period is to be determined are not sufficient to adequately cover the cost to
the Lenders of making or maintaining Eurodollar Loans;
then the Administrative Agent shall give the Company and each Lender prompt
notice thereof and so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
SECTION 5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Company thereof
(with a copy to the Administrative Agent) and such Lender's obligation to make
Eurodollar Loans shall be suspended until such time as such Lender may again
make and maintain Eurodollar Loans (in which case the provisions of Section 5.04
shall be applicable).
SECTION 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03.
If the obligation of any Lender to make Eurodollar Loans shall be suspended
pursuant to Section 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans
which would otherwise be made by such Lender shall be made instead as Base Rate
Loans (and, if an event referred to in Section 5.03 has occurred and such Lender
so requests by notice to the Company with a copy to the Administrative Agent,
all Affected Loans of such Lender then outstanding shall be automatically
converted into Base Rate Loans on the date specified by such Lender in such
notice). To the extent that Affected Loans are so made as (or converted into)
Base Rate Loans, all payments of principal which would otherwise be applied to
such Lender's Affected Loans shall be applied instead to the Loans so converted.
SECTION 5.05 COMPENSATION. The Company shall pay to the Administrative
Agent for account of each Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense which such Lender determines are attributable to:
(a) any payment, prepayment or conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the Loans pursuant to
Section 10.01) on a date other than the last day of the Interest Period for such
Loan; or
(b) any failure by the Company for any reason (including but not
limited to, the failure of any of the conditions precedent specified in Article
VI to be satisfied, but excluding failures arising out of the negligence, gross
negligence or wilful misconduct of a Lender or Agent) to borrow, continue or
convert a Eurodollar Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant notice of borrowing given
pursuant to Section 2.02.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (x) the amount of interest
which otherwise would have accrued on the principal amount so paid, prepaid or
converted for the period from the date of such payment, prepayment or conversion
to the last day of the then current Interest Period for such Loan (or, in the
case of a failure to borrow, convert or continue, the Interest Period for such
Loan which would have commenced on the date specified for such borrowing,
conversion or continuation) at the applicable rate of interest for such Loan
provided for herein over (y) the interest component of the amount such Lender
would have bid in the London interbank market for Dollar deposits of leading
banks in amounts comparable to such
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principal amount and with maturities comparable to such period (as reasonably
determined by such Lender).
SECTION 5.06 ADDITIONAL COST IN RESPECT OF TAX.
(a) PAYMENTS FREE AND CLEAR. Each payment to be made by the Company
hereunder or in connection herewith to any Agent or Lender or any other Person
shall be made free and clear of and without deduction for or on account of any
Tax unless the Company is required to make such payment subject to the deduction
or withholding of Tax, in which case (except for Excluded Taxes) the sum payable
by the Company in respect of which such deduction or withholding is required to
be made shall be increased to the extent necessary to ensure that, after the
making of such deduction or withholding, such Person receives and retains (free
from any liability in respect of any such deduction or withholding) a net sum
equal to the sum which it would have received and so retained had not such
deduction or withholding been made or required to be made.
(b) OBLIGATION TO INDEMNIFY. If (i) any Agent or Lender is required by
law to make any payment on account of any Tax (except for Excluded Taxes) on or
in relation to any sum received or receivable hereunder by such Agent or Lender
or (ii) any liability in respect of any such payment is asserted, imposed,
levied or assessed against such Agent or Lender, then the Company shall promptly
pay to such Agent or Lender, as the case may be, any additional amounts
necessary to compensate it for such payment together with any interest,
penalties and expenses payable or incurred in connection therewith. If an Agent
or a Lender has paid over on account of Tax (other than Excluded Taxes) an
amount paid to it by the Company pursuant to the foregoing indemnification and
the amount so paid over is subsequently refunded to the recipient Agent or
Lender, in whole or in part, then the recipient Agent or Lender shall promptly
remit such amount refunded to the Company.
(c) NOTICE OF CHANGES; PROOF OF PAYMENT. If at any time the Company is
required by law to make any deduction or withholding from any sum payable by it
hereunder or in connection herewith (or if thereafter there is any change in the
rates at which or the manner in which such deductions or withholdings are
calculated), the Company shall promptly notify the Administrative Agent thereof.
If the Company makes any payment hereunder or in connection herewith for which
it is required by law to make any deduction or withholding, it shall pay the
full amount to be deducted or withheld to the relevant taxation or other
authority within the time allowed for such payment under applicable law and
shall deliver to the Administrative Agent within thirty (30) days after it has
made such payment to the applicable authority (i) a receipt issued by such
authority or (ii) other evidence reasonably satisfactory to the Administrative
Agent evidencing the payment to such authority of all amounts so required to be
deducted or withheld from such payment.
SECTION 5.07 AVOIDANCE OF TAXES AND ADDITIONAL COSTS.
(a) CHANGE APPLICABLE FUNDING OFFICE. If a Lender makes any claim under
Section 5.01 or Section 5.06 in respect of Additional Costs or Taxes, such
Lender shall be obligated to use reasonable efforts to designate a different
Applicable Lending Office for the Commitment or the Loans of such Lender
affected by such event if such designation will avoid the need for, or reduce
the amount of, such compensation or the imposition of any Taxes and will not, in
the sole opinion of such Lender, be disadvantageous to such Lender; provided
that such Lender shall have no obligation to so designate an Applicable Lending
Office located in the United States.
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(b) REPLACEMENT. If any Lender claims (i) payment of Additional Costs,
(ii) the inability to make or maintain the Eurodollar Rate for its Loans
pursuant to Section 5.01 or 5.03 (when such inability is not then being claimed
by substantially all of the Lenders) or (iii) payment of any Taxes pursuant to
Section 5.06, then the Company shall have the right, upon payment of such
requested Additional Costs or Taxes, if applicable, to (i) prepay the Loans made
by such Lender and terminate the Commitment of such Lender on a non pro rata
basis or (ii) subject to the approval of the Administrative Agent (such approval
not to be unreasonably withheld or delayed), find one or more Persons willing to
assume the Loans, Commitment and other obligations of such Lender and replace
such Lender pursuant to an Assignment and Acceptance. Any such assumption shall
be effected pursuant to Section 12.06(b). The Company shall not, however, be
entitled to replace any Lender if an event which with notice or lapse of time,
or both, would constitute a Default or an Event of Default exists at the time.
SECTION 5.08 LENDER TAX REPRESENTATION. Each Lender represents that it
is either (a) a corporation organized under the laws of the United States of
America or any state thereof or (b) entitled to complete exemption from United
States withholding tax imposed on or with respect to any payments, including
fees, to be made to it pursuant to this Agreement, the Notes and the other Loan
Documents (i) under an applicable provision of a tax convention to which the
United States of America is a party or (ii) because it is acting through a
branch, agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade or business in
the United States of America. Each Lender that is not a corporation organized
under the laws of the United States of America or any state thereof agrees to
provide to the Company and the Administrative Agent on the Effective Date, or on
the date of its delivery of the Assignment and Acceptance pursuant to which it
becomes a Lender, and at such other times as required by United States law, two
accurate and complete original signed copies of either Internal Revenue Service
Form 4224 (or successor form) certifying that all payments to be made to it
hereunder will be effectively connected to a United States trade or business or
Internal Revenue Service Form 1001 (or successor form) certifying that it is
entitled to the benefit of a tax convention to which the United States of
America is a party which completely exempts from United States withholding tax
all payments to be made to it hereunder. If a Lender determines, as a result of
any Regulatory Change or other change in its circumstances, that it is unable to
submit any form or certificate that it is obligated to submit pursuant to this
Section 5.08, or that it is required to withdraw or cancel any such form or
certificate previously submitted, it shall promptly notify the Company and the
Administrative Agent of such fact.
SECTION 5.09 LIMITATION ON RIGHT TO COMPENSATION. Any demand for
compensation pursuant to Article V (other than Section 5.06) must be made on or
before six (6) months after the Lender incurs the expense, cost or economic loss
referred to or such Lender shall be deemed to have waived the right to such
compensation. Any demand for compensation pursuant to Section 5.06 must be made
on or before twelve (12) months after the Lender incurs the expense, cost or
economic loss referred to or such Lender shall be deemed to have waived the
right to such compensation.
SECTION 5.10 COMPENSATION PROCEDURE. Each Lender will notify the
Administrative Agent and the Company of any event occurring after the date of
this Agreement which will entitle such Lender to compensation or indemnification
pursuant to this Article V as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Each Lender will furnish
the Administrative Agent and the Company with a certificate setting forth the
basis and amount of each request by such Lender for compensation or
indemnification and specify the Section pursuant to which it is claiming
compensation or indemnification. Such certificate shall also include (i)
calculations in
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reasonable detail computing such claim, and (ii) a statement from such Lender
that it is asserting its right for indemnity or compensation not solely with
respect to the Indebtedness outstanding under this Agreement, but is generally
making such claims with respect to similar borrowers in connection with
transactions similar to the one contemplated in this Agreement. Determinations
and allocations by any Lender for purposes of this Article V of the effect of
any Regulatory Change pursuant to Sections 5.01(a) or (b), or of the effect of
capital maintained pursuant to Section 5.01(c), on its costs or rate of return
of maintaining Loans or issuing or participating in Letters of Credit or its
obligation to make Loans or issue or participate in Letters of Credit, or on
amounts receivable by it in respect of Loans or such obligations, and of the
additional amounts required to compensate such Lender under Section 5.01, 5.05
or 5.06, shall be conclusive, provided that such determinations and allocations
are made on a reasonable basis.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 EFFECTIVENESS. The effectiveness of this amendment and
restatement of the Prior Credit Agreement is subject to the receipt by the
Administrative Agent of the following documents and satisfaction of the other
conditions provided in this Section 6.01, each of which shall be satisfactory to
the Administrative Agent in form and substance unless otherwise indicated:
(a) a certificate of the Secretary or Assistant Secretary of the
Company setting forth (i) that the resolutions of its board of directors
attached to such certificate are in full force and effect with respect to the
authorization of the execution, delivery and performance of the obligations
contained in the Notes, this Agreement and the other Loan Documents to which it
is a party, (ii) that the officers of the Company specified in such Secretary's
Certificate are authorized to sign this Agreement, the Notes, and the other Loan
Documents to which it is a party and who, until replaced by another officer or
officers duly authorized for that purpose, will act as the Company's
representative(s) for the purposes of signing documents and giving notices and
other communications in connection with this Agreement, the other Loan Documents
to which it is a party and the transactions contemplated hereby and thereby,
(iii) specimen signatures of the officers so authorized, and (iv) that no
amendments or modifications have been made to the certificate of incorporation
and the bylaws of the Company since July 8, 1998. The Agents and the Lenders may
conclusively rely on such certificate until the Administrative Agent receives
notice in writing from the Company to the contrary.
(b) a certificate of the Secretary or Assistant Secretary of
OEI-Louisiana setting forth (i) that the resolutions of its board of directors
attached to such certificate are in full force and effect with respect to the
authorization of the execution, delivery and performance of the obligations
contained in the Loan Documents to which it is a party, (ii) that the officers
specified in such Secretary's Certificate are authorized to sign the Loan
Documents to which it is a party and who, until replaced by another officer or
officers duly authorized for that purpose, will act as its representative(s) for
the purposes of signing documents and giving notices and other communications in
connection with such Loan Documents and the transactions contemplated thereby,
(iii) specimen signatures of the officers so authorized, and (iv) that no
amendments or modifications have been made to the articles or certificate of
incorporation and the bylaws of OEI-Louisiana since July 8, 1998. The Agents and
the Lenders may conclusively rely on such certificate until the Administrative
Agent receives notice in writing from the Company to the contrary.
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(c) certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Company, OEI-Louisiana and
certain material Restricted Subsidiaries in certain specified jurisdictions.
(d) the Notes, the Guaranty Agreement and the other Loan Documents
listed on Exhibit F, each duly completed and executed.
(e) the following opinions:
(i) an opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to
the Company, substantially in the form of Exhibit B-1.
(ii) an opinion of Onebane, Bernard, Torian, Diaz, McNamara & Abell,
special Louisiana counsel to OEI-Louisiana, substantially in the form
of Exhibit B-2.
(f) appropriate UCC search certificates of the Company and its
Restricted Subsidiaries reflecting no Liens on any of their Properties except
for such Liens permitted by Section 9.02.
(g) the Agents and the Lenders shall have received all fees due and
payable pursuant to Section 2.04 on or prior to the Effective Date.
(h) the Master Release, substantially in the form of Exhibit H, duly
executed and delivered, terminating the existing credit facilities maintained by
Ocean Canada.
(i) Such other documents as the Administrative Agent or Technical
Agents or special counsel to the Administrative Agent may reasonably request.
SECTION 6.02 ALL LOANS AND LETTERS OF CREDIT.
(a) GENERALLY. The obligation of the Lenders to make Loans to the
Company upon the occasion of each borrowing hereunder (other than Base Rate
Loans which are made pursuant to the terms hereof solely to replace existing
Eurodollar Loans which have matured in the normal course on the last day of an
Interest Period therefor or pursuant to Section 5.03) or of the Administrative
Agent to issue Letters of Credit is subject to the further conditions precedent
that, as of the date of such Loans and after giving effect thereto: (i) no
Default or Event of Default shall have occurred and be continuing; (ii) no event
or circumstance having a Material Adverse Effect shall have occurred since the
date of the Financial Statements, and (iii) the representations and warranties
made by the Company and OEI-Louisiana in Article VII and the Loan Documents
shall be true in all material respects on and as of the date of the making of
such Loans or the issuance of such Letter of Credit with the same force and
effect as if made on and as of such date and following such new borrowing or
issuance, except as such representations and warranties are modified to give
effect to transactions expressly permitted hereby or to the extent expressly
limited to an earlier date.
(b) CERTIFICATION AS TO REPRESENTATIONS. Each notice of borrowing,
conversion or continuation and selection of an Interest Period (other than Base
Rate Loans which are made pursuant to the terms hereof solely to replace
existing Eurodollar Loans which have matured in the normal course on the last
day of an Interest Period therefor or pursuant to Section 5.03) or request for
the issuance, renewal, extension or reissuance of a Letter of Credit by the
Company hereunder shall
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constitute a certification by the Company to the effect set forth in Section
6.02(a) (both as of the date of such notice and, unless the Company otherwise
notifies the Administrative Agent prior to the date of or immediately following
such borrowing or such issuance, as of the date of such borrowing or issuance,
as the case may be).
(c) CERTIFICATE REGARDING INCURRENCE OF DEBT UNDER INDENTURES. The
obligation of the Lenders to make Loans to the Company or of the Administrative
Agent to issue Letters of Credit, if, after giving effect thereto, the aggregate
principal amount of all the Loans then outstanding and the LC Exposure would be
in excess of $100,000,000, is subject to the further condition precedent that
the Company deliver a certificate from an authorized officer, in form and
substance reasonably satisfactory to the Administrative Agent, certifying that,
as of the date of incurrence, the Company is permitted to incur such
Indebtedness under the Indentures and setting forth in reasonable detail
calculations to support the certification.
(d) CERTIFICATE REGARDING INCURRENCE FOLLOWING SALE OF EQUITY. If the
Company shall have issued any shares of capital stock, and there has been a
payment pursuant to Section 2.08(d) then the obligation of the Lenders to make
any Loans or of the Administrative Agent to issue any Letter of Credit to the
extent the sum of all Loans then outstanding and the LC Exposure would exceed
the Threshold Amount shall be subject to the further condition precedent that:
the Company shall provide the Administrative Agent with written certification
that it or one or more of its Restricted Subsidiaries will use the cash proceeds
of such Loans above the Threshold Amount to acquire Oil and Gas Properties which
are substantially all proved producing.
SECTION 6.03 CONDITIONS RELATING TO LETTERS OF CREDIT. In addition to
the satisfaction of all other conditions precedent set forth in this Article VI,
the issuance, renewal, extension or reissuance of the Letters of Credit referred
to in Section 2.01(b) is subject to the following conditions precedent:
(a) At least one (1) Business Day prior to the date of the issuance,
renewal, extension or reissuance of each Letter of Credit, the Administrative
Agent shall have received a written request for a Letter of Credit as described
in Section 2.02.
(b) The Company shall have duly and validly executed and delivered to
the Administrative Agent a Letter of Credit Agreement pertaining to the Letter
of Credit.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agents and the Lenders as
follows:
SECTION 7.01 CORPORATE EXISTENCE. The Company, OEI-Louisiana, Ocean
Canada and each Restricted Subsidiary: (a) is duly organized and validly
existing under the laws of the jurisdiction of its formation (or, if
appropriate, the laws of the jurisdiction under which it is continued); (b) has
all requisite power, and has all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its business as
now being conducted; and (c) is qualified to do business in all jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.
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SECTION 7.02 FINANCIAL CONDITION.
(a) The unaudited combined balance sheet of the Company and its
Consolidated Subsidiaries as at September 30, 1998, as included in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1998 and the
related consolidated statement of income of the Company and its Consolidated
Subsidiaries for the fiscal period ended on said date, heretofore furnished to
each of the Lenders, fairly present in all material respects the consolidated
financial condition of the Company and its Consolidated Subsidiaries and the
consolidated results of their operations as at said date and for the period
stated.
(b) The Company and its Consolidated Subsidiaries, as of September 30,
1998, had no material events of loss or casualties, material contingent
liabilities, liabilities for taxes, Liens, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the Financial
Statements or otherwise contemplated by this Agreement. Since September 30,
1998, there has been no change or event which has had or could reasonably be
expected to have a Material Adverse Effect.
SECTION 7.03 LITIGATION. Except as disclosed on Schedule 7.03, there
are no legal or arbitral proceedings or any proceedings by or before any
Governmental Authority, now pending or (to the knowledge of the Company)
threatened against the Company or any of its Restricted Subsidiaries or against
any of their respective Property which could reasonably be expected to have a
Material Adverse Effect.
SECTION 7.04 NO BREACH. The execution and delivery by the Company and
its Restricted Subsidiaries of this Agreement, the Notes, the other Loan
Documents, the consummation of the transactions herein or therein contemplated
and the compliance with the terms and provisions hereof will not (a) conflict
with or result in a breach of, or require any consent under (i) the respective
charter or by-laws of such Person, or (ii) any applicable law or regulation, or
any order, writ, injunction or decree of any court or other Governmental
Authority, or any agreement or instrument to which any such Person is a party or
by which it is bound or to which it is subject, in each case in such manner as
could reasonably be expected to have a Material Adverse Effect; or (b)
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or Property of such
Person, in each case in such manner as could reasonably be expected to have a
Material Adverse Effect.
SECTION 7.05 CORPORATE ACTION; BINDING OBLIGATION. Each of the Company
and OEI-Louisiana has all necessary corporate power and authority to execute,
deliver and perform its respective obligations under this Agreement, the Notes
and the Loan Documents to which it is a party; and the execution, delivery and
performance by each of the Company and OEI-Louisiana of this Agreement, the
Notes and the Loan Documents to which it is party have been duly authorized by
all necessary corporate action on its part. This Agreement, the Notes and the
Loan Documents to which it is a party constitute the legal, valid and binding
obligation of each of such Person, enforceable against it in accordance with
their terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights and general
principles of equity.
SECTION 7.06 APPROVALS. Other than (i) Approvals heretofore obtained,
(ii) the Approvals described in the last sentence of this Section 7.06 and (iii)
Approvals the absence of which could not
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reasonably be expected to have a Material Adverse Effect, no authorizations,
approvals or consents of, and no filings or registrations with, any Governmental
Authority ("Approvals") are necessary for the execution, delivery or performance
by the Company or OEI-Louisiana of this Agreement, the Notes, the Loan Documents
to which it is a party or for the validity or enforceability thereof. It is
understood that continued performance by the Company and its Subsidiaries of
this Agreement and the other Loan Documents to which such Persons are a party
will require various Approvals, such as filings related to environmental
matters, ERISA matters, Taxes and intellectual property, filings required to
maintain corporate and similar standing and existence, filings pursuant to the
Uniform Commercial Code and other security filings and recordings, filings
required by the SEC, routine filings in the ordinary course of business, and
filings required in connection with the exercise by the Lenders and the Agents
of remedies in connection with the Loan Documents.
SECTION 7.07 USE OF LOANS AND LETTERS OF CREDIT. The proceeds of the
Loans and the Letters of Credit shall be used by the Company for general
corporate purposes of the Company and its Subsidiaries, including without
limitation, (i) the acquisition of Oil and Gas Properties and related Property
and Persons owning Oil and Gas Properties and related Property; (ii) the
financing of the Company's and its Subsidiaries' share of North American and
international oil and gas exploration, development and production costs; (iii)
the financing of ongoing working capital requirements of the Company and its
Subsidiaries; and (iv) the making of other payments as otherwise permitted under
this Agreement. Neither the Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock within the meaning of Regulation T, U or X and no part of
the proceeds of any Loan hereunder will be used to buy or carry any margin
stock.
SECTION 7.08 ERISA. Each of the Company and the ERISA Affiliates (a)
have fulfilled its respective obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan, (b) are in compliance, with
respect to each Plan, in all material respects with the presently applicable
provisions of ERISA and the Code, and (c) have not incurred any liability to the
PBGC or any Plan or Multiemployer Plan. The Company and its Subsidiaries have no
ERISA Affiliates.
SECTION 7.09 TAXES. Each of the Company and its Subsidiaries has filed
all United States Federal income tax returns and all other material tax returns
which are required to be filed by it and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by it, except for such taxes as
are being contested in good faith by appropriate proceedings and for which
adequate reserves are being maintained. The charges, accruals and reserves on
the books of the Company and its Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Company, adequate.
SECTION 7.10 INSURANCE. The Company has, and has caused all its
Restricted Subsidiaries to, have (a) all insurance policies sufficient for the
compliance by each of them with all material Governmental Requirements, and (b)
insurance coverage in at least such amounts and against such risks (including
public liability) that are usually insured against by companies similarly
situated engaged in the same or a similar business for the assets and operations
of the Company and its Restricted Subsidiaries.
SECTION 7.11 TITLES, ETC. The Company and its Restricted Subsidiaries
own the material Oil and Gas Properties included in the Borrowing Base, free and
clear of all Liens except Liens permitted under Section 9.02. Other than Liens
permitted under Section 9.02, the Company (directly or
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indirectly through its Restricted Subsidiaries) will own in the aggregate, in
all material respects, the net interests in production attributable to the wells
and units evaluated in the Initial Reserve Reports. The ownership of such
Properties shall not in the aggregate in any material respect obligate the
Company and its Restricted Subsidiaries to bear the costs and expenses relating
to the maintenance, development and operations of such Properties in an amount
materially in excess of the working interest of such Properties set forth in the
Initial Reserve Reports. The Company has, or has caused its Restricted
Subsidiaries to, pay all royalties payable under the Hydrocarbon Interests to
which it is operator, except as permitted under Section 8.03(c). Upon delivery
of each Reserve Report furnished to the Lenders pursuant to Sections 8.05(a) or
(b), the statements made in the preceding sentences of this Section 7.11 shall
be true with respect to such Reserve Reports. All information contained in the
Initial Reserve Reports was true and correct in all material respects as of the
date thereof.
SECTION 7.12 NO MATERIAL MISSTATEMENTS. At the time delivery is made,
no information, exhibit or report furnished to any Agent or Lender by the
Company or any of its Restricted Subsidiaries in connection with the negotiation
of this Agreement or any Loan Document contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading. Notwithstanding the
foregoing, the financial statements described in Section 7.02 and Section 8.01
shall be subject to the standards set forth in Section 7.02.
SECTION 7.13 INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 7.14 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
SECTION 7.15 SUBSIDIARIES AND PARTNERSHIPS. Except as shown in Exhibit
D, (a) the Company has no Subsidiaries, (b) the Company owns 100% of all of the
issued and outstanding shares of each class of stock issued by each of its
Subsidiaries, and (c) all Subsidiaries of the Company are Restricted
Subsidiaries. The Company and its Subsidiaries have no interest in any
partnerships other than Tax Partnerships and the partnerships identified in
Exhibit E.
SECTION 7.16 LOCATION OF BUSINESS AND OFFICES. The principal place of
business and chief executive offices of the Company and each its Subsidiaries
are located at either the address stated on the signature page of this Agreement
or on Exhibit D.
SECTION 7.17 RATE FILINGS. To the best of the Company's knowledge, (a)
neither the Company nor any of its Restricted Subsidiaries have violated any
provisions of The Natural Gas Act or any other Federal or State law or any of
the regulations thereunder, including those of any Governmental Authority having
jurisdiction over the Oil and Gas Properties of the Company or such Restricted
Subsidiary, which violation could reasonably be expected to have a Material
Adverse Effect; and (b) the Company and its Restricted Subsidiaries have made
all necessary rate filings, certificate applications, well category filings,
interim collection filings and notices, and any other filings or certifications,
and have received all necessary regulatory authorizations (including without
limitation necessary authorizations, if any, with respect to any processing
arrangements conducted by any one
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of them or others respecting said Oil and Gas Properties or production
therefrom) required under said laws and regulations with respect to all of the
Oil and Gas Properties or production therefrom so as not to have a Material
Adverse Effect. To the best of the Company's knowledge, said material rate
filings, certificate applications, well category filings, interim collection
filings and notices, and other filings and certifications contain no untrue
statements of material facts nor do they omit any statements of material facts
necessary in said filings.
SECTION 7.18 ENVIRONMENTAL MATTERS. Except as provided in Schedule 7.18
or as would not have a Material Adverse Effect (or with respect to (c), (d), and
(e) below, where the failure to take such actions would not have such a Material
Adverse Effect):
(a) Neither any Property of the Company and its Subsidiaries nor the
operations conducted thereon violate any Environmental Laws or order of any
court or Governmental Authority with respect to Environmental Laws;
(b) Without limitation of Section 7.18(a), no Property of the Company
and its Subsidiaries nor the operations conducted thereon (including operations
by any prior owner or operator of such Property), are in violation of or subject
to any existing, pending or (to the knowledge of the Company) threatened action,
suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority with respect to Environmental Laws or to any remedial
obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of any
and all Property of the Company and its Subsidiaries, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly obtained
or filed;
(d) All hazardous substances generated at any and all Property of the
Company and its Subsidiaries have in the past been transported, treated and
disposed of only by carriers maintaining valid permits under RCRA and any other
Environmental Law and only at treatment, storage and disposal facilities
maintaining valid permits under RCRA and any other Environmental Law, which
carriers and facilities (to the best knowledge of the Company) have been and are
operating in compliance with such permits;
(e) The Company and its Subsidiaries have taken all steps necessary to
determine and have determined that no hazardous substances or solid waste have
been disposed of or otherwise released and there has been no threatened release
of any hazardous substances on or to any Property of the Company and its
Subsidiaries except in compliance with Environmental Laws; and
(f) The Company and its Subsidiaries have no material liability in
connection with any release or threatened release of any hazardous substance or
solid waste into the environment.
(g) To the extent applicable, the Company and its Subsidiaries have
complied with all financial responsibility, spill prevention facility design,
operation and equipment requirements imposed by OPA or will comply with such
requirements scheduled to be imposed by OPA in the future during the term of
this Agreement; and the Company has no reason to believe that either it or its
Subsidiaries will not be able to maintain compliance with all applicable OPA
requirements during the term of this Agreement.
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SECTION 7.19 DEFAULTS. The Company and its Restricted Subsidiaries are
not in default and no event or circumstance has occurred which, but for the
passage of time or the giving of notice, or both, would constitute a default
under any agreement or other instrument to which either the Company or any of
its Restricted Subsidiaries is a party or by which it is bound in any manner
that could reasonably be expected to have a Material Adverse Effect. No Default
or Event of Default hereunder has occurred and is continuing.
SECTION 7.20 COMPLIANCE WITH THE LAW. The Company and its Restricted
Subsidiaries have not violated any Governmental Requirement or failed to obtain
any license, permit, franchise or other governmental authorization necessary for
the ownership of any of their respective Properties or the conduct of their
respective business which violation or failure could reasonably be expected to
have a Material Adverse Effect.
SECTION 7.21 RISK MANAGEMENT AGREEMENTS. Schedule 7.21 sets forth, as
of the Effective Date, a true and complete list of all Risk Management
Agreements (including commodity price swap agreements, forward agreements or
contracts of sale which provide for prepayment for deferred shipment or delivery
of oil, gas or other commodities) of the Company and its Restricted
Subsidiaries, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark to market
value thereof, all credit support agreements relating thereto (including any
margin required or supplied), and the counterparty to each such agreement.
SECTION 7.22 GAS IMBALANCES. As of the Effective Date, except as set
forth on Schedule 7.22 or on the most recent certificate delivered pursuant to
Section 8.05(c), on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to the Company and its Restricted Subsidiaries'
Oil and Gas Properties which would require the Company or such Subsidiary to
deliver Hydrocarbons produced from the Oil and Gas Properties at some future
time without then or thereafter receiving substantially full payment therefor
exceeding 10,000,000 mcf of gas in the aggregate.
SECTION 7.23 SOLVENCY. The Company (a) is not insolvent and will not be
rendered insolvent as a result of the execution, delivery and performance of the
Notes and this Agreement or the making of the Loans or issuance of Letters of
Credit hereunder, (b) is not engaged in business or a transaction, or about to
engage in a business or a transaction, for which it has unreasonably small
capital, and (c) does not intend to incur, or believe it will incur, debts that
will be beyond its ability to pay as such debts mature.
SECTION 7.24 YEAR 2000 COMPLIANCE. Except where failure to do so would
not have a Material Adverse Effect, any reprogramming required to permit the
proper functioning, in and following the year 2000, of (i) the computer systems
of the Company and its Subsidiaries and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
systems of the Company and its Subsidiaries interface) and the testing of all
such systems and equipment, as so reprogrammed, will be completed by August 1,
1999. The cost to the Company and its Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to the
Company and its Subsidiaries (including, without limitation, reprogramming
errors and the failure of others' systems or equipment) will not result in a
Default or Event of Default or otherwise have a Material Adverse Effect. Except
for such of the reprogramming referred to in the preceding sentence as may be
necessary, the computer and management information systems of the Company and
its Subsidiaries are and, with ordinary course upgrading and maintenance,
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will continue for the term of this Agreement to be, sufficient to permit the
Company and its Subsidiaries to conduct their business without Material Adverse
Effect.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Company agrees that, so long as any of the Commitments are in
effect and until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Company or OEI-Louisiana hereunder or any
Loan Document:
SECTION 8.01 FINANCIAL STATEMENTS. The Company shall deliver to each of
the Lenders:
(a) As soon as available and in any event within 60 days after the end
of each of the first three fiscal quarterly periods of each fiscal year of the
Company, consolidated statements of income (including cost summaries of general
and administrative expenses in detail satisfactory to the Administrative Agent),
changes in stockholders' equity and cash flows of the Company and its
Consolidated Subsidiaries for such period and for the period from the beginning
of the respective fiscal year to the end of such period, and the related
consolidated balance sheets as at the end of such period, and commencing March
31, 1999, setting forth in each case in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year, accompanied
by the certificate of the senior financial officer of the Company, which
certificate shall state that said financial statements fairly present, in all
material respects, the consolidated financial conditions and results of
operations of the Company and its Consolidated Subsidiaries in accordance with
generally accepted accounting principles, consistently applied, as at the end
of, and for, such period (subject to the absence of footnotes and normal
year-end audit adjustments).
(b) As soon as available and in any event within 120 days after the end
of each fiscal year of the Company, consolidated statements of income, changes
in stockholders' equity and cash flows of the Company and its Consolidated
Subsidiaries for such year and the related consolidated balance sheets as at the
end of such year, and commencing December 31, 1999, setting forth in each case
in comparative form the corresponding figures for the preceding fiscal year, and
accompanied by the opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state that said financial
statements fairly present, in all material respects, the consolidated financial
condition and results of operations of the Company and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year.
(c) Promptly upon their becoming available, copies of all registration
statements and regular periodic reports, if any, which the Company or any of its
Subsidiaries shall have filed with the SEC or any national securities exchange.
(d) As soon as possible, and in any event within ten (10) days after
the Company knows that any of the events or conditions specified below with
respect to any Plan or Multiemployer Plan have occurred or exist, a statement
signed by a senior financial officer of the Company setting forth details
respecting such event or condition and the action, if any, which the Company or
its ERISA Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by the Company or an
ERISA Affiliate with respect to such event or condition):
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(i) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such
event (provided that a failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA shall be a reportable
event regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the Company or any ERISA
Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer
Plan, or the receipt by the Company or any ERISA Affiliate of notice
from a Multiemployer Plan that is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA; and
(v) the institution of a proceeding by a fiduciary of any Multiemployer
Plan against the Company or any ERISA Affiliate to enforce Section 515
of ERISA, which proceeding is not dismissed within 30 days.
(e) As soon as available and in any event within 60 days after the end
of each fiscal quarterly period of each fiscal year of the Company, for such
quarterly period, the detailed monthly financial reports of the Company and its
Consolidated Subsidiaries, containing production, revenue and cost information
reports for such quarterly period with respect to the Oil and Gas Properties
owned by the Company and its Consolidated Subsidiaries, which report shall be in
such form as may be accepted by the Administrative Agent and the Technical
Agents from time to time.
(f) Promptly after the Company knows that a Default or Event of Default
has occurred and is continuing, a notice of such Default or Event of Default
describing the same in reasonable detail and what action, if any, the Company
intends to take in response thereto.
(g) Prior to the issuance of any Pari Passu Debt under Section 9.01(h),
written notice of such event describing the amount of Debt to be incurred and
the maturity of such Pari Passu Debt, and such other information as the
Administrative Agent may reasonably request. In connection with the foregoing,
the Company shall also deliver a copy of the instruments and agreements
evidencing or governing such Pari Passu Debt, certified as true and complete by
the Company, promptly after the applicable closing.
(h) Promptly after the Company or any of its Restricted Subsidiaries is
aware of any event of force majeure or other event, circumstance or condition
materially and adversely affecting the Oil and Gas Properties of any Restricted
Subsidiary of the Company, notice of such event, circumstance or condition.
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(i) Promptly after the Company or any of its Restricted Subsidiaries is
aware that any Loan Document, after delivery thereof, has for any reason, except
to the extent permitted by the terms of this Agreement or thereof, ceased to be
in full force and effect and valid, binding and enforceable in accordance with
its terms (subject to customary exceptions therefrom), notice of such event or
condition.
(j) At the time the Company furnishes a Reserve Report under Section
8.05(a), a report, in form and substance satisfactory to the Administrative
Agent, setting forth as of the day of such Reserve Report, a true and complete
list of all Risk Management Agreements (including commodity price swap
agreements, forward agreements or contracts of sale which provide for prepayment
for deferred shipment or delivery of oil, gas or other commodities) of the
Company and each of its Restricted Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value therefor, any new credit support
agreements relating thereto not listed on Schedule 7.21, any margin required or
supplied under any credit support document, and the counterparty to each such
agreement.
(k) At the time the Company furnishes each set of financial statements
pursuant to Section 8.01(a) or (b), a report, in form and substance satisfactory
to the Administrative Agent, setting forth as of the last day of such fiscal
quarter or year, the amount of investments, loans and advances made to its
Unrestricted Subsidiaries pursuant to Section 9.03(p).
(l) From time to time such other information regarding the business,
affairs or financial condition of the Company and its Restricted Subsidiaries as
any Lender or the Administrative Agent may reasonably request.
The Company shall furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to Section 8.01(a) or (b), a certificate of a
senior financial officer of the Company: (i) to the effect that no Default or
Event of Default has occurred and is continuing (or, if any Default or Event of
Default has occurred and is continuing, describing the same in reasonable detail
and what action, if any, the Company intends to take in response thereto); and
(ii) setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Sections 9.03(c), 9.03(p), 9.04, 9.05,
9.12 and 9.16(b) as of the end of the respective fiscal quarter or fiscal year.
SECTION 8.02 LITIGATION. The Company shall promptly give to the
Administrative Agent notice of all legal or arbitral proceedings, and of all
proceedings before any Governmental Authority, affecting the Company or any of
its Restricted Subsidiaries except proceedings which could not reasonably be
expected to have a Material Adverse Effect.
SECTION 8.03 CORPORATE EXISTENCE, ETC.
(a) Except as permitted by Section 9.08, the Company shall, and shall
cause each of its Restricted Subsidiaries to: (i) preserve and maintain its
corporate existence and all of its material rights, privileges and franchises;
(ii) comply with the requirements of all applicable laws, rules, regulations and
orders of Governmental Authorities if failure to comply with such requirements
could reasonably be expected to have a Material Adverse Effect; (iii) pay and
discharge all taxes, assessments and governmental charges or levies imposed on
it or on its income or profits or on any of its Property prior to the date on
which penalties attach thereto, except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and by proper
proceedings and against which
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adequate reserves are being maintained; (iv) permit representatives of any
Lender or the Administrative Agent, during normal business hours, to examine,
copy and make extracts from its books and records, inspect its Properties, and
discuss its business and affairs with its officers, all to the extent reasonably
requested by such Lender or the Administrative Agent (as the case may be); and
(v) keep insured by financially sound and reputable insurers all Property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations.
(b) The Company shall, and shall cause each of its Restricted
Subsidiaries to: (i) do or cause to be done all things reasonably necessary to
preserve and keep in good repair, working order and efficiency (ordinary wear
and tear excepted) all of the Oil and Gas Properties owned by the Company or any
Restricted Subsidiary of the Company including, without limitation, all
equipment, machinery and facilities, and (ii) make all the reasonably necessary
repairs, renewals and replacements so that at all times the state and condition
of the Oil and Gas Properties owned by the Company and its Restricted
Subsidiaries will be fully preserved and maintained, except to the extent a
portion of such Oil and Gas Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts, as determined by the Company in
its sole judgment.
(c) The Company and its Restricted Subsidiaries will promptly pay and
discharge or cause to be paid and discharged all delay rentals, royalties,
expenses and indebtedness accruing under, and perform or cause to be performed
each and every act, matter or thing required by, each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting their
interests in their Oil and Gas Properties and will do all other things necessary
to keep unimpaired the Company's or any Restricted Subsidiary's rights with
respect thereto and prevent any forfeiture thereof or a default thereunder,
except (i) to the extent a portion of such Oil and Gas Properties is no longer
capable of producing Hydrocarbons in economically reasonable amounts as
determined by the Company in its sole judgment, (ii) for sales or other
dispositions of Oil and Gas Properties permitted by Section 9.16, (iii) if such
failure to comply could not reasonably be expected to have a Material Adverse
Effect, or (iv) those contested in accordance with the terms of the applicable
joint operating agreement or otherwise contested in good faith by appropriate
proceedings.
(d) The Company and its Restricted Subsidiaries will operate their Oil
and Gas Properties or cause or use commercially reasonably efforts to cause such
Oil and Gas Properties to be operated in a careful and efficient manner in
accordance with the practices of the industry and in compliance with all
applicable contracts and agreements and in compliance in all material respects
with all Governmental Requirements, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
(e) The Company will, and will cause its Subsidiaries to, maintain
accounting procedures, books and records to permit the preparation of financial
statements of the Company and its Subsidiaries in accordance with GAAP.
(f) The Company or any of its Restricted Subsidiaries may upon thirty
(30) days' notice thereafter to the Administrative Agent change its principal
place of business and chief executive offices from that listed on Exhibit D.
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SECTION 8.04 ENVIRONMENTAL MATTERS. The Company shall, and shall cause
each of its Subsidiaries to, promptly notify the Administrative Agent and the
Lenders in writing of any existing, pending or threatened action, investigation
or inquiry by any Governmental Authority (of which the Company or any of its
Subsidiaries has actual knowledge) in connection with any Environmental Laws,
excluding routine testing and corrective action, which would involve a violation
of any Environmental Law or remedial obligation (individually or in the
aggregate) sufficient to have a Material Adverse Effect.
SECTION 8.05 ENGINEERING REPORTS.
(a) On or before February 28, 1999, and thereafter, March 15 of each
year commencing March 15, 2000, the Company shall furnish to the Technical
Agents and the Lenders a Reserve Report as of the preceding January 1st in form
and substance reasonably satisfactory to the Technical Agents. 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) reasonably acceptable to
the Technical Agents and evaluating Oil and Gas Properties comprising not less
than eighty percent (80%) of the SEC Value of the Oil and Gas Properties of the
Company and its Restricted Subsidiaries which Properties the Company desires to
have included in the Borrowing Base, and the other being prepared by or under
the supervision of the chief petroleum engineer of the Company (utilizing
substantially similar procedures to those used by its independent petroleum
engineers) and evaluating the Oil and Gas Properties comprising the remaining
SEC Value of the Oil and Gas Properties of the Company and its Restricted
Subsidiaries which Properties the Company desires to have included in the
Borrowing Base. Notwithstanding the foregoing, the January 1 Reserve Report
relating to any Oil and Gas Properties not located in the geographical
boundaries of the United States of America and Canada and surrounding waters
shall be prepared by certified independent petroleum engineers or other
independent petroleum consultant(s) reasonably acceptable to the Technical
Agents.
(b) On or before September 15 of each year commencing September 15,
1999, the Company shall furnish to the Technical Agents and the Lenders a
Reserve Report prepared as of the immediately preceding July 1 by the chief
engineer of the Company (who shall certify such report to have been prepared in
accordance with the procedures used in the immediately preceding January 1
Reserve Report), which shall further evaluate the Oil and Gas Properties
evaluated in the immediately preceding Reserve Report. For any unscheduled
redetermination pursuant to Section 2.09(d), the Company shall provide such
Reserve Report (which shall be prepared by its chief engineer) with an "as of"
date as specified by the Required Lenders, as soon as possible, but in any event
no later than 75 days following the receipt of the request by the Administrative
Agent.
(c) With the delivery of each Reserve Report required in Section
8.05(a) and (b), the Company shall provide to the Lenders a statement reflecting
(i) any material changes in the net revenue interest of each well or lease as
reflected in the Reserve Report delivered for the prior period, after giving
effect to all encumbrances listed therein from the net revenue interests as
reflected in such report, along with an explanation as to any material
discrepancies between the two net revenue interest disclosures, and (ii) that,
except as set forth on an exhibit thereto, on a net basis there are no gas
imbalances, take or pay or other prepayments with respect to their Oil and Gas
Properties evaluated in such Reserve Report which would require the Company or
any of its Restricted Subsidiaries to deliver Hydrocarbons produced from such
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor.
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(d) If the Technical Agents desire to exclude an Oil and Gas Property
included in the Borrowing Base on the basis that title to such Oil and Gas
Property is unsatisfactory, the Administrative Agent shall give the Company
written notice thereof and the Company shall have 90 days to cure such defect.
If the Company is unable to cure any such title defect requested to be cured
within the 90-day period, such default shall not be a Default or an Event of
Default, but instead, if the aggregate value of all such Oil and Gas Properties
which have unsatisfactory title defects (and which have not previously resulted
in the invocation of the remedy set forth in this Section) constitutes 5% or
more of the then current amount of the Borrowing Base, the Technical Agents
shall have the right, by sending written notice to the Company, to reduce the
then outstanding Borrowing Base by an amount as reasonably determined by the
Technical Agents to reflect the impairment to the Borrowing Base caused by such
title defect. This adjustment to the Borrowing Base shall become effective
immediately after receipt of such notice.
SECTION 8.06 STOCK OF RESTRICTED SUBSIDIARIES. Except as provided in
Section 9.08 and Exhibit D, the Company will at all times legally and
beneficially own all issued and outstanding shares of all classes of stock of
its Restricted Subsidiaries as listed on Exhibit D.
SECTION 8.07 FURTHER ASSURANCES. The Company shall, and shall cause its
Restricted Subsidiaries to, cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Loan Documents,
including this Agreement. The Company and its Restricted Subsidiaries will at
their expense promptly execute and deliver to the Administrative Agent upon
request all such other and further documents, agreements and instruments (a) in
compliance with or accomplishment of the covenants and agreements of the Company
and OEI-Louisiana in the Loan Documents, including this Agreement, (b) to
further evidence and more fully describe the collateral, if any, intended as
security for the Notes, (c) to correct any omissions in the Loan Documents, or
more fully state the security obligations set out herein or in any of the Loan
Documents, (d) to perfect, protect or preserve any Liens created pursuant to any
of the Loan Documents, or (e) to make any recordings, to file any notices, or
obtain any consents, all as may be necessary or appropriate in connection
therewith.
SECTION 8.08 PERFORMANCE OF OBLIGATIONS. The Company will pay the Notes
according to the reading, tenor and effect thereof; and the Company will and
will cause each Subsidiary to do and perform every act and discharge all of the
obligations to be performed and discharged by them under this Agreement and the
other Loan Documents, at the time or times and in the manner specified.
ARTICLE IX
NEGATIVE COVENANTS
The Company agrees that, so long as any of the Commitments are in
effect and until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Company or OEI-Louisiana hereunder or any
Loan Document:
SECTION 9.01 DEBT. The Company will not, and will not permit any of its
Subsidiaries to, incur, create, assume or suffer to exist any Debt, except the
following (each of which exceptions is in addition to, and not in limitation of,
the other; and the Company may elect to classify any item of Debt under any
applicable exception, and such classification shall not be deemed to be a
utilization of any other potentially applicable exception):
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(a) the Indebtedness and any guarantees thereof;
(b) Debt of the Company and its Subsidiaries existing on the date of
this Agreement which is reflected in the Financial Statements and any renewals,
refinancings and extensions thereof;
(c) Debt created under leases which, in accordance with GAAP are or
should be recorded as capital leases, in an aggregate amount not to exceed
$10,000,000 at any one time outstanding;
(d) Debt of any Unrestricted Subsidiary that is Non-Recourse Debt, on
terms approved by the Administrative Agent, the Syndication Agent and the
Documentation Agent (which approval shall not be unreasonably withheld),
provided that the Property of such Unrestricted Subsidiary is not included in
the most recent calculation of the Borrowing Base;
(e) (i) Subordinated Debt incurred pursuant to the 95 Indenture, the 96
Indenture, the 97 Indenture and the 98 Senior Subordinated Indenture and any
refinancings permitted by Section 9.19(a) of this Agreement or a consent
thereunder; provided that in no event may the aggregate principal amount of all
Subordinated Debt under such Indentures exceed $760,000,000 at any one time
outstanding without the consent of the Required Lenders, (ii) obligations under
or in connection with the Pledge of Production and Trust Agreements, and (iii)
other Subordinated Debt that is issued on terms reasonably satisfactory to each
of the Administrative Agent, the Syndication Agent and the Documentation Agent
with respect to maturity, interest rate, covenants and subordination language
and any refinancings thereof permitted by Section 9.19(a) of this Agreement or a
consent thereunder, provided that in connection with the issuance of any such
Subordinated Debt under this clause (iii), the Borrowing Base is redetermined;
(f) Debt (i) of the Company created, incurred or assumed after the date
hereof; provided that the aggregate outstanding principal amount of such Debt
shall not exceed $10,000,000 minus the amount of Debt outstanding under clause
(ii) at any one time outstanding and (ii) Debt of any Restricted Subsidiary
created, incurred or assumed after the date hereof; provided that the aggregate
outstanding principal amount of such Debt shall not exceed $1,000,000 at any one
time outstanding;
(g) Debt owed by the Company or any of its Restricted Subsidiaries to
the Company or any of its Restricted Subsidiaries; provided such Debt is on
terms (including, without limitation, subordination provisions) reasonably
satisfactory to the Administrative Agent (which approval shall not be
unreasonably withheld);
(h) (i) the $125,000,000 7-5/8% Senior Notes due 2005 issued pursuant
to the 98 Senior (7-year) Indenture; (ii) the $125,000,000 8-1/4% Senior Notes
due 2018 issued pursuant to the 98 Senior (20-year) Indenture; and (iii) other
Pari Passu Debt that is issued on terms reasonably satisfactory to each of the
Administrative Agent, the Syndication Agent and the Documentation Agent with
respect to maturity, interest rate and covenants and any refinancings thereof
permitted by Section 9.19(a) of this Agreement or a consent thereunder, provided
that in connection with the issuance of any other Pari Passu Debt under this
clause (iii), the Company provides the Administrative Agent notice thereof as
required by Section 8.01(g);
(i) Debt, on terms approved by the Administrative Agent, the
Syndication Agent and the Documentation Agent (which approval shall not be
unreasonably withheld), incurred by partnerships, of which the Company or any
Subsidiary is a general partner and which Debt is Non-recourse to the
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Company or such Subsidiary for the payment thereof (including no recourse to the
Company's or such Subsidiary's interest in such partnership);
(j) Debt under the Havre Credit Facility;
(k) Debt not to exceed $10,000,000 in the aggregate at any one time
outstanding under guarantees or other similar surety obligations by the Company
or any of its Subsidiaries with respect to Debt owed by the Government of
Equatorial Guinea or any Person exercising rights of a sovereign on its behalf;
(l) Debt of Lion not to exceed $12,000,000 in the aggregate at any one
time outstanding incurred with respect to the Abidjan LPG plant and all
guarantees or other surety obligations by the Company or any of its Subsidiaries
with respect to such Debt;
(m) With respect to Debt described in Section 9.01(d) and Debt of
Persons who are not Subsidiaries of the Company ("Primary Obligations"), (i)
Debt of the Company not to exceed $10,000,000 in the aggregate at any one time
outstanding under guarantees of (or other surety obligations with respect to)
Primary Obligations, and (ii) Debt arising out of the grant of Liens on stock
(or other equity interests) issued by obligors of Primary Obligations;
(n) Debt associated with letters of credit, bank guarantees, bonds,
surety or similar obligations required or requested by Governmental Authorities
in connection with the usual and customary operation of and the obtaining of Oil
and Gas Properties; provided that the aggregate amount of all such Debt under
this Section 9.01(n) shall not exceed $50,000,000 in the aggregate at any one
time outstanding;
(o) Debt in an aggregate amount at any one time outstanding not to
exceed $250,000,000 of a Restricted Subsidiary engaged in the oil and gas
business exclusively outside of North America (i) that is Non-recourse to the
Company and any other Restricted Subsidiary of the Company and their respective
Property (other than those guarantees or other surety obligations by the Company
relating to such Debt to which the Technical Agents and the Required Lenders
consent in writing), and (ii) that is on terms approved by the Technical Agents
and the Required Lenders, provided that in connection with the issuance of any
such Debt under this Section 9.01(o), (A) the Borrowing Base is redetermined and
(B) no further investments, loans and advances under Section 9.03 shall be made
in or to such obligor without the prior consent of the Required Lenders; and
(p) Endorsements of checks and other instruments in the ordinary course
of business for purposes of collection.
SECTION 9.02 LIENS. The Company will not and will not permit any of its
Subsidiaries to create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness and any guarantees
thereof;
(b) Excepted Liens;
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(c) Liens existing on the date of this Agreement which have been
disclosed to the Lenders in the Financial Statements and any renewals and
extensions thereof;
(d) Liens securing Debt permitted by Section 9.01(c), provided that
such Liens attach only to the Property subject to such lease;
(e) Liens securing Debt permitted by Section 9.01(d) and Section
9.01(e)(ii);
(f) Liens securing Debt permitted by Section 9.01(i), provided that
such Liens attach only to Property of the partnership incurring such Debt;
(g) Liens to secure the Debt permitted by Section 9.01(j) on any
Property owned by Havre and on the ownership interest in Havre held by the
Company and its Subsidiaries, and encumbrances under gas gathering agreements
caused by the dedication by the Company or any Subsidiary to Havre of such
Person's Oil and Gas Properties located adjacent to the gas gathering system
owned by Havre; and
(h) Liens securing Debt permitted by Sections 9.01(l), (m), (n) (other
than letters of credit and bank guarantees) and (o).
SECTION 9.03 INVESTMENTS, LOANS AND ADVANCES. The Company will not, and
will not permit any of its Restricted Subsidiaries to, make or permit to remain
outstanding any loans or advances to or investments in any Person, except that
the foregoing restriction shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements;
(b) investments, loans or advances by the Company or by any of its
Restricted Subsidiaries to or in the Company or any of its Restricted
Subsidiaries, including, without limitation, purchases of outstanding equity
interests in Restricted Subsidiaries held by Persons that are not Restricted
Subsidiaries;
(c) (i) investments by the Company or any of its Restricted
Subsidiaries in additional Oil and Gas Properties and facilities related
thereto, including gas gathering systems, and other investments, loans and
advances made in the ordinary course of, and which are or become customary in,
the oil and gas business as a means of actively exploiting, exploring for,
acquiring, developing, processing, gathering, storing, marketing or transporting
oil and gas; (ii) investments, loans or advances in or to any Restricted
Subsidiary of the Company for the investment by such Persons in Properties of
the types described in clause (c)(i) above (whether now owned or hereafter
acquired or developed) located in jurisdictions (A) in North America and (B)
outside of North America; provided that such investments, loans or advances
under this clause (c)(ii)(B) shall not exceed $150,000,000 annually, net of cash
received during such period as a return of capital or return on investment from
any such investment, loan or advance previously made, in the aggregate for each
nation; and (iii) investments in unrelated development activities or businesses
in countries in which any of its Restricted Subsidiaries has Oil and Gas
Properties; provided that the aggregate amount of such investments under this
clause (iii) do not exceed $10,000,000, net of cash received during such period
as a return of capital or return on investment from any such investment, loan or
advance previously made, in the aggregate during any twelve month period;
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(d) routine advances by the Company or any of its Restricted
Subsidiaries to or on behalf of the Company or any of its Restricted
Subsidiaries in the ordinary course of business for general and administrative
expenses;
(e) routine operating expenses advanced by the Company or any of its
Restricted Subsidiaries as operator in the ordinary course of business for other
working interest owners under operating agreements, which do not exceed
$10,000,000 in the aggregate outstanding at any one time to all Persons
combined;
(f) investments required to satisfy obligations under any Plans;
(g) accounts receivable of the Company or any of its Restricted
Subsidiaries arising out of the sale of Hydrocarbons and other assets or
services in the ordinary course of business;
(h) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of purchase thereof; and repurchase
agreements of any Lender or any commercial bank in the United States, if the
commercial paper of such bank or of the bank holding company of which such bank
is a wholly owned subsidiary is rated in one of the two highest rating
categories of Standard & Poors Ratings Service, Moody's Investors Service, Inc.
or any other rating agency satisfactory to the Majority Lenders, that are fully
secured by securities described in this Section 9.03(h);
(i) commercial paper rated in one of the two highest grades by Standard
& Poors Rating Service or Moody's Investors Service, Inc.;
(j) demand deposits and certificates of deposit maturing within one
year from the date of acquisition thereof with any Lender or any office located
in the United States of any bank or trust company which is organized under the
laws of the United States or any state thereof and which has capital, surplus
and undivided profits aggregating at least $500,000,000 (as of the date of such
bank or trust company's most recent financial reports);
(k) routine advances or loans to employees of the Company or any of its
Subsidiaries not to exceed $200,000 in the aggregate at any one time;
(l) deposit accounts maintained in the ordinary course of business by
the Company or any of its Subsidiaries maturing within one year from the date of
creation thereof or available upon demand with any bank or trust company
organized in a country in which a Restricted Subsidiary is then doing business
or in which it owns Property;
(m) investments, loans or advances in an aggregate amount not to exceed
$10,000,000, net of cash received during such period as a return of capital or
return on investment from any such investment, loan or advance previously made,
to or for the benefit of the Government of Equatorial Guinea or any Governmental
Authority thereof;
(n) (i) investments, loans or advances (including any guarantee or
other surety obligation constituting Debt under Section 9.01(m)(i) and the
amount of any Letters of Credit issued on account of Lion, but excluding
obligations under Section 9.01(m)(ii)) in the Abidjan LPG plant or in Lion or in
any Person that directly or indirectly controls such plant in an aggregate
amount not to exceed
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$25,000,000, net of cash received during such period as a return of capital or
return on investment, loan or advance from any such investment, loan or advance
previously made, and (ii) investments, loans or advances in Havre (including any
guarantee or other surety obligation constituting Debt under Section 9.01(j) or
(m)(i) and the amount of any Letters of Credit issued on account of Havre, but
excluding obligations under Section 9.01(m)(ii)) in an aggregate amount not to
exceed $21,000,000, net of cash received during such period as a return of
capital or return on investment, loan or advance from any such investment, loan
or advance previously made;
(o) investments by the Company or any of its Restricted Subsidiaries
under Risk Management Agreements entered into in the ordinary course of their
business for the purposes of protecting against fluctuations in interest rates,
oil and gas prices or foreign currency exchange rates;
(p) investments, loans and advances in or to Unrestricted Subsidiaries
of the Company other than Havre and Lion; provided that the aggregate amount of
investments, loans and advances (including (i) guarantee or other surety
obligations by the Company or any Restricted Subsidiary constituting Debt under
Section 9.01(m)(i), but excluding obligations under Section 9.01(m)(ii), (ii)
Letters of Credit issued on account of obligations of such Unrestricted
Subsidiary and (iii) if Ocean Equatorial Guinea Corporation, a Delaware
corporation, or its successor, is designated as an Unrestricted Subsidiary, the
aggregate amount of investments, loans or advances made under Section 9.03(m))
in and to all Unrestricted Subsidiaries (other than Havre and Lion) by the
Company and its Restricted Subsidiaries hereunder, net of cash received as a
return of capital or return on any investment, loan or advance previously made,
does not exceed $20,000,000;
(q) deposits in money market funds investing exclusively in investments
described in Section 9.03(h), 9.03(i) or 9.03(j); and
(r) other investments, loans or advances not to exceed $1,000,000 in
the aggregate at any time.
SECTION 9.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Except with
prior approval of the Required Lenders, the Company will not declare or pay any
dividend, purchase, redeem or otherwise acquire for value any of its stock now
or hereafter outstanding, return any capital to its stockholders, or make any
distribution of its assets to its stockholders as such, or permit any of its
Restricted Subsidiaries to purchase or otherwise acquire for value any stock of
the Company, except the Company may, so long as no Default or Event of Default
has occurred and is continuing: (i) declare and deliver stock dividends; (ii)
redeem or repurchase stock with the proceeds received from the issuance of new
shares of any class of stock within the 12 month period prior to such redemption
or repurchase; provided that the aggregate amount redeemed or repurchased under
this clause (ii) during such 12 month period does not exceed $100,000,000; (iii)
(A) declare and pay cash dividends, (B) if, but only if, the 12 month
redemption/repurchase period allowed in Section 9.04(ii) is not applicable,
redeem or repurchase stock, in either case in an aggregate amount not to exceed
$25,000,000 plus 50% of the Consolidated Net Income generated after March 31,
1998; and (C) make required payments due on the Company's $50,000,000 6-1/2%
cumulative preferred stock to be issued to John Hancock Mutual Life Insurance
Company and Hancock Mezzanine Partners L.P.; provided that (x) no Borrowing Base
Deficiency exists either immediately before declaration of such dividend, after
payment of such dividend or immediately after any such stock redemption,
repurchase or payment under this clause (iii) and (y) the aggregate amount of
Loans and LC Exposure immediately before or after declaration and such payment
are less than or equal to the Threshold Amount.
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SECTION 9.05 FINANCIAL COVENANTS.
(a) INTEREST COVERAGE RATIO. The Company will not permit its Interest
Coverage Ratio, as of the end of any fiscal quarter of the Company, to be less
than 3.0 to 1.0.
(b) DEBT COVERAGE RATIO. The Company will not permit its Debt Coverage
Ratio, at any time to be greater than 3.5 to 1.0.
(c) TANGIBLE NET WORTH. On and after the Effective Date, the Company
will not permit its Consolidated Tangible Net Worth to be less than $580,000,000
plus the amount equal to seventy-five percent (75%) of the net cash proceeds of
any sale or other issuance of any equity security by the Company at any time
after the Effective Date, plus the amount equal to 50% of its positive
Consolidated Net Income for the period from March 31, 1998 to the date of such
determination, taken as a single accounting period.
SECTION 9.06 NATURE OF BUSINESS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any material change in the
character of its business as carried on at the date hereof.
SECTION 9.07 LIMITATION ON OPERATING LEASES AND SALE-LEASEBACK
TRANSACTIONS. The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any obligation for the
payment of rent or hire of Property of any kind whatsoever (real or personal),
under leases or lease agreements (other than (a) leases or lease agreements
which constitute Debt, (b) leases of Hydrocarbon Interests, and (c) leases
directly related to oil and gas field operations, including without limitation,
leases for drilling, workover or other rig related activities) which would cause
the aggregate amount of all payments made by the Company and its Restricted
Subsidiaries pursuant to such leases or lease agreements to exceed $17,000,000
in any period of twelve consecutive calendar months. Neither the Company nor any
of its Restricted Subsidiaries will enter into any arrangement, directly or
indirectly, with any Person whereby the Company or any of its Restricted
Subsidiaries shall sell or transfer any of their Property, whether now owned or
hereafter acquired, and whereby the Company or any of its Restricted
Subsidiaries shall then or thereafter rent or lease as lessee such Property or
any part thereof or other Property which the Company or any of its Restricted
Subsidiaries intends to use for substantially the same purpose or purposes as
the Property sold or transferred.
SECTION 9.08 MERGERS, ETC. The Company will not, and will not permit
any of its Restricted Subsidiaries, to (a) merge into or with or consolidate
with, any other Person, (b) sell, lease or otherwise dispose of (whether in one
transaction or in a series of transactions), all or any substantial part of its
Property or assets to any other Person, or (c) dissolve or take other similar
actions; provided that if the Company gives prior written notice to the
Administrative Agent, and no Default or Event of Default has occurred and is
continuing or will result from the action proposed to be taken, then: any
Restricted Subsidiary of the Company may (i) merge or consolidate with the
Company or with any other Subsidiary of the Company, including an Unrestricted
Subsidiary so long as the requirements of Sections 9.16 and 9.21 are met, (ii)
sell, lease or otherwise dispose of (at fair market value) all or any
substantial part of its Property or assets to the Company or to any other
Subsidiary of the Company, including an Unrestricted Subsidiary so long as the
requirements of Sections 9.16 and 9.21 are met, or (iii) dissolve or take other
similar actions.
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SECTION 9.09 PROCEEDS OF NOTES. The Company will not permit the
proceeds of the Notes to be used for any purpose other than those permitted by
Section 7.07.
SECTION 9.10 ERISA COMPLIANCE. The Company will not at any time permit
any Plan maintained by it or any of its Subsidiaries to:
(a) engage in any "prohibited transaction" as such term is defined in
Section 4975 of the Code;
(b) incur any "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA; or
(c) terminate any such Plan in a manner which could result in the
imposition of a Lien on the Property of the Company or any of its Subsidiaries
pursuant to Section 4068 of ERISA.
SECTION 9.11 SALE OR DISCOUNT OF RECEIVABLES. Except for receivables
obtained by the Company out of the ordinary course of its business, the Company
and its Restricted Subsidiaries will not discount or sell (with or without
recourse) any of its notes receivable or accounts receivable except for
settlement of joint interest billing accounts (other than with respect to
Restricted Subsidiaries) in the normal course of business.
SECTION 9.12 RISK MANAGEMENT AGREEMENTS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, incur any obligations under
Risk Management Agreements, except that the Company may incur such obligations
either with investment grade counterparties or as disclosed in Schedule 7.21;
provided Risk Management Agreements relating to commodity prices shall not cover
more than (i) 80% of the Company's and its Restricted Subsidiaries' applicable
production estimates from their Oil and Gas Properties for the 24 month period
measured as of the end of each fiscal quarter of the Company and its
Consolidated Subsidiaries, (ii) 65% of the Company's and its Restricted
Subsidiaries' applicable production estimates from their Oil and Gas Properties
for the period commencing at the end of such 24-month period and ending on the
date which is 36 months after the date of determination, and (iii) 50% of the
Company's and its Restricted Subsidiaries' applicable production estimates from
their Oil and Gas Properties for the period thereafter.
SECTION 9.13 TRANSACTIONS WITH AFFILIATES. The Company and its
Restricted Subsidiaries shall not enter into any transaction, including without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate (other than the Company, OEI-Louisiana, Ocean
Canada or any other Restricted Subsidiary of the Company) unless such
transactions are in the ordinary course of the Company's or its Restricted
Subsidiary's business and are upon fair and reasonable terms no less favorable
to the Company or such Restricted Subsidiary than could be obtained in a
comparable arm's length transaction with a Person not an Affiliate.
SECTION 9.14 NEGATIVE PLEDGE AGREEMENTS. Except for (a) any of the Loan
Documents; (b) the Indentures and any agreement evidencing other Pari Passu Debt
or Subordinated Debt; (c) agreements permitted by Sections 9.02(c), (d), (e),
(f), (g) or (h) but only with respect to the Property subject of the Lien
permitted thereby; (d) customary provisions in leases, licenses, asset sale
agreements and other customary agreements not related to the borrowing of money
and entered into in the ordinary course of business, (e) Liens or restrictions
imposed on investments (or Property related thereto) of the type described in
Section 9.03(c)(iii), but only on such investments or Property; and
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(f) restrictions imposed by agreements governing Excepted Liens, the Company and
its Restricted Subsidiaries will not create, incur, assume or suffer to exist
any contract, agreement or understanding which in any way prohibits or restricts
the granting, conveying, creation or imposition of any Lien on any Property of
the Company or any of its Restricted Subsidiaries or which requires the consent
of or notice to other Persons in connection therewith.
SECTION 9.15 SUBSIDIARIES AND PARTNERSHIPS. The Company and any of its
Restricted Subsidiaries may create additional Subsidiaries or partnerships,
provided that the Company shall give the Administrative Agent prompt notice
thereof.
SECTION 9.16 SALE OF OIL AND GAS PROPERTIES. Except for Hydrocarbons
sold in the ordinary course of business as and when produced or after the
production thereof, the Company will not sell, assign, transfer or convey, or
permit any of its Restricted Subsidiaries to sell, assign, transfer or convey,
any interest in any of the Oil and Gas Properties that constitute part of the
Borrowing Base. This provision shall not apply to:
(a) Routine farm-outs and dispositions of non-proven acreage; and
(b) Sales or other dispositions of Properties, provided that if the
aggregate fair market value of such Properties sold or otherwise disposed of
during any Redetermination Period exceeds five percent (5%) of the then current
SEC Value of the Oil and Gas Properties included in the Borrowing Base (as in
effect immediately prior to such sale), then simultaneously with any such
disposition the Borrowing Base is reduced by an amount reasonably determined at
the time by the Technical Agents to reflect the contribution to the Borrowing
Base of the Properties so disposed of.
SECTION 9.17 ENVIRONMENTAL MATTERS. The Company will not cause or
permit, or permit any of its Subsidiaries, to cause or permit, any of its
Property to be in violation of, or do anything or permit anything to be done
which will subject any such Property to any remedial obligations under any
Environmental Laws if the effect of such violation could reasonably be expected
to have a Material Adverse Effect. The Company and its Subsidiaries will
establish and implement such procedures as may be necessary to promptly and
properly respond in the event that: (i) solid wastes are disposed of on any of
its respective Property in quantities or locations that would require remedial
action under any Environmental Laws; (ii) hazardous substances are released on
or to any such Property in a quantity equal to or exceeding that quantity which
requires reporting pursuant to Section 103 of CERCLA; (iii) hazardous substances
are released on or to any such Property so as to pose an imminent and
substantial endangerment to public health or welfare or the environment; or (iv)
oil is released or threatened to be released in violation of OPA.
SECTION 9.18 PAYMENT RESTRICTIONS. Except for (a) any of the Loan
Documents, (b) the Indentures or agreements evidencing any other Pari Passu Debt
or Subordinated Debt, (c) the agreements relating to Non-recourse Debt permitted
by Section 9.01, but only with respect to the Restricted Subsidiary that is
liable for such Non-recourse Debt, and (d) restrictions imposed relating to
investments (or Property related thereto) of the type described in Section
9.03(c)(iii), but only with respect to such investments or Property, the Company
and its Restricted Subsidiaries will not enter into any agreements which would
restrict payments from any Restricted Subsidiary of the Company to the Company
or any other Restricted Subsidiary.
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SECTION 9.19 SUBORDINATED AND PARI PASSU DEBT. Neither the Company nor
any of its Restricted Subsidiaries shall, without the prior written consent of
the Majority Lenders:
(a) defease, redeem, offer to purchase or purchase any of the
Subordinated Debt or the Pari Passu Debt, unless the Indebtedness shall have
been paid in full and the Commitments of each Lender terminated; provided that
the Company may optionally defease, redeem, offer to purchase and purchase all
or any part of the Subordinated Debt or any Pari Passu Debt (i) with the
proceeds of the issuance of any equity securities or (ii) with the proceeds of
any other Debt (which, in the case of Subordinated Debt, is subordinated on
terms substantially identical to the Subordinated Debt or on terms more
advantageous to the Lenders and) which has an average life and final maturity
later than the average life and final maturity date, respectively, of the
Subordinated Debt or Pari Passu Debt being refinanced; provided further that the
Company and OEI-Louisiana may (1) make the payments required under the Pledge of
Production Trust Agreements in accordance with the terms thereof and (2) make
mandatory repayments and repurchases of Pari Passu Debt to the extent required
under the instruments governing such Debt; or
(b) amend, supplement or modify the provisions of the Indentures or any
instrument evidencing or guaranteeing the Debt incurred pursuant to the terms
thereof; provided that the foregoing shall not apply to the following: (i) any
amendment, supplement or modification, that, subject to the concurrence of the
Administrative Agent, the Syndication Agent and the Documentation Agent, causes
such Debt to have terms generally less restrictive than its terms immediately
prior thereto, (ii) any amendment or supplement to the 95 Indenture, the 96
Indenture or the 97 Indenture to conform the provisions thereof to the
corresponding provisions of the 98 Senior Subordinated Indenture; and (iii) the
Company and OEI-Louisiana (and the trustee, if applicable) may enter into
supplemental indentures to the instruments governing such Debt of the type
described in Section 9.1 of each of the Indentures.
SECTION 9.20 MAINTENANCE OF DEPOSITS. The Company shall not, and shall
not permit any of its Restricted Subsidiaries to, maintain deposits of funds in
any bank or financial institution outside of the United States, Canada and
nations that are members of the European Union, except for operating accounts in
jurisdictions where the Company or any of its Restricted Subsidiaries is doing
business or owns Property, which operating accounts shall contain only such
minimum amounts as may be necessary for the conduct of business or the
maintenance and exploitation of such Property.
SECTION 9.21 UNRESTRICTED SUBSIDIARIES.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise designate any Subsidiary as an Unrestricted Subsidiary
if (i) a Borrowing Base Deficiency exists, (ii) a Default or Event of Default
exists or would result from such creation or designation, including under
Section 9.03(p), (iii) such Subsidiary owes or incurs Debt other than
Non-Recourse Debt, Debt under Section 9.01(j), and Debt owed to the Company and
any of its Restricted Subsidiaries in connection with investments, loans or
advances (including, without limitation, contingent obligations) made in
compliance with Section 9.03(n) or (p), or (iv) such creation or designation
shall result in the creation or imposition of any claim or Lien on any assets of
the Company or any Restricted Subsidiary. Notwithstanding the foregoing, in no
event may the Board of Directors of the Company designate OEI-Louisiana, OERI or
Ocean Canada as an Unrestricted Subsidiary.
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(b) Without limitation of Section 9.21(a), the Company will not, and
will not permit any Restricted Subsidiaries to, without the prior written
consent of the Majority Lenders, change the characterization of a Subsidiary
from a Restricted Subsidiary to an Unrestricted Subsidiary or an Unrestricted
Subsidiary to a Restricted Subsidiary; provided, however, the prior written
consent of the Majority Lenders shall not be required to (i) change the
characterization of an Unrestricted Subsidiary to a Restricted Subsidiary if (A)
no Default or Event of Default shall have occurred and be continuing at such
time or would result therefrom, (B) after giving effect to such
re-characterization, each of the representations and warranties made by the
Company and OEI-Louisiana in the Loan Documents to which each is a party shall
be true and correct in all material respects, and (C) the Company provides the
Administrative Agent five (5) days advance written notice of its intent to
re-characterize such Subsidiary or (ii) change the characterization of a
Restricted Subsidiary to an Unrestricted Subsidiary if (A) no Default or Event
of Default shall have occurred and be continuing or would result therefrom
(including a violation of Section 9.03(p)), and on the date of such
recharacterization, all investments made by the Company or any other Restricted
Subsidiary in such Restricted Subsidiary prior to the date of such
re-characterization shall be investments in an Unrestricted Subsidiary subject
to Section 9.03(p), (B) if the Restricted Subsidiary owns any Oil and Gas
Properties which are included in the Borrowing Base, the Aggregate Commitments
and the Borrowing Base shall be reduced by an amount reasonably determined at
the time by the Technical Agents to reflect the contribution to the Borrowing
Base of the Properties so owned, and (C) the Company provides the Administrative
Agent five (5) days advance written notice of its intent to re-characterize such
Subsidiary.
SECTION 9.22 GAS IMBALANCES, TAKE-OR-PAY OR OTHER PREPAYMENTS. The
Company and its Restricted Subsidiaries will not enter into any contracts or
agreements which warrant production of Hydrocarbons and will not hereafter allow
gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas
Properties of the Company and its Restricted Subsidiaries which would require
the Company or such Restricted Subsidiaries to deliver Hydrocarbons produced on
Oil and Gas Properties at some future time without then or thereafter receiving
full payment therefor to exceed 10,000,000 mcf of gas in the aggregate on a net
basis.
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01 EVENTS OF DEFAULT. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) The Company shall default in the payment or mandatory prepayment
when due of any principal of any Loan or of any reimbursement obligation for
disbursement made under any Letter of Credit; or the Company shall default in
the payment when due of any interest on any Loan, any fees payable hereunder or
under any other Loan Document or other amount payable by it hereunder or
thereunder and such default shall continue for a period of five (5) Business
Days; or
(b) The Company or any of its Restricted Subsidiaries shall default in
the payment when due (after expiration of all applicable grace periods, if any)
of any principal of or interest on any of its other Debt, or default in the
payment of any termination or settlement payments under any futures contracts,
or similar Risk Management Agreement, in any case, in an amount in excess of
$15,000,000; or any event specified in any note, agreement, indenture or other
document evidencing or relating to any Debt of the Company or any of its
Restricted Subsidiaries in an amount in excess of $15,000,000 shall occur
(including the giving of all required notices and the expiration of all
applicable
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grace periods, if any) and be continuing if the effect of such event is to
cause, or to permit the holder or holders of such Debt (or a trustee or agent on
behalf of such holder or holders) to cause, such Debt in excess of $15,000,000
to become due prior to its stated maturity; or the Company shall under any
circumstances become obligated to redeem, defease or offer to buy all or any of
the subordinated notes issued under the 95 Indenture, the 96 Indenture, the 97
Indenture or the 98 Senior Subordinated Indenture; or
(c) Any representation, warranty or certification made or deemed made
herein or in any other Loan Document by the Company or any of its Restricted
Subsidiaries or in any certificate furnished to any Lender or any Agent pursuant
to the provisions hereof or any other Loan Document, shall prove to have been
false or misleading as of the time made or furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under Article IX; or the Company or any of its Restricted
Subsidiaries shall default in the performance of any of their respective other
obligations in this Agreement or under any other Loan Document to which it is
party and such default shall continue unremedied for a period of 30 days after
notice thereof to the Company by the Administrative Agent or any Lender; or
(e) The Company or any Restricted Subsidiary shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due;
or
(f) The Company or any Restricted Subsidiary shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of its creditors,
(iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter
in effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or (vi) take any corporate action
for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application or
consent of the Company or any Restricted Subsidiary in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like for such
Person or of all or any substantial part of its assets, or (iii) similar relief
in respect of any such Person under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 days; or an order for relief against
such Person shall be entered in an involuntary case under the Bankruptcy Code;
or
(h) A final judgment or judgments for the payment of money in excess of
$15,000,000 in the aggregate in excess of insurance coverage shall be rendered
by a court or courts against the Company or any of its Restricted Subsidiaries
and either the same shall not be discharged or provision shall not be made for
such discharge, or a stay of execution thereof shall not be procured, in either
case, within 30 days from the date of entry thereof and the judgment debtor
shall not, within said
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period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(i) An event or condition specified in Section 9.10 shall occur or
exist with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions, the
Company or any ERISA Affiliate shall incur or in the opinion of the Required
Lenders shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing) which is in
excess of $15,000,000; or
(j) The Guaranty Agreement or other material Loan Document, after
delivery thereof, shall for any reason, except to the extent permitted by the
terms of this Agreement or thereof, cease to be in full force and effect and
valid, binding and enforceable in accordance with its terms (subject to
customary exceptions therefrom); or
(k) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), excluding
underwriters in the course of their distribution of Voting Stock in an
underwritten public offering, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the SEC under the Securities Exchange Act of 1934), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; or during
any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
(l) The Company shall cease to directly or indirectly own 100% of each
class of stock of OEI-Louisiana, OERI, Ocean Canada or any Restricted Subsidiary
(except for (i) directors' qualifying shares and (ii) shares of Wholly Owned
Restricted Subsidiaries of the type described in clause (ii) of the definition
of Wholly Owned Restricted Subsidiaries).
THEREUPON: (i) in the case of an Event of Default other than one referred to in
clause (e), (f) or (g) of this Section 10.01 with respect to the Company or
OEI-Louisiana, the Administrative Agent may and, upon request of the Majority
Lenders, shall, by notice to the Company, cancel the Commitments and/or declare
the principal amount of the Loans, together with accrued interest, and all other
amounts payable by the Company hereunder and under the Notes to be forthwith due
and payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Company and OEI-Louisiana; and (ii) in the case of the occurrence
of an Event of Default referred to in clause (e), (f) or (g) of this Section
10.01 with respect to the Company or OEI-Louisiana, the Commitments shall be
automatically canceled and the principal amount of the Loans, together with
accrued interest, and all other amounts payable by the Company hereunder and
under the Notes shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Company on its behalf and on behalf of OEI-Louisiana.
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SECTION 10.02 REMEDIES; APPLICATION OF PROCEEDS. If an Event of Default
exists, the Administrative Agent may, or upon the request of the Majority
Lenders, shall, proceed to enforce remedies under the Loan Documents. Upon
realization of any cash proceeds, all such cash proceeds shall be applied as
follows:
(a) First, to the pro rata reimbursement of fees (including fees due
under Section 2.04), expenses and indemnities provided for in this Agreement or
any other Loan Document of the Agents and the Lenders;
(b) Second, to accrued and unpaid interest on the Notes;
(c) Third, pro rata to principal outstanding on the Notes;
(d) Fourth, to serve as cash collateral to be held by the
Administrative Agent to secure the LC Exposure;
(e) Fifth, to repay any other amounts then due and unpaid; and
(f) Sixth, any excess shall be paid to the Company or as otherwise
required by any Governmental Requirement.
ARTICLE XI
THE AGENTS
SECTION 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent, the Syndication
Agent, the Documentation Agent, the Technical Agents and each Co-Agent to act as
its agent hereunder with such powers as are specifically delegated to it by the
terms of this Agreement or any Loan Document, together with such other powers as
are reasonably incidental thereto. (As of the Effective Date, the Co-Agents have
been delegated no specific powers or responsibilities under this Agreement,
except in their capacities as Lenders.) Each Agent (which term as used in this
sentence and in Section 11.05 and the first sentence of Section 11.06 shall
include reference to its Affiliates and its own and its Affiliates' officers,
directors, employees and agents): (a) shall have no duties or responsibilities
except those expressly set forth in this Agreement and the other Loan Documents
and shall not by reason of this Agreement or any other Loan Document be a
trustee for any other Agent or Lender; (b) shall not be responsible to any other
Agent or the Lenders (i) for the accuracy of any recitals, statements,
representations or warranties contained in this Agreement or any Loan Document
or in any certificate or other document referred to or provided for in, or
received by any of them under, this Agreement; (ii) for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, any
Note or any Loan Document or any other document referred to or provided for
herein; or (iii) for any failure by the Company, OEI-Louisiana or any other
Person to perform any of its obligations hereunder or thereunder; (c) shall not
be required to initiate or conduct any litigation or collection proceedings
hereunder except as may be expressly required under this Agreement or any other
Loan Document; and (d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other Loan Document, except for its own
gross negligence or willful misconduct. The Agents may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it in good faith. Each Agent
may deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the
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assignment or transfer thereof shall have been filed with the Administrative
Agent, together with the written consent of the Company to such assignment or
transfer.
SECTION 11.02 RELIANCE BY AGENTS. Each Agent shall be entitled to rely:
(a) upon any certification, notice or other communication (including any thereof
by telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons;
and (b) upon advice and statements of legal counsel, independent accountants and
other experts selected by any Agent in good faith. As to any matters not
expressly provided for by this Agreement or any Loan Document, each Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Majority Lenders; and
such instructions of the Majority Lenders and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders.
SECTION 11.03 DEFAULTS. No Agent shall be deemed to have knowledge of
the occurrence of a Default (other than, in the case of the Administrative
Agent, the non-payment of principal of or interest on Loans or of fees or the
non-payment of reimbursement obligations of the Company in connection with
Letters of Credit) unless it has received notice from either a Lender or the
Company specifying such Default and stating that such notice is a "Notice of
Default". In the event that any Agent receives such a notice of the occurrence
of a Default, it shall promptly give notice to the Administrative Agent who
shall thereafter give prompt notice thereof to the Lenders.
SECTION 11.04 RIGHTS AS A LENDER. With respect to its Commitment and
the Loans made by it and the Letters of Credit issued by it or in which it is
participating, each Agent (and any successor acting as an Agent) in its capacity
as a Lender hereunder shall have the same rights and powers hereunder as any
other Lender and may exercise the same as though it were not acting as an Agent,
and the term "Lender" or "Lenders" shall include each Agent in its individual
capacity. Each Agent (and any successor acting as an Agent) and its Affiliates
may (without having to account therefor to any other Agent or Lender) accept
deposits from, lend money to and generally engage in any kind of banking, trust
or other business with the Company and its Subsidiaries or any of the Company's
Affiliates as if it were not acting as an Agent. Each Agent and its Affiliates
may accept fees and other consideration from the Company or any of its
Affiliates for services in connection with this Agreement, any Loan Document or
otherwise without having to account for the same to any other Agent or the
Lenders.
SECTION 11.05 INDEMNIFICATION. The Lenders agree to indemnify each
Agent (to the extent not reimbursed under Section 12.03, but without limiting
the obligations of the Company under Section 12.03), ratably in accordance with
the aggregate principal amount of the Loans made by the Lenders (or, if no Loans
are at the time outstanding, ratably in accordance with their respective
Commitments), for any and all Indemnity Matters of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against such Agent
in any way relating to or arising out of: (a) this Agreement or any other Loan
Document or the transactions contemplated hereby and thereby (including, without
limitation, the costs and expenses which the Company is obligated to pay under
Section 12.03 but excluding, unless a Default has occurred and is continuing,
normal administrative costs and expenses incident to the performance of its
agency duties hereunder); or (b) the enforcement of any of the terms hereof or
of any other Loan Document; provided that no Lender shall be liable for any
Indemnity Matter to the extent it arises from the gross negligence or willful
misconduct of the Person to be indemnified; and provided further that no Lender
shall be liable for any Indemnity Matters arising solely by reason of claims
among the Agents and their shareholders. THE FOREGOING
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INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF
STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED
PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND BY A FINAL,
NON-APPEALABLE JUDGMENT OF A COURT OR BY AGREEMENT TO HAVE COMMITTED AN ACT OF
GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM
THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF THE PARTY SEEKING INDEMNIFICATION. IN
ADDITION, THE FOREGOING INDEMNITIES EXCLUDE ALL INDEMNITY MATTERS ARISING SOLELY
BY REASON OF CLAIMS AMONG INDEMNIFIED PARTIES AND THEIR SHAREHOLDERS.
SECTION 11.06 NON-RELIANCE ON AGENTS AND OTHER LENDERS. Each Lender
agrees: (a) that it has, independently and without reliance on any Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and its Subsidiaries
and decision to enter into this Agreement; and (b) that it will, independently
and without reliance upon any Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement or any other Loan Document. No Agent shall be required to keep itself
informed as to the performance or observance by the Company, OEI-Louisiana or
any other Person of its obligations under this Agreement or any other Loan
Document or document referred to or provided for herein or to inspect the
Properties or books of the Company and its Subsidiaries. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by an Agent hereunder or under a Loan Document, no Agent shall
have any duty or responsibility to provide any other Agent or Lender with any
credit or other information concerning the affairs, financial condition or
business of the Company and its Subsidiaries (or any of their Affiliates) which
may come into the possession of such Agent or any of their Affiliates.
SECTION 11.07 ACTION BY AGENTS. Except for action or other matters
expressly required of an Agent hereunder, such Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall (i) receive
written instructions from the Majority Lenders specifying the action to be
taken, and (ii) be indemnified to its satisfaction by the Lenders against any
and all liability and expenses which may be incurred by it by reason of taking
or continuing to take any such action, and such instructions of the Majority
Lenders and any action taken or failure to act pursuant thereto shall be binding
on all of the Lenders. If a Default has occurred and is continuing, the
Administrative Agent shall take such action with respect to such Default as
shall be directed by the Majority Lenders in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the
Administrative Agent be required to take any action which exposes it to personal
liability or which is contrary to this Agreement and the Loan Documents or
applicable law.
SECTION 11.08 RESIGNATION OR REMOVAL OF AGENTS. Subject to the
appointment and acceptance of a successor Agent as provided in this Section
11.08, any Agent may resign at any time by giving notice thereof to the Lenders
and the Company, and any Agent may be removed at any time, for cause,
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by the Required Lenders. Upon any such resignation or removal, the Required
Lenders, with the consent of the Company (which consent shall not be
unreasonably withheld or delayed), shall have the right to appoint a successor
Agent. If no successor shall have been so appointed by the Required Lenders and
shall have accepted such appointment within 30 days after either the retiring
Agent's giving of notice of resignation or the Required Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint
its successor. Upon the acceptance of any appointment as an Agent hereunder by a
successor, such successor shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder, the provisions of this
Article XI shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as an Agent.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 WAIVER. No failure on the part of any Agent or any Lender
to exercise, no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any Loan Document shall
operate as a waiver thereof; and no single or partial exercise of any right,
power or privilege under this Agreement or any Loan Document shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
SECTION 12.02 NOTICES. All notices and other communications provided
for herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telecopy, telegraph, cable or in writing
and telecopied, telegraphed, cabled, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier, delivered to the telegraph or cable office or
personally delivered or, in the case of a mailed notice, upon receipt, in each
case given or addressed as aforesaid.
SECTION 12.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC. The Company agrees
to:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable expenses of the Administrative Agent in the
administration (both before and after the execution hereof and including advice
of counsel as to the rights and duties of the Agents and the Lenders with
respect thereto) of, and in connection with the negotiation, investigation,
preparation, execution and delivery of, recording or filing of, preservation of
rights under, enforcement of, and refinancing, renegotiation or restructuring
of, this Agreement, the Notes and the other Loan Documents and any amendment,
waiver or consent relating thereto (including, without limitation, the
reasonable fees and disbursements of counsel for the Administrative Agent and in
the case of enforcement for any of the Lenders); and promptly reimburse each
Agent or Lender for all amounts expended, advanced or incurred by such Agent or
Lender to satisfy any obligation of the Company or OEI-Louisiana under this
Agreement or any Loan Document; and
(b) pay and hold each of the Agents and the Lenders harmless from and
against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save each
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Agent and Lender harmless from and against any and all liabilities with respect
to or resulting from any delay or omission to pay such taxes; and
(c) INDEMNIFY THE AGENTS AND EACH LENDER, THEIR OFFICERS, DIRECTORS,
EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST, PROMPTLY UPON
DEMAND PAY OR REIMBURSE EACH OF THEM FOR, AND REFRAIN FROM CREATING OR ASSERTING
AGAINST ANY OF THEM, ANY AND ALL INDEMNITY MATTERS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM
(WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF,
ARISING OUT OF OR IN ANY WAY RELATED TO (I) OFFSETS, REDUCTIONS, REBATEMENTS OR
OTHER CLAIMS, COUNTERCLAIMS OR DEFENSES OF ANY NATURE WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, CLAIMS OF USURY) OF THE COMPANY, ANY OF ITS SUBSIDIARIES OR
ANY OTHER PERSON, WHETHER IN TORT OR IN CONTRACT, FIXED OR CONTINGENT, IN LAW OR
IN EQUITY, KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR HEREAFTER ARISING, IN
CONNECTION WITH OTHER LENDERS WHOSE DEBT MAY BE REFINANCED WITH ANY PROCEEDS OF
THE LOANS (IN THEIR CAPACITY AS LENDERS OR AS AGENT FOR THE LENDERS IN
CONNECTION WITH THE LOAN DOCUMENTS EXECUTED IN CONNECTION WITH SUCH REFINANCED
DEBT AND NOT OTHERWISE), THE LOAN DOCUMENTS EXECUTED IN CONNECTION WITH SUCH
REFINANCED DEBT OR ANY ACTIONS OR RELATIONSHIPS RELATING TO ANY OF THE
FOREGOING, (II) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OR ANY OF ITS
SUBSIDIARIES OF THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT OR (III)
ANY OTHER ASPECT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL
AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR
PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY
INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM, BUT EXCLUDING HEREFROM ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS AMONG INDEMNIFIED PARTIES
AND THEIR SHAREHOLDERS.
(d) INDEMNIFY AND HOLD EACH AGENT AND LENDER, ITS OFFICERS, DIRECTORS,
EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES HARMLESS AGAINST, AND PROMPTLY
TO PAY ON DEMAND OR REIMBURSE EACH OF THEM WITH RESPECT TO, ANY AND ALL
INDEMNITY MATTERS OF ANY AND EVERY KIND OR NATURE WHATSOEVER ASSERTED AGAINST OR
INCURRED BY ANY OF THEM BY REASON OF OR ARISING OUT OF OR IN ANY WAY RELATED TO
(I) THE BREACH OF ANY REPRESENTATION OR WARRANTY AS SET FORTH HEREIN REGARDING
ENVIRONMENTAL LAWS, OR (II) THE FAILURE OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES TO PERFORM ANY OBLIGATION HEREIN REQUIRED TO BE PERFORMED PURSUANT
TO ENVIRONMENTAL LAWS.
(e) In the case of any indemnification hereunder, the Agent or Lender
seeking indemnification, as appropriate shall give notice to the Company of any
such claim or demand being made against the Indemnified Party; and the Company
shall have the non-exclusive right to join in the defense against any such claim
or demand.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND BY A FINAL, NON-APPEALABLE JUDGMENT
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OF A COURT OR BY AGREEMENT TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR
WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE
BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE
OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF THE PARTY SEEKING INDEMNIFICATION. IN ADDITION, THE FOREGOING
INDEMNITIES EXCLUDE ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS
AMONG INDEMNIFIED PARTIES AND THEIR SHAREHOLDERS.
(g) The Company's obligations under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(h) The Company shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Company of notice of the amount
due.
SECTION 12.04 AMENDMENTS, ETC. Any provision of this Agreement or any
other Loan Documents may be amended, modified or waived with the Majority
Lenders' consent; provided that (a) the Commitment of a Lender may not be
increased without the express written consent of such Lender; (b) no amendment,
modification or waiver which amends, modifies or waives the definition of
"Majority Lender" or "Required Lenders" or any provision of Sections 2.03, 2.09
or 12.04 shall be effective without the express written consent of all Lenders;
(c) no amendment, modification or waiver which amends or modifies the definition
of "Applicable Margin" or reduces the interest rate (other than as a result of
waiving the applicability of any post-Default increases in such rates), modifies
the amount of principal due on any payment date or modifies the payment dates
for payments of either principal or interest on any Loan, modifies any fees
payable under any of the Loan Documents, increases the Borrowing Base or
releases or modifies the obligations of OEI-Louisiana under the Guaranty
Agreement shall be effective without consent of all Lenders; and (d) no
amendment, modification or waiver which modifies the rights, duties or
obligations or fees of any Agent shall be effective without the consent of such
Agent.
SECTION 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
SECTION 12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Company may not assign its rights or obligations hereunder,
under the Notes or under any Letter of Credit Agreement without the prior
consent of all of the Lenders and the Administrative Agent.
(b) Each Lender may, upon the written consent of the Company and the
Administrative Agent which consent shall not be unreasonably withheld or delayed
(provided that if an Event of Default has occurred and is continuing,
assignments may be made hereunder without the Company's consent), assign to one
or more assignees all or a portion of its rights and obligations under this
Agreement pursuant to an Assignment and Acceptance Agreement substantially in
the form of Exhibit G (an "Assignment and Acceptance"); provided that (i) any
such assignment shall be in the aggregate amount of at least $5,000,000, the
entire amount of a Lender's Commitment, if less, or such other lesser amount to
which the Company has consented, and (ii) the assignee shall pay to the
Administrative Agent a processing and recordation fee of $3,500; provided that
such fee shall not be payable in conjunction with any assignments occurring
within 30 days of the Effective Date. Any such assignment will become effective
upon the issuance by the Administrative Agent of a letter of
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acknowledgment reflecting such assignment and the resultant effects thereof on
the Commitments of the assignor and assignee, and the principal amount
outstanding of the Loans owed to the assignor and assignee, the Administrative
Agent hereby agreeing to effect such issuance no later than five (5) Business
Days after its receipt of an Assignment and Acceptance executed by all parties
thereto. Promptly after receipt of an Assignment and Acceptance executed by all
parties thereto, the Administrative Agent shall send to the Company a copy of
such executed Assignment and Acceptance. Upon receipt of such executed
Assignment and Acceptance, the Company, will, at its own expense, execute and
deliver new Notes to the assignor and/or assignee, as appropriate, in accordance
with their respective interests as they appear on the Administrative Agent's
letter of acknowledgment. Upon the effectiveness of any assignment pursuant to
this Section, the assignee will become a "Lender," if not already a "Lender,"
for all purposes of this Agreement and the other Loan Documents. Subject to the
terms of Section 12.10 of this Agreement and the Sections referred to therein,
the assignor shall be relieved of its obligations hereunder to the extent of
such assignment (and if the assigning Lender no longer holds any rights or
obligations under this Agreement, such assigning Lender shall cease to be a
"Lender" hereunder). The Administrative Agent will prepare on the last Business
Day of each month during which an assignment has become effective pursuant to
this Section 12.06(b), a new Annex I giving effect to all such assignments
effected during such month, and will promptly provide the same to the Company
and each of the Lenders.
(c) Each Lender may transfer, grant or assign participations in all or
any part of such Lender's interests hereunder pursuant to this subsection to any
Person, provided that: (i) such Lender shall remain a "Lender" for all purposes
of this Agreement and the transferee of such participation shall not constitute
a "Lender" hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of this Agreement, the Notes
or any Loan Document except to the extent such amendment or waiver would (x)
extend the Termination Date, (y) reduce the principal amount of any Loan
outstanding , the interest rate (other than as a result of waiving the
applicability of any post-default increases in interest rates) or fees
applicable to any of the Commitments or Loans in which such participant is
participating, or postpone the payment of any thereof, or (z) release
OEI-Louisiana from its obligations under the Guaranty Agreement. In the case of
any such participation, the participant shall not have any rights under this
Agreement or any of the Loan Documents (the participant's rights against the
granting Lender in respect of such participation to be those set forth in the
agreement with such Lender creating such participation), and all amounts payable
by the Company hereunder shall be determined as if such Lender had not sold such
participation, provided that if such participant has made and complied with the
representations contained in Section 5.08, such participant shall be entitled to
receive additional amounts under Article V on the same basis as if it were a
Lender other than amounts paid by reason of such participant's noncompliance
with Section 5.08. In addition, each agreement creating any participation must
include agreements by the participant to be bound by the provisions of Section
12.14 if such participant is to receive any confidential information.
(d) Notwithstanding any other provisions of this Section 12.06, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participations therein shall be permitted if such transfer,
assignment or grant would require the Company to file a registration statement
with the SEC or to qualify the Loans or any interest therein under the "Blue
Sky" laws of any state.
(e) The Lenders may furnish any information concerning the Company in
the possession of the Lenders from time to time to assignees and participants
(including prospective assignees and
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participants); provided that, such Persons agree in writing to be bound by the
provisions of Section 12.14 hereof.
(f) Notwithstanding anything in this Section 12.06 to the contrary, any
Lender may assign and pledge all or any of its Notes to any Federal Reserve Bank
or the United States Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve System and/or such Federal Reserve Bank. No such
assignment and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
SECTION 12.07 INVALIDITY. In the event that any one or more of the
provisions contained in the Notes, this Agreement or in any other Loan Document
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of such Note, this Agreement or any other Loan Document.
SECTION 12.08 ENTIRE AGREEMENT. The Notes, this Agreement, the Guaranty
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Lenders, the Agents, the Company and its Subsidiaries
party thereto and supersede all prior agreements and understandings between such
parties relating to the subject matter hereof and thereof. There are no
unwritten oral agreements between the parties.
SECTION 12.09 REFERENCES. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
SECTION 12.10 SURVIVAL. The obligations of the Company, each Agent and
the Lenders under Sections 5.01, 5.05, 5.06, 12.03 and 12.14 shall survive the
repayment of the Loans, the expiration of the Letters of Credit and the
termination of the Commitments and any assignment by a Lender of all its Loans
or Commitments pursuant to Section 12.06(b).
SECTION 12.11 CAPTIONS. Captions and section headings appearing herein
or any Loan Document are included solely for convenience of reference and are
not intended to affect the interpretation of any provision of this Agreement or
such Loan Document.
SECTION 12.12 COUNTERPARTS. This Agreement and each Loan Document
(other than the Notes) 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 Agreement or any such Loan Document by signing
any such counterpart.
SECTION 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES (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 TEXAS.
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(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR THE OTHER LOAN DOCUMENTS TO WHICH THE COMPANY IS A PARTY MAY BE BROUGHT
IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
THE COMPANY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS
SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE
ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE COMPANY
IN ANY COURT OTHERWISE HAVING JURISDICTION.
(c) The Company irrevocably consents to the service of process of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it, as the
case may be, at its said address, such service to become effective 30 days after
such mailing.
(d) Nothing herein shall affect the right of any Agent or any Lender or
any holder of a Note to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Company in any other
jurisdiction.
(e) THE COMPANY, EACH AGENT AND EACH LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13.
SECTION 12.14 CONFIDENTIALITY. Each Lender and each Agent agree that
they will use their best efforts not to disclose without the prior written
consent of the Company (other than to their employees, auditors or counsel or to
another Lender if the Lender or such Lender's holding or parent company or the
Administrative Agent in its sole discretion determines that any such party
should have access to such information) any information with respect to the
Company or any of its Subsidiaries which is furnished pursuant to this Agreement
and which is designated by the Company to the Lenders and the Administrative
Agent in writing as confidential, provided that any Lender and the
Administrative Agent may disclose any such information (a) as has become
generally available to the public, (b) as may be required or appropriate in any
report, statement or testimony submitted to any municipal, state or Federal
regulatory body having or claiming to have jurisdiction over such Lender or the
Administrative
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Agent or to the Federal Reserve Board, the Federal Deposit Insurance Company,
National Association of Insurance Commissioners or similar organizations
(whether in the United States or elsewhere) or their successors, (c) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to such Lender or the Administrative Agent, and (e) to the
prospective transferee in connection with any contemplated transfer of any of
the Notes or any interest therein by such Lender or to any Affiliate of a
Lender, provided that such prospective transferee, participant or Affiliate
executes an agreement with the Company containing provisions substantially
identical to those contained in this Section.
SECTION 12.15 INTEREST. It is the intention of the parties hereto that
each Agent and Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Agent or Lender under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws
may be mandatorily applicable to such Agent or Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to
the contrary in the Notes, this Agreement or any other Loan Document, it is
agreed as follows: (a) the aggregate of all consideration which constitutes
interest under law applicable to any Agent or Lender that is contracted for,
taken, reserved, charged or received by such Agent or Lender under the Notes,
this Agreement or under any of the other aforesaid Loan Documents or agreements
or otherwise in connection with the Notes shall under no circumstances exceed
the maximum amount allowed by such applicable law, and any excess shall be
canceled automatically and if theretofore paid shall be credited by such Agent
or Lender on the principal amount of the Indebtedness (or, to the extent that
the principal amount of the Indebtedness shall have been or would thereby be
paid in full, refunded by such Agent or Lender to the Company); and (b) in the
event that the maturity of the Notes is accelerated by reason of an election of
the holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Agent or
Lender may never include more than the maximum amount allowed by such applicable
law, and excess interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically by such Agent or Lender as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited by such
Agent or Lender on the principal amount of the Indebtedness (or, to the extent
that the principal amount of the Indebtedness shall have been or would thereby
be paid in full, refunded by such Agent or Lender to the Company). All sums paid
or agreed to be paid to any Agent or Lender for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by law applicable
to such Agent or Lender, be amortized, prorated, allocated and spread throughout
the term of the Loans evidenced by the Notes until payment in full so that the
rate or amount of interest on account of any Loans or other amounts hereunder
does not exceed the maximum amount allowed by such applicable law. If at any
time and from time to time (i) the amount of interest payable to any Agent or
Lender on any date shall be computed at the Highest Lawful Rate applicable to
such Agent or Lender pursuant to this Section 12.15 and (ii) in respect of any
subsequent interest computation period the amount of interest otherwise payable
to such Agent or Lender would be less than the amount of interest payable to
such Agent or Lender computed at the Highest Lawful Rate applicable to such
Agent or Lender, then the amount of interest payable to such Agent or Lender in
respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to such Agent or Lender until the
total amount of interest payable to such Agent or Lender shall equal the total
amount of interest which would have been payable to such Agent or Lender if the
total amount of interest had been computed without giving effect to this Section
12.15.
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To the extent that the Texas Credit Title is relevant to any Agent or
Lender for the purpose of determining the Highest Lawful Rate, each such Agent
and Lender hereby elects to determine the applicable rate ceiling under the
Texas Credit Title by the weekly rate ceiling from time to time in effect.
SECTION 12.16 EFFECTIVENESS. This Agreement and the Loan Documents
shall not be effective until the date (the "Effective Date") that (a) each of
them is delivered to the Administrative Agent in the State of Texas, (b) each of
them is accepted by the Administrative Agent in such State, and (c) the
conditions set forth in Section 6.01 have been satisfied or waived.
SECTION 12.17 SURVIVAL OF OBLIGATIONS. To the extent that any payments
on the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Administrative Agent's (held for the benefit of the Agents
and the Lenders) Liens (if any), rights, powers and remedies under this
Agreement and each Loan Document shall continue in full force and effect. In
such event, each Loan Document shall be automatically reinstated and the Company
shall, and shall cause each of its Restricted Subsidiaries to, take such action
as may be reasonably requested by the Administrative Agent and the Lenders to
effect such reinstatement.
SECTION 12.18 DEBT CHARACTERIZATION FOR INDENTURE PURPOSES; SPECIFIED
OR DESIGNATED SENIOR INDEBTEDNESS.
(a) If so designated by the Company in its internal records (which
designation may be made in its sole and absolute discretion), any Debt incurred
hereunder and all guarantees thereof shall constitute "Indebtedness" other than
"Permitted Indebtedness" or "Permitted Subsidiary Indebtedness" (as such terms
are defined in the 95 Indenture, the 96 Indenture, the 97 Indenture and the 98
Senior Subordinated Indenture) for purposes of any Indenture.
(b) The Company hereby represents and warrants that:
(i) this Agreement, the Notes, the Loan Documents and the obligations
of the Company and OEI-Louisiana hereunder and thereunder are "Senior
Indebtedness" and "Specified Senior Indebtedness" and "Guarantor Senior
Indebtedness" and "Specified Guarantor Senior Indebtedness",
respectively, under and for purposes of the 95 Indenture; and
(ii) this Agreement, the Notes, the Loan Documents and the obligations
of the Company and OEI-Louisiana hereunder and thereunder are "Senior
Indebtedness" and "Designated Senior Indebtedness" and "Guarantor
Senior Indebtedness" and "Designated Guarantor Senior Indebtedness",
respectively, under and for purposes of the 96 Indenture, the 97
Indenture and the 98 Senior Subordinated Indenture;
and that as such, the Agents and the Lenders are entitled to the rights
and privileges afforded holders of Senior Indebtedness, Specified
Senior Indebtedness or Designated Senior Indebtedness, Senior Guarantor
Indebtedness, Specified Guarantor Senior Indebtedness or Designated
Guarantor Senior Indebtedness under each of said Indentures.
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(c) To the extent permitted and required by the terms of any Indenture
or any other instrument evidencing Subordinated Debt which the Company may
hereafter incur, the Company covenants and agrees to give (and maintain without
revocation) any notices or designations to the trustee, agent or other
representative thereunder designating (A) the Indebtedness as "senior
indebtedness", "specified senior indebtedness", "designated senior indebtedness"
or any other similar designation, and (B) the Guaranty Agreement as "guarantor
senior indebtedness", "specified guarantor senior indebtedness", "designated
guarantor senior indebtedness" or any other similar designation.
SECTION 12.19 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
SECTION 12.20 INTERCREDITOR AGREEMENT. Each Agent and Lender hereby
authorizes the Administrative Agent to execute and deliver on its behalf a
Master Release acknowledging the termination of the Intercreditor Agreement and
the obligations of the parties thereunder, other than those obligations which by
their terms expressly survive such termination.
73
<PAGE> 80
The parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
OCEAN ENERGY, INC., a Delaware corporation
By:
--------------------------------------------------
Jonathan M. Clarkson
Executive Vice President
Chief Financial Officer
1201 Louisiana, Suite 1400
Houston, Texas 77002
Telecopier No.: (713) 654-5124
Telephone No.: (713) 654-9110
Attention: Frank Willoughby
with copy to:
1201 Louisiana, Suite 1400
Houston, Texas 77002
Telecopier No.: (713) 653-1920
Telephone No.: (713) 654-9110
Attention: Robert K. Reeves
[Signature Page 1]
<PAGE> 81
AGENTS: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By:
--------------------------------------------------
Robert C. Mertensotto
Vice President
Address for Notices to Chase as Administrative Agent:
Chase Bank of Texas, National Association
1111 Fannin
Houston, Texas 77002
Telecopier No.: (713) 750-3810
Telephone No.: (713) 750-2784
Attention: Loan Syndication Services
with copy to:
Chase Securities Inc.
600 Travis, 20th Floor
Houston, Texas 77002
Telecopier No.: (713) 216-4295
Telephone No.: (713) 216-4147
Attention: Robert Mertensotto
[Signature Page 2]
<PAGE> 82
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Syndication Agent
By:
--------------------------------------------------
Name:
Title:
Address for Notices for Morgan as Syndication Agent:
Morgan Guaranty Trust Company
of New York
C/O J.P. Morgan Services, Inc.
500 Stanton Christiana Road
Newark, Delaware 19713-2107
Telecopier No.: (302) 634-1094
Telephone No.: (302) 634-4671
Attention: Allison Hollis
[Signature Page 3]
<PAGE> 83
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
as Documentation Agent
By:
--------------------------------------------------
Name:
Title:
Address for Notices for Bank of America as
Documentation Agent:
231 S. LaSalle Street
Chicago, Illinois 60697
Telecopy No: (312) 974-9626
Telephone No: (312) 828-5239
Attn: Ida Rubens
[Signature Page 4]
<PAGE> 84
BARCLAYS BANK PLC, as Managing Agent
By:
--------------------------------------------------
Name:
Title:
Address for Notices to Barclays as Managing Agent:
222 Broadway
New York, New York 10038
Telecopier No.: (212) 412-7585
Telephone No.: (212) 412-1306
Attention: Darryl Neider
[Signature Page 5]
<PAGE> 85
PARIBAS, as Co-Agent
By:
--------------------------------------------------
Name:
Title:
By:
--------------------------------------------------
Name:
Title:
Address for Notices for Paribas as Co-Agent:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attn: Leah Evans Hughes or Kimberly Miller
Telecopy No: (713) 659-5305
Telephone No: (713) 659-4811
with copy to:
Paribas
Houston Agency
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy: (713) 659-6915
Telephone: (713) 659-4811
Attn: John Roberts
Vice President
[Signature Page 6]
<PAGE> 86
SOCIETE GENERALE, SOUTHWEST AGENCY, as Co-Agent
By:
--------------------------------------------------
Richard Erbert
Vice President
Address for Notices for Societe Generale as Co-Agent:
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attention: Loan Administration
Telecopy No: (214) 754-0171
Telephone No: (214) 979-2792
with copy to:
Societe Generale
1111 Bagby, Suite 2020
Houston, Texas 77002
Telecopy: (713) 650-0824
Telephone: (713) 759-6318
Attention: Richard Erbert
Vice President
[Signature Page 7]
<PAGE> 87
CREDIT SUISSE FIRST BOSTON, as Co-Agent
By:
--------------------------------------------------
Name:
Title:
By:
--------------------------------------------------
Name:
Title:
Address for Notices for Credit Suisse First Boston as
Co-Agent:
11 Madison Avenue, 20th Floor
New York, New York 10010
Address for Notices:
11 Madison Avenue, 20th Floor
New York, New York 10010
Telecopier No.: (212) 325-8314
Telephone No.: (212) 325-9069
Attention: Charlie Thompson
James Moran
with copy to:
600 Travis, 30th Floor
Houston, Texas 77002
Telecopier No.: (713) 237-0325
Telephone No.: (713) 220-6774
Attention: Scott Brown
[Signature Page 7B]
<PAGE> 88
LENDER: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
By:
--------------------------------------------------
Robert C. Mertensotto
Managing Director
Lending Office for all Loans:
Chase Bank of Texas, National Association
1111 Fannin
Houston, Texas 77002
Telecopier No.: (713) 750-3810
Telephone No.: (713) 750-2784
Attention: Loan Syndication Services
with copy to:
Chase Securities Inc.
600 Travis, 20th Floor
Houston, Texas 77002
Telecopier No.: (713) 216-4295
Telephone No.: (713) 216-4147
Attention: Robert Mertensotto
[Signature Page 8]
<PAGE> 89
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260
Address for Notices:
Morgan Guaranty Trust Company
of New York
C/O J.P. Morgan Services, Inc.
500 Stanton Christiana Road
Newark, Delaware 19713-2107
Telecopier No.: (302) 634-1094
Telephone No.: (302) 634-4671
Attention: Allison Hollis
with a copy to:
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260
Telex No.: 177615MGTUT
Telecopier No.: (212) 648-5348
Telephone No.: (212) 648-7612
Attention: John Kowalczuk
[Signature Page 9]
<PAGE> 90
BARCLAYS BANK PLC
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
Barclays Bank PLC - New York Branch
ABA # 020-002574
CLAD Control Account # 050-019104
Credit: Ocean Energy
Address for Notices:
222 Broadway
New York, New York 10038
Telecopier No.: (212) 412-7585
Telephone No.: (212) 412-1306
Attention: Darryl Neider
[Signature Page 10]
<PAGE> 91
ABN AMRO BANK, N.V.
By:
--------------------------------------------------
Jamie Conn
---------------------
By:
--------------------------------------------------
Cheryl Lipshutz
Senior Vice President
Lending Office for all Loans:
135 South LaSalle Street, Suite 2805
Chicago, Illinois 60603
Attention: Credit Administration
Address for Notices:
135 South LaSalle Street, Suite 2805
Chicago, Illinois 60603
Telecopier No.: (312) 904-8840
Telephone No.: (312) 904-1133
Attention: Credit Administration
with copy to:
ABN AMRO North America, Inc.
Three Riverway, Suite 1700
Houston, Texas 77056
Telecopier No.: (713) 621-5801
Telephone No.: (713) 964-3348
Attention: Chuck Randall
[Signature Page 11]
<PAGE> 92
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
Bank of America NT & SA
231 S. LaSalle Street
Chicago, IL 60697
Assignee's Eurodollar Lending Office:
Bank of America NT & SA
231 S. LaSalle Street
Chicago, IL 60697
Address for Notice:
231 S. LaSalle Street
Chicago, Illinois 60697
Telecopy No: (312) 974-9626
Telephone No: (312) 828-5239
Attention: Ida Rubens
with copy to:
333 Clay Street, Suite 4550
Houston, Texas 77002
Telecopy No: (713) 651-4841
Telephone No: (713) 651-4881
Attention: Ronald E. McKaig
[Signature Page 12]
<PAGE> 93
PARIBAS
By:
--------------------------------------------------
Name:
Title:
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Address for Notice:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attn: Leah Evans-Hughes or Kimberly Miller
Telecopy No: (713) 659-5305
Telephone No: (713) 659-4811
with copy to:
Paribas
Houston Agency
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telecopy: (713) 659-6915
Telephone: (713) 659-4811
Attn: John Roberts
Vice President
[Signature Page 13]
<PAGE> 94
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
--------------------------------------------------
Richard Erbert
Vice President
Lending Office for all Loans:
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Address for Notice:
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Telecopy No: (214) 754-0171
Telephone No: (214) 979-2792
Attention: Loan Administration
with copy to:
Societe Generale
1111 Bagby, Suite 2020
Houston, Texas 77002
Telecopy: (713) 650-0824
Telephone: (713) 759-6318
Attention: Richard Erbert
Vice President
[Signature Page 14]
<PAGE> 95
WELLS FARGO BANK (TEXAS), N.A.
By:
--------------------------------------------------
J. Alan Alexander
Vice President
Lending Office for all Loans:
201 Third Street, 8th Floor
San Francisco, California 94103
Address for Notice:
201 Third Street, 8th Floor
San Francisco, California 94103
Telecopy: (415) 979-0675
Telephone: (415) 477-5425
Attention: Oscar Enriquez
with copy to:
Wells Fargo Bank (Texas), NA
Energy Department
1000 Louisiana, Third Floor
Telecopy No: (713) 250-7912
Telephone No: (713) 250-1651
Attention: J. Alan Alexander
[Signature Page 15]
<PAGE> 96
[THIS PAGE WAS INTENTIONALLY LEFT BLANK]
[Signature Page 16]
<PAGE> 97
TORONTO DOMINION (TEXAS) INC.
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
909 Fannin, Suite 1700
Houston, Texas 77002
Address for Notices:
909 Fannin, Suite 1700
Houston, Texas 77010
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8289
Attention: Mark Baird
[Signature Page 17]
<PAGE> 98
U.S. BANK NATIONAL ASSOCIATION
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
918 17th Street, Suite 300
Denver, Colorado 80202
Address for Notice:
918 17th Street, Suite 300
Denver, Colorado 80202
Telecopy No: (303) 585-4362
Telephone No: (303) 585-4209
Attention: Charles S. Searle
[Signature Page 18]
<PAGE> 99
BANK ONE, TEXAS, N.A.
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
910 Travis, 6th Floor
Houston, Texas 77002
Address for Notices:
Bank One, Texas, N.A.
910 Travis, 6th Floor
Houston, Texas 77002
Telecopier No.: (713) 751-3544
Telephone No.: (713) 751-3484
Attention: Christine Macan
[Signature Page 19]
<PAGE> 100
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------------------------
Name:
Title:
By:
--------------------------------------------------
Name:
Title:
Lending Office for all Loans:
11 Madison Avenue, 20th Floor
New York, New York 10010
Address for Notices:
11 Madison Avenue, 20th Floor
New York, New York 10010
Telecopier No.: (212) 325-8314
Telephone No.: (212) 325-9069
Attention: Charlie Thompson
James Moran
with copy to:
600 Travis, 30th Floor
Houston, Texas 77002
Telecopier No.: (713) 237-0325
Telephone No.: (713) 220-6774
Attention: Scott Brown
[Signature Page 20]
<PAGE> 101
[THIS PAGE WAS INTENTIONALLY LEFT BLANK]
[Signature Page 21]
<PAGE> 102
SOUTHWEST BANK OF TEXAS, N.A.
By:
--------------------------------------------------
A. Stephen Kennedy
Vice President/Manager Energy Lending
Lending Office for all Loans:
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Address for Notices:
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027
Telecopier No.: (713) 621-2031
Telephone No.: (713) 235-8881 x1707
Attention: A. Stephen Kennedy
[Signature Page 22]
<PAGE> 1
GUARANTY AGREEMENT
Dated as of November 20, 1998
by
OCEAN ENERGY, INC.,
a Louisiana corporation
in favor of
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Administrative Agent,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Syndication Agent,
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION,
as Documentation Agent,
BARCLAYS BANK PLC,
as Managing Agent,
PARIBAS,
SOCIETE GENERALE, SOUTHWEST AGENCY,
AND
CREDIT SUISSE FIRST BOSTON
as Co-Agents,
and
THE LENDERS NOW OR HEREAFTER PARTIES TO THE CREDIT AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined in Recitals ......................................1
Section 1.02 Certain Definitions ............................................1
Section 1.03 Credit Agreement Definitions ...................................2
ARTICLE II
The Guaranty
Section 2.01 Obligations Guaranteed .........................................2
Section 2.02 Nature of Guaranty .............................................2
Section 2.03 Lenders' Rights ................................................2
Section 2.04 Guarantor's Waivers ............................................2
Section 2.05 Maturity of Obligations; Payment ...............................3
Section 2.06 Lenders' Expenses ..............................................3
Section 2.07 Obligation .....................................................3
Section 2.08 Events and Circumstances Not Reducing or Discharging the
Guarantor's Obligations.........................................3
Section 2.09 Limitations on Obligation of the Guarantor Hereunder ...........5
Section 2.10 Subrogation ....................................................5
ARTICLE III
Representations, Warranties and Covenants
Section 3.01 Representations and Warranties .................................5
Section 3.02 Covenants ......................................................6
ARTICLE IV
Subordination of Indebtedness
Section 4.01 Subordination of All Guarantor Claims ..........................7
Section 4.02 Claims in Bankruptcy ...........................................7
Section 4.03 Payments Held in Trust .........................................7
Section 4.04 Liens Subordinate ..............................................7
Section 4.05 Notation of Records ............................................8
ARTICLE V
Miscellaneous
Section 5.01 Successors and Assigns .........................................8
Section 5.02 Notices ........................................................8
Section 5.03 Authority of Administrative Agent ..............................8
Section 5.04 CONSTRUCTION .................................................. 8
Section 5.05 Survival of Obligations ........................................9
Section 5.06 Status as Specified or Designated Senior Indebtedness. .........9
Section 5.07 Interest. .....................................................10
</TABLE>
i
<PAGE> 3
GUARANTY AGREEMENT
This GUARANTY AGREEMENT dated as of November 20, 1998 is by OCEAN
ENERGY, INC., a corporation duly organized and validly existing under the laws
of the state of Louisiana (the "Guarantor"), in favor of each of the following:
each of the financial institutions that is now or hereafter a party to the
Credit Agreement (as defined below) as a lender (individually, a "Lender" and,
collectively, the "Lenders"); CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, AS
ADMINISTRATIVE AGENT for the Lenders (in such capacity, the "Administrative
Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT for
the Lenders (in such capacity, the "Syndication Agent"), BANK OF AMERICA
NATIONAL TRUST & SAVINGS ASSOCIATION, AS DOCUMENTATION AGENT for the Lenders
(in such capacity, the "Documentation Agent"), BARCLAYS BANK PLC, AS MANAGING
AGENT, AND PARIBAS, SOCIETE GENERALE, SOUTHWEST AGENCY, AND CREDIT SUISSE FIRST
BOSTON, AS CO-AGENTS for the Lenders (in such capacity, the "Co-Agents").
RECITALS
A. Ocean Energy, Inc., a Delaware corporation (the "Company"), the
Administrative Agent, the Syndication Agent, the Documentation Agent, the
Co-Agents (collectively the "Agents") and the Lenders have executed that
certain Second Amended and Restated Global Credit Agreement of even date
herewith (such credit agreement, as amended, the "Credit Agreement").
B. One of the terms and conditions stated in the Credit Agreement for
the making of the loans and extensions of credit described in the Credit
Agreement is the execution and delivery to the Agents and the Lenders of this
Guaranty Agreement.
C. NOW, THEREFORE, (i) in order to comply with the terms and
conditions of the Credit Agreement, (ii) to induce the Lenders to enter into
the Credit Agreement, and (iii) for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby
agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Guaranty
Agreement, the terms defined in the Recitals shall have the meanings indicated
in the Recitals.
SECTION 1.02 CERTAIN DEFINITIONS. As used in this Guaranty Agreement,
including the Recitals, the following terms shall have the following meanings,
unless the context otherwise requires:
"Guarantor Claims" shall have the meaning indicated in Section 4.01.
"Guaranty Agreement" shall mean this Guaranty Agreement, as the same
may from time to time be amended or supplemented.
"Obligations" shall mean (a) the payment and performance of all
present and future indebtedness, obligations and liabilities of the Company to
the Agents and the Lenders under the Credit Agreement, including but not
limited to, (i) the full and punctual payment of the Notes issued thereunder,
and any and all promissory notes given in substitution for such Notes or in
modification, renewal, extension or rearrangement thereof in whole or in part,
and (ii) the reimbursement and other obligations of the Company under and with
respect to
1
<PAGE> 4
Letters of Credit and Letter of Credit Agreements now outstanding or hereafter
issued under the Credit Agreement; (b) all obligations of the Guarantor under
this Guaranty Agreement; and (c) all interest (whether pre- or post petition),
charges, expenses, reasonable attorneys' or other fees and any other sums
payable to the Agents and the Lenders in connection with the execution,
administration or enforcement of any of their rights and remedies hereunder or
any other Loan Document.
SECTION 1.03 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE II
THE GUARANTY
SECTION 2.01 OBLIGATIONS GUARANTEED. The Guarantor hereby irrevocably
and unconditionally guarantees the prompt payment at maturity of the
Obligations.
SECTION 2.02 NATURE OF GUARANTY. This guaranty is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of the Obligations or any extension of credit already
or hereafter contracted by or extended to the Company need be given to the
Guarantor. This guaranty may not be revoked by the Guarantor and shall continue
to be effective with respect to debt under the Obligations arising or created
after any attempted revocation by the Guarantor and shall remain in full force
and effect until the Obligations are paid in full and the Aggregate Commitments
are terminated, notwithstanding that from time to time prior thereto no
Obligations may be outstanding. The Company, the Agents and the Lenders may
modify, alter, rearrange, extend for any period and/or renew from time to time,
the Obligations and the Agents and the Lenders may waive any Defaults or Events
of Default without notice to the Guarantor and in such event the Guarantor will
remain fully bound hereunder on the Obligations. Subject to the terms of the
Credit Agreement, this Guaranty Agreement may be enforced by the Agents and/or
the Lenders and any subsequent holder of the Obligations and shall not be
discharged by the assignment or negotiation of all or part of the Obligations.
The Guarantor hereby expressly waives presentment, demand, notice of
non-payment, protest and notice of protest and dishonor, notice of Event of
Default, notice of intent to accelerate the maturity and notice of acceleration
of the maturity and any other notice in connection with the Obligations, and
also notice of acceptance of this Guaranty Agreement, acceptance on the part of
the Agents and the Lenders being conclusively presumed by their request for
this Guaranty Agreement and delivery of the same to the Administrative Agent.
SECTION 2.03 LENDERS' RIGHTS. Subject to the terms of the Credit
Agreement, the Guarantor authorizes the Lenders (or the Administrative Agent on
behalf of the Lenders), without notice or demand and without affecting the
Guarantor's obligation hereunder, to take and hold agreed-upon security for the
payment of the Obligations, and exchange, enforce, waive and release any such
security; and to apply such security and direct the order or manner of sale
thereof as the Agents and the Lenders in their discretion may determine; and to
obtain a guaranty of the Obligations from any one or more Persons and at any
time or times to enforce, waive, rearrange, modify, limit or release any of
such other Persons from their obligations under such guaranties.
SECTION 2.04 GUARANTOR'S WAIVERS. The Guarantor waives any right to
require the Agents and the Lenders to (a) proceed against the Company or any
other Person liable on the Obligations, (b) enforce their rights against any
other guarantor of the Obligations, (c) proceed or enforce their rights against
or exhaust any security given to secure the Obligations, (d) have the Company
joined with the Guarantor in any suit arising out of this Guaranty Agreement
and/or the Obligations, or (e) pursue any other remedy whatsoever. Neither
2
<PAGE> 5
the Agents nor the Lenders shall be required to mitigate damages or take any
action to reduce, collect or enforce the Obligations. The Guarantor waives any
defense arising by reason of any disability, lack of corporate authority or
power, or other defense of the Company or any other guarantor of the
Obligations, and shall remain liable hereon regardless of whether the Company
or any other guarantor be found not liable thereon for any reason.
SECTION 2.05 MATURITY OF OBLIGATIONS; PAYMENT. The Guarantor agrees
that if the maturity of the Obligations is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to the Guarantor. The
Guarantor will, forthwith upon notice from the Administrative Agent of the
Company's failure to pay the Obligations at maturity, pay to the Administrative
Agent for the benefit of the Agents and the Lenders at the Administrative
Agent's Principal Office, the amount due and unpaid by the Company and
guaranteed hereby. The failure of the Administrative Agent to give this notice
shall not in any way release the Guarantor hereunder.
SECTION 2.06 LENDERS' EXPENSES. If the Guarantor fails to pay the
Obligations after notice from the Administrative Agent of the Company's failure
to pay any Obligations at maturity (whether by acceleration or otherwise), and
if the Agents or the Lenders obtain the services of an attorney for collection
of amounts owing by the Guarantor hereunder, or obtain advice of counsel in
respect of any of their rights under this Guaranty Agreement, or if suit is
filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, receivership or other judicial proceedings for the establishment or
collection of any amount owing by the Guarantor hereunder, or if any amount
owing by the Guarantor hereunder is collected through such proceedings, the
Guarantor agrees to pay to the Administrative Agent at its Principal Office the
reasonable attorneys' fees of the Agents and the Lenders.
SECTION 2.07 OBLIGATION. It is expressly agreed that the obligation of
the Guarantor for the payment of the Obligations guaranteed hereby shall be
primary and not secondary.
SECTION 2.08 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING THE
GUARANTOR'S OBLIGATIONS. The Guarantor hereby consents and agrees to each of
the following to the fullest extent permitted by law, agrees that its
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which it might otherwise
have as a result of or in connection with any of the following:
(a) Modifications, etc. Any renewal, extension, modification, or
increase in the amount of the Aggregate Commitments as in effect on the
Effective Date, decrease, alteration or rearrangement of all or any part of the
Obligations, any Loan Document or any instrument executed in connection
therewith, or any contract or understanding between the Company, any Agent
and/or the Lenders, or any other Person, pertaining to the Obligations;
(b) Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by the Agents or the Lenders to the
Company, the Guarantor or any Person liable on the Obligations;
(c) Condition of the Company or the Guarantor. The insolvency,
bankruptcy, arrangement, reorganization, adjustment, composition, liquidation,
disability, dissolution or lack of power of the Company or the Guarantor or any
other Person at any time liable for the payment of all or part of the
Obligations; or any sale, lease or transfer of any or all of the assets of the
Company or the Guarantor, or any changes in the shareholders of the Company or
the Guarantor;
3
<PAGE> 6
(d) Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations or any Loan Document,
including the Notes, for any reason whatsoever, including without limitation
the fact that the Obligations, or any part thereof, exceed the amount permitted
by law, the act of creating the Obligations or any part thereof is ultra vires,
the officers or representatives executing any Loan Document or otherwise
creating the Obligations acted in excess of their authority, the Obligations
violate applicable usury laws, the Company has valid defenses, claims or
offsets (whether at law, in equity or by agreement) which render the
Obligations wholly or partially uncollectible from the Company, the creation,
performance or repayment of the Obligations (or the execution, delivery and
performance of any Loan Document) is illegal, uncollectible, legally impossible
or unenforceable, or the Credit Agreement, the Notes or other Loan Documents
have been forged or otherwise are irregular or not genuine or authentic;
(e) Release of Obligors. Any full or partial release of the obligation
of the Company on the Obligations or any part thereof, of any co-guarantors, or
any other Person now or hereafter liable, whether directly or indirectly,
jointly, severally, or jointly and severally, to pay, perform, guarantee or
assure the payment of the Obligations or any part thereof, it being recognized,
acknowledged and agreed by the Guarantor that the Guarantor may be required to
pay the Obligations in full without assistance or support of any other Person,
and the Guarantor has not been induced to enter into this Guaranty Agreement on
the basis of a contemplation, belief, understanding or agreement that other
parties other than the Company will be liable to perform the Obligations, or
that the Agents and the Lenders will look to other parties to perform the
Obligations;
(f) Security. The taking or accepting of any security, collateral or
guaranty, or other assurance of payment, for all or any part of the
Obligations;
(g) Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, Property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
(h) Care and Diligence. The failure of any Agent or any Lender or any
other Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or any part
of such collateral, Property or security;
(i) Status of Liens. The fact that any collateral, security or Lien
contemplated or intended to be given, created or granted as security for the
repayment of the Obligations shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other Lien, it being
recognized and agreed by the Guarantor that the Guarantor is not entering into
this Guaranty Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectability or value of any of the collateral
for the Obligations;
(j) Payments Rescinded. Any payment by the Company to any Agent or
Lender is held to constitute a preference under the bankruptcy laws, or for any
reason an Agent or Lender is required to refund such payment or pay such amount
to the Company or someone else; or
(k) Other Actions Taken or Omitted. Any other action taken or omitted
to be taken with respect to the Credit Agreement or the other Loan Documents,
the Obligations, or the security and collateral therefor, whether or not such
action or omission prejudices the Guarantor or increases the likelihood that
the Guarantor will be required to pay the Obligations pursuant to the terms
hereof; it being the unambiguous and unequivocal
4
<PAGE> 7
intention of the Guarantor that the Guarantor shall be obligated to pay the
Obligations when due, notwithstanding any occurrence, circumstance, event,
action, or omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Obligations.
SECTION 2.09 LIMITATIONS ON OBLIGATION OF THE GUARANTOR HEREUNDER. The
parties hereto (i) intend that the obligation of the Guarantor hereunder be
limited to the maximum amount that would not result in the obligation created
hereby being avoidable under Section 548 of the Federal Bankruptcy Code (11
U.S.C. Section 548; hereinafter "Section 548") or other applicable state
fraudulent conveyance or transfer law and (ii) agree that this Guaranty
Agreement shall be so construed. Accordingly, the obligation of the Guarantor
hereunder is limited to an amount that is the greater of (x) the "reasonably
equivalent value" or "fair consideration" received by the Guarantor in exchange
for the obligation incurred hereunder, within the meaning of Section 548, as
amended, or any applicable state fraudulent conveyance or transfer law, as
amended; or (y) the lesser of (1) the maximum amount that will not render the
Guarantor insolvent or (2) the maximum amount that will not leave the Guarantor
with any Property deemed an unreasonably small capital. Clauses (1) and (2) are
and shall be determined pursuant to Section 548, as amended, or other applicable
state fraudulent conveyance or transfer law, as amended.
SECTION 2.10 SUBROGATION. The Guarantor shall not exercise any rights
which it may acquire by way of subrogation, reimbursement, exoneration,
indemnification or participation, by any payment made under this Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations have
been paid in full and the Aggregate Commitments are terminated; provided that,
notwithstanding the foregoing, the Guarantor reserves its rights of contribution
and reimbursement, if any, from its co-guarantors, if any, and other Persons
liable on the Obligations or otherwise. Except as described in this Section
2.10, the Guarantor further waives any benefit of any right to participate in
any security now or hereafter held by the Agents and/or the Lenders.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 3.01 REPRESENTATIONS AND WARRANTIES. In order to induce the
Agents and the Lenders to accept this Guaranty Agreement, the Guarantor
represents and warrants to the Agents and the Lenders (which representations and
warranties will survive the creation of the Obligations and any extension of
credit thereunder) that:
(a) Benefit to the Guarantor. The Guarantor is a wholly-owned
Subsidiary of the Company and the Guarantor's guaranty pursuant to this Guaranty
Agreement reasonably may be expected to benefit, directly or indirectly, the
Guarantor; and the Guarantor has determined that this Guaranty Agreement is
necessary and convenient to the conduct, promotion and attainment of the
business of the Guarantor and the Company.
(b) Corporate Existence. The Guarantor: (i) is duly organized and
validly existing under the laws of the jurisdiction of its formation; (ii) has
all requisite power, and has all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its business as
now being conducted; and (iii) is qualified to do business in all jurisdictions
in which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.
5
<PAGE> 8
(c) No Breach. The execution and delivery by the Guarantor of this
Guaranty Agreement and the other Loan Documents to which it is a party, the
consummation of the transactions herein or therein contemplated, and the
compliance with the terms and provisions hereof will not (i) conflict with or
result in a breach of, or require any consent under (A) the charter or by-laws
of the Guarantor, or (B) any applicable law or regulation, or any order, writ,
injunction or decree of any court or other Governmental Authority, or any
material agreement or instrument to which the Guarantor is a party or by which
it is bound or to which it is subject in each case in such manner as could
reasonably be expected to have a Material Adverse Effect; or (ii) constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or Property of the Guarantor in
each case in such manner as could reasonably be expected to have a Material
Adverse Effect.
(d) Corporate Action. The Guarantor has all necessary corporate power
and authority to execute, deliver and perform its obligations under this
Guaranty Agreement and the Loan Documents to which it is a party; and the
execution, delivery and performance by the Guarantor of this Guaranty Agreement
and the other Loan Documents to which such Person is a party have been duly
authorized by all necessary corporate action on its part. This Guaranty
Agreement and the Loan Documents to which the Guarantor is a party constitute
the legal, valid and binding obligation of the Guarantor, enforceable against
the Guarantor in accordance with their terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights and general principals of equity.
(e) Approvals. Other than consents heretofore obtained or described in
the Credit Agreement, no authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution, delivery or performance by the Guarantor of this Guaranty Agreement
or the Loan Documents to which it is a party or for the validity or
enforceability thereof. It is understood that continued performance by the
Guarantor of this Guaranty Agreement and the other Loan Documents to which it is
a party will require various filings, such as filings related to environmental
matters, ERISA matters, Taxes and intellectual property, filings required to
maintain corporate and similar standing and existence, filings pursuant to the
Uniform Commercial Code and other security filings and recordings and filings
required by the SEC, routine filings in the ordinary course of business, and
filings required in connection with the exercise by the Lenders and the Agents
of remedies in connection with the Loan Documents.
(f) Solvency. The Guarantor (i) is not insolvent and will not be
rendered insolvent as a result of this Guaranty Agreement, (ii) is not engaged
in a business or a transaction, or about to engage in a business or a
transaction, for which any Property or assets remaining with the Guarantor are
unreasonably small capital, and (iii) does not intend to incur, or believe it
will incur, debts that will be beyond its ability to pay as such debts mature.
(g) No Representation by Agents or Lenders. Neither any Agent, any
Lender nor any other Person has made any representation, warranty or statement
to the Guarantor in order to induce the Guarantor to execute this Guaranty
Agreement.
SECTION 3.02 COVENANTS. The Guarantor acknowledges that it is has read
the Credit Agreement and hereby covenants and agrees to comply with covenants
and agreements set forth therein which restrict Restricted Subsidiaries of the
Company in so far as such covenants and agreements apply to it.
6
<PAGE> 9
ARTICLE IV
SUBORDINATION OF INDEBTEDNESS
SECTION 4.01 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "Guarantor Claims" shall mean all debts and obligations of the Company to
the Guarantor, whether such debts and obligations now exist or are hereafter
incurred or arise, or whether the obligation be direct, contingent, primary,
secondary, several, joint and several, or otherwise, and irrespective of whether
such debts or obligations be evidenced by note, contract, open account, or
otherwise, and irrespective of the Person or Persons in whose favor such debts
or obligations may, at their inception, have been, or may hereafter be created,
or the manner in which they have been or may hereafter be acquired by the
Guarantor. Except for payments permitted by the Credit Agreement, until the
Obligations shall be paid and satisfied in full, the Aggregate Commitments are
terminated and the Guarantor shall have performed all of its obligations
hereunder and the Loan Documents to which it is a party, the Guarantor shall not
receive or collect, directly or indirectly, from the Company any amount upon the
Guarantor Claims.
SECTION 4.02 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving the Company, the Administrative Agent on behalf of the
Agents and the Lenders shall have the right to prove their claim in any
proceeding, so as to establish their rights hereunder and receive directly from
the receiver, trustee or other court custodian, dividends and payments which
would otherwise be payable upon Guarantor Claims. The Guarantor hereby assigns
such dividends and payments to the Administrative Agent for the benefit of the
Agents and the Lenders. Should any Agent or Lender receive, for application upon
the Obligations, any such dividend or payment which is otherwise payable to the
Guarantor, and which, as between the Company and the Guarantor, shall constitute
a credit upon the Guarantor Claims, then upon payment in full of the
Obligations, the Guarantor shall become subrogated to the rights of the Agents
and the Lenders to the extent that such payments to the Agents and the Lenders
on the Guarantor Claims have contributed toward the liquidation of the
Obligations, and such subrogation shall be with respect to that proportion of
the Obligations which would have been unpaid if the Agents and the Lenders had
not received dividends or payments upon the Guarantor Claims.
SECTION 4.03 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.01 and 4.02, the Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, the Guarantor agrees (a)
to hold in trust for the Agents and the Lenders an amount equal to the amount of
all funds, payments, claims or distributions so received, and (b) that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to the Administrative Agent, for the
benefit of the Agents and the Lenders; and the Guarantor covenants promptly to
pay the same to the Administrative Agent.
SECTION 4.04 LIENS SUBORDINATE. The Guarantor agrees that, until the
Obligations are paid in full and the Aggregate Commitments terminated, any Liens
upon the Company's assets securing payment of the Guarantor Claims shall be and
remain inferior and subordinate to any Liens upon the Company's assets securing
payment of the Obligations, regardless of whether such encumbrances in favor of
the Guarantor, any Agent or Lender presently exist or are hereafter created or
attach. Without the prior written consent of the Administrative Agent, the
Guarantor, during the period in which any of the Obligations are outstanding or
the Aggregate Commitments are in effect, shall not (a) exercise or enforce any
creditor's right it may have against the Company, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any Lien, mortgages, deeds of
7
<PAGE> 10
trust, security interest, collateral rights, judgments or other encumbrances on
assets of the Company held by the Guarantor.
SECTION 4.05 NOTATION OF RECORDS. All promissory notes and, upon the
request of the Administrative Agent, all accounts receivable ledgers or other
evidence of the Guarantor Claims accepted by or held by the Guarantor shall
contain a specific written notice thereon that the indebtedness evidenced
thereby is subordinated under the terms of this Guaranty Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and
shall be in every particular available to the successors and assigns of the
Agents and the Lenders and is and shall always be fully binding upon the legal
representatives, successors and assigns of the Guarantor, notwithstanding that
some or all of the monies, the repayment of which this Guaranty Agreement
applies, may be actually advanced after any bankruptcy, receivership,
reorganization or other event affecting either the Company or the Guarantor.
SECTION 5.02 NOTICES. Any notice or demand to the Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to have been given and received in the manner and to the
address of the Guarantor as provided for in Section 12.02 of the Credit
Agreement.
SECTION 5.03 AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Guaranty Agreement with respect to any action taken by the
Administrative Agent or the exercise or non-exercise by the Administrative Agent
of any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guaranty Agreement shall, as between
the Agents and the Lenders, be governed by the Credit Agreement and by such
other agreements with respect thereto as may exist from time to time among them,
but, as between the Administrative Agent and the Guarantor, the Administrative
Agent shall be conclusively presumed to be acting as agent for the Lenders with
full and valid authority so to act or refrain from acting; and the Guarantor
shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
SECTION 5.04 CONSTRUCTION.
(a) THIS GUARANTY AGREEMENT (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 TEXAS.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
AGREEMENT OR THE OTHER LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
GUARANTY AGREEMENT, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO
8
<PAGE> 11
THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE
ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE
GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION.
(c) THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT, AS THE
CASE MAY BE, AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT OR ANY LENDER OR
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE GUARANTOR IN ANY
OTHER JURISDICTION.
(e) THE GUARANTOR AND, BY ITS ACCEPTANCE HEREOF, EACH AGENT AND EACH
LENDER HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS GUARANTY AGREEMENT OR ANY LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR ANY
COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS GUARANTY AGREEMENT, THE
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
5.04.
SECTION 5.05 SURVIVAL OF OBLIGATIONS. To the extent that any payments
on the Obligations or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Obligations so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Agents' and the Lenders' Liens, rights, powers and
remedies under this Guaranty Agreement and each Loan Document shall continue in
full force and effect. In such event, each Loan Document shall be automatically
reinstated and the Guarantor shall take such action as may be reasonably
requested by the Administrative Agent and the Lenders to effect such
reinstatement.
SECTION 5.06 STATUS AS SPECIFIED OR DESIGNATED SENIOR INDEBTEDNESS. The
Guarantor hereby acknowledges and confirms that:
(a) this Guaranty Agreement and the obligations of the Guarantor
hereunder are "Guarantor Senior Indebtedness" and "Specified Guarantor Senior
Indebtedness" under and for purposes of the 95 Indenture; and
(b) this Guaranty Agreement and the obligations of the Guarantor
hereunder are "Guarantor Senior Indebtedness" and "Designated Guarantor Senior
Indebtedness" under and for purposes of the 96 Indenture, the 97 Indenture and
the 98 Senior Subordinated Indenture;
9
<PAGE> 12
and that as such, the Agents and the Lenders are entitled to the rights and
privileges afforded holders of Guarantor Senior Indebtedness, Specified
Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, as
applicable, under each of such Indentures.
SECTION 5.07 INTEREST. It is in the interest of the Guarantor, the
Agents and the Lenders to conform strictly to all applicable usury laws.
Accordingly, reference is made to Section 12.15 of the Credit Agreement which is
incorporated herein by reference for all purposes.
10
<PAGE> 13
WITNESS THE EXECUTION HEREOF, effective as of the date first written
above.
OCEAN ENERGY, INC., a Louisiana corporation
By: ---------------------------------------
Jonathan M. Clarkson
Executive Vice President
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 10.46
THIRD AMENDMENT
TO THE
OCEAN ENERGY, INC.
LONG-TERM INCENTIVE PLAN
FOR NONEXECUTIVE EMPLOYEES
WHEREAS, there is reserved to the Board of Directors of Ocean Energy, Inc.
in Section 7 of the Ocean Energy, Inc. Long-Term Incentive Plan for
Nonexecutive Employees (the "Plan") the right to amend the Plan;
NOW, THEREFORE, as of May 20, 1998, the Plan is hereby amended as follows:
1. Section 4(a) is amended to read as follows:
"Shares Available. Subject to adjustment as provided in Section 4(c), the
number of Shares with respect to which Awards may be granted under the Plan
shall be 3,400,000; provided, however, if as of any January 1 the number of
Shares that are available for Awards under the Plan is less than 3,400,000
Shares, the maximum number of Shares available for Awards shall be
increased automatically on such January 1 by the number of Shares necessary
to equal 3,400,00 Shares available for Awards. If any Shares covered by an
Award granted under the Plan, or to which such an Award relates, are
forfeited, or if an Award otherwise terminates or is canceled without the
delivery of Shares or of other consideration, then the Shares covered by
such Award, or to which such Award relates, or the number of Shares
otherwise counted against the aggregate number of Shares with respect to
which Awards may be granted, to the extent of any such forfeiture,
termination or cancellation, shall again be, or shall become, Shares with
respect to which Awards may be granted, but only if, and to the extent
that, the number of Shares then available for Awards does not exceed
3,400,000 Shares."
Except as amended by this third Amendment, the Plan shall continue without
interruption or change.
Dated: May 20, 1998
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF OCEAN ENERGY, INC.
Ocean Energy, Inc., a Louisiana corporation.
Ocean Energy Resources, Inc., a Delaware corporation.
Big Sky Gas Marketing Corporation, a Delaware corporation.
UMC Colorado LLC, a Colorado limited liability company.
UMC Pipeline Corporation, a Delaware corporation.
Ocean Exploration, Inc., a Louisiana corporation.
Ocean Energy Resources Canada Ltd., a British Columbia corporation.
Ocean International, Ltd., a Delaware corporation.
UMC Angola Corporation, a Delaware corporation.
Ocean Bangladesh Corporation, a Delaware corporation.
Ocean Energy Cote d'Ivoire Corporation, a Delaware corporation.
Ocean (CI-01) Corporation, a Delaware corporation.
Ocean (CI-02) Corporation, a Delaware corporation.
Ocean (CI-12) Corporation, a Delaware corporation.
Ocean (CI-105) Corporation, a Delaware corporation.
Lion G.P.L., S.A., organized under the laws of Cote d'Ivoire.
Ocean Equatorial Guinea Corporation, a Delaware corporation.
Ocean Ghana Corporation, a Delaware corporation.
Ocean Pakistan Corporation, a Delaware corporation.
Ocean Energy Qatar Corporation, a Cayman Islands corporation.
Ocean Yemen Corporation, a Cayman Islands corporation.
GAJH 1989 Limited Partnership, organized under the laws of Delaware.
Havre Pipeline Company, LLC, a Texas limited liability company.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 15, 1999 included in this Form 10-K into Ocean
Energy, Inc.'s previously filed Registration Statements on Form S-8 (Nos.
333-45117, 333-45119, 333-43933, 33-89516, 333-49185, 333-49187, 333-49157,
33-94704 and 33-97154).
ARTHUR ANDERSEN LLP
Houston, Texas
February 15, 1999
<PAGE> 1
EXHIBIT 23.2
[NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD]
CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
We hereby consent to the incorporation by reference in this Form 10-K of
our reports for the year ended December 31, 1998, that were utilized in
aggregate as a basis for Ocean Energy Inc.'s Form 10-K and to all references to
our Firm included in this Form 10-K.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ DANNY D. SIMMONS
-----------------------------
Danny D. Simmons
Senior Vice President
Houston, Texas
February 15, 1999
<PAGE> 1
EXHIBIT 23.3
[McDANIEL & ASSOCIATES LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM RESERVE ENGINEERS
Dear Sirs:
We consent to the incorporation by reference in this Form 10-K of portions of
our reports entitled "Ocean Energy Resources, Inc., Evaluation of Certain
Interests in the State of Montana, SEC Parameters, as of January 1, 1999",
dated February 12, 1999; and "Ocean Energy Resources Canada, Ltd., Evaluation
of Oil & Gas Reserves, SEC Parameters, as of January 1, 1999", dated January
25, 1999, (the "Reports") and to our having evaluated the Corporations'
interest in oil and gas reserves. We also consent to the reference of our firm
under the caption "Experts".
Sincerely,
McDANIEL & ASSOCIATES CONSULTANTS LTD.
/s/ P. A. WELCH
- -----------------------------
P. A. Welch, P. Eng.
Vice President
Calgary, Alberta
Dated: February 15, 1999
<PAGE> 1
EXHIBIT 23.4
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF RYDER SCOTT COMPANY
We consent to the incorporation by reference in this Form 10-K of our reserve
report and all schedules, exhibits, and attachments thereto and to any
reference made to us in Form 10-K as a result of such incorporation.
Sincerely,
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
- -------------------------------
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, CO
Date: February 15, 1999
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,706
<SECURITIES> 0
<RECEIVABLES> 113,019
<ALLOWANCES> 1,190
<INVENTORY> 16,802
<CURRENT-ASSETS> 153,781
<PP&E> 3,293,335
<DEPRECIATION> 1,711,696
<TOTAL-ASSETS> 2,006,960
<CURRENT-LIABILITIES> 237,182
<BONDS> 1,371,890
1
0
<COMMON> 1,018
<OTHER-SE> 375,924
<TOTAL-LIABILITY-AND-EQUITY> 2,006,960
<SALES> 522,150
<TOTAL-REVENUES> 523,259
<CGS> 0
<TOTAL-COSTS> 162,874
<OTHER-EXPENSES> 833,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,852
<INCOME-PRETAX> (616,578)
<INCOME-TAX> (209,699)
<INCOME-CONTINUING> (406,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (406,879)
<EPS-PRIMARY> (4.04)
<EPS-DILUTED> (4.04)
</TABLE>
