<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________________TO_____________
Commission file number 1-11413
ENSERCH EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2556975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Greenville Avenue, Suite 1500, Dallas, Texas 75206
(Address of principal executive offices) (Zip Code)
214-369-7893
(Registrant's telephone number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Number of shares of Common Stock of Registrant outstanding as of
November 12, 1996: 126,033,581.
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- --------------------
1996 1995 1996 1995
------- ------- ------ -------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Natural gas . . . . . . . . . . . . . . . $52,234 $46,817 $164,114 $113,825
Oil and condensate. . . . . . . . . . . . 26,933 17,020 70,866 37,697
Natural gas liquids . . . . . . . . . . . 2,826 1,425 6,477 3,120
Other . . . . . . . . . . . . . . . . . . 743 1,545 1,626 1,813
------- ------- -------- -------
Total . . . . . . . . . . . . . . . . . 82,736 66,807 243,083 156,455
------- ------- -------- -------
Costs and Expenses
Production and operating. . . . . . . . . 19,380 13,159 57,998 33,271
Exploration . . . . . . . . . . . . . . . 3,318 3,491 9,486 8,965
Depreciation and amortization . . . . . . 38,282 34,983 106,314 81,530
General, administrative and other . . . . 7,487 6,793 23,999 21,162
Taxes, other than income. . . . . . . . . 5,245 5,437 16,218 12,988
------- ------- -------- -------
Total . . . . . . . . . . . . . . . . . 73,712 63,863 214,015 157,916
------- ------- -------- -------
Operating Income (Loss) . . . . . . . . . . 9,024 2,944 29,068 (1,461)
Other Income (Expense) - Net. . . . . . . . (74) 138 (126) 135
Interest Income . . . . . . . . . . . . . . 1,026
Interest and Other Financing Costs. . . . . (5,851) (7,698) (17,712) (11,297)
------- ------- -------- -------
Income (Loss) Before Income Taxes . . . . . 3,099 (4,616) 11,230 (11,597)
Income Taxes (Benefit). . . . . . . . . . . 1,026 (2,005) 3,800 (4,448)
------- ------- -------- -------
Net Income (Loss) . . . . . . . . . . . . . $ 2,073 $(2,611) $ 7,430 $(7,149)
======= ======= ======== =======
Net Income (Loss) Per Share . . . . . . . . $ 0.02 $ (.02) $ 0.06 $ (.07)
======= ======= ======== =======
Weighted Average Shares Outstanding . . . . 125,879 106,909 125,873 106,188
======= ======= ======== =======
<FN>
See accompanying Notes.
</FN>
</TABLE>
1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30
------------------------
1996 1995
--------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 7,430 $ (7,149)
Depreciation and amortization. . . . . . . . . . . . . . . . . . 106,314 81,530
Deferred income-tax expense (benefit). . . . . . . . . . . . . . 5,449 (6,626)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,441) (8,669)
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 11,531 (972)
Other current assets . . . . . . . . . . . . . . . . . . . . . 37 (4,012)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (16,785) 20,416
Other current liabilities. . . . . . . . . . . . . . . . . . . 4,904 6,127
--------- ---------
Net cash flows from operating activities . . . . . . . . . . 106,439 80,645
--------- ---------
INVESTING ACTIVITIES
Purchase of business, net of cash acquired . . . . . . . . . . (332,888)
Additions to property, plant and equipment . . . . . . . . . . (168,161) (140,111)
Retirements of property, plant and equipment . . . . . . . . . 122 28,157
Proceeds from the sale of property, plant and equipment. . . . 106,397
Collection of note receivable from affiliated company. . . . . 86,077
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (554) (15,722)
--------- ---------
Net cash flows used for investing activities. . . . . . . . (62,196) (374,487)
--------- ---------
FINANCING ACTIVITIES
Borrowings under bank revolving credit agreement . . . . . . . 125,000 350,000
Borrowings under bridge loan . . . . . . . . . . . . . . . . . 150,000
Repayment of bank debt assumed in acquisition. . . . . . . . . (115,000)
Repayment of borrowings under bank revolving credit agreement. (155,000) (210,000)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . 120 207,898
Issuance of company-obligated mandatorily redeemable
preferred securities of subsidiary . . . . . . . . . . . . . . 150,000
Repayment of borrowings under bridge loan. . . . . . . . . . . . (150,000)
Change in temporary advances with affiliated companies . . . . . (16,968) (81,115)
Advances under leasing arrangements. . . . . . . . . . . . . . . 5,930
Payments of capital lease obligations. . . . . . . . . . . . . . (3,413) (3,340)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,486)
---------- ---------
Net cash flows (used for) from financing activities . . . . (44,331) 294,957
---------- ---------
Net (Decrease) Increase in Cash. . . . . . . . . . . . . . . . . (88) 1,115
Cash at Beginning of Period. . . . . . . . . . . . . . . . . . . 1,546 234
---------- ---------
Cash at End of Period. . . . . . . . . . . . . . . . . . . . . . . $ 1,458 $ 1,349
========== =========
<FN>
See accompanying Notes.
</FN>
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(September 30, 1996 Unaudited)
September 30 December 31
1996 1995
--------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,458 $ 1,546
Accounts receivable - trade. . . . . . . . . . . . . . . . . . 49,246 46,749
Accounts receivable - affiliated companies . . . . . . . . . . 6,618 20,646
Temporary advances - affiliated companies. . . . . . . . . . . 1,108
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,783 14,820
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . 73,213 83,761
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method). . . . . . . . . . . 2,662,076 2,602,454
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,442 20,684
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,683,518 2,623,138
Less accumulated depreciation and amortization . . . . . . . . 1,057,590 952,538
---------- ----------
Net property, plant and equipment . . . . . . . . . . . . . 1,625,928 1,670,600
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 26,627 22,471
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,725,768 $1,776,832
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 82,062 $ 95,386
Accounts payable - affiliated companies. . . . . . . . . . . . 2,821 6,836
Temporary advances - affiliated companies. . . . . . . . . . . 15,860
Advances under leasing arrangements. . . . . . . . . . . . . . 5,930
Current portion of capital lease obligations . . . . . . . . . 3,859 3,859
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,909 9,005
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . 108,581 130,946
---------- ----------
Bank Revolving Credit Agreement. . . . . . . . . . . . . . . . . 130,000 160,000
---------- ----------
Capital Lease Obligations. . . . . . . . . . . . . . . . . . . . 90,771 94,184
---------- ----------
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . 277,067 271,618
---------- ----------
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 28,750 37,856
---------- ----------
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . 150,000 150,000
---------- ----------
Common Shareholders' Equity
Common stock (200,000 shares authorized;
126,022 and 125,883 shares outstanding). . . . . . . . . . . 126,022 125,883
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . 820,430 819,398
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . (5,072) (12,502)
Unamortized restricted stock compensation. . . . . . . . . . . (781) (551)
---------- ----------
Common shareholders' equity . . . . . . . . . . . . . . . . 940,599 932,228
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,725,768 $1,776,832
========== ==========
<FN>
See accompanying Notes.
</FN>
</TABLE>
3
<PAGE>
<PAGE>
ENSERCH EXPLORATION, INC.
Notes to Condensed Consolidated Financial Statements
1. Earnings per share applicable to common stock are based on the weighted
average number of common shares outstanding during the period, including
common equivalent shares when dilutive.
2. On April 15, 1996, ENSERCH Corporation announced that it had entered
into a definitive agreement with Texas Utilities Company providing for
a strategic business combination. The merger is to be preceded by the
distribution of ENSERCH's approximate 83% interest in EEX to the
ENSERCH shareholders.
3. Authorized capital includes 2 million shares of Preferred Stock. At
December 31, 1995, fifteen shares of Adjustable Rate Cumulative
Preferred Stock, Series A, were issued to a subsidiary, which were
eliminated in consolidation. In June 1996, EEX repurchased at par the
fifteen shares held by the wholly-owned subsidiary for $150 million
through the issuance of a demand note in that amount. The demand note
is eliminated in consolidation.
4. In June 1996, EEX entered into an operating lease with a financial
institution to finance construction of the facilities to be used in
developing and producing reserves in the Green Canyon 254 project. The
initial lease term extends through June 29, 2003 and may be extended
for up to three successive three-year periods under such terms as the
Company and lessor may agree.
5. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
results of operations for the interim periods included herein have
been made.
4
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Enserch Exploration, Inc.:
We have reviewed the accompanying condensed consolidated balance
sheet of Enserch Exploration, Inc. and subsidiaries (the Company) as of
September 30, 1996, and the related condensed statements of consolidated
operations for the three months and nine months ended September 30, 1996
and 1995 and consolidated cash flows for the nine months ended September
30, 1996 and 1995. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying analytical
review procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such condensed consolidated financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of the Company as of
December 31, 1995, and the related statements of consolidated operations,
cash flows and owners' equity for the year then ended (not presented
herein); and in our report dated February 9, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated in
all material respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 25, 1996
5
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Quarters ended September 30, 1996 and 1995 - Enserch Exploration, Inc. (EEX)
had third-quarter 1996 net income of $2.1 million ($.02 per share),
significantly improved from the $2.6 million loss ($.02 per share loss) in the
third quarter of 1995. Operating income for the third quarter of 1996 was
$9.0 million, compared with $2.9 million for third-quarter 1995, reflecting
higher average prices for both natural gas and oil and increased oil sales
volumes resulting primarily from the Cooper project in the Garden Banks area
which began production in late September 1995.
Third-quarter revenues increased to $83 million from $67 million for the third
quarter of 1995, with a $5.4 million increase in natural-gas revenues and an
$11 million increase in oil and other revenues. The average price received
for natural gas for the third quarter was $2.04 per thousand cubic feet (Mcf),
up 27% from $1.61 per Mcf for the third quarter last year. Third-quarter
average daily natural-gas sales were 278 million cubic feet (MMcf), down 12%
from 316 MMcf for the third quarter last year, primarily due to lower output
from a non-operated offshore property due to water encroachment and a
completion failure, increased requirements from East Texas fields for
balancing partner's gas entitlements sold in prior periods and the sale of
Rocky Mountain properties. Average daily oil sales for the third quarter of
1996 of 14.7 thousand barrels (MBbls) were 33% higher than the third quarter
last year, with more than half of the increase due to production from the
Cooper project. Oil sales for the third quarter averaged $19.92 per barrel,
up 19% from $16.72 per barrel for the third quarter last year.
Costs and expenses for the third quarter of 1996 of $74 million were
$9.8 million higher than in the 1995 third quarter, with direct costs related
to the Cooper project adding some $8.3 million. Depreciation and amortization
expense related to all other properties increased $.6 million due to a higher
amortization rate, which was partially offset by the effects of lower
production. The increase in the amortization rate resulted from a change in
the estimated year-end reserves and the sale of the Rocky Mountain properties.
Third-quarter interest and other financing costs of $5.9 million were
$1.8 million lower than in the third quarter last year, which was impacted by
the interim financing for the acquisition in June 1995. This financing was
partially repaid in September 1995 with proceeds from the sale of common
stock. Partially offsetting was higher interest and financing costs in the
third quarter this year associated with the fourth-quarter 1995 start-up of
the Cooper project.
Nine Months Ended September 30, 1996 and 1995 - For the first nine months of
1996, EEX had net income of $7.4 million ($.06 per share) versus a net loss
of $7.2 million ($.07 loss per share) for the similar period last year.
6
<PAGE>
<PAGE>
Operating income for 1996 was $29.1 million, compared with an operating loss
of $1.5 million for the 1995 period.
Revenues for the first three quarters of 1996 of $243 million were $87 million
(55%) higher than in the same period of 1995. Natural-gas revenues for the
nine months were $50 million higher than in the 1995 period, with the average
sales price of $2.15 per Mcf up 20% and average daily sales of 279 MMcf up 20%
from the same period in 1995 primarily due to production from the properties
acquired in June 1995. Oil revenues for the first three quarters of 1996 of
$71 million were $33 million higher than in the 1995 period, with the average
sales price of $19.02 per barrel up 13% from the 1995 period. Average daily
sales of 13.6 MBbls were up 66% from the same period in 1995, primarily due
to production from the properties acquired in 1995 and from the Cooper
project.
Costs and expenses for the first nine months of 1996 of $214 million were
$56 million higher than in the same period last year. About $37 million of
the increase was attributable to costs associated with the acquired
properties, and some $22 million of the increase was related to direct costs
of the Cooper project. There was a $2 million net decrease in all other
expenses, with decreased production costs and lower amortization expense
resulting from less production from other properties more than offsetting
increases in other expense categories.
Interest and financing costs for the first nine months of 1996 of
$17.7 million were $6.4 million higher than last year, principally due to the
debt incurred to finance the 1995 acquisition and costs associated with the
start-up of the Cooper project. Interest income of $1.0 million for the nine-
month period last year represents interest received on an intercompany note
receivable from an affiliate of ENSERCH Corporation (ENSERCH) that was repaid
during the first quarter of 1995.
For the first nine months this year, losses from the Cooper project during
ramp-up of production detracted $2.3 million from operating income and
$4.4 million from net income. The project added $1.2 million to third-quarter
operating income, but detracted $.2 million from third-quarter net income.
Production from this project was interrupted 12 days in August 1996 for
maintenance and other required operations, which reduced third-quarter oil
production, operating income and net income some 60 MBbls, $1.2 million and
$.8 million, respectively. The equipment lease costs and some production
costs are essentially fixed, declining on a per unit basis as production
increases. In late July 1996, it was announced that mechanical difficulties
had prevented completion of the A-1 development well at the Cooper project.
Numerous attempts to remedy the problems were unsuccessful. EEX and its
partner in the project, Mobil Exploration and Producing U.S. Inc. (Mobil),
will evaluate alternate drilling strategies to develop the extensive proven
hydrocarbon column at this location. Currently, the A-2 development well is
in progress at the Cooper project. The drilling of the SB-3 exploratory well
on Garden Banks Block 387 has been completed and logged approximately 40 to
50 feet of natural-gas pay. This well is expected be completed in the fourth
quarter of 1996, with production to commence immediately, as subsea tie-backs
7
<PAGE>
<PAGE>
are in place to transport hydrocarbons to the facility. Prior to drilling out
of intermediate casing, Mobil elected to participate fully in this well.
Based on the results of this well, EEX and Mobil are evaluating the potential
for additional opportunities in adjoining, but separate, fault blocks to the
reservoir penetrated by the SB-3 well and are working to assess the total size
of the prospect.
It was also announced in late July 1996 that EEX and its partners had
identified alternative development scenarios for the Allegheny project in the
Green Canyon 254 area. A joint project team was formed to evaluate the
various alternatives which are currently available for the design and
construction of production facilities. The project team will also design and
implement a development plan to optimize production from this project. The
additional engineering study and design will delay the project from its
previously planned early 1999 start-up. However, the design changes should
enhance the project's economics. A revised schedule for development will be
announced later.
HEDGING ACTIVITIES - EEX manages a portion of the risk associated with
fluctuations in the price of natural gas and oil through the use of hedging
techniques such as gas and oil swaps, collars and futures agreements. As a
result of such hedging to fix the net prices received, losses or gains occur
and either offset or add to actual prices received to achieve the net fixed
prices. In total, gas and oil price hedging activities reduced revenues for
the third quarter of 1996 by $3.3 million but increased revenues by
$2.1 million in the third quarter of 1995. For the first nine months of 1996,
gas and oil price hedging activities reduced total revenues by $11 million but
increased revenues by $5.6 million in the first nine months of 1995. At
September 30, 1996, EEX had outstanding swaps, collars and futures agreements
that were entered into as hedges extending through July 31, 1997 to exchange
payments on 3.3 billion cubic feet (Bcf) of natural gas and .9 million barrels
of oil. At September 30, 1996, there were $2.1 million of net unrealized and
unrecognized hedging costs based on the difference between the strike price
and the NYMEX futures price for the applicable trading month. In addition,
there were $.2 million of net realized gains on hedging activities which were
deferred and will be applied as an increase in revenues in the month of
physical sale of production.
CAPITALIZED COSTS - Gas and oil prices are subject to seasonal and other
fluctuations. A decline in prices from September 1996 levels or other
factors, without mitigating circumstances, could cause a future write-down of
capitalized costs and a non-cash charge against income under the full-cost
accounting method cost center ceiling limitation.
SALE OF PROPERTIES - EEX has agreements to sell substantially all of its Rocky
Mountain area properties for approximately $120 million. The majority of the
sales, which were effective April 1, 1996, had closed by the end of September
1996. Through September 1996, sales proceeds of $96 million, less
approximately $3 million in closing costs and income from the April effective
date to the closing date, were received and used to reduce borrowings under
the bank revolving credit agreement. The remaining sales will close in the
8
<PAGE>
<PAGE>
fourth quarter of 1996. Most of these properties were acquired in the 1995
acquisition and were sold because they were not within the core area of EEX's
other properties. The properties sold represented proved reserves of
approximately 150 Bcf of natural gas equivalent and average daily production
of approximately 45 MMcf of natural gas equivalent. In accordance with the
full-cost accounting method, EEX credited the net proceeds from the sales to
the carrying value of gas and oil properties.
LIQUIDITY AND FINANCIAL RESOURCES - EEX has funded its activities through cash
provided from operations, borrowings from bank credit facilities and both
operating and capital lease arrangements with an ENSERCH Company. EEX intends
to refinance these lease arrangements prior to ENSERCH's distribution of EEX
to its shareholders (see RECENT EVENTS). In October 1996, EEX executed a new
five-year capital lease arrangement with a group of financial institutions for
the Mississippi Canyon 441 facilities. EEX is currently negotiating a 14-year
capital lease arrangement to replace the Cooper project leases. This
transaction is expected to be completed in November 1996. Also, the bank
credit facilities have been amended to remove the requirement of ownership by
ENSERCH.
Cash Flows - Operating activities for the nine months ended September 30, 1996
provided net cash flows of $106 million, a $26 million increase from the same
period last year. Income before depreciation and amortization and deferred
income-tax expense for the first nine months of 1996 was $119 million, up 76%
from $68 million for the same period in 1995. Changes in current operating
assets and liabilities for the first nine months this year required
$.3 million but provided $21.6 million in the 1995 period.
Investing activities required net cash flows of $62 million, compared with
$374 million for the similar period last year, which included a $333 million
requirement for an acquisition and $114 million provided from the collection
of an affiliated note receivable and retirements of property, plant and
equipment, primarily representing cash received for the sale of a 40% interest
in the Cooper project. The sales of the Rocky Mountain area properties
provided $93 million in the 1996 period, with the proceeds used to reduce debt
incurred in the 1995 acquisition. Additional proceeds of approximately
$20 million from sales of Rocky Mountain properties are expected to be
received in the fourth quarter of 1996, which will also be used to reduce
debt. Current year additions to property, plant and equipment were
$28 million higher than in the first nine months last year. Planned property,
plant and equipment additions for 1996 total some $210 million, compared with
1995 additions of $189 million.
EEX intends to utilize substantially all of its internally generated cash
flows for growth of the business, supplemented by borrowings to fund temporary
cash deficiencies. EEX has a $350 million five-year revolving credit
agreement, $220 million of which was unused at September 30, 1996. In
addition, EEX has a $50 million borrowing arrangement with ENSERCH to meet
working capital needs, which was unused at September 30, 1996. This
arrangement will be canceled when the merger of ENSERCH and Texas Utilities
9
<PAGE>
<PAGE>
Company (TUC) is completed (see RECENT EVENTS). EEX does not anticipate
paying cash dividends in the foreseeable future.
Capital Structure - Total capitalization at September 30, 1996 was
$1.3 billion, virtually the same as year-end 1995. Common shareholders' equity
at September 30, 1996 was 72% of capitalization, compared with 70% at the end
of 1995. In addition, EEX is obligated under operating lease arrangements
with ENSERCH companies for the facilities used on the Cooper project. In June
1996, EEX entered into an operating lease with a financial institution to
finance construction of the facilities to be used in developing and producing
reserves in the Green Canyon 254 project. The initial lease term extends
through June 29, 2003 and may be extended for up to three successive three-
year periods under such terms as the Company and lessor may agree. The
Company has the option to purchase the facilities at the end of the initial
lease term and has guaranteed an estimated residual value of approximately
$116 million should the lease terminate. Lease payments will be deferred
until commencement of production.
RECENT EVENTS - On April 15, 1996, ENSERCH announced that it had entered into
a definitive agreement to enter into a business combination with TUC through
a merger. As a result of this strategic action, the ENSERCH business units
Lone Star Gas Company and Lone Star Pipeline Company, the local distribution
and pipeline companies of ENSERCH, and other businesses will become a part of
TUC. Prior to the merger, ENSERCH's approximate 83% interest in EEX,
represented by approximately 105 million shares of EEX common stock, will be
distributed to ENSERCH shareholders. In connection with this distribution,
and prior to the merger, a special meeting of the shareholders of EEX will be
held on November 15, 1996 to approve a Preliminary Plan of Merger and related
transactions by which EEX will merge with a subsidiary of ENSERCH. This
preliminary merger is believed necessary to enable the distribution to be tax
free to ENSERCH and its shareholders.
The Plan of Merger and related transactions will be submitted for approval by
ENSERCH and TUC shareholders at special meetings to be held on November 15,
1996. The Plan of Merger is also subject to a favorable ruling from the
Internal Revenue Service as to the tax-free nature of the distribution of EEX
shares, and a request for that ruling has been submitted. The requisite
filings with the Federal Trade Commission and the Department of Justice under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 have been made. The
required filing with the Securities and Exchange Commission (SEC) under the
Public Utilities Holding Companies Act of 1935 has been made. In connection
with this 1935 Act filing, the Railroad Commission of Texas has advised the
SEC that it has no objection to the proposed transaction and will rely on its
existing authority and resources to protect the public interest and ratepayers
subject to its jurisdiction, that there is no hindrance under Texas natural
gas utility regulatory law to the proposed transaction and that the Commission
intends to exercise its authority in accordance with applicable law. Closing
of the transaction is expected to occur around year-end 1996.
The Board of Directors has taken several actions to prepare for status as a
fully-independent corporation after the distribution of ENSERCH-owned shares.
10
<PAGE>
<PAGE>
On September 10, 1996, Frederick S. Addy was selected as interim Chairman and
Chief Executive Officer (CEO) to replace David W. Biegler, who will remain
with the ENSERCH entities merging with TUC. Mr. Addy additionally assumed the
position of President on October 31, 1996 following the resignation of
Gary J. Junco. Mr. Addy has served on the board of EEX since its conversion
to corporate form in January 1995. He is a retired Executive Vice President,
Chief Financial Officer and Director of Amoco Corporation. He previously
served on the Board of Directors of ENSERCH, but resigned upon assuming this
position. A firm has been retained to search for a permanent CEO. Several
upper management positions have been or are being filled to solidify the
independent management team. A plan for Board governance is being developed
to ensure proper transitional governance as well as the most suitable Board
structure and composition after the distribution. A joint committee of
Directors, two each from EEX and ENSERCH, has been appointed to participate
in the permanent Chairman and CEO search process and to develop the plan for
Board governance.
11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH EXPLORATION, INC.
SUMMARY OF OPERATING DATA (UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating Income (Loss) (in millions) . . . . . . . . $ 9.0 $ 2.9 $ 29.1 $ (1.5)
====== ====== ====== ======
Revenues (in millions)
Natural gas . . . . . . . . . . . . . . . . . . . . $ 52.2 $ 46.8 $164.1 $113.8
Oil and condensate. . . . . . . . . . . . . . . . . 27.0 17.0 70.9 37.7
Natural gas liquids . . . . . . . . . . . . . . . . 2.8 1.4 6.5 3.1
Other . . . . . . . . . . . . . . . . . . . . . . . 0.7 1.6 1.6 1.8
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . $ 82.7 $ 66.8 $243.1 $156.4
====== ====== ====== ======
Sales Volumes
Natural gas (MMcf) . . . . . . . . . . . . . . . . 25,591 29,083 76,501 63,536
Oil and condensate (MBbls). . . . . . . . . . . . . 1,352 1,018 3,726 2,236
Natural gas liquids (MBbls) . . . . . . . . . . . . 209 157 572 311
Total volumes (MMcfe) (a). . . . . . . . . . . . 34,957 36,133 102,289 78,818
Average Sales Price
Natural gas (per Mcf) . . . . . . . . . . . . . . . $ 2.04 $ 1.61 $ 2.15 $ 1.79
Oil and condensate (per Bbl). . . . . . . . . . . . 19.92 16.72 19.02 16.86
Natural gas liquids (per Bbl) . . . . . . . . . . . 13.52 9.08 11.32 10.03
Total product revenue (per Mcfe) (a) . . . . . . 2.35 1.81 2.36 1.96
Cost and Expenses (per Mcfe)(a)
Production and operating (b). . . . . . . . . . . . $ .55 $ .36 $ .57 $ .42
Exploration . . . . . . . . . . . . . . . . . . . . .09 .10 09 .11
Depreciation and amortization . . . . . . . . . . . 1.10 .97 1.04 1.03
General, administrative and other . . . . . . . . . .21 .19 .23 .27
Taxes, other than income. . . . . . . . . . . . . . .15 .15 .16 .16
Net Wells
Drilled . . . . . . . . . . . . . . . . . . . . . . 30 14 84 53
Productive. . . . . . . . . . . . . . . . . . . . . 22 7 64 33
<FN>
(a) Oil and natural gas liquids have been converted to Mcf equivalents (Mcfe) on the basis of one barrel equals
6.0 Mcfe.
(b) Excludes related production, severance and ad valorem taxes.
</FN>
</TABLE>
12
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 1, 1996, the Texas Natural Resource Conservation
Commission advised EEX that it had been named as one of several
potentially responsible parties for the McBay Oil & Gas State
Superfund site. This site is located near Grapeland, Texas, where
a waste-oil reclamation plant existed from 1959 to 1987. This
matter is currently being investigated by EEX. EEX has insufficient
information at this time to determine the extent of its
responsibility, if any, for the clean-up of this site.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) - Enserch Exploration, Inc. Non-Employee Directors'
Phantom Stock Plan
(10.2) - Restricted Stock Agreement dated as of
September 10, 1996 between the Company and F.S. Addy
(15) - Letter of Deloitte & Touche LLP dated November 12,
1996, regarding unaudited interim financial
statements.
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 31, 1996. (News Release
dated July 31, 1996: Deep-Water Projects' Developments.)
13
<PAGE>
<PAGE>
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.
ENSERCH EXPLORATION, INC.
(Registrant)
Dated November 12, 1996 By /s/ A. E. Gallatin
----------------------------
A. E. Gallatin
Vice President
Dated November 12, 1996 By /s/ J. W. Pinkerton
----------------------------
J. W. Pinkerton
Vice President and Controller
14
<PAGE>
EXHIBIT 10.1
Enserch Exploration, Inc.
Non-Employee Directors' Phantom Stock Plan
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. Enserch Exploration,
Inc., a Texas corporation (hereinafter referred to as "EEX" or the
"Company") hereby establishes a non-employee Directors' compensation
plan to be known as the Enserch Exploration, Inc. Non-Employee
Directors' Phantom Stock Plan (hereinafter referred to as
the "Plan"), as set forth in this document.
The Plan shall become effective as of October 22, 1996 (the
"Effective Date") and shall remain in effect until terminated by
the Board of Directors pursuant to Section 3.3 herein.
1.2 Purposes. The purposes of the Plan are to align the
economic interests of EEX's Directors with those of shareholders by
linking part of the compensation of Directors to increases in value
of EEX; and to provide a financial incentive that will help attract
and retain Directors of outstanding competence.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
2.1 "Award" means, individually or collectively, a grant
of Phantom Stock Units under the Plan.
2.2 "Award Value" shall mean, with respect to each
Phantom Stock Unit, the value on the date of grant equivalent to
the average of the high and the low selling prices of one share of
common stock as reported in the New York Stock Exchange Composite
Transactions Report (or any other consolidated transactions
reporting system which subsequently may replace such Composite
Transactions Report) for the New York Stock Exchange as of the date
such Unit is deemed to be granted, or if there is no sale on the
relevant date, then on the last previous day on which a sale was
reported.
2.3 "Board of Directors" or "Board" means the Board of
Directors of EEX.
2.4 "Change in Control" of EEX means one or more of the
following events:
(a) Any person within the meaning of Section 13(d) and
14(d) of the Exchange Act, other than the Company (including
its subsidiaries), has become the beneficial owner, within the
meaning of Rule 13d-3 under the 1934 Act, of 20% or more of
the combined voting power of the Company's then outstanding
Common Stock or equivalent in voting power of any class or
classes of the Company's outstanding securities ordinarily
entitled to vote in elections of directors ("voting
securities"), or
(b) Shares representing 20% or more of the combined
voting power of the Company's voting securities are purchased
pursuant to a tender offer or exchange offer (other than an
offer by the Company or its subsidiaries or affiliates), or
(c) the shareholders of the Company have:
(i) approved an agreement to merge or consolidate
with or into another corporation or an agreement to sell
or otherwise dispose of all or substantially all of the
Company's assets (including a plan of liquidation), or
(ii) elected two or more persons to serve as
directors of the Company who were not nominated and
approved by the Board or a committee of the Board.
(d) For the purposes of this Section 2.4, no "change in
control" shall be deemed to have occurred as a result of any
action taken on transactions (including any Director or
shareholder approvals thereof) or changes in the ownership of
the Common Stock of the Company arising out of, or in
connection with, (1) the merger of the Company with Lone Star
Energy Plant Operations, Inc. ("LSEPO"); and (2) the spinoff
by ENSERCH Corporation to its shareholders of its entire
interest in the Company or any successor to the Company,
following such merger with LSEPO.
2.5 "Company" means Enserch Exploration, Inc., Texas
corporation, (including any and all subsidiaries), and any
successor thereto, as provided in Section 10.3 hereof.
2.6 "Director" means an individual who is a member of
the Board of Directors of the Company.
2.7 "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor thereto.
2.8 "Non-Employee Director" means a Director of the
Company who is ineligible to receive (or has waived any rights to
receive) any benefit or benefits under any Company-sponsored
pension or retirement plan.
2.9 "Participant" means any eligible Director who has
received an Award under this Plan.
2.10 "Payout Date" means the date of the earlier to occur
of: (i) a Directors' Retirement Date; (ii) a Director's death, or
(iii) a Change in Control.
2.11 "Payout Value" means the aggregate value of the
Phantom Stock Units in a Participant's Account at the Payout Date
based on the value of EEX's common stock determined from the
average of the high and the low selling prices of shares of common
stock of EEX for each day during the ten (10) days immediately
preceding and following the Payout Date in which securities are
traded on the New York Stock Exchange as reported in the New York
Stock Exchange Composite Transactions Report (or any other
consolidated transactions reporting system which subsequently may
replace such Composite Transactions Report).
2.12 "Phantom Stock Unit" or "Unit" means an Award
granted to a Participant as a measure of participation under the
Plan.
2.13 "Plan" means the Enserch Exploration, Inc. Non-Employee
Directors' Phantom Stock Plan, as set forth herein.
2.14 "Retirement Date" shall mean the date a Director
terminates service as a member of the Board of Directors.
Article 3. Administration
3.1 The Board. The Plan shall be administered by the
Board of Directors.
3.2 Authority of the Board. Subject to the provisions
herein, except as limited by law or by the Company's Articles of
Incorporation or Bylaws, the Board shall have full power to:
(i) determine the eligibility of Directors to participate in the
Plan; (ii) determine the terms and conditions of each grant in a
manner consistent with the provisions of the Plan; (iii) construe
and interpret the Plan and any agreement or instrument entered into
under the Plan; (iv) establish, amend, rescind, or waive rules and
regulations for the Plan's administration; and (v) (subject to the
provisions of Section 3.3 herein) amend, modify, and/or terminate
the Plan. Further, the Board shall have the full power to make all
other determinations which may be necessary or advisable for the
administration of the Plan to the extent consistent with the Plan.
Except as limited by applicable law, the Board, at its
discretion, has the right to delegate any or all of its
administrative duties to a committee of the Board or to any
employee or employees of the Company; and to rely on outside
counsel, independent accountants, or other consultants to render
advice and/or assistance in fulfilling any of its administrative
duties hereunder.
3.3 Amendment, Modification, and Termination. The
Board, at its discretion, without prior notice, at any time and
from time to time, may modify or amend, in whole or in part, any or
all of the provisions of the Plan, or may suspend or terminate the
Plan at any time.
Notwithstanding the foregoing, other than as permitted by the
Plan, no such amendment, modification, suspension, or termination
by the Board may materially and adversely affect any outstanding
Phantom Stock Unit or the rights of a Participant hereunder,
without the written consent of the Participant (or a Participant's
beneficiary, as appropriate).
3.4 Decisions Binding. All determinations and decisions
made by the Board of Directors pursuant to the provisions of the
Plan and all related orders or resolutions of the Board shall be
final, conclusive, and binding on all persons, including the
Company, Participants, and any other person claiming an interest
under the Plan.
Article 4. Eligibility and Participation
4.1 Eligibility. Eligibility for participation in the
Plan shall be limited to Non-Employee Directors.
4.2 Participation. Each Non-Employee Director shall
automatically participate in the Plan; provided however, that the
Board may, in its sole discretion, determine that an otherwise
eligible Director shall not participate in a grant of Phantom Stock
Units.
Article 5. Establishment of Phantom Stock Units
5.1 Value of Phantom Stock Units. Each Phantom Stock
Unit shall have a value on the date of grant which is equal to
Award Value as defined in Section 2.2.
Subsequent to the date of grant, the value of the Phantom
Stock Units in a Participant's Account shall be the equivalent of
the Payout Value as such term is defined in Section 2.11 hereof.
The Board, subject to the terms and limitations of the Plan, shall
establish such rules and procedures which it deems appropriate to
further govern the value of Phantom Stock Units granted hereunder.
5.2 Adjustments. In the event of any change in
corporate capitalization, such as a stock split or a corporate
transaction such as any merger, consolidation, separation,
including a spin-off or other distribution of stock or property of
the Company, any reorganization (whether or not such reorganization
comes within the definition of such term in Code Section 368) or
any partial or complete liquidation of the Company, such adjustment
shall be made in the number of Phantom Stock Units subject to
outstanding Awards granted under the Plan, as may be determined to
be appropriate and equitable by the Board, in its sole discretion,
to prevent dilution or enlargement of rights.
Article 6. Grant of Phantom Stock Units
6.1 Grant of Phantom Stock Units. Unless otherwise
determined by the Board pursuant to Section 4.2 or as provided in
this Section 6.1,
(a) each Non-Employee Director who is elected between
annual meetings of shareholders shall be granted a number of
Phantom Stock Units determined by dividing $20,000 by the
Award Value as of the date of such election;
(b) each Non-Employee Director who is elected to the
Board at the annual meeting of shareholders of the Company
shall be granted a number of Phantom Stock Units determined by
dividing $20,000 by the Award Value on the date of the annual
meeting; and
(c) each Non-Employee Director serving on the Effective
Date of the Plan who is determined by the Board to be eligible
at that time to receive Phantom Stock Units shall be granted
an initial award of a number of Phantom Stock Units determined
by dividing $20,000 by the Award Value on the Effective Date.
Anything contained in this Section 6.1 to the contrary
notwithstanding, before any grant occurs, the Board may determine
that the date of grant specified in paragraphs (a), (b) or (c)
above may be postponed to a later date as may be specified by the
Board.
6.2 Dividend Equivalents. As of any dividend payment
date or other distribution date with respect to the Company's
common stock, each Participant's Phantom Stock Unit Account shall
be credited with additional Phantom Stock Units determined by
dividing the value of the dividend payment or other distribution
which the Director would have received had his or her Phantom Stock
Units been actual shares of common stock of the Company by the
Award Value on the Payment Date.
6.3 Vesting of Phantom Stock Units. A Participant's
Phantom Stock Units shall vest at the earlier of the Director's
Retirement Date, death, or a Change in Control.
6.4 Phantom Stock Unit Account. A Phantom Stock Unit
Account ("the Account") shall be established and maintained by the
Company for each Participant that receives an Award under the Plan.
Each Account is maintained solely for accounting purposes and shall
be the record of the number of Phantom Stock Units granted and the
number of Phantom Stock Units granted and credited with respect to
dividend equivalents.
Article 7. Payout of Phantom Stock Units
7.1 Amount of Payout. Except as provided otherwise in
this Plan, the total amount payable to a Participant shall be the
aggregate Payout Value of the Participant's vested Phantom Stock
Units at the Payout Date.
7.2 Timing of Payout. Except as otherwise provided
herein and subject to Article 8 hereof, the Payout Value of vested
Phantom Stock Units shall be paid to Participants, in cash, as soon
as practicable following the Payout Date, but in no event later
than thirty (30) calendar days following the Payout Date.
7.3 Common Stock Election. Unless determined otherwise
by the Board of Directors, the Participant may elect to receive, in
lieu of cash, one share of common stock for each Phantom Stock Unit
in the Participant's Phantom Stock Account. Such election shall be
made in writing in advance of the Payout Date. Common stock
available for such purpose shall be treasury shares and
certificates therefor shall be delivered as soon as practicable
following the Payout Date, subject to compliance with any federal
or state securities laws.
Article 8. Deferral of Payout
Within thirty (30) calendar days following each Director's
initial grant of Phantom Units under the Plan, such Director may
elect to receive amounts otherwise payable under Section 7.2 in one
lump sum under the Plan in the form of two (2) through ten (10)
approximately equal annual installments beginning as soon as
practicable following the Payout Date. An election made under this
Article 8 shall be in writing, in a form prescribed by the Board,
and shall be irrevocable. Amounts deferred pursuant to this
Article 8 shall accrue interest commencing on the Payout Date at a
rate equal to the prime lending rate in effect as published in "The
Wall Street Journal" on the first business day of each month.
Notwithstanding the foregoing, any unpaid deferred amounts and
accumulated interest earned thereon shall be paid to the
Participant or his or her beneficiary, as applicable, in the event
of, at any time prior to full payment of such deferred amounts and
interest earned thereon: (i) the Participant's death; or (ii) a
Change in Control. In such event, payment shall be made in a
single lump sum, in cash, within thirty (30) calendar days after
the Participant's death or the effective date of a Change in
Control, as applicable.
Article 9. Rights of Participants
9.1 Service. Nothing in this Plan shall interfere with,
or limit in any way, the right of the Company to terminate any
Participant's service on the Board of Directors at any time in
accordance with applicable law, nor confer upon any Participant any
right to continue in the service of the Company.
9.2 Nontransferability. No Phantom Stock Unit and the
corresponding rights granted hereunder may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
9.3 Beneficiary Designation. Each Participant under
this Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to
whom any amount under the Plan is to be paid in case of the
Participant's death before receipt of any or all of such amounts.
Each designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Board, and will
be effective only when filed by the Participant in writing with the
Board during his or her lifetime. In the absence of any such
designation, amounts remaining unpaid at the Participant's death
shall be paid to the Participant's estate.
Article 10. Miscellaneous Provisions
10.1 Severability. In the event that any provision of
the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
10.2 Costs of the Plan. All costs of the Plan including,
but not limited to, payout of Phantom Stock Units and
administrative expenses, shall be incurred by the Company out of
the Company's general assets. Although not prohibited from doing
so, the Company is not required in any way to segregate assets in
any manner or to specifically fund the benefits provided under this
Plan.
10.3 Successors. All obligations of the Company under
this Plan with respect to Phantom Stock Units, and the
corresponding rights granted hereunder, shall be binding on any
successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger,
consolidation, or otherwise of all or substantially all of the
voting interests, the business and/or the assets of the Company.
10.4 Indemnification. Each person who is or shall have
been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit,
or proceeding to which he or she may be a party or in which he or
she may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him
or her in settlement thereof, with the Company's approval, or paid
by him or her in satisfaction of any judgment in any such action,
suit, or proceeding against him or her, provided he or she shall
give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it
on his or her own behalf.
The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be
entitled through any authority that the Company may have to
indemnify them or hold them harmless, or by operation of law.
Article 11. Requirements of Law
11.1 Requirements of Law. The granting, administration,
and payout of Phantom Stock Units under this Plan shall be subject
to all applicable laws, rules and regulations and to such approvals
by any governmental agencies or national securities exchanges as
may be required.
11.2 Governing Law. This Plan and all agreements
hereunder shall be construed in accordance with and governed by the
laws of the State of Texas.
<PAGE>
EXHIBIT 10.2
ENSERCH EXPLORATION, INC.
RESTRICTED STOCK AGREEMENT
TO: MR. F. S. ADDY
Upon your acceptance and execution of this Agreement
("Agreement") with Enserch Exploration, Inc. (the "Company"), the
Board of Directors of the Company hereby awards to you (i) 10,000
shares of the Company's Common Stock, $1.00 par value per share
("Common Stock"), as of the date of this Agreement plus (ii) 2,500
shares of Common Stock following each quarterly period beginning
October 1, 1996, in which you serve the Company as its Chairman,
provided, however, that the award of 2,500 shares per quarter shall
be pro rated for service as Chairman of the Company for less than
a full quarter (collectively, the "Awards"). As used in this
Agreement, "Company" shall include the surviving company following
the merger of Enserch Exploration, Inc. into Lone Star Energy Plant
Operations, Inc.
The shares issued pursuant to the Awards shall be fully paid
and nonassessable and shall be represented by certificates
registered in your name, stamped with an appropriate legend
referring to the restrictions contained in this Agreement.
However, the Company shall retain all certificates until the
expiration of the restrictions as set forth below, and you agree to
deliver to the Company a stock power, endorsed in blank, relating
to the shares covered by the Awards. You shall have all the rights
of a stockholder with respect to such shares, including the right
to vote the shares and to receive all dividends or other
distributions paid or made with respect to the shares, provided
that any shares you are entitled to receive by virtue of a
subdivision or combination of shares of Common Stock, a dividend
payable in Common Stock, a reclassification of Common Stock, or any
other changes in capital structure of the Company or its Common
Stock, shall be subject to the restrictions hereinafter set forth.
You agree that any shares issued pursuant to this Agreement
are restricted and cannot be sold, exchanged, assigned,
transferred, discounted, pledged or otherwise disposed of, nor may
such restrictions be removed until the first to occur of (a)
September 10, 1999, (b) the date you cease to be a Director of the
Company or (c) your death ("Restriction Removal Date"). You agree
to serve as Chairman until removed or replaced by the Board of
Directors. If, prior to September 10, 1999, you voluntarily resign
as Chairman or as a Director for reasons other than health, you
will forfeit your right to receive any of the shares issued to you
and held by the Company. A certificate representing nonrestricted
shares shall be issued and delivered to you or your representative
as soon as practicable after the Restriction Removal Date, subject
to the payment of taxes as described below.
You agree that the Company shall have the right to withhold
from any transfer under this Agreement all federal, state, city or
other taxes, if any, as may be required pursuant to any statute or
governmental regulation or ruling ("Withholding Obligation") and to
complete any documentation necessary to effect such Withholding
Obligation. Payment of any Withholding Obligation shall be made in
cash or by the retention of shares by the Company under such terms
and provisions as the Compensation Committee may from time to time
determine. You agree that the delivery by the Company of any
nonrestricted stock certificates is conditioned upon receipt of any
payment required hereby. If the Withholding Obligation is to be
satisfied by the retention of shares, the Company shall retain a
number of shares out of the shares held pursuant to this Agreement
having a Fair Market Value equal to the amount to be withheld.
"Fair Market Value" shall be the average of the high and low prices
of the Common Stock as reported by the New York Stock Exchange
Composite Transactions report on the Restriction Removal Date.
You agree that the terms and provisions of this Agreement
shall be binding upon, and shall inure to the benefit of, you and
your executors or administrators, heirs and personal and legal
representatives. If you so choose, you may, by written notice
delivered to the Company, designate a beneficiary for any portion
of your Awards as to which restrictions shall terminate due to your
death. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas.
You agree that this Agreement sets forth all of the promises,
agreements, conditions, understandings, warranties and
representations between the parties with respect to the Awards and
that there are no promises, agreements, conditions, understandings,
warranties or representations, oral or written, express or implied,
between the parties with respect to the Awards, other than as set
forth in this Agreement.
You agree that this Agreement does not constitute a contract
of employment, or any guarantee thereof.
You represent that you will abide by all applicable federal
securities laws in connection with any disposition of the shares of
the Common Stock you may receive under this Agreement. If at the
Restriction Removal Date, federal securities laws would prohibit
the shares to be freely traded in the public market, the Company
agrees to file with the Securities and Exchange Commission ("SEC")
a registration statement with respect to the shares and give its
best efforts to have the registration statement declared effective
by the SEC.
You agree that in the event of invalidity of any part or
provision of this Agreement, such invalidity shall not affect the
validity of any other part or provision of this Agreement.
Dated and accepted as of the 10th day of September, 1996.
ACCEPTED AND AGREED TO: ENSERCH EXPLORATION, INC.
By: /s/ F. S. Addy By: /s/ W. C. McCord
----------------------- ---------------------------
F. S. Addy W. C. McCord
Chairman of the Compensation
Committee
<PAGE>
EXHIBIT (15)
Enserch Exploration, Inc:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
condensed consolidated financial information of Enserch Exploration, Inc.
and subsidiaries for the periods ended September 30, 1996 and 1995, as
indicated in our report dated October 25, 1996; because we did not perform
an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, is
incorporated by reference in Registration Statements No. 33-57715 and
No. 33-60587 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000931006
<NAME> ENSERCH EXPLORATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,458
<SECURITIES> 0
<RECEIVABLES> 55,864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,213
<PP&E> 2,683,518
<DEPRECIATION> 1,057,590
<TOTAL-ASSETS> 1,725,768
<CURRENT-LIABILITIES> 108,581
<BONDS> 130,000
150,000
0
<COMMON> 940,599
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,725,768
<SALES> 0
<TOTAL-REVENUES> 243,083
<CGS> 0
<TOTAL-COSTS> 214,015
<OTHER-EXPENSES> 126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,712
<INCOME-PRETAX> 11,230
<INCOME-TAX> 3,800
<INCOME-CONTINUING> 7,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,430
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
