<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13916
UNION PACIFIC RESOURCES GROUP INC.
(Exact name of registrant as specified in its charter)
UTAH 13-2647483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 CHERRY STREET, FORT WORTH, TEXAS
(Address of principal executive offices)
76102
(Zip Code)
(817) 877-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- ----
As of October 31, 1997, there were 253,832,179 shares of the
registrant's common stock outstanding.
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UNION PACIFIC RESOURCES GROUP INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED INCOME - For the
Three Months and Nine Months Ended September 30, 1996 and 1997............... 1
CONDENSED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION -
At December 31, 1996 and September 30, 1997.................................. 2 - 3
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS - For the
Nine Months Ended September 30, 1996 and 1997................................ 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS........................... 5 - 9
INDEPENDENT ACCOUNTANTS' REPORT................................................ 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................. 11 - 23
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.............................................................. 24 - 25
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................................... 25 - 26
SIGNATURE............................................................................... 27
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNION PACIFIC RESOURCES GROUP INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
For the Three Months and Nine Months Ended
September 30, 1996 and 1997
(Millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues: (Note 4)
Oil and gas operations:
Producing properties.................................. $ 280.8 $ 292.2 $ 780.6 $ 966.8
Plants, pipelines and marketing....................... 124.2 105.0 364.0 319.4
Other oil and gas revenues............................ 6.8 10.7 23.5 33.9
------- ------- ------- -------
Total oil and gas operations...................... 411.8 407.9 1,168.1 1,320.1
Minerals................................................. 35.3 41.1 96.6 105.2
------- ------- ------- -------
Total operating revenues.......................... 447.1 449.0 1,264.7 1,425.3
------- ------- ------- -------
Operating expenses:
Production............................................... 63.4 71.8 189.8 216.7
Exploration, including exploratory dry holes............. 32.2 58.6 94.1 150.6
Plants, pipelines and marketing.......................... 72.6 66.3 199.0 195.6
Minerals................................................. 2.3 1.3 6.1 3.8
Depreciation, depletion and amortization 132.9 136.5 384.1 404.3
General and administrative............................... 16.4 20.0 46.9 58.4
Total operating expenses............................ ------- ------- ------- -------
319.8 354.5 920.0 1,029.4
------- ------- ------- -------
Operating income ............................................ 127.3 94.5 344.7 395.9
Other income (expense) - net................................. (2.4) 8.7 (1.9) 9.6
Interest expense ............................................ (12.5) (13.8) (38.0) (35.5)
------- ------- ------- -------
Income before income taxes................................... 112.4 89.4 304.8 370.0
Income taxes................................................. (35.5) (22.2) (98.3) (111.2)
------- ------- ------- -------
Net income................................................... $ 76.9 $ 67.2 $ 206.5 $ 258.8
======= ======= ======= =======
Earnings per share........................................... $ 0.31 $ 0.27 $ 0.83 $ 1.03
======= ======= ======= =======
Weighted average shares outstanding.......................... 249.8 251.0 249.8 251.0
Cash dividends per share..................................... $ 0.05 $ 0.05 $ 0.15 $ 0.15
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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UNION PACIFIC RESOURCES GROUP INC.
CONDENSED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
At December 31, 1996 and September 30, 1997
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments................................... $ 118.9 $ 43.8
Accounts receivable - net........................................ 351.6 333.4
Inventories...................................................... 29.4 53.2
Other current assets............................................. 86.4 51.8
----------- ----------
Total current assets....................................... 586.3 482.2
----------- ----------
Properties (successful efforts method):
Cost............................................................. 6,190.0 7,179.9
Accumulated depreciation, depletion and amortization............. (3,217.6) (3,647.7)
----------- ----------
Total properties - net..................................... 2,972.4 3,532.2
Intangible and other assets...................................... 90.2 192.4
----------- ----------
Total assets............................................... $ 3,648.9 $ 4,206.8
=========== ==========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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UNION PACIFIC RESOURCES GROUP INC.
CONDENSED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
At December 31, 1996 and September 30, 1997
(Millions of Dollars)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 407.4 $ 388.9
Accrued taxes payable............................................. 134.1 119.7
Other current liabilities......................................... 71.3 77.4
--------- ---------
Total current liabilities.................................... 612.8 586.0
--------- ---------
Long-term debt ........................................................ 670.9 978.0
Deferred income taxes.................................................. 434.7 502.0
Retiree benefits obligations........................................... 151.4 148.7
Deferred revenues...................................................... 4.9 8.5
Other long-term liabilities (Note 5)................................... 259.9 231.8
Shareholders' equity:
Common stock, no par value;
Authorized shares--400,000,000
Issued shares--250,058,019 and 253,828,102 -- --
Paid-in surplus................................................... 872.9 986.1
Unearned Employee Stock Ownership Plan............................ -- (103.4)
Retained earnings................................................. 674.4 895.7
Unrealized gain on investment..................................... -- 1.2
Unearned compensation............................................. (17.5) (8.8)
Deferred foreign exchange adjustment.............................. (12.0) (13.0)
Treasury stock, at cost;
Shares--154,417 and 230,762 .................................. (3.5) (6.0)
---------- ---------
Total shareholders' equity................................... 1,514.3 1,751.8
---------- ---------
Total liabilities and shareholders' equity $ 3,648.9 $ 4,206.8
========== =========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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UNION PACIFIC RESOURCES GROUP INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1997
(Millions of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Cash flows provided by operations:
Net income ....................................... $ 206.5 $ 258.8
Non-cash charges to income:
Depreciation, depletion and amortization ...... 384.1 404.3
Deferred income taxes ......................... 25.5 68.0
Other non-cash charges - net .................. 61.2 73.2
Changes in current assets and liabilities ........ 52.4 2.2
------- --------
Cash provided by operations ................ 729.7 806.5
------- --------
Investing activities:
Capital and exploratory expenditures ............. (615.7) (1,010.3)
Acquisition of Highlands Gas Corporation ......... -- (179.4)
Proceeds from sales of assets .................... 24.9 22.3
Other investing activities - net ................. (1.8) (6.4)
------- --------
Cash used by investing activities .......... (592.6) (1,173.8)
------- --------
Financing activities:
Dividends paid ................................... (37.3) (37.5)
Debt repaid ...................................... (68.0) (1.3)
Advances to Union Pacific Corporation ............ (123.4) --
Debt financing ................................... -- 308.3
Other financing - net ............................ 91.4 22.6
------- --------
Cash provided (used) by financing
activities................................ (137.3) 292.1
------- --------
Net change in cash and temporary investments ......... (0.2) (75.1)
Cash at beginning of period .......................... 27.6 118.9
------- --------
Cash at end of period ................................ $ 27.4 $ 43.8
======= ========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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<PAGE> 7
UNION PACIFIC RESOURCES GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS - The condensed consolidated
financial statements of Union Pacific Resources Group Inc. and subsidiaries
(the "Company") have been prepared by management and are unaudited. Such
unaudited interim financial statements reflect all adjustments (including
normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results of the Company for the interim periods; however, such condensed
statements do not include all of the information and footnotes required by
generally accepted accounting principles to be included in a full set of
financial statements. The report of Deloitte & Touche LLP commenting on
their review accompanies the condensed consolidated financial statements
and is included in Part I, Item 1 in this report. The Condensed Statement
of Consolidated Financial Position at December 31, 1996 is derived from the
audited financial statements as of December 31,1996. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of the results for the full year ending December
31, 1997.
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 certain assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during each reporting period. Management believes its estimates
and assumptions are reasonable; however, such estimates and assumptions are
subject to a number of risks and uncertainties which may cause actual
results to differ materially from the Company's estimates and assumptions.
2. NEW ACCOUNTING STANDARDS - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share" ("EPS") which establishes new
standards for computing and presenting EPS. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock. The provisions of the statement are
effective for fiscal years ending after December 15, 1997. If the
provisions of SFAS No. 128 had been effective for the nine months ended
September 30, 1997 and 1996, basic and diluted earnings per share would not
have been materially different from primary and fully diluted earnings per
share, respectively, as calculated in accordance with Accounting Principles
Board Opinion No. 15.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose statements. It requires (a) classification of items of
other comprehensive income by their nature in a financial statement and (b)
display of the accumulated balance of other comprehensive income separate
from retained earnings and additional paid-in capital in the equity
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<PAGE> 8
section of the statement of financial position. The Company plans to adopt
SFAS No. 130 for the quarter ended March 31, 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company plans to adopt
SFAS No. 131 for the year ended December 31, 1998.
3. ACQUISITIONS - During the third quarter of 1997, the Company completed
its acquisition of 100% of the outstanding stock of Highlands Gas
Corporation for an adjusted purchase price of approximately $179.4 million,
plus the assumption of certain liabilities. Highlands Gas Corporation is in
the business of gathering, purchasing, processing and transporting natural
gas and natural gas liquids. The acquisition, which includes three natural
gas processing plants, five gathering systems with over 700 miles of gas
and natural gas liquids gathering pipeline and 400 miles of transportation
pipeline, was accounted for using the purchase method of accounting. The
acquisition was funded through the issuance of commercial paper. The
purchase price has been allocated to the assets purchased and the
liabilities assumed based upon their fair values on the date of
acquisition, as follows:
<TABLE>
<CAPTION>
(In millions)
-------------
<S> <C>
Working capital........................... $ 5.7
Property, plant and equipment............. 85.9
Other assets.............................. 9.0
Goodwill.................................. 89.8
Other liabilities......................... (11.0)
--------
Purchase price............................ $ 179.4
========
</TABLE>
During the third quarter of 1997 the Company also entered into an agreement
to acquire certain producing properties of Laurel Operating Corporation for
$53.4 million. The acquisition of such properties was completed in October
1997. Such properties included 8,200 producing acres in South Louisiana, 36
operated wells and approximately 22 drilling locations. Cash from
operations was used to fund the acquisition of such properties.
4. RISK MANAGEMENT - The Company routinely uses derivative financial
instruments to manage and reduce risks associated with hydrocarbon price
volatility and other market variables. These instruments are generally put
in place to limit risk of adverse price movements, however, when this is
done, these same instruments usually limit future gains from favorable
price movements. Such risk management activities are generally accomplished
pursuant to exchange-traded futures contracts or master swap agreements
based on standard forms. Exchange-traded futures contracts require the
Company to maintain margin deposits. At September 30, 1997, the Company had
margin deposits of $31.7 million, $14.0 million from initial contract
requirements and $17.7 million for net unrealized losses. The Company also
utilizes options in its risk management program. These types of contracts
do not require the Company to maintain a margin deposit, but do require the
payment/receipt of premiums.
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<PAGE> 9
Unrealized gains/losses on derivative financial instruments are not
recorded. Recognition of realized gains/losses and option premium
payments/receipts are also deferred until the underlying physical product
is sold. Margin deposits, deferred gains/losses and net premiums are
included in other current assets in the Company's condensed statements of
consolidated financial position.
The Company is exposed to risk of nonperformance by its counterparties due
to such counterparties' unwillingness or inability to pay in accordance
with the terms of the derivative financial instruments ("credit risk"). At
September 30, 1997, the Company's largest credit risk associated with any
single counterparty, represented by the net fair value of open contracts
with such counterparty, was less than $0.1 million.
At September 30, 1997, the Company had near-term futures contracts and
price swaps for November and December 1997 with respect to notional natural
gas volumes of 915 MMcfd at $2.03 per Mcf. The unrecognized mark-to-market
loss associated with such contracts, representing the price the Company
would pay to close such contracts, was $48.5 million, as of September 30,
1997. The Company has simultaneously purchased natural gas put options
(floor) and sold natural gas call options (ceiling), the combination of the
two having the effect of establishing minimum and maximum prices the
Company would receive for natural gas with respect to 180 MMcfd of natural
gas for November and December 1997. At September 30, 1997, the Company's
purchase and sale of such options had established a minimum price of $2.35
per Mcf (including net premium paid) and a maximum price of $3.72 per Mcf
(including net premium received). The value of these options at September
30, 1997 was $0.3 million, representing the fair market value of such
options given current market prices using an option pricing model.
Additionally, the Company has purchased crude oil put options and sold
crude oil call options establishing minimum and maximum prices the Company
would receive for crude oil with respect to 40 MBbld for October through
December 1997. At September 30, 1997, the Company's purchase and sale of
such options had established a minimum price of $18.97 per Bbl (including
net premium paid) and a maximum price of $24.47 per Bbl (including net
premium received). The value of these options at September 30, 1997, was
$1.3 million, representing the fair market value of such options given
current market prices using an option pricing model.
At September 30, 1997, the Company had near-term futures contracts and
price swaps for notional natural gas volumes of 449 MMcfd at $2.34 per Mcf
for January through March 1998; 326 MMcfd at $2.09 per Mcf for April
through October 1998; and 100 MMcfd at $2.17 per Mcf for November and
December 1998. Additionally, the Company had previously sold near-term
futures contracts and price swaps for January through December 1998 with
respect to notional natural gas volumes of 37 MMcfd at $2.21 per Mcf, then
subsequently offset these positions by purchasing corresponding volumes
through futures contracts and price swaps for the same delivery periods.
The unrecognized mark-to-market loss associated with such contracts and
swaps for 1998 delivery periods, representing the price the Company would
pay to close such contracts at the reporting date, was $21.8 million. The
Company has simultaneously purchased natural gas put options and sold
natural gas call options establishing minimum and maximum prices the
Company would receive for natural gas. At September 30, 1997, the Company's
purchase and sale of such options had established a minimum price of $2.04
per Mcf (including net premium paid) with respect to 450 MMcfd of natural
gas and a maximum price of $3.36 per Mcf (including net premium received)
with respect to 385 MMcfd of natural gas for January through March 1998;
and a minimum price of $1.95 per Mcf and a maximum price of $2.76 per Mcf
with respect to 45 MMcfd of natural gas for April through October 1998. The
value of these options at September
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<PAGE> 10
30, 1997, was $0.5 million, representing the fair market value of such
options given current market prices using an option pricing model.
At September 30, 1997, the Company had outstanding long-term physical fixed
price sales contracts which obligate the Company to deliver 65.8 Bcf of
natural gas through June 2008. The Company's marketing subsidiary, Union
Pacific Fuels, Inc., periodically enters into long-term financial contracts
that, in combination with these long-term fixed price sales agreements,
secure a margin on the corresponding volume positions. At September 30,
1997, long-term fixed price sales commitments for which corresponding
financial derivative instruments had not been entered into totaled 58.8 Bcf
of natural gas at an average price of $3.03 per Mcf. The mark-to-market
fair value of these contracts as of September 30, 1997, is $23.3 million.
The remaining commitments for 7.0 Bcf of natural gas had corresponding
financial derivative instruments for similar volumes. The unrecognized
mark-to-market present value related to such hedged commitments at
September 30, 1997, was $0.5 million, consisting of a $1.7 million loss on
the long-term physical fixed price sales contracts offset by a $2.2 million
gain on the corresponding financial derivative instruments. In addition,
Union Pacific Fuels, Inc., periodically enters into financial contracts in
conjunction with transportation, storage and customer service programs. The
unrecognized mark-to-market present value loss associated with such
financial contracts relating to transportation, storage and customer
service programs as of September 30, 1997, was $11.4 million.
At September 30, 1997, the Company had a total unrecognized mark-to-market
present value loss of $55.8 million related to the financial and fixed
price sales contracts described above. This loss consists of a $21.6
million net gain on long-term fixed price contracts and a $77.4 million net
loss on financial derivative instruments. Unrecognized mark-to-market gains
or losses were determined based upon current market prices, as quoted by
recognized dealers, assuming round lot transactions and using a mid-market
convention without regard to market liquidity.
5. COMMITMENTS AND CONTINGENCIES - The Company is subject to Federal, state,
provincial and local environmental laws and regulations and currently is
participating in the investigation and remediation of a number of sites.
Where the remediation costs reasonably can be determined, and where such
remediation is probable, the Company has recorded a liability. Management
does not expect future environmental obligations to have a material impact
on the results of operations, financial condition or cash flows of the
Company.
In the last ten years, the Company has disposed of significant pipeline,
refining and producing property assets. In disposition agreements in
connection therewith, the Company has made certain representations and
warranties relating to the assets sold and provided certain indemnities
with respect to liabilities associated with such assets. The Company has
been advised of possible claims which may be asserted by the purchasers of
certain of the disposed assets for alleged breaches of such representations
and warranties and under certain indemnities. Certain claims related to
compliance with environmental laws remain pending. In addition, some of the
representations, warranties and indemnities related to some of the disposed
assets continue to survive under such disposition agreements. Further
claims may be made against the Company under such disposition agreements or
otherwise. While no assurance can be given as to the actual outcome of
these claims, the Company does not expect these matters to have a
materially adverse effect on its results of operations or financial
condition.
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<PAGE> 11
There are lawsuits pending against the Company and certain of its
subsidiaries which are described in Part II, Item 1 - Legal Proceedings in
this report. The outcome of such lawsuits can not be predicted. The Company
intends to defend itself vigorously against such lawsuits. If the lawsuits
involving royalties ultimately are resolved against the Company on a
widespread basis, damage awards and a loss of future revenue, in the
aggregate, could results which would have a materially adverse effect on
the Company.
The Company is a defendant in a number of other lawsuits and is involved in
governmental proceedings arising in the ordinary course of business in
addition to those described above. The Company also has entered into
commitments and provided guarantees for specific financial and contractual
obligations of its subsidiaries and affiliates. The Company does not expect
that these lawsuits, commitments or guarantees will have a materially
adverse effect on its results of operations, financial condition or cash
flows.
6. PROPOSED ACQUISITION OF PENNZOIL COMPANY-
On October 6, 1997, the Company announced a revised offer (the "Offer") to
acquire all outstanding shares ("Pennzoil Shares") of common stock of
Pennzoil Company, a Delaware corporation ("Pennzoil") for cash at $84 per
share and associated preferred stock purchase rights and extended the
expiration date of the Offer to November 5, 1997.
On October 29, 1997, the expiration date of the Offer was further extended
to November 24, 1997.
The Company is seeking to negotiate with Pennzoil, a definitive acquisition
agreement pursuant to which Pennzoil would, as soon as practicable
following consummation of the Offer, consummate a merger ("Proposed
Merger") with a direct or indirect wholly owned subsidiary of the Company.
To date, Pennzoil has refused to enter into negotiations with the Company
regarding the Proposed Merger. On November 11, 1997, the Company announced
that the Company will terminate the Offer on November 17, 1997 unless
Pennzoil enters into good faith negotiation with the Company on or prior to
such date and demonstrates that Pennzoil's value as a whole has not
declined. Also on November 11, 1997, Pennzoil issued a statement that
Pennzoil does not intend to negotiate with the Company.
The Offer is conditioned on, among other things, Pennzoil's shareholders
rights plan and other anti-takeover measures being invalidated or deemed
inapplicable to the Offer and either the Company's designees constituting a
majority of the Pennzoil Board or Pennzoil having entered into a mutually
acceptable definitive merger agreement with the Company to provide for the
acquisition of Pennzoil pursuant to the Offer and the Proposed Merger.
The Company has incurred costs associated with its efforts to acquire
Pennzoil. These costs primarily consist of legal, investment banking and
other advisor fees and disbursements, printing and mailing costs,
advertising fees and other related items. Currently, these costs are
capitalized as part of the anticipated purchase cost of Pennzoil and will
be allocated to the fair value of the assets acquired if the Offer and
Proposed Merger are consummated. In the event the Company is unsuccessful
in consummating the Offer and Proposed Merger, these costs will be
expensed.
For additional information, please see the Company's Schedule 14D-1, as
amended.
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<PAGE> 12
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Union Pacific Resources Group Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed statement of consolidated financial
position of Union Pacific Resources Group Inc. (the "Company") as of September
30, 1997, and the related condensed statements of consolidated income and cash
flows for the three-month and nine-month periods ended September 30, 1996 and
1997. 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 procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted 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 statement of financial position of Union Pacific
Resources Group Inc. as of December 31, 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated January 29,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed statement of consolidated financial position as of December 31, 1996
is fairly stated, in all material respects, in relation to the statement of
consolidated financial position from which it has been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
October 15, 1997
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNION PACIFIC RESOURCES GROUP INC.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1997
OVERVIEW
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
------- -------
(Millions of dollars)
<S> <C> <C>
Selected financial data:
Total operating revenues.............. $ 447.1 $ 449.0
Total operating expenses.............. 319.8 354.5
Operating income...................... 127.3 94.5
Net income............................ 76.9 67.2
</TABLE>
NET INCOME for the quarter ended September 30, 1997 was $67.2 million, or $0.27
per share, compared to $76.9 million, or $0.31 per share, for the same period in
1996. The 13% decrease in earnings was primarily due to a reduction of operating
income, offset by improvements to other income and income tax expense.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
------- -------
(Millions of dollars)
<S> <C> <C>
Operating income:
Oil and gas operations............... $ 111.9 $ 76.0
Minerals............................. 32.7 39.6
General and administrative........... (17.3) (21.1)
</TABLE>
OPERATING INCOME for the third quarter of 1997 decreased by $32.8 million as
compared to the third quarter 1996. The decrease primarily resulted from
significantly higher exploration expenses and lower marketing income due to
lower product margins. These higher costs were partially offset by higher
producing property volumes and higher mineral royalty income.
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<PAGE> 14
OIL AND GAS OPERATIONS
OPERATING REVENUES
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------
1996 1997
------- -------
(Millions of dollars)
<S> <C> <C>
Operating revenues:
Producing properties.................. $ 280.8 $ 292.2
Plants, pipelines and marketing....... 124.2 105.0
Other oil and gas revenues............ 6.8 10.7
</TABLE>
PRODUCING PROPERTY REVENUES for the three months ended September 30, 1997
increased by $11.4 million compared to the same period in 1996. Production
volume increases of 87.7 MMcfed (6%) added $16.9 million to revenue, while lower
product prices reduced revenue by $5.5 million.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
------- -------
<S> <C> <C>
Production volumes - producing properties:
Natural gas (MMcfd)..................... 981.5 1,085.8
Natural gas liquids (MBbld)............. 29.2 26.8
Crude oil (MBbld)....................... 51.0 50.7
Total (MMcfed).......................... 1,462.8 1,550.5
</TABLE>
Natural gas volumes from producing properties totaled 1,085.8 MMcfd during the
third quarter of 1997. This total represents an increase of 104.3 MMcfd or 11%
from the third quarter 1996. Drilling successes in the Austin Chalk, West Texas,
and South Texas business units, and the absence of a 1996 distribution of
Section 29 partnership volumes contributed to the volume gains. Austin Chalk's
volume growth was attributed to the Louisiana Chalk area. The West Texas
horizontal drilling program, East Texas production from properties acquired from
Castle Energy and the South Texas drilling program at Roleta helped boost
production from those business units for the third quarter of 1997.
For the third quarter of 1997, natural gas liquids volumes from producing
properties decreased by 2.4 MBbld (8%) over the same period in 1996. Lower NGL
lease recoveries at Wamsutter field contributed to the unfavorable quarterly
comparison.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------
1996 1997 1996 1997
------- ------ ------ ------
(without Hedging) (with Hedging)
<S> <C> <C> <C> <C>
Average product price realizations producing properties:
Natural gas (per Mcf).............................. $ 1.73 $ 1.90 $ 1.78 $ 1.84
Natural gas liquids (per Bbl)...................... 11.13 10.05 11.13 10.05
Crude oil (per Bbl)................................ 20.23 18.09 19.12 18.00
Average (per Mcfe)................................. 2.10 2.09 2.09 2.05
</TABLE>
- 12 -
<PAGE> 15
During the third quarter of 1997, net realized natural gas prices with hedging
averaged $1.84 per Mcf, which were $0.06 per Mcf higher than the third quarter
1996 prices. NGL prices averaged $10.05 per Bbl, a 10% decrease from the third
quarter of 1996 NGL average prices. Crude oil prices averaged $18.00 per Bbl
during the third quarter of 1997, a $1.12 decrease per Bbl from the same period
last year.
PLANTS, PIPELINES AND MARKETING REVENUES for the third quarter of 1997 decreased
by $19.2 million to $105.0 million compared to the third quarter of 1996. Lower
average plant product prices of $0.15 per Mcfe (7%) contributed $4.1 million to
the decrease, while higher volumes improved revenues $6.6 million. Pipeline
revenues decreased by $17.3 million, primarily due to the reclassification of
certain sales from pipeline revenue to offset gas purchase costs. Marketing
revenues decreased by $4.7 million primarily due to lower gas margins for the
third quarter of 1997 as compared to the third quarter of 1996.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Sales volumes - plants:
Natural gas (MMcfd).................... 32.3 37.4
Natural gas liquids (MBbld)............ 38.7 43.6
Total (MMcfed)......................... 264.5 299.2
</TABLE>
Natural gas volumes increased by 5.1 MMcfd (16%) from 32.3 MMcfd in the third
quarter of 1996 to 37.4 MMcfd in the third quarter of 1997 due to the
acquisition of Highlands Gas Corporation, partially offset by lower volumes at
an East Texas business unit plant.
Natural gas liquids volumes increased by 4.9 MBbld (13%) to 43.6 MBbld in the
third quarter of 1997, primarily due to the acquisition of Highlands Gas
Corporation.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Average product price realizations - plants:
Natural gas (per Mcf)........................ $ 1.79 $ 2.12
Natural gas liquids (per Bbl)................ 12.74 11.43
Average (per Mcfe)........................... 2.08 1.93
</TABLE>
OTHER OIL AND GAS REVENUES in the third quarter of 1997 were $3.9 million higher
than the third quarter of 1996, primarily due to the recognition of the gain on
the sale of the Company's interest in Frontier pipeline.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating expenses:
Production................................. $ 63.4 $ 71.8
Exploration................................ 32.2 58.6
Plants, pipelines and marketing............ 72.6 66.3
Depreciation, depletion and amortization... 132.9 136.5
</TABLE>
- 13 -
<PAGE> 16
PRODUCTION EXPENSES for the third quarter of 1997 increased by $8.4 million
(13%) over the same period in 1996, largely due to higher lease operating costs.
Lease operating costs were up $7.4 million primarily due to higher maintenance,
salaries and salt water disposal costs in the Austin Chalk, Gulf
Onshore/Offshore and East Texas business units. Production expenses on a per
unit basis were up $0.03 to $0.50 per Mcfe for the third quarter of 1997.
EXPLORATION EXPENSES during the three months ended September 30, 1997 increased
$26.4 million (82%) over the same period last year, primarily due to increased
dry hole and surrendered lease expense. For the third quarter of 1997, dry hole
expense was up $10.5 million due to increased exploratory drilling in the East
Texas and Gulf Onshore/Offshore business units compared with the same period in
1996. Surrendered lease expense was up $8.3 million during the third quarter of
1997, resulting from increased leasing activity in the East Texas, Austin Chalk
and Gulf Onshore/Offshore business units.
OPERATING EXPENSES FOR PLANTS, PIPELINES AND MARKETING decreased by $6.3 million
from the third quarter of 1996 to $66.3 million for the same period in 1997,
primarily due to lower gas purchase costs.
DEPRECIATION, DEPLETION AND AMORTIZATION ("DD&A") increased by $3.6 million to
$136.5 million for the third quarter of 1997, primarily as a result of higher
producing property sales volumes ($6.8 million) and depreciation on properties
acquired in the Highlands Gas Corporation acquisition, partially offset by a
lower unit of production rate ($5.5 million).
OIL AND GAS OPERATING INCOME - Total oil and gas operating income for the third
quarter of 1997 decreased by $35.9 million to $76.0 million as compared to the
third quarter of 1996. Lower producing property operating income of $28.5
million and a $7.4 million decrease in plants, pipelines and marketing operating
income contributed to the decrease in income.
MINERALS OPERATIONS
Minerals operating income of $39.6 for the third quarter of 1997 increased $6.9
over the same period for 1996. This increase was primarily due to the receipt of
a lease royalty bonus related to soda ash properties.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses
increased by $3.6 million (22%) to $20.0 million for the third quarter of 1997
as compared to the same period in 1996. This increase was primarily due to
compensation expense associated with employee stock ownership programs. On a per
unit basis, general and administrative expenses increased by $0.02 to $0.12 per
Mcfe.
INTEREST AND OTHER INCOME - NET - Interest expense increased during the third
quarter of 1997 from the third quarter of 1996 by $1.3 million to $13.8 million
in the third quarter of 1997, primarily due to higher debt levels. Other income
increased by $11.1 million for the third quarter of 1997 due to the partial
release of a reserve associated with the sale of the Wilmington field.
INCOME TAXES - During the third quarter of 1997, income taxes decreased $13.3
million from the same period in 1996 to $22.2 million, principally the result of
lower quarterly income before taxes and a $6.0 million favorable state tax
adjustment. The effective tax rate, excluding the affects of the state tax
adjustment and including 1997 Section 29 tax credits of $4.7 million, remained
fairly constant at 31%.
- 14 -
<PAGE> 17
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1997
OVERVIEW
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Selected financial data:
Total operating revenues.............. $ 1,264.7 $ 1,425.3
Total operating expenses.............. 920.0 1,029.4
Operating income...................... 344.7 395.9
Net income............................ 206.5 258.8
</TABLE>
NET INCOME for the nine months ended September 30, 1997 was $258.8 million, or
$1.03 per share, compared to $206.5 million, or $0.83 per share for the same
period in 1996. The 25% increase in earnings was due to increased revenues
resulting from higher sales volumes from producing properties and higher prices.
Increased exploration expense, production expenses and depreciation expense
partially offset the higher revenues.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income:
Oil and gas operations............... $304.4 $356.8
Minerals............................. 90.0 100.2
General and administrative........... 49.7) (61.1)
</TABLE>
OPERATING INCOME for the nine months ended September 30, 1997 increased by $51.2
million as compared to the same period in 1996. Increased revenue from higher
producing property sales volumes and product prices, along with a mineral lease
royalty bonus were partially offset by lower marketing income related to lower
product margins, higher depreciation expense, exploration expense and general
and administrative expense.
- 15 -
<PAGE> 18
OIL AND GAS OPERATIONS
OPERATING REVENUES
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating revenues:
Producing properties................. $ 780.6 $ 966.8
Plants, pipelines and marketing...... 364.0 319.4
Other oil and gas revenues........... 23.5 33.9
</TABLE>
PRODUCING PROPERTY REVENUES for the nine months ended September 30, 1997 were
$966.8 million compared to $780.6 million for the same period in 1996. Higher
net realized prices and volumes added $95.6 million and $90.6 million,
respectively, to revenues.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
Production volumes - producing properties:
Natural gas (MMcfd)...................... 963.7 1,110.5
Natural gas liquids (MBbld).............. 27.7 29.7
Crude oil (MBbld)........................ 50.7 51.3
Total (MMcfed)........................... 1,434.0 1,596.5
</TABLE>
Natural gas volumes from producing properties totaled 1,110.5 MMcfd during the
nine months ended September 30, 1997, an increase of 146.8 MMcfd (15%) from the
same period in 1996. This increase was primarily due to drilling successes in
the Austin Chalk, West Texas, and South Texas business units, and absence of a
1996 distribution of Section 29 partnership volumes. The Austin Chalk's volume
growth was primarily attributable to the deep drilling program in the Washington
County, Texas area. West Texas' ongoing horizontal drilling program and South
Texas' successful drilling program in the Roleta field were the primary reasons
for the increased production in those business units.
Natural gas liquids volumes from producing properties increased 2.0 Mbld to 29.7
MBbld for the nine months ended September 30, 1997, as compared to for the same
period in 1996. This increase was due to higher NGL recoveries as a result of
richer gas and improved processing efficiency in the Rockies Business unit.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997 1996 1997
---- ---- ---- ----
(without Hedging) (with Hedging)
<S> <C> <C> <C> <C>
Average product price realizations -
producing properties:
Natural gas (per Mcf).............................. $ 1.73 $ 2.08 $ 1.69 $ 2.03
Natural gas liquids (per Bbl)...................... 10.08 11.17 10.08 11.17
Crude oil (per Bbl)................................ 19.30 19.00 18.58 18.54
Average (per Mcfe)................................. 2.05 2.27 1.99 2.22
</TABLE>
- 16 -
<PAGE> 19
Natural gas prices improved $0.34 per Mcf to $2.03 per Mcf with hedging.
Impacted by stronger Rockies business unit natural gas liquids prices, overall
NGL prices averaged $11.17 per Bbl, an 11% increase over 1996 average NGL
prices. Crude oil prices averaged $18.54 per Bbl for the nine months ended
September 30, 1997, slightly below the average prices for the same period last
year.
PLANTS, PIPELINES AND MARKETING REVENUES for the nine months ended September 30,
1997, were $319.4 million compared to $364.0 million for the same period in
1996. Marketing revenues, which decreased primarily due to lower product
margins, were partially offset by higher plant product volumes and prices for
the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
Sales volumes - plants:
Natural gas (MMcfd)................... 27.6 26.3
Natural gas liquids (MBbld)........... 39.5 41.3
Total (MMcfed)........................ 264.4 274.3
</TABLE>
Natural gas volumes decreased by 1.3 MMcfd (5%) from 27.6 MMcfd in the nine
months ended September 30, 1996 to 26.3 MMcfd in the nine months ended September
30, 1997. This decrease was primarily attributed to lower throughput at an East
Texas plant resulting from a maintenance turn-around.
Average NGL volumes increased 1.8 MBbld for the nine months ended September 30,
1997 to 41.3 MBbld, due to the reclass of certain volumes from pipeline
operations to plant operations and the addition of volumes resulting from the
acquisition of Highlands Gas Corporation during the third quarter of 1997.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
Average product price realizations - plants:
Natural gas (per Mcf)........................ $ 1.85 $ 2.21
Natural gas liquids (per Bbl)................ 11.66 11.95
Average (per Mcfe)........................... 1.93 2.01
</TABLE>
Average natural gas prices rose $0.36 per Mcf to $2.21 per Mcf for the first
nine months of 1997, compared to $1.85 per Mcf for the same period in 1996.
OTHER OIL AND GAS REVENUES for 1997 were higher by $10.4 million primarily due
to a $12 million partial reduction of the Columbia Gas Transmission Company
bankruptcy settlement reserve during 1997 and higher gains on sales of assets,
partially offset by lower Section 29 income.
- 17 -
<PAGE> 20
OPERATING EXPENSES
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating expenses:
Production................................. $ 189.8 $ 216.7
Exploration................................ 94.1 150.6
Plants, pipelines and marketing............ 199.0 195.6
Depreciation, depletion and amortization... 384.1 404.3
</TABLE>
PRODUCTION EXPENSES for the nine months ended September 30, 1997 increased by
$26.9 million (14%) compared to 1996, largely due to higher lease operating
costs and production taxes. Increased production taxes in the nine months ended
September 30, 1997 were a direct result of higher producing property revenues.
Lease operating costs were up $19.5 million due to higher workover activity
primarily in the Austin Chalk and Rockies business units. Production expenses on
a per unit basis were $0.50 per Mcfe for the nine months of 1997 as compared to
$0.48 per Mcfe for the same period in 1996.
EXPLORATION EXPENSES during the nine months ended September 30, 1997 increased
$56.5 million (60%) over the same period last year, primarily attributable to
increased dry hole and surrendered lease expense. Dry hole expense was up $17.1
million due to increased exploratory drilling and geological and geophysical
expense in the Gulf Onshore/Offshore and East Texas business units. Surrendered
lease expense was up $22.7 million, primarily a result of increased leasing
activity in the East Texas and Austin Chalk business units.
OPERATING EXPENSES FOR PLANTS, PIPELINES AND MARKETING of $195.6 million were
slightly lower for the nine months ended September 30, 1997 as compared to
$199.0 million in the same period in 1996. Lower gas purchase costs, primarily
in the West Texas and East Texas business units contributed to the lower gas
purchase costs.
DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A) increased by $20.2 million to
$404.3 million for the first nine months of 1997 as compared to the same period
in 1996. This increase was attributed primarily to the impact of higher
producing property volumes and higher plant and pipeline asset base, partially
offset by a write-down of a Gulf Onshore/Offshore property in 1996 and a lower
producing property unit of production rate.
OIL AND GAS OPERATING INCOME - Total oil and gas operating income for the nine
months ended September 30, 1997 increased by $52.4 million to $356.8 million as
compared to the nine months ended September 30, 1996. Higher producing property
operating income of $89.5 million, resulting from improved volumes and prices,
was partially offset by a $37.1 million decrease in plants, pipelines and
marketing operating income.
MINERALS OPERATIONS
Minerals operating income of $100.2 for the nine months ended September 30,
1997 increased $10.2 from the same period for 1996. This increase was due to
higher soda ash royalties, resulting from higher tons mined and the receipt of a
lease bonus related to soda ash properties.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses
increased by $11.5 million (25%) to $58.4 million for the nine months of 1997,
primarily due to increased compensation expense
- 18 -
<PAGE> 21
associated with employee stock ownership programs which were implemented in the
fourth quarter of 1996 and increased cost for the expanded employee base
required to implement the Company's growth strategy. On a per unit basis,
general and administrative expenses increased by $0.01 to $0.11 per Mcfe.
INTEREST AND OTHER INCOME - NET - Other income was higher by $11.5 million from
1996 as a result of a $10.0 million partial reserve release associated with the
sale of the Wilmington field.
INCOME TAXES - For the nine months ended September 30, 1997, income taxes
increased $12.9 million when compared to the same period in 1996 reflecting
higher income before tax. The effective tax rate, excluding a $6.0 million
favorable state tax adjustment and including 1997 Section 29 tax credits of
$14.2 million, remained constant at 32% for 1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash during the nine months of 1997 were its
cash from operations and the issuance of commercial paper. The Company's cash
outflows primarily included capital expenditures for oil and gas operations,
asset acquisitions and payment of dividends. During the third quarter of 1997,
the Company issued $300 million in commercial paper, of which $179.4 million in
proceeds was used to acquire Highlands Gas Corporation.
Cash provided by operations increased 11% from $729.7 million in the nine months
ended September 30, 1996 to $806.5 million for the same period of 1997. The
increase reflects higher cash operating income from producing properties,
partially offset by lower cash operating income from plants, pipelines and
marketing and an increase in general and administrative and income tax expenses.
In addition, changes in working capital, primarily due to an increase in gas and
NGL storage inventories, reduced cash from operations.
Capital and exploratory expenditures, including asset acquisitions, were
$1,189.7 million for the first nine months ended September 30, 1997, an increase
of $574.0 million (93%) compared to the same period for 1996.
Capital and exploratory expenditures are summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Capital and exploratory expenditures:
Exploration and production............... $ 516.2 $ 849.6
Plants, pipelines and marketing.......... 92.4 323.2
Minerals and other....................... 7.1 16.9
------- ---------
Total.................................... $ 615.7 $ 1,189.7
======= =========
</TABLE>
Exploration and production capital spending for the first nine months of 1997
was up by $333.4 million (65%) compared to first the nine months of 1996, as a
result of increased exploratory drilling ($83.2 million), development drilling
($138.4 million) and lease acquisitions expenditures ($100.6 million).
Plants, pipelines and marketing capital expenditures increased primarily due to
the acquisition of Highlands Gas Corporation and ongoing plant expansions.
- 19 -
<PAGE> 22
On July 15, 1997 the Company announced its 1997 capital spending program would
increase from $1.0 billion to $1.5 billion. The 72% increase in spending over
1996 spending levels is due to higher exploration and drilling activity and
approximately $360.0 million in asset and company acquisitions. Such
acquisitions included the outstanding capital stock of Highlands Gas
Corporation, certain East Texas properties from Castle Energy Corporation and
Jordan Oil & Gas Company, L.P. and the certain Louisiana properties acquired
from Laurel Operating Corporation in October 1997. It is anticipated, as a
result of the increased spending program, that long-term debt of the Company at
the end of 1997 will increase to levels near $1.1 billion, excluding any debt
incurred in connection with the proposed acquisition of Pennzoil. The Company's
1998 capital program, excluding acquisitions, is expected to continue on its
1997 pace with an anticipated spending level about the same as in 1997. The
extent and timing of expected spending, however, may be affected by changes in
business and operating conditions as well as the timing and availability of
investment opportunities.
Cash from operations and debt financing should enable the Company to fund its
future capital expenditures, dividends and working capital requirements. During
the fourth quarter 1997, the Company plans to increase its current credit
facility from $600 million to $900 million as a backstop to the issuance of
commercial paper. Proceeds from any issuance of commercial paper will be used
for general corporate purposes, capital expenditures, working capital and
acquisitions.
The Company's total debt at September 30, 1997 of $978.0 million was $307.1
million higher than the December 31, 1996 total debt of $670.9 million. The
Company's debt to book capital ratio at the end of the third quarter of 1997 was
36%.
The Company currently has approximately 60 active drilling rigs under its
control and expects to remain one of the most active drillers in the United
States in 1997 and 1998. Drilling is expected to concentrate in the Austin
Chalk, Gulf Onshore/Offshore, West Texas and East Texas business units. A deep
water Gulf of Mexico 100% working interest exploratory well ("Gomez well") in
the Gomez prospect was successfully completed during the third quarter of 1997.
The prospect currently has proved reserves of 20-25 Mmbbls oil equivalent and a
potential reserve base of 140 Mmbbls of oil equivalent. The Company owns a
number of blocks surrounding the Gomez well and in the Mississippi Canyon area.
The Company plans to drill two to three wells in this area next year to further
delineate the extent of the discovery with possibly seven to ten wells in total
being drilled to develop the field. Approximately $500 million is expected to be
invested in this area provided the extent of this discovery is confirmed with
additional drilling. Production from the Gomez well of 40 MBbld is expected to
commence in the year 2000. The Company made another discovery in British
Columbia, Canada. This Canadian discovery (50% working interest) has proved
reserves of 80-100 Bcf of gas. First production from this Canadian discovery is
expected to commence in the first quarter of 1998.
During the third quarter, several other significant drilling successes occurred.
In the Austin Chalk business unit, the Harmon #1, Crosby #12, Crosby #36, and
the Johnson #24 were completed. During the third quarter, the East Texas
business unit's Bear Cat Unit #1 well commenced production.
The Company will continue to aggressively pursue asset acquisition opportunities
and expansion of its plants, pipelines and marketing business. The Company plans
to expand the Sonora Plant, obtained through the purchase of Highlands Gas
Corporation, from 68 Mmcfd to 120 Mmcfd. In Louisiana, the Company's Master's
Creek gas processing plant started operations during August 1997. Currently, the
plant is processing 55 Mmcfd. The plant's throughput is expected to increase to
its current 100 Mmcfd capacity in the fourth quarter of 1997, as a result of
continued drilling efforts. The Company plans to expand this plant's
- 20 -
<PAGE> 23
capacity to 200 Mmcfd in the first quarter of 1998. The East Texas business unit
plans to expand its plant capacity from 660 Mmcfd to 780 Mmcfd. This East Texas
plant expansion will be completed in 1998. The Rockies business unit plans to
expand its plant from 30 Mmcfd to 145 Mmcfd. In addition, the Rockies business
unit plans to complete the construction of the helium plant in 1998.
As a result of drilling, property purchases and plant expansions, the Company
expects to increase its total annual sales volumes in 1997 by approximately 10%
over 1996 levels while increasing its hydrocarbon reserves. This sales volume
growth is anticipated primarily in the Austin Chalk, Gulf Onshore/Offshore and
West Texas business units. This rate of growth is expected to continue during
1998 as plant expansion and drilling in the Company's core areas remains
aggressive.
The Company also plans to continue to evaluate international venture
opportunities where its technological expertise and experience can be utilized.
The Company paid a $0.05 per share ($12.5 million) quarterly cash dividend on
its outstanding shares of common stock in July 1997. In addition, on July 31,
1997, the Board of Directors declared a cash dividend of $0.05 per share which
was paid on October 1, 1997.
PROPOSED ACQUISITION OF PENNZOIL COMPANY
On October 6, 1997, the Company announced a revised offer (the "Offer") to
acquire all outstanding shares ("Pennzoil Shares") of common stock of Pennzoil
Company, a Delaware corporation ("Pennzoil") for cash at $84 per share and
associated preferred stock purchase rights and extended the expiration date of
the Offer to November 5, 1997.
On October 29, 1997, the expiration date of the Offer was further extended to
November 24, 1997.
The Company is seeking to negotiate with Pennzoil, a definitive acquisition
agreement pursuant to which Pennzoil would, as soon as practicable following
consummation of the Offer, consummate a merger ("Proposed Merger") with a direct
or indirect wholly owned subsidiary of the Company.
To date, Pennzoil has refused to enter into negotiations with the Company
regarding the Proposed Merger. On November 11, 1997, the Company announced that
the Company will terminate the Offer on November 17, 1997 unless Pennzoil enters
into good faith negotiation with the Company on or prior to such date and
demonstrates that Pennzoil's value as a whole has not declined. Also on November
11, 1997, Pennzoil issued a statement that Pennzoil does not intend to negotiate
with the Company.
The Offer is conditioned on, among other things, Pennzoil's shareholders rights
plan and other anti-takeover measures being invalidated or deemed inapplicable
to the Offer and either the Company's designees constituting a majority of the
Pennzoil Board or Pennzoil having entered into a mutually acceptable definitive
merger agreement with the Company to provide for the acquisition of Pennzoil
pursuant to the Offer and the Proposed Merger.
The Company has incurred costs associated with its efforts to acquire Pennzoil.
These costs primarily consist of legal, investment banking and other advisor
fees and disbursements, printing and mailing costs,
- 21 -
<PAGE> 24
advertising fees and other related items. Currently, these costs are capitalized
as part of the anticipated purchase cost of Pennzoil and will be allocated to
the fair value of the assets acquired if the Offer and Proposed Merger are
consummated. In the event the Company is unsuccessful in consummating the Offer
and Proposed Merger, these costs will be expensed.
For additional information, please see the Company's Schedule 14D-1, as amended.
FORWARD LOOKING INFORMATION
Certain information included in this report contains, and other materials filed
or to be filed by the Company with the Securities and Exchange Commission (as
well as information included in oral statements or other written statements made
or to be made by the Company) contain or will contain, or include, forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Such forward looking statements may be or may concern, among other
things, capital expenditures and drilling activity (including the Gomez well and
the British Columbia discovery), acquisition plans and proposals (including the
proposed Pennzoil acquisition) and dispositions, development activities, cost
savings, production efforts and volumes, hydrocarbon reserves, hydrocarbon
prices, hedging activities and the results thereof, liquidity, regulatory
matters, competition and the Company's ability to realize significant
improvements with the change to a more adaptive corporate culture. Such forward
looking statements generally are accompanied by words such as "plan,"
"estimate," "expect," "predict," "anticipate," "goal," "should," "assume,"
"believe" or other words that convey the uncertainty of future events or
outcomes.
Such forward looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward looking statements made by or on behalf of the Company. The risks and
uncertainties include generally the volatility of oil, gas prices and
hydrocarbon-based financial derivative prices; basis risk and counterparty
credit risk in executing hydrocarbon price risk management activities; the
consummation of acquisition plans and proposals (including the proposed Pennzoil
acquisition) and the ultimate terms thereof; economic, political, judicial and
regulatory developments; competition in the oil and gas industry as well as
competition from other sources of energy; the economics of producing certain
reserves; demand and supply of oil and gas; the ability to find or acquire and
develop reserves of natural gas and crude oil; and the actions of customers and
competitors. Additionally, unpredictable or unknown factors not discussed herein
could have material adverse effects on actual results related to matters which
are the subject of forward looking information. The Company does not intend to
update these cautionary statements.
With respect to expected capital expenditures and drilling activity, additional
factors such as the extent of the Company's success in acquiring oil and gas
properties and in identifying prospects for drilling, the availability of
acquisition opportunities which meet the Company's objectives as well as
competition for such opportunities, exploration and operating risks, the success
of management's cost reduction efforts and the availability of technology may
affect the amount and timing of such capital expenditures and drilling activity.
With respect to expected growth in production and sales volumes and estimated
reserve quantities, factors such as the extent of the Company's success in
finding, developing and producing reserves, the
- 22 -
<PAGE> 25
timing of capital spending and acquisition programs, uncertainties inherent in
estimating reserve quantities and the availability of technology may affect such
production volumes and reserve estimates. With respect to liquidity, factors
such as the state of domestic capital markets, acquisition activity, credit
availability from banks or other lenders and the Company's results of operations
may affect management's plans or ability to incur additional indebtedness. With
respect to cash flow, factors such as changes in oil and gas prices, the
Company's success in acquiring producing properties, environmental matters and
other contingencies, hedging activities, the Company's credit rating and debt
levels, and the state of domestic capital markets may affect the Company's
ability to generate expected cash flows. With respect to contingencies, factors
such as changes in environmental and other governmental regulation, and
uncertainties with respect to legal matters may affect the Company's
expectations regarding the potential impact of contingencies on the operating
results or financial condition of the Company. Certain factors, such as changes
in oil and gas prices and underlying demand and the extent of the Company's
success in exploiting its current reserves and acquiring or finding additional
reserves may have pervasive effects on many aspects of the Company's business in
addition to those outlined above.
- 23 -
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Mineral Reservation Litigation
In August 1994, the surface owners (McCormick, et al.) of portions of five
sections of Colorado land that are subject to mineral reservations made by the
Company's predecessor in title brought suit against the Company in the state
District Court, Weld County, Colorado, to quiet title to minerals, including
crude oil (in some of the lands) and natural gas. The state District Court heard
arguments on the Company's motion for summary judgment on May 23, 1997. On June
23, 1997, the District Court granted the Company's motion holding as a matter of
law that the mineral reservations at issue were unambiguous and included all
valuable nonsurface substances, including oil and gas. A final judgement was
entered on August 5, 1997. Thereafter, such surface owners filed a notice of
appeal to the Colorado Court of Appeals on September 17, 1997.
Royalty Litigation
The Company is a defendant in three suits now pending in state district courts
in Fayette County (filed August 1995, 155th District Court), Lee County (filed
August 1995, 335th District Court), and Harris County (filed August 1995,
transferred from Calhoun County to 11th District Court), Texas, in which the
plaintiffs allege that the Company underpaid their royalties for crude oil
production in Texas. The plaintiffs seek certification as a class action in each
suit. The plaintiffs include the Texas General Land Office in the Fayette County
suit, Lee County in the Lee County suit, and Martin, et al. in the Harris County
suit. Generally, the allegations are premised upon plaintiffs' theory that the
defendants (including the Company) use "posted prices" to determine the amounts
payable as royalties for crude oil production. The plaintiffs allege that the
defendants "set" these posted prices, that posted prices are consistently below
"market value," and that this practice has resulted in the underpayment of
royalties to the plaintiffs. In addition to the allegations couched in terms of
breaches of contract and implied covenants, the Lee County case also alleges
that the Company has engaged (and conspired with others) in discriminatory
practices in the sales of crude oil in violation of numerous state statutes.
Further, the Harris County case: (i) adds claims with respect to natural gas,
including claims that the Company discriminated against plaintiffs in the sale
of natural gas and natural gas liquids, in the deductions for transportation and
other services and in the prices used to account to the plaintiffs for their
royalties; and (ii) adds claims (regarding both crude and gas) for alleged
breaches of alleged fiduciary duties and intentional misrepresentation. A
significant defendant in another case with similar claims has announced a
settlement agreement which has received the court's approval. The impact of such
settlement, if any, with respect to this case, has not been ascertained.
The Company is also one of the defendants in an antitrust suit filed in
September 1996 in an Alabama state court (the Circuit Court of Escambia County)
against a number of crude oil producers alleging that the use of posted prices
by defendants to pay royalties on crude oil produced in the United States arises
from a combination, conspiracy or agreement designed to fix, depress and
maintain such crude prices at artificially low levels. The plaintiffs (Lovelace,
et al.) allege that such practices violate the Alabama antitrust laws and the
antitrust laws of every other state. The plaintiffs obtained, on an ex parte
basis, a "conditional" certification of a class consisting of all working and
royalty interest owners of crude oil produced in the United States since 1986
who have been paid by defendants based on posted prices. The suit was removed to
Federal court in Alabama on October 17, 1996, but then was remanded back to the
state court on April 1, 1997. Defendants have filed a motion to vacate the
conditional class certification order and all parties anticipate a full hearing
on the class certification issue, currently scheduled for June, 1998. A
significant
- 24 -
<PAGE> 27
defendant in this litigation has announced a settlement agreement with the
plaintiffs. A fairness hearing was held on August 25, 1997 with respect to such
defendant's settlement and a decision from the Court is pending. The impact of
such settlement, if any, with respect to the remaining defendants and similar
suits, has not been ascertained.
The Company was recently added as a defendant to a class action suit pending in
the United States District Court, Western District, Lake Charles Division,
Cameron Parish, Louisiana. The plaintiffs have sued on behalf of two
sub-classes: the first one is a nationwide class which alleges violations of
Federal antitrust laws, and the second one is a statewide class which alleges
contract and tort claims.
None of the royalty litigation suits described above articulate a theory of
recovery or a specific amount of damages. This litigation activity against the
Company and others in the oil and gas industry suggests that more suits of this
type may be filed against the Company including, perhaps, suits by other types
of interest owners and suits in jurisdictions other than those set forth above.
The Company intends to defend vigorously against the foregoing, as well as any
similar suits. If such suits are resolved ultimately against the Company on a
widespread basis, however, damage awards and a loss of future revenue could
result which, in the aggregate, could have a materially adverse effect on the
Company.
General
The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business in addition
to those described above, including contract claims, personal injury claims and
environmental claims. While the Company cannot predict the outcome of such
litigation and other proceedings, it does not expect those matters to have a
materially adverse effect on its results of operations or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Union Pacific Resources Group Stock Unit Grant and Deferred Compensation
Plan for the Board of Directors, effective September 28, 1995 as amended
and restated (September 5, 1997)
10.2 Union Pacific Resources Group Inc. Executive Deferred Compensation Plan
effective September 5, 1997
11 Computation of earnings per share
12 Computation of ratio of earnings to fixed charges
15 Awareness letter of Deloitte & Touche LLP dated as of November 14, 1997
27 Financial data schedule (included only in the electronic filing of this
document)
- 25 -
<PAGE> 28
(b) REPORTS ON FORM 8-K
On October 14, 1997, the Company filed a Current Report on Form 8-K containing a
copy of the press release issued by the Company on October 6, 1997. This press
release announced that the Company and Resources Newco, Inc., a wholly owned
subsidiary of the Company, had revised its Offer to purchase Pennzoil Company to
an all cash offer at a stock price of $84.00 per share.
- 26 -
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1997
UNION PACIFIC RESOURCES GROUP INC.
(Registrant)
/s/ Morris B. Smith
--------------------------------
Morris B. Smith,
Vice President and Chief Financial
Officer
(Chief Financial Officer and
Duly Authorized Officer)
- 27 -
<PAGE> 30
UNION PACIFIC RESOURCES GROUP INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Union Pacific Resources Group Stock Unit Grant and Deferred
Compensation Plan for the Board of Directors, effective
September 28, 1995 as amended and restated (September 5, 1997)
10.2 Union Pacific Resources Group Inc. Executive Deferred Compensation Plan,
effective September 5, 1997
11 Computation of earnings per share
12 Computation of ratio of earnings to fixed charges
15 Awareness letter of Deloitte & Touche LLP dated as of November 14, 1997
27 Financial data schedule (included only in the electronic filing of this document)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
UNION PACIFIC RESOURCES GROUP INC.
DEFERRED COMPENSATION PLAN
FOR THE BOARD OF DIRECTORS
AMENDED AND RESTATED
EFFECTIVE SEPTEMBER 5, 1997
1. PURPOSE
The purpose of this Plan is to provide a means for deferring payment of
all or a portion of any compensation, excluding expenses, payable to
Directors for their service on the Board of Directors (the "Board") of
Union Pacific Resources Group Inc. (the "Company") in accordance with
the ByLaws of the Company. Such compensation eligible to be deferred is
referred to herein as "Compensation". This Plan shall also permit
Directors to defer gains attributable to the exercise of non-qualified
stock options which may be granted to them by the Company ("Stock
Option Gains").
2. ELIGIBILITY
Any individual serving as a member of the Board as of the effective
date of this Plan or who subsequently becomes a member is eligible
under this Plan, provided that no member who is an employee of the
Company or any of its subsidiaries shall be eligible under this Plan.
3. PRIOR PLAN
Any person who terminated service as a Director prior to the effective
date of this Plan and who participated in and is entitled to benefits
under the Union Pacific Resources Group Inc. Stock Unit Grant and
Deferred Compensation Plan for the Board of Directors, effective
September 28, 1995 (the "Prior Plan") shall continue to have such
rights and be subject to such restrictions as would pertain to him or
her under the Prior Plan. Any person who is a Director on the effective
date of this Plan and who participated in and is entitled to benefits
under the Prior Plan shall now have such rights and be subject to such
restrictions as would pertain to him or her under this Plan; provided,
however, that under no circumstances shall any benefits or rights under
the Prior Plan be diminished or impaired by this Plan.
4 ELECTION
Election to defer Compensation is to be made on or before December 31
of any year for Compensation for services as a member of the Board for
the following and later calendar years.
Election to defer is a continuing election until changed by the
Director on or before December 31 of any year for the then following
and later calendar years. However, once an election is made (and
effective), subsequent elections will have no effect on the amounts,
timing and manner of payment covered by the previous election.
Any newly elected Director who was not a Director on the preceding
December 31 may elect, before his or her term begins, to defer
Compensation for services as a member of the Board for the balance of
the calendar year in which such election is made.
Any Director who has not previously made a deferral election because
such Director was not eligible to participate in this Plan, may elect,
prior to the calendar quarter for which Compensation will
<PAGE> 2
initially be paid, to defer Compensation for services as a member of
the Board for the balance of the calendar year in which such election
is made.
The deferral of Stock Option Gains shall be subject to similar prior
election procedures as determined by the Company.
Forms shall be made available to Directors each year for the purpose of
making or changing their election.
5. AMOUNT
All or any portion, in multiples of 10%, of a Director's Compensation
may be deferred.
Stock Option Gains may be deferred to the extent permitted by the
Company.
6. DEFERRED ACCOUNTS
Each Director shall have a Stock Unit Account and a Fixed Income
Account (together, the "Accounts"). Amounts deferred pursuant to
paragraph 4 may be credited to either Account, at the election of the
Director made at the time of the deferral election, in multiples of 10%
of such Director's Compensation; provided, however, that deferred Stock
Option Gains must be credited to the Stock Unit Account.
(a) STOCK UNIT ACCOUNT
(i) Amounts deferred and credited to the Stock Unit
Account shall be converted into whole Stock Units on
the basis of the Fair Market Value of the Company's
Common Stock on the first business day of the month
following the quarter in which the Compensation was
earned, and cash shall be credited to the Stock Unit
Account in lieu of any fractional Stock Unit. "Fair
Market Value" on a date means the average of the high
and low trading prices per share on that date, as
reported in The Wall Street Journal listing of
consolidation trading for New York Stock Exchange
issues. Stock Option Gains shall be converted into
whole stock units under similar rules established by
the Company.
(ii) On the payment date for each cash dividend or other
cash distribution with respect to the Company's
Common Stock, each Director's Stock Unit Account
shall be credited with an amount equal to the amount
of the per share dividend or distribution, multiplied
by the number of Stock Units in such Account, and, if
such Director is then serving as a member of the
Board, shall be converted into whole Stock Units on
the basis of the Fair Market Value of the Company's
Common Stock on the payment date for such dividend or
distribution, and cash shall be credited to the Stock
Unit Account in lieu of any fractional Stock Units.
If a Director is no longer serving as a member of the
Board on the payment date for such dividend or
distribution, the amount representing such dividend
or distribution shall be paid out of the Stock Unit
Account to such Director as soon as practicable after
the payment date for such dividend or distribution.
Except as provided in the preceding sentence, any
cash credited to a Director's Stock Unit Account
shall be added to other cash credited to such Account
and converted into a whole Stock Unit on the
- 2 -
<PAGE> 3
date sufficient cash exists to purchase a whole Stock
Unit, based on the Fair Market Value of the Company's
Common Stock on such date.
(iii) In the event of a subdivision or combination of
shares of Company Stock, the number of Stock Units
credited to the Stock Unit Accounts on the effective
date of such subdivision or combination shall be
proportionately subdivided or combined as the case
may be. No adjustment shall be made in Stock Units in
connection with the issuance by the Company of any
rights or options to acquire additional shares of
Company Common Stock or securities convertible into
Company Common Stock. In the event of any stock
dividend or reclassification of Company Common Stock,
any merger or consolidation to which the Company is a
party, or any spinoff of shares or distribution of
property other than cash with respect to the Company
Common Stock, the Committee shall cause appropriate
adjustments, if any, to be made in the Stock Units to
reflect such stock dividend, reclassification, merger
or consolidation, spinoff or distribution of
property.
(iv) The Company shall credit an additional 25 percent to
the Account of any Director who elects to have his or
her Compensation deferred and credited to the Stock
Unit Account. The Company's matching contribution
shall also be credited to the Stock Unit Account and
shall remain so credited until the Director
terminates service as a member of the Board for any
reason. The Company's matching contribution shall be
forfeited by the Director if he or she terminates
service (for reasons other than disability or death)
prior to the first anniversary of the date such
matching contribution is credited to his or her
Account. Notwithstanding the foregoing, a forfeiture
shall not be imposed if the Director's termination of
service occurs within two years of a change of
control of the Company or the Company determines that
it is in the best interests of the Company not to
impose the forfeiture. The Company's matching
contribution shall not be credited with respect to a
Director's deferral of Stock Option Gains.
(b) FIXED INCOME ACCOUNT. Amounts credited to the Fixed Income
Account shall earn interest compounded quarterly, from the
date the Compensation would otherwise have been paid until it
is actually paid in full. The rate of interest shall be set at
an annual rate equal to the average for the previous four
years of the interest rates for the months of December in each
such years on Moody's A Public Utility Bond Yields and Moody's
A Corporate Bond Yields.
7. DISTRIBUTION
All distributions from the Fixed Income Account shall be made in cash.
All distributions from the Stock Unit Account shall be made in whole
shares of the Company's common stock, except that any fractional share
shall be paid in cash. The Director must elect, at the same time and on
the same form provided to elect a deferral of Compensation or a Stock
Option Gain, the timing and manner of payment of such Compensation or
Stock Option Gain.
- TIMING OF PAYMENT: Distributions from the Accounts shall begin
following termination from the Board for any reason, provided
that in the case of distributions from the Fixed
- 3 -
<PAGE> 4
Income Account, the Director may elect that distributions
begin following retirement from the Director's principal
occupation.
- MANNER OF PAYMENT: The Director may elect to receive payment
from the Accounts in a lump sum or in a number of annual
installments of an aggregate amount of cash equal to the value
of the accounts maintained for the Director in the Accounts at
the Valuation Date next preceding the installment payment
divided by the remaining number of such annual installments.
The installments may be paid over a period of either 5 or 10
years.
The lump sum or first installment is to be paid in January of the year
following the year of termination or retirement, as elected by the
Director, and any remaining installments in January of each succeeding
year until the total balance is paid.
Distributions from the Stock Unit Account in installments shall be
based on equal numbers of Stock Units in each installment.
In the event of the death of a Director then serving as a member of the
Board or a terminated or retired Director entitled to a distribution
under this Plan, the balance of the Accounts shall be payable to the
estate or designated beneficiary in full during the January of the year
following the year of such Director's, terminated Director's or retired
Director's death.
The Director may designate his or her beneficiary at the same time he
or she elects deferral of Compensation or Stock Option Gain. However,
the latest designated beneficiary will be the beneficiary or
beneficiaries for the total of all distributions from the Accounts. The
designated beneficiary may be changed at any time on a form provided by
the Secretary of the Company, provided that no designation will be
effective unless it is filed with the Secretary of the Company prior to
the Director's death.
8. UNFUNDED PLAN
The liability of the Company to any Director, terminated Director,
retired Director or his or her estate or designated beneficiary under
the Plan shall be that of a debtor only pursuant to such contractual
obligations as are created by the Plan, and no such obligation of the
Company shall be deemed to be secured by any assets, pledges, or other
encumbrances on any property of the Company.
9. INALIENABILITY OF DEFERRED COMPENSATION
Except to the extent of the rights of a designated beneficiary, no
distribution pursuant to, or interest in, the Plan may be transferred,
assigned, pledged or otherwise alienated and no such distribution or
interest shall be subject to legal process or attachment for the
payment of any claims against any individual entitled to receive the
same.
10. CONTROLLING STATE LAW
All questions pertaining to the construction, regulation, validity and
effect of the Plan shall be determined in accordance with the laws of
the State of Texas.
- 4 -
<PAGE> 5
11. AMENDMENT
The Board of Directors of the Company in its sole discretion may amend,
suspend or terminate the Plan at any time. However, any such amendment,
suspension or termination of the Plan may not adversely affect any
Director's or his or her beneficiary's rights with respect to
Compensation previously deferred.
12. ADMINISTRATION
Administration of the Plan will be coordinated by the Finance
Department of the Company. Administration will include, but not be
limited to, crediting of deferred compensation, dividends and accrued
interest to individual Director accounts and ultimate disbursement of
deferred amounts.
13. EFFECTIVE DATE
This Plan shall become effective September 5, 1997, applicable only to
compensation for services rendered on or after that date. This Plan
shall supersede the plan that was effective June 1, 1997 (the "Prior
Plan"), except that any deferrals made under the Prior Plan shall
continue to be subject to the terms and conditions of the Prior Plan.
- 5 -
<PAGE> 1
EXHIBIT 10.2
UNION PACIFIC RESOURCES GROUP INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(Effective September 5, 1997)
ARTICLE I
Establishment of the Plan
-------------------------
1.1. PURPOSE. The Union Pacific Resources Group Inc. (the "Company")
hereby adopts the Union Pacific Resources Group Inc. Executive Deferred
Compensation Plan (the "Plan") for the purpose of allowing selected
executives of the Company and its subsidiaries to defer salary,
executive incentive awards and certain items of long-term incentive
compensation. The Company intends that the Plan shall at all times be
maintained on an unfunded basis for federal income tax purposes under
the Internal Revenue Code of 1986, as amended (the "Code"), and
administered as a "top hat" plan exempt from the substantive
requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). To the extent that this Plan permits the deferral of
"performance-based compensation" within the meaning of Code section
162(m), it is the Company's intention that this Plan be administered in
a manner which preserves the status of such compensation as
"performance-based compensation".
1.2. EFFECTIVE DATE. Unless otherwise indicated, this Plan shall be
effective as of September 5, 1997.
ARTICLE II
Definitions
-----------
2.1 ACCOUNT. The bookkeeping record of a Participant's deferrals and
corresponding credits as provided in Article V.
2.2 BENEFICIARY. The individual or individuals designated by the
Participant to receive distributions under this Plan in the event of
the Participant's death.
2.3 BOARD. The Board of Directors of the Union Pacific Resources Group
Inc. or such Committee thereof delegated to act on its behalf.
2.4 CHANGE OF CONTROL. An event set forth in any one of the following
paragraphs:
(a) any person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates other than in
connection with the acquisition by the Company or its affiliates of
a business) representing 15% or more of either the then outstanding
shares of common stock of the Company or the combined voting power
of the Company's then outstanding securities; or
<PAGE> 2
(b) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company (as such
terms are used in Rule 14a-11 of Regulation 14A under the
Securities Exchange Act of 1933)) whose appointment or election
by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds ( ) of
the directors then still in office who either were directors on
the date hereof or whose appointment, election or nomination for
election was previously so approved; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or
approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any
direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (i) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, at least 50% of
the combined voting power of the voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person is or becomes
the beneficial owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned
by such person any securities acquired directly from the Company
or its affiliates other than in connection with the acquisition
by the Company or its affiliates of a business) representing 15%
or more of either the then outstanding shares of common stock of
the Company or the combined voting power of the Company's then
outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of
the Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an
entity, at least 50% of the combined voting power of the voting
securities of which are owned by persons in substantially the
same proportions as their ownership of the Company immediately
prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially
the same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately following
such transaction or series of transactions.
2.5 COMMITTEE. The Compensation and Corporate Governance Committee of
the Board.
2.6 COMPANY. Union Pacific Resources Group Inc.
<PAGE> 3
2.7 DEFERRAL ELECTION. The Executive Incentive Award Deferral
Election, the Long-Term Incentive Deferral Election, and the Salary
Deferral Election.
2.8 DEFERRED EXECUTIVE INCENTIVE AWARD. The amount of Executive
Incentive Award which the Executive and the Company mutually agree
shall be deferred in accordance with this Plan.
2.9 DEFERRED COMPENSATION. Deferred Executive Incentive Award,
Deferred Long-Term Incentive and Deferred Salary.
2.10 DEFERRED LONG-TERM INCENTIVE. The amount of Long-Term Incentive
which the Officer and the Company mutually agree shall be deferred in
accordance with this Plan.
2.11 DEFERRED SALARY. The amount of Salary which the Officer and the
Company mutually agree shall be deferred in accordance with this Plan.
2.12 DISABILITY. A Participant is considered to have suffered a
disability under this Plan if he or she would be treated as disabled
under the Company's long-term disability plan in force at the time of
the disability.
2.13 ELECTION DEADLINE. The day or date established by the Committee
after which a Deferral Election may not be revoked by the Participant.
2.14 EXECUTIVE. An Officer or senior manager of the Company or
subsidiary selected by the Committee to be a participant in this Plan.
2.15 EXECUTIVE INCENTIVE AWARD. Any form of annual incentive
compensation awarded to the Executive under any plan or arrangement
maintained by the Company or any of its subsidiaries.
2.16 EXECUTIVE INCENTIVE AWARD DEFERRAL ELECTION. An Executive's
election to defer all or a portion of an Executive Incentive Award in
the form specified by the Committee and subject to the terms of the
Plan.
2.17 INVESTMENT FUND. Any fund or funds selected by the Committee into
which deferrals and matching contributions are notionally invested
under this Plan. Unless otherwise specified, the UPR Stock Fund shall
at all times be an Investment Fund under this Plan.
2.18 LONG-TERM INCENTIVE. Compensation attributable to the award of
retention stock, the gains attributable to nonqualified stock options
and such other forms of long-term incentive compensation as the
Committee may determine.
2.19 LONG-TERM INCENTIVE DEFERRAL ELECTION. An Officer's election to
defer all or a portion of Long-Term Incentive in the form specified by
the Committee and subject to the terms of the Plan.
2.20 OFFICER. A senior level Executive of the Company specifically
designated by the Committee.
2.21 PARTICIPANT. An Executive who elects to participate in this Plan
pursuant to the requirements of Article III hereof.
<PAGE> 4
2.22 RETIREMENT. A separation from the service of the Company or
subsidiary coupled with the immediate receipt of retirement benefits
under the Union Pacific Resources Group Inc. Employees' Pension Plan.
2.23 SALARY. An Officer's annual base pay in excess of the compensation
limit imposed by Code section 401(a)(17) or such other amount as may be
determined by the Committee.
2.24 SALARY DEFERRAL ELECTION. An Officer's election to defer Salary
in the form specified by the Committee and subject to the terms of
this Plan.
2.25 TERMINATION OF EMPLOYMENT. A separation from the service of the
Company or subsidiary for any reason other than Retirement, death or
Disability. A transfer from the Company to a subsidiary shall not
constitute a Termination of Employment.
2.26 UPR STOCK FUND. An Investment Fund into which amounts deferred and
credited shall be converted to phantom shares of the Company's common
stock in the manner determined by the Committee. Deferrals into the UPR
Stock Fund shall be available to Officers only.
ARTICLE III
Eligibility and Participation
-----------------------------
3.1 ELIGIBILITY. An Executive shall be eligible to participate in this
Plan only if he or she has already made or agreed to make, with respect
to the Company's Employee's Thrift Plan, the maximum elective deferrals
described in Code section 402(g) or the maximum elective contributions
permitted under such Thrift Plan; provided, however, that this
eligibility requirement shall remain effective only for such period as
it is deemed necessary to preserve the tax-qualified status of the
Thrift Plan.
3.2. ELECTION TO DEFER EXECUTIVE INCENTIVE AWARD. An Executive may
participate in the Deferred Executive Incentive Award portion of this
Plan by executing an Executive Incentive Award Deferral Election on or
before the date prescribed by the Committee with respect to any
Executive Incentive Award not yet awarded. The Executive Incentive
Award Deferral Election shall be made on a form approved by the
Committee, which shall require an electing Executive to defer a
specific amount of any Executive Incentive Award which may be made to
him or her in the future, not to exceed the Executive Incentive Award
less applicable withholding taxes.
3.3 ELECTION TO DEFER SALARY. An Executive, who is an Officer, may
participate in the Deferred Salary portion of this Plan by executing a
Salary Deferral Election on or before the date prescribed by the
Committee with respect to Salary not yet earned. The Salary Deferred
Election shall be made on a form approved by the Committee which shall
require the electing Officer to defer a specific amount of Salary not
to exceed the Salary less applicable withholding taxes.
3.4 ELECTION TO DEFER LONG-TERM INCENTIVE. An Executive, who is an
Officer, may participate in the Deferred Long-Term Incentive portion of
this Plan by executing a Long-Term Incentive Election on or before the
date prescribed by the Committee with respect to any Long-Term
Incentive which is not yet recognizable by the Officer for federal
income tax purposes. The Long-Term Incentive Election shall be made on
a form approved by the Committee, which shall require the
<PAGE> 5
electing Officer to defer a specified amount of the Long-Term
Incentive, not to exceed the Long-Term Incentive less applicable
withholding taxes.
3.5 REVOCATION. A Deferral Election may not be revoked by the
Participant after the Election Deadline; provided, however, that with
respect to a Salary Deferral Election, a Participant may revoke future
deferrals of amounts not yet earned for the remainder of the year in
question, with appropriate written notice to the Committee.
3.6 CHANGE OF STATUS. Notwithstanding any other provision of this Plan,
in the case of any Executive who becomes a non-Executive while still
employed by the Company, any Executive Incentive Award Deferral
Election, Salary Deferral Election or Long-Term Incentive Deferral
Election entered into prior to the occurrence of such change in status
shall be unaffected by such change in status, except that, as provided
in Section 3.4 hereof, future deferrals of Salary not yet earned for
the year in question may be revoked. No new elections relating to
Salary, an Executive Incentive Award or a Long-Term Incentive will be
permitted hereunder while such employee remains in a non-Executive
status.
ARTICLE IV
Matching Company Contributions
------------------------------
4.1 CONTRIBUTION. The Company shall credit an additional 25 percent to
the Account of any Officer who elects to have his or her Deferred
Executive Incentive Award or his or her Deferred Salary notionally
invested in the UPR Stock Fund for a period of at least three years.
The Company's matching contribution shall also be invested in the UPR
Stock Fund and shall remain so invested until the Officer terminates
employment with the Company for any reason.
4.2 FORFEITURE. The Company's matching contribution shall be forfeited
by the Officer if the Officer incurs a Termination of Employment or
Retirement prior to the first anniversary of the date such matching
contribution is credited to his or her Account and under the
circumstances described in the hardship withdrawal provisions of
Section 7.2. Notwithstanding the foregoing, a forfeiture shall not be
imposed if either (a) the Officer's Termination of Employment or
Retirement occurs within two years after a Change of Control, or (b)
the Committee determines that it is in the best interests of the
Company that the forfeiture not be imposed.
ARTICLE V
Account
-------
5.1 ACCOUNT. The Committee shall establish an Account (including all
necessary subaccounts) for each Participant hereunder.
5.2 PARTICIPANT AND MATCHING CONTRIBUTIONS. Each Participant's Account
shall be credited by bookkeeping entries in amounts equal to the
amounts which (a) the Participant has elected to defer by a Deferral
Election as of the date such amounts would have been paid to such
Participant had such Deferral Election not been in force and (b) any
matching amounts, if applicable, credited under Article IV.
<PAGE> 6
5.3 ADJUSTMENTS. Each Participant's Account shall be credited by
bookkeeping entries with earnings (or losses) reflecting the Investment
Fund into which his or her Deferred Compensation or corresponding
matching contribution was notionally invested. A Participant may change
Investment Funds at any time and in any manner prescribed by the
Committee; provided, however, that (a) only an Officer may elect to
have his or her deferrals notionally invested in the UPR Stock Fund;
(b) any Deferred Executive Incentive Award or any Deferred Salary which
an Officer elects to have notionally invested in the UPR Stock Fund
shall remain so invested until paid to the Officer under Article VII
and (c) any Deferred Long-Term Incentive and any Company matching
contributions credited to the Officer's Account under Section 4.1 shall
be invested in the UPR Stock and shall remain so invested until the
Officer terminates employment with the Company for any reason.
5.4 STATEMENTS. Each Participant will receive a statement of his or her
Account at such regular intervals as determined by the Committee.
ARTICLE VI
Deferred Elections
------------------
6.1 DEFERRAL PERIOD. A Participant shall elect at the time of his or
her Deferral Election to have the specified amount, plus any earnings
attributable thereto, deferred until (a) a future date specified by the
Participant in such Deferral Election or (b) the earliest to occur of
such Participant's Termination of Employment, Retirement, Disability or
death. If a Participant, who is an officer, elects to have his or her
Deferred Executive Incentive Award or Deferred Salary notionally
invested in the UPR Stock Fund, the deferral period for such investment
must be at least three years, otherwise the Company's matching
contribution under Section 4.1 shall not be credited to his or her
Account.
6.2 LIMITATIONS. Notwithstanding Section 6.1, a Participant may not
make a Deferral Election to a date beyond the Participant's life
expectancy and, in general, the commencement of any distribution under
this Plan will not be deferred beyond the earliest to occur of the
following: the Participant's Termination of Employment, Retirement,
Disability or death.
ARTICLE VII
Distributions and Withdrawals
-----------------------------
7.1 DISTRIBUTIONS. Distributions under this Plan shall be made in the
manner set forth below:
(a) IN-SERVICE. Deferred Compensation shall be distributed to
a Participant, while employed with the Company, on the date
specified pursuant to Section 6.1(a) hereof and in accordance
with the distribution method selected by the Participant on
his or her Deferral Election form.
(b) TERMINATION OF SERVICE. Upon a Participant's termination
of employment for any reason, the Committee shall distribute
his or her Account, in the sole discretion of the Committee,
as follows:
<PAGE> 7
(i) in a single distribution paid in the year of his
or her termination or in January of the following
year, as determined by the Committee; or
(ii) over such number of years as are fixed by the
Committee but not exceeding fifteen, in annual
installments of substantially equal value,
the first of such installments to be paid or
delivered in the month following the month of his or
her termination, or at the discretion of the
Committee not later than 12 months following the date
of termination and subsequent installments to be paid
or delivered in January of each subsequent year; or
(iii) in the event of Retirement or death of a
currently employed Participant, at a specified future
date not to exceed 15 years from the
date of such Retirement or death in a single
distribution, an amount equal to the value of the
Participant's Account. Prior to such distribution,
the income generated by such Account shall be paid in
cash quarterly to such Participant's or his or her
Beneficiary commencing with the first day of the
month subsequent to such Participant's Retirement or
death. In the case of Retirement, the single
distribution referred to above will be paid on the
date specified or upon death, whichever occurs first;
or
(iv) in any other manner determined by the Committee.
7.2 HARDSHIP WITHDRAWALS. Upon written application to the Committee, a
Participant may request a withdrawal of all or any portion of the
amounts then credited to his or her Account (except for any Company
matching contributions credited under Section 4.1) prior to the time of
payment applicable under section 6.1 in the case of an unforeseeable
emergency.
For purposes of this Section 7.2, an unforeseeable emergency is any
severe financial hardship to the Participant resulting from a sudden
and unexpected illness or accident of the Participant or of a dependent
of the Participant, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable emergency will
depend upon the facts of each case, but, in any case, payment may not
be made to the extent that such hardship is or may be relieved --
(a) Through reimbursement or compensation by insurance or otherwise,
(b) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship, or
(c) By cessation of deferrals under the Plan.
The Participant's need to send a child to college, the desire to
purchase a home and similar financial circumstances shall not be
considered unforeseeable emergencies under this Plan.
The decision of the Committee shall be final, conclusive and binding
upon the Participant and any and all persons claiming through the
Participant. Under no circumstances shall the Committee consent to the
withdrawal of an amount which is in excess of the amount necessary to
relieve the Participant's need. If a Participant, who is an officer,
requests, and the Committee consents to, the release of amounts held
in the UPR Stock Fund for a period
<PAGE> 8
of less than three years, then the release of any such amounts shall
result in the forfeiture of any corresponding Company matching
contributions credited under Section 4.1 hereto.
7.3 DEATH.
(a) If the Participant dies prior to the time his or her Account is
distributed under Section 7.1, all amounts credited to such Account
shall be paid to the Participant's Beneficiary in accordance with
Section 7.1.
(b) All designations of Beneficiary shall be on such forms as are
specified by and filed with the Committee. Any Beneficiary designation
made by the Participant in accordance with this provision may be
changed from time to time by filing with the Committee a notice of
such change on the form provided by the Committee and such change of
Beneficiary designation shall become effective upon receipt by the
Committee.
(c) In the event a Participant's Beneficiary would otherwise become
entitled to a distribution hereunder, and all Beneficiaries designated
by the Participant are not then living, or if no valid Beneficiary
designation is in effect, the Participant's estate or duly authorized
personal representative shall be deemed to have been designated by the
Participant.
7.4 ACCELERATED PAYMENTS. The Committee may accelerate any payments
deferred hereunder if it determines that such acceleration is in the best
interests of the Company.
7.5 PAYMENTS FROM THE UPR STOCK FUND. Notwithstanding the foregoing,
any distributions or withdrawals from the UPR Stock Fund shall be paid
in whole shares of the Company's common stock, except that any
fractional share shall be paid in cash.
ARTICLE VIII
Administration
--------------
8.1 The Plan shall be administered by the Committee. The Committee
shall be vested with full authority to make, administer and interpret
such rules and regulations as it deems necessary to administer the
Plan. Any determination, decision or action of the Committee in
connection with the construction, interpretation, administration or
application of the Plan shall be final, conclusive and binding upon all
Participants and any and all persons claiming under or through any
Participant. The Committee shall have the authority to:
(i) Engage agents to perform services on behalf of the Committee and
to authorize the payment of reasonable compensation for the
performance of such service;
(ii) Delegate to designated employees or departments of the Company
the authority to perform such of the Committee's administrative duties
hereunder as may be delegated to such employees or departments.
8.2 The Company shall pay the costs of administering the Plan.
<PAGE> 9
ARTICLE IX
Amendment and Termination
-------------------------
9.1 AMENDMENT. The Company may at any time amend this Plan; provided,
however that no amendment shall reduce amounts already credited to a
Participant's Account at the time of such amendment.
9.2 TERMINATION. The Company may at any time terminate this Plan
provided that:
(a) no such termination shall reduce amounts already credited to a
Participant's Account at such time; and
(b) termination of the Plan will not automatically accelerate the
time of distributions nor cease the accrual of earnings prior to
the applicable event under section 6.1 hereof, unless the
Company, by action of its Board, shall elect to accelerate all
distributions at the time it elects to terminate this Plan.
ARTICLE X
Miscellaneous
-------------
10.1 EFFECT ON OTHER PLANS. This Plan relates only to deferrals made by
Executives pursuant to its provisions on or after the Effective Date.
The timing and method of payment of distributions attributable to any
other deferral elections previously made by the Executive under any
other plan or plans maintained by the Company shall be controlled by
such other plan or plans.
10.2 NO RIGHT OF EMPLOYMENT. Nothing in the Plan shall be deemed to
grant an Executive any rights other than those specifically outlined in
the Plan. Nothing in the Plan shall be deemed to create any right of,
or contract for, employment between an Executive and the Company.
10.3 WITHHOLDING. The Company shall, on behalf of itself or any
subsidiary, deduct from any distributions due to any Participant or
Beneficiary hereunder, any taxes required to be withheld by Federal,
state or local governments.
10.4 NON-ASSIGNABILITY CLAUSE. Participants may not borrow from their
Accounts in this Plan. Neither the Participant, nor his Beneficiary,
nor any other designee, shall have any right to commute, sell, assign,
encumber, transfer or otherwise convey the right to receive any
distributions hereunder which distributions and right thereto are
expressly declared to be non-assignable and non-transferable; and, any
such attempted assignment or transfer shall be null and void.
10.5 PROHIBITION AGAINST FUNDING. Any provision for distributions
hereunder shall be by means of bookkeeping entries on the books of the
Company and shall not create in the Participant or Beneficiary any
right to, or claim against any specific assets of the Company, nor
result in the creation of any trust or escrow account for the
Participant or Beneficiary. A Participant or Beneficiary entitled to
any distributions hereunder shall be a general creditor of the Company.
<PAGE> 10
10.6 CONTROLLING LAW. This Plan and the respective rights and
obligations of the Company and the Participants and Beneficiaries,
except to the extent otherwise provided by Federal law, shall be
construed under the laws of the State of Texas.
10.7 SEVERABILITY. The invalidity or unenforceability of any provision
of this Plan shall not affect the other provisions, and the Plan shall
be construed in all respects as if any invalid or unenforceable
provision were omitted.
<PAGE> 1
EXHIBIT 11
UNION PACIFIC RESOURCES GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(Shares in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1996 1997
---- ----
<S> <C> <C>
Average number of shares outstanding.................. 248,392 250,158
Average shares issuable on exercise of stock
options less shares repurchasable from proceeds.... 913 853
------- -------
Total average number of common and common
equivalent shares.................................. 249,845 251,011
======= =======
Net income (millions)................................. $ 206.5 $ 258.8
======= =======
Earnings per share.................................... $ 0.83 $ 1.03
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12
UNION PACIFIC RESOURCES GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in Thousands, Except Ratios)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------
1996 1997
--------- ---------
<S> <C> <C>
Income before income taxes ................................................ $ 304,802 $ 369,971
Add (deduct) distributions greater (less) than
income of unconsolidated affiliates ................................. (1,866) (2,744)
Fixed charges from below .................................................. 43,116 42,121
Capitalized interest included in fixed charges ............................ (124) (1,551)
--------- ---------
Earnings available for fixed charges ............................ $ 345,928 $ 407,797
========= =========
Fixed charges:
Interest expense, including amortization of debt expense/discount .... $ 37,976 $ 35,649
Portion of rentals representing an interest factor ................... 5,016 5,101
Interest capitalized ................................................. 124 1,551
--------- ---------
Total fixed charges ............................................. $ 43,116 $ 42,121
========= =========
Ratio of earnings to fixed charges ........................................ 8.0 9.7
========= =========
</TABLE>
<PAGE> 1
EXHIBIT 15
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
November 14, 1997
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accounts, of the unaudited financial information
of Union Pacific Resources Group Inc. for the periods ended September 30, 1996
and 1997, as indicated in our report dated October 16, 1997; 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 this
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is
incorporated by reference in Registration Statements No. 333-22655 on Form S-E
and No. 333-22613 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, 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
Fort Worth, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNION
PACIFIC RESOURCES GROUP, INC. CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AT SEPTEMBER 30, 1997 AND THE RELATED CONDENSED STATEMENT OF
CONSOLIDATED INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 333
<ALLOWANCES> 0
<INVENTORY> 53
<CURRENT-ASSETS> 482
<PP&E> 7,180
<DEPRECIATION> 3,648
<TOTAL-ASSETS> 4,207
<CURRENT-LIABILITIES> 586
<BONDS> 671
0
0
<COMMON> 0
<OTHER-SE> 1,752
<TOTAL-LIABILITY-AND-EQUITY> 4,207
<SALES> 1,391
<TOTAL-REVENUES> 1,425
<CGS> 0
<TOTAL-COSTS> 1,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 370
<INCOME-TAX> 111
<INCOME-CONTINUING> 259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0
</TABLE>
