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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 3, 1998
UNION PACIFIC RESOURCES GROUP INC.
(Exact name of registrant as specified in its charter)
Commission file number 1-13916
UTAH 13-2647483
(State of 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)
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UNION PACIFIC RESOURCES GROUP INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Item 2. Acquisition or Disposition of Assets .......................................................... 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits............................. 4
Financial Statements of Business Acquired................................................. 4
Pro Forma Financial Information .......................................................... 4
Unaudited Pro Forma Combined Financial Statements:
Unaudited Pro Forma Combined Balance Sheet for Union Pacific
Resources Group Inc. as of December 31, 1997 ................................... 5
Unaudited Pro Forma Combined Statement of Operations for Union
Pacific Resources Group Inc. for the year ended December 31, 1997 .............. 6
Unaudited Pro Forma Balance Sheet for Norcen Energy Resources Ltd.
as of December 31, 1997 ........................................................ 7
Unaudited Pro Forma Combined Statement of Operations for Norcen
Energy Resources Ltd. for the year ended December 31, 1997...................... 8
Notes to Unaudited Pro Forma Combined Financial Statements ................................ 9
Exhibits .................................................................................. 13
Signatures ............................................................................................. 14
</TABLE>
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This Current Report on Form 8-K/A constitutes an amendment to the Current Report
on Form 8-K filed on March 17, 1998, and amends and restates Items 2 and 7(a)
and (b) in their entirety.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Date and Manner of Acquisition. Union Pacific Resources Group Inc., a Utah
corporation (the "Company"), and Union Pacific Resources Inc., an Alberta
corporation ("UPRI"), a wholly-owned indirect subsidiary of the Company, entered
into a pre-acquisition agreement (the "Pre-acquisition Agreement") dated January
25, 1998, with Norcen Energy Resources Limited, a Canadian corporation
("Norcen"). Under the Pre-acquisition Agreement, the Company and UPRI agreed to
make an offer for up to 100 percent of the common shares of Norcen, subject to
certain conditions. In addition, the Company and UPRI entered into a pre-tender
agreement (the "Pre-tender Agreement") dated January 25, 1998, with Noranda Inc.
(the "Controlling Shareholder"). Under the Pre-tender Agreement, the Controlling
Shareholder irrevocably agreed to tender, and not to withdraw, the common shares
of Norcen beneficially owned by it and its affiliates and subsidiaries. As of
January 30, 1998, the Controlling Shareholder and its affiliates and
subsidiaries beneficially owned 92,554,458 common shares of Norcen representing
approximately 49.5 percent of the outstanding common shares.
On March 3, 1998, the Company announced by press release the closing of its
tender offer for up to 100 percent of the common shares of Norcen. In total,
95.5 percent of the common outstanding shares of Norcen was tendered to the
Company at the purchase price of US$13.65 per share (C$19.80). On such date,
UPRI owned 181,076,311 common shares of Norcen.
On March 6, 1998, UPRI announced that on March 5, 1998, it completed the
compulsory acquisition procedures pursuant to section 206 of the Canada Business
Corporations Act in order to acquire the remaining issued and outstanding common
shares of Norcen.
Aggregate Purchase Price. The aggregate purchase consideration for the common
shares of Norcen, including nonrecurring merger transaction costs of $28.1
million, was $2.623 billion. See Footnote 2 to the Unaudited Pro Forma Combined
Financial Statements for the preliminary allocation of total purchase price for
Norcen to the acquired assets and assumed liabilities based upon estimated fair
values assigned. Any future adjustments to the allocation of the purchase price
are not anticipated to be material to the Company's financial statements.
Financing of Acquisition. The Company funded the purchase price to be paid to
Norcen shareholders through the issuance of commercial paper, supported by the
credit facilities of the Company, including the U.S. $2.7 Billion 364 Day
Competitive Advance/Revolving Credit Agreement dated March 2, 1998, by and among
the Company, the lenders named therein and the Chase Manhattan Bank, as
administrative agent, and Bank of Montreal, as syndication agent. Such $2.7
billion acquisition facility includes a mandatory prepayment provision and a
series of "prepayment events." The mandatory prepayment provision requires that
$1.35 billion be repaid prior to March 1999. In addition, 75 percent of the net
proceeds resulting from any prepayment event should be applied to reduce the
indebtedness under such acquisition facility. Prepayment events include sales of
assets in excess of $10 million and debt and equity issuances. The Company plans
to pursue an aggressive deleveraging program, which may include asset and
financial divestitures and the issuance of equity securities.
In addition, as a result of the Norcen acquisition, the covenants in other
credit agreements of the Company, including the Company's $600 million and $300
million revolving credit agreements and Norcen's credit facilities have been
modified. Under such revolving credit agreements debt cannot exceed 75 percent
of the total of the Company's debt and shareholders' equity (and 65 percent
after 18 months) and EBITDAX (the sum of operating income; depreciation,
depletion and amortization; and exploration expenses) of the Company's Principal
Subsidiaries (as defined in the agreements) is required to be at least 80
percent of the Company's consolidated EBITDAX. These revolving credit agreements
also impose certain restrictions on the Company regarding the creation of liens,
incurrence of
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indebtedness, transactions with affiliates, sales of stock of Union Pacific
Resources Company, a wholly-owned subsidiary of the Company, and certain
mergers, consolidations and asset sales. Norcen's credit facilities have been
modified to provide cross-default provisions relating to the $2.7 billion
acquisition facility. In addition, the Company has guaranteed such credit
facilities of Noreen.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The financial statements and supplemental information for the business
acquired, Norcen, for the years ending December 31, 1997, 1996 and 1995,
are incorporated by reference to Annual Reports on Form 40-F for Norcen and
are included hereto as Exhibits 99.1, 99.2, 99.3 and 99.4.
(b) Pro Forma Financial Information.
The unaudited pro forma combined balance sheet and statement of operations
have been prepared to give effect to certain transactions as described
below.
The unaudited pro forma combined balance sheet of the Company as of
December 31, 1997, has been prepared to give effect to the acquisition of
the common shares of Norcen (the "Acquisition") as if such transaction had
occurred on December 31, 1997, and was accounted for as a purchase in
accordance with the provisions of Accounting Principles Board Opinion No.
16, "Business Combinations."
The unaudited pro forma combined statement of operations of the Company for
the year ended December 31, 1997, has been prepared to give effect to the
Acquisition and certain events described below with respect to Norcen as if
the Acquisition and such events had occurred on January 1, 1997.
The unaudited pro forma combined balance sheet and statement of operations
of Norcen have been prepared to give effect to the following events
affecting Norcen: (i) the purchase of Basic Petroleum Limited ("Basic") on
May 1, 1997, (ii) the sale of Norcen's 40 percent interest in Superior
Propane Inc. ("Superior") in September 1997, (iii) the conversion to United
States generally accepted accounting principles and (iv) the recording of
exploration expense in accordance with the successful efforts method of
accounting for Norcen's oil and gas properties, as if such events and
transactions had occurred on December 31, 1997 relating to the Norcen pro
forma balance sheet, or January 1, 1997, relating to the Norcen pro forma
statement of operations.
The unaudited pro forma combined financial statements included herein are not
necessarily indicative of the results that might have occurred had the
transaction and other events taken place at the beginning of the period
specified and are not intended to be a projection of future results. In
addition, future results may vary significantly from the results reflected in
the accompanying unaudited pro forma combined financial statements because of
normal production declines, changes in product prices, future acquisitions and
divestitures, future development and exploration activities, and other factors
beyond the control of the Company.
The following unaudited pro forma combined financial statements should be read
in conjunction with (i) the Consolidated Financial Statements (and related
notes) of the Company in its Annual Report on Form 10-K for the year ended
December 31, 1997, and (ii) the Historical Financial Statements (and related
notes) of Norcen in its Annual Reports on Form 40-F for the years ended December
31, 1997 and 1996.
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UNION PACIFIC RESOURCES GROUP INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 1997
(in millions)
<TABLE>
<CAPTION>
Historical Pro Forma
Union Pacific Pro Forma Combined Pro Forma
Resources Norcen Adjustments Combined
------------- --------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and temporary investments ............................... $ 70.6 $ 9.9 (28.1)(a) $ 52.4
Accounts receivable .......................................... 385.4 205.5 (6.8)(a) 584.1
Inventories .................................................. 53.1 38.3 (2.8)(a) 88.6
Other current assets ......................................... 67.7 11.8 49.5 (a) 129.0
--------- --------- ---------
Total current assets ................................. 576.8 265.5 854.1
--------- --------- ---------
Properties:
Cost, using successful efforts method of accounting ......... 7,414.4 5,040.2 (110.6)(a) 12,344.0
Accumulated depreciation, depletion and amortization ........ (3,749.0) (2,534.7) 2,534.7 (a) (3,749.0)
--------- --------- ---------
Total properties, net ................................ 3,665.4 2,505.5 8,595.0
Intangible and other assets ..................................... 230.0 33.5 158.9 (a) 422.4
--------- --------- ---------
Total assets ......................................... $ 4,472.2 $ 2,804.5 $ 9,871.5
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 426.7 $ 97.8 $ 524.5
Accrued taxes payable ....................................... 59.3 11.5 70.8
Other current liabilities ................................... 71.7 47.5 19.2 (a) 138.4
--------- --------- ---------
Total current liabilities ............................ 557.7 156.8 733.7
Long-term debt .................................................. 1,230.6 924.0 2,654.7 (a) 4,809.3
Deferred income taxes ........................................... 552.9 561.9 970.3 (a) 2,085.1
Other long-term liabilities ..................................... 370.3 61.8 50.6 (a) 482.7
Shareholders' equity:
Common stock ................................................ -- 778.0 (778.0)(a) --
Paid-in surplus ............................................. 991.2 -- 991.2
Unearned Employee Stock Ownership Plan ...................... (102.0) -- (102.0)
Unearned compensation ....................................... (11.8) -- (11.8)
Retained earnings ........................................... 957.4 268.8 (268.8)(a) 957.4
Deferred foreign exchange adjustment ........................ (17.3) 53.2 (53.2)(a) (17.3)
Minimum pension liability ................................... (1.0) -- (1.0)
Treasury stock, at cost ..................................... (55.8) -- (55.8)
--------- --------- ---------
Total shareholders' equity ............................ 1,760.7 1,100.0 1,760.7
--------- --------- ---------
Total liabilities and shareholders' equity ...................... $ 4,472.2 $ 2,804.5 $ 9,871.5
========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNION PACIFIC RESOURCES GROUP INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
Union Pacific Pro Forma Combined Pro Forma
Resources Norcen Adjustments Combined
------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas operations:
Producing properties ................................ $ 1,281.2 $ 669.7 (15.8)(b) $ 1,935.1
Gathering, processing and marketing ................. 443.3 -- 443.3
Other oil and gas revenues .......................... 60.4 -- 60.4
--------- --------- ---------
Total oil and gas operations ................ 1,784.9 669.7 2,438.8
Minerals ............................................... 139.8 -- 139.8
--------- --------- ---------
Total operating revenues .................... 1,924.7 669.7 2,578.6
--------- --------- ---------
Operating expenses:
Production ............................................. 292.6 164.2 456.8
Exploration, including exploratory dry holes ........... 204.7 79.5 284.2
Gathering, processing and marketing .................... 285.2 -- 285.2
Minerals ............................................... 3.4 -- 3.4
Depreciation, depletion and amortization ............... 568.1 259.9 192.2 (c) 1,020.2
General and administrative ............................. 75.5 30.5 106.0
--------- --------- ---------
Total operating expenses .................... 1,429.5 534.1 2,155.8
--------- --------- ---------
Operating income ................................................ 495.2 135.6 422.8
Other income (expense) - net .................................... 24.3 -- 24.3
Interest expense ................................................ (53.1) (39.7) (160.9)(d) (253.7)
--------- --------- ---------
Income before income taxes ...................................... 466.4 95.9 193.4
Income taxes .................................................... (133.4) (49.1) 139.5 (e) (43.0)
--------- --------- ---------
Net income ...................................................... $ 333.0 $ 46.8 $ 150.4
========= ========= =========
Earnings per share - basic ...................................... $ 1.33 $ 0.60
Earnings per share - diluted .................................... $ 1.33 $ 0.60
Weighted average shares outstanding - diluted ................... 250.9 250.9
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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NORCEN ENERGY RESOURCES LTD.
UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 1997
(US$ millions)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Norcen Adjustments Norcen
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and temporary investments ..................................... $ -- 9.9 (f) $ 9.9
Accounts receivable ............................................... 217.3 (11.8)(f) 205.5
Inventories ....................................................... 38.3 38.3
Other current assets .............................................. -- 11.8 (f) 11.8
------------ ------------
Total current assets ....................................... 255.6 265.5
------------ ------------
Investments, at cost .................................................. 27.8 (27.8)(f) --
Properties:
Cost .............................................................. 5,040.2 5,040.2
Accumulated depreciation, depletion and amortization .............. (2,834.2) 299.5 (g) (2,534.7)
------------ ------------
Total properties, net ...................................... 2,206.0 2,505.5
Intangible and other assets ........................................... 5.7 27.8 (f) 33.5
------------ ------------
Total assets ............................................... $ 2,495.1 $ 2,804.5
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 145.3 (47.5)(f) $ 97.8
Accrued taxes payable ............................................. 11.5 11.5
Other current liabilities ......................................... -- 47.5 (f) 47.5
------------ ------------
Total current liabilities .................................. 156.8 156.8
Long-term debt ........................................................ 914.1 9.9 (f) 924.0
Deferred income taxes ................................................. 433.6 128.3 (g) 561.9
Other long-term liabilities ........................................... 61.8 61.8
Shareholders' equity:
Common stock ...................................................... 778.0 778.0
Retained earnings ................................................. 97.6 171.2 (g) 268.8
Deferred foreign exchange adjustment .............................. 53.2 53.2
------------ ------------
Total shareholders' equity .................................. 928.8 1,100.0
------------ ------------
Total liabilities and shareholders' equity ............................ $ 2,495.1 $ 2,804.5
============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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NORCEN ENERGY RESOURCES LIMITED
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(US$ millions)
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Norcen Basic Superior Adjustments Norcen
---------- --------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Operating revenues ......................................... $ 879.8 $ 31.4 $ (241.5) $ 669.7
--------- --------- ---------
Operating expenses:
Production ........................................ 360.7 9.1 (205.6) 164.2
Exploration, including exploratory dry holes ...... -- -- -- 79.5(h) 79.5
Depreciation, depletion and amortization .......... 245.1 7.0 (11.2) 14.7(g) 259.9
4.3(i)
General and administrative ........................ 33.1 2.2 (4.8) 30.5
--------- --------- --------- ---------
Total operating expenses ............... 638.9 18.3 (221.6) 534.1
--------- --------- --------- ---------
Operating income ........................................... 240.9 13.1 (19.9) 135.6
Gain on sale of Superior ................................... 101.6 -- (101.6) --
Interest expense ........................................... (35.3) (.6) (.9) (2.9)(j) (39.7)
--------- --------- --------- ---------
Income before income taxes ................................. 307.2 12.5 (122.4) 95.9
Minority interest .......................................... (10.4) -- 10.4 --
Income taxes ............................................... (169.0) (3.8) 45.5 42.1(k) (49.1)
36.1(l)
--------- --------- --------- ---------
Net income ................................................. $ 127.8 $ 8.7 $ (66.5) $ 46.8
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
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UNION PACIFIC RESOURCES GROUP INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
1. Basis of Presentation
In accordance with the Pre-Acquisition Agreement, Union Pacific Resources Group
Inc. (the "Company") purchased the common stock of Norcen Energy Resources
Limited, a Canadian corporation ("Norcen"), for US$13.65 per share (C$19.80)
(the "Acquisition"). As a result of the Acquisition, the Company assumed
approximately $1 billion of existing commercial paper and debentures of Norcen.
The unaudited pro forma combined balance sheet of the Company as of December 31,
1997 has been prepared to give effect to the Acquisition and the Company's
increase in debt as if such transactions had occurred on December 31, 1997. In
accordance with the provisions of Accounting Principles Board Opinion No. 16,
"Business Combinations," the Acquisition has been accounted for as a purchase.
The unaudited pro forma combined statement of operations of the Company for the
year ended December 31, 1997 has been prepared to give effect to the Acquisition
and certain events described below for pro forma Norcen as if the Acquisition
and such events had occurred on January 1, 1997, including the additional
borrowing to finance the Acquisition.
The unaudited pro forma Norcen financial statements have been prepared to give
effect to the acquisition of Basic Petroleum International Limited ("Basic"),
including the additional borrowing to finance the acquisition, Norcen's
disposition of a 40 percent interest in Superior Propane, Inc. ("Superior") and
the recording of exploration expense in accordance with the successful efforts
method of accounting for oil and gas properties, as if such transactions and
events had occurred on December 31, 1997 relating to the Norcen pro forma
balance sheet, or January 1, 1997, relating to the Norcen pro forma statement of
operations.
The following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
Historical Union Pacific Resources - Represents the consolidated
balance sheet of the Company as of December 31, 1997, and the
consolidated statement of operations of the Company for the year ended
December 31, 1997, as included in the Company's Annual Report on Form
10-K.
Historical Norcen - Represents the consolidated balance sheet of Norcen
as of December 31, 1997, and the consolidated statement of operations
for Norcen for the year ended December 31, 1997, as previously
presented in the Norcen Annual Report on Form 40-F converted to United
States generally accepted accounting principles ("U.S. GAAP"), as
disclosed therein, and United States dollars ("US$") using 1997
year-end and annual average exchange rates, respectively.
Basic - Represents the unaudited statement of operations for Basic for
the period from January 1, 1997 to May 1, 1997.
Superior - Represents the elimination of the results of operations of
Superior for the year ended December 31, 1997. On September 5, 1997,
Norcen completed the sale of a 40 percent interest in Superior to the
Superior Propane Income Fund. Net proceeds from the sale amounted to
C$207.1
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million (US$149.8 million) after deduction of transaction costs and
cash income taxes thereon. Net proceeds were comprised of net cash
consideration of C$86.0 million (US$62.2 million) and C$126.1 million
(US$91.2 million) of non-interest bearing installment receipts due
September 4, 1998, which were recorded on the Norcen consolidated
balance sheet as accrued sale proceeds at their estimated present value
of C$121.1 million (US$87.6 million).
2. Acquisition of Norcen
The aggregate purchase price is computed as follows:
<TABLE>
<CAPTION>
Aggregate
Purchase Price
---------------
(in millions)
<S> <C>
Aggregate purchase price for 100 percent of
Norcen common stock $ 2,595.1
Nonrecurring cash transaction costs 28.1
---------
Aggregate purchase price $ 2,623.2
=========
</TABLE>
The following table represents the preliminary allocation of the total purchase
price of Norcen to the acquired assets and liabilities of Norcen. The allocation
represents the fair values that would have been assigned to each of the
significant assets acquired and liabilities assumed as if the Acquisition had
occurred on December 31, 1997. Any future adjustments to the allocation of the
purchase price are not anticipated to be material to the unaudited pro forma
combined financial statements.
<TABLE>
<CAPTION>
Allocation of
Aggregate
Purchase Price
--------------
(in millions)
<S> <C>
Net working capital $ 101.3
Property, plant and equipment 4,929.6
Other assets 192.4
Long-term debt (955.5)
Other noncurrent liabilities, including deferred taxes (1,644.6)
---------
$ 2,623.2
=========
</TABLE>
3. Pro Forma Entries
The following items are included in the preparation of the pro forma financial
statements:
(a) To record the acquisition of Norcen using the purchase method of
accounting. The allocation of the purchase price to the acquired assets and
liabilities is preliminary and, therefore, subject to change. Any future
adjustments to the allocation of the purchase price are not anticipated to
be material to the Company's financial statements (see Note 2).
(b) To amortize the value of Norcen marketing and transportation contracts and
derivative positions recorded at fair value as of the date of the
Acquisition.
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(c) To increase depreciation, depletion and amortization expense for the
additional basis allocated to the oil and gas properties acquired and
accounted for using the successful efforts method of accounting.
(d) To record additional interest expense resulting from the borrowing of the
funds necessary to consummate the Acquisition. The Company's 1997
incremental borrowing interest rate of six percent was utilized to
determine the additional pro forma interest expense.
(e) To adjust income tax expense for pro forma adjustments by tax jurisdiction.
(f) To reclassify certain amounts to conform with the Company's financial
statement presentation.
(g) To reverse the effects of prior U.S. GAAP adjustments related to full cost
accounting for Norcen's oil and gas properties.
(h) To record exploration expense for Norcen's conversion to the successful
efforts method of accounting. Historical Norcen depreciation, depletion and
amortization expense has not been adjusted. The pro forma combined
statement of operations has been adjusted to reflect successful efforts
accounting for depreciation, depletion and amortization on Norcen's
allocated basis in oil and gas properties following the Acquisition (see
(c) above).
(i) To increase Norcen's depreciation, depletion and amortization expense for
the additional basis allocated to Basic's oil and gas properties, as if
such transaction had occurred January 1, 1997.
(j) To record additional interest expense for Norcen resulting from the
borrowing of funds necessary for Norcen's acquisition of Basic as if such
acquisition had occurred January 1, 1997. Norcen's 1997 incremental
borrowing interest rate of three percent was utilized to determine the
additional pro forma interest expense.
(k) To adjust Norcen's income tax expense for pro forma adjustments by tax
jurisdiction and conversion to the successful efforts method of accounting
and Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
(l) To reduce Norcen's income tax expense for the non-recurring effect of
income tax provisions recorded in 1997 for potential assessments concerning
the deductibility of certain interest expense and foreign exchange losses
claimed for income tax purposes during the period 1989 to 1993.
4. Income Taxes
The Company will continue to account for income taxes in accordance with the
provisions of SFAS No. 109. The Company will prepare separate tax calculations
for each tax jurisdiction in which the Company will be subject to income taxes.
5. Earnings per Share
Earnings per share is computed in accordance with SFAS No. 128, "Earnings Per
Share" ("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.
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6. Pro Forma Oil and Gas Reserve Data
The following table reflects the pro forma estimated quantities of proved and
proved developed oil and gas reserves as included in the Company's 1997 Annual
Report on Form 10-K and Norcen's 1997 Annual Report on Form 40-F. Pro forma
production has been adjusted to give effect to the acquisition of Basic as if
such transaction had occurred on January 1, 1997. The Company considers such
estimates to be reasonable; however, there are numerous uncertainties inherent
in estimated quantities of proved reserves, including many factors beyond the
control of the Company. Reserve engineering is a subjective process which is
dependent on the quality of available data and on engineering and geological
interpretation and judgment. Such reserve estimates are subject to change over
time, as additional information becomes available. Quantities of natural gas are
expressed in terms of billion cubic feet ("Bcf"). Oil and natural gas liquids
are quantified in terms of millions of barrels ("MMBbl"). Oil and natural gas
liquids are compared to natural gas in terms of billions of cubic feet of
natural gas equivalent ("Bcfe"). One MMBbl of oil or natural gas liquids is the
energy equivalent of six Bcf of natural gas.
PRO FORMA COMBINED RESERVES AND PRODUCTION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Union Pacific
Resources Norcen Combined
(Bcfe) (Bcfe) (Bcfe)
------------- ------- --------
<S> <C> <C> <C>
Total proved reserves, end of year 4,100.5 3,188.2 7,288.7
======= ======= =======
Proved developed reserves, end of year 3,400.2 2,906.8 6,307.0
======= ======= =======
1997 Pro forma production(1) (606.8) (334.4) (941.2)
======= ======= =======
</TABLE>
PRO FORMA COMBINED RESERVES AND PRODUCTION BY PRODUCT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Natural Oil
Natural Gas Gas Liquids and Condensate
(Bcf) (MMBbl) (MMBbl)
----------- ----------- --------------
<S> <C> <C> <C>
Total proved reserves, end of year 4,184.3 140.8 376.6
======= ===== =====
Proved developed reserves, end of year 3,670.0 126.0 313.5
======= ===== =====
1997 Pro forma production (1) (565.0) (15.9) (46.8)
======= ===== =====
</TABLE>
(1) Includes the Company's gas processing plants' share of equity production of
23.3 Bcfe (4.7 Bcf of natural gas and 3.1 MMBbl of natural gas liquids.)
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(c) Exhibits.
Exhibits not incorporated herein by reference to a prior filing are
designated by an asterick (*) and are filed herewith.
Exhibit No. Exhibit
2.1 Pre-acquisition Agreement between Union Pacific Resources
Group Inc., Union Pacific Resources Inc. and Norcen Energy
Resources Limited, dated January 25, 1998. (Exhibit 2.1 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.1 Specimen of Certificate evidencing the Common Stock (Exhibit 4
to Registration Statement on Form S-1, Registration Statement
No. 33-95398, filed on October 10, 1995.)
4.2 Rights Agreement, dated as of October 28, 1996, between Union
Pacific Resources Group Inc. and Harris Trust and Savings
Bank, as rights agent (incorporated herein by reference to the
Company's Current Report on Form 8-K filed on November 1,
1996).
4.3 Indenture, dated as of March 27, 1996, between Union Pacific
Resources Group Inc. and Texas Commerce Bank National
Association, as trustee (incorporated herein by reference to
the Company's Current Report on Form 8-K filed on November 1,
1996).
4.4 Terms Agreement, dated as of October 10, 1996, for
$200,000,000 7 1/2% debentures due October 15, 2026. (Exhibit
4.4 to Current Report on Form 8-K, filed on March 17, 1998.)
4.5 Terms Agreement, dated as of October 10, 1996, for
$200,000,000 7% notes due October 15, 2006. (Exhibit 4.5 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.6 Terms Agreement, dated as of October 31, 1996, for
$150,000,000 7 1/2% debentures due October 15, 2096. (Exhibit
4.6 to Current Report on Form 8-K, filed on March 17, 1998.)
4.7 Form of 7 1/2% Rate Debenture due October 15, 2026. (Exhibit
4.7 to Current Report on Form 8-K, filed on March 17, 1998.)
4.8 Form of 7% Rate Note due October 15, 2006. (Exhibit 4.8 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.9 Form of 7 1/2% Rate Debenture due October 15, 2096. (Exhibit
4.9 to Current Report on Form 8-K, filed on March 17, 1998.)
4.10 Trust Indenture, dated as of May 7, 1996, providing for the
issue of Debt Securities in unlimited principal amount,
between Norcen Energy Resources Limited and Montreal Trust
Company of Canada, as trustee. (Exhibit 4.10 to Current Report
on Form 8-K, filed on March 17, 1998.)
4.11 First Supplemental Indenture, dated as of May 22, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 7 3/8% Debentures due May 15, 2006 in aggregate
principal amount of U.S. $250,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.11 to Current Report on Form 8-K, filed on
March 17, 1998.)
13
<PAGE> 14
4.12 Second Supplemental Indenture, dated as of June 26, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 7.8% Debentures due July 2, 2008 in aggregate
principal amount of U.S. $150,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.12 to Current Report on Form 8-K, filed on
March 17, 1998.)
4.13 Third Supplemental Indenture, dated as of June 26, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 6.8% Debentures due July 2, 2002 in aggregate
principal amount of U.S. $250,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.13 to Current Report on Form 8-K, filed on
March 17, 1998.)
4.14 Fourth Supplemental Indenture, dated as of February 27, 1998,
to Trust Indenture, dated as of May 7, 1996, providing for the
Guarantee of all Securities to be Issued or Previously Issued
under the Trust Indenture between Norcen Energy Resources
Limited and Montreal Trust Company of Canada, as trustee.
(Exhibit 4.14 to Current Report on Form 8-K, filed on March
17, 1998.)
*23 Consent of Deloitte & Touche LLP dated as of May 6, 1998.
*99.1 Norcen Energy Resources Limited Financial Statements as filed
in its Annual Report on Form 40-F for the year ended December
31, 1997.
*99.2 Norcen Energy Resources Limited Supplemental Information as
filed in its Annual Report on Form 40-F for the year ended
December 31, 1997.
*99.3 Norcen Energy Resources Limited Financial Statements as filed
in its Annual Report on Form 40-F for the year ended December
31, 1996.
*99.4 Norcen Energy Resources Limited Supplemental Information as
filed in its Annual Report on Form 40-F for the year ended
December 31, 1996.
99.5 Press Release dated March 3, 1998. (Exhibit 99.1 to Current
Report on Form 8-K, filed on March 17, 1998.)
- --------------
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION PACIFIC RESOURCES GROUP INC.
/s/ Morris B. Smith
--------------------------------------------
By: Morris B. Smith
Vice President, Chief Financial Officer
(Chief Financial Officer and Duly
Authorized Officer)
DATED: May 5, 1998
<PAGE> 16
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2.1 Pre-acquisition Agreement between Union Pacific Resources
Group Inc., Union Pacific Resources Inc. and Norcen Energy
Resources Limited, dated January 25, 1998. (Exhibit 2.1 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.1 Specimen of Certificate evidencing the Common Stock (Exhibit 4
to Registration Statement on Form S-1, Registration Statement
No. 33-95398, filed on October 10, 1995.)
4.2 Rights Agreement, dated as of October 28, 1996, between Union
Pacific Resources Group Inc. and Harris Trust and Savings
Bank, as rights agent (incorporated herein by reference to the
Company's Current Report on Form 8-K filed on November 1,
1996).
4.3 Indenture, dated as of March 27, 1996, between Union Pacific
Resources Group Inc. and Texas Commerce Bank National
Association, as trustee (incorporated herein by reference to
the Company's Current Report on Form 8-K filed on November 1,
1996).
4.4 Terms Agreement, dated as of October 10, 1996, for
$200,000,000 7 1/2% debentures due October 15, 2026. (Exhibit
4.4 to Current Report on Form 8-K, filed on March 17, 1998.)
4.5 Terms Agreement, dated as of October 10, 1996, for
$200,000,000 7% notes due October 15, 2006. (Exhibit 4.5 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.6 Terms Agreement, dated as of October 31, 1996, for
$150,000,000 7 1/2% debentures due October 15, 2096. (Exhibit
4.6 to Current Report on Form 8-K, filed on March 17, 1998.)
4.7 Form of 7 1/2% Rate Debenture due October 15, 2026. (Exhibit
4.7 to Current Report on Form 8-K, filed on March 17, 1998.)
4.8 Form of 7% Rate Note due October 15, 2006. (Exhibit 4.8 to
Current Report on Form 8-K, filed on March 17, 1998.)
4.9 Form of 7 1/2% Rate Debenture due October 15, 2096. (Exhibit
4.9 to Current Report on Form 8-K, filed on March 17, 1998.)
4.10 Trust Indenture, dated as of May 7, 1996, providing for the
issue of Debt Securities in unlimited principal amount,
between Norcen Energy Resources Limited and Montreal Trust
Company of Canada, as trustee. (Exhibit 4.10 to Current Report
on Form 8-K, filed on March 17, 1998.)
4.11 First Supplemental Indenture, dated as of May 22, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 7 3/8% Debentures due May 15, 2006 in aggregate
principal amount of U.S. $250,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.11 to Current Report on Form 8-K, filed on
March 17, 1998.)
<PAGE> 17
4.12 Second Supplemental Indenture, dated as of June 26, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 7.8% Debentures due July 2, 2008 in aggregate
principal amount of U.S. $150,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.12 to Current Report on Form 8-K, filed on
March 17, 1998.)
4.13 Third Supplemental Indenture, dated as of June 26, 1996, to
Trust Indenture, dated as of May 7, 1996, providing for the
issue of 6.8% Debentures due July 2, 2002 in aggregate
principal amount of U.S. $250,000,000 between Norcen Energy
Resources Limited and Montreal Trust Company of Canada, as
trustee. (Exhibit 4.13 to Current Report on Form 8-K, filed on
March 17, 1998.)
4.14 Fourth Supplemental Indenture, dated as of February 27, 1998,
to Trust Indenture, dated as of May 7, 1996, providing for the
Guarantee of all Securities to be Issued or Previously Issued
under the Trust Indenture between Norcen Energy Resources
Limited and Montreal Trust Company of Canada, as trustee.
(Exhibit 4.14 to Current Report on Form 8-K, filed on March
17, 1998.)
*23 Consent of Deloitte & Touche LLP dated as of May 6, 1998.
*99.1 Norcen Energy Resources Limited Financial Statements as filed
in its Annual Report on Form 40-F for the year ended December
31, 1997.
*99.2 Norcen Energy Resources Limited Supplemental Information as
filed in its Annual Report on Form 40-F for the year ended
December 31, 1997.
*99.3 Norcen Energy Resources Limited Financial Statements as filed
in its Annual Report on Form 40-F for the year ended December
31, 1996.
*99.4 Norcen Energy Resources Limited Supplemental Information as
filed in its Annual Report on Form 40-F for the year ended
December 31, 1996.
99.5 Press Release dated March 3, 1998. (Exhibit 99.1 to Current
Report on Form 8-K, filed on March 17, 1998.)
- --------------
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Form 8-K/A of Union Pacific
Resources Group Inc. of our reports dated January 28, 1998 and January 31, 1997,
appearing in the Annual Reports on Form 40-F of Norcen Energy Resources Limited
on the consolidated financial statements and supplemental note of Norcen Energy
Resources Limited for the years ended December 31, 1997 and 1996.
We also consent to the incorporation by reference in Registration Statements No.
333-22613 and No. 333-35641 on Form S-8 and No. 333-22655 on Form S-3 of Union
Pacific Resources Group Inc. of our reports dated January 28, 1998 and January
31, 1997, appearing in the Annual Reports on Form 40-F of Norcen Energy
Resources Limited on the consolidated financial statements and supplemental note
of Norcen Energy Resources Limited for the years ended December 31, 1997 and
1996.
DELOITTE & TOUCHE
Calgary, Alberta
Canada
May 6, 1998
<PAGE> 1
EXHIBIT 99.1
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Norcen Energy Resources
Limited ("Norcen") and all information in the Annual Information Form are the
responsibility of management and have been approved by the Board of Directors.
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada and include some amounts that
are based on management's best estimates. Financial and operating data elsewhere
in the Annual Information Form is consistent with the information contained in
the financial statements.
In fulfilling their responsibilities, management of Norcen and its subsidiaries
maintains a system of internal accounting controls designed to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use
and that the financial records are timely, accurate and reliable for preparation
of the financial statements.
The Board of Directors carries out its responsibility for the financial
statements in this Annual Information Form principally through its Audit
Committee, consisting solely of non-executive directors. The Audit Committee
meets periodically with management and with the external auditors to discuss the
results of audit examinations with respect to the adequacy of internal
accounting controls and to review and discuss financial reporting matters.
External auditors have full access to the Audit Committee, with and without the
presence of management. The financial statements have been audited by Deloitte &
Touche, Chartered Accountants and their report follows.
Grant D. Billing W. Mark Schweitzer
President and Chief Executive Officer Vice President, Finance and
February 3, 1998 Chief Financial Officer
AUDITORS' REPORT
To the Shareholders of Norcen Energy Resources Limited:
We have audited the consolidated balance sheets of Norcen Energy Resources
Limited as at December 31, 1997 and 1996 and the consolidated statements of
earnings, retained earnings and changes in financial position for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles.
Calgary, Canada Chartered Accountants
January 28, 1998 Deloitte & Touche
<PAGE> 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
As at December 31
(millions of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ $ 135.9
Accrued asset sale proceeds (Note 3(ii)) 121.1
Accounts receivable 189.5 202.4
Inventories (Note 4) 54.7 56.2
- ------------------------------------------------------------------------------------------------------------------
Total current assets 365.3 394.5
INVESTMENTS AND ADVANCES (Note 5) 39.7 62.4
PROPERTY, PLANT AND EQUIPMENT (Note 6) 3,401.6 2,612.8
OTHER ASSETS 8.1 5.7
- ------------------------------------------------------------------------------------------------------------------
$ 3,814.7 $ 3,075.4
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued charges $ 207.7 $ 212.5
Income and other taxes 16.4 3.8
Current maturities on long-term debt 1.2
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 224.1 217.5
LONG-TERM DEBT (Note 7) 1,306.4 556.1
DEFERRED INCOME TAXES, REVENUE AND
OTHER PROVISIONS (Note 8) 703.6 711.8
NON-CONTROLLING INTEREST (Note 1) 94.1
SHAREHOLDERS' EQUITY (Note 9) 1,580.6 1,495.9
- ------------------------------------------------------------------------------------------------------------------
$ 3,814.7 $ 3,075.4
==================================================================================================================
</TABLE>
Approved by the Board:
Director Director
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS
Years ended December 31
(millions of dollars except per share amounts) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 1,215.9 $ 1,300.8
INVESTMENT AND INTEREST INCOME 6.2 5.9
- ------------------------------------------------------------------------------------------------------------------
1,222.1 1,306.7
- ------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales and administration 543.1 718.0
Depreciation, depletion and amortization 405.3 356.9
Interest and other financial expense 55.3 60.8
Income taxes (Note 10) 204.5 184.0
Non-controlling interest in subsidiary 14.2 5.8
Gains on asset sales and provisions (Note 3) (140.7) (110.7)
- ------------------------------------------------------------------------------------------------------------------
1,081.7 1,214.8
- ------------------------------------------------------------------------------------------------------------------
NET EARNINGS 140.4 91.9
==================================================================================================================
EARNINGS PER COMMON SHARE [Note 9 (iii)] $ 0.75 $ 0.53
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Years ended December 31
(millions of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $ 424.8 $ 384.4
Net earnings 140.4 91.9
- ------------------------------------------------------------------------------------------------------------------
565.2 476.3
Dividends 56.1 51.5
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 509.1 $ 424.8
==================================================================================================================
</TABLE>
29
<PAGE> 4
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
Years ended December 31
(millions of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 140.4 $ 91.9
Charges (credits) not affecting cash:
Gains on asset sales and provisions (33.8) (5.2)
Depreciation, depletion and amortization 405.3 356.9
Deferred income taxes 74.8 45.5
Non-controlling interests and other (2.5) (0.2)
- ------------------------------------------------------------------------------------------------------------------
Cash flow 584.2 488.9
Deferred gas revenues and other 4.2 (11.8)
Increase in net working capital** (25.9) (0.8)
- ------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities 562.5 476.3
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures on property, plant and equipment (869.7) (560.6)
Acquisition of Guatemala operations (Note 2) (425.7)
Oil and gas property (acquisitions), dispositions, net (52.1) 55.9
Site restoration and other (10.2) (1.8)
Advances to Superior Propane Inc. (Note 5) (14.3)
Disposition of the U.S. propane marketing operations (Note 3(i)) 106.6
Disposition of Superior Propane Inc. (1997 Note 3(ii); 1996 (i)) 207.1 234.1
Disposition of investments (Note 5 (iv)) 67.7 65.0
- ------------------------------------------------------------------------------------------------------------------
(1,097.2) (100.8)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease (increase) in accrued asset sale proceeds (121.1) 189.9
Long-term debt 694.2 (229.9)
Convertible subordinated debenture conversions and redemptions
(Note 9(v) and 13) (399.9)
Issue of common shares (Note 9) 250.5
Prepayment of disputed tax reassessments (Note 10(i)) (118.2)
Dividends (56.1) (51.5)
- ------------------------------------------------------------------------------------------------------------------
398.8 (240.9)
CHANGE IN CASH (135.9) 134.6
CASH AT BEGINNING OF YEAR 135.9 1.3
- ------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR* $ $ 135.9
==================================================================================================================
</TABLE>
* Cash is comprised of cash and short-term deposits.
** Net Working Capital excludes cash, accrued asset sale proceeds and current
maturities on long-term debt.
30
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts are in millions of dollars except where noted)
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared according
to Canadian generally accepted accounting principles applied on a consistent
basis and include the accounts of Norcen (the "Company") and all of its
subsidiaries (together "Norcen").
In October of 1996, the Company sold a 50% interest in Superior Propane Inc.
("Superior") to the Superior Propane Income Fund (the "Fund"). The Company
continued in 1996 to consolidate its remaining 50% interest in Superior. The 50%
interest in Superior, owned by the Fund, was accounted for as a "Non-controlling
Interest."
In September of 1997, the Company sold a further 40% interest in Superior to the
Fund. Effective September 1, 1997, the Company began to cost account for its
remaining 10% interest in Superior. The Company's remaining 10% interest in and
advances to Superior at December 31 have been shown as part of "Investments" on
the consolidated balance sheet. Cash income received from Superior since
September 1, 1997 is included in "Investment and Interest Income" on the
consolidated statement of earnings.
A substantial portion of Norcen's oil and gas activities is conducted jointly
with others and the consolidated financial statements reflect only Norcen's
proportionate interest in such activities.
Certain prior year figures have been reclassified for comparative purposes.
FOREIGN CURRENCY TRANSLATION
The accounts of self-sustaining foreign operations are translated using the
current rate method, under which all assets and liabilities are translated at
the exchange rate prevailing at the balance sheet date, and revenues and
expenses at average rates of exchange during the period. Resulting gains or
losses are deferred and included in the Currency Translation Account ("CTA")
component of shareholders' equity. Gains and losses on foreign currency loans,
deposits and transactions that are designated as hedges of the net investment in
self-sustaining foreign operations are similarly deferred and included in the
CTA. Deferred CTA translation and hedging gains and losses are included in
income when there is a reduction in the net investment in self-sustaining
foreign operations.
FORWARD AND FUTURES CONTRACTS
Norcen uses forward foreign exchange contracts to hedge the effect of exchange
rate changes on identifiable foreign currency exposures, and uses commodity swap
agreements to hedge the effect of price changes on a portion of the commodities
it produces. Gains and losses on these contracts are reported as a component of
the related transactions.
INVENTORIES
Inventories are valued at the lower of cost, applied on a first-in first-out
basis, and market value determined on the basis of replacement cost or net
realizable value as appropriate.
31
<PAGE> 6
PROPERTY, PLANT AND EQUIPMENT
OIL AND GAS
Oil and gas properties and production equipment, in accordance with the full
cost method of accounting, include expenditures related to the acquisition,
exploration and development of oil and gas reserves, whether or not potentially
productive. These costs are depleted and depreciated, on a country-by-country
cost center basis, using the unit of production method based on total estimated
proved recoverable reserves. Natural gas reserves and production are converted
to equivalent barrels of crude oil on the basis of six thousand cubic feet of
natural gas per barrel of oil. Proceeds on sale of property and equipment are
credited to asset costs.
Capitalized costs in each cost center are limited to the aggregate of estimated
undiscounted future net revenues (based on year-end prices) plus the net cost of
major development projects and unproved properties. Total capitalized costs are
limited to the aggregate of the foregoing less future interest costs, future
site restoration costs, administrative costs and income taxes attributed to oil
and gas operations.
A provision for estimated future site restoration costs is accrued by a charge
against income using the unit of production method.
PROPANE OPERATIONS
Propane operations equipment is recorded at cost and depreciated over the
estimated useful service life using the straight line method. Estimated useful
life of major classes of equipment are:
<TABLE>
<S> <C>
Tanks and cylinders 20 years
Truck chassis 7 years
Truck tank bodies 10 years
</TABLE>
Goodwill is amortized over 20 years and non-compete agreements are amortized
over the terms of the agreement.
DEFERRED REVENUES AND OTHER LIABILITIES
Deferred revenues and other liabilities include payments received under prepaid
gas contracts, long-term retirement liabilities, surplus office lease cost
provisions and the accrued liability for estimated future site restoration
costs. Deferred gas revenues are included in revenue as the gas to which the
payments relate is delivered.
2. ACQUISITION OF GUATEMALAN OPERATIONS
Effective May 1, 1997, Norcen acquired all of the outstanding shares of Basic
Petroleum International Limited ("Basic") for cash consideration of $425.7
million and a 5% royalty right relating to certain exploration lands. Basic was
engaged in oil exploration and production operations in Guatemala. The
acquisition has been accounted for using the purchase method. The results of
operations of Basic have been included in the Company's consolidated financial
statements effective May 1, 1997.
32
<PAGE> 7
The fair value of assets acquired is as follows:
<TABLE>
<S> <C>
Property, plant and equipment $425.5
Net working capital 11.4
$436.9
Financed by:
Cash consideration paid $425.7
Long-term debt assumed 11.2
$436.9
</TABLE>
3. GAINS ON ASSET SALES AND PROVISIONS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Gain on sale of interests in Superior (i), (ii) $ 140.7 $ 132.0
Provision for surplus office lease costs and equipment (iii) - (21.3)
- ------------------------------------------------------------------------------------------------------------------
$ 140.7 $ 110.7
==================================================================================================================
</TABLE>
In 1997, the net income effect of gains on asset sales and provisions was $33.8
million (1996 - $2.7 million), after deduction of income tax of $106.9 million
(1996 - $108.0 million). In 1997, income tax deducted included a specific
provision of $50.0 million (1996 - $60.0 million), related to income tax
reassessments received and other potential income tax exposures (see Note
10(i)).
The components of the gains on asset sales, write-downs and provisions are as
follows:
(i) In October 1996, the Company sold a 50% interest in Superior to the Fund
for net cash proceeds of $234.1 million resulting in a net gain of $132.0
million. In April 1996, Norcen sold its United States propane marketing
operations for net cash consideration of $106.6 million which approximated
net book value.
(ii) In September of 1997, the Company sold a further 40% interest in Superior
to the Fund resulting in a net gain of $140.7 million. Net proceeds from
the sale amounted to $207.1 million after deduction of transaction costs
and cash income taxes thereon. Net proceeds were comprised of net cash
consideration of $86.0 million and $126.1 million of non-interest bearing
installment receipts due September 4, 1998, which have been recorded on the
consolidated balance sheet as Accrued asset sale proceeds at their
estimated present value of $121.1 million.
(iii)In 1996, the Company relocated its corporate offices to provide a more
efficient and flexible office environment. A provision of $6.8 million was
recorded to provide for surplus office lease commitments and moving costs
and $14.5 million of unamortized office leasehold improvements, furniture
and equipment were written off.
4. INVENTORIES
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Oil and Gas Product $ 13.0 $ 3.5
Oil and Gas Parts and Supplies 41.7 6.3
Propane Marketing Product - 46.4
- ---------------------------------------------------------------------------------------------------------------
$ 54.7 $ 56.2
===============================================================================================================
</TABLE>
33
<PAGE> 8
5. INVESTMENTS (AT COST)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Investments in Superior (i) $ 18.2 $
Advances to Superior (ii) 21.5
Mico Investments Ltd., common shares (iv) 61.6
Notes receivable from employees and other .8
- ------------------------------------------------------------------------------------------------------------
$ 39.7 $ 62.4
============================================================================================================
</TABLE>
(i) Effective September 1, 1997, the Company began to cost account for its
remaining 10% ownership interests in Superior. Pursuant to an exchange
agreement between the Company and the Fund, the Company's 10% ownership
interests in Superior are exchangeable at the option of the Company, into
4,570,695 units of the Fund. As at December 31, 1997, the estimated market
value of the Company's 10% ownership interests in Superior was $62.4
million.
(ii) The Company provides banking and cash management services to Superior. Cash
advances are provided to Superior on a senior unsecured basis and bear
interest at the prime borrowing rate of interest as established from time
to time by certain major Canadian banks. The Company guarantees Superior's
obligations under an agreement whereby Superior sells, with limited
recourse, certain accounts receivable on a revolving basis to a maximum
amount of $40 million.
(iii)The Company also holds certain administrative and management contract
interests in the Fund and Superior respectively. During 1997, the Company
sold propane to Superior in the amount of $3.0 million (1996 - $8.8
million) priced at market rates.
(iv) In December 1997, the Company sold its investment in Mico Investments Ltd.,
at full carried cost for cash consideration of $67.7 million to a company
related to Noranda Inc. ("Noranda"). Noranda is a significant shareholder
of the Company. In December 1996, the Company sold its preference share
investment in Brascan Limited at full carried cost for cash consideration
of $65.0 million to a company related to Noranda. Dividends received from
these investments amounted to $2.3 million in 1997 (1996 - $5.6 million),
and were paid at rates based on the prime rate of interest established by
major Canadian banks from time to time.
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Oil and Propane
Gas Marketing Total
- -----------------------------------------------------------------------------------------------------------------
(i), (ii), (iii)
<S> <C> <C> <C>
December 31, 1997
Cost $ 7,202.9 $ $ 7,202.9
Accumulated depreciation and depletion 3,801.3 3,801.3
- -----------------------------------------------------------------------------------------------------------------
Net $ 3,401.6 $ $ 3,401.6
=================================================================================================================
December 31, 1996
Cost $ 5,553.7 $ 389.1 $ 5,942.8
Accumulated depreciation and depletion 3,164.4 165.6 3,330.0
- -----------------------------------------------------------------------------------------------------------------
Net $ 2,389.3 $ 223.5 $ 2,612.8
=================================================================================================================
</TABLE>
34
<PAGE> 9
(i) Norcen has entered into commitments of US$60 million to procure the
services of deepwater drilling rigs in the Gulf of Mexico for a total of 17
months over a remaining 31-month period which commenced in August 1997 and
ends in July 2000.
(ii) Expenditures relating to undeveloped or unevaluated oil and gas properties
excluded from the depletion base are as follows:
<TABLE>
<CAPTION>
United New
States Venezuela Guatemala Zealand Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $25.6 $31.6 $25.0 $82.2
1996 $24.4 $15.0 $39.4
</TABLE>
(iii) No administrative overhead expenditures related to exploration or
development activities were capitalized in 1997 or in 1996.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-----------
Interest Rate 1997 1996
- ----------------------------------------------------------------------------------------------------------------
(i)
<S> <C> <C> <C>
Direct unsecured obligations of the Company:
Notes payable and revolving term bank credits 4.40% $ 377.5 $ 6.4
6.80% debentures due July 2, 2002 (US$250 million) 6.80% 357.3
7-3/8% debentures due May 15, 2006 (US$250 million) 7.49% 357.3 342.4
7.80% debentures due July 2, 2008 (US$150 million) 5.14% 214.3 205.4
- ----------------------------------------------------------------------------------------------------------------
6.21% 1,306.4 554.2
Capital lease obligations owed by Superior 3.1
- ----------------------------------------------------------------------------------------------------------------
557.3
Current maturities 1.2
- ----------------------------------------------------------------------------------------------------------------
Long-term debt $ 1,306.4 $ 556.1
================================================================================================================
</TABLE>
(i) Weighted average interest rates after swap contracts as at December 31,
1997.
At December 31, 1997 notes payable include short-term money market borrowings
supported by revolving term loan agreements which mature in 2000 that are
structured to provide Norcen with the right to borrow at floating interest
rates. At December 31, 1997, notes payable and revolving term bank credits
included direct borrowings of US$34.4 million (1996 - nil). In addition, the
Company had entered into U.S. dollar forward sales contracts in the amount of
US$251.5 million at December 31, 1997 (1996 - US$78.0 million), maturing from
February 1998 to October 2004. These U.S. dollar forward sales contracts have
the effect of converting Canadian dollar borrowings into U.S. dollar borrowings.
On July 2, 1997, the Company issued US$250 million 6.80% debentures due July 2,
2002. Proceeds were used to repay notes payable.
The Company has entered into an agreement to swap floating interest rate
obligations into fixed rates at 7.3% on a principal amount of US$50 million for
a term expiring in March 1999. The Company has also entered into agreements to
swap fixed rate interest obligations into floating interest rate obligations on
principal amounts of CDN$150 million expiring in May 2006, US$150 million
expiring in May 2006 and US$150 million expiring in July 2008.
35
<PAGE> 10
As at December 31, 1997, the estimated fair value of the Company's debentures
was $975.1 (1996 - $562.5 million) (US$682.3 million; 1996 - US$410.7 million).
The estimated fair value of notes payable and revolving term bank credits, at
December 31, 1997 and 1996, was equal to their carried value due to the floating
interest rate nature and short repayment term of these debt securities. As at
December 31, 1997, the estimated aggregate unrealized gain on interest rate swap
agreements was US$37.7 million (1996 - US$17.6 million). As at December 31,
1997, the estimated fair value of U.S. dollar forward sales contracts was an
unrealized loss of US$5.7 million (1996 unrealized gain of US$0.6 million). All
interest rate swap arrangements and U.S. dollar forward sales contracts have
been made with AA rated banks.
Interest on long-term debt and convertible subordinated debentures was $55.1
million in 1997 ($66.1 million in 1996). Interest expense includes the non-cash
amortization of deferred financing expense of $0.9 million in 1997 ($2.7 million
in 1996).
8. DEFERRED INCOME TAXES, REVENUE AND OTHER PROVISIONS
<TABLE>
<CAPTION>
December 31
-----------
1997 1996
---- ----
<S> <C> <C>
Deferred income taxes $ 615.3 $ 618.3
Provision for future site restoration costs (i) 43.5 40.8
Deferred revenue and other provisions 44.8 52.7
- ------------------------------------------------------------------------------------------------------------
$ 703.6 $ 711.8
============================================================================================================
</TABLE>
(i) As part of Norcen's oil and gas operations, it has ongoing site restoration
and remediation responsibilities. Site restoration costs involve the
surface clean up and reclamation of well sites and field production
facilities to ensure that they can be safely returned to appropriate land
uses. Total anticipated future costs are in the range of $140 million to
$170 million over the next 20 years. Estimated future site restoration
costs are provided for using the unit of production method as described in
Note 1.
9. SHAREHOLDERS' EQUITY
Capital Stock-Authorized:
First Preference Shares, an unlimited number
Junior Preference Shares, an unlimited number
Common Shares, an unlimited number
<TABLE>
<CAPTION>
Capital Stock Issued: December 31 Dividends Paid
----------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common shares (i) (iii) $ 1,072.3 $ 1,072.3 $ 56.1 $ 51.5
Retained Earnings 509.1 424.8
Currency Translation Account (vi) (0.8) (1.2)
- -----------------------------------------------------------------------------------------------------------------
$ 1,580.6 $ 1,495.9 $ 56.1 $ 51.5
=================================================================================================================
</TABLE>
36
<PAGE> 11
(i) Common Shares
The following summarizes the issue of Common shares:
<TABLE>
<CAPTION>
Shares
(in 000's) Amount
---------- ------
<S> <C> <C> <C> <C>
December 31, 1995 82,973 $ 821.8
Employee stock options plans and other (iv) 327 .5
Conversion of 8% Convertible Subordinate Debentures (v) 10,000 250.0
- ------------------------------------------------------------------------------------------------------------
December 31, 1996 93,300 $ 1,072.3
Employee stock options plans and other (iv) 225
Stock Dividend (ii) 93,503
- ------------------------------------------------------------------------------------------------------------
December 31, 1997 187,028 $ 1,072.3
============================================================================================================
</TABLE>
(ii) Stock Dividend
On November 13, 1997, the Company declared a stock dividend of 93.5 million
shares to shareholders of record at the close of business on December 1,
1997. The effect of this stock dividend was to effectively split the
Company's issued shares two for one. All share and per share information
has been retroactively restated to give effect of this stock dividend.
(iii) Earnings Per Share
Earnings per share have been calculated using the weighted average number
of shares outstanding during the year (186.9 million in 1997; 173.8 million
in 1996).
(iv) Stock Options
Norcen has an Incentive Stock Option Plan ("ISOP") through which stock
options are issued to employees which are exercisable as either a purchase
or a market growth option. Under the ISOP, in the case of a market growth
option, the number of common shares issued is equal to the growth in value
of the options, represented by the market price less the exercise price
times the number of options exercised, divided by the current market price
of the common share. All options exercised during 1997 and 1996 were
exercised as market growth options. At December 31, 1997, there were
6,604,152 options outstanding under the ISOP (1996 - 1,922,878 options)
exercisable at prices varying from $8.25 to $16.58 per share for periods up
to 2001 (1996 - $8.25 to $14.35 per share for periods up to 2000).
(v) Conversion of 8% Convertible Subordinated Debentures
On August 19, 1996, Noranda converted $250 million 8% convertible
subordinated debentures into Norcen common shares at the conversion rate of
$25 per share.
(vi) Currency Translation Account ("CTA")
The Company manages the foreign currency exposure associated with its net
investment in self-sustaining foreign operations by designating foreign
currency denominated debt or futures contracts as a hedge of this exposure.
At December 31, 1997, hedges of this foreign currency exposure aggregated
US$936 million (1996 - US$478 million), comprised of US$684.5 million of
notes payable and debentures (1996 - US$400 million) and US$251.5 million
of US dollar forward sales contracts (1996 - US $78 million). Included in
the CTA at December 31, 1997 were deferred foreign exchange losses of $74
million ($36 million in 1996).
37
<PAGE> 12
10. INCOME TAXES
The provision for income taxes in the consolidated statement of earnings varies
from the amounts that would be computed by applying the Canadian federal
statutory rate, including surtax, to earnings before income taxes and
non-controlling interests for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before income taxes and non-controlling interests $ 359.1 $ 281.7
- ------------------------------------------------------------------------------------------------------------------
Canadian statutory rate of income tax 44.6% 44.6%
- ------------------------------------------------------------------------------------------------------------------
Computed tax expense $ 160.2 $ 125.6
Increase (decrease) in income taxes resulting from:
Provision for potential assessments (i) 50.0 60.0
Non-deductible depletion(ii) 13.0 9.7
Non-deductible crown payments less federal resource allowance (1.0) 4.8
Non-taxable dividend income (1.0) (2.8)
Large Corporations Tax 4.9 3.6
Income subject to foreign tax rates less than the Canadian statutory rate (13.5) (10.7)
Non-taxable (non-deductible) portion of gains on asset sales
and provisions (iii) (5.8) (2.6)
Other items, net (2.3) (3.6)
- ------------------------------------------------------------------------------------------------------------------
Actual income tax expense $ 204.5 $ 184.0
==================================================================================================================
</TABLE>
(i) The Company has received reassessments concerning the deductibility of
certain interest expense and foreign exchange losses claimed for income tax
purposes during the period 1989 to 1993 in the amount of $118.2 million.
These reassessments have been fully provided for in the Company's accounts
and were fully funded during 1997.
The Company strongly disagrees with the reassessments received and is
appealing them. Final resolution of this issue will likely take several
years.
(ii) Various acquisitions of oil and gas assets in prior years have been
structured such that the values ascribed for income tax purposes are lower
than the fair market value amounts recorded in the accounts of the Company.
Depletion expense related to these differences between tax and book values
is not deductible in computing income tax expense.
(iii)Gains on asset sales and provisions include capital gains and losses
whereby 25% of such amounts are not taxable. Tax recoveries against capital
losses are recorded only to the extent that the Company has available
capital gains.
11. PENSION PLANS
Norcen and its subsidiaries, Norcen Explorer, Inc. ("NEI"), and Superior (in
1996), have defined benefit and defined contribution pension plans covering most
employees. The benefits provided by defined benefit plans are based on the
employee's years of service and on the highest average earnings for a specified
number of consecutive years. The benefit provisions under the Norcen and NEI
pension plans were modified to provide employees with a defined contribution
benefit plan option. The defined contribution plan has been retroactively
adopted by substantially all active employees of Norcen, NEI and Superior. The
Company makes contributions to the pension plans as required based on the
results of
38
<PAGE> 13
actuarial valuations. Defined benefit plan assets consist primarily of equity
and fixed income securities. Projected defined benefit obligations and the
expected return on plan assets are based on an assumed rate of 6.5%. Projected
pay increases reflect an assumed rate of 5%.
The funded status of the plans and the liability as recognized in the
consolidated balance sheet at December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated benefit obligation including vested amounts
of $62.5 million ($114.5 million in 1996) $ 62.5 $ 114.7
Unearned benefit obligation related to projected pay increases .3 3.7
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation 62.8 118.4
Plan assets, at market related values 97.7 174.5
- ------------------------------------------------------------------------------------------------------------
Excess of plan surplus over balance sheet liability $ 34.9 $ 56.1
============================================================================================================
Comprised of:
Norcen (and its wholly-owned subsidiaries) $ 34.9 $ 32.1
Superior 24.0
- ------------------------------------------------------------------------------------------------------------
$ 34.9 $ 56.1
============================================================================================================
</TABLE>
12. FORWARD AND FUTURES CONTRACTS
Norcen has a price risk management program whereby the commodity price and
foreign currency exchange rates associated with a portion of its future
production are fixed. The purpose of this program is to increase the certainty
of future cash flows available to fund future capital expenditures and to
increase the certainty of expected earnings generated from capital expenditures.
Norcen sells forward a portion of its future production through a combination of
fixed price sales contracts with customers and commodity swap agreements with
financial counterparties. Foreign currency exchange rates associated with future
fixed price production are fixed by entering into forward U.S. dollar sales
contracts with financial counterparties. The use of commodity swap agreements
and forward sales contracts with financial counterparties involves a degree of
credit risk which Norcen manages through its credit policies and the selection
of counterparties. Market risk relating to changes in the value or settlement
cost of Norcen's commodity swap agreements and forward sales contracts are
offset by pricing changes on Norcen's production.
At December 31, 1997, Norcen had fixed the price and foreign currency exchange
rates applicable to its future production as follows:
<TABLE>
<CAPTION>
Canadian Gulf of Mexico
Crude Oil Natural Gas Natural Gas Foreign Currency
- -------------------------------------------------------------------------------------------------------------------
US$ Forward
Volume Price(i) Volume Price (ii) Volume Price(iii) Amount Ex.Rate
(b/d) (US$) (mmcf/d) (CDN$) (mmcf/d) (US$)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 26,000 18.88 140 2.07 62 2.41 216 1.3491
1999 11,000 20.00 63 2.60 168 1.3581
2000 58 2.73
2001 58 3.20
</TABLE>
39
<PAGE> 14
(i) Price is relative to the New York Mercantile Exchange (NYMEX) price for
West Texas Intermediate crude oil.
(ii) Price is relative to the Alberta field gate price of natural gas.
(iii) Price is relative to the NYMEX price for natural gas sold at Henry Hub,
Louisiana.
At December 31, 1997, the estimated unrealized gain (or loss) based on market
quotes for the years 1998 through 2001 of the fixed oil and natural gas prices
and foreign currency exchange contracts were $17 million, $63 million and ($24
million) (December 31, 1996 - ($56 million), $26 million and $8 million,
respectively).
In addition, the Company has contracted to sell Canadian natural gas production
directly to customers from 2002 to 2011 for volumes of 58 mmcf/d declining to 21
mmcf/d over this period, at average prices in excess of $3.20/mcf. Forward gas
markets beyond four years are not sufficiently liquid to estimate the unrealized
gain (loss) on these contracts.
13. RELATED PARTY TRANSACTIONS (NOTES 5 AND 9(V))
Effective July 29, 1996, the $150 million 5% Adjustable Rate Convertible
Subordinated Debentures Series B were redeemed by the Company for cash. Noranda
held $60 million of these debentures.
During 1996, the Company and Superior relocated their corporate offices to a
building which is owned by companies related to Noranda under a 10-year lease.
Terms of the lease represent market rates and require future lease payments
aggregating $15.5 million over the term of the lease.
During 1996, Norcen and a subsidiary entered into cash management arrangements
with its significant shareholder, Noranda and its wholly-owned subsidiary, under
which funds were deposited and borrowed at market rates of interest.
14. SUBSEQUENT EVENT
On January 26, 1998, Union Pacific Resources Group Inc., announced with the
Company to make a cash offer of $19.80 per share for all of the issued and
outstanding shares of the Company.
40
<PAGE> 15
15. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
GEOGRAPHIC AND INDUSTRY SEGMENTS
YEAR ENDED DECEMBER 31, 1997
(millions of dollars)
----------------------------------------------------------------------------------------
CONSOLI-
UNITED OTHER TOTAL PROPANE DATED
CANADA STATES VENEZUELA GUATEMALA INT'L OIL & GAS & OTHER TOTAL
------ ------- --------- --------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 515.5 $ 167.3 $ 76.8 $ 83.2 $ 41.8 $ 884.6 $ 331.3 $1,215.9
Investment and Interest Income - - - - - - 6.2 6.2
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
$ 515.5 $ 167.3 $ 76.8 $ 83.2 $ 41.8 $ 884.6 $ 337.5 $1,222.1
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
Less:
Operating costs 125.8 33.8 22.2 17.4 15.8 215.0 85.2 300.2
Administration 26.0 6.1 0.2 6.1 0.9 39.3 6.6 45.9
Product purchases - - - - - - 197.0 197.0
Depletion and depreciation 234.6 89.0 21.7 31.0 13.6 389.9 15.4 405.3
Interest and financial expense 49.4 - - - - 49.4 5.9 55.3
(i)
Income taxes (ii) 57.2 14.5 8.9 10.0 3.2 93.8 3.8 97.6
Non-controlling interest - - - - - - 14.2 14.2
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
$ 493.0 $ 143.4 $ 53.0 $ 64.5 $ 33.5 $ 787.4 $ 328.1 $1,115.5
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
Earnings from operations $ 22.5 $ 23.9 $ 23.8 $ 18.7 $ 8.3 $ 97.2 $ 9.4 $ 106.6
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
Gains on asset sales, and
provisions (Note 3) - - - - - - 140.7 140.7
Income taxes thereon - - - - - - (106.9) (106.9)
--------- --------- ----------- ----------- ---------- ----------- ----------- ---------
- - - - - - $ 33.8 $ 33.8
========= ========= =========== =========== ========== =========== =========== =========
Net earnings $ 22.5 $ 23.9 $ 23.8 $ 18.7 $ 8.3 $ 97.2 $ 43.2 $ 140.4
========= ========= =========== =========== ========== =========== =========== =========
Cash flow (after unusual items) $ 308.2 $ 127.5 $ 44.0 $ 59.7 $ 23.3 $ 562.7 $ 21.5 $ 584.2
Capital expenditures $ 521.3 $ 190.3 $ 114.7 $ 42.4 $ (0.4) $ 868.3 $ 1.4 $ 869.7
Identifiable assets $2,542.9 $ 658.4 $ 269.9 $ 212.3 $ 91.5 $3,775.0 $ 39.7 $3,814.7
GEOGRAPHIC AND INDUSTRY SEGMENTS
YEAR ENDED DECEMBER 31, 1996
(millions of dollars)
----------------------------------------------------------------------------------------
CONSOLI-
UNITED OTHER TOTAL PROPANE DATED
CANADA STATES VENEZUELA GUATEMALA INT'L OIL & GAS & OTHER TOTAL
------ ------- --------- --------- ----- --------- ------- -----
Sales $ 442.7 $ 175.7 $ 56.5 - $ 47.1 $ 722.0 $ 578.8 $1,300.8
Investment and Interest Income - - - - - 5.9 5.9
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
$ 442.7 $ 175.7 $ 56.5 - $ 47.1 $ 722.0 $ 584.7 $1,306.7
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
Less:
Operating costs 107.7 23.0 13.7 - 18.7 163.1 157.8 320.9
Administration 35.3 5.4 - - - 40.7 10.3 51.0
Product purchases - - - - - - 346.1 346.1
Depletion and depreciation 209.2 93.4 14.7 - 14.4 331.7 25.2 356.9
Interest and financial expense (i) 40.9 - - - - 40.9 19.9 60.8
Income taxes (ii) 35.6 19.7 9.0 - 5.0 69.3 6.7 76.0
Non-controlling interest - - - - - - 5.8 5.8
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
$ 428.7 $ 141.5 $ 37.4 - $ 38.1 $ 645.7 $ 571.8 $1,217.5
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
Earnings from operations $ 14.0 $ 34.2 $ 19.1 - $ 9.0 $ 76.3 $ 12.9 $ 89.2
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
Gains on asset sales, and
provisions (Note 3) (21.3) - - - - (21.3) 132.0 110.7
Income taxes thereon 9.5 - - - - 9.5 (117.5) (108.0)
--------- --------- ----------- ----------- --------- ----------- ----------- ----------
$ (11.8) - - - - $ (11.8) $ 14.5 $ 2.7
========= ========= =========== =========== ========= =========== =========== ==========
Net earnings $ 2.2 $ 34.2 $ 19.1 - $ 9.0 $ 64.5 $ 27.4 $ 91.9
========= ========= =========== =========== ========= =========== =========== ==========
Cash flow (after unusual items) $ 233.0 $ 143.5 $ 42.8 - $ 28.4 $ 447.7 $ 41.2 $ 488.9
Capital expenditures $ 374.6 $ 96.9 $ 62.6 - $ 7.6 $ 541.7 $ 18.8 $ 560.5
Identifiable assets $1,763.2 $ 541.5 $ 133.6 - $120.9 $2,559.2 $ 516.2 $3,075.4
</TABLE>
41
<PAGE> 16
(i) Interest and other financial expense have been allocated based on 100% of
the carrying value of the assets for Propane & Other until 50% of the
investment in the Propane Operations was sold to the Superior Propane
Income Fund. The residual amount is allocated to the Oil & Gas segment.
(ii) The income tax charge for each segment is adjusted for the net change in
interest and financial expense allocated between segments.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- -----------------------------------------
Cash Flow Earnings Cash Flow Earnings
--------- -------- --------- --------
$Millions $/Share $Millions $/Share $Million $/Share $Million $/Share
--------- ------- --------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 142.3 $ 0.76 $ 36.1 $ 0.20 $ 126.1 $ 0.76 $ 28.4 $ 0.17
2nd Quarter $ 123.5 $ 0.67 $ 17.3 $ 0.10 $ 110.0 $ 0.67 $ 12.5 $ 0.08
3rd Quarter $ 138.8 $ 0.74 $ 50.8 $ 0.27 $ 125.7 $ 0.72 $ 15.7 $ 0.09
4th Quarter $ 179.6 $ 0.95 $ 36.2 $ 0.19 $ 127.1 $ 0.67 $ 35.3 $ 0.19
</TABLE>
42
<PAGE> 17
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
- -----------------------------------------------------------------------------------------------------------------
Years ended December 31
(millions of dollars except per share items) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUES $ 1,222.1 $ 1,306.7 $ 1,266.0 $ 1,314.7 $ 1,157.1
- ----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Costs of sales and administration 543.1 718.0 727.1 769.8 704.2
Depreciation, depletion and amortization 405.3 356.9 378.1 349.6 306.3
Interest and other financial expense 55.3 60.8 107.9 119.2 104.0
Income taxes 204.5 184.0 57.2 (12.3) 20.2
Non-controlling interest 14.2 5.8 1.1 10.5 (7.4)
Gains on asset sales and provisions (140.7) (110.7) (23.7) 191.9 5.4
- ----------------------------------------------------------------------------------------------------------------
1,081.7 1,214.8 1,247.7 1,428.7 1,132.7
- ----------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 140.4 $ 91.9 $ 18.3 $(114.0) $ 24.4
- ----------------------------------------------------------------------------------------------------------------
CASH FLOW $ 584.2 $ 488.9 $ 392.0 $ 394.5 $ 368.1
================================================================================================================
PER COMMON SHARE
Earnings - basic $ 0.75 $ 0.53 $ 0.11 $ (0.70) $ 0.15
Cash flow - basic $ 3.12 $ 2.82 $ 2.37 $ 2.39 $ 2.32
Dividends paid $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30
CAPITAL EXPENDITURES AND ACQUISITIONS (NET)
Oil & gas $ 920.4 $ 485.9 $ 32.4 $ 602.2 $ 577.0
Acquisition of Guatemala $ 425.7
Propane operations $ 1.4 $ 18.8 $ 30.0 $ 26.9 $ 64.9
Minerals $ (3.5)
================================================================================================================
$ 1,347.5 $ 504.7 $ 62.4 $ 629.1 $ 638.4
================================================================================================================
OIL & GAS OPERATIONS
Production (before deducting royalties)
Oil and NGL (mb/d)
Canada 49.3 44.8 47.9 51.0 47.8
United States 5.9 5.9 4.9 4.7 3.3
Guatemala 13.8 - - - -
Venezuela 17.6 15.1 10.4 4.3 -
Argentina and Australia 4.2 4.5 5.4 5.9 5.4
- ----------------------------------------------------------------------------------------------------------------
90.8 70.3 68.6 65.9 56.5
================================================================================================================
Natural Gas (mmcf/d)
Canada 381 350 377 447 413
United States 120 133 111 89 54
Argentina 15 19 17 18 14
================================================================================================================
516 502 505 554 481
================================================================================================================
Proved plus probable reserves
Oil and NGL (mmbbls) 428 301 277 254 301
Natural Gas (bcf) 2,064 1,827 1,745 2,362 2,644
Land Holdings (millions of acres)
Gross 14 18 24 31 42
Net 7 7 9 13 15
Propane sales (millions of litres) 1,033 1,726 1,846 1,869 1,559
EMPLOYEES (YEAR END) 1,182 651 785 1,058 1,178
</TABLE>
43
<PAGE> 1
EXHIBIT 99.2
SUPPLEMENTAL INFORMATION
(Tabular amounts are in millions of dollars except per share amounts)
The following supplemental information is provided in accordance with the
Securities Exchange Act of 1934 as required for companies reporting on Annual
Form 40-F under the Multijurisdictional Disclosure System.
RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Norcen follows Canadian generally accepted accounting principles ("GAAP") which
are different in some respects from those applicable in the United States and
from practices prescribed by the United States Securities and Exchange
Commission ("SEC").
CONSOLIDATED STATEMENT OF EARNINGS
The application of United States accounting principles would have affected net
earnings as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
Net earnings based on Canadian GAAP $ 140.4 $ 91.9
Application of SEC prescribed full cost method(ii) 65.4 70.8
Reduction of deferred income taxes(iii) (29.2) (30.8)
========== =========
Net earnings based on United States GAAP $ 176.6 $ 131.9
========== =========
Earnings per ordinary share: (1)
Canadian - basic and fully diluted $ 0.75 $ 0.53
========== =========
United States - primary and fully diluted $ 0.94 $ 0.76
========== =========
</TABLE>
CONSOLIDATED BALANCE SHEET
The cumulative effect of the application of United States accounting principles
would have resulted in an increase (decrease) to the following balance sheet
accounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Property, Plant and Equipment(ii) $ (249.0) $ (333.6)
========= =========
Deferred Income Taxes $ 4.3 $ (44.1)
========= =========
Shareholder's Equity:
- - Common Stock $ 39.5 $ 39.5
- - Currency Translation Account 76.8 76.8
- - Retained Earnings (Deficit) (369.6) (405.8)
--------- ---------
$ (253.3) $ (289.5)
========= =========
</TABLE>
(1) Per share information has retroactively been restated to give effect to
the stock dividend declared in 1997, which effectively split the Company's
issued shares two for one.
1
<PAGE> 2
The cumulative effect on retained earnings is comprised of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1997 1996
---- ----
<S> <C> <C>
Retained earnings based on Canadian GAAP $ 509.1 $ 424.8
--------- ---------
Foreign currency translation adjustment on long-term debt (76.8) (76.8)
(i)
Application of SEC full cost method (ii) (435.8) (501.2)
Reduction of deferred income taxes (iii) 188.1 217.3
Adoption and application of SFAS109 (iv) (5.6) (5.6)
Effect of minority interest in subsidiaries (39.5) (39.5)
--------- ---------
Cumulative change (369.6) (405.8)
--------- ---------
Retained earnings based on United States accounting $ 139.5 $ 19.0
principles
========= =========
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
The Statement of Changes in Financial Position is in conformity in all material
respects with International Accounting Standard 7 and reconciliation to United
States GAAP is therefore not required.
2
<PAGE> 3
SUMMARY OF DIFFERENCES BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
USED BY NORCEN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
- --------------------------------------------------------------------------------
(i) Foreign Currency Translation:
Norcen defers and amortizes the gain or loss on the translation of the
non-current portion of long-term monetary assets and liabilities
denominated in foreign currencies which have not been designated as a
hedge of the net investment in self-sustaining foreign operations. Under
United States accounting principles, the entire gain or loss on
translation would be reflected in earnings in the period it occurs.
(ii) SEC - Prescribed Full Cost Ceiling Tests:
The write-downs of asset values and the subsequent reduction in depletion
upon application of the SEC-prescribed ceiling tests are different than
ceiling tests under Canadian GAAP.
(iii) Income Tax Adjustments for Differences in Earnings:
Deferred income taxes have been provided for in respect of the difference
between Canadian GAAP and United States accounting principles.
(iv) Estimation of Deferred Income Taxes:
The Financial Accounting Standards Board issued Statement of Financial
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") which
requires the Company to reflect the difference between the net book value
of its assets and their related tax basis at the tax rates enacted at the
respective reporting date. Under Canadian GAAP, deferred income taxes are
based on an income statement approach and use historical tax rates to
build up the deferred tax balances. The adjustment upon initial adoption
of SFAS 109 in 1993 was an increase to deferred income taxes payable and a
corresponding decrease to earnings of $5.6 million. The impact on earnings
for 1994 to 1997 was not material. An additional entry is required under
SFAS 109 to increase property, plant and equipment and deferred income
taxes payable by $186.8 million (1996 - $167.6 million) to re-measure
prior business combinations.
(v) Effect of Minority Interests in Subsidiaries:
A corporate reorganization in 1975 was accounted for under Canadian GAAP
as a pooling of interests whereas under United States accounting
principles, it would have been accorded purchase accounting treatment. The
excess cost of the minority shares over their underlying book value of
$16.9 million has been fully amortized. Cumulative earnings of $20.9
million accruing to the minority interests prior to the 1975
reorganization would have been credited to capital stock instead of
retained earnings.
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Norcen Energy Resources Limited
Under the date of January 28, 1998, we reported on the consolidated balance
sheets of Norcen Energy Resources Limited as at December 31, 1997 and 1996, and
the consolidated statements of earnings, retained earnings and changes in
financial position for the years then ended, as included in this Form 40-F. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related supplemental note entitled
"Reconciliation with United States generally accepted accounting principles" as
set forth in this Form 40-F. This supplemental note is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
supplemental note based on our audits.
In our opinion, such supplemental note, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Calgary, Canada "Deloitte & Touche"
January 28, 1998 Chartered Accountants
4
<PAGE> 1
EXHIBIT 99.3
CONSOLIDATED
- --------------------------------------------------------------------------------
BALANCE SHEET
<TABLE>
<CAPTION>
As at December 31
(millions of dollars) 1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 135.9 $ 1.3
Accrued asset sale proceeds 189.9
Accounts receivable [Note 3] 205.9 250.8
Inventories 46.4 55.7
------------ ------------
Total current assets 388.2 497.7
INVESTMENTS [Note 4] 62.4 129.6
PROPERTY, PLANT AND EQUIPMENT [Note 5] 2,619.1 2,540.9
OTHER ASSETS 5.7 15.7
------------ ------------
$ 3,075.4 $ 3,183.9
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued charges $ 212.5 $ 226.9
Income and other taxes 3.8 9.9
Current maturities on long-term debt 1.2 2.3
------------ ------------
Total current liabilities 217.5 239.1
LONG-TERM DEBT [Note 6] 556.1 782.7
CONVERTIBLE SUBORDINATED DEBENTURES [Note 7] 399.9
DEFERRED INCOME TAXES, REVENUE AND
OTHER PROVISIONS [Note 8] 711.8 557.0
NON-CONTROLLING INTEREST [Note 9] 94.1
SHAREHOLDERS' EQUITY [Note 10] 1,495.9 1,205.2
------------ ------------
$ 3,075.4 $ 3,183.9
============ ============
</TABLE>
Approved by the Board:
/s/ ILLEGIBLE /s/ G. BILLING
Director Director
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 2
CONSOLIDATED STATEMENT OF
- --------------------------------------------------------------------------------
EARNINGS
<TABLE>
<CAPTION>
Years ended December 31
(millions of dollars except per share amounts)
1996 1995
<S> <C> <C>
SALES $ 1,300.8 $ 1,257.3
INVESTMENT AND INTEREST INCOME 5.9 8.7
------------- ------------
1,306.7 1,266.0
------------- ------------
COSTS AND EXPENSES
Cost of sales and administration 718.0 727.1
Depletion, depreciation and amortization 356.9 378.1
Interest and other financial expense 60.8 107.9
Income taxes [Note 11] 184.0 57.2
Non-controlling interest in subsidiaries 5.8 1.1
Gains on asset sales, write-downs and provisions [Note 2] (110.7) (23.7)
------------- ------------
1,214.8 1,247.7
------------- ------------
NET EARNINGS 91.9 18.3
DIVIDENDS ON PREFERENCE SHARES 0.2
------------- ------------
EARNINGS APPLICABLE TO COMMON SHARES $ 91.9 $ 18.1
============= ============
EARNINGS PER COMMON SHARE [Note 10(iii)] $ 1.06 $ .22
</TABLE>
CONSOLIDATED STATEMENT OF
================================================================================
RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31
(millions of dollars)
1996 1995
<S> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 384.4 $ 416.1
Net earnings 91.9 18.3
------------- ------------
476.3 434.4
Dividends 51.5 50.0
------------- ------------
BALANCE AT END OF YEAR $ 424.8 $ 384.4
============= ============
</TABLE>
<PAGE> 3
CONSOLIDATED STATEMENT OF
- --------------------------------------------------------------------------------
CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Years ended December 31
(millions of dollars) 1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 91.9 $ 18.3
Charges (credits) not affecting cash:
Gains on asset sales, write-downs and provisions (5.2) (10.8)
Depreciation, depletion and amortization 356.9 378.1
Deferred income taxes 45.5 0.5
Non-controlling interests and other (.2) 5.9
------------ ------------
Cash flow 488.9 392.0
Deferred gas revenues and other (11.8) (14.5)
Increase in working capital** (0.8) (38.3)
------------ ------------
Cash flow from operating activities 476.3 339.2
------------ ------------
INVESTING ACTIVITIES
Expenditures on property, plant and equipment (560.6) (382.1)
Oil & gas property dispositions (acquisitions), net 55.9 319.7
Disposition of mineral interests [Note 2(ii)] 272.7
Disposition of the U.S. Propane operations [Note 2(iv)] 106.6
Disposition of 50% interest in Superior Propane [Note 2(i)] 234.1
Acquisition of non-controlling interests of subsidiary [Note 9(ii)] (45.3)
Other asset sales 65.0 7.8
Site restoration and other (1.8) (10.0)
------------ ------------
(100.8) 162.8
============ ============
FINANCING ACTIVITIES
Decrease (increase) in accrued asset sale proceeds 189.9 (109.7)
Long-term debt (229.9) (177.3)
Convertible subordinated debentures conversion and redemptions [Note 7] (399.9)
Issue of common shares [Note 10] 250.5 5.0
Redemption of preference shares [Note 10] (9.8)
Dividends (51.5) (50.0)
------------ ------------
(240.9) (341.8)
------------ ------------
CHANGE IN CASH 134.6 160.2
CASH AT BEGINNING OF YEAR 1.3 (158.9)
------------ ------------
CASH AT END OF YEAR* $ 135.9 $ 1.3
============ ============
</TABLE>
*Cash is comprised of cash and short-term deposits.
**Working capital excludes cash, accrued asset sale proceeds and current
maturities on long term debt.
<PAGE> 4
MANAGEMENT'S
- --------------------------------------------------------------------------------
REPORT
The accompanying consolidated financial statements of Norcen Energy
Resources Limited ("Norcen") and all information in the Annual Report are the
responsibility of management and have been approved by the Board of Directors.
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada and include some amounts that
are based on management's best estimates. Financial and operating data elsewhere
in the Annual Report is consistent with the information contained in the
financial statements.
In fulfilling their responsibilities, management of Norcen and its
subsidiaries maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use and that the financial records are timely, accurate and
reliable for preparation of the financial statements.
The Board of Directors carries out its responsibility for the financial
statements in this Annual Report principally through its Audit Committee,
consisting solely of non-executive directors. The Audit Committee meets
periodically with management and with the external auditors to discuss the
results of audit examinations with respect to the adequacy of internal
accounting controls and to review and discuss financial reporting matters.
External auditors have full access to the Audit Committee, with and without the
presence of management. The financial statements have been audited by Deloitte &
Touche, Chartered Accountants and their report follows.
/s/ G. BILLING /s/ MARK SCHWEITZER
Grant D. Billing W. Mark Schweitzer
President and Chief Executive officer Vice-President, Finance
February 4, 1997 and Chief Financial Officer
AUDITORS'
- --------------------------------------------------------------------------------
REPORT
To the Shareholders of Norcen Energy Resources Limited:
We have audited the consolidated balance sheets of Norcen Energy
Resources Limited as at December 31, 1996 and 1995 and the consolidated
statements of earnings, retained earnings and changes in financial position for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1996 and 1995 and the results of its operations and the changes in its
financial position for the years then ended in accordance with generally
accepted accounting principles.
Calgary, Canada /s/ DELOITTE & TOUCHE
January 31, 1997 Chartered Accountants
<PAGE> 5
NOTES TO CONSOLIDATED
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
(Amounts are in millions of dollars except where noted)
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
according to Canadian generally accepted accounting principles applied on a
consistent basis and include the accounts of Norcen (the "Company") and all of
its subsidiaries (together "Norcen"). Norcen's business is organized into three
operational segments: oil and gas, propane operations, and minerals and other.
In October 1996, the Company sold a 50% interest in Superior Propane
Inc. ("Superior") to the Superior Propane Income Fund (the "Fund"). The Company
continues to consolidate Superior. The 50% interest in Superior owned by the
Fund is accounted for as a "Non-Controlling Interest". In April 1995, the
Company acquired the remaining 34% non-controlling interest in Prairie Oil
Royalties Company, Ltd ("POR"). A substantial portion of Norcen's oil and gas
activities is conducted with others. The consolidated financial statements
reflect only Norcen's proportionate interest in such activities (Note 9).
FOREIGN CURRENCY TRANSLATION
The accounts of self-sustaining foreign operations are translated using
the current rate method, under which all assets and liabilities are translated
at the exchange rate prevailing at the balance sheet date, and revenues and
expenses at average rates of exchange during the period. Resulting gains or
losses are deferred and included in the Currency Translation Account ("CTA")
component of shareholders' equity. Gains and losses on foreign currency loans,
deposits and transactions that are designated as hedges of the net investment in
self-sustaining foreign operations are similarly deferred and included in the
CTA. Deferred CTA translation and hedging gains and losses are included in
income when there is a reduction in the net investment in self-sustaining
foreign operations.
FORWARD AND FUTURES CONTRACTS
Norcen uses forward foreign exchange contracts to hedge the effect of
exchange rate changes on identifiable foreign currency exposures, and uses
commodity swap agreements to hedge the effect of price changes on a portion of
the commodities it produces. Gains and losses on these contracts are reported as
a component of the related transactions.
INVENTORIES
Inventories are valued at the lower of cost, applied on a first-in
first-out basis, and market value determined on the basis of replacement cost or
net realizable value as appropriate.
PROPERTY, PLANT AND EQUIPMENT
OIL & GAS
Oil and gas properties and production equipment, in accordance with the
full cost method of accounting, include expenditures related to the acquisition,
exploration and development of oil and gas reserves, whether or not potentially
productive. These costs are depleted and depreciated, on a country-by-country
cost center basis, using the unit of production method based on total estimated
proved
<PAGE> 6
recoverable reserves. Natural gas reserves and production are converted to
equivalent barrels of crude oil on the basis of six thousand cubic feet of
natural gas per barrel of oil. Proceeds on sale of property and equipment are
credited to asset costs.
Capitalized costs in each cost center are limited to estimated
undiscounted future net revenues (based on year-end prices) plus the net cost of
major development projects and unproved properties. Total capitalized costs are
limited to the aggregate of the foregoing less future interest costs, future
site restoration costs, administrative costs and income taxes attributed to oil
and gas operations.
A provision for estimated future site restoration costs is accrued by a
charge against income using the unit of production method.
PROPANE
Propane operations equipment is recorded at cost and depreciated over
the estimated useful service life using the straight line method. Estimated
useful life of major classes of equipment are:
Tanks and cylinders 20 years
Truck chassis 7 years
Truck tank bodies 10 years
Goodwill is amortized over 20 years and non-compete agreements are
amortized over the terms of the agreement.
Deferred Revenues and Other Liabilities
Deferred revenues and other liabilities include payments received under
prepaid gas contracts, long-term retirement liabilities, surplus office lease
cost provisions and the accrued liability for future site restoration costs.
Deferred gas revenues are included in revenue as the gas to which the payments
relate is delivered.
2. GAINS ON ASSET SALES, WRITE-DOWNS AND PROVISIONS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
<S> <C> <C>
Gain on sale of 50% interest in Superior(i) $ 132.0 $
Gain on sale of mineral interests(ii) 143.9
Write-down of non-core international oil and gas assets(iii) (29.8)
Write-down and provisions against propane operations(iv) (80.0)
Provision for surplus office lease costs and equipment(v) (21.3)
Loss on prepayment of long-term debt(vi) (10.4)
------------ ------------
$ 110.7 $ 23.7
============ ============
</TABLE>
In 1996, the net income effect of these gains on asset sales,
write-downs and provisions, after deduction of income tax of $108.0 million, was
an increase in net income of $2.7 million. Income tax deducted included a
specific provision of $60.0 million related to potential income tax assessments
which may be received (see Note 11(i)). In 1995, the net income effect, after
deduction of income tax of $20.8 million, was an increase in net income of $2.9
million.
<PAGE> 7
The components of the gains on asset sales, write-downs and provisions
are as follows: (i) In October 1996, the Company sold a 50% interest in Superior
to the Fund for net cash proceeds of $234.1 million resulting in a net gain of
$132.0 million.
(ii) In November 1995, the Company disposed of its 7% gross sales royalty and
12% equity interests in the Iron Ore Company of Canada ("IOC") to the Labrador
Iron Ore Royalty Income Fund, resulting in a net gain of $143.9 million. Net
proceeds from the sale were $272.7 million and were comprised of net cash
proceeds of $160.2 million and $120 million of non-interest bearing installment
receipts which were recorded as Accrued Asset Sale Proceeds at their estimated
present value of $112.5 million. The installment receipts were received in
November 1996 as scheduled.
(iii) In 1995, the Company reduced the carrying value of its non-core
international oil and gas properties in Australia, Indonesia, New Zealand and
Russia by $29.8 million to reflect their estimated net realizable value. During
1996, the Company's oil and gas properties in Indonesia and Russia were sold for
aggregate cash proceeds of $15.9 which approximated the carried value of these
properties.
(iv) In 1995, Norcen reduced the carrying value of its propane marketing
operations in the United States by $67.6 million to reflect estimated net
realizable value. Cost reduction initiatives impacting propane operations
resulted in restructuring provisions of $12.4 million. In April 1996, Norcen
sold its United States propane operations for net cash consideration of $106.6
million which approximated net book value.
(v) In 1996, the Company relocated its corporate offices to provide a more
efficient and flexible office environment. A provision of $6.8 million has been
recorded to provide for estimated surplus office lease commitments and moving
costs and $14.5 million of unamortized office leasehold improvements, furniture
and equipment were written off.
(vi) Certain long-term obligations were repaid in 1995, resulting in the
recognition of $7.2 million of unamortized foreign exchange and deferred
financing costs and $3.2 million of prepayment costs.
3. ACCOUNTS RECEIVABLE
The Company has entered into an agreement to sell, with limited
recourse, certain accounts receivable of Superior on a revolving basis to a
maximum amount of $40 million. The amount sold at December 31, 1996 was $36.0
million (1995 - $27.5 million). The receivables are sold at a discount to face
value based on prevailing money market rates.
4. INVESTMENTS (AT COST)
<TABLE>
<CAPTION>
December 31
1996 1995
<S> <C> <C>
Mico Investments Ltd., common shares(i) $ 61.6 $ 61.6
Brascan Limited, preference shares(i) (ii) 65.0
Notes receivable from employees and other .8 3.0
------------ ------------
62.4 129.6
============ ============
</TABLE>
(i) Companies are related to Noranda Inc., a major shareholder. Dividends on
these investments amounted to $5.6 million in 1996 ($8.7 million in 1995).
(ii) In December 1996, the Company sold its preference share investment in
Brascan Limited at full carried cost for cash consideration to a company which
is related to Noranda Inc.
<PAGE> 8
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Oil & Propane
Gas Marketing Total
(i) (ii) (iii)
<S> <C> <C> <C>
December 31, 1996
Cost $ 5,560.0 $ 389.1 $ 5,949.1
Accumulated depreciation and depletion 3,164.4 165.6 3,330.0
----------- ---------- -------------
Net $ 2,395.6 $ 223.5 $ 2,619.1
=========== ========== =============
December 31, 1995
Cost $ 5,208.7 $ 517.0 $ 5,725.7
Accumulated depreciation and depletion 2,971.4 213.4 3,184.8
----------- ---------- -------------
Net $ 2,237.3 $ 303.6 $ 2,540.9
=========== ========== =============
</TABLE>
(i) Norcen has entered into commitments of US$73 million to procure the services
of deepwater drilling rigs in the Gulf of Mexico for a total of 1.5 years over a
three year period commencing July 1, 1997 through June 30, 2000.
(ii) Expenditures relating to undeveloped or unevaluated oil and gas properties
excluded from the depletion base are as follows:
<TABLE>
<CAPTION>
United
States International Total
------ ------------- -----
<S> <C> <C> <C>
1996 $ 24.4 $ 15.0 $ 39.4
- ---- --------- ----------- ------------
1995 $ 24.3 $ 16.7 $ 41.0
</TABLE>
(iii) No administrative overhead expenditures related to exploration or
development activities were capitalized in 1996 or in 1995.
<PAGE> 9
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
Interest Rate December 31
(i) 1996 1995
<S> <C> <C> <C>
Direct unsecured obligations of the Company:
Notes payable and revolving term bank credits 3.18% $ 6.4 $ 165.0
Term bank credits (US$450 million) 614.3
7-3/8% debentures due May 15, 2006 (US$250 million) 7.48% 342.4
7.80% debentures due July 2, 2008 (US$150 million) 4.28% 205.4
---- ------------ ------------
554.2 779.3
Capital lease obligations owing by Superior 7.86% 3.1 5.7
---- ------------ ------------
557.3 785.0
Current maturities 1.2 2.3
---- ------------ ------------
Long-Term Debt 6.58% $ 556.1 $ 782.7
==== ============ ============
</TABLE>
(i) Weighted average interest rates after swap contracts as at December 31, 1996
At December 31, 1996 notes payable include short term money market
borrowings supported by revolving term loan agreements which mature in 2000 that
are structured to provide Norcen with the right to borrow at floating rates. At
December 31, 1995, notes payable and revolving term bank credits included
borrowings of US$35 million.
At December 31, 1995, term bank credits were comprised of borrowings
bearing interest at floating rates tied to quoted market rates offered to prime
banks in the London interbank market. Term bank credits were repaid during 1996
from proceeds raised through the issue of US$250 million 7-3/8% debentures on
May 15, 1996 and the issue of US$150 million 7.80% debentures on July 2, 1996.
The Company has entered into agreements to swap floating interest rate
obligations into fixed rates ranging from 7.3% to 9.0% on a principal amount of
US$200 million for terms expiring from December 1997 to March 1999. The Company
has also entered into agreements to swap fixed rate interest obligations into
floating interest rate obligations on principal amounts of CDN$150 million
expiring in May 2006, US$150 million expiring in May 2006 and US$150 million
expiring in July 2008. All interest rate swap arrangements have been made with
AA rated banks.
As at December 31, 1996, the estimated fair value of the Company's
debentures was $562.5 (US$410.7 million). The estimated fair value of notes
payable and revolving term bank credits, and term bank credits at December 31,
1996 and 1995 approximated their carried value due to the floating interest rate
nature and short repayment term of these debt securities. As at December 31,
1996, the estimated aggregate unrealized gain on interest rate swap agreements
was US$17.6 million (1995 - US$14.2 million unrealized loss).
Interest on long-term debt and convertible subordinated debentures was
$66.1 million in 1996 ($93.9 million in 1995). Interest expense includes the
non-cash amortization of deferred financing expense of $2.7 million in 1996
($1.6 million in 1995).
<PAGE> 10
7. CONVERTIBLE SUBORDINATED DEBENTURES
Effective July 29, 1996, the $149.9 million 5% Adjustable Rate Convertible
Subordinated Debentures Series B were redeemed by the Company at par value for
cash. Noranda Inc., a major shareholder, held $60 million of these debentures.
Effective August 19, 1996, Noranda Inc., the holder of all of the $250 million
8% convertible subordinated debentures, converted their 8% debentures into
Norcen common shares at the conversion rate of $25 per share.
8. DEFERRED INCOME TAXES,REVENUE AND OTHER PROVISIONS
<TABLE>
<CAPTION>
December 31
1996 1995
<S> <C> <C>
Deferred income taxes [Note 11(i)] $ 618.3 $ 467.2
Provision for future site restoration costs (i) 40.8 30.5
Deferred revenue and other provisions 52.7 59.3
------------ ------------
$ 711.8 $ 557.0
============ ============
</TABLE>
(i) Norcen's oil and gas operations have ongoing site restoration and
remediation responsibilities. Site restoration costs involve the surface clean
up and reclamation of well sites and field production facilities to ensure that
they can be safely returned to appropriate land uses. Total anticipated future
costs are in the range of $150 million to $190 million over the next 20 years.
Future site restoration costs are provided for using the unit of production
method as described in Note 1.
9. NON-CONTROLLING INTERESTS
(i) In October 1996, the Company sold a 50% interest in Superior to the Fund
(see Note 2(i)). The non-controlling interest in Superior is comprised of a 50%
interest in the equity of Superior and a 50% interest in the 13% subordinated
shareholder notes of Superior (the "Shareholder Notes") in the amount of $192.5
million. Under the unanimous shareholders' agreement entered into by the Company
and the Fund, the Shareholder Notes can only be held by Superior's shareholders
in equal proportion to their respective equity interests in Superior.
(ii) In April 1995, Norcen acquired the 34% non-controlling interest in POR not
previously owned for cash consideration of $45.3 million. This acquisition was
accounted for by the purchase method. Consideration paid in excess of the book
value of the shares acquired of $8.9 million was allocated to property, plant
and equipment.
<PAGE> 11
10. SHAREHOLDERS' EQUITY
Capital Stock - Authorized:
First Preference Shares, an unlimited number/Junior Preference Shares, an
unlimited number/Common Shares, an unlimited number
Capital Stock - Issued:
<TABLE>
<CAPTION>
December 31 Dividends Paid
1996 1995 1996 1995
<S> <C> <C> <C> <C>
First Preference Shares Series A (i) $ $ $ $ 0.2
Common Shares (ii) (iv) 1,072.3 821.8 51.5 49.8
Retained Earnings (vi) 424.8 384.4
Currency Translation Account (v) (1.2) (1.0)
--------- ------------ ------------- -------------
$ 1,495.9 $ 1,205.2 $ 51.5 $ 50.0
========= ============ ============= =============
</TABLE>
(i) First Preference Shares Series A
On March 31, 1995, the Company redeemed and cancelled all 393,242 First
Preference Shares Series A outstanding at a price of $25.25 per share for an
aggregate cash consideration of $9.8 million. The shares paid a cumulative cash
dividend of 8.12% (or $2.03 per share) per annum.
(ii) Common Shares
The following summarizes the issue of Common Shares:
<TABLE>
<CAPTION>
Shares Amount
(in 000's)
<S> <C> <C>
December 31, 1994 82,603 $ 816.8
Employee savings and stock option plans 370 5.0
------ -----------
December 31, 1995 82,973 821.8
Employee stock option plans and other 327 0.5
Conversion of 8% Convertible Subordinated Debentures 10,000 250.0
------ -----------
December 31, 1996 93,300 $ 1,072.3
====== ===========
</TABLE>
(iii) Earnings Per Share
Earnings per share have been calculated using the weighted average number of
shares outstanding during the year (86.9 million in 1996; 82.9 million in 1995).
(iv) Stock Options
Norcen has an Incentive Stock Option Plan ("ISOP") through which market growth
options are issued to certain employees. Under the ISOP, the number of common
shares issued is equal to the growth in value of the options, represented by the
market price less the exercise price times the number of options exercised,
divided by the current market price of the common share. At December 31, 1996,
there were 961,439 options outstanding under this plan (1995 - 1,273,600
options) exercisable at prices varying from $16.50 to $28.70 per share for
periods up to 2000 (1995 - $16.50 to $19.29 per share for periods up to 1999).
(v) Currency Translation Account ("CTA")
The Company manages the foreign currency exposure associated with its net
investment in self-sustaining foreign operations by designating foreign currency
denominated debt or futures contracts as a hedge of this exposure. At December
31, 1996, hedges of this foreign currency exposure aggregated US$478 million
(1995 - US$485 million), comprised of US$400 million of long-term debt (1995 -
US$485 million) and US$78 million of U.S. dollar forward sales contracts
maturing from April 28, 2000 to October 29, 2004 (1995 - NIL). Included in the
CTA at December 31, 1996 were deferred foreign exchange losses of $36.0 million
($58.0 million in 1995).
<PAGE> 12
11. INCOME TAXES
The provision for income taxes in the consolidated statement of
earnings varies from the amounts that would be computed by applying the Canadian
federal statutory rate, including surtax, to earnings before income taxes and
non-controlling interests for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
<S> <C> <C>
Earnings before income taxes and non-controlling interests $ 281.7 $ 76.6
------------ -----------
Canadian federal statutory rate of income tax 44.6% 44.6%
------------ -----------
Computed tax expense $ 125.6 $ 34.1
Increase (decrease) in income taxes resulting from:
Provision for potential assessments (i) 60.0
Non-deductible depletion (ii) 9.7 12.1
Non-deductible crown payments less federal resource allowance 4.8 3.2
Non-taxable dividend income (2.8) (6.4)
Large Corporations Tax 3.6 3.5
Income subject to foreign tax rates less than the Canadian statutory rate (10.7) (4.0)
Non-taxable (non-deductible portion of gains on asset sales,
write-downs and provisions (iii)) (2.6) 16.7
Other items, net (3.6) (2.0)
------------ -----------
Actual income tax expense $ 184.0 $ 57.2
============ ===========
</TABLE>
(i) The Company is presently having discussions with Revenue Canada concerning
the deductibility of certain interest expense and foreign exchange losses
claimed for tax purposes during the period 1989 to 1993. The Company anticipates
receiving an assessment from Revenue Canada related to this matter in early 1997
in the $90 to $105 million range. Upon receipt of an assessment, the Company
will be required to remit 50% of the assessed amount to Revenue Canada, pending
the final resolution of the assessment appeal process.
The Company disagrees with Revenue Canada's position and plans to vigorously
contest any assessment received. Final resolution of this issue will likely take
several years. At this time, the Company is unable to reasonably determine what
liability, if any, may result from the final resolution of this matter. At
December 31, 1996, the Company had recorded deferred tax liabilities in respect
of this matter in the amount of $96 million, including the $60 million provision
recorded in 1996 (see Note 2).
(ii) Various acquisitions of oil and gas assets in prior years have been
structured such that the values ascribed for income tax purposes are lower than
the fair market value amounts recorded in the accounts of the Company. Depletion
expense related to these differences between tax and book values is not
deductible in computing income tax expense.
(iii) Gains on assets sales, write-downs and provisions include capital gains
and losses whereby 25% of such amounts are not taxable. Tax recoveries against
capital losses are recorded only to the extent that the Company has available
capital gains.
12. PENSION PLANS
Norcen and its subsidiaries, Norcen Explorer, Inc. and Superior have
defined benefit and defined contribution pension plans covering most employees.
Substantially all active employees have elected to retroactively adopt defined
contribution benefit plans. The benefits provided by defined benefit plans are
based on the employee's years of service and on the highest average earnings for
a specified number of consecutive years. Defined benefit plan assets consist
primarily of equity and fixed income securities. Projected defined benefit
obligations and the expected return on plan assets are based on an assumed
<PAGE> 13
rate of 6.5%. Projected pay increases reflect an assumed rate of 5%. Norcen
makes contributions to the pension plans as required based on the results of
actuarial valuations.
The funded status of the plans and the liability as recognized in the
consolidated balance sheet at December 31, 1996 and 1995, were:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated benefit obligation including vested amounts
of $114.5 million ($98.9 million in 1995) $ 114.7 $ 100.4
Unearned benefit obligation related to projected pay increases 3.7 28.4
------------ ------------
Projected benefit obligation 118.4 128.8
Plan assets, at market related values 174.5 157.9
------------ ------------
Excess of plan assets over projected benefit obligation 56.1 29.1
Net accrued balance sheet pension liability 5.7
------------ ------------
Excess of plan surplus over balance sheet liability $ 56.1 $ 34.8
============ ============
Comprised of:
Norcen and its wholly-owned subsidiaries $ 32.1 $ 27.4
Superior 24.0 7.4
------------ ------------
$ 56.1 $ 34.8
============ ============
</TABLE>
13. FORWARD AND FUTURES CONTRACTS
Norcen has a price risk management program whereby the commodity price
and foreign currency exchange rates associated with a portion of its future
production are fixed. The purpose of this program is to increase the certainty
of future cash flows available to fund future capital expenditures and to
increase the certainty of expected earnings generated from capital expenditures.
Norcen sells forward a portion of its future production through a
combination of fixed price sales contracts with customers and commodity swap
agreements with financial counterparties. Foreign currency exchange rates
associated with future fixed price production are fixed by entering into forward
U.S. dollar sales contracts with financial counterparties. The use of commodity
swap agreements and forward sales contracts with financial counterparties
involves a degree of credit risk which Norcen manages through its credit
policies and the selection of counterparties. Market risk relating to changes in
the value or settlement cost of Norcen's commodity swap agreements and forward
sales contracts are offset by pricing changes on Norcen's production.
At December 31, 1996, Norcen had fixed the price and foreign currency
exchange rates applicable to its future production as follows:
<TABLE>
<CAPTION>
Canadian Gulf of Mexico
Crude Oil Natural Gas Natural Gas Foreign Currency
U.S.$ Forward
Volume Price(i) Volume Price(ii) Volume Price (iii) Amount Ex.Rate
(b/d) (US$) (mmmcf/d) (Cdn$) (mmmcf/d) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 20,147 $17.44 192 $1.75 81 $1.94 $195 1.3776
1998 21,000 18.60 59 2.54 17 2.12 204 1.3547
1999 58 2.63
2000 58 2.73
</TABLE>
<PAGE> 14
(i) Price is relative to the New York mercantile Exchange (NYMEX) price for West
Texas Intermediate crude oil.
(ii) Price is relative to the Alberta field gate price of natural gas.
(iii) Price is relative to the NYMEX price for natural gas sold at Henry Hub,
Louisiana.
In addition, the Company has contracted to sell Canadian natural gas
production directly to customers from 2001 to 2011 for volumes of 53 mmcf/d
declining to 14 mmcf/d over this period. Forward gas markets beyond four years
are not sufficiently liquid to estimate the unrealized gain (loss) on these
contracts.
At December 31, 1996, the estimated unrealized gain (or loss) based on
market quotes for future fixed oil prices, natural gas prices and foreign
currency exchange contracts were ($56 million), $26 million and $8 million
respectively (1995 - ($7 million), $39 million and $1 million).
14. RELATED PARTY TRANSACTIONS (Notes 4 and 7)
During 1996, the Company and a subsidiary entered into cash management
arrangements with Noranda Inc. and its wholly-owned subsidiary, under which
funds were deposited and borrowed at market rates of interest. There were no
amounts outstanding at December 31, 1996 under these arrangements.
During 1996, the Company and Superior relocated their corporate offices
to a building which is owned by companies related to Noranda Inc. Terms of the
lease represent market rates and require future lease payments aggregating $16.8
million over the 10-year term of the lease.
<PAGE> 15
15. SEGMENTED INFORMATION
A. Industry Segments
<TABLE>
<CAPTION>
Oil & Propane Minerals
Gas Marketing & Other Total
<S> <C> <C> <C> <C>
Year ended December 31,1996
Sales $ 722.0 $ 578.8 $ $ 1,300.8
Investment and interest income 5.9 5.9
----------- ----------- ---------- -----------
722.0 578.8 5.9 1,306.7
----------- ----------- ---------- -----------
Operating costs 163.1 157.8 320.9
Administration 40.7 10.3 51.0
Product purchases 346.1 346.1
Depletion, depreciation and amortization 331.7 25.2 356.9
Interest and other financial expense (i) 40.9 9.9 10.0 60.8
Income taxes (ii) 69.3 10.9 (4.2) 76.0
Non-controlling interest iin subsidiaries 5.8 5.8
----------- ----------- ---------- -----------
645.7 566.0 5.8 1,217.5
----------- ----------- ---------- -----------
Earnings from operations 76.3 12.8 0.1 89.2
----------- ----------- ---------- -----------
Gains on asset sales, write-downs and provisions (21.3) 132.0 0.0 110.7
Income taxes recovery (expense) thereon 9.5 (57.5) (60.0) (108.0)
----------- ----------- ---------- -----------
(11.8) 74.5 (60.0) 2.7
----------- ----------- ---------- -----------
Net earnings (loss) $ 64.5 $ 87.3 $ (59.9) $ 91.9
=========== =========== ========== ===========
Year ended December 31,1995
Sales $ 666.8 $ 550.9 $ 39.6 $ 1,257.3
Investment and interest income 8.7 8.7
----------- ----------- ---------- -----------
666.8 550.9 48.3 1,266.0
----------- ----------- ---------- -----------
Operating costs 169.3 176.0 7.1 352.4
Administration 56.5 14.9 71.4
Product purchases 303.3 303.3
Depletion, depreciation and amortization 328.2 40.8 9.1 378.1
Interest and other financial expense(i) 69.1 17.7 21.1 107.9
Income taxes(ii) 30.8 4.3 1.3 36.4
Non-controlling interest in subsidiaries 0.9 0.2 1.1
----------- ----------- ---------- -----------
654.8 557.2 38.6 1,250.6
----------- ----------- ---------- -----------
Earnings (loss) from operations 12.0 (6.3) 9.7 15.4
----------- ----------- ---------- -----------
Gains on asset sales, write-downs and provisions (32.9) (80.0) 136.6 23.7
Income taxes recovery (expense) thereon 11.8 19.4 (52.0) (20.8)
----------- ----------- ---------- -----------
(21.1) (60.6) 84.6 2.9
Net earnings (loss) $ (9.1) $ (66.9) $ 94.3 $ 18.3
=========== =========== ========== ===========
</TABLE>
(i) Interest and other financial expense have been allocated based on 100% of
the carrying value of the assets for Minerals & Other and for Propane Marketing
until 50% of the investment in the Propane Marketing was sold to the Superior
Propane Income Fund. The residual amount is allocated to the Oil & Gas segment.
(ii) The income tax charge for each segment is adjusted for the net change in
interest and financial expense allocated between segments.
<PAGE> 16
B. OTHER SEGMENTED ITEMS
<TABLE>
<CAPTION>
Oil & Propane Minerals
Gas Marketing & Other Total
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Cash flow (after unusual items) $ 447.7 $ 41.1 $ 0.1 $ 488.9
Capital expenditures $ 541.8 $ 18.8 $ $ 560.6
Identifiable assets $ 2,559.2 $ 317.8 $ 198.4 $ 3,075.4
----------- ----------- ---------- -----------
Year ended December 31, 1995
Cash flow (after unusual items) $ 336.3 $ 33.4 $ 22.3 $ 392.0
Capital expenditures $ 352.1 $ 30.0 $ $ 382.1
Identifiable assets $ 2,479.4 $ 452.3 $ 252.2 $ 3,183.9
</TABLE>
C. FINANCIAL DATA BY GEOGRAPHIC SEGMENT
<TABLE>
<CAPTION>
United Total
Canada States International Worldwide
<S> <C> <C> <C> <C>
1996
Sales $ 970.3 $ 226.9 $ 103.6 $ 1,300.8
Earnings from operations 23.5 39.2 26.5 89.2
Capital expenditures 393.7 96.9 70.0 560.6
Identifiable assets 2,279.4 541.4 254.6 3,075.4
1995
Sales $ 941.2 $ 229.6 $ 86.5 $ 1,257.3
Earnings (loss) from operations (8.9) 2.0 22.3 15.4
Capital expenditures 253.1 67.2 61.8 382.1
Identifiable assets 2,344.7 622.1 217.1 3,183.9
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
Cash Flow Earnings Cash Flow Earnings (Loss)
$Millions $/Share $Million $/Share $Million $/Share $Million $/Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 126.1 $ 1.52 $ 28.4 $ 0.34 $ 115.7 $ 1.40 $ 18.2 $ 0.22
Second Quarter $ 110.0 $ 1.33 $ 12.5 $ 0.15 $ 83.9 $ 1.01 $ (5.0) $ (0.06)
Third Quarter $ 125.7 $ 1.43 $ 15.7 $ 0.18 $ 85.2 $ 1.03 $ (6.5) $ (0.08)
Fourth Quarter $ 127.1 $ 1.35 $ 35.3 $ 0.39 $ 107.2 $ 1.29 $ 11.6 $ 0.14
</TABLE>
<PAGE> 17
FIVE YEAR
- --------------------------------------------------------------------------------
SUMMARY
Years ended December 31 (millions of dollars except per share items)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUES $ 1,306.7 $ 1,266.0 $ 1,314.7 $ 1,157.1 $ 998.9
--------- --------- --------- --------- ---------
COSTS AND EXPENSES
Cost of sales and administration 718.0 727.1 769.8 704.2 590.3
Depreciation, depletion and amortization 356.9 378.1 349.6 306.3 223.8
Interest and other financial expense 60.8 107.9 119.2 104.0 94.3
Income taxes 184.0 57.2 (12.3) 20.2 40.7
Non-controlling interests 5.8 1.1 10.5 (7.4) 1.2
Gains on asset sales, write-downs
and provisions (110.7) (23.7) 191.9 5.4 9.8
--------- --------- --------- --------- ---------
1,214.8 1,247.7 1,428.7 1,132.7 960.1
--------- --------- --------- --------- ---------
NET EARNINGS $ 91.9 $ 18.3 $ (114.0) $ 24.4 $ 38.8
========= ========= ======== ========= =========
CASH FLOW $ 488.9 $ 392.0 $ 394.5 $ 368.1 $ 316.8
========= ========= ========= ========= =========
PER COMMON SHARE
Earnings - basic $ 1.06 $ 0.22 $ (1.39) $ 0.29 $ 0.49
Cash flow-basic $ 5.63 $ 4.73 $ 4.77 $ 4.63 $ 4.74
Dividends paid $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.60
CAPITAL EXPENDITURES AND
ACQUISITIONS (NET)
Oil and gas $ 485.9 $ 32.4 $ 602.2 $ 577.0 $ 194.3
Propane marketing 18.8 30.0 26.9 64.9 23.1
Minerals & Other (3.5)
--------- --------- --------- --------- ---------
$ 504.7 $ 62.4 $ 629.1 $ 638.4 $ 217.4
========= ========= ========= ========= =========
OIL AND GAS OPERATIONS
Production (before deducting royalties)
Oil and NGL (mb/d)
Canada 44.8 47.9 51.0 47.8 45.1
United States 5.9 4.9 4.7 3.3 3.9
International 19.6 15.8 10.2 5.4 7.0
--------- --------- --------- --------- ---------
70.3 68.6 65.9 56.5 56.0
========= ========= ========= ========= =========
Natural Gas (mmcf/d)
Canada 350 377 447 413 243
United States 133 111 89 54 37
International 19 17 18 14 11
--------- --------- --------- --------- ---------
502 505 554 481 291
========= ========= ========= ========= =========
Proved plus probable reserves
Oil and NGL (mmbbls) 301 277 254 301 245
Natural gas (bcf) 1,827 1,745 2,362 2,644 1,897
Land holdings (millions of acres)
Gross 18 24 31 42 50
Net 7 9 13 15 17
Propane sales (millions of litres) 1,726 1,846 1,869 1,559 1,530
EMPLOYEES- year end
Oil and gas 651 785 1,058 1,178 917
Propane marketing 1,429 2,070 2,236 2,071 2,175
</TABLE>
<PAGE> 1
EXHIBIT 99.4
SUPPLEMENTAL INFORMATION
(Tabular amounts are in millions of dollars except per share amounts)
The following supplemental information is provided in accordance with the
Securities Exchange Act of 1934 as required for companies reporting on Annual
Form 40-F under the Multijurisdictional Disclosure System.
RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Norcen follows Canadian generally accepted accounting principles ("GAAP") which
are different in some respects from those applicable in the United States and
from practices prescribed by the United States Securities and Exchange
Commission ("SEC").
CONSOLIDATED STATEMENT OF EARNINGS
The application of United States accounting principles would have affected net
earnings as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Net earnings based on Canadian GAAP $ 91.9 $ 18.3
Foreign currency translation adjustment on long-term - 8.2
debt(i)
Application of SEC prescribed full cost method(ii) 70.8 (136.7)
Reduction of deferred income taxes(iii) (30.8) 64.9
========= =======
Net earnings (loss) based on United States GAAP $ 131.9 $ (45.3)
========= =======
Earnings (loss) per ordinary share:
Canadian - basic and fully diluted $ 1.06 $ 0.22
========= =======
United States - primary and fully diluted(vi) $ 1.52 $ (0.55)
========= =======
</TABLE>
CONSOLIDATED BALANCE SHEET
The cumulative effect of the application of United States accounting principles
would have resulted in an increase (decrease) to the following balance sheet
accounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Property, Plant and Equipment(ii) $ (333.6) $ (380.8)
========= =========
Deferred Income Taxes $ (44.1) $ (51.1)
========= =========
Shareholders Equity:
- - Common Stock $ 39.5 $ 39.5
- - Currency Translation Account 76.8 76.8
- - Retained Earnings (Deficit) (405.8) (446.0)
--------- ---------
$ (289.5) $ (329.7)
========= =========
</TABLE>
1
<PAGE> 2
The cumulative effect on retained earnings is comprised of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1995
---- ----
<S> <C> <C>
Retained earnings based on Canadian GAAP $ 424.8 $ 384.4
--------- --------
Foreign currency translation adjustment on long-term debt(i) (76.8) (76.8)
Application of SEC full cost method (ii) (501.2) (574.0)
Reduction of deferred income taxes (iii) 217.3 248.1
Adoption and application of SFAS109 (iv) (5.6) (5.6)
Effect of minority interest in subsidiaries (39.5) (37.7)
--------- --------
Cumulative change (405.8) (446.0)
--------- --------
Retained earnings based on United States accounting principles $ 19.0 $ (61.6)
========= ========
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
The Statement of Changes in Financial Position is in conformity in all material
respects with International Accounting Standard 7 and reconciliation to United
States GAAP is therefore not required.
2
<PAGE> 3
SUMMARY OF DIFFERENCES BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
USED BY NORCEN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
- --------------------------------------------------------------------------------
(i) Foreign Currency Translation:
Norcen defers and amortizes the gain or loss on the translation of the
non-current portion of long-term monetary assets and liabilities
denominated in foreign currencies which have not been designated as a
hedge of the net investment in self sustaining foreign operations. Under
United States accounting principles, the entire gain or loss on
translation would be reflected in earnings in the period it occurs.
(ii) SEC - Prescribed Full Cost Ceiling Tests:
The write-downs of asset values and the subsequent reduction in depletion
upon application of the SEC-prescribed ceiling tests are different than
ceiling tests under Canadian GAAP.
(iii) Income Tax Adjustments for Differences in Earnings:
Deferred income taxes have been provided for in respect of the difference
between Canadian GAAP and United States accounting principles.
(iv) Estimation of Deferred Income Taxes:
The Financial Accounting Standards Board issued Statement of Financial
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") which
requires the Company to reflect the difference between the net book value
of its assets and their related tax basis at the tax rates enacted at the
respective reporting date. Under Canadian GAAP, deferred income taxes are
based on an income statement approach and use historical tax rates to
build up the deferred tax balances. The adjustment upon initial adoption
of SFAS 109 in 1993 was an increase to deferred income taxes payable and a
corresponding decrease to earnings of $5.6 million. The impact on earnings
for 1994 to 1996 was not material. An additional entry is required under
SFAS 109 to increase property, plant and equipment and deferred income
taxes payable by $167.6 million (1995 - $191.4 million) to re-measure
prior business combinations.
(v) Effect of Minority Interests in Subsidiaries:
A corporate reorganization in 1975 was accounted for under Canadian GAAP
as a pooling of interests whereas under United States accounting
principles, it would have been accorded purchase accounting treatment. The
excess cost of the minority shares over their underlying book value of
$16.9 million has been fully amortized. Cumulative earnings of $20.9
million accruing to the minority interests prior to the 1975
reorganization would have been credited to capital stock instead of
retained earnings.
(vi) Earnings Per Share Calculations:
Under the United States method of calculating the weighted average number
of ordinary shares outstanding during 1995, the assumed conversion of
convertible debentures would have been considered ordinary stock
equivalents and included in the calculation of primary earnings per share
when dilutive. Under Canadian GAAP, the assumed conversion of these
convertible debentures would be included in the calculation of fully
diluted earnings per share when dilutive. During 1996, Norcen's
convertible debentures were either converted into common shares or
redeemed for cash.
3
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Norcen Energy Resources Limited
Under the date of January 31, 1997, we reported on the consolidated balance
sheet of Norcen Energy Resources Limited as at December 31, 1996 and 1995, and
the consolidated statements of earnings, retained earnings and changes in
financial position for the years then ended, as included by reference in this
Form 40-F. In connection with our audit of the aforementioned consolidated
financial statements, we also have audited the related supplemental note
entitled "Reconciliation with United States generally accepted accounting
principles" as set forth in this Form 40-F. This supplemental note is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this supplemental note based on our audit.
In our opinion, such supplemental note, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Calgary, Canada "Deloitte & Touche"
January 31, 1997 Chartered Accountants
4
