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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ___________
Commission file number 1-547
THE PHOENIX RESOURCE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1927105
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6525 North Meridian Avenue
Oklahoma City, Oklahoma 73116-1491
(Address of Principal Executive Offices) (Zip Code)
(405) 728-5100
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock American Stock Exchange
Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
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The aggregate market value of the voting stock outstanding and held by
nonaffiliates of registrant: $177,914,512 as of February 10, 1995.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes x No
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As of February 10, 1995 there were 7,854,098 shares of the
registrant's Common Stock, $0.01 par value, outstanding.
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DEFINITIONS
As used herein, the following terms have these meanings:
BARREL OR BBL. Barrel of 42 U.S. gallons: the basic unit for
measuring production of oil and gas condensate.
BCF. Volume of 1,000,000 Mcf.
BTU. British Thermal Unit: the basic unit for measuring the energy
capacity of natural gas.
COMMON STOCK. The Company's common stock, par value $0.01 per share.
COMPANY. The Phoenix Resource Companies, Inc. and/or one or more of
its wholly-owned subsidiaries.
EGPC. Egyptian General Petroleum Corporation, the national petroleum
company of Egypt.
EGYPT. The Arab Republic of Egypt.
EQUIVALENT OIL BARRELS OR EOB. Designates the amount of crude oil and
natural gas that has been converted to an equivalent barrel of oil. Natural
gas is converted to barrels of oil at a ratio of six Mcf per barrel of oil.
KHALDA CONCESSION. A certain oil and gas exploration and production
concession in the Western Desert of Egypt, approximately 140 miles west of
Alexandria, Egypt.
KHALDA PARTNERS. The concession holder pursuant to the Khalda
Concession Agreement. The Company, Repsol and Samsung Company Limited are
currently the Khalda Partners.
MBBLS. Volume of 1,000 barrels.
MCF. Volume of 1,000 cubic feet under prescribed conditions of
pressure and temperature, which represents the basic unit for measuring the
production of natural gas.
MMCF. Volume of 1,000 Mcf.
QARUN CONCESSION. A certain oil and gas exploration and production
concession along the western bank of the Nile River southwest of Cairo, Egypt.
QARUN PARTNERS. The concession holder pursuant to the Qarun
Concession Agreement. The Company and subsidiaries of Apache Corporation and
Global Natural Resources are currently the Qarun Partners.
REPSOL. Repsol Exploracion Egipto, S.A., a wholly-owned subsidiary of
Repsol S.A., a Spanish corporation.
SAMSUNG. Samsung Company Limited, a Korean corporation.
SEC. The Securities and Exchange Commission.
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TABLE OF CONTENTS
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Item Page
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Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 19
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 21
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 23
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 25
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 43
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 44
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 44
13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 44
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 44
</TABLE>
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PART I
ITEM 1 BUSINESS
GENERAL
The Phoenix Resource Companies, Inc., a Delaware corporation, is an
independent oil and gas company operating primarily in Egypt. The Company was
originally incorporated in May 1930. The Company is headquartered in Oklahoma
City, Oklahoma and maintains an office in Cairo, Egypt.
The Company's principal assets are its interests in oil and gas
concessions in the Western Desert of Egypt. The sale of crude oil and natural
gas accounted for 100% of the Company's operating revenues in 1992, 1993 and
1994. Company operations include exploring, developing and operating crude oil
and natural gas properties in Egypt. Most of the Company's assets are held by,
and substantially all of its oil and gas operations are conducted through,
wholly-owned subsidiaries. At February 10, 1995 the Company had 22 employees.
For additional information regarding the Company's business see "Item
2 -- Properties."
BUSINESS STRATEGY
The Company's business strategy is to increase its oil and gas
production and reserves through the exploration, development and acquisition of
oil and gas properties in Egypt. Through over a decade of continuous business
activities in Egypt, the Company has acquired significant knowledge of the
geology of the Western Desert, oil and gas operations in Egypt and the
practical, administrative and legal aspects of conducting business in Egypt.
The Company intends to capitalize on its Egyptian presence and experience by
identifying and prudently pursuing additional oil and gas investments in Egypt.
The Company regularly evaluates and considers the potential acquisition of
exploratory acreage and interests in producing properties in Egypt. The
Company will continue to be attentive to opportunities in other areas as they
may present themselves.
RECENT DEVELOPMENTS
For the seventh consecutive year, the Company's producing properties
set new record oil production rates during 1994. On a net proved EOB basis,
the Company's year-end 1994 proved reserves were 24% higher than its year-end
1993 proved reserves, replacing 331% of its 1994 production. In addition,
during 1994 the Company purchased 7% of its outstanding Common Stock and
remained debt-free. All of the foregoing achievements were accomplished with
cash generated from operations and the Company ended the year with a cash
balance of $26.5 million.
In the Khalda Concession three exploratory wells were drilled in 1994
with a 100% success rate, resulting in the discovery of the now-producing
Shrouk and Shrouk East oil fields and the currently shut-in Shams gas field. A
fourth exploratory well, Nabil #2, was spudded in late 1994 and was plugged and
abandoned in 1995. Additionally, 11 development and service wells were
successfully drilled during 1994 in the Khalda Concession. A continuation of
the 1994 level of development and exploratory drilling on the Khalda Concession
is expected for 1995. On the other hand, although the level of effort and
attention placed on a unified Western Desert natural gas pipeline project
intensified during 1994 and certain progress was made, it continues to be
impossible to determine when increased sales of natural gas from the Khalda
area will commence.
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In late 1994 EGPC agreed, subject to the approval of the Egyptian
Parliament, to award Phoenix and the other Khalda Partners the right to explore
the 2.1 million acre South Khalda block which surrounds and adjoins the Khalda
Concession. Parliamentary approval is anticipated in the first half of 1995,
after which significant exploration of this new area is planned.
Operations in the Qarun Concession accelerated during 1994. After the
completion of significant geophysical and geological work, the first wildcat
well, El Sagha #1A, was drilled and encountered significant quantities of
hydrocarbons. The El Sagha #2, drilled in a separate fault block and completed
and tested in 1995, discovered and tested a separate oil field. As a result of
these efforts, reserves were assigned to the Qarun Concession for the first
time with the gross proved increment being estimated at 23.6 million barrels.
Delineation and confirmation drilling is being planned for 1995 and additional
exploration drilling on the block is likely. If the confirmation drilling in
the El Sagha #1 area is successful, the commencement of significant development
activities in the Qarun Concession in 1995 is probable.
The Company continued its stable earnings performance during 1994 and
maintained its debt-free balance sheet, thus providing the financial strength
to access the capital necessary to pursue its business strategy. Payment of
regular quarterly dividends was initiated in the first quarter of 1994. Also
during 1994, the Company initiated a stock repurchase program and acquired
approximately 7% of its outstanding Common Stock at an average price per share
of $14.12 adjusted for the two-for-one split of the Common Stock outstanding in
January 1995. Finally, in the fourth quarter of 1994 the Company elected to
change to the full cost method of accounting, recognizing that in light of 1994
developments and expectations for future years, the full cost method of
accounting was preferable to the successful efforts method, particularly in
view of the likely recoupment of significant amounts of future seismic and
exploratory expenditures through cost recovery mechanisms.
KHALDA CONCESSION
The Company, exploring on its own, initially discovered oil and gas in
the Khalda Concession in 1985. Gross oil production in the Khalda Concession
has increased each year since the initial discovery. During 1994 average daily
gross oil production from the Khalda Concession was approximately 32,731
barrels, an increase of 2% over 1993 average daily production. Gross operating
costs in 1994 were $1.07 per equivalent oil barrel. Gross proved reserves of
crude oil in the Khalda Concession were estimated to be approximately 69
million barrels as of December 31, 1994, 97% of year-end 1993 oil reserves. In
addition, as of December 31, 1994 there were an estimated 153.6 Bcf of gross
proved remaining gas reserves in the Khalda Concession, much of which is
undeveloped.
The Khalda Concession covers an area of approximately 318,500 acres
and, as of December 31, 1994, contained 75 producing oil wells in 12 fields.
Over the life of the Khalda Concession, 45 exploratory wells and 112
development and service wells have been drilled. From inception through
December 31, 1994 approximately $426 million has been invested in exploration
and development activities in the Khalda Concession, almost all of which has
been invested by the Company's partners pursuant to the farmout arrangements
described below. Cumulative gross oil production from the Khalda Concession
through 1994 has been approximately 76.3 million barrels.
As is customary in Egypt, the Khalda Concession is governed by a
production sharing agreement between EGPC (the Egyptian national oil company)
and one or more oil companies. The oil companies owning an interest in the
Khalda Concession are herein referred to as the Khalda Partners, and are
composed of the Company with a 40% interest, Repsol (the partnership operator)
with a 50% interest and Samsung with a 10% interest. The Khalda
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Partners pay all operating and capital costs associated with the Khalda
Concession and these costs are recoverable from production. Up to 40% of oil
and gas production is available to the Khalda Partners to recover their costs.
Operating costs are recoverable on a current basis and capital costs are
recoverable over four years, assuming sufficient production. Remaining
production is divided pursuant to a formula so that at least 75% goes to EGPC
and the balance to the Khalda Partners. EGPC is required to pay from its share
of production, on behalf of the Khalda Partners, all Egyptian government
royalties and income taxes imposed on the Khalda Partners.
At the time of the initial discovery in 1985, the Company was the sole
Khalda Partner. The Company subsequently farmed out 50% of its interest to
Conoco, Inc., which later sold its interest to Repsol. In 1989 the Company
sold a 10% interest to Samsung. Pursuant to the farmout agreement, Conoco
agreed to pay the Company's share of capital expenditures generally relating to
oil activities in the Khalda Concession. The Company pays its own share of the
operating costs relating to oil and gas activities and capital expenditures
generally relating to natural gas activities. Each of the Khalda Partners is
entitled to recover the costs paid by it from the cost recovery portion of
production. The Company is entitled to receive its 40% share of the remaining
production attributable to the Khalda Partners.
The Khalda Concession is operated by Khalda Petroleum Company, an
Egyptian corporation with approximately 525 employees, that is jointly owned by
the Khalda Partners and EGPC. The Company owns 20% of the capital stock of
Khalda Petroleum Company and designates two of the eight members of Khalda
Petroleum Company's board of directors.
During 1994 three exploratory wells were drilled on the Khalda
Concession with a 100% success rate. A fourth exploratory well, spudded in
late December 1994, was plugged and abandoned in February 1995. An additional
11 service and development wells were drilled in 1994, all of which were also
successful. During 1995 oil and gas exploration and development on the Khalda
Concession will continue with the planned drilling of four exploratory wells
and approximately ten oil development and service wells.
In January 1995 the Khalda Partners reached an agreement with EGPC
whereby the Khalda Partners will be awarded the right to conduct petroleum
activities in the South Khalda block. The South Khalda block, which contains
2.1 million acres, adjoins and generally surrounds the existing Khalda
Concession acreage. Under the proposed agreement, which is subject to approval
of the Egyptian Parliament, the Khalda Partners will drill at least seven wells
and spend a minimum of $8 million during the initial exploration phase of four
years and pay a signature bonus of $1 million. The proposed agreement would be
in the form of an amendment to the Khalda Concession Agreement and would
provide for a unitization of the cost recovery and profit sharing mechanisms of
the Khalda Concession if commercial production from the new area is
established. All costs are to be split 50%, 40% and 10% among Repsol, the
Company and Samsung, respectively.
QARUN CONCESSION
In April 1993 the Qarun Partners were awarded the right to conduct
petroleum exploration activities on the Qarun Concession, a 1.9 million acre
block located immediately southwest of Cairo. The Company is the partnership
operator and owns a 50% interest, with subsidiaries of Apache Corporation and
Global Natural Resources each owning 25%. The Qarun Partners were committed to
drill at least one exploratory well in the initial three-year exploratory
phase. The exploration rights may be extended up to an additional four years
by undertaking additional drilling obligations.
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After reprocessing 3,000 kilometers of old seismic and acquiring 500
kilometers of new seismic, the Qarun Partners drilled their first exploratory
well on the Qarun Concession, the El Sagha #1A. The El Sagha #1A had dual
objectives: shallower Cretaceous zones at around 9,000 feet and deeper
objectives down to 14,000 feet. The shallower objectives were successfully
drilled and logged, with the open hole logs indicating hydrocarbon zones in
both the Bahariya and Kharita formations. The logs indicated the presence of
an aggregate of over 100 feet of net oil pay in three sandstone intervals in
the Bahariya, plus over 100 feet of net oil pay in a single sandstone interval
in the Kharita. Analysis of a 90-foot core of some of the Bahariya pay zones
suggested good reservoir quality.
While drilling the El Sagha #1A to the deeper objectives, a hole
developed in the casing string which ultimately led to a brief flow of
hydrocarbons to the surface from which contaminated samples of light sweet
crude oil were recovered. During well control procedures that portion of the
well containing the indicated pay sections was lost. Attempts to sidetrack and
redrill to the indicated pay zones were unsuccessful. The drilling rig was
moved two kilometers to the northwest, where a new exploratory well, the El
Sagha #2, was spudded in late November 1994.
The El Sagha #2 also had dual objectives: shallower Cretaceous zones
at around 9,000 feet and deeper objectives below 12,000 feet. The well was
ultimately drilled to a total depth of 13,148 feet. The only significant
hydrocarbon bearing zone was detected by logs at 8,868 feet to 8,890 feet in
the Bahariya formation and a production test was conducted on that zone in
early February 1995. During initial testing of this zone the well produced up
to 1,370 barrels of oil per day and 120 thousand cubic feet of gas per day
through a one-inch choke with a flowing tubing pressure of 55 psi. The crude
oil API gravity is approximately 38 degrees. An appraisal well, the El Sagha
#3, will be spudded in March 1995 at a location 900 meters southwest of the El
Sagha #1A.
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ITEM 2 PROPERTIES
The following map shows the location of the Company's interests in Egypt.
KHALDA CONCESSION
The principal producing properties of the Company are located in the
Khalda Concession in the Western Desert of Egypt where the Company, exploring
on its own, initially discovered commercial quantities of oil and gas in 1985.
The Khalda Concession, currently consisting of 318,500 acres, is located in the
Western Desert of Egypt, 50 miles inland from the Mediterranean coast and 140
miles west of Alexandria, Egypt. This area of Egypt has no significant
populations, although several small towns are scattered along the Mediterranean
coast. The Khalda Concession is governed by the Khalda Concession Agreement, a
petroleum production sharing arrangement authorized and approved by the
Egyptian Parliament between EGPC and the Khalda Partners consisting of the
Company, Repsol and Samsung.
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Operations. The Khalda Concession is operated by Khalda Petroleum
Company, a non-profit Egyptian corporation with approximately 525 employees,
that is jointly owned by the Khalda Partners and EGPC. Approximately half of
Khalda Petroleum Company's employees are operational field employees and the
remainder work in its headquarters office in a suburb of Cairo. Almost all
employees of Khalda Petroleum Company are Egyptian nationals, complemented by
about ten Repsol employees in various technical and management capacities. The
Company owns 20% of the capital stock of Khalda Petroleum Company and
designates two of the eight members of Khalda Petroleum Company's board of
directors. The other members are designated by Repsol and EGPC.
From inception of the Khalda Concession through 1994, capital
investments of approximately $426 million have been made in the Khalda
Concession (approximately 9% by the Company). As a result, 45 exploratory
wells and 112 development and service wells have been drilled and crude oil is
now being produced from 12 fields. Total gross exploration and development
expenditures of approximately $18 million were made by the Khalda Partners with
respect to the Khalda Concession during 1994.
During 1994 three exploratory wells were drilled on the Khalda
Concession -- Shrouk, Shrouk East and Shams with a 100% success rate.
Additionally, the Nabil #2 exploratory well, which was in progress at year-end
1994, was plugged and abandoned in 1995. Moreover, 11 development and service
wells were drilled on the Khalda Concession during 1994, also with a 100%
success rate.
The Shrouk and Shrouk East wells each discovered commercial quantities
of crude oil and the discovery wells commenced production immediately after
discovery. The Shams well discovered natural gas and is shut-in awaiting
access to natural gas markets. Because all of the foreseeable needs of the
Mersah Matruh market can be met by associated gas and other Khalda natural gas
fields, and because no firm arrangements have otherwise been made for the sale
of natural gas from the Khalda Concession, the gas reserves associated with the
Shams discovery have not been classified as proved reserves.
During 1995 oil and gas exploration and development on the Khalda
Concession is expected to continue at approximately the same investment level
as 1994, with the planned drilling of four exploratory wells and approximately
ten development and service wells.
The central production facilities are located at the Salam field which
is near the center of the productive area. With the major facilities centrally
located, outlying fields are brought on line with minimal additional facility
investment. Oil production and associated natural gas production from the
Salam and outlying fields are sent through a gathering system to the central
production facilities for separation and treatment. In addition to primary
separation of the oil production, the central facilities supply necessary
electrical power to the fields for artificial lift and send water for injection
to the fields where waterflooding is required. The central facilities consist
of two primary separation trains which together can process up to 40,000
barrels of oil per day and a water injection system which can distribute up to
40,000 barrels of water per day to most fields in the Khalda Concession. A
crude oil recovery enhancement unit removes the heavy hydrocarbon components
from the associated natural gas production and blends the resulting liquids
with the crude oil production. Field personnel generally work for seven-day
shifts and are housed at the central facility crew quarters. Personnel
rotations are accomplished by air flights which land at the air strip shared
with the Meleiha Concession, in which the Company has no interest.
Production. Crude oil production from the Khalda Concession commenced
in late 1986. Crude oil is gathered and processed at the Salam central
facilities and transported to oil storage and terminalling facilities at El
Hamra, 50 miles west of Alexandria via pipeline. The
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major portion of the pipeline, a 110-mile, 16-inch pipeline with design
capacity of 90,000 barrels per day, is shared with other Western Desert
concessions. Sales of associated gas from the Khalda Concession to an
electrical power generation station in Mersah Matruh commenced during the first
quarter of 1991 and averaged approximately 2.1 MMcf per day during 1994. This
associated natural gas is transported from the central facilities via a 50-mile
pipeline.
Gross oil production has increased each year since the initial
discovery. Cumulative oil production through 1994 on the Khalda Concession has
been approximately 76.3 million barrels. During 1994 average daily gross oil
production from the Khalda Concession was approximately 32,731 barrels, an
increase of 2% over 1993 average daily production. Gross production costs for
the Khalda Concession in 1994 were $1.07 per equivalent oil barrel. Waterfloods
for additional recovery of oil have been started in most fields. Additional
reservoirs are being studied to determine whether they are appropriate
candidates for waterflooding or other enhancement projects. Studies are being
conducted to organize future exploratory, development and delineation drilling.
There is no assurance, however, that production from the Khalda Concession will
not decline in the future.
Western Desert Natural Gas. Exploration activities in the Khalda
Concession have resulted in the discovery of significant quantities of gas,
most of which is currently shut-in. While sales of associated natural gas to
an electric utility in the coastal town of Mersah Matruh have been made in
nominal amounts from the Khalda Concession since 1991, natural gas fields will
remain shut-in until a pipeline is constructed to provide access to major
natural gas markets. As of December 31, 1994 there were an estimated 153.6 Bcf
of gross proved remaining gas reserves in the Khalda Concession, much of which
is undeveloped.
In recent years, Western Desert gas exploration activities near the
Khalda Concession have increased and significant discoveries of natural gas
have been made by the Khalda Partners, Repsol, The Royal Dutch/Shell Group,
Norsk Hydro a.s. and Agip S.p.A. Natural gas exploration activities continue
to be conducted by the Khalda Partners within the Khalda Concession and also by
these major oil and gas companies in nearby concessions in which the Company
owns no interests. The Khalda Concession currently has four shut-in gas
fields: Salam Deep, Tarek, Amoun and Shams. Discovery wells in each of these
fields, except Amoun, tested at over 20 million cubic feet per day during
initial production testing; the Amoun discovery well tested at 12 million cubic
feet per day.
Engineering studies and discussions pertaining to the possibility of a
major, coordinated Western Desert natural gas pipeline project are ongoing
among EGPC, the Khalda Partners and other major oil and gas companies operating
in the vicinity of Khalda. In addition, Egypt Gas, Amoco and Agip have formed
Egypt's first private natural gas pipeline company. This new company, formed
in late 1994, has announced its intention to consider the construction and
operation of a pipeline connecting natural gas discoveries in the Western
Desert with Egypt's internal distribution network. It is still unclear whether
and when such a pipeline will be built, and if so, by whom. There is no
assurance that this pipeline will ever be constructed and, if constructed, gas
sales would not commence until at least two years after plans for the pipeline
are finalized. Due to significant uncertainties regarding this project, it is
currently not possible to quantify the Company's potential investment in this
project, if any. However, if such a pipeline is constructed, the amount of
investment by the Company in the development of the shut-in gas fields and
possibly in the construction of the trunk line would very possibly be
significantly higher than the Company's current level of capital expenditures
in Khalda. Under the Khalda Concession Agreement, any such investment by the
Khalda Partners, like most costs associated with the Khalda Concession, would
be recoverable out of both oil and gas production.
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The design and construction of a new 600-megawatt natural gas fired
generating facility is underway at Sidi Kirir, which is located approximately
120 miles east of the Khalda Concession. The government of Egypt has announced
that it expects to complete construction in 1998 or 1999. EGPC has informally
suggested that the Khalda Partners and other oil and gas companies operating in
the Western Desert tentatively plan to deliver their natural gas to this
facility via a pipeline. There is no assurance that this facility will be
constructed on schedule, that agreements will be entered into for the purchase
of the Khalda Concession's gas or that arrangements will be entered into for
the construction of the pipeline to this facility. EGPC could decide to obtain
natural gas for this facility from other sources; alternatively, EGPC could
elect to use Western Desert natural gas for other purposes.
Reserves. The table below shows the gross proved reserves estimated
to remain in the Khalda Concession as of the dates shown.
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KHALDA CONCESSION
GROSS PROVED RESERVES
AT DECEMBER 31,
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1993 1994
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(In thousands)
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Oil (Bbls) . . . . . . . . . . . . . . 71,347 69,000
Natural Gas (Mcf) . . . . . . . . . . 158,105 153,645
Total Equivalent Oil Barrels . . . . . 97,698 94,608
</TABLE>
South Khalda Acreage. In January 1995 the Khalda Partners reached an
agreement with EGPC, whereby the Khalda Partners will be awarded the right to
conduct petroleum activities in the South Khalda block. The South Khalda
block, which contains 2.1 million acres, adjoins and generally surrounds the
existing Khalda Concession and other producing acreage. Under the proposed
agreement, which is subject to approval of the Egyptian Parliament, the Khalda
Partners will drill at least seven wells and spend a minimum of $8 million
during the initial exploration phase of four years and pay a signature bonus of
$1 million. The Khalda Partners have the option to extend the exploratory
phase of the South Khalda area by up to an additional five years by committing
to additional drilling and financial requirements. Additional details of the
agreement are contained in the following section.
General Description of the Khalda Concession Agreement. Under the
Khalda Concession Agreement, the Khalda Partners pay 100% of capital and
operating costs and the production is split between EGPC and the Khalda
Partners. Up to 40% of the oil and gas produced and sold from the Khalda
Concession is available to the Khalda Partners to recover costs ("cost recovery
petroleum"). Cost recovery petroleum forms a single, unified pool for the
entire concession from which costs of all fields, zones, products and types may
be recovered without differentiation, except that operating costs are recovered
prior to the recovery of any capital costs. Capital costs (which include
exploration, development and other equipment and facilities costs) are
amortized for recovery over four years while operating expenses are recoverable
on a current basis. To the extent that costs eligible for recovery in any
quarter exceed the amount of cost recovery petroleum produced and sold in that
quarter, such costs are recoverable from cost recovery petroleum in future
quarters with no limit on the ability to carry forward such costs.
The remaining 60% of oil and gas produced and sold ("profit
petroleum"), together with any cost recovery petroleum not used for the
recovery of costs ("excess cost recovery petroleum"), is divided between EGPC
and the Khalda Partners. All Egyptian income taxes and Egyptian
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government royalties attributable to the Khalda Partners on their share of
production from the Khalda Concession are paid by EGPC out of EGPC's share of
production.
The Khalda Partners' percentage of the oil segment of profit petroleum
and excess cost recovery petroleum ("profit oil" and "excess cost recovery
oil") is applied to increments of production based on the gross daily average
of oil production determined on a quarterly basis as follows:
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GROSS PRODUCTION KHALDA PARTNERS PERCENTAGE OF
SEGMENT PROFIT OIL AND EXCESS
(BBLS OF OIL PER DAY) COST RECOVERY OIL
--------------------- -----------------------------
<S> <C>
Up to 25,000 . . . . . . . . . . . . . . . . . . . . . . . . . 25.0%
25,000 to 50,000 . . . . . . . . . . . . . . . . . . . . . . . 22.5%
50,000 to 75,000 . . . . . . . . . . . . . . . . . . . . . . . 20.0%
75,000 to 100,000 . . . . . . . . . . . . . . . . . . . . . . 17.5%
Over 100,000 . . . . . . . . . . . . . . . . . . . . . . . . . 15.0%
</TABLE>
In addition, if natural gas sales to EGPC average over 12 billion BTUs per day
during any six-month period ending June 30 or December 31, each of the above
percentages is reduced by two percentage points.
The Khalda Partners' percentage of the gas segment of profit petroleum
and excess cost recovery petroleum is 20%, except that the Khalda Partners'
share is 23% of the first 15 MMcf per day of gas produced and sold from areas
other than the Tarek field.
The South Khalda agreement is styled as an amendment to the Khalda
Concession Agreement. Under the proposed agreement with EGPC, the South Khalda
block will be added to the Khalda Concession. If and when commercial
production from the South Khalda block begins, the recovery of past and future
costs and sharing of profit and excess profit petroleum will be unified with
the currently existing structure of the Khalda Concession pursuant to all of
its existing terms.
Of the $426 million of capital expenditures recoverable from petroleum
production incurred by the Khalda Partners from inception through 1994,
approximately $42 million remained unrecovered at year-end 1994. The Company's
share of unrecovered costs was approximately $4 million or 9% of such amount.
Currently, all capital expenditures in the Khalda Concession are being
completely recovered as amortized over four years.
Egypt retains the right of requisition of the Khalda Concession
production and cancellation of the Khalda Concession Agreement upon the
occurrence of specific events, including a national emergency due to war,
imminent expectation of war or internal causes, unauthorized assignment of
interests in the Khalda Concession, the Khalda Partners being adjudicated
bankrupt by a court of competent jurisdiction and intentional extraction of any
mineral not authorized by the Khalda Concession Agreement. Requisition or
cancellation as a result of the foregoing or for any other reasons would have a
material adverse effect on the Company.
General Description of Contractor Arrangements. The economic
relationships among the Khalda Partners are governed principally by the Khalda
Concession farmout agreement entered into in 1985 and amended in 1989 after
natural gas rights were added to the Khalda Concession Agreement.
Operating and overhead expenses of Khalda Petroleum Company and
Repsol, as partnership operator, are paid by the parties as follows: 50% by
Repsol, 40% by the Company
12
<PAGE> 13
and 10% by Samsung. Capital expenditures are split among the parties in two
different ways: well costs are generally split depending upon the geological
objective of the wells and the surface location of the well, while surface
costs are generally split depending upon the nature of the product involved. In
general, Repsol pays 100% of the costs of shallow (generally oil) wells, while
deeper (generally gas) wells are split 50%, 40% and 10% among Repsol, the
Company and Samsung, respectively. The distinction between shallow and deeper
wells for this purpose is determined by reference to various geological markers
and is generally at a depth of approximately 10,500 feet. Moreover, in the
Salam, Amoun and Shams areas the cost splitting is more favorable to the
Company and Samsung at the expense of Repsol. In the South Khalda area all
capital and operating costs are to be split 50%, 40% and 10% among Repsol, the
Company and Samsung, respectively.
Almost all of the well costs to date have been paid by Conoco or
Repsol, either because the costs were incurred in areas where Repsol or Conoco
were required to pay 100% of the costs, or because the costs were incurred
prior to gas rights being added to the Khalda Concession Agreement when Conoco
was required to pay all capital costs.
Surface costs for oil are paid 100% by Repsol and for gas are paid
50%, 40% and 10% by Repsol, the Company and Samsung, respectively. Accordingly,
the Company was required to pay 40% of the costs of the gas pipeline to Mersah
Matruh and would be required to pay 40% of the Khalda Concession's share, if
any, of any unified Western Desert natural gas pipeline, should it be
constructed.
Each member of the Khalda Partners is entitled to recover its
operating expenses from cost recovery petroleum prior to the recovery of any
capital costs. After operating expenses are recovered, the remaining increment
of cost recovery petroleum is split among members of the Khalda Partners pro
rata to their respective shares of unrecovered capital costs.
The Khalda Partners' share of profit petroleum and excess cost
recovery petroleum is generally divided 50% to Repsol, 40% to the Company and
10% to Samsung after payment of a 3% royalty on the Khalda Partners share of
profit oil and excess cost recovery oil. Moreover, a special arrangement
applies to oil production from the Salam field, whereby the Company receives a
more favorable split of such profit oil.
QARUN CONCESSION
In April 1993 the Qarun Partners were awarded the right to conduct
petroleum exploration activities on the Qarun Concession, a 1.9 million acre
block located immediately southwest of Cairo. The Company is the partnership
operator and owns a 50% interest, with subsidiaries of Apache Corporation and
Global Natural Resources each owning 25%. The Qarun Partners were committed to
drill at least one exploratory well in the initial three-year exploratory
phase. The exploration rights may be extended up to an additional four years
by assuming additional drilling obligations.
After reprocessing 3,000 kilometers of old seismic and acquiring 500
kilometers of new seismic, the Qarun Partners drilled their first exploratory
well on the Qarun Concession, the El Sagha #1A. The El Sagha #1A had dual
objectives: shallower Cretaceous zones at around 9,000 feet and deeper
objectives down to 14,000 feet. The shallower objectives were successfully
drilled and logged, with the open hole logs indicating hydrocarbon zones in
both the Bahariya and Kharita formations. The logs indicated the presence of
an aggregate of over 100 feet of net oil pay in three sandstone intervals in
the Bahariya, plus over 100 feet of net oil pay in a single sandstone interval
in the Kharita. Analysis of a 90-foot core of some of the Bahariya pay zones
suggested good reservoir quality.
13
<PAGE> 14
While drilling the El Sagha #1A to the deeper objectives, a hole
developed in the casing string which ultimately led to a brief flow of
hydrocarbons to the surface from which contaminated samples of light sweet
crude oil were recovered. During well control procedures that portion of the
well containing the indicated pay sections was lost. Attempts to sidetrack and
redrill to the indicated pay zones were unsuccessful. The drilling rig was
moved two kilometers to the northwest, where a new exploratory well, the El
Sagha #2, was spudded in late November 1994.
The El Sagha #2 also had dual objectives: shallower Cretaceous zones
at around 9,000 feet and deeper objectives below 12,000 feet. The well was
ultimately drilled to a total depth of 13,148 feet. The only significant
hydrocarbon bearing zone was detected by logs at 8,868 feet to 8,890 feet in
the Bahariya formation and a production test was conducted on that zone in
early February 1995. During initial testing of this zone the well produced up
to 1,370 barrels of oil per day and 120 thousand cubic feet of gas per day
through a one-inch choke with a flowing tubing pressure of 55 psi. The crude
oil API gravity is approximately 38 degrees. An appraisal well, the El Sagha
#3, will be spudded in March 1995 at a location 900 meters southwest of the El
Sagha #1.
Pursuant to the Qarun Concession Agreement, after commercial
quantities of petroleum are established, an Egyptian operating company would be
formed to operate the block in much the same manner as Khalda Petroleum Company
operates the Khalda Concession. Production facilities and transportation
pipelines would need to be constructed before commercial production would
begin.
Reserves. At December 31, 1994 gross proved oil reserves for the
Qarun Concession were estimated to be 23.6 million barrels. No proved gas
reserves had been assigned at December 31, 1994.
General Description of the Qarun Concession Agreement. Under the
Qarun Concession Agreement, the Qarun Partners pay 100% of capital and
operating costs and the production is split between EGPC and the Qarun
Partners. Up to 40% of the oil and gas produced and sold from the Qarun
Concession is available to the Qarun Partners to recover costs ("cost recovery
petroleum"). Cost recovery petroleum forms a single, unified pool for the
entire concession from which costs of all fields, zones, products and types may
be recovered without differentiation, except that operating costs are recovered
prior to the recovery of any capital costs. Capital costs (which include
exploration, development and other equipment and facilities costs) are
amortized for recovery over five years while operating expenses are recoverable
on a current basis. To the extent that costs eligible for recovery in any
quarter exceed the amount of cost recovery petroleum produced and sold in that
quarter, such costs are recoverable from cost recovery petroleum in future
quarters with no limit on the ability to carry forward such costs. Any portion
of cost recovery petroleum not used to recover costs goes to EGPC.
The remaining 60% of oil and gas produced and sold ("profit
petroleum") is divided between EGPC and the Qarun Partners. All Egyptian
income taxes and Egyptian government royalties attributable to the Qarun
Partners on their share of production from the Qarun Concession are paid by
EGPC out of EGPC's share of production.
The Qarun Partners' percentage of the oil segment of profit petroleum
("profit oil") is applied to increments of production based on the gross daily
average of oil production determined on a quarterly basis as follows:
14
<PAGE> 15
<TABLE>
<CAPTION>
GROSS PRODUCTION SEGMENT QARUN PARTNERS PERCENTAGE OF
(BBLS OF OIL PER DAY) PROFIT OIL
------------------------- ----------------------------
<S> <C>
Up to 5,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 30%
5,000 to 25,000 . . . . . . . . . . . . . . . . . . . . . . . . 25%
25,000 to 50,000 . . . . . . . . . . . . . . . . . . . . . . . . 22%
Over 50,000 . . . . . . . . . . . . . . . . . . . . . . . . . . 20%
</TABLE>
The Qarun Partners' percentage of the gas segment of profit petroleum
is 22%.
Egypt retains the right of requisition of the Qarun Concession
production and cancellation of the Qarun Concession Agreement upon the
occurrence of specific events, including a national emergency due to war,
imminent expectation of war or internal causes, unauthorized assignment of
interests in the Qarun Concession, the Qarun Partners being adjudicated
bankrupt by a court of competent jurisdiction and intentional extraction of any
mineral not authorized by the Qarun Concession Agreement. Requisition or
cancellation as a result of the foregoing or for any other reasons would have a
material adverse effect on the Company.
General Description of Qarun Partners Arrangements. The Company pays
50% of the costs and expenses of the Qarun Partners and is entitled to receive
50% of the Qarun Partners' share of Qarun revenues.
OTHER PROPERTIES
The Company also owns miscellaneous oil and gas interests, consisting
primarily of certain overriding royalty interests in the United States; an
inactive oil terminal and associated real estate near Portland, Maine which is
expected to be sold during 1995; certain overriding royalty interests in
properties in the Canadian Arctic which cannot currently be produced on an
economic basis; and other minor properties.
CERTAIN OPERATIONAL CONSIDERATIONS
Substantially all of the Company's operations and reserves are located
in Egypt and, therefore, are subject to certain risks relating to economic and
political stability in Egypt and the surrounding region. The Company is
exposed to certain risks due to its concentration of Egyptian operations, which
include possible changes in Egyptian laws, particularly relating to foreign
investments and taxation, renegotiation or modification of existing contracts
and expropriation. In recent years, terrorists have conducted activities in
Egypt. While many of these terrorist activities have been directed at
non-Egyptians, neither the Company's personnel nor its operations to date have
been adversely affected. In addition, future exploration opportunities in
Egypt are controlled by the government and subject to the Egyptian Parliament
granting additional concessions. Adverse developments in Egypt and future
changes in Egyptian governmental regulations and policies could have a material
adverse effect on the Company. The Company does not insure against loss of
production or political risks.
The production and sale of oil and gas in Egypt are subject to a
variety of governmental regulations, including regulations relating to the
prevention of waste, the discharge of materials into the environment, the
conservation of oil and natural gas, pollution, permits for drilling
operations, the unitization and pooling of properties and various other
matters. Although the Company believes it is in substantial compliance with
applicable environmental and other governmental laws and regulations in Egypt,
there can be no assurance that significant costs for compliance will not be
incurred in the future. In addition, these laws may become more burdensome in
the future.
15
<PAGE> 16
The nature of the oil and gas business involves a variety of risks,
including operating hazards such as fires, explosions, cratering, blow-outs,
encountering formations with abnormal pressures, and, in horizontal wellbores,
the increased risk of mechanical failure and collapsed holes, the occurrence of
any of which could result in losses to the Company. The Company maintains
insurance against some, but not all, of these risks in amounts that management
believes to be reasonable in accordance with customary industry practices. The
occurrence of a significant event, however, that is not fully insured could
have a material adverse effect on the Company's financial position.
The Company operates in a highly competitive industry. The Company
competes in Egypt with major and independent oil and gas companies, including
Amoco, Agip, Shell, Repsol and Norsk Hydro, for the acquisition of desirable
oil and gas properties. Nearly all of these competitors have financial and
other resources substantially greater than the Company.
RESERVES
The following table sets forth summary information at the dates shown
with respect to the estimates of the Company's net proved oil and gas reserves
in Egypt. Currently all of the Company's net proved reserves are attributable
to the oil and gas fields located in the Khalda and Qarun Concessions in Egypt.
The Company's share of proved reserve quantities includes an assumed dollar
amount of estimated future production necessary to recover costs. Therefore,
the amount of Company net reserves for a given amount of total concession
reserves varies with the assumed price. In addition, EGPC is required to pay,
on behalf of the Company, all Egyptian government royalties and the Company's
Egyptian income taxes from its share of production. The reserve information
presented below does not include reserves attributable to such payments on
behalf of the Company by EGPC, nor does the information regarding reserve
values include any deductions for Egyptian income taxes.
<TABLE>
<CAPTION>
PHOENIX NET
PROVED RESERVES - EGYPT
------------------------------
AT DECEMBER 31,
------------------------------
1992 1993 1994
---- ---- ----
(In thousands, except oil price)
<S> <C> <C> <C>
Oil (Bbls) . . . . . . . . . . . . . . . . . . . . . . . . . . 9,440 10,679 15,166
Natural Gas (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 20,296 29,297 25,781
Total Equivalent Oil Barrels . . . . . . . . . . . . . . . . . 12,823 15,562 19,463
Standardized measure of discounted future net cash
flow, after provision for Egyptian income taxes . . . . . . $ 72,636 $ 53,933 $ 80,039
Assumed Egyptian Oil Price (per Bbl) . . . . . . . . . . . . . $ 17.56 $ 13.47 $ 15.73
</TABLE>
The estimation of reserves and of future net revenues is not an exact
science and involves estimates based on many variable and uncertain factors,
including many factors beyond the control of the producer. Estimates of
reserves and of future net revenues prepared by different petroleum engineers
may vary substantially depending, in part, on the assumptions made and may be
subject to adjustment either up or down in the future. The actual amounts of
production, revenues, taxes, development expenditures, operating expenses and
quantities of recoverable oil and gas reserves to be encountered may vary
substantially from the engineers' estimates. The meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions upon which
they were based.
The Company's future production depends on its level of success in
developing, acquiring or finding additional reserves. Except to the extent
that the Company acquires properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved reserves
of the Company will decline as reserves are produced. There can be no
16
<PAGE> 17
assurance that the Company's planned exploration and development projects will
result in significant additional reserves or that the Company will have any
future success in drilling productive wells.
PRODUCTION
The following table summarizes the Company's share of production of
oil and natural gas sold, net of all royalties and other outstanding interests,
for each of the three years ended December 31, 1992, 1993 and 1994. The
Company's share of production in Egypt includes its share of cost recovery
petroleum and, accordingly, the quantity of crude oil and natural gas
attributable to the Company is a function of, among other things, prevailing
prices. The production information shown below for Egypt does not include any
production attributable to the payment on behalf of the Company by EGPC of the
Company's share of Egyptian income taxes. All of the production in Egypt for
the three years shown is from the Khalda Concession.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Oil (Bbls):
Egypt . . . . . . . . . . . . . . . . . . . . 1,183 1,326 1,355
United States . . . . . . . . . . . . . . . . . 25 25 4
----- ----- -----
Total . . . . . . . . . . . . . . . . . . 1,208 1,351 1,359
===== ===== =====
Natural Gas (Mcf):
Egypt . . . . . . . . . . . . . . . . . . . . 148 151 169
United States . . . . . . . . . . . . . . . . . 136 171 18
----- ----- -----
Total . . . . . . . . . . . . . . . . . . 284 322 187
===== ===== =====
</TABLE>
The following table shows the approximate number of producing wells,
in which the Company owned a working interest, as of December 31, 1994. All
producing wells are in Egypt and are on the Khalda Concession.
<TABLE>
<CAPTION>
OIL WELLS GAS WELLS
--------------- ---------------
GROSS NET GROSS NET
----- --- ----- ---
<S> <C> <C> <C> <C>
Egypt . . . . . . . . . . . . . . . . . . . . 75 30 -- --
</TABLE>
Currently all gas produced by the Company in Egypt is associated gas
produced from oil wells. The data in the above table includes two gross (0.8
net) oil wells in Egypt with multiple completions. In addition to the above,
as of December 31, 1994, 15 gross (6 net) wells in Egypt were temporarily
abandoned pending completion, access to additional gas markets or further
evaluation. There are currently 31 water injection wells in the Khalda
Concession.
SALES
Production from the Khalda Concession has accounted for substantially
all of the Company's oil and gas revenues over the past three years. The
Company's share of crude oil and natural gas sales from the Khalda Concession
is currently being sold exclusively to EGPC. The loss of EGPC as a purchaser
or adverse developments in the business practices of EGPC could have a material
adverse effect on the Company.
The market price for crude oil has significant and material effects
upon the Company. Oil prices are extremely volatile. The volatile nature of
the energy markets makes it difficult to estimate future prices of oil. Both
the market price of oil and the amount that EGPC pays for oil purchased from
the Khalda Concession are beyond the control of the Company.
Historically, the Company's sales of crude oil in Egypt have consisted
solely of the Company's share of oil produced from the Khalda Concession and
have been exclusively to
17
<PAGE> 18
EGPC at a price tied to the average monthly official government price for Gulf
of Suez Blend ("GOSB") crude oil. Khalda crude oil is light sweet crude oil
with a gravity of approximately 40 degrees API. During 1994 the amount
received by the Company for its Khalda crude oil roughly approximated the
selling prices of Brent crude oil. Egyptian natural gas is currently sold at a
price per BTU equal to 85% of prevailing market prices of certain fuel oil. In
the future it is anticipated that new agreements will tie most future Egyptian
natural gas sales at a price per BTU equal to 85% of prevailing prices of GOSB.
The table below summarizes the average sales price of oil and natural
gas and the average production costs, including lease operating costs and
production taxes, for the years shown. Because of the low level of production
in the United States, where the Company is abandoning its last working interest
well, 1994 data for the United States is not meaningful.
<TABLE>
<CAPTION>
AVERAGE SALES PRICE AVERAGE
---------------------- PRODUCTION COST
OIL GAS ---------------
(PER BBL) (PER MCF) (PER EOB)
--------- --------- ---------------
<S> <C> <C> <C>
1992
Egypt . . . . . . . . . . . . . . . . . . $ 18.04 $ 2.64 $ 3.95
United States . . . . . . . . . . . . . . 19.72 1.96 4.55
All . . . . . . . . . . . . . . . . . . . 18.07 2.31 3.97
1993
Egypt . . . . . . . . . . . . . . . . . . $ 15.93 $ 2.26 $ 4.15
United States . . . . . . . . . . . . . . 17.95 2.25 4.23
All . . . . . . . . . . . . . . . . . . . 15.97 2.25 4.16
1994
Egypt . . . . . . . . . . . . . . . . . . $ 15.72 $ 2.63 $ 3.75
</TABLE>
Average production costs for Egypt are determined by dividing the
Company's share of production costs by the Company's share of sales quantities.
If average production costs were calculated for Egypt by dividing total
concession production costs by total concession sales quantities, average
production costs (per EOB) for Egypt would be $1.10, $1.19 and $1.07 for 1992,
1993 and 1994, respectively. Since Egyptian government royalties and Egyptian
income taxes payable by the Company are paid by EGPC on behalf of the Company
out of EGPC's share of production, such production is not included in the
Company's share of sales quantities.
ACREAGE
The Company's developed acreage in the United States primarily
consists of areas where the Company owns an overriding royalty interest in
production in conjunction with a working interest in nonproducing strata or
undrilled acreage. The following table shows developed and undeveloped lease
acreage of the Company outside the United States as of February 10, 1995.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
-------------------- ------------------------
GROSS NET GROSS NET
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Egypt . . . . . . . . . . . 318,500 127,400 4,025,324 1,802,871
Canadian Arctic . . . . . . -- -- 302,443 21,853
------- ------- --------- ---------
Total . . . . . . . . 318,500 127,400 4,327,767 1,824,724
======= ======= ========= =========
</TABLE>
Developed acreage shown above for Egypt is all on the Khalda
Concession and with the exception of one field, the Tarek field, is held by
production to all depths until at least 2010 to 2012. The Tarek field acreage
is held until 25 years after a gas sales contract for Tarek is entered into,
but in no event beyond 2022. However, if no gas sales contract for Tarek gas
has been entered into by 1999, the Tarek acreage is required to be
relinquished. Undeveloped acreage for Egypt is on the Qarun Concession and
South Khalda block. The agreement pertaining to the South Khalda block is
subject to the approval of the Egyptian Parliament.
18
<PAGE> 19
All lease terms are believed sufficient for their reasonable exploration and
development. The Canadian Arctic acreage has little or no value under current
industry conditions.
DRILLING
The data in the following table does not include recompletions or
water injection wells. The one dry hole drilled during 1994 was paid for by
the Company's partner in the Faghur Concession, which was subsequently
relinquished. All of the Company's drilling activities during the periods
shown were in Egypt. At December 31, 1994 two gross wells (0.9 net wells)
were in progress.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1992 1993 1994
----- ------ -----
<S> <C> <C> <C>
Development Wells -- Gross
Productive Oil . . . . . . . . . . . . . . . . . . . 15.00 7.00 9.00
Productive Gas . . . . . . . . . . . . . . . . . . . -- -- --
----- ---- ----
Total Productive . . . . . . . . . . . . . . . . . . 15.00 7.00 9.00
===== ==== ====
Dry Holes . . . . . . . . . . . . . . . . . . . . . -- -- --
Development Wells -- Net
Productive Oil . . . . . . . . . . . . . . . . . . . 6.00 2.80 3.60
Productive Gas . . . . . . . . . . . . . . . . . . . -- -- --
----- ---- ----
Total Productive . . . . . . . . . . . . . . . . . . 6.00 2.80 3.60
===== ==== ====
Dry Holes . . . . . . . . . . . . . . . . . . . . . -- -- --
Exploratory Wells -- Gross
Productive Oil . . . . . . . . . . . . . . . . . . . 1.00 1.00 3.00
Productive Gas . . . . . . . . . . . . . . . . . . . -- 1.00 1.00
----- ---- ----
Total Productive . . . . . . . . . . . . . . . . . . 1.00 2.00 4.00
===== ==== ====
Dry Holes . . . . . . . . . . . . . . . . . . . . . 4.00 2.00 1.00
Exploratory Wells -- Net
Productive Oil . . . . . . . . . . . . . . . . . . . 0.40 0.40 1.30
Productive Gas . . . . . . . . . . . . . . . . . . . -- 0.40 0.40
----- ---- ----
Total Productive . . . . . . . . . . . . . . . . . . 0.40 0.80 1.70
===== ==== ====
Dry Holes . . . . . . . . . . . . . . . . . . . . . 0.91 0.50 0.10
</TABLE>
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
See "Item 8 -- Financial Statements and Supplementary Data" for
financial information about foreign and domestic operations. During 1992, 1993
and 1994 no export sales from the United States were made.
ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings, other
than ordinary routine litigation incidental to its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
19
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their respective positions
and ages are set forth below:
George D. Lawrence Jr. -- Mr. Lawrence, age 44, has served as
President and Chief Executive Officer since 1990 and joined the Board of
Directors in May 1990. He has been with the Company since August 1985 and has
held various positions.
Mark W. Anschutz -- Mr. Anschutz, age 42, has served as Vice President
- - Operations of the Company since May 1994 and as Vice President since April
1990. Mr. Anschutz joined the Company in May 1981 and has held various
positions with the Company and its subsidiaries, including the positions of
Operations Manager, Engineering Manager and Chief Reservoir Engineer. Mr.
Anschutz is a Registered Professional Engineer within the States of Oklahoma
and Texas.
John E. Bruno -- Mr. Bruno, age 43, has served as Vice President -
Egyptian Activities of the Company since May 1994 and as Vice President of the
Company's wholly-owned subsidiary, Phoenix Resources Company of Egypt, since
August 1985. He is currently General Manager of the Company's Cairo office.
Mr. Bruno joined the Company in 1978 and served as Controller from 1979 until
1985. Mr. Bruno is a Certified Public Accountant registered in the State of
Oklahoma. Mr. Bruno has been a director of Khalda Petroleum Company since
1990.
Inmann T. Dabney, Jr. -- Mr. Dabney, age 50, has served as Vice
President - Exploration and Development of the Company since May 1994 and as
Vice President since April 1990. From 1988 to 1989 he served as General
Manager for the Company's Malaysian operations and has served as Vice President
of the Company's wholly-owned subsidiary, Phoenix Resources Company of Egypt,
since 1985. Mr. Dabney has been a director of Khalda Petroleum Company since
its formation in 1985.
Michael C. Nemec -- Mr. Nemec, age 40, has served as Vice President of
the Company's wholly-owned subsidiary, Phoenix Resources Company of Qarun,
since December 1994. From 1990 to 1994 Mr. Nemec was employed by a private
company that provided geological and geophysical consulting services to the
Company in respect of its Egyptian operations. From 1985 to 1990 Mr. Nemec was
an employee of the Company.
Cheryl A. Rich -- Ms. Rich, age 40, has served as Vice President,
Chief Financial Officer and Controller of the Company since May 1994 and as
Vice President since April 1990. She joined the Company in 1979 as an
accountant and was Manager of Financial Reporting from 1985 to 1990. From 1979
until 1985 Ms. Rich held various accounting positions with the Company. She is
a Certified Public Accountant registered in the State of Oklahoma.
20
<PAGE> 21
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange
and is also traded on The Pacific Stock Exchange, under the symbol PHN on both
exchanges. The table below provides information about historical sales prices
of the Common Stock for the periods indicated, as supplied by the Dow Jones
Historical Stock Quote Reporter Service. The prices shown have been adjusted
to reflect the two-for-one stock split effected in January 1995.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1993
First Quarter . . . . . . . . . . . . . . . . . . . . . . $ 17.31 $ 12.19
Second Quarter . . . . . . . . . . . . . . . . . . . . . 18.88 15.06
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 18.19 16.19
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 17.56 15.13
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . $ 19.94 $ 13.38
Second Quarter . . . . . . . . . . . . . . . . . . . . . 13.81 11.13
Third Quarter . . . . . . . . . . . . . . . . . . . . . . 15.88 13.13
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . 24.00 13.19
1995
First Quarter (through February 10, 1995) . . . . . . . . $ 24.94 $ 21.63
</TABLE>
As of February 10, 1995 the Common Stock was held by approximately 660
holders of record.
DIVIDENDS
The Company paid four regular quarterly dividends during 1994 of
$0.025 per share (adjusted for two-for-one stock split in January 1995). The
Company currently intends to continue paying quarterly cash dividends at least
at substantially the same level. The timing and the amounts of future
dividends will, however, depend upon the Company's earnings and cash
requirements and other factors deemed relevant by the Board of Directors, in
its sole discretion.
21
<PAGE> 22
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended or at December 31,(1)
-------------------------------------------------------------
1990 1991 1992 1993 1994
--------- --------- -------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Oil and gas revenues(2) . . . . . . . $ 22,792 $ 14,727 $ 22,481 $ 22,302 $ 21,856
Revenues dedicated to foreign
tax liability(3) . . . . . . . . -- -- 10,786 10,578 10,866
--------- --------- -------- -------- ---------
Operating revenues . . . . . . . . 22,792 14,727 33,267 32,880 32,722
--------- --------- -------- -------- ---------
Income (loss) before
extraordinary items . . . . . . 5,060 (612) 12,692 12,510 12,891
Net income (loss)(4) . . . . . . . . 7,556 (18,310) 12,692 12,336 12,891
Income (loss) before extraordinary
items per share(5) . . . . . . . 1.11 (0.11) 1.51 1.47 1.57
Net income (loss) per share(5) . . . 1.66 (3.24) 1.51 1.45 1.57
BALANCE SHEET:
Total assets . . . . . . . . . . . . $ 37,107 $ 51,525 $ 59,255 $ 50,863 $ 56,441
Long-term debt(6) . . . . . . . . . . 33,674 11,527 708 -- --
Stockholders' equity (deficit) . . . (5,896) 5,263 17,894 30,298 33,558
</TABLE>
____________________
(1) The data for all years has been restated to reflect the change in the
Company's method of accounting for oil and gas operations to the full cost
method of accounting. See Note 2 to the Company's Consolidated Financial
Statements. As a result of the change in accounting method, net income for
1990 and 1991 increased $0.6 million ($0.17 per share) and $1.2 million ($0.21
per share), respectively; for 1992 and 1993 decreased $1.8 million ($0.22 per
share) and $2.8 million ($0.32 per share), respectively; and for 1994 increased
$1.7 million ($0.21 per share).
(2 ) Revenues and net income for 1990 and 1991 reflect reduced revenues due to
the delivery of oil from the Company's share of production on the Khalda
Concession, which had been sold and recognized as revenue in 1985. This
commitment was fulfilled in 1991.
(3) The adoption of SFAS 109 effective January 1, 1992 had the effect of
increasing operating revenues and tax expense for 1992, 1993 and 1994 by equal
and offsetting amounts, but did not affect net income.
(4) Includes extraordinary losses on the early extinguishment of debt of $17.7
million and $0.2 million in 1991 and 1993, respectively, and income taxes of
$0.1 million, $0.2 million, $11.1 million, $10.9 million and $11.1 million in
1990, 1991, 1992, 1993 and 1994, respectively.
(5) Restated to give effect to the two-for-one stock split effective January
1995.
(6) At December 31, 1991 approximately $27.5 million of senior notes, retired
in early 1992, were classified as current liabilities.
22
<PAGE> 23
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the three years ended
December 31, 1994 should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. In the fourth quarter of 1994 the Company
changed its method of accounting for oil and gas operations to the full cost
method. The financial statements of all years presented have been restated to
give effect to such change.
RESULTS OF OPERATIONS
1994 Compared to 1993. Net income for 1994 increased 4% to $12.9
million from $12.3 million in 1993.
Operating revenues for 1994 were virtually unchanged from 1993.
Increased crude oil production from the Khalda Concession during 1994 generally
offset the lower oil prices experienced during 1994. Gross crude oil
production from the Khalda Concession averaged 32,731 barrels per day during
1994 compared to 32,019 barrels per day during 1993. The price received for
oil produced on the Khalda Concession averaged $15.72 per barrel during 1994,
compared to $15.93 per barrel during 1993.
Interest income for 1994 increased approximately $0.5 million, or
102%, compared to 1993 due to higher interest rates earned on short-term
investments during 1994 and larger amounts of excess cash available for
short-term investment.
Production costs for 1994 decreased approximately $0.5 million, or 9%,
compared to 1993 primarily due to prior years' credits granted to the Khalda
joint account during 1994.
Depreciation, depletion and amortization ("DD&A") increased
approximately $0.2 million, or 13%, in 1994 compared to 1993 primarily due to
an increase in the Egyptian DD&A provision. The Egyptian DD&A provision
increased as a result of the inclusion of Qarun Concession capitalized costs,
future development costs and reserves during the fourth quarter of 1994.
General and administrative expense decreased approximately $0.3
million, or 13%, in 1994 compared to 1993 primarily due to a larger amount of
general and administrative expense being allocable to exploration and
development activities in 1994 than in 1993.
1993 Compared to 1992. Net income for 1993 was $12.3 million compared
to $12.7 million for 1992, a decrease of almost 3%.
Operating revenues for 1993 were virtually unchanged from 1992.
Increased crude oil production from the Khalda Concession during 1993 generally
offset the lower oil prices experienced during 1993. Gross crude oil
production from the Khalda Concession averaged 32,019 barrels per day during
1993 compared to 29,300 barrels per day during 1992, a 9% increase. The price
received for oil produced on the Khalda Concession averaged $15.93 per barrel
during 1993, compared to $18.04 per barrel during 1992, a 12% decrease.
Interest income for 1993 decreased approximately $0.1 million, or 14%,
compared to 1992 primarily due to lower interest rates earned on short-term
investments during 1993.
Production costs for 1993 increased approximately $0.9 million, or
17%, compared to 1992 primarily due to 1992 production costs being reduced by
approximately $0.5 million as a result of certain prior-year adjustments
recorded by the partnership operator of the Khalda
23
<PAGE> 24
Concession during 1992. At year-end 1991 the partnership operator of the
Khalda Concession made unusually large annual charges of non-cost-recoverable
operating expenses to the joint account. The Company's share of such charges
was recorded by the Company in the fourth quarter of 1991. During 1992 certain
adjustments were made by the partnership operator to these charges reducing
stated production costs by approximately $0.5 million.
Depreciation, depletion and amortization increased approximately $0.3
million, or 18%, in 1993 compared to 1992 primarily due to increased production
in the Khalda Concession.
Interest expense decreased approximately $1.2 million, or 90%, in 1993
compared to 1992 as a result of the early extinguishment of 10% Senior Notes
due April 9, 2000 (the "Senior Notes") in early 1992 and prepayments on a loan
from the International Finance Corporation. In 1993 the Company redeemed all
outstanding Senior Notes and wrote off the remaining unamortized discount,
resulting in an extraordinary loss of approximately $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1994 the Company's working capital (current assets
less current liabilities) was approximately $27.7 million, which included cash
and cash equivalents in the amount of approximately $26.5 million. Net cash
provided by operating activities for the year ended December 31, 1994 was
approximately $13.8 million. Cash utilized for financing activities for the
year ended December 31, 1994 was approximately $9.6 million, which was
primarily used to repurchase stock and pay dividends. The Company currently
has no long-term debt.
The Company's short-term and long-term internal sources of liquidity
are working capital and cash flow from operations. The Company does not have
an immediate need for and therefore does not have, any current arrangements for
short-term or long-term sources of external liquidity.
The Company believes that its current liquidity is sufficient to meet
its obligations during the next 12 months. Excess working capital and net cash
flow from operations would be available to fund the development of any of the
Company's exploratory successes, including the Qarun Concession; to participate
in the development of natural gas reserves in the Khalda Concession, including
the unified Western Desert natural gas pipeline project, if such project is
commenced; and to pursue other oil and gas opportunities that may be identified
by the Company. To the extent these internal sources of liquidity are deemed
to be inadequate to fund such activities, the Company believes external sources
of capital would be available.
24
<PAGE> 25
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statement of Income for each of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Balance Sheet at December 31, 1993 and 1994 . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Supplementary Information on Oil and Gas Producing Activities . . . . . . . . . . . . . . . . . 39
Schedule II -- Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . S-1
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PHOENIX RESOURCE COMPANIES, INC.:
We have audited the accompanying consolidated balance sheet of The
Phoenix Resource Companies, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Phoenix
Resource Companies, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for oil and
gas properties from the successful efforts method to the full cost method.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the Index
under Item 8 Financial Statements and Supplementary Data is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
February 10, 1995
26
<PAGE> 27
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1992 1993 1994
-------- -------- ---------
<S> <C> <C> <C>
Revenues:
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . $ 22,481 $ 22,302 $ 21,856
Revenues dedicated to foreign tax liability . . . . . . . . 10,786 10,578 10,866
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . . . 33,267 32,880 32,722
Interest income . . . . . . . . . . . . . . . . . . . . . . 542 464 935
Other income . . . . . . . . . . . . . . . . . . . . . . . . 394 681 187
-------- -------- ---------
34,203 34,025 33,844
-------- -------- ---------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . . . . . . . . 4,984 5,841 5,301
Depreciation, depletion and amortization . . . . . . . . . . 1,669 1,967 2,213
General and administrative . . . . . . . . . . . . . . . . . 2,476 2,663 2,314
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 1,321 138 --
-------- -------- ---------
10,450 10,609 9,828
-------- -------- ---------
Income before income taxes and extraordinary loss . . . . . . . 23,753 23,416 24,016
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . . . . . . . . 275 328 259
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 10,786 10,578 10,866
-------- -------- ---------
Income before extraordinary loss . . . . . . . . . . . . . . . 12,692 12,510 12,891
Extraordinary loss:
Early extinguishment of debt . . . . . . . . . . . . . . . . -- (174) --
-------- -------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 12,692 $ 12,336 $ 12,891
======== ======== =========
Income Per Share:
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . 8,380 8,500 8,216
======== ======== =========
Income before extraordinary loss . . . . . . . . . . . . . $ 1.51 $ 1.47 $ 1.57
======== ======== =========
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 1.51 $ 1.45 $ 1.57
======== ======== =========
</TABLE>
Prior years have been restated to reflect the change to full cost accounting.
The accompanying notes are an integral part of this statement.
27
<PAGE> 28
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1994
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 25,248 $ 26,536
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . 2,211 2,561
Receivable for payment of foreign taxes . . . . . . . . . . . . . . . 9,517 10,657
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 37 491
--------- ---------
37,013 40,245
--------- ---------
Property and Equipment, at cost:
Oil and gas properties (using full cost accounting) . . . . . . . . . 17,984 18,624
Other property and equipment . . . . . . . . . . . . . . . . . . . . . 1,985 1,909
--------- ---------
19,969 20,533
Less: Accumulated depreciation, depletion and amortization . . . . . . . 15,302 13,800
--------- ---------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . . . 4,667 6,733
Deferred Receivable for payment of foreign taxes . . . . . . . . . . . . 8,905 9,211
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 252
--------- ---------
$ 50,863 $ 56,441
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300 $ 1,062
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . 9,517 10,657
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 574 857
--------- ---------
10,391 12,576
--------- ---------
Long-Term Liabilities:
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . 8,905 9,211
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,269 1,096
--------- ---------
10,174 10,307
--------- ---------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 10,000 shares, 8,471
shares outstanding in 1993 and 7,854 in 1994) . . . . . . . . . . . 85 85
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,365 39,396
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . (9,152) 2,929
Treasury stock, at cost (627 shares in 1994) . . . . . . . . . . . . . -- (8,852)
--------- ---------
30,298 33,558
--------- ---------
$ 50,863 $ 56,441
========= =========
</TABLE>
Prior years have been restated to reflect the change to full cost accounting.
The accompanying notes are an integral part of this statement.
28
<PAGE> 29
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Retained Treasury Stock
----------------- Paid-in Earnings ---------------- Stockholders'
Shares Amount Capital (Deficit) Shares Amount Equity
------ ------ ------- --------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991,
AS PREVIOUSLY REPORTED . . . 8,308 $ 83 $39,360 $ (34,317) -- $ -- $ 5,126
Cumulative effect of change
in accounting principle, as
retroactively applied . . -- -- -- 137 -- -- 137
----- ------ ------- --------- --- ------- -------
BALANCE AT DECEMBER 31, 1991,
AS RESTATED . . . . . . . . . 8,308 83 39,360 (34,180) -- -- 5,263
Stock options exercised . . 181 2 (56) -- -- -- (54)
Fractional shares . . . . . -- -- (7) -- -- -- (7)
Net income . . . . . . . . -- -- -- 12,692 -- -- 12,692
----- ------ ------- --------- --- ------- -------
BALANCE AT DECEMBER 31, 1992 . 8,489 85 39,297 (21,488) -- -- 17,894
Stock options exercised . . 20 -- 68 -- -- -- 68
Shares cancelled . . . . . (38) -- -- -- -- -- --
Net income . . . . . . . . -- -- -- 12,336 -- -- 12,336
----- ------ ------- --------- --- ------- -------
BALANCE AT DECEMBER 31, 1993 . 8,471 85 39,365 (9,152) -- -- 30,298
Shares purchased . . . . . (627) -- -- -- 627 (8,852) (8,852)
Stock options exercised . . 10 -- 31 -- -- -- 31
Dividends paid, $0.10 per
share . . . . . . . . . . -- -- -- (810) -- -- (810)
Net income . . . . . . . . -- -- -- 12,891 -- -- 12,891
----- ------ ------- --------- --- ------- -------
BALANCE AT DECEMBER 31, 1994 . 7,854 $ 85 $39,396 $ 2,929 627 $ (8,852) $33,558
===== ====== ======= ========= === ======= =======
</TABLE>
Prior years have been restated to reflect the change to full cost accounting.
The accompanying notes are an integral part of this statement.
29
<PAGE> 30
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1992 1993 1994
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . $ 23,771 $ 23,274 $ 21,862
Cash paid to suppliers and employees . . . . . . . . . . . . (8,884) (9,510) (8,405)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (863) (144) --
Income taxes paid . . . . . . . . . . . . . . . . . . . . . (530) (583) (487)
Interest and other cash receipts . . . . . . . . . . . . . . 1,198 821 847
-------- -------- ---------
Net cash provided by operating activities . . . . . . . . 14,692 13,858 13,817
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures and prepaid well costs . . . . . . . . (1,176) (2,651) (2,932)
Proceeds from sales of property and equipment . . . . . . . 5 120 34
Supplemental purchase price payment . . . . . . . . . . . . 4,000 4,000 --
-------- -------- ---------
Net cash provided by (used in) investing activities . . . 2,829 1,469 (2,898)
-------- -------- ---------
Cash flows from financing activities:
Purchase of treasury stock . . . . . . . . . . . . . . . . . -- -- (8,852)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . -- -- (810)
Repayments of long-term debt . . . . . . . . . . . . . . . . (41,312) (1,704) --
Proceeds from stock options exercised . . . . . . . . . . . (132) 139 31
Reclassification of restricted cash . . . . . . . . . . . . 3,028 -- --
-------- -------- ---------
Net cash used in financing activities . . . . . . . . . . (38,416) (1,565) (9,631)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . (20,895) 13,762 1,288
Cash and cash equivalents, beginning of year . . . . . . . . . 32,381 11,486 25,248
-------- -------- ---------
Cash and cash equivalents, end of year . . . . . . . . $ 11,486 $ 25,248 $ 26,536
======== ======== =========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 12,692 $ 12,336 $ 12,891
-------- -------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . 1,669 1,967 2,213
Capitalized general and administrative . . . . . . . . . (616) (372) (604)
Interest accrued to debt principal . . . . . . . . . . . 599 13 --
Loss on early extinguishment of debt . . . . . . . . . . -- 174 --
(Gain) loss on sale of properties . . . . . . . . . . . . 142 (97) --
(Increase) decrease in accounts receivable related to
operating activities . . . . . . . . . . . . . . . . . 1,384 866 (350)
Decrease in accounts payable related to
operating activities . . . . . . . . . . . . . . . . . (701) (89) (156)
Increase (decrease) in accrued liabilities related to
operating activities . . . . . . . . . . . . . . . . . (28) (541) 283
Other noncash items . . . . . . . . . . . . . . . . . . . (449) (399) (460)
-------- -------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . 2,000 1,522 926
-------- -------- ---------
Net cash provided by operating activities . . . . . $ 14,692 $ 13,858 $ 13,817
======== ======== =========
</TABLE>
Prior years have been restated to reflect the change to full cost accounting.
The accompanying notes are an integral part of this statement.
30
<PAGE> 31
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Oil and Gas Operations - During the fourth quarter of 1994 the Company
changed its method of accounting for oil and gas operations from the successful
efforts method to the full cost method (see Note 2). Under the full cost
method, all costs associated with the acquisition, exploration and development
of oil and gas reserves, including nonproductive costs, are capitalized as
incurred. Internal overhead which is directly identified with acquisition,
exploration and development is capitalized. The Company capitalized $0.6
million, $0.4 million and $0.6 million of internal overhead for the years ended
December 31, 1992, 1993 and 1994, respectively.
The capitalized costs of oil and gas properties are accumulated in
cost centers on a country-by-country basis and are amortized using the
unit-of-production method based on proved reserves. Estimated future
development costs are included in the amortization base. Depreciation,
depletion and amortization expense per equivalent oil barrel for Egypt was
$0.88, $0.87 and $1.19 for the years ended December 31, 1992, 1993 and 1994,
respectively. Capitalized costs and estimated future development costs
associated with unevaluated properties are excluded from amortization until the
quantity of proved reserves attributable to the property has been determined or
impairment has occurred. At December 31, 1992, 1993 and 1994, the Company
excluded $0.2 million, $1 million and $1 million, respectively, of capitalized
costs related to the Qarun Concession from amortization. These costs will be
included in the amortization base as prospects within the Qarun Concession are
evaluated.
Dispositions of oil and gas properties are recorded as adjustments to
capitalized costs, with no gain or loss recognized unless such adjustments
would significantly alter the relationship between capitalized costs and proved
reserves. Accordingly, the gain on the sale of a portion of the Company's
interest in the Khalda Concession in 1989 and the subsequent supplemental
payments in 1992 and 1993 were recorded as reductions of capitalized costs with
no gain recognized.
The unamortized cost of oil and gas properties less related deferred
income tax may not exceed an amount equal to the net present value discounted
at 10% of proved oil and gas reserves plus the lower of cost or estimated fair
market value of unevaluated properties. To the extent the Company's
unamortized cost of oil and gas properties exceeded this ceiling amount, a
provision for additional depreciation, depletion and amortization would be
required.
Production Entitlements - Pursuant to the entitlement method, the
Company recognizes revenue from the Khalda Concession in the period it is
entitled to such production. Production costs are expensed as incurred. At
period-end any revenue to which the Company is entitled but has not received is
recorded as an account receivable; revenue the Company has received but is not
entitled to is recorded in current liabilities as deferred revenue. As of
December 31, 1993 and 1994 the Company had recorded an account receivable of
$0.6 million representing approximately 43,000 barrels of crude oil and $0.4
million representing approximately 23,000 barrels of crude oil, respectively.
31
<PAGE> 32
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Taxes on Income - The Company recognizes deferred tax liabilities and
assets for the expected future tax consequences, if any, of temporary
differences between the tax and financial reporting bases of the Company's
assets and liabilities.
The Company operates in two tax jurisdictions, the U.S. and Egypt.
All of the Company's Egyptian operations are conducted through wholly-owned
U.S. subsidiaries, and all income generated by the Egyptian operations is also
included in the Company's consolidated U.S. taxable income. In accordance with
the provisions of Egyptian concession agreements, EGPC's share of revenues
includes Egyptian income taxes and government royalties attributable to the
Company, which are paid directly by EGPC. Payment of these Egyptian income
taxes by EGPC creates for the Company both U.S. taxable income and foreign tax
credits (or deductions, at the option of the Company) which can be utilized to
reduce U.S. income taxes, if any, on earnings from the Company's foreign
operations.
The Company records its share of the Egyptian income tax expense and
revenue dedicated to foreign tax liabilities for the tax payment to be made on
its behalf by EGPC. Prior to 1992, no Egyptian income taxes were paid or
payable on behalf of the Company. Beginning in 1992 the Company began
recording an Egyptian deferred income tax liability, and an identical deferred
receivable, related to its share of temporary differences in reporting Egyptian
taxable income by the Company during the current and prior years.
Cash and Cash Equivalents - For the Statement of Cash Flows, the
Company considers unrestricted cash on hand and all highly liquid debt
instruments purchased with a maturity of generally three months or less to be
cash equivalents.
Foreign Currency Transactions - Nearly all transactions of the Company
and its wholly-owned subsidiaries, are made in U.S. dollars. As a result,
foreign currency exchange gains and losses, if any, are recognized in the
period incurred. Total foreign exchange gains and losses are immaterial.
NOTE 2 -- CHANGE IN ACCOUNTING PRINCIPLE:
During the fourth quarter of 1994 the Company changed its method of
accounting for oil and gas operations from the successful efforts method to the
full cost method. All prior years' financial statements and schedules
presented herein have been restated to reflect the change.
The cumulative effect of the change through December 31, 1991 was not
significant. As a result of the change in accounting method, net income for
the years ended December 31, 1992 and 1993 decreased $1.8 million ($0.22 per
share) and $2.8 million ($0.32 per share), respectively, and for the year ended
December 31, 1994 increased $1.7 million ($0.21 per share).
Management believes the full cost method of accounting is preferable
because it will more accurately reflect the results of the Company's future
operations and the effects of the economic provisions of the Company's Egyptian
concession agreements. Previously, as the Khalda Concession was being explored
and developed, the Company's investment was minimal as a result of the operator
partner bearing substantially all of the capital costs; therefore, the method
of accounting had little effect on the financial statements of the Company. As
a result of the Company acquiring full participating interests in the Qarun
Concession and the South Khalda block, and the potential for increased activity
related to natural gas in the Khalda Concession, in which the Company is a full
participating partner, the Company's exploration expenditures will likely
increase significantly. Under the various concession agreements it is likely
that a large portion of the Company's future exploration expenditures, whether
or not
32
<PAGE> 33
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
productive, will be recoverable from future production, and under such
circumstances it is more appropriate and preferable that nonproductive costs
(i.e., seismic and dry hole costs) be capitalized, as allowed by the full cost
method, rather than expensed, as required by the successful efforts method.
NOTE 3 -- EGYPTIAN OPERATIONS:
Khalda Concession - The Khalda Concession is governed by the Khalda
Concession Agreement, a production sharing arrangement authorized and approved
by the Egyptian Parliament. The Company, Repsol and Samsung are jointly
referred to as the Khalda Partners. The Khalda Concession is operated by
Khalda Petroleum Company, an Egyptian corporation, the equity ownership of
which is shared equally by the Khalda Partners and EGPC.
Under the Khalda Concession Agreement, the Khalda Partners pay all
operating and capital costs associated with the Khalda Concession and these
costs are recoverable from production. Up to 40% of oil and gas production is
available to the Khalda Partners to recover their costs. Operating costs are
recoverable on a current basis and capital costs are recoverable over four
years, assuming sufficient production. Remaining production is divided
pursuant to a formula so that at least 75% goes to EGPC and the balance to the
Khalda Partners. EGPC is required to pay from its share of production, on
behalf of the Khalda Partners, all Egyptian government royalties and income
taxes imposed on the Khalda Partners.
The economic relationships among the Khalda Partners are governed
principally by the Khalda Concession farmout agreement, as amended in 1989. As
a general rule, the Khalda Partners' rights and obligations are split 50% to
Repsol, 40% to the Company and 10% to Samsung, except: (i) Repsol is obligated
to pay 100% of a significant portion of the capital expenditures (generally,
those pertaining to the exploration and development of crude oil, as opposed to
natural gas) and (ii) operating expenses are recovered from cost recovery oil
and gas on a current basis, and all remaining cost recovery oil and gas is
divided proportionate to the aggregate unrecovered capital costs of each
entity.
South Khalda - In January 1995 the Khalda Partners reached an
agreement with EGPC whereby the Khalda Partners will be awarded the right to
conduct petroleum activities in the South Khalda block. The South Khalda
block, which contains 2.1 million acres, adjoins and generally surrounds the
existing Khalda Concession acreage. Under the proposed agreement, which is
subject to approval of the Egyptian Parliament, the Khalda Partners will drill
at least seven wells and spend a minimum of $8 million during the initial
exploration phase of four years and pay a signature bonus of $1 million. The
proposed agreement would be in the form of an amendment to the Khalda
Concession Agreement and would provide for a unitization of the cost recovery
and profit sharing mechanisms of the Khalda Concession if commercial production
from the new area is established. All costs are to be split 50%, 40% and 10%
among Repsol, the Company and Samsung, respectively.
Qarun Concession - In April 1993 the Qarun Partners were awarded the
right to conduct petroleum exploration activities on the Qarun Concession, a
1.9 million acre block located immediately southwest of Cairo. The Company is
the partnership operator and owns a 50% interest, with subsidiaries of Apache
Corporation and Global Natural Resources each owning 25%. Through December 31,
1994 the Company's share of costs in the Qarun Concession totaled $4.7 million.
33
<PAGE> 34
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- CAPITAL STOCK AND OPTIONS:
Capital Stock - A two-for-one split of the number of shares of Common
Stock outstanding was effective January 1995. All references in the
accompanying financial statements and notes to the number of common shares and
per share amounts have been restated to reflect the split.
As of December 31, 1994 there were 8,480,960 shares of $0.01 par value
Common Stock issued, of which 7,854,098 were outstanding and 671,000 shares of
Common Stock were reserved for issuance upon exercise of the options described
below. As of December 31, 1993 there were 8,470,962 shares of Common Stock
issued and outstanding and 681,000 shares of Common Stock reserved for issuance
upon exercise of the options described below.
A total of 5,000,000 shares of $0.01 par value preferred stock are
authorized, none of which were outstanding at December 31, 1993 or 1994.
In conjunction with the March 1994 secondary public offering of 30% of
the Company's Common Stock, the Company purchased 257,602 shares of its Common
Stock at $13.47 per share. Also during 1994, the Company purchased 369,260
shares of its Common Stock in open market transactions at an average price of
$14.58 per share. All such shares are held as Treasury Stock.
Stock Options - The 1990 Employee Stock Option Plan ("Employee Stock
Option Plan") and the 1990 Nonemployee Director Stock Option Plan, as amended
("Director Stock Option Plan"), were established April 9, 1990. The Employee
Stock Option Plan authorizes the grant of options to purchase Common Stock to
employees of the Company. The exercise price of the options granted may not be
less than the fair market value on the date of the grant. At December 31, 1993
and 1994 shares of Common Stock reserved for issuance pursuant to the Employee
Stock Option Plan totaled 541,000 and 537,000, respectively.
The Director Stock Option Plan authorizes the grant of options to
purchase 6,000 shares of Common Stock to each director of the Company, who is
not otherwise an employee of the Company, upon election to the Board of
Directors. The Plan also provides that each nonemployee director of the
Company be granted additional options covering a sufficient number of shares of
Common Stock, so that after such grant such nonemployee director would hold in
the aggregate, including all options previously granted to such nonemployee
director that remain unexercised, options covering at least 6,000 shares of
Common Stock. The exercise price of options granted is the closing price of
the shares of Common Stock on the date of the grant of such options. At
December 31, 1993 and 1994 shares of Common Stock reserved for issuance
pursuant to the Director Stock Option Plan totaled 140,000 and 134,000,
respectively.
34
<PAGE> 35
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Information on the status of options is in the following table.
<TABLE>
<CAPTION>
Employee Plan Director Plan
--------------------- ------------------------
Option Price Option Price
Shares Per Share Shares Per Share
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
OUTSTANDING DECEMBER 31, 1992 . . . . . 35,000 $ 3.13 14,000 $ 3.13 - 8.13
Granted . . . . . . . . . . . . . . -- $ -- 3,000 $ 17.50
Exercised . . . . . . . . . . . . . (14,000) $ 3.13 (6,000) $ 3.13 - 8.13
Cancelled . . . . . . . . . . . . . -- $ -- (2,000) $ 8.13
------ ------
OUTSTANDING DECEMBER 31, 1993 . . . . . 21,000 $ 3.13 9,000 $ 3.13 - 17.50
Granted . . . . . . . . . . . . . . 370,000 $ 13.19 - 20.13 40,000 $ 12.25
Exercised . . . . . . . . . . . . . (4,000) $ 3.13 (6,000) $ 3.13
------ ------
OUTSTANDING DECEMBER 31, 1994 . . . . . 387,000 $ 3.13 - 20.13 43,000 $ 12.25 - 17.50
======= ======
Exercisable at:
December 31, 1993 . . . . . . . . . 21,000 $ 3.13 6,000 $ 3.13
December 31, 1994 . . . . . . . . . 17,000 $ 3.13 1,000 $ 17.50
</TABLE>
NOTE 5 -- INCOME TAXES:
At December 31, 1994 the Company had net operating loss carryforwards
of approximately $181 million, subject to the significant limitations described
below. These amounts could be carried forward and would expire in varying
amounts from 1997 through 2004 if not utilized. Although the Company does not
expect to be able to utilize a significant portion of its net operating loss
carryforwards, the Company expects to generate future foreign tax credits,
which will be derived from Egyptian tax payments paid on the Company's behalf
by EGPC, sufficient to more than offset the future U.S. income taxes, excluding
alternative minimum taxes, on its operations. The Company expects to pay
future income taxes, excluding Egyptian income taxes paid on its behalf by
EGPC, equal to approximately 2% of its pretax income which represents U.S.
alternative minimum taxes.
In accordance with the Tax Reform Act of 1986, usage of net operating
loss carryforwards is subject to limitations in future years if certain
ownership changes occur. Such ownership changes have occurred. During the
period following the ownership change, the limitation is the sum of (i) an
annual amount (estimated to be approximately $4 million) determined by the
value of the Company immediately before the ownership change, adjusted to
reflect the increase in value resulting from the cancellation of indebtedness
resulting from the reorganization, multiplied by a statutorily determined
interest rate; and (ii) the amount of built-in gains realized during the
five-year period following the ownership change. The Company's built-in gain
is the amount by which the fair market value of its assets exceeded tax basis
at the time of the ownership change. The net operating loss carryforward and
the amount available for utilization are subject to review and possible
adjustment by the Internal Revenue Service.
Pretax financial reporting income for the years shown was taxable
under the following jurisdictions:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
U.S. . . . . . . . . . . . . . . $(2,845) $(1,445) $(1,520)
Egypt . . . . . . . . . . . . . 26,598 24,861 25,536
------- ------- -------
Total . . . . . . . . . . . . $23,753 $23,416 $24,016
======= ======= =======
</TABLE>
35
<PAGE> 36
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Income from the Company's Egyptian operations is also taxable in the U.S., but
is not included in the amounts stated above for the U.S. The 1992, 1993 and
1994 financial reporting income for Egypt includes the revenue dedicated to
payment of foreign taxes of approximately $10.8 million, $10.6 million and
$10.9 million, respectively.
The provision for income taxes for the years shown was comprised of
the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Current tax expense:
U.S. alternative minimum tax . . . . . $ 275 $ 328 $ 259
Foreign--Egyptian . . . . . . . . . . . 25,790 12,990 10,560
Deferred tax expense (benefit):
Foreign--Egyptian . . . . . . . . . . . (15,004) (2,412) 306
-------- --------- ---------
Total provision . . . . . . . . . . . . . $ 11,061 $ 10,906 $ 11,125
======== ========= =========
</TABLE>
The provision for income taxes for the years shown differs from the
amount of income tax determined by applying the U.S. statutory federal income
tax rate to pretax income as a result of the following differences:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Statutory U.S. tax rate . . . . . . . . . . . . . . . . . . . . 34.00% 35.00% 35.00%
Increase (decrease) in rate resulting from:
Egyptian tax on Egyptian earnings . . . . . . . . . . . . . 45.41% 45.17% 45.24%
Realization of net operating loss carryforward benefits . . (32.84%) (33.60%) (33.92%)
------- ------ ------
Effective tax rate . . . . . . . . . . . . . . . . . . . 46.57% 46.57% 46.32%
======= ====== ======
</TABLE>
Deferred U.S. and Egyptian tax assets (liabilities) are comprised of
the following at the dates shown:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------
1993 1994
--------------------- -------------------
U.S. Egyptian U.S. Egyptian
--------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Depreciation, depletion and amortization . . . $ 2,558 $ (4,391) $ 1,774 $ (4,520)
Capitalized interest and overhead . . . . . . 155 -- 169 --
Net operating loss carryforwards . . . . . . . 67,900 -- 63,394 --
AMT carryover . . . . . . . . . . . . . . . . 2,463 -- 2,709 --
Khalda Concession Agreement . . . . . . . . . -- (4,514) -- (4,691)
--------- -------- -------- --------
Gross deferred tax assets (liabilities) . . 73,076 (8,905) 68,046 (9,211)
Deferred tax asset valuation allowance . . . . (73,076) -- (68,046) --
--------- -------- -------- --------
Net deferred tax assets (liabilities) . . $ -- $ (8,905) $ -- $ (9,211)
========= ======== ======== ========
</TABLE>
The change in the valuation allowance during 1993 and 1994 was a
decrease of $3.5 million and $5 million, respectively, resulting primarily from
the realization of net operating loss carryforwards. No benefit for the
remaining U.S. net operating loss carryforwards or the other U.S. deferred tax
assets has been recognized in the accompanying financial statements, as the
Company believes, based on its current operations, its current proved reserves
and existing income tax laws and regulations, no incremental future tax
benefits will be derived.
36
<PAGE> 37
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- QUARTERLY RESULTS OF OPERATIONS:
The unaudited results of operations for the quarterly periods of 1994
are summarized below. The first, second and third quarters have been restated
to reflect the change to full cost accounting. As a result of the change in
accounting method, net income for the first, second, third and fourth quarter
increased $1 million ($0.13 per share), $0.3 million ($0.04 per share), $0.2
million ($0.03 per share) and $0.2 million ($0.03 per share), respectively.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- ------
(In thousands, except per share amounts, oil price
and average daily gross production)
<S> <C> <C> <C> <C> <C>
Oil and gas revenues . . . . . . . . . . . . . . . . $ 4,474 $ 5,786 $ 5,925 $ 5,671 $ 21,856
Revenues dedicated to foreign tax liability . . . . . 2,222 2,767 2,977 2,900 10,866
Other revenues . . . . . . . . . . . . . . . . . . . 241 245 287 349 1,122
-------- ------- -------- ------- --------
6,937 8,798 9,189 8,920 33,844
-------- ------- -------- ------- --------
Production costs . . . . . . . . . . . . . . . . . . 1,102 1,656 1,519 1,024 5,301
Other costs and expenses . . . . . . . . . . . . . . 1,120 943 953 1,511 4,527
-------- ------- -------- ------- --------
2,222 2,599 2,472 2,535 9,828
-------- ------- -------- ------- --------
Income before income taxes . . . . . . . . . . . . . 4,715 6,199 6,717 6,385 24,016
Provision for income taxes . . . . . . . . . . . . . 2,274 2,837 3,047 2,967 11,125
-------- ------- -------- ------- --------
Net income . . . . . . . . . . . . . . . . . . . . . $ 2,441 $ 3,362 $ 3,670 $ 3,418 $ 12,891
======== ======= ======== ======= ========
Net income, per share . . . . . . . . . . . . . . . . $ 0.29 $ 0.41 $ 0.46 $ 0.43 $ 1.57
======== ======= ======== ======= ========
Average daily gross oil production--Khalda . . . . . 31,244 32,917 34,008 32,724 32,731
Average oil price--Khalda . . . . . . . . . . . . . $ 14.08 $ 15.91 $ 16.24 $ 16.47 $ 15.72
</TABLE>
NOTE 7 -- COMMITMENTS AND CONTINGENCIES:
The Company conducts almost all of its business in Egypt. The
business environment in foreign countries varies greatly. Relevant factors
include the laws of a country, its political stability, the political stability
of its region of the world, its attitude toward foreign investments,
availability and skill of its work force and the technological sophistication
of its business community. Adverse developments in the business environment in
Egypt would likely have a material adverse effect on the Company. The Company
does not insure against political risks. The carrying amount of identifiable
assets (excluding cash and cash equivalents in U.S. banks and intercompany
balances) of the Company's foreign operations at December 31, 1993 and 1994
totaled $25 million and $29.4 million (including approximately $18.4 million
and $19.9 million related to receivables for payment of foreign taxes which are
offset by an equal amount of foreign tax liabilities), respectively.
Egypt retains the right of requisition of production from Egyptian
concessions and cancellation of the concession agreements upon the occurrence
of specific events, including a national emergency due to war, imminent
expectation of war or internal causes, unauthorized assignment of interests in
the concession, the concession holder being adjudicated bankrupt by a court of
competent jurisdiction and intentional extraction of any mineral not authorized
by the concession agreement. Requisition or cancellation of the Company's
concession agreements as a result of the foregoing or for any other reasons
would have a material adverse effect on the Company.
A portion of the Company's operating revenues represents the sale of
crude oil produced from the Khalda Concession and allocated to the Company for
reimbursement of operating, development and exploration costs. These costs are
subject to review and approval by EGPC.
37
<PAGE> 38
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Management does not expect the amount of costs rejected for reimbursement by
EGPC to have a material adverse effect on the Company's financial position or
results of operations.
Various lawsuits are pending against the Company. Management is of
the opinion, based on advice of independent legal counsel, that the ultimate
outcome of all pending litigation is highly unlikely to have a material effect
on the financial position or results of operations of the Company.
The Company is committed, under certain circumstances, to pay $1.7
million pursuant to various employment contracts with certain key employees.
NOTE 8 -- SALES TO MAJOR CUSTOMERS:
Sales to EGPC accounted for 97%, 96% and 99% of the Company's
consolidated oil and gas revenues in 1992, 1993 and 1994, respectively.
38
<PAGE> 39
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
The information in this section is based on engineering estimates of
oil and gas reserves, using the methods and assumptions prescribed by the SEC
for such calculations. Assumed sales prices of hydrocarbons were, as required,
those prices in effect at the respective dates indicated, with no effect given
to price changes which have occurred since those dates or to potential
increases or decreases in prices. The estimation of oil and gas reserves is
not an exact science. Estimates of economically recoverable oil and gas
reserves and of the future net revenues from those reserves depend on a number
of assumptions, all of which may, and frequently do, vary materially from
actual results.
EGPC's share of production includes Egyptian income taxes and
government royalties attributable to the Company which are paid directly by
EGPC. The reserve information presented in the following tables does not
include reserves attributable to such payments on behalf of the Company by
EGPC, nor does the information regarding reserve values include any deductions
for Egyptian income taxes.
The value of proved natural gas quantities shown in the table below
has been reduced to account for the currently limited access to natural gas
markets.
Net proved reserves of crude oil and natural gas of the Company were
estimated as of December 31, 1992, 1993 and 1994 by independent petroleum
engineers, Netherland, Sewell & Associates, Inc., of Dallas, Texas.
VALUES OF RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
Future Net Revenues (In thousands)
-----------------------------------------------------------------------
Total Present Value
(Undiscounted) (Discounted at 10%)
At December 31, At December 31,
---------------------------------- ----------------------------------
1992 1993 1994 1992 1993 1994
-------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved Developed
Producing:
United States . . . $ 950 $ 971 $ -- $ 888 $ 849 $ --
Egypt . . . . . . . 66,329 49,978 52,168 49,948 38,402 41,769
-------- --------- --------- -------- -------- ---------
Subtotal . . . . . 67,279 50,949 52,168 50,836 39,251 41,769
-------- --------- --------- -------- -------- ---------
Proved Developed
Nonproducing:
Egypt . . . . . . . 12,950 17,112 18,930 8,898 10,519 10,748
-------- --------- --------- -------- -------- ---------
Proved Undeveloped:
Egypt . . . . . . . 44,641 27,973 77,602 13,790 5,012 27,522
-------- --------- --------- -------- -------- ---------
Total Proved Reserves:
United States . . . 950 971 -- 888 849 --
Egypt . . . . . . . 123,920 95,063 148,700 72,636 53,933 80,039
-------- --------- --------- -------- -------- ---------
TOTAL PROVED RESERVES . . $124,870 $ 96,034 $ 148,700 $ 73,524 $ 54,782 $ 80,039
======== ========= ========= ======== ======== =========
Assumed Egyptian
Oil Price . . . . . $ 17.56 $ 13.47 $ 15.73 $ 17.56 $ 13.47 $ 15.73
</TABLE>
39
<PAGE> 40
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (Continued)
RESERVE QUANTITY INFORMATION (UNAUDITED)
Oil and gas quantities for Egypt include reserves attributable to the
Company's rights to recover past and future costs, which quantities vary with
price assumptions and cost estimates. In accordance with SEC requirements, the
assumed Egyptian oil price for estimates made as of December 31, 1992, 1993 and
1994 was $17.56, $13.47 and $15.73, respectively. Oil includes oil and gas
condensate and is stated in thousands of barrels; gas is stated in millions of
cubic feet and includes all gas produced, whether or not sold.
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
------------ -------------- --------------
OIL GAS OIL GAS OIL GAS
--- ---- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Proved Reserves:
----------------
Beginning balance . . . . . . . . 81 340 8,677 14,750 8,758 15,090
Revisions of previous estimates . (18) 31 173 5,108 155 5,139
Extensions, discoveries and
other additions . . . . . . . . -- -- 1,773 1,509 1,773 1,509
Production . . . . . . . . . . . (25) (136) (1,183) (1,071) (1,208) (1,207)
--- ---- ------ ------ ------ ------
Ending balance . . . . . . . . 38 235 9,440 20,296 9,478 20,531
=== ==== ====== ====== ====== ======
Proved Developed Reserves:
--------------------------
Beginning balance . . . . . . . . 81 340 6,245 2,494 6,326 2,834
=== ==== ====== ====== ====== ======
Ending balance . . . . . . . . . 38 235 6,845 3,325 6,883 3,560
=== ==== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1993
Proved Reserves:
----------------
Beginning balance . . . . . . . . 38 235 9,440 20,296 9,478 20,531
Revisions of previous estimates . 42 45 1,691 4,628 1,733 4,673
Extensions, discoveries and
other additions . . . . . . . . -- -- 874 5,787 874 5,787
Production . . . . . . . . . . . (25) (171) (1,326) (1,414) (1,351) (1,585)
--- ---- ------ ------ ------ ------
Ending balance . . . . . . . . 55 109 10,679 29,297 10,734 29,406
=== ==== ====== ====== ====== ======
Proved Developed Reserves:
--------------------------
Beginning balance . . . . . . . . 38 235 6,845 3,325 6,883 3,560
=== ==== ====== ====== ====== ======
Ending balance . . . . . . . . . 55 109 8,278 4,228 8,333 4,337
=== ==== ====== ====== ====== ======
YEAR ENDED DECEMBER 31, 1994
Proved Reserves:
----------------
Beginning balance . . . . . . . . 55 109 10,679 29,297 10,734 29,406
Revisions of previous estimates . (43) (89) (733) (2,403) (776) (2,492)
Extensions, discoveries and
other additions . . . . . . . . -- -- 6,575 649 6,575 649
Production . . . . . . . . . . . (4) (18) (1,355) (1,762) (1,359) (1,780)
Sales of reserves in place . . . (8) (2) -- -- (8) (2)
--- ---- ------ ------ ------ ------
Ending balance . . . . . . . . -- -- 15,166 25,781 15,166 25,781
=== ==== ====== ====== ====== ======
Proved Developed Reserves:
-------------------------
Beginning balance . . . . . . . . 55 109 8,278 4,228 8,333 4,337
=== ==== ====== ====== ====== ======
Ending balance . . . . . . . . . -- -- 6,810 3,244 6,810 3,244
=== ==== ====== ====== ====== ======
</TABLE>
40
<PAGE> 41
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (Continued)
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
-------- -------- -------
<S> <C> <C> <C>
DECEMBER 31, 1993
Proved . . . . . . . . . . . . . . . . . . . . . . $ 3,663 $ 13,358 $17,021
Unproved . . . . . . . . . . . . . . . . . . . . . -- 963 963
-------- -------- -------
3,663 14,321 17,984
Accumulated DD&A . . . . . . . . . . . . . . . . . 3,416 10,017 13,433
-------- -------- -------
Net capitalized costs . . . . . . . . . . . . . $ 247 $ 4,304 $ 4,551
======== ======== =======
DECEMBER 31, 1994
Proved . . . . . . . . . . . . . . . . . . . . . . $ -- $ 17,620 $17,620
Unproved . . . . . . . . . . . . . . . . . . . . . -- 1,004 1,004
-------- -------- -------
-- 18,624 18,624
Accumulated DD&A . . . . . . . . . . . . . . . . . -- 11,984 11,984
-------- -------- -------
Net capitalized costs . . . . . . . . . . . . . $ -- $ 6,640 $ 6,640
======== ======== =======
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
------ ------ ------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ 1 $ 800 $ 801
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 439 439
YEAR ENDED DECEMBER 31, 1993
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ 59 $2,941 $3,000
Development costs . . . . . . . . . . . . . . . . . . . . . . 35 (13) 22
YEAR ENDED DECEMBER 31, 1994
Exploration costs . . . . . . . . . . . . . . . . . . . . . . $ -- $4,059 $4,059
Development costs . . . . . . . . . . . . . . . . . . . . . . -- 244 244
</TABLE>
41
<PAGE> 42
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (Continued)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves was calculated based on prices and economic
conditions in effect at each respective year-end. The standardized measure of
discounted future net cash flows should not necessarily be equated with the
fair market value of the Company's oil and gas reserves.
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
-------- --------- ----------
(In thousands)
<S> <C> <C> <C>
DECEMBER 31, 1992
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ 1,176 $ 193,542 $ 194,718
Future production and development costs . . . . . . . . . . . . (226) (69,622) (69,848)
-------- --------- ----------
Future net cash flows . . . . . . . . . . . . . . . . . . . 950 123,920 124,870
10% annual discount for estimated timing of net cash flow . . . (62) (51,284) (51,346)
-------- --------- ----------
Standardized measure of discounted future net cash flows . . $ 888 $ 72,636 $ 73,524
======== ========= ==========
DECEMBER 31, 1993
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ 1,131 $ 171,554 $ 172,685
Future production and development costs . . . . . . . . . . . . (160) (76,491) (76,651)
-------- --------- ----------
Future net cash flows . . . . . . . . . . . . . . . . . . . 971 95,063 96,034
10% annual discount for estimated timing of net cash flow . . . (122) (41,130) (41,252)
-------- --------- ----------
Standardized measure of discounted future net cash flows . . $ 849 $ 53,933 $ 54,782
======== ========= ==========
DECEMBER 31, 1994
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . $ -- $ 282,892 $ 282,892
Future production and development costs . . . . . . . . . . . . -- (134,192) (134,192)
-------- --------- ----------
Future net cash flows . . . . . . . . . . . . . . . . . . . -- 148,700 148,700
10% annual discount for estimated timing of net cash flow . . . -- (68,661) (68,661)
-------- --------- ----------
Standardized measure of discounted future net cash flows . . $ -- $ 80,039 $ 80,039
======== ========= ==========
</TABLE>
Following are the principal sources of changes in the standardized
measure of discounted future net cash flows during the years shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . $ 64,326 $ 73,524 $ 54,782
Sales and transfers, net of production costs . . . . . . . . . (17,497) (16,461) (16,555)
Net changes in sales prices, net of production costs . . . . . 4,957 (21,181) 22,425
Extensions, discoveries and improved recovery,
net of future production and development costs . . . . . . . 17,511 5,015 22,048
Changes in estimated future development costs . . . . . . . . . 93 (2,080) --
Development costs accrued in the prior year but
incurred in the current year . . . . . . . . . . . . . . . . 439 -- --
Revisions of quantity estimates . . . . . . . . . . . . . . . . 5,931 10,447 (6,556)
Accretion of discount . . . . . . . . . . . . . . . . . . . . . 6,433 7,353 5,393
Sales of reserves in place . . . . . . . . . . . . . . . . . . -- -- (102)
Changes in production rates (timing) and other . . . . . . . . (8,669) (1,835) (1,396)
-------- -------- ---------
Ending balance . . . . . . . . . . . . . . . . . . . . . . $ 73,524 $ 54,782 $ 80,039
======== ======== =========
</TABLE>
In the tables above, no U.S. income tax expense is provided due to the
utilization of net operating loss carryforward, the availability of future
foreign tax credits and the insignificance of alternative minimum tax.
Egyptian income taxes on Egyptian concession taxable income and revenue
attributable to the payment on behalf of the Company by EGPC of the Company's
share of Egyptian income taxes have been excluded.
42
<PAGE> 43
SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (Continued)
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
(EXCLUDING CORPORATE OVERHEAD AND INTEREST)
(In thousands)
<TABLE>
<CAPTION>
U.S. EGYPT TOTAL
-------- -------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 760 $ 21,721 $ 22,481
Revenues dedicated to foreign tax liability . . . . . . -- 10,786 10,786
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . 760 32,507 33,267
Production costs . . . . . . . . . . . . . . . . . . . . (217) (4,767) (4,984)
Depreciation, depletion and amortization . . . . . . . . (431) (1,195) (1,626)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,786) (10,786)
-------- -------- ---------
Results of operations from producing activities . . . . $ 112 $ 15,759 $ 15,871
======== ======== =========
YEAR ENDED DECEMBER 31, 1993
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 839 $ 21,463 $ 22,302
Revenues dedicated to foreign tax liability . . . . . . -- 10,578 10,578
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . 839 32,041 32,880
Production costs . . . . . . . . . . . . . . . . . . . . (228) (5,613) (5,841)
Depreciation, depletion and amortization . . . . . . . . (533) (1,361) (1,894)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,578) (10,578)
-------- -------- ---------
Results of operations from producing activities . . . . $ 78 $ 14,489 $ 14,567
======== ======== =========
YEAR ENDED DECEMBER 31, 1994
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 108 $ 21,748 $ 21,856
Revenues dedicated to foreign tax liability . . . . . . -- 10,866 10,866
-------- -------- ---------
Operating revenues . . . . . . . . . . . . . . . . . . 108 32,614 32,722
Production costs . . . . . . . . . . . . . . . . . . . . (120) (5,181) (5,301)
Depreciation, depletion and amortization . . . . . . . . (212) (1,966) (2,178)
Egyptian tax provision . . . . . . . . . . . . . . . . . -- (10,866) (10,866)
-------- -------- ---------
Results of operations from producing activities . . . . $ (224) $ 14,601 $ 14,377
======== ======== =========
</TABLE>
Prior years have been restated to reflect the change to full cost
accounting. In the tables above, no U.S. income tax expense is provided due
to the utilization of net operating loss carryforward, the availability of
future foreign tax credits and the insignificance of alternative minimum tax.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
43
<PAGE> 44
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
The information required by this item is contained in the definitive
proxy material of the Company to be filed in connection with its 1995 Annual
Meeting of Stockholders, except for the information regarding executive
officers of the Company which is contained in Part I of this Annual Report on
Form 10-K. The information required by this item contained in such definitive
proxy material is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1995 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1995 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the definitive
proxy statement of the Company to be filed in connection with its 1995 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C>
(A)(1) FINANCIAL STATEMENTS
See Index to Financial Statements of Registrant contained in Item 8 . . . . . . . 25
(A)(2) FINANCIAL STATEMENT SCHEDULES
See Index to Financial Statements of Registrant contained in Item 8 . . . . . . . 25
</TABLE>
(A)(3) EXHIBITS
3(a)(1) Restated Certificate of Incorporation of the
Registrant, Amended and Restated as of April 9,
1990, was filed as Exhibit 3(a) to Annual Report on
Form 10-K for the year ended December 31, 1989, and
is hereby incorporated herein by reference.
3(a)(2) Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of The Phoenix Resource
Companies, Inc., as of May 11, 1992 was filed as
Exhibit 3(a)(2) to Annual Report on Form 10-K for
the year ended December 31, 1992, and is hereby
incorporated herein by reference.
44
<PAGE> 45
3(a)(3) Amended ByLaws of the Registrant as of April 9, 1990
were filed as Exhibit 3(b) to Annual Report on Form
10-K for the year ended December 31, 1989, and are
hereby incorporated herein by reference.
4 Specimen of certificate representing Common Stock,
$0.01 par value per share was filed as Exhibit 4(a)
to Annual Report on Form 10-K for the year ended
December 31, 1992, and is hereby incorporated herein
by reference.
10(a)(1) 1990 Employee Stock Option Plan of the Registrant
was filed as Exhibit 10(a)(1) to Annual Report on
Form 10-K for the year ended December 31, 1989, and
is hereby incorporated herein by reference.
10(a)(2) 1990 Nonemployee Director Stock Option Plan of the
Registrant, as amended through May 11, 1994.
10(b)(1) Concession Agreement for Petroleum Exploration and
Exploitation in Khalda Area in the Western Desert of
Egypt by and among the Arab Republic of Egypt, the
Egyptian General Petroleum Corporation and Phoenix
Resources Company was filed as Exhibit 19(g) to
Annual Report on Form 10-K for the year ended
December 31, 1984, and is hereby incorporated herein
by reference.
10(b)(2) Amendment to Concession Agreement for Petroleum
Exploration and Exploitation in Khalda Area in the
Western Desert of Egypt by and among the Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company was filed
as Exhibit 10(d)(4) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989, and is hereby
incorporated herein by reference.
10(b)(3) Khalda Concession Area Farmout Agreement by and
between Phoenix Resources Company of Egypt and
Conoco Khalda Inc., dated September 13, 1985, was
filed as Exhibit 10.1 to Registration Statement No.
33-1069, and is hereby incorporated herein by
reference.
10(b)(4) Amendment to Khalda Concession Area Farmout
Agreement by and between Phoenix Resources Company
of Egypt and Conoco Khalda Inc. was filed as Exhibit
10(d)(5) to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, and is hereby
incorporated herein by reference.
10(c) Concession Agreement for Petroleum Exploration and
Exploitation Between The Arab Republic of Egypt and
Egyptian General Petroleum Corporation and Phoenix
Resources Company of Qarun and Apache Oil Egypt,
Inc. in the Qarun Area, Western Desert, A.R.E. was
filed as Exhibit 10(b) to Annual Report on Form 10-K
for the year ended December 31, 1993, and is hereby
incorporated herein by reference.
10(d)(1) Employment and Severance Agreement dated April 19,
1994, effective April 24, 1994, by and between the
Registrant and George D. Lawrence Jr. was filed as
Exhibit 10 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994, and is hereby
incorporated herein by reference.
10(d)(2) Employment Agreement dated January 1, 1995, by and
between the Registrant and Mark W. Anschutz.
10(d)(3) Employment Agreement dated January 1, 1995, by and
between the Registrant and John E. Bruno.
10(d)(4) Employment Agreement dated January 1, 1995, by and
between the Registrant and Inmann T. Dabney, Jr.
45
<PAGE> 46
10(d)(5) Employment Agreement dated January 1, 1995, by and
between the Registrant and Cheryl A. Rich.
10(d)(6) Employment Agreement dated January 1, 1995, by and
between the Registrant and Michael C. Nemec.
18 Preferability letter of Arthur Andersen LLP.
21 Subsidiaries of Registrant.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Netherland, Sewell & Associates, Inc.
27 Financial Data Schedule.
The exhibits listed herein will be furnished to any security holder upon
written request for such exhibit, to the Corporate Secretary, The Phoenix
Resource Companies, Inc., 6525 North Meridian Avenue, Suite 102, Oklahoma City,
Oklahoma 73116-1491, and payment of any reasonable expenses incurred by the
Company.
(B) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by the Registrant during the
fourth quarter of 1994.
46
<PAGE> 47
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
George D. Lawrence Jr. and Patricia J. Murano, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE PHOENIX RESOURCE COMPANIES, INC.
(Registrant)
By /s/ GEORGE D. LAWRENCE JR.
George D. Lawrence Jr.
President and Chief Executive Officer
Date: February 16, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ George D. Lawrence Jr.
George D. Lawrence Jr.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: February 16, 1995
By: /s/ Cheryl A. Rich
Cheryl A. Rich
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 16, 1995
47
<PAGE> 48
By: /s/ Joseph A. Pardo
Joseph A. Pardo
Chairman of the Board of Directors
Date: February 16, 1995
By: /s/ Galal P. Doss
Galal P. Doss
Director
Date: February 16, 1995
By: /s/ Francis L. Durand
Francis L. Durand
Director
Date: February 16, 1995
By: /s/ Lawrence M. Miller
Lawrence M. Miller
Director
Date: February 16, 1995
By: /s/ Rex A. Sebastian
Rex A. Sebastian
Director
Date: February 16, 1995
48
<PAGE> 49
SCHEDULE II
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance
Beginning at End
of Year Additions Deductions of Year
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
Allowance for doubtful accounts . . . . . $ 166 $ -- $ 78 $ 88
Deferred tax asset valuation allowance . . -- 78,861 2,287 76,574
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts . . . . . $ 88 $ -- $ 88 $ --
Deferred tax asset valuation allowance . . 76,574 -- 3,498 73,076
YEAR ENDED DECEMBER 31, 1994
Deferred tax asset valuation allowance . . $73,076 $ -- $ 5,030 $ 68,046
</TABLE>
S-1
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
<S> <C> <C>
10(a)(2) The Phoenix Resource Companies, Inc. 1990 Nonemployee Director
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(d)(2) Employment Agreement by and between the Registrant and
Mark W. Anschutz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(d)(3) Employment Agreement by and between the Registrant and
John E. Bruno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(d)(4) Employment Agreement by and between the Registrant and
Inmann T. Dabney, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(d)(5) Employment Agreement by and between the Registrant and
Cheryl A. Rich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10(d)(6) Employment Agreement by and between the Registrant and
Michael C. Nemec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 Preferability Letter of Arthur Andersen LLP. . . . . . . . . . . . . . . . . . .
21 Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . .
23(a) Consent of Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . .
23(b) Consent of Netherland, Sewell & Associates, Inc. . . . . . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 1
EXHIBIT 10(a)(2)
1990 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
THE PHOENIX RESOURCE COMPANIES, INC.
(EFFECTIVE APRIL 9, 1990)
AS AMENDED THROUGH MAY 11, 1994
1. Purpose of the Plan.
This 1990 Nonemployee Director Stock Option Plan (the "Plan") is
intended as an incentive to retain as independent directors on the
Board of Directors of The Phoenix Resource Companies, Inc., a Delaware
corporation (the "Company"), persons of training, experience and
ability, to attract new directors whose services are considered
unusually valuable, to encourage the sense of proprietorship of such
persons and to stimulate the active interest of such persons in the
development and financial success of the Company. It is further
intended that the options issued pursuant to this Plan will not be
incentive stock options as that term is defined in Section 422A of the
Internal Revenue Code.
2. Administration of the Plan.
The Plan shall be administered by the Board of Directors, which shall
serve as the Stock Option Committee (the "Committee"). No member of
the Committee shall have been eligible to participate in any plan of
the Company or its affiliates other than this Plan which entitles
participants to acquire stock, stock appreciation rights or stock
options of the Company or its affiliates at any time within the
preceding twelve (12) months. No member of the Committee shall be
eligible to receive stock options under any other plan of the Company
or its affiliates which entitles participants to acquire stock, stock
appreciation rights or stock options of the Company or its affiliates
while serving on the Committee, other than the options received under
this Plan ("Options"). The Committee, exclusive of the Optionee (as
defined below) with respect to such grant, shall have power, subject
to the provisions of the Plan, to grant options under this Plan,
determine the terms and provisions of respective option agreements
(which need not be identical) and interpret the provisions and
supervise the administration of the Plan. All decisions and
selections made by the Company pursuant to the provisions of the Plan
shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as
if it had been made by a majority at a meeting duly held. The
Committee shall have the authority to grant to all the holders of an
outstanding Option in exchange for the surrender and cancellation of
such Option, a new Option having a purchase price lower than provided
in the Option so surrendered and cancelled and containing such other
terms and conditions as the Committee may prescribe in accordance with
the provisions of this Plan. All Options granted under this Plan are
subject to, and may not be exercised before, the approval of the Plan
by the stockholders of the Company pursuant to Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
1
<PAGE> 2
3. Designation of Participants; Grant of Options.
(a) Each director of the Company who is not otherwise an employee of
the Company or of any Parent or Subsidiary ("Optionees") shall
be granted Options as described in this Plan.
(b) Each Optionee serving as a director of the Company immediately
following the 1994 Annual Meeting of Stockholders shall
automatically be granted Options to purchase 4,000 shares of
Stock.
(c) Each Optionee elected as a new member of the Board of Directors
of the Company subsequent to the 1994 Annual Meeting of
Stockholders shall automatically be granted Options to purchase
3,000 shares of Stock.
(d) If at any time any Optionee owns Options to purchase less than
3,000 shares of Stock, then such Optionee shall automatically be
granted Options covering a sufficient number of shares of Stock
so that after such grant such Optionee would hold in the
aggregate, including all Options previously granted to such
Optionee that remain outstanding, Options covering 3,000 shares
of Stock.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Paragraph 9 hereof, shares of
Common Stock, par value $.001 per share ("Stock"), of the Company
shall be subject to this Plan. The Stock subject to this Plan shall
consist of unissued shares or previously issued shares reacquired and
held by the Company, or any Parent or wholly-owned subsidiary of the
Company. Initially, Seven Hundred Fifty Thousand (750,000) shares of
Stock shall be and are hereby reserved for such purpose. Any of such
shares that may remain unsold and that are not subject to outstanding
Options at the termination of this Plan shall cease to be reserved for
the purpose of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares to meet the
requirements of the Plan. Should any Option expire or be cancelled
prior to its exercise or relinquishment in full, the shares
theretofore subject to such Option may again be subjected to an Option
under the Plan.
5. Option Price.
(a) The purchase price of each share subject to a nonqualified stock
option under this Plan shall be the fair market value of each
share on the date the Option is granted.
(b) The fair market value of a share on a particular date shall be
deemed to be (i) in the event the Stock is not listed on a stock
exchange or traded in the over-the-counter market, the value
determined in good faith by the Board of Directors of the
Company, which determination shall be conclusive, (ii) in the
event the Stock is listed on a national or regional stock
exchange, the closing sales price per share of the Stock on such
exchange on the date, or, if there shall have been no sale on
that date, on the last preceding date on which such a sale or
sales were so reported (the "Sale Date") or (iii) if the Stock
is traded in the over-the-counter market, the mean between the
highest closing bid and lowest closing asked price for the Stock
as reported by the National Association of Securities Dealers
Automated Quotation System on the Sale Date, or if not reported
by such system, the mean between the closing bid and asked price
on the Sale Date as quoted by such quotation source as shall be
designated by the Committee.
2
<PAGE> 3
6. Option Period.
Options granted under this Plan shall terminate and be of no force and
effect with respect to any shares not previously taken up by the
Optionee upon the earliest to occur of the following: (a) the
expiration of ten (10) years from the date of granting of each Option;
(b) one year after the Optionee ceases to be a Director of the Company
by reason of death or Disability (as hereinafter defined) of the
Optionee; or (c) three (3) months after the Optionee ceases to be a
Director of the Company for any reason other than death or Disability.
For purposes of this Plan, Disability shall mean the inability of the
Optionee for a period of six (6) months, or the expected inability of
the Optionee for a period of six (6) months, substantially to perform
his duties to the Company.
7. Exercise of Options.
(a) The Options granted hereunder shall not be exercisable by the
Optionee until the completion of one year of service as a
director of the Company following the date of grant of such
Option, and at that time shall be exercisable as follows:
(i) Options to purchase 2,000 shares of Stock granted
pursuant to the provisions of Paragraph 3(b) shall
become exercisable one year following the date of grant
thereof; Options to purchase 1,000 shares of Stock
granted pursuant to the provisions of Paragraph 3(b)
shall become exercisable two years following the date of
grant thereof; and Options to purchase 1,000 shares of
Stock granted pursuant to the provisions of Paragraph
3(b) shall become exercisable three years following the
date of grant thereof.
(ii) One-third of the shares covered by Options to purchase
Stock granted pursuant to the provisions of Paragraph
3(c) shall become exercisable one year following the
date of grant thereof; an additional one-third of the
shares covered by Options to purchase Stock granted
pursuant to the provisions of Paragraph 3(c) shall
become exercisable two years following the date of grant
thereof; and the final one-third of the shares covered
by Options to purchase Stock granted pursuant to the
provisions of Paragraph 3(c) shall become exercisable
three years following the date of grant thereof.
(iii) Options to purchase Stock pursuant to the provisions of
Paragraph 3(d) shall become exercisable three years
following the date of grant thereof.
(b) Options may be exercised solely by the Optionee during his
lifetime or after his death by the person or persons entitled
thereto under his will or the laws of descent and distribution.
(c) In the event of cessation of service as a Director of the
Company for any reason other than death, Disability or
Retirement (as hereinafter defined), Options may be exercised
only with respect to the number of shares purchasable at the
time of such cessation.
(d) In the event of the death or Disability of the Optionee
following the date of grant and while in service as a Director
of the Company, and while Options granted hereunder are still in
force and unexpired under the terms of Paragraph 6 hereof, any
unmatured installments of the Options shall be accelerated.
Such acceleration shall be effective as of the date of death or
Disability. The Options outstanding in
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<PAGE> 4
the name of a deceased Optionee shall thereupon be exercisable
in full without regard to any installment exercise provisions.
(e) In the event the Optionee ceases his service as a Director of
the Company because of his attainment of age seventy (70) or
completion of ten (10) years of service as a Director
("Retirement") while Options granted hereunder are still in
force and unexpired under the terms of Paragraph 6 hereof, any
unmatured installments of the Options shall be accelerated as of
the date of Retirement and the Option shall thereupon be
exercisable in full without regard to any installment exercise
provision.
(f) The purchase price of the shares as to which an Option is
exercised shall be paid in full at the time of the exercise.
Such purchase price shall be payable in cash, or at the option
of the holder of such Option, in Stock theretofore owned by such
holder (or any combination of cash and such Stock). For
purposes of determining the amount, if any, of the purchase
price satisfied by payment in Stock, such Stock shall be valued
at its fair market value on the date of exercise in accordance
with Paragraph 5(b) hereof. Any Stock delivered in satisfaction
of all or a portion of the purchase price shall be appropriately
endorsed for transfer and assignment to the Company. No holder
of an Option shall be, or have any of the rights or privileges
of, a stockholder of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless
and until certificates representing such shares shall have been
issued by the Company to such holders. The Company may make
loans to the Optionees the proceeds of which will be used to
exercise the Options granted pursuant to the Plan. Although the
terms of any such loans will be determined on an individual
basis, such loans will be secured by a lien on the Stock to be
purchased by the Optionee and will bear interest at an interest
rate to be determined on the date the loan is made that is
sufficient to avoid the classification of the loan as a
below-market loan under Section 7872 of the Internal Revenue
Code of 1986, as amended (the "Code").
8. Relinquishment of Options; Assignability.
(a) Options granted hereunder shall include a right of
relinquishment as hereinafter provided by this Paragraph 8. Any
Option granted under the Plan, and the option agreement
evidencing such Option, shall provide:
(i) That the Optionee, or his heirs or other legal
representatives to the extent entitled to exercise the
Option under the terms thereof, in lieu of purchasing
the entire number of shares subject to purchase
thereunder, shall have the right to relinquish all or
any part of the then unexercised portion of the Option
(to the extent exercisable as provided in (iv)
hereinbelow) for a number of shares of Stock, to be
determined as follows: The number of shares of Stock of
the Company, if any, issuable pursuant to such
relinquishment shall be the number of such shares,
rounded to the next greater number of full shares, as
shall be equal to: the Appreciated Value, multiplied by
the excess of (A) the aggregate current market value of
the shares of Stock covered by the Option or the portion
thereof so relinquished over (B) the aggregate purchase
price for such shares specified in such Option (which
excess is called the "Appreciated Value"), divided by
the then-current market value per share of such Stock;
and
(ii) That such right of relinquishment may be exercised only
upon receipt by the Company of a written notice of such
relinquishment which shall be
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<PAGE> 5
dated the date of election to make such relinquishment;
and that, for the purposes of the Plan, such date of
election shall be deemed to be the date when such notice
is sent by registered or certified mail, or when receipt
is acknowledged by the Company, if mailed by other than
registered or certified mail or if delivered by hand or
by any telegraphic communications equipment of the
sender or otherwise delivered, provided that, in the
event the method described above for determining such
date of election shall not be or remain consistent with
provisions of Section 16(b) of the Exchange Act or the
rules and regulations adopted by the Securities and
Exchange Commission thereunder, as presently existing or
as may be hereafter amended, which exempt from the
operation of said Section 16(b) in whole or in part any
election shall be determined by such other method
consistent with said Section 16(b) or rules or
regulations as the Committee shall in its discretion
select and apply;
(iii) That the "current market value" of a share on a
particular date shall be deemed to be its fair market
value on that date as determined in accordance with
Paragraph 5(b) hereof; and
(iv) That the Option, or any portion thereof, may be
relinquished only to the extent that (A) it is
exercisable on the date written notice of relinquishment
is received by the Company and (B) the holder of such
Option pays, or makes provision satisfactory to the
Company for the payment of, any taxes which the Company
is obligated to collect with respect to such
relinquishment.
(b) The Committee, in granting Options hereunder, shall have the
power to amend any Options outstanding and option agreements
evidencing such Options to include such provisions as are deemed
advisable to permit the exemption from the operation from
Section 16(b) of the Exchange Act in whole or in part of any
such transaction involving such relinquishment. If an Option is
relinquished, such Option shall be deemed to have been exercised
to the extent of the number of shares of Stock covered by the
Option or part thereof which is relinquished, and no further
Options may be granted covering such shares of Stock.
(c) Neither any Option nor any right to relinquish the same to the
Company as contemplated by this Paragraph 8 shall be assignable
or otherwise transferable except by will or the laws of descent
and distribution.
9. Capital Change of the Company; Certain Corporate Transactions.
(a) The existence of this Plan and Options granted hereunder shall
not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the
Company's Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act
or proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which Options may be granted
hereunder are shares of the Stock of the Company as presently
constituted. If, and whenever, prior to the delivery by the
Company of all of the shares of the Stock that are subject to
Options
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<PAGE> 6
granted hereunder, the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, the
payment of a stock dividend, a stock split, combination of
shares or recapitalization or other increase or reduction of the
number of shares of the Stock outstanding without receiving
compensation therefor in money, services or property, the number
of shares of Stock available under the Plan and the number of
shares of Stock with respect to which Options granted hereunder
may thereafter be exercised shall (i) in the event of an
increase in the number of outstanding shares, be proportionately
increased, and the cash consideration payable per share with
respect to Options then issued and outstanding shall be
proportionately reduced; and (ii) in the event of a reduction in
the number of outstanding shares, be proportionately reduced,
and the cash consideration payable per share with respect to
Options then issued and outstanding shall be proportionately
increased.
(c) Except as expressly provided herein, the issue by the Company of
shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property, or for labor
or services, either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options granted hereunder.
(d) If the Company is reorganized, or merged or consolidated or
party to a plan of exchange with another corporation pursuant to
which reorganization, merger, consolidation, or plan of exchange
stockholders of the Company receive any shares of Stock or other
securities or if the Company shall distribute ("Spin Off")
securities of another corporation to its stockholders, there
shall be substituted for the shares subject to the unexercised
portions of outstanding Options an appropriate number of shares
of (i) each class of stock or other securities which were
distributed to the stockholders of the Company in respect of
such shares in the case of a reorganization, merger,
consolidation, or plan of exchange, or (ii) in the case of a
Spin Off, the securities distributed to stockholders of the
Company together with shares of Stock, such number of shares or
securities to be determined in accordance with the provisions of
Section 425 of the Code (or other applicable provisions of the
Code or regulations issued thereunder which may from time to
time govern the treatment of incentive stock options in such a
transaction). Notwithstanding the foregoing, any unmatured
installments of the Options shall be accelerated and the Option
shall be exercisable in full without regard to any installment
exercise provision in the event of a Change of Control (as
defined below).
(i) For purposes of this Plan, a Change of Control will
occur when
(A) any "person," including a "group" as determined
in accordance with Section 13(d)(3) of the
Exchange Act is, or becomes the beneficial owner,
directly or indirectly, of securities of the
Company representing a Control Percentage (as
defined below) of the combined voting power of
the then outstanding securities of the Company;
(B) as a result of, or in connection with, any
tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions (a "Transaction"), the persons who
were Directors of the Company
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<PAGE> 7
before the Transaction shall cease to constitute
a majority of the Board of Directors of the
Company, or any successor to the Company;
(C) the Company is merged or consolidated with
another corporation and as a result of such
merger or consolidation a Control Percentage of
the outstanding voting securities of the
surviving or resulting corporation shall no
longer be owned in the aggregate by the
stockholders of the Company on April 9, 1990, or
their respective affiliates within the meaning of
the Exchange Act;
(D) the Company transfers substantially all of its
assets to another corporation that is not an
affiliate of the Company.
(ii) The term "Control Percentage" shall mean at least 25% in
the event the applicable securities are registered under
the Exchange Act or at least 40% in the event the
applicable securities are not registered under the
Exchange Act.
10. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the Securities Act of 1933, as amended, or the Company has
determined that such registration is unnecessary, each person
exercising an Option under the Plan may be required by the Company to
give a representation in writing that he is acquiring such shares for
his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
11. Taxes.
The Company may make such provisions as it may deem appropriate for
the withholding of any taxes which it determines is required in
connection with any Options granted under the Plan. In the event such
provisions for withholding shall not be or remain consistent with
provisions of Section 16(b) of the Exchange Act or the rules and
regulations adopted by the Securities and Exchange Commission
thereunder, as now existing or as may be hereafter amended, then
provisions for withholding shall be determined by such other method
consistent with the provisions of Section 16(b) or rules or
regulations as the Committee shall select and apply.
12. Effective Date of Plan.
The Plan shall be effective as of April 9, 1990.
13. Amendments or Termination.
The Board of Directors may amend, alter or discontinue the Plan,
except that no amendment or alteration shall be made which would
impair the rights of any Optionee under any Option theretofore
granted, without his consent, and except that no amendment or
alteration shall be made which, without the approval of the
stockholders, would: (a) Increase or decrease the number of shares
subject to Option or the schedule of grants provided for in Paragraph
3; or
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<PAGE> 8
(b) Extend the option period provided for in Paragraph 6; or
(c) Materially increase the benefits accruing to Optionees under the
Plan; or
(d) Materially modify the requirements as to eligibility for
participation in the Plan.
14. Government Regulations.
The Plan, and the granting and exercise of Options thereunder, and the
obligation of the Company to sell and deliver shares under such
Options, shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
THE PHOENIX RESOURCE COMPANIES, INC.
8
<PAGE> 1
EXHIBIT 10(d)(2)
THE PHOENIX RESOURCE COMPANIES, INC.
EMPLOYMENT AGREEMENT
Employee: Mark W. Anschutz
Executive Capacity: Vice President -- Operations &
Assistant Secretary
Base Salary: $150,000.00
Effective Date: January 1, 1995
Stock Options: 8,500 stock options remaining from
previous grant pursuant to the 1990
Employee Stock Option Plan, issued
separately on January 9, 1991;
25,000 stock options pursuant to the
1990 Employee Stock Option Plan,
issued separately on April 6, 1994
In accord with the terms defined above and the attached Form of
Executive Employment Agreement, The Phoenix Resource Companies, Inc.
("Phoenix"), a Delaware corporation, and Employee, hereby agree to this
Executive Employment Agreement ("Agreement").
The Phoenix Resource Companies, Inc.
By /s/ George D. Lawrence Jr. /s/ Mark W. Anschutz
------------------------------------ -------------------------------
George D. Lawrence Jr., President Mark W. Anschutz
<PAGE> 2
Form of
Executive Employment Agreement
with
The Phoenix Resource Companies, Inc.
("Phoenix")
1. Duties.
Commencing on the Effective Date, Phoenix will employ, or continue
to employ, Employee in the Executive Capacity. Employee shall have the
authority and duties commensurate with the Executive Capacity including,
without limitation, taking such actions and exercising such authority as is
consistent with the Executive Capacity and in the best interests of Phoenix,
but within such limits as from time to time may be reasonably established by
Employee's superiors and the Board of Directors of Phoenix. Employee shall
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, as are reasonable in the
context of the Executive Capacity. Employee shall devote substantially all of
Employee's professional time and efforts to the performance of these duties.
2. Compensation.
For the duration of this Agreement, Phoenix shall pay Employee, in
equal and consecutive semi-monthly installments, on Phoenix's regular payroll
dates, the Base Salary. Employee shall also be eligible for discretionary
bonuses.
Phoenix may, through the Audit and Compensation Committee of its
Board of Directors and in its sole discretion, increase the Base Salary from
time to time; any such action shall become effective immediately without
further action as an amendment to this Agreement.
3. Expenses.
Phoenix shall reimburse Employee for all reasonable expenses paid
or incurred by Employee in the performance of Employee's duties during the term
of this Agreement. Such expenses will include, but not be limited to,
reasonable travel expenses.
4. Employee Benefits.
During the duration of this Agreement, Employee shall be entitled
to (i) the receipt of all other benefits of employment generally available to
other salaried Phoenix employees, such as participation in group health and
life insurance and vacation benefits and (ii) the use of a private office of
size and furnishings appropriate to the Executive Capacity.
<PAGE> 3
5. Stock Options & Incentive Plans.
Subject to the sole discretion of the Audit and Compensation
Committee of the Board of Directors of Phoenix, Employee shall be eligible to
participate in Phoenix's 1990 Employee Stock Option Plan and any other
incentive compensation or deferred compensation plans as may exist from time to
time.
6. Relocation.
Employee shall not be relocated from Employee's present station
without Employee's consent, which consent shall not be unreasonably withheld.
If such relocation is required by Phoenix and Employee does not so consent to
be relocated from his present station and cannot continue Employee's duties at
Employee's present station, then Phoenix shall terminate this contract under
subparagraph 7(a)(ii). If Employee is stationed overseas, Employee shall
receive customary overseas benefits, to be specifically agreed in writing at
such time. Such overseas benefits shall not be considered a portion of Base
Salary.
7. Termination.
(a) Acts of Termination. The term of Employee's employment
hereunder shall commence on the Effective Date and shall terminate upon the
earlier of:
(i) Disability. The death or total disability of Employee, with
the term "total disability" as used herein to mean the unexcused
absence from employment, or physical or mental inability of
Employee to perform his duties hereunder, for an aggregate period
of ninety (90) days in any six (6) month period;
(ii) Termination by Phoenix Other than for Cause. The thirtieth
(30) day following written notice of termination from Phoenix to
Employee, other than for Cause;
(iii) Termination by Employee. The day Employee gives notice of
termination to Phoenix;
(iv) Termination by Phoenix for Cause. The day Phoenix gives
written notice of termination to Employee for Cause; or
(v) Death of Employee. The last day of the month following the
month in which the Employee dies.
(b) Definition of Cause. "Cause" as used herein shall mean:
(i) Indictment for a felony;
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<PAGE> 4
(ii) Indictment for theft, larceny or embezzlement of property
belonging to Phoenix; or
(iii) Continued willful and gross neglect of duties to Phoenix.
(c) Procedure for Willful and Gross Neglect. Phoenix shall not
be entitled to terminate this Agreement under subparagraph 7(b)(iii) (willful
and gross neglect) unless it shall have first given Employee written notice of
its intention so to do, setting forth in reasonable detail its basis therefore
and providing Employee with a reasonable opportunity to cure (which shall not
be less than thirty (30) days). Thereafter, such termination may be effected
under said subparagraph 7(b)(iii) only if such basis continues to exist after
such cure period.
(d) Resignation and Loans. Upon the termination of this
Agreement, Employee shall immediately resign from all positions with Phoenix
and all obligations hereunder of Phoenix to pay Employee the Base Salary shall
cease immediately, except as provided in subparagraph 7(e) below. Any loans
which may be due Phoenix from Employee shall continue their course.
(e) Severance Pay. If Phoenix terminates this Agreement
pursuant to subparagraph 7(a)(ii) (a termination by Phoenix other than for
Cause), Phoenix shall continue to pay Employee the Base Salary in equal and
consecutive semi-monthly installments on Phoenix's regular payroll dates for a
period of eighteen (18) months following the termination date (the "Severance
Period"). Employee may elect to continue group medical insurance coverage
during the Severance Period or until subsequent employment, whichever is
earlier. Such payments during the Severance Period supersede and are partially
in lieu of any accrued vacation rights of Employee.
(f) Change of Control. If a Change of Control of Phoenix
occurs, as defined below, then this employment contract shall be immediately
terminated and Phoenix shall immediately pay Employee an amount equal to
eighteen months' Base Salary in a single lump sum. Thereafter, the
relationship of Employee and Phoenix shall be one of employment at will,
subject to termination at any time by either party. Nothing in this paragraph
shall affect Employee's rights, if any, under Employee benefit plans including,
without limitation, group insurance, stock options, overseas benefits,
incentive compensation or deferred compensation plans. This paragraph 7(f)
shall apply in lieu of paragraph 7(e) in the event of a Change of Control. For
purposes of this agreement, a Change of Control will occur when:
(i) any "person" including a "group" as determined in accordance
with Section 13(d)(3) of the Exchange Act is or becomes the
beneficial owner, directly or indirectly, of securities of Phoenix
representing a Control Percentage (as defined below) of the
combined voting power of the then outstanding securities of
Phoenix;
3
<PAGE> 5
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of
Phoenix before the Transaction shall cease to constitute a
majority of the Board of Directors of Phoenix, or any successor to
Phoenix;
(iii) Phoenix is merged or consolidated with another corporation
and as a result of such merger or consolidation a majority of the
outstanding voting securities of the surviving or resulting
corporation shall no longer be owned in the aggregate by the
stockholders of Phoenix preceding such transaction or their
respective affiliates within the meaning of the Exchange Act;
(iv) Phoenix transfers substantially all of its assets to another
corporation that is not an affiliate of Phoenix.
The term "Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the Exchange Act or at least 40%
in the event the applicable securities are not registered under the Exchange
Act.
8. Confidential Information and Competition.
(a) Confidential Information. Employee shall not divulge,
furnish or make accessible to any party (except as may be required in the
conduct of the regular course of business of Phoenix) any information
concerning Phoenix's financial, geological, geophysical, seismic or other data,
maps, well logs or other well data, geological prospects or other proprietary
information, including trade secrets, patents, patent applications, inventions,
budgets, plans or corporate strategies of Phoenix until such time as such
information has been disclosed to the public otherwise than by Employee.
Employee shall return to Phoenix at the termination of this Agreement all
records of confidential information in Employee's possession and any copies,
outlines, memoranda or similar matter embodying or relating to such
confidential information. Employee shall not make use of any such confidential
information for Employee's personal benefit.
(b) Competition After Termination. During the period of this
Agreement and for two years following the termination of this Agreement,
Employee shall not enter into or participate in any business (whether serving
as an officer, employee, agent, representative, consultant or otherwise of any
corporation or as partner, joint venturer or sole proprietor) which conducts or
proposes to conduct oil and gas exploration and development activities in
direct competition with Phoenix, and Employee shall not take any action
designed to cause Phoenix to lose any of its employees, principal agreements or
any other aspects of the goodwill of Phoenix. Employee acknowledges that a
breach of this paragraph 8 would cause irreparable injury to Phoenix and
therefore expressly agrees that in the event of any such breach, Phoenix shall
be entitled, as a matter
4
<PAGE> 6
of rights and in addition to any other appropriate remedy, to injunctive relief
in any court of competent jurisdiction or in any arbitration proceedings.
(c) Sole Employment. During the term of this Agreement,
Employee shall devote Employee's full professional time and best efforts to
conducting the business of Phoenix and shall not directly engage in a business
competing with the businesses being conducted by Phoenix and shall not directly
or indirectly divert from Phoenix any business transactions in which Phoenix
has been, is or may become engaged. Nothing contained in this paragraph shall
prevent Employee from investing or trading in stock, bonds, commodities,
securities, real estate, oil and gas investments or other forms of investment
for Employee's own benefit, directly or indirectly, provided such investment
activities do not interfere with Employee's services to be rendered hereunder.
10. Miscellaneous.
(a) Approval by Phoenix. The execution of this Agreement by the
President of Phoenix evidences that this Agreement has been approved by the
Audit and Compensation Committee of the Board of Directors of Phoenix in
accordance with the authority granted such committee.
(b) Waiver of Modification. Any waiver, alteration or
modification of any of the provisions of this Agreement, or cancellation or
replacement of this Agreement, shall not be valid unless made in writing and
signed by the parties hereto, except that increases in Base Salary may occur in
due course as contemplated in the Agreement without further written
documentation.
(c) Construction. This Agreement shall be governed by the laws
of the State of Oklahoma.
(d) Binding Effect. The rights and obligations of Phoenix under
this Agreement shall be binding upon any successor or assign of Phoenix and
shall be jointly binding on all wholly-owned subsidiaries of Phoenix for so
long as they shall remain wholly-owned subsidiaries. The duties of Employee to
Phoenix shall extend to all wholly-owned subsidiaries of Phoenix. In the event
of any consolidation or merger of Phoenix into or with another entity, or a
sale or disposition of substantially all of the assets of Phoenix to another
entity, such other entity shall assume the obligations of Phoenix under this
Agreement and shall become obligated to perform all of the terms and conditions
hereof, and most particularly the obligations of paragraph 7(f). Employee may
not voluntarily assign Employee's rights under this Agreement without the prior
written consent of Phoenix.
(e) Invalidity. If any part of this Agreement shall be found to
be invalid or ineffective, the validity and effect of the remaining parts (as
construed without regard to such invalid or ineffective part) shall not be
affected, provided the essential purposes of this Agreement may thereby be
carried out.
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<PAGE> 7
(f) Waiver. Waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(g) Earlier Agreements. This Agreement supersedes and replaces
any and all earlier agreements of employment between Phoenix and Employee;
provided, however, that if for any reason this Agreement is nullified or found
to be null and void in any material respect, then any such earlier agreement
shall remain in full force and effect.
6
<PAGE> 1
EXHIBIT 10(d)(3)
THE PHOENIX RESOURCE COMPANIES, INC.
EMPLOYMENT AGREEMENT
Employee: John E. Bruno
Executive Capacity: Vice President -- Egyptian
Operations; Vice President and
General Manager, Phoenix Resources
Company of Qarun; Vice President,
Phoenix Resources Company of Egypt
Base Salary: $141,000.00
Effective Date: January 1, 1995
Stock Options: 25,000 stock options pursuant to the
1990 Employee Stock Option Plan,
issued separately on April 6, 1994
Overseas Location: Cairo, Egypt
In accord with the terms defined above and the attached Form of
Executive Employment Agreement, The Phoenix Resource Companies, Inc.
("Phoenix"), a Delaware corporation, and Employee, hereby agree to this
Executive Employment Agreement ("Agreement").
The Phoenix Resource Companies, Inc.
By /s/ George D. Lawrence Jr. /s/ John E. Bruno
------------------------------------ -------------------------------
George D. Lawrence Jr., President John E. Bruno
<PAGE> 2
Form of
Executive Employment Agreement
with
The Phoenix Resource Companies, Inc.
("Phoenix")
1. Duties.
Commencing on the Effective Date, Phoenix will employ, or continue
to employ, Employee in the Executive Capacity. Employee shall have the
authority and duties commensurate with the Executive Capacity including,
without limitation, taking such actions and exercising such authority as is
consistent with the Executive Capacity and in the best interests of Phoenix,
but within such limits as from time to time may be reasonably established by
Employee's superiors and the Board of Directors of Phoenix. Employee shall
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, as are reasonable in the
context of the Executive Capacity. Employee shall devote substantially all of
Employee's professional time and efforts to the performance of these duties.
2. Compensation.
For the duration of this Agreement, Phoenix shall pay Employee, in
equal and consecutive semi-monthly installments, on Phoenix's regular payroll
dates, the Base Salary. Employee shall also be eligible for discretionary
bonuses.
Phoenix may, through the Audit and Compensation Committee of its
Board of Directors and in its sole discretion, increase the Base Salary from
time to time; any such action shall become effective immediately without
further action as an amendment to this Agreement.
3. Expenses.
Phoenix shall reimburse Employee for all reasonable expenses paid
or incurred by Employee in the performance of Employee's duties during the term
of this Agreement. Such expenses will include, but not be limited to,
reasonable travel expenses.
4. Employee Benefits.
During the duration of this Agreement, Employee shall be entitled
to (i) the receipt of all other benefits of employment generally available to
other salaried Phoenix employees, such as participation in group health and
life insurance and vacation benefits and (ii) the use of a private office of
size and furnishings appropriate to the Executive Capacity.
<PAGE> 3
5. Stock Options & Incentive Plans.
Subject to the sole discretion of the Audit and Compensation
Committee of the Board of Directors of Phoenix, Employee shall be eligible to
participate in Phoenix's 1990 Employee Stock Option Plan and any other
incentive compensation or deferred compensation plans as may exist from time to
time.
6. Relocation.
Employee shall not be relocated from Employee's present station
without Employee's consent, which consent shall not be unreasonably withheld.
If such relocation is required by Phoenix and Employee does not so consent to
be relocated from his present station and cannot continue Employee's duties at
Employee's present station, then Phoenix shall terminate this contract under
subparagraph 7(a)(ii). If Employee is stationed overseas, Employee shall
receive customary overseas benefits, to be specifically agreed in writing at
such time. Such overseas benefits shall not be considered a portion of Base
Salary.
7. Termination.
(a) Acts of Termination. The term of Employee's employment
hereunder shall commence on the Effective Date and shall terminate upon the
earlier of:
(i) Disability. The death or total disability of Employee, with
the term "total disability" as used herein to mean the unexcused
absence from employment, or physical or mental inability of
Employee to perform his duties hereunder, for an aggregate period
of ninety (90) days in any six (6) month period;
(ii) Termination by Phoenix Other than for Cause. The thirtieth
(30) day following written notice of termination from Phoenix to
Employee, other than for Cause;
(iii) Termination by Employee. The day Employee gives notice of
termination to Phoenix;
(iv) Termination by Phoenix for Cause. The day Phoenix gives
written notice of termination to Employee for Cause; or
(v) Death of Employee. The last day of the month following the
month in which the Employee dies.
(b) Definition of Cause. "Cause" as used herein shall mean:
(i) Indictment for a felony;
2
<PAGE> 4
(ii) Indictment for theft, larceny or embezzlement of property
belonging to Phoenix; or
(iii) Continued willful and gross neglect of duties to Phoenix.
(c) Procedure for Willful and Gross Neglect. Phoenix shall not
be entitled to terminate this Agreement under subparagraph 7(b)(iii) (willful
and gross neglect) unless it shall have first given Employee written notice of
its intention so to do, setting forth in reasonable detail its basis therefore
and providing Employee with a reasonable opportunity to cure (which shall not
be less than thirty (30) days). Thereafter, such termination may be effected
under said subparagraph 7(b)(iii) only if such basis continues to exist after
such cure period.
(d) Resignation and Loans. Upon the termination of this
Agreement, Employee shall immediately resign from all positions with Phoenix
and all obligations hereunder of Phoenix to pay Employee the Base Salary shall
cease immediately, except as provided in subparagraph 7(e) below. Any loans
which may be due Phoenix from Employee shall continue their course.
(e) Severance Pay. If Phoenix terminates this Agreement
pursuant to subparagraph 7(a)(ii) (a termination by Phoenix other than for
Cause), Phoenix shall continue to pay Employee the Base Salary in equal and
consecutive semi-monthly installments on Phoenix's regular payroll dates for a
period of eighteen (18) months following the termination date (the "Severance
Period"). Employee may elect to continue group medical insurance coverage
during the Severance Period or until subsequent employment, whichever is
earlier. Such payments during the Severance Period supersede and are partially
in lieu of any accrued vacation rights of Employee.
(f) Change of Control. If a Change of Control of Phoenix
occurs, as defined below, then this employment contract shall be immediately
terminated and Phoenix shall immediately pay Employee an amount equal to
eighteen months' Base Salary in a single lump sum. Thereafter, the
relationship of Employee and Phoenix shall be one of employment at will,
subject to termination at any time by either party. Nothing in this paragraph
shall affect Employee's rights, if any, under Employee benefit plans including,
without limitation, group insurance, stock options, overseas benefits,
incentive compensation or deferred compensation plans. This paragraph 7(f)
shall apply in lieu of paragraph 7(e) in the event of a Change of Control. For
purposes of this agreement, a Change of Control will occur when:
(i) any "person" including a "group" as determined in accordance
with Section 13(d)(3) of the Exchange Act is or becomes the
beneficial owner, directly or indirectly, of securities of Phoenix
representing a Control Percentage (as defined below) of the
combined voting power of the then outstanding securities of
Phoenix;
3
<PAGE> 5
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of
Phoenix before the Transaction shall cease to constitute a
majority of the Board of Directors of Phoenix, or any successor to
Phoenix;
(iii) Phoenix is merged or consolidated with another corporation
and as a result of such merger or consolidation a majority of the
outstanding voting securities of the surviving or resulting
corporation shall no longer be owned in the aggregate by the
stockholders of Phoenix preceding such transaction or their
respective affiliates within the meaning of the Exchange Act;
(iv) Phoenix transfers substantially all of its assets to another
corporation that is not an affiliate of Phoenix.
The term "Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the Exchange Act or at least 40%
in the event the applicable securities are not registered under the Exchange
Act.
8. Confidential Information and Competition.
(a) Confidential Information. Employee shall not divulge,
furnish or make accessible to any party (except as may be required in the
conduct of the regular course of business of Phoenix) any information
concerning Phoenix's financial, geological, geophysical, seismic or other data,
maps, well logs or other well data, geological prospects or other proprietary
information, including trade secrets, patents, patent applications, inventions,
budgets, plans or corporate strategies of Phoenix until such time as such
information has been disclosed to the public otherwise than by Employee.
Employee shall return to Phoenix at the termination of this Agreement all
records of confidential information in Employee's possession and any copies,
outlines, memoranda or similar matter embodying or relating to such
confidential information. Employee shall not make use of any such confidential
information for Employee's personal benefit.
(b) Competition After Termination. During the period of this
Agreement and for two years following the termination of this Agreement,
Employee shall not enter into or participate in any business (whether serving
as an officer, employee, agent, representative, consultant or otherwise of any
corporation or as partner, joint venturer or sole proprietor) which conducts or
proposes to conduct oil and gas exploration and development activities in
direct competition with Phoenix, and Employee shall not take any action
designed to cause Phoenix to lose any of its employees, principal agreements or
any other aspects of the goodwill of Phoenix. Employee acknowledges that a
breach of this paragraph 8 would cause irreparable injury to Phoenix and
therefore expressly agrees that in the event of any such breach, Phoenix shall
be entitled, as a matter
4
<PAGE> 6
of rights and in addition to any other appropriate remedy, to injunctive relief
in any court of competent jurisdiction or in any arbitration proceedings.
(c) Sole Employment. During the term of this Agreement,
Employee shall devote Employee's full professional time and best efforts to
conducting the business of Phoenix and shall not directly engage in a business
competing with the businesses being conducted by Phoenix and shall not directly
or indirectly divert from Phoenix any business transactions in which Phoenix
has been, is or may become engaged. Nothing contained in this paragraph shall
prevent Employee from investing or trading in stock, bonds, commodities,
securities, real estate, oil and gas investments or other forms of investment
for Employee's own benefit, directly or indirectly, provided such investment
activities do not interfere with Employee's services to be rendered hereunder.
10. Miscellaneous.
(a) Approval by Phoenix. The execution of this Agreement by the
President of Phoenix evidences that this Agreement has been approved by the
Audit and Compensation Committee of the Board of Directors of Phoenix in
accordance with the authority granted such committee.
(b) Waiver of Modification. Any waiver, alteration or
modification of any of the provisions of this Agreement, or cancellation or
replacement of this Agreement, shall not be valid unless made in writing and
signed by the parties hereto, except that increases in Base Salary may occur in
due course as contemplated in the Agreement without further written
documentation.
(c) Construction. This Agreement shall be governed by the laws
of the State of Oklahoma.
(d) Binding Effect. The rights and obligations of Phoenix under
this Agreement shall be binding upon any successor or assign of Phoenix and
shall be jointly binding on all wholly-owned subsidiaries of Phoenix for so
long as they shall remain wholly-owned subsidiaries. The duties of Employee to
Phoenix shall extend to all wholly-owned subsidiaries of Phoenix. In the event
of any consolidation or merger of Phoenix into or with another entity, or a
sale or disposition of substantially all of the assets of Phoenix to another
entity, such other entity shall assume the obligations of Phoenix under this
Agreement and shall become obligated to perform all of the terms and conditions
hereof, and most particularly the obligations of paragraph 7(f). Employee may
not voluntarily assign Employee's rights under this Agreement without the prior
written consent of Phoenix.
(e) Invalidity. If any part of this Agreement shall be found to
be invalid or ineffective, the validity and effect of the remaining parts (as
construed without regard to such invalid or ineffective part) shall not be
affected, provided the essential purposes of this Agreement may thereby be
carried out.
5
<PAGE> 7
(f) Waiver. Waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(g) Earlier Agreements. This Agreement supersedes and replaces
any and all earlier agreements of employment between Phoenix and Employee;
provided, however, that if for any reason this Agreement is nullified or found
to be null and void in any material respect, then any such earlier agreement
shall remain in full force and effect.
6
<PAGE> 1
EXHIBIT 10(d)(4)
THE PHOENIX RESOURCE COMPANIES, INC.
EMPLOYMENT AGREEMENT
Employee: Inmann T. Dabney, Jr.
Executive Capacity: Vice President -- Exploration &
Development
Base Salary: $183,000.00
Effective Date: January 1, 1995
Stock Options: 25,000 stock options pursuant to the
1990 Employee Stock Option Plan,
issued separately on April 6, 1994
Overseas Location: Cairo, Egypt
In accord with the terms defined above and the attached Form of
Executive Employment Agreement, The Phoenix Resource Companies, Inc.
("Phoenix"), a Delaware corporation, and Employee, hereby agree to this
Executive Employment Agreement ("Agreement").
The Phoenix Resource Companies, Inc.
By /s/ George D. Lawrence Jr. /s/ Inmann T. Dabney, Jr.
------------------------------------ -------------------------------
George D. Lawrence Jr., President Inmann T. Dabney, Jr.
<PAGE> 2
Form of
Executive Employment Agreement
with
The Phoenix Resource Companies, Inc.
("Phoenix")
1. Duties.
Commencing on the Effective Date, Phoenix will employ, or continue
to employ, Employee in the Executive Capacity. Employee shall have the
authority and duties commensurate with the Executive Capacity including,
without limitation, taking such actions and exercising such authority as is
consistent with the Executive Capacity and in the best interests of Phoenix,
but within such limits as from time to time may be reasonably established by
Employee's superiors and the Board of Directors of Phoenix. Employee shall
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, as are reasonable in the
context of the Executive Capacity. Employee shall devote substantially all of
Employee's professional time and efforts to the performance of these duties.
2. Compensation.
For the duration of this Agreement, Phoenix shall pay Employee, in
equal and consecutive semi-monthly installments, on Phoenix's regular payroll
dates, the Base Salary. Employee shall also be eligible for discretionary
bonuses.
Phoenix may, through the Audit and Compensation Committee of its
Board of Directors and in its sole discretion, increase the Base Salary from
time to time; any such action shall become effective immediately without
further action as an amendment to this Agreement.
3. Expenses.
Phoenix shall reimburse Employee for all reasonable expenses paid
or incurred by Employee in the performance of Employee's duties during the term
of this Agreement. Such expenses will include, but not be limited to,
reasonable travel expenses.
4. Employee Benefits.
During the duration of this Agreement, Employee shall be entitled
to (i) the receipt of all other benefits of employment generally available to
other salaried Phoenix employees, such as participation in group health and
life insurance and vacation benefits and (ii) the use of a private office of
size and furnishings appropriate to the Executive Capacity.
<PAGE> 3
5. Stock Options & Incentive Plans.
Subject to the sole discretion of the Audit and Compensation
Committee of the Board of Directors of Phoenix, Employee shall be eligible to
participate in Phoenix's 1990 Employee Stock Option Plan and any other
incentive compensation or deferred compensation plans as may exist from time to
time.
6. Relocation.
Employee shall not be relocated from Employee's present station
without Employee's consent, which consent shall not be unreasonably withheld.
If such relocation is required by Phoenix and Employee does not so consent to
be relocated from his present station and cannot continue Employee's duties at
Employee's present station, then Phoenix shall terminate this contract under
subparagraph 7(a)(ii). If Employee is stationed overseas, Employee shall
receive customary overseas benefits, to be specifically agreed in writing at
such time. Such overseas benefits shall not be considered a portion of Base
Salary.
7. Termination.
(a) Acts of Termination. The term of Employee's employment
hereunder shall commence on the Effective Date and shall terminate upon the
earlier of:
(i) Disability. The death or total disability of Employee, with
the term "total disability" as used herein to mean the unexcused
absence from employment, or physical or mental inability of
Employee to perform his duties hereunder, for an aggregate period
of ninety (90) days in any six (6) month period;
(ii) Termination by Phoenix Other than for Cause. The thirtieth
(30) day following written notice of termination from Phoenix to
Employee, other than for Cause;
(iii) Termination by Employee. The day Employee gives notice of
termination to Phoenix;
(iv) Termination by Phoenix for Cause. The day Phoenix gives
written notice of termination to Employee for Cause; or
(v) Death of Employee. The last day of the month following the
month in which the Employee dies.
(b) Definition of Cause. "Cause" as used herein shall mean:
(i) Indictment for a felony;
2
<PAGE> 4
(ii) Indictment for theft, larceny or embezzlement of property
belonging to Phoenix; or
(iii) Continued willful and gross neglect of duties to Phoenix.
(c) Procedure for Willful and Gross Neglect. Phoenix shall not
be entitled to terminate this Agreement under subparagraph 7(b)(iii) (willful
and gross neglect) unless it shall have first given Employee written notice of
its intention so to do, setting forth in reasonable detail its basis therefore
and providing Employee with a reasonable opportunity to cure (which shall not
be less than thirty (30) days). Thereafter, such termination may be effected
under said subparagraph 7(b)(iii) only if such basis continues to exist after
such cure period.
(d) Resignation and Loans. Upon the termination of this
Agreement, Employee shall immediately resign from all positions with Phoenix
and all obligations hereunder of Phoenix to pay Employee the Base Salary shall
cease immediately, except as provided in subparagraph 7(e) below. Any loans
which may be due Phoenix from Employee shall continue their course.
(e) Severance Pay. If Phoenix terminates this Agreement
pursuant to subparagraph 7(a)(ii) (a termination by Phoenix other than for
Cause), Phoenix shall continue to pay Employee the Base Salary in equal and
consecutive semi-monthly installments on Phoenix's regular payroll dates for a
period of eighteen (18) months following the termination date (the "Severance
Period"). Employee may elect to continue group medical insurance coverage
during the Severance Period or until subsequent employment, whichever is
earlier. Such payments during the Severance Period supersede and are partially
in lieu of any accrued vacation rights of Employee.
(f) Change of Control. If a Change of Control of Phoenix
occurs, as defined below, then this employment contract shall be immediately
terminated and Phoenix shall immediately pay Employee an amount equal to
eighteen months' Base Salary in a single lump sum. Thereafter, the
relationship of Employee and Phoenix shall be one of employment at will,
subject to termination at any time by either party. Nothing in this paragraph
shall affect Employee's rights, if any, under Employee benefit plans including,
without limitation, group insurance, stock options, overseas benefits,
incentive compensation or deferred compensation plans. This paragraph 7(f)
shall apply in lieu of paragraph 7(e) in the event of a Change of Control. For
purposes of this agreement, a Change of Control will occur when:
(i) any "person" including a "group" as determined in accordance
with Section 13(d)(3) of the Exchange Act is or becomes the
beneficial owner, directly or indirectly, of securities of Phoenix
representing a Control Percentage (as defined below) of the
combined voting power of the then outstanding securities of
Phoenix;
3
<PAGE> 5
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of
Phoenix before the Transaction shall cease to constitute a
majority of the Board of Directors of Phoenix, or any successor to
Phoenix;
(iii) Phoenix is merged or consolidated with another corporation
and as a result of such merger or consolidation a majority of the
outstanding voting securities of the surviving or resulting
corporation shall no longer be owned in the aggregate by the
stockholders of Phoenix preceding such transaction or their
respective affiliates within the meaning of the Exchange Act;
(iv) Phoenix transfers substantially all of its assets to another
corporation that is not an affiliate of Phoenix.
The term "Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the Exchange Act or at least 40%
in the event the applicable securities are not registered under the Exchange
Act.
8. Confidential Information and Competition.
(a) Confidential Information. Employee shall not divulge,
furnish or make accessible to any party (except as may be required in the
conduct of the regular course of business of Phoenix) any information
concerning Phoenix's financial, geological, geophysical, seismic or other data,
maps, well logs or other well data, geological prospects or other proprietary
information, including trade secrets, patents, patent applications, inventions,
budgets, plans or corporate strategies of Phoenix until such time as such
information has been disclosed to the public otherwise than by Employee.
Employee shall return to Phoenix at the termination of this Agreement all
records of confidential information in Employee's possession and any copies,
outlines, memoranda or similar matter embodying or relating to such
confidential information. Employee shall not make use of any such confidential
information for Employee's personal benefit.
(b) Competition After Termination. During the period of this
Agreement and for two years following the termination of this Agreement,
Employee shall not enter into or participate in any business (whether serving
as an officer, employee, agent, representative, consultant or otherwise of any
corporation or as partner, joint venturer or sole proprietor) which conducts or
proposes to conduct oil and gas exploration and development activities in
direct competition with Phoenix, and Employee shall not take any action
designed to cause Phoenix to lose any of its employees, principal agreements or
any other aspects of the goodwill of Phoenix. Employee acknowledges that a
breach of this paragraph 8 would cause irreparable injury to Phoenix and
therefore expressly agrees that in the event of any such breach, Phoenix shall
be entitled, as a matter
4
<PAGE> 6
of rights and in addition to any other appropriate remedy, to injunctive relief
in any court of competent jurisdiction or in any arbitration proceedings.
(c) Sole Employment. During the term of this Agreement,
Employee shall devote Employee's full professional time and best efforts to
conducting the business of Phoenix and shall not directly engage in a business
competing with the businesses being conducted by Phoenix and shall not directly
or indirectly divert from Phoenix any business transactions in which Phoenix
has been, is or may become engaged. Nothing contained in this paragraph shall
prevent Employee from investing or trading in stock, bonds, commodities,
securities, real estate, oil and gas investments or other forms of investment
for Employee's own benefit, directly or indirectly, provided such investment
activities do not interfere with Employee's services to be rendered hereunder.
10. Miscellaneous.
(a) Approval by Phoenix. The execution of this Agreement by the
President of Phoenix evidences that this Agreement has been approved by the
Audit and Compensation Committee of the Board of Directors of Phoenix in
accordance with the authority granted such committee.
(b) Waiver of Modification. Any waiver, alteration or
modification of any of the provisions of this Agreement, or cancellation or
replacement of this Agreement, shall not be valid unless made in writing and
signed by the parties hereto, except that increases in Base Salary may occur in
due course as contemplated in the Agreement without further written
documentation.
(c) Construction. This Agreement shall be governed by the laws
of the State of Oklahoma.
(d) Binding Effect. The rights and obligations of Phoenix under
this Agreement shall be binding upon any successor or assign of Phoenix and
shall be jointly binding on all wholly-owned subsidiaries of Phoenix for so
long as they shall remain wholly-owned subsidiaries. The duties of Employee to
Phoenix shall extend to all wholly-owned subsidiaries of Phoenix. In the event
of any consolidation or merger of Phoenix into or with another entity, or a
sale or disposition of substantially all of the assets of Phoenix to another
entity, such other entity shall assume the obligations of Phoenix under this
Agreement and shall become obligated to perform all of the terms and conditions
hereof, and most particularly the obligations of paragraph 7(f). Employee may
not voluntarily assign Employee's rights under this Agreement without the prior
written consent of Phoenix.
(e) Invalidity. If any part of this Agreement shall be found to
be invalid or ineffective, the validity and effect of the remaining parts (as
construed without regard to such invalid or ineffective part) shall not be
affected, provided the essential purposes of this Agreement may thereby be
carried out.
5
<PAGE> 7
(f) Waiver. Waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(g) Earlier Agreements. This Agreement supersedes and replaces
any and all earlier agreements of employment between Phoenix and Employee;
provided, however, that if for any reason this Agreement is nullified or found
to be null and void in any material respect, then any such earlier agreement
shall remain in full force and effect.
6
<PAGE> 1
EXHIBIT 10(d)(5)
THE PHOENIX RESOURCE COMPANIES, INC.
EMPLOYMENT AGREEMENT
Employee: Cheryl A. Rich
Executive Capacity: Vice President, Chief Financial
Officer, Controller & Assistant
Secretary
Base Salary: $141,000.00
Effective Date: January 1, 1995
Stock Options: 25,000 stock options pursuant to
the 1990 Employee Stock Option Plan,
issued separately on April 6, 1994
In accord with the terms defined above and the attached Form of
Executive Employment Agreement, The Phoenix Resource Companies, Inc.
("Phoenix"), a Delaware corporation, and Employee, hereby agree to this
Executive Employment Agreement ("Agreement").
The Phoenix Resource Companies, Inc.
By /s/ George D. Lawrence Jr. /s/ Cheryl A. Rich
---------------------------------- ---------------------------------
George D. Lawrence Jr., President Cheryl A. Rich
<PAGE> 2
Form of
Executive Employment Agreement
with
The Phoenix Resource Companies, Inc.
("Phoenix")
1. Duties.
Commencing on the Effective Date, Phoenix will employ, or continue
to employ, Employee in the Executive Capacity. Employee shall have the
authority and duties commensurate with the Executive Capacity including,
without limitation, taking such actions and exercising such authority as is
consistent with the Executive Capacity and in the best interests of Phoenix,
but within such limits as from time to time may be reasonably established by
Employee's superiors and the Board of Directors of Phoenix. Employee shall
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, as are reasonable in the
context of the Executive Capacity. Employee shall devote substantially all of
Employee's professional time and efforts to the performance of these duties.
2. Compensation.
For the duration of this Agreement, Phoenix shall pay Employee, in
equal and consecutive semi-monthly installments, on Phoenix's regular payroll
dates, the Base Salary. Employee shall also be eligible for discretionary
bonuses.
Phoenix may, through the Audit and Compensation Committee of its
Board of Directors and in its sole discretion, increase the Base Salary from
time to time; any such action shall become effective immediately without
further action as an amendment to this Agreement.
3. Expenses.
Phoenix shall reimburse Employee for all reasonable expenses paid
or incurred by Employee in the performance of Employee's duties during the term
of this Agreement. Such expenses will include, but not be limited to,
reasonable travel expenses.
4. Employee Benefits.
During the duration of this Agreement, Employee shall be entitled
to (i) the receipt of all other benefits of employment generally available to
other salaried Phoenix employees, such as participation in group health and
life insurance and vacation benefits and (ii) the use of a private office of
size and furnishings appropriate to the Executive Capacity.
<PAGE> 3
5. Stock Options & Incentive Plans.
Subject to the sole discretion of the Audit and Compensation
Committee of the Board of Directors of Phoenix, Employee shall be eligible to
participate in Phoenix's 1990 Employee Stock Option Plan and any other
incentive compensation or deferred compensation plans as may exist from time to
time.
6. Relocation.
Employee shall not be relocated from Employee's present station
without Employee's consent, which consent shall not be unreasonably withheld.
If such relocation is required by Phoenix and Employee does not so consent to
be relocated from his present station and cannot continue Employee's duties at
Employee's present station, then Phoenix shall terminate this contract under
subparagraph 7(a)(ii). If Employee is stationed overseas, Employee shall
receive customary overseas benefits, to be specifically agreed in writing at
such time. Such overseas benefits shall not be considered a portion of Base
Salary.
7. Termination.
(a) Acts of Termination. The term of Employee's employment
hereunder shall commence on the Effective Date and shall terminate upon the
earlier of:
(i) Disability. The death or total disability of Employee, with
the term "total disability" as used herein to mean the unexcused
absence from employment, or physical or mental inability of
Employee to perform his duties hereunder, for an aggregate period
of ninety (90) days in any six (6) month period;
(ii) Termination by Phoenix Other than for Cause. The thirtieth
(30) day following written notice of termination from Phoenix to
Employee, other than for Cause;
(iii) Termination by Employee. The day Employee gives notice of
termination to Phoenix;
(iv) Termination by Phoenix for Cause. The day Phoenix gives
written notice of termination to Employee for Cause; or
(v) Death of Employee. The last day of the month following the
month in which the Employee dies.
(b) Definition of Cause. "Cause" as used herein shall mean:
(i) Indictment for a felony;
2
<PAGE> 4
(ii) Indictment for theft, larceny or embezzlement of property
belonging to Phoenix; or
(iii) Continued willful and gross neglect of duties to Phoenix.
(c) Procedure for Willful and Gross Neglect. Phoenix shall not
be entitled to terminate this Agreement under subparagraph 7(b)(iii) (willful
and gross neglect) unless it shall have first given Employee written notice of
its intention so to do, setting forth in reasonable detail its basis therefore
and providing Employee with a reasonable opportunity to cure (which shall not
be less than thirty (30) days). Thereafter, such termination may be effected
under said subparagraph 7(b)(iii) only if such basis continues to exist after
such cure period.
(d) Resignation and Loans. Upon the termination of this
Agreement, Employee shall immediately resign from all positions with Phoenix
and all obligations hereunder of Phoenix to pay Employee the Base Salary shall
cease immediately, except as provided in subparagraph 7(e) below. Any loans
which may be due Phoenix from Employee shall continue their course.
(e) Severance Pay. If Phoenix terminates this Agreement
pursuant to subparagraph 7(a)(ii) (a termination by Phoenix other than for
Cause), Phoenix shall continue to pay Employee the Base Salary in equal and
consecutive semi-monthly installments on Phoenix's regular payroll dates for a
period of eighteen (18) months following the termination date (the "Severance
Period"). Employee may elect to continue group medical insurance coverage
during the Severance Period or until subsequent employment, whichever is
earlier. Such payments during the Severance Period supersede and are partially
in lieu of any accrued vacation rights of Employee.
(f) Change of Control. If a Change of Control of Phoenix
occurs, as defined below, then this employment contract shall be immediately
terminated and Phoenix shall immediately pay Employee an amount equal to
eighteen months' Base Salary in a single lump sum. Thereafter, the
relationship of Employee and Phoenix shall be one of employment at will,
subject to termination at any time by either party. Nothing in this paragraph
shall affect Employee's rights, if any, under Employee benefit plans including,
without limitation, group insurance, stock options, overseas benefits,
incentive compensation or deferred compensation plans. This paragraph 7(f)
shall apply in lieu of paragraph 7(e) in the event of a Change of Control. For
purposes of this agreement, a Change of Control will occur when:
(i) any "person" including a "group" as determined in accordance
with Section 13(d)(3) of the Exchange Act is or becomes the
beneficial owner, directly or indirectly, of securities of Phoenix
representing a Control Percentage (as defined below) of the
combined voting power of the then outstanding securities of
Phoenix;
3
<PAGE> 5
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of
Phoenix before the Transaction shall cease to constitute a
majority of the Board of Directors of Phoenix, or any successor to
Phoenix;
(iii) Phoenix is merged or consolidated with another corporation
and as a result of such merger or consolidation a majority of the
outstanding voting securities of the surviving or resulting
corporation shall no longer be owned in the aggregate by the
stockholders of Phoenix preceding such transaction or their
respective affiliates within the meaning of the Exchange Act;
(iv) Phoenix transfers substantially all of its assets to another
corporation that is not an affiliate of Phoenix.
The term "Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the Exchange Act or at least 40%
in the event the applicable securities are not registered under the Exchange
Act.
8. Confidential Information and Competition.
(a) Confidential Information. Employee shall not divulge,
furnish or make accessible to any party (except as may be required in the
conduct of the regular course of business of Phoenix) any information
concerning Phoenix's financial, geological, geophysical, seismic or other data,
maps, well logs or other well data, geological prospects or other proprietary
information, including trade secrets, patents, patent applications, inventions,
budgets, plans or corporate strategies of Phoenix until such time as such
information has been disclosed to the public otherwise than by Employee.
Employee shall return to Phoenix at the termination of this Agreement all
records of confidential information in Employee's possession and any copies,
outlines, memoranda or similar matter embodying or relating to such
confidential information. Employee shall not make use of any such confidential
information for Employee's personal benefit.
(b) Competition After Termination. During the period of this
Agreement and for two years following the termination of this Agreement,
Employee shall not enter into or participate in any business (whether serving
as an officer, employee, agent, representative, consultant or otherwise of any
corporation or as partner, joint venturer or sole proprietor) which conducts or
proposes to conduct oil and gas exploration and development activities in
direct competition with Phoenix, and Employee shall not take any action
designed to cause Phoenix to lose any of its employees, principal agreements or
any other aspects of the goodwill of Phoenix. Employee acknowledges that a
breach of this paragraph 8 would cause irreparable injury to Phoenix and
therefore expressly agrees that in the event of any such breach, Phoenix shall
be entitled, as a matter
4
<PAGE> 6
of rights and in addition to any other appropriate remedy, to injunctive relief
in any court of competent jurisdiction or in any arbitration proceedings.
(c) Sole Employment. During the term of this Agreement,
Employee shall devote Employee's full professional time and best efforts to
conducting the business of Phoenix and shall not directly engage in a business
competing with the businesses being conducted by Phoenix and shall not directly
or indirectly divert from Phoenix any business transactions in which Phoenix
has been, is or may become engaged. Nothing contained in this paragraph shall
prevent Employee from investing or trading in stock, bonds, commodities,
securities, real estate, oil and gas investments or other forms of investment
for Employee's own benefit, directly or indirectly, provided such investment
activities do not interfere with Employee's services to be rendered hereunder.
10. Miscellaneous.
(a) Approval by Phoenix. The execution of this Agreement by the
President of Phoenix evidences that this Agreement has been approved by the
Audit and Compensation Committee of the Board of Directors of Phoenix in
accordance with the authority granted such committee.
(b) Waiver of Modification. Any waiver, alteration or
modification of any of the provisions of this Agreement, or cancellation or
replacement of this Agreement, shall not be valid unless made in writing and
signed by the parties hereto, except that increases in Base Salary may occur in
due course as contemplated in the Agreement without further written
documentation.
(c) Construction. This Agreement shall be governed by the laws
of the State of Oklahoma.
(d) Binding Effect. The rights and obligations of Phoenix under
this Agreement shall be binding upon any successor or assign of Phoenix and
shall be jointly binding on all wholly-owned subsidiaries of Phoenix for so
long as they shall remain wholly-owned subsidiaries. The duties of Employee to
Phoenix shall extend to all wholly-owned subsidiaries of Phoenix. In the event
of any consolidation or merger of Phoenix into or with another entity, or a
sale or disposition of substantially all of the assets of Phoenix to another
entity, such other entity shall assume the obligations of Phoenix under this
Agreement and shall become obligated to perform all of the terms and conditions
hereof, and most particularly the obligations of paragraph 7(f). Employee may
not voluntarily assign Employee's rights under this Agreement without the prior
written consent of Phoenix.
(e) Invalidity. If any part of this Agreement shall be found to
be invalid or ineffective, the validity and effect of the remaining parts (as
construed without regard to such invalid or ineffective part) shall not be
affected, provided the essential purposes of this Agreement may thereby be
carried out.
5
<PAGE> 7
(f) Waiver. Waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(g) Earlier Agreements. This Agreement supersedes and replaces
any and all earlier agreements of employment between Phoenix and Employee;
provided, however, that if for any reason this Agreement is nullified or found
to be null and void in any material respect, then any such earlier agreement
shall remain in full force and effect.
6
<PAGE> 1
EXHIBIT 10(d)(6)
THE PHOENIX RESOURCE COMPANIES, INC.
EMPLOYMENT AGREEMENT
Employee: Michael C. Nemec
Executive Capacity: Vice President
Phoenix Resources Company of Qarun
Base Salary: $142,500.00
Effective Date: January 1, 1995
Stock Options: 25,000 stock options pursuant to the
1990 Employee Stock Option Plan,
issued separately on December 1,
1994
Overseas Location: Cairo, Egypt (Effective February 1,
1995)
In accord with the terms defined above and the attached Form of
Executive Employment Agreement, The Phoenix Resource Companies, Inc.
("Phoenix"), a Delaware corporation, and Employee, hereby agree to this
Executive Employment Agreement ("Agreement").
The Phoenix Resource Companies, Inc.
By /s/ George D. Lawrence Jr. /s/ Michael C. Nemec
------------------------------------ -----------------------------
George D. Lawrence Jr., President Michael C. Nemec
<PAGE> 2
Form of
Executive Employment Agreement
with
The Phoenix Resource Companies, Inc.
("Phoenix")
1. Duties.
Commencing on the Effective Date, Phoenix will employ, or continue
to employ, Employee in the Executive Capacity. Employee shall have the
authority and duties commensurate with the Executive Capacity including,
without limitation, taking such actions and exercising such authority as is
consistent with the Executive Capacity and in the best interests of Phoenix,
but within such limits as from time to time may be reasonably established by
Employee's superiors and the Board of Directors of Phoenix. Employee shall
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, as are reasonable in the
context of the Executive Capacity. Employee shall devote substantially all of
Employee's professional time and efforts to the performance of these duties.
2. Compensation.
For the duration of this Agreement, Phoenix shall pay Employee, in
equal and consecutive semi-monthly installments, on Phoenix's regular payroll
dates, the Base Salary. Employee shall also be eligible for discretionary
bonuses.
Phoenix may, through the Audit and Compensation Committee of its
Board of Directors and in its sole discretion, increase the Base Salary from
time to time; any such action shall become effective immediately without
further action as an amendment to this Agreement.
3. Expenses.
Phoenix shall reimburse Employee for all reasonable expenses paid
or incurred by Employee in the performance of Employee's duties during the term
of this Agreement. Such expenses will include, but not be limited to,
reasonable travel expenses.
4. Employee Benefits.
During the duration of this Agreement, Employee shall be entitled
to (i) the receipt of all other benefits of employment generally available to
other salaried Phoenix employees, such as participation in group health and
life insurance and vacation benefits and (ii) the use of a private office of
size and furnishings appropriate to the Executive Capacity.
<PAGE> 3
5. Stock Options & Incentive Plans.
Subject to the sole discretion of the Audit and Compensation
Committee of the Board of Directors of Phoenix, Employee shall be eligible to
participate in Phoenix's 1990 Employee Stock Option Plan and any other
incentive compensation or deferred compensation plans as may exist from time to
time.
6. Relocation.
Employee shall not be relocated from Employee's present station
without Employee's consent, which consent shall not be unreasonably withheld.
If such relocation is required by Phoenix and Employee does not so consent to
be relocated from his present station and cannot continue Employee's duties at
Employee's present station, then Phoenix shall terminate this contract under
subparagraph 7(a)(ii). If Employee is stationed overseas, Employee shall
receive customary overseas benefits, to be specifically agreed in writing at
such time. Such overseas benefits shall not be considered a portion of Base
Salary.
7. Termination.
(a) Acts of Termination. The term of Employee's employment
hereunder shall commence on the Effective Date and shall terminate upon the
earlier of:
(i) Disability. The death or total disability of Employee, with
the term "total disability" as used herein to mean the unexcused
absence from employment, or physical or mental inability of
Employee to perform his duties hereunder, for an aggregate period
of ninety (90) days in any six (6) month period;
(ii) Termination by Phoenix Other than for Cause. The thirtieth
(30) day following written notice of termination from Phoenix to
Employee, other than for Cause;
(iii) Termination by Employee. The day Employee gives notice of
termination to Phoenix;
(iv) Termination by Phoenix for Cause. The day Phoenix gives
written notice of termination to Employee for Cause; or
(v) Death of Employee. The last day of the month following the
month in which the Employee dies.
(b) Definition of Cause. "Cause" as used herein shall mean:
(i) Indictment for a felony;
2
<PAGE> 4
(ii) Indictment for theft, larceny or embezzlement of property
belonging to Phoenix; or
(iii) Continued willful and gross neglect of duties to Phoenix.
(c) Procedure for Willful and Gross Neglect. Phoenix shall not
be entitled to terminate this Agreement under subparagraph 7(b)(iii) (willful
and gross neglect) unless it shall have first given Employee written notice of
its intention so to do, setting forth in reasonable detail its basis therefore
and providing Employee with a reasonable opportunity to cure (which shall not
be less than thirty (30) days). Thereafter, such termination may be effected
under said subparagraph 7(b)(iii) only if such basis continues to exist after
such cure period.
(d) Resignation and Loans. Upon the termination of this
Agreement, Employee shall immediately resign from all positions with Phoenix
and all obligations hereunder of Phoenix to pay Employee the Base Salary shall
cease immediately, except as provided in subparagraph 7(e) below. Any loans
which may be due Phoenix from Employee shall continue their course.
(e) Severance Pay. If Phoenix terminates this Agreement
pursuant to subparagraph 7(a)(ii) (a termination by Phoenix other than for
Cause), Phoenix shall continue to pay Employee the Base Salary in equal and
consecutive semi-monthly installments on Phoenix's regular payroll dates for a
period of eighteen (18) months following the termination date (the "Severance
Period"). Employee may elect to continue group medical insurance coverage
during the Severance Period or until subsequent employment, whichever is
earlier. Such payments during the Severance Period supersede and are partially
in lieu of any accrued vacation rights of Employee.
(f) Change of Control. If a Change of Control of Phoenix
occurs, as defined below, then this employment contract shall be immediately
terminated and Phoenix shall immediately pay Employee an amount equal to
eighteen months' Base Salary in a single lump sum. Thereafter, the
relationship of Employee and Phoenix shall be one of employment at will,
subject to termination at any time by either party. Nothing in this paragraph
shall affect Employee's rights, if any, under Employee benefit plans including,
without limitation, group insurance, stock options, overseas benefits,
incentive compensation or deferred compensation plans. This paragraph 7(f)
shall apply in lieu of paragraph 7(e) in the event of a Change of Control. For
purposes of this agreement, a Change of Control will occur when:
(i) any "person" including a "group" as determined in accordance
with Section 13(d)(3) of the Exchange Act is or becomes the
beneficial owner, directly or indirectly, of securities of Phoenix
representing a Control Percentage (as defined below) of the
combined voting power of the then outstanding securities of
Phoenix;
3
<PAGE> 5
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of
Phoenix before the Transaction shall cease to constitute a
majority of the Board of Directors of Phoenix, or any successor to
Phoenix;
(iii) Phoenix is merged or consolidated with another corporation
and as a result of such merger or consolidation a majority of the
outstanding voting securities of the surviving or resulting
corporation shall no longer be owned in the aggregate by the
stockholders of Phoenix preceding such transaction or their
respective affiliates within the meaning of the Exchange Act;
(iv) Phoenix transfers substantially all of its assets to another
corporation that is not an affiliate of Phoenix.
The term "Control Percentage" shall mean at least 35% in the event
the applicable securities are registered under the Exchange Act or at least 40%
in the event the applicable securities are not registered under the Exchange
Act.
8. Confidential Information and Competition.
(a) Confidential Information. Employee shall not divulge,
furnish or make accessible to any party (except as may be required in the
conduct of the regular course of business of Phoenix) any information
concerning Phoenix's financial, geological, geophysical, seismic or other data,
maps, well logs or other well data, geological prospects or other proprietary
information, including trade secrets, patents, patent applications, inventions,
budgets, plans or corporate strategies of Phoenix until such time as such
information has been disclosed to the public otherwise than by Employee.
Employee shall return to Phoenix at the termination of this Agreement all
records of confidential information in Employee's possession and any copies,
outlines, memoranda or similar matter embodying or relating to such
confidential information. Employee shall not make use of any such confidential
information for Employee's personal benefit.
(b) Competition After Termination. During the period of this
Agreement and for two years following the termination of this Agreement,
Employee shall not enter into or participate in any business (whether serving
as an officer, employee, agent, representative, consultant or otherwise of any
corporation or as partner, joint venturer or sole proprietor) which conducts or
proposes to conduct oil and gas exploration and development activities in
direct competition with Phoenix, and Employee shall not take any action
designed to cause Phoenix to lose any of its employees, principal agreements or
any other aspects of the goodwill of Phoenix. Employee acknowledges that a
breach of this paragraph 8 would cause irreparable injury to Phoenix and
therefore expressly agrees that in the event of any such breach, Phoenix shall
be entitled, as a matter
4
<PAGE> 6
of rights and in addition to any other appropriate remedy, to injunctive relief
in any court of competent jurisdiction or in any arbitration proceedings.
(c) Sole Employment. During the term of this Agreement,
Employee shall devote Employee's full professional time and best efforts to
conducting the business of Phoenix and shall not directly engage in a business
competing with the businesses being conducted by Phoenix and shall not directly
or indirectly divert from Phoenix any business transactions in which Phoenix
has been, is or may become engaged. Nothing contained in this paragraph shall
prevent Employee from investing or trading in stock, bonds, commodities,
securities, real estate, oil and gas investments or other forms of investment
for Employee's own benefit, directly or indirectly, provided such investment
activities do not interfere with Employee's services to be rendered hereunder.
10. Miscellaneous.
(a) Approval by Phoenix. The execution of this Agreement by the
President of Phoenix evidences that this Agreement has been approved by the
Audit and Compensation Committee of the Board of Directors of Phoenix in
accordance with the authority granted such committee.
(b) Waiver of Modification. Any waiver, alteration or
modification of any of the provisions of this Agreement, or cancellation or
replacement of this Agreement, shall not be valid unless made in writing and
signed by the parties hereto, except that increases in Base Salary may occur in
due course as contemplated in the Agreement without further written
documentation.
(c) Construction. This Agreement shall be governed by the laws
of the State of Oklahoma.
(d) Binding Effect. The rights and obligations of Phoenix under
this Agreement shall be binding upon any successor or assign of Phoenix and
shall be jointly binding on all wholly-owned subsidiaries of Phoenix for so
long as they shall remain wholly-owned subsidiaries. The duties of Employee to
Phoenix shall extend to all wholly-owned subsidiaries of Phoenix. In the event
of any consolidation or merger of Phoenix into or with another entity, or a
sale or disposition of substantially all of the assets of Phoenix to another
entity, such other entity shall assume the obligations of Phoenix under this
Agreement and shall become obligated to perform all of the terms and conditions
hereof, and most particularly the obligations of paragraph 7(f). Employee may
not voluntarily assign Employee's rights under this Agreement without the prior
written consent of Phoenix.
(e) Invalidity. If any part of this Agreement shall be found to
be invalid or ineffective, the validity and effect of the remaining parts (as
construed without regard to such invalid or ineffective part) shall not be
affected, provided the essential purposes of this Agreement may thereby be
carried out.
5
<PAGE> 7
(f) Waiver. Waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
(g) Earlier Agreements. This Agreement supersedes and replaces
any and all earlier agreements of employment between Phoenix and Employee;
provided, however, that if for any reason this Agreement is nullified or found
to be null and void in any material respect, then any such earlier agreement
shall remain in full force and effect.
6
<PAGE> 1
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
EXHIBIT 18
February 10, 1995
--------------------------
Arthur Andersen LLP
--------------------------
The Phoenix Resource Companies, Inc. Suite 1200
6525 N. Meridian Avenue - Suite 102 20 Broadway
Oklahoma City, OK 73116-1491 Oklahoma City OK 73102-8286
405 236-1491
Gentlemen:
This letter is written to meet the requirements of Regulation S-K
calling for a letter from a registrant's independent accountants whenever there
has been a change in accounting principle or practice.
During the fourth quarter of 1994, the Company changed from the
successful efforts method of accounting for oil and gas properties to the full
cost method. According to the management of the Company, this change was made
because the full cost method of accounting will more accurately reflect the
results of the Company's future operations and the effects of the economic
provisions of the Company's Egyptian concession agreements. Previously, as the
Khalda Concession was being explored and developed, the Company's investment
was minimal as a result of the operator partner bearing substantially all of
the capital costs; therefore, the method of accounting had little effect on the
financial statements of the Company. As a result of the Company acquiring full
participating interests in the Qarun Concession and the South Khalda Block, and
the potential for increased activity related to natural gas in the Khalda
Concession, in which the Company is a full participating partner, the Company's
exploration expenditures will likely increase significantly. Under the various
agreements it is likely that a large portion of the Company's future
exploration expenditures, whether or not productive, will be recoverable from
future production, and under such circumstances it is more appropriate and
preferable that nonproductive costs (i.e., seismic and dry hole costs) be
capitalized, as allowed by the full cost method, rather than expensed, as
required by the successful efforts method.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of
accounting is to an acceptable alternative method of accounting, which, based
upon the reasons stated for the change and our discussions with you, is also
preferable under the circumstances in this particular case. In arriving at
this opinion, we have relied on the business judgment and business planning of
your management.
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 21
THE PHOENIX RESOURCE COMPANIES, INC.
SCHEDULE OF WHOLLY-OWNED SUBSIDIARIES
PHOENIX RESOURCES COMPANY (MAINE)
PHOENIX RESOURCES COMPANY INTERNATIONAL (DELAWARE)
Phoenix Resources Company of Egypt (Delaware)
Phoenix Resources Company of Qarun (Delaware)
PHOENIX RESOURCES COMPANY OF NORTH AMERICA (DELAWARE)
<PAGE> 1
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into The Phoenix
Resource Companies, Inc.'s previously filed registration statement on Form S-8
(File No. 33-41594).
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 16, 1995
<PAGE> 1
EXHIBIT 23 (b)
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
The Phoenix Resource Companies, Inc.:
As independent petroleum engineers, we hereby consent to all
references to our firm in the Annual Report on Form 10-K of The Phoenix
Resource Companies, Inc. (the "Company") for the fiscal year ended December 31,
1994.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By /s/ Clarence M. Netherland
------------------------------------
Clarence M. Netherland, Chairman
Dallas, Texas
February 16, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 26,536
<SECURITIES> 0
<RECEIVABLES> 2,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,245
<PP&E> 20,533
<DEPRECIATION> 13,800
<TOTAL-ASSETS> 56,441
<CURRENT-LIABILITIES> 12,576
<BONDS> 0
<COMMON> 85
0
0
<OTHER-SE> 33,473
<TOTAL-LIABILITY-AND-EQUITY> 56,441
<SALES> 32,722
<TOTAL-REVENUES> 33,844
<CGS> 5,301
<TOTAL-COSTS> 9,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,016
<INCOME-TAX> 11,125
<INCOME-CONTINUING> 12,891
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<EXTRAORDINARY> 0
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<NET-INCOME> 12,891
<EPS-PRIMARY> 1.57
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</TABLE>
