-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LY0QAHw8NAT83iLJ+EwDwrbDzMRAJUiAoMRegywvogf25X7D/m6747xuqs2qRr1q nzAwXDOAFbmuFDgJEverWQ== 0000950129-96-000274.txt : 19960305 0000950129-96-000274.hdr.sgml : 19960305 ACCESSION NUMBER: 0000950129-96-000274 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960304 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POGO PRODUCING CO CENTRAL INDEX KEY: 0000230463 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 741659398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07792 FILM NUMBER: 96530955 BUSINESS ADDRESS: STREET 1: 5 GREENWAY PLAZA STE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77046-0504 BUSINESS PHONE: 7132975017 MAIL ADDRESS: STREET 1: 5 GREENWAY PLAZA SUITE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77046-0504 FORMER COMPANY: FORMER CONFORMED NAME: PENNZOIL OFFSHORE GAS OPERATORS INC /TX/ DATE OF NAME CHANGE: 19600201 10-K405 1 POGO PRODUCING COMPANY - 12/31/95 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 1-7792 POGO PRODUCING COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1659398 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5 GREENWAY PLAZA, P.O. BOX 2504 HOUSTON, TEXAS 77252-2504 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED: - ---------------------------------- ------------------------ Common Stock, $1 par value New York Stock Exchange Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 8% Convertible Subordinated New York Stock Exchange Debentures due December 31, 2005 5 1/2% Convertible Subordinated New York Stock Exchange Notes due March 15, 2004
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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the Common Stock held by non-affiliates of the registrant (treating all executive officers and directors of the registrant, for this purpose, as if they may be affiliates of the registrant) was approximately $1,007,572,356 as of March 1, 1996 (based on $33.25 per share, the last sale price of the Common Stock as reported on the New York Stock Exchange Composite Tape on such date). 33,073,045 shares of the registrant's Common Stock were outstanding as of March 1, 1996. DOCUMENT INCORPORATED BY REFERENCE Portions of the Company's definitive Proxy Statement respecting the annual meeting of shareholders to be held on April 23, 1996 (to be filed not later than 120 days after December 31, 1995) are incorporated by reference in Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. Pogo Producing Company (the "Company"), incorporated in 1970, is engaged in oil and gas exploration, development and production activities on its properties located offshore in the Gulf of Mexico and onshore in the United States. The Company is also engaged in exploration of its license concession in the Gulf of Thailand, and has commenced, with its joint venture partners, a development program in connection with its oil and gas discoveries on that concession. As of December 31, 1995, the Company had interests in 78 lease blocks offshore Louisiana and Texas, approximately 151,000 gross acres onshore in the United States and approximately 1,300,000 gross acres offshore in the Kingdom of Thailand. DOMESTIC OFFSHORE OPERATIONS Historically, the Company's interests have been concentrated in the Gulf of Mexico, where approximately 73% of the Company's domestic proved reserves and 43% of its total proved reserves are now located. During 1995, approximately 86% of the Company's natural gas production and 67% of its oil and condensate production was from its domestic offshore properties, contributing approximately 78% of consolidated oil and gas revenues. Five offshore producing areas, Eugene Island, Main Pass, South Pass, East Cameron and South Marsh Island, account for approximately 36% of the Company's net proved natural gas reserves and approximately 37% of the Company's proved crude oil, condensate and natural gas liquids reserves. Eugene Island is the Company's largest producing area with 1995 average net revenue production (net to the Company's interest and net of royalty burdens) of approximately 51.5 million cubic feet ("MMcf") per day of natural gas and 4,800 barrels ("Bbls") per day of oil, condensate and natural gas liquids. The table in Item 2 of this Annual Report on Form 10-K for the year ended December 31, 1995 (this "Annual Report") summarizes the Company's offshore leasehold interests, drilling activity, and platforms set or announced as of December 31, 1995. Lease Acquisitions The Company has participated, either on its own or with other companies, in bidding on and acquiring interests in federal and state leases offshore in the Gulf of Mexico since December 1970. As a result of such sales and subsequent activities, as of December 31, 1995, the Company owned interests in 71 federal leases and 7 state leases offshore Louisiana and Texas. Federal leases generally have primary terms of five years and state leases generally have terms of three years, in each case subject to extension by development and production operations. As part of its strategy, the Company intends to continue an active lease evaluation program in the Gulf of Mexico in order to identify exploration and exploitation opportunities. During 1995, the Company was successful in acquiring interests in eleven lease blocks, Vermilion 346, Main Pass 207, 212 and 213, South Timbalier 316 and 317, South Pass 73, Mississippi Canyon 64 and High Island A-94, A-95 and A-377, through federal Outer Continental Shelf oil and gas lease sales and one block, Main Pass 76, through the State of Louisiana's state waters lease sale. The Department of the Interior has announced its intention to hold two lease sales during 1996 covering federal acreage in the Central and Western portions of the Gulf of Mexico; and it is anticipated that various states will also hold sales covering offshore state acreage from time to time. As in the case of prior sales, the extent to which the Company participates in future bidding will depend on the availability of funds and its estimates of hydrocarbon deposits, operating expenses and future revenues which reasonably may be expected from available lease blocks. Such estimates typically take into account, among other things, estimates of future hydrocarbon prices, federal regulations, and taxation policies applicable to the petroleum industry. It is also the Company's objective to acquire certain producing leasehold properties in areas where additional low-risk drilling or improved production methods by the Company can provide attractive rates of return. During 1995, the Company acquired additional working interests in portions of three federal lease blocks in the South Pass, Main Pass and East Cameron areas of the Gulf of Mexico. 1 3 Exploration and Development The scope of exploration and development programs relating to the Company's offshore interests is affected by prices for oil and gas, and by federal, state and local legislation, regulations and ordinances applicable to the petroleum industry. The Company's domestic offshore capital and exploration expenditures for 1995 were approximately $37,800,000 (excluding approximately $650,000 of net property acquisitions), or 22% lower than the Company's domestic offshore capital and exploration expenditures of approximately $48,400,000 (excluding approximately $32,600,000 of net property acquisitions) for 1994 and 7% lower than the Company's domestic offshore capital and exploration expenditures of approximately $40,600,000 for 1993. The decline in the Company's domestic offshore capital and exploration expenditures for 1995, compared to 1994 and 1993, resulted primarily from a decrease in planned drilling and workovers by the operators of certain of the Company's domestic offshore non-operated properties, together with adverse weather conditions offshore during the third and fourth quarters of 1995 that resulted in the postponement of certain scheduled drilling and workover operations until early 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Leases acquired by the Company and other participants in its bidding groups are customarily committed, on a block-by-block basis, to separate operating agreements under which the appointed operator supervises exploration and development operations for the account and at the expense of the group. These agreements usually contain terms and conditions which have become relatively standardized in the industry. Major decisions regarding development and operations typically require the consent of at least a majority (in working interest) of the participants. Because the Company generally has a meaningful working interest position, the Company believes it can significantly influence (but not always control) decisions regarding development and operations on most of the leases in which it has a working interest even though it may not be the operator of a particular lease. The Company is currently the operator on all or a portion of 23 of the 78 offshore leases in which it has an interest. Platforms are installed on an offshore lease block when, in the judgment of the lease interest owners, the necessary capital expenditures are justified. A decision to install a platform generally is made after the drilling of one or more exploratory wells with contracted drilling equipment. Platforms are used to accommodate both development drilling and additional exploratory drilling. Over the last three years, the gross cost of production platforms to the joint ventures in which the Company has varying net interests has averaged approximately $7,205,000. Platform costs vary and more expensive platforms could be required in the future depending on, among other factors, the number of slots, water depth, currents, and sea floor conditions. During 1995, the Company installed a platform on High Island A-451. See "Properties -- Principal Properties." In 1989, the Company entered into a limited partnership agreement as general partner of Pogo Gulf Coast, Ltd., a Texas limited partnership ("Pogo Gulf Coast"). As of December 31, 1995, Pogo Gulf Coast had interests in 12 federal offshore leases. The Company owns 40% of any interest in properties acquired by the limited partnership. Unless otherwise noted, the statistical data reported in this Annual Report reflect only the Company's share of Pogo Gulf Coast's holdings. DOMESTIC ONSHORE OPERATIONS The Company has onshore division staffs in Houston and Midland, Texas. Its onshore activities are concentrated in known oil and gas provinces, principally the Permian Basin area of southeastern New Mexico, West Texas and Northwest Texas, and in the onshore Gulf Coast area. The Company's primary drilling objective in southeastern New Mexico is the Brushy Canyon (Delaware) formation which produces oil from depths of 6,000 to 9,000 feet. Since the Company began exploring in the Brushy Canyon (Delaware) formation in October 1989, it has participated in the drilling of 259 wells through December 31, 1995, including 50 wells in 1995. During the month of December 1995, the Company's net revenue interest portion of daily oil and condensate production from its Western Division, principally from its Permian Basin New Mexico properties, averaged approximately 4,072 Bbls which represented approximately 34% of the Company's total average daily production of oil and condensate during such month. 2 4 The Company generally conducts its onshore activities through joint ventures and other interest-sharing arrangements with major and independent oil companies. The Company operates many of its own onshore properties using independent contractors. The Company's domestic onshore capital and exploration expenditures were approximately $32,950,000 (excluding approximately $7,750,000 of net property acquisitions) for 1995, or 3% higher than the Company's domestic onshore capital and exploration expenditures of approximately $32,000,000 for 1994 and 11% higher than the Company's domestic onshore capital and exploration expenditures of approximately $29,800,000 for 1993. As of December 31, 1995, the Company held leases on 95,286 net acres onshore in the United States. Onshore reserves as of December 31, 1995, accounted for approximately 27% of the Company's domestic proved reserves and approximately 16% of its total proved reserves. During 1995, approximately 14% of the Company's natural gas production and 33% of its oil and condensate production was from its domestic onshore properties, contributing approximately 22% of consolidated oil and gas revenues. INTERNATIONAL OPERATIONS The Company has conducted international exploration activities since the late 1970's in numerous oil and gas areas throughout the world. The Company pursues a strategy of evaluating potentially high return prospects in areas of the world with a stable political and financial climate such as certain European and ASEAN ("Association of Southeast Asian Nations") countries. Currently, the Company maintains an office in Bangkok, Thailand from which it directs a field development project in the Gulf of Thailand on a portion of its Block B8/32 Concession discussed below. The Company's international capital and exploration expenditures were approximately $34,950,000 for 1995 (excluding approximately $4,171,000 of net property acquisitions), or 450% higher than the Company's international capital and exploration expenditures of approximately $6,350,000 for 1994 and 483% higher than the Company's international capital and exploration expenditures of approximately $6,000,000 for 1993. Substantially all of the Company's international capital and exploration expenditures for 1995 were related to the Company's license in the Kingdom of Thailand. In addition, the Company continues to evaluate other international opportunities that are consistent with the Company's international exploration strategy. Tantawan Field In August 1995, at the request of Pogo's wholly owned subsidiary Thaipo Limited ("Thaipo") and two of its joint venture partners, the government of Thailand designated a portion of the Block B8/32 Concession (the "Concession") comprising approximately 68,000 acres as the Tantawan production area. The Tantawan production area, of which Thaipo is the operator and has a 46.34% working interest, has been named the Tantawan Field. Through March 1, 1996, ten exploration and nine development wells have been drilled in the Tantawan production area, all but one of which encountered hydrocarbons. A tenth development well is currently being drilled in the Tantawan production area and additional wells are currently planned for 1996. Thaipo and its partners are currently engaged in further development drilling and in the design and construction of offshore platforms and pipelines for the Tantawan Field. Oil and gas production from the field will be gathered through pipelines from the platforms into a Floating Production, Storage and Offloading system (an "FPSO") to be named the "Tantawan Explorer." The FPSO Tantawan Explorer will be a converted oil tanker with a capacity of slightly less than 1,000,000 Bbls, that will be moored in the Tantawan Field, on which hydrocarbon processing, separation, dehydration, compression, metering and other production related equipment will be installed. Following processing on board the FPSO, natural gas produced from the field will be delivered into the export pipeline currently under construction by the Petroleum Authority of Thailand ("PTT"). Oil and condensate produced from the field will be stored on board the FPSO and transferred to shore by oil tanker. The FPSO and its processing equipment, which is currently under construction, will be leased from a third party under a bareboat charter by Tantawan Services, LLC, an affiliate of Thaipo. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Thaipo and its joint venture partners will pay a daily processing fee to Tantawan Services, LLC, to process the production from the Tantawan Field through the 3 5 FPSO. The FPSO has been designed with an initial processing capacity of 50,000 Bbls per day of oil and condensate, and 150 MMcf per day of natural gas, expandable to 200 MMcf per day. An additional 100 MMcf per day of natural gas can bypass the processing facilities, as necessary, and enter the export pipeline manifold now being fabricated for use in the Tantawan Field. The Company currently anticipates achieving first-production from the Tantawan Field in the latter part of the fourth quarter of 1996, contingent upon various factors including timely delivery of the FPSO by its lessor, the completion of the new pipeline being constructed by PTT, and ongoing development drilling and field facilities construction by the concessionaires and their contractors. See "-- Miscellaneous; Sales." On November 7, 1995, Thaipo and its joint venture partners announced the signing of a thirty-year gas sales agreement with PTT, initially governing gas production from the Tantawan Field. Initial terms of the agreement include an initial minimum daily contract quantity ("DCQ") during the first year after production commences from the Tantawan Field (or 1997) of 75 MMcf per day with the DCQ rising to 85 MMcf per day in the following year. The DCQ is the minimum daily volume that PTT has agreed to take, or pay for if not taken under the agreement. Mutual agreement on dedicated reserves would be renegotiated as and when the DCQ exceeds 125 MMcf per day. Initial base gas prices start at approximately $2.00 per thousand cubic feet ("Mcf"), subject to semi-annual adjustments based upon a formula which takes into account changes in Thai wholesale and fuel oil prices and the U.S./Thai currency exchange rate. Benchamas and Pakakrong Discoveries Exploration efforts also continue on those portions of the Concession outside the Tantawan production area. Through March 1, 1996, six exploration wells have been drilled on the Concession outside of the Tantawan Field production area. This includes four wells, all of which have encountered hydrocarbons, on the Benchamas prospect and one well, which also encountered hydrocarbons, on the Pakakrong prospect. A second well is currently being drilled on the Pakakrong structure. Thaipo, which does not act as the operator on those portions of the Concession outside the Tantawan production area, owns a 31.67% working interest in the Benchamas and Pakakrong prospects and all other portions of the Concession outside the Tantawan production area. In addition to the Benchamas and Pakakrong prospects, Thaipo and its joint venture partners have identified several other potentially promising seismic structures on the approximately 1.3 million acres of Concession that are not part of the Tantawan production area. In 1995, Thaipo and its joint venture partners shot, processed and are currently evaluating 13,283 kilometers of new 3-D seismic data on parts of the Concession outside of the Tantawan production area. This 3-D seismic data is in addition to the 19,500 kilometers of 3-D seismic that have already been acquired on the Concession since 1993. Thaipo and its joint venture partners currently plan to acquire additional 3-D seismic data during 1996 on certain other parts of the Concession outside of the Tantawan production area. As a result of this successful drilling program, the Company's net proved reserves located on the Concession are currently estimated at 132 billion cubic feet ("Bcf") of natural gas, or approximately 40% of the Company's total estimated net proved reserves of natural gas, 19 million Bbls ("MMBbls") of crude oil, condensate and natural gas liquids, or approximately 42% of the Company's total estimated net proved reserves of oil, condensate and natural gas liquids, which totals, on an equivalent basis, 246 Bcf equivalent ("Bcfe"), or approximately 41% of the Company's total net proved oil and gas equivalent reserves. Any production resulting from the Concession (including the Tantawan production area) will be subject to a royalty ranging from 5% to 15% of oil and gas sales, plus certain fixed dollar amounts payable at specified cumulative production levels. Revenue from production in Thailand will also be subject to income taxes and other similar governmental charges. As set forth in the August 1991 Concession agreement, the initial exploratory term of the Concession agreement is for a period of up to six years expiring on July 31, 1997; subject to further extension as described below. In addition, the Concession agreement also required Thaipo and its joint venture partners on July 31, 1995, to release back to the government approximately 1.3 million acres out of the original approximately 2.6 million acres included in the Concession on July 31, 1995. The area that was released was located primarily in the western half of the Concession. At the end of the Concession agreement's initial exploration term on July 31, 1997, Thai petroleum law permits the government to grant, upon application by a concessionaire, an additional three year exploration term on up to fifty percent of the 4 6 Concession acreage that has not been previously designated as a production area or returned to the government, subject to certain terms and conditions including the agreement to undertake a work program and the payment of substantial fees and rentals. Following the commencement of production, the initial production period term is 20 years, subject to extension, for those portions of the Concession that are designated as production areas. See also "-- Miscellaneous; Sales." MISCELLANEOUS Other Assets The Company and a subsidiary, Pogo Offshore Pipeline Co., own minority interests in four pipelines through which offshore oil production is transported. In addition, the Company owns an approximately 19.3% interest in a cryogenic gas processing plant near Erath, Louisiana, which entitles it to process up to 186 MMcf of natural gas and 5,478 Bbls of natural gas liquids per day. The plant is not currently operating at full capacity. Sales The marketing of offshore oil and gas production is subject to the availability of pipelines and other transportation, processing and refining facilities, as well as the existence of adequate markets. As a result, even if hydrocarbons are discovered in commercial quantities, a substantial period of time may elapse before commercial production commences. If pipeline facilities in an area are insufficient, the Company may have to await the construction or expansion of pipeline capacity before production from that area can be marketed. The Company's domestic offshore properties are generally located in areas where a pipeline infrastructure is well developed and there is adequate availability in such pipelines to handle the Company's current and projected future production. The Company's concession in Thailand is traversed by a major (34 inches in diameter) natural gas pipeline that is owned and operated by PTT which comes within approximately 25 miles of the Tantawan structure. This pipeline is currently running at or near capacity. However, completion of a second, parallel, 36 inch in diameter pipeline that is also owned, and will be operated, by PTT is expected to occur during 1996. Thaipo and its joint venture partners in the Tantawan field signed a long term gas sales contract with PTT in November 1995. See "-- International Operations; Tantawan Field." Development plans for the Tantawan field currently contemplate that oil and condensate production from the Tantawan field will initially be stored aboard the FPSO, sold to PTT and transferred to shore by means of oil tankers. The marketing of onshore oil and gas production is also subject to the availability of pipelines, crude oil hauling and other transportation, processing and refining facilities as well as the existence of adequate markets. Generally, the Company's onshore domestic oil and gas production is located in areas where commercial production of economic discoveries can be rapidly effectuated. Most of the Company's natural gas sales are currently made in the "spot market" for no more than one month at a time at then currently available prices. Prices on the spot market fluctuate with demand. Crude oil and condensate production is also generally sold one month at a time at the currently available prices. Other than any futures contracts which may exist from time to time, and which are referred to in "-- Miscellaneous; Competition and Market Conditions," and the gas sales contract for production from the Tantawan field (see "-- International Operations; Tantawan Field") the Company has no existing contracts that require the delivery of fixed quantities of oil or natural gas other than on a best efforts basis. See also "Financial Statements and Supplementary Data -- Note 4 to Notes to Consolidated Financial Statements and -- Unaudited Supplementary Financial Data." Competition and Market Conditions The Company experiences competition from other oil and gas companies in all phases of its operations, as well as competition from other energy related industries. The Company's profitability and cash flow are highly dependent upon the prices of oil and natural gas, which historically have been seasonal, cyclical and volatile. 5 7 In general, prices of oil and gas are dependent upon numerous factors beyond the control of the Company, including various weather, economic, political and regulatory conditions. In the past, when natural gas prices in the United States were lower than they are currently, the Company at times elected to curtail certain quantities of its production. For example, in the fourth quarter of 1994, the Company curtailed a small portion of its daily natural gas production. As of March 1, 1996, the Company was not curtailing any of its natural gas production as a result of low natural gas prices. Should natural gas prices fall again in the future, the Company may again elect to curtail certain quantities of its natural gas production. Any significant decline in oil or gas prices could have a material adverse effect on the Company's operations and financial condition and could, under certain circumstances, result in a reduction in funds available under the Company's bank credit facility. Because it is impossible to predict future oil and gas price movements with any certainty, the Company from time to time enters into contracts on a portion of its production to hedge against the volatility in oil and gas prices. Such hedging transactions, historically, have never exceeded 50% of the Company's total oil and gas production on an energy equivalent basis for any given period. While intended to limit the negative effect of price declines, such transactions could effectively limit the Company's participation in price increases for the covered period, which increases could be significant. As of March 1, 1996, the Company was not a party to any natural gas future contracts or crude oil swap agreements. When the Company does engage in such hedging activities, it may satisfy its obligations with its own production or by the purchase (or sale) of third party production. The Company may also cancel all delivery obligations by offsetting such obligations with equivalent agreements, thereby effecting a purely cash transaction. Operating and Uninsured Risks The Company's operations are subject to risks inherent in the exploration for and production of oil and natural gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, pollution and other environmental risks. Offshore oil and gas operations are subject to the additional hazards of marine and helicopter operations, such as capsizing, collision and adverse weather and sea conditions. These hazards could result in substantial losses to the Company due to injury or loss of life, severe damage to and destruction of property and equipment, pollution and other environmental damage and suspension of operations. The Company carries insurance which it believes is in accordance with customary industry practices, but is not fully insured against all risks incident to its business. Drilling activities are subject to numerous risks, including the risk that no commercially productive hydrocarbon reserves will be encountered. The cost of drilling, completing and operating wells and of installing production facilities and pipelines is often uncertain. The Company's drilling operations may be curtailed, delayed or canceled as a result of numerous factors, including weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment. The availability of a ready market for the Company's natural gas production depends on a number of factors, including the demand for and supply of natural gas, the proximity of natural gas reserves to pipelines, the capacity of such pipelines and government regulations. Risks of Foreign Operations Ownership of property interests and production operations in Thailand and in any other areas outside the United States that the Company may choose to do business, are subject to the various risks inherent in foreign operations. These risks may include, among other things, currency restrictions and exchange rate fluctuations, loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection and other political risks, risks of increases in taxes and governmental royalties, renegotiation of contracts with governmental entities, changes in laws and policies governing operations of foreign-based companies and other uncertainties arising out of foreign government sovereignty over the Company's international operations. The Company's international operations may also be adversely affected by laws and policies of the United States affecting foreign trade, taxation and investment. In addition, in the event of a dispute arising from foreign operations, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of the courts of the United States. The Company seeks to manage these risks by concentrating its international exploration efforts in areas 6 8 where the Company believes that the existing government is stable and favorably disposed towards United States exploration and production companies. The Company believes that the Kingdom of Thailand currently presents favorable conditions in which to conduct international operations. EXPLORATION AND PRODUCTION DATA In the following data "gross" refers to the total acres or wells in which the Company has an interest and "net" refers to gross acres or wells multiplied by the percentage working interest owned by the Company. Acreage The following table shows the Company's interest in developed and undeveloped oil and gas acreage as of December 31, 1995:
DEVELOPED ACREAGE(a) UNDEVELOPED ACREAGE(b) ------------------- ---------------------- GROSS NET GROSS NET ------- ------- ---------- -------- DOMESTIC ONSHORE Louisiana................................ 869 209 3,252 1,253 New Mexico............................... 17,495 9,370 59,809 41,275 Texas.................................... 16,893 8,960 49,587 33,831 Other.................................... 3,200 333 238 55 ------- ------- ---------- -------- Total Domestic Onshore........... 38,457 18,872 112,886 76,414 ======= ======= ========== ======== DOMESTIC OFFSHORE Louisiana (State)........................ 7,804 3,120 1,169 584 Louisiana (Federal)(c)................... 174,625 59,786 77,200 24,805 Texas (Federal).......................... 46,080 11,820 23,040 15,552 ------- ------- ---------- -------- Total Domestic Offshore.......... 228,509 74,726 101,409 40,941 ------- ------- ---------- -------- TOTAL DOMESTIC............................. 266,966 93,598 214,295 117,355 ------- ------- ---------- -------- INTERNATIONAL Thailand (Offshore)...................... -- -- 1,351,556 437,971 ------- ------- ---------- -------- TOTAL COMPANY.............................. 266,966 93,598 1,565,851 555,326 ======= ======= ========== ========
- --------------- (a) "Developed acreage" consists of lease acres spaced or assignable to production on which wells have been drilled or completed to a point that would permit production of commercial quantities of oil and natural gas. (b) Approximately 14% of the Company's total domestic offshore net undeveloped acreage is under leases that have terms expiring in 1996 (unless otherwise extended) and another approximately 4.5% of total domestic offshore net undeveloped acreage will expire in 1997 (unless otherwise extended). Approximately 15% of the Company's total domestic onshore net undeveloped acreage is under leases that have terms expiring in 1996 (unless otherwise extended) and another approximately 7% of total domestic onshore net undeveloped acreage will expire in 1997 (unless otherwise extended). None of the Company's total international net undeveloped acreage will need to be relinquished in 1996. However, approximately 93% of the Company's total international net undeveloped acreage must be relinquished to the Thai government in 1997 unless designated as a production area or unless the exploration term is extended as discussed hereinabove. See "Business -- International Operations; Benchamas Discovery." (c) The Company also owns overriding royalty interests in one federal lease offshore Louisiana. 7 9 Productive Wells and Drilling Activity The following table shows the Company's interest in productive oil and natural gas wells as of December 31, 1995. Productive wells are producing wells plus wells "capable of production" (e.g., natural gas wells waiting for pipeline connections or necessary governmental certification to commence deliveries and oil wells waiting to be connected to production facilities).
NATURAL GAS OIL WELLS(A) WELLS(A) --------------- -------------- GROSS NET GROSS NET ----- ----- ----- ---- Offshore United States................................ 193 47.4 168 53.7 Onshore United States................................. 260 159.1 70 27.5 --- ----- --- ---- Total....................................... 453 206.5 238 81.2 === ===== === ====
- --------------- (a) One or more completions in the same bore hole are counted as one well. The data in the above table includes 31 gross (8.0 net) oil wells and 13 gross (5.4 net) natural gas wells with multiple completions. The following table shows the number of successful gross and net exploratory and development wells in which the Company has participated and the number of gross and net wells abandoned as dry holes during the periods indicated. An onshore well is considered successful upon the installation of permanent equipment for the production of hydrocarbons. Successful offshore wells consist of exploratory or development wells that have been completed or are "suspended" pending completion (which has been determined to be feasible and economic) and exploratory test wells that were not intended to be completed and that encountered commercially producible hydrocarbons. A well is considered a dry hole upon reporting of permanent abandonment to the appropriate agency.
1995 1994 1993 ----------------- ------------------ ----------------- SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY ---------- --- ---------- ---- ---------- --- GROSS WELLS: Offshore United States Exploratory........................ 7.0 4.0 2.0 -- 5.0 1.0 Development........................ 3.0 1.0 25.0 2.0 15.0 -- Onshore United States Exploratory........................ 8.0 1.0 3.0 6.0 3.0 4.0 Development........................ 47.0 1.0 51.0 3.0 61.0 1.0 Offshore Kingdom of Thailand Exploratory........................ 3.0 -- 5.0 -- 2.0 2.0 Development........................ 7.0 -- -- -- -- -- ---- --- ---- ---- ---- --- Total...................... 75.0 7.0 86.0 11.0 86.0 8.0 ==== === ==== ==== ==== === NET WELLS: Offshore United States Exploratory........................ 3.0 1.6 0.6 -- 1.7 0.1 Development........................ 1.0 0.4 8.4 1.4 7.7 -- Onshore United States Exploratory........................ 4.6 1.0 2.8 3.6 2.0 3.2 Development........................ 31.3 0.1 29.9 0.9 33.1 0.4 Offshore Kingdom of Thailand Exploratory........................ 1.1 -- 1.6 -- 0.6 0.6 Development........................ 3.2 -- -- -- -- -- ---- --- ---- ---- ---- --- Total...................... 44.2 3.1 43.3 5.9 45.1 4.3 ==== === ==== ==== ==== ===
8 10 As of December 31, 1995, the Company was participating in the drilling of 2 gross (0.7 net) offshore domestic wells, 8 gross (4.2 net) onshore wells and 2 gross (0.8 net) wells offshore the Kingdom of Thailand. Production and Sales The following table summarizes the Company's average daily production, net of all royalties, overriding royalties and other outstanding interests, for the periods indicated. Natural gas production refers only to marketable production of natural gas on an "as sold" basis.
1995 1994 1993 ------- ------- ------- Production Sales: Natural Gas (Mcf per day)............................. 121,000 144,800 91,700 ======= ======= ======= Liquid Hydrocarbons (Bbls per day) Crude Oil and Condensate........................... 11,786 11,100 9,851 Natural Gas Liquids(a)............................. 1,998 2,222 1,678 ------- ------- ------- Total Liquid Hydrocarbons..................... 13,784 13,322 11,529 ======= ======= =======
- --------------- (a) Natural Gas Liquids production sales includes sales attributable to both the Company's leasehold and plant ownership. The following table shows the average sales prices received by the Company for its production and the average production (lifting) costs per unit of production during the periods indicated. See "-- Miscellaneous; Competition and Market Conditions and Sales."
1995 1994 1993 ------ ------ ------ Sales Prices: Natural Gas (per Mcf).................................... $ 1.63 $ 1.88 $ 1.98 Crude Oil and Condensate (per Bbl)....................... $17.80 $16.08 $17.81 Natural Gas Liquids (per Bbl)............................ $11.10 $11.33 $11.90 Production (lifting) Costs(a) Natural Gas, Crude Oil, Condensate and Natural Gas Liquids (per equivalent Mcf of Natural Gas)........... $ 0.47 $ 0.36 $ 0.45
- --------------- (a) Production costs were converted to common units of measure on the basis of relative energy content. Such production costs exclude all depletion and amortization associated with property and equipment. 9 11 Reserves The following table sets forth information as to the Company's net proved and proved developed reserves as of December 31, 1995, 1994, and 1993, and the present value as of such dates (based on an annual discount rate of 10%) of the estimated future net revenues from the production and sale of those reserves, as estimated by Ryder Scott Company Petroleum Engineers, Houston, Texas ("Ryder Scott") in accordance with criteria prescribed by the Securities and Exchange Commission (the "Commission"). The summary report of Ryder Scott on the reserve estimates, which includes definitions and assumptions, is set forth as an exhibit to this Annual Report and definitions, assumptions and descriptions of methodology following the tables are based upon the Ryder Scott report.
AS OF DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- Total Proved Reserves: Oil, condensate, and natural gas liquids (thousands of Bbls ("MBbls")) -- Located in the United States.................... 26,185 26,188 22,843 Located in the Kingdom of Thailand.............. 18,997 7,674 5,425 -------- -------- -------- Total Company.............................. 45,182 33,862 28,268 ======== ======== ======== Natural Gas (MMcf) Located in the United States.................... 196,454 186,151 199,392 Located in the Kingdom of Thailand.............. 131,607 56,739 33,474 -------- -------- -------- Total Company.............................. 328,061 242,890 232,866 ======== ======== ======== Present value of estimated future net revenues, before income taxes (in thousands) Located in the United States.................... $400,845 $330,868 $386,674 Located in the Kingdom of Thailand.............. 131,630 52,112 17,166 -------- -------- -------- Total Company.............................. 532,475 382,980 $403,840 ======== ======== ======== Proved Developed Reserves (all located in the United States): Oil, condensate, and natural gas liquids (thousands of Bbls)........................................ 22,488 24,670 20,976 Natural Gas (MMcf)................................. 164,679 178,518 183,139 Present value of estimated future net revenues, before income taxes (in thousands).............. $359,984 $321,514 $375,287
Natural gas liquids comprise approximately 9% of the Company's total proved liquids reserves and approximately 15% of the Company's proved developed liquids reserves. All hydrocarbon liquid reserves are expressed in standard 42 gallon Bbls. All gas volumes and gas sales are expressed in MMcf at the pressure and temperature bases of the area where the gas reserves are located. Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (i) that portion delineated by drilling and defined by fluid contacts, if any, and (ii) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data becomes available. Proved natural gas reserves 10 12 are comprised of nonassociated, associated and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of established improved recovery techniques are included in the proved classification when these qualifications are met: (i) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (ii) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including, (i) pressure maintenance, (ii) cycling, and (iii) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, condensate, natural gas, or natural gas liquids being held in underground storage. Depending on the status of development, these proved reserves are further subdivided into: (i) "developed reserves" which are those proved reserves reasonably expected to be recovered through existing wells with existing equipment and operating methods, including (a) "developed producing reserves" which are those proved developed reserves reasonably expected to be produced from existing completion intervals now open for production in existing wells, and (b) "developed non-producing reserves" which are those proved developed reserves which exist behind casing of existing wells which are reasonably expected to be produced through these wells in the predictable future where the cost of making such hydrocarbons available for production should be relatively small compared to the cost of new wells; and (ii) "undeveloped reserves" which are those proved reserves reasonably expected to be recovered from new wells on undrilled acreage, from existing wells where a relatively large expenditure is required and from acreage for which an application of fluid injection or other improved recovery technique is contemplated where the technique has been proved effective by actual tests in the area in the same reservoir. Reserves from undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units are included only where it can be demonstrated with reasonable certainty that there is continuity of production from the existing productive formation. The Company has interests in certain tracts which may have substantial additional hydrocarbon quantities which cannot be classified as proved and are not included herein. The Company has active exploratory and development drilling programs which in all likelihood will result in the reclassification of significant additional quantities to the proved category. In computing future revenues from gas reserves attributable to the Company's interests, prices in effect at December 31, 1995 were used, including current market prices, contract prices and fixed and determinable price escalations where applicable. In accordance with Commission guidelines, the future gas prices that were used make no allowances for seasonal variations in gas prices which are likely to cause future yearly average gas prices to be somewhat lower than December gas prices. For gas sold under contract, the contract gas price including fixed and determinable escalations, exclusive of inflation adjustments, was used until the contract expires and then was adjusted to the current market price for the area and held at this adjusted price to depletion of the reserves. In computing future revenues from liquids attributable to the Company's interest, prices in effect at December 31, 1995 were used and these prices were held constant to depletion of the properties. With respect to the Company's Thailand properties, production was assumed to commence in the latter part of 1996, at the initial sales price provided for in the long term gas sales contract between Thaipo, its joint venture partners in the Tantawan production area, and PTT. See "-- International Operations." The estimates of future net revenue from the Company's domestic and Thailand properties are based on existing law where the properties are located and are calculated in accordance with Commission guidelines. Operating costs for the leases and wells include only those costs directly applicable to the leases or wells. When applicable, the operating costs include a portion of general and administrative costs allocated directly to the leases and wells under terms of operating agreements. Development costs are based on authorization for 11 13 expenditure for the proposed work or actual costs for similar projects. The current operating and development costs were held constant throughout the life of the properties. For properties located onshore, the estimates of future net revenues and the present value thereof do not consider the salvage value of the lease equipment or the abandonment cost of the lease since both are relatively insignificant and tend to offset each other. The estimated net cost of abandonment after salvage was considered for offshore properties where such costs net of salvage are significant. No deduction was made for indirect costs such as general and administrative and overhead expenses, loan repayments, interest expenses, and exploration and development prepayments. Accumulated gas production imbalances, if any, have been taken into account. Production data used to arrive at the estimates set forth above includes estimated production for the last few months of 1995. The future production rates from reservoirs now on production may be more or less than estimated because of, among other reasons, mechanical breakdowns and changes in market demand or allowables set by regulatory bodies. Properties which are not currently producing may start producing earlier or later than anticipated in the estimates of future production rates. The future prices received by the Company for the sales of its production may be higher or lower than the prices used in calculating the estimates of future net revenues and the present value thereof as set forth herein, and the operating costs and other costs relating to such production may also increase or decrease from existing levels; however, such possible changes in prices and costs were, in accordance with rules adopted by the Commission, omitted from consideration in arriving at such estimates. There are numerous uncertainties in estimating the quantity of proved reserves and in projecting the future rates of production and timing of development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ materially from those of Ryder Scott, the Company's reserve engineers. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered. The Company is periodically required to file estimates of its oil and gas reserve data with various governmental regulatory authorities and agencies, including the Federal Energy Regulatory Commission ("FERC") and the Federal Trade Commission. In addition, estimates are from time to time furnished to governmental agencies in connection with specific matters pending before such agencies. The basis for reporting reserves to these agencies, in some cases, is not comparable to that furnished above because of the nature of the various reports required. The major differences include differences in the time as of which such estimates are made, differences in the definition of reserves, requirements to report in some instances on a gross, net or total operator basis and requirements to report in terms of smaller geographical units. During 1995, no estimates by the Company of its total proved net oil and gas reserves were filed with or included in reports to any governmental authority or agency other than the Commission and, with respect to reserves relating to the Company's properties located in Thailand, the Kingdom of Thailand's Department of Mineral Resources. GOVERNMENT REGULATION The Company's operations are affected from time to time in varying degrees by political developments and governmental laws and regulations. Rates of production of oil and gas have for many years been subject to federal and state conservation laws and regulations, and the petroleum industry has been subject to governmental tax laws dealing specifically with it. 12 14 Federal Income Tax The Company's operations are significantly affected by certain provisions of the federal income tax laws applicable to the petroleum industry. The principal provisions affecting the Company are those that permit the Company, subject to certain limitations, to deduct as incurred, rather than to capitalize and amortize, its domestic "intangible drilling and development costs" and to claim depletion on a portion of its domestic oil and gas properties based on 15% of its oil and gas gross income from such properties (up to an aggregate of 1,000 Bbls per day of domestic crude oil and/or equivalent units of domestic natural gas) even though the Company has little or no basis in such properties. Under certain circumstances, however, a portion of such intangible drilling and development costs and the percentage depletion allowed in excess of basis will be tax preference items that will be taken into account in computing the Company's alternative minimum tax. Environmental Matters Domestic oil and gas operations are subject to extensive federal regulation and, with respect to federal leases, to interruption or termination by governmental authorities on account of environmental and other considerations including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") also known as the "Superfund Law." The recent trend towards stricter standards in environmental legislation and regulation may continue, and this could increase costs to the Company and others in the industry. Regulations of the Department of the Interior currently impose absolute liability upon the lessee under a federal lease for the costs of clean-up of pollution resulting from a lessee's operations, and such lessee may also be subject to possible legal liability for pollution damages. The Company maintains insurance against costs of clean-up operations, but is not fully insured against all such risks. A serious incident of pollution may, as it has in the past, also result in the Department of the Interior requiring lessees under federal leases to suspend or cease operation in the affected area. The operators of the Company's properties have numerous applications pending before the Environmental Protection Agency (the "EPA") for National Pollution Discharge Elimination System water discharge permits with respect to offshore drilling and production operations. The issue generally involved is whether effluent discharges from each facility or installation comply with the applicable federal regulations. See "Legal Proceedings" for a discussion of other environmental matters. The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder impose a variety of regulations on "responsible parties" (which include owners and operators of offshore facilities) related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A "responsible party" includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by the OPA. The OPA also imposes ongoing requirements on responsible parties, including proof of financial responsibility to cover at least some costs in a potential spill. For tank vessels, including mobile offshore drilling rigs, the OPA imposes on owners, operators and charterers of the vessels, an obligation to maintain evidence of financial responsibility of up to $10,000,000 depending on gross tonnage. With respect to offshore facilities, proof of greater levels of financial responsibility may be applicable. On August 25, 1993, the Mineral Management Service (the "MMS") published an advance notice of its intention to adopt a rule under OPA that would require owners and operators of offshore oil and gas facilities to establish $150,000,000 in financial responsibility to cover costs that might be incurred by governmental entities in responding to an oil spill. Under the proposed rule, financial responsibility could be established through insurance, guaranty, indemnity, surety bond, letter of credit, qualification as a self-insurer or a combination thereof. There is substantial uncertainty as to whether insurance companies or underwriters will be willing to provide coverage under OPA because the statute provides for direct lawsuits against insurers who provide financial responsibility coverage, and most insurers have strongly protested this requirement. The financial tests or other criteria that will be 13 15 used to judge self-insurance are also uncertain. Both the Senate and the U.S. House of Representatives recently adopted separate legislation that would lower the financial responsibility requirement under the OPA to $35,000,000 in most cases, but this legislation has not yet been reconciled in conference committee for consideration by both chambers of Congress. The Company cannot predict the result of any legislative action or the final form of the financial responsibility rule that will be adopted, but such rule has the potential to result in the imposition of substantial additional annual costs on the Company or otherwise materially adversely affect the Company. The impact of the rule, however, should not be any more adverse to the Company than it will be to other similarly situated or less capitalized owners or operators in the Gulf of Mexico. The Company's onshore operations are subject to numerous United States federal, state, and local laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment including CERCLA. Such regulations, among other things, impose absolute liability on the lessee under a lease for the cost of clean-up of pollution resulting from a lessee's operations, subject the lessee to liability for pollution damages, may require suspension or cessation of operations in affected areas, and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate groundwater. Such laws, if enacted, could have a significant impact on the operating costs of the Company, as well as the oil and gas industry in general. State initiatives to further regulate the disposal of oil and gas wastes are also pending in certain states, and these initiatives could have a similar impact on the Company. The Company is asked to comment on the costs it incurred during the prior year on capital expenditures for environmental control facilities and the amount it anticipates incurring during the coming year. The Company believes that, in the course of conducting its oil an gas operations, many of the costs attributable to environmental control facilities would have been incurred absent environmental regulations as prudent, safe oilfield practice. During 1995, the Company incurred capital expenditures of approximately $1,497,000 for environmental control facilities, primarily relating to the completion of two salt water disposal facilities in New Mexico. The Company currently has budgeted approximately $1,000,000 for environmental control facilities during 1996, including, among other things, one salt water disposal facility. Other Laws and Regulations Various laws and regulations often require permits for drilling wells and also cover spacing of wells, the prevention of waste of oil and gas including maintenance of certain gas/oil ratios, rates of production and other matters. The effect of these laws and regulations, as well as other regulations that could be promulgated by the jurisdictions in which the Company has production, could be to limit the number of wells that could be drilled on the Company's properties and to limit the allowable production from the successful wells completed on the Company's properties, thereby limiting the Company's revenues. The MMS administers the oil and gas leases held by the Company on federal onshore lands and offshore tracts in the Outer Continental Shelf. The MMS holds a royalty interest in these federal leases on behalf of the federal government. While the royalty interest percentage is fixed at the time that the lease is entered into, from time to time the MMS changes or reinterprets the applicable regulation governing its royalty interests, and such action can indirectly affect the actual royalty obligation that the Company is required to pay. In a letter dated May 3, 1993, the MMS announced a reinterpretation of its right to collect royalty payments from producers on certain settlements in which such producers and pipeline companies were involved a number of years ago. The MMS reinterpretation has been challenged in court by various producers and trade groups representing them. To date, the rulings of various courts have been mixed. The Company was involved in several settlement agreements with pipelines that could be subject to the MMS' new reinterpretation. The MMS is currently reviewing the Company's and other producers' settlement agreements, to see if it believes any additional royalty payments may be due. The Company does not believe that it owes any additional royalties beyond what it has previously paid. However, in the event additional royalty is assessed against the Company in connection with settlement agreements to which the Company is a party, the Company does not currently believe that such additional assessment will have a material adverse impact on the financial condition of the Company. 14 16 Prior to January 1, 1993, various aspects of the Company's natural gas operations were subject to regulations by the FERC under the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA") with respect to "first sales" of natural gas including price controls and certificate and abandonment authority regulations. However, as a result of the enactment of the Natural Gas Decontrol Act of 1989, the remaining "first sales" restrictions imposed by the NGA and the NGPA terminated on January 1, 1993. The FERC responded to the deregulation of first sales with an effort to increase competition for pipeline services. FERC Order 636, issued in April 1992, requires each pipeline company, among other things, to "unbundle" its traditional wholesale services and create and make available on an open and nondiscriminatory basis numerous constituent services (such as gathering services, storage services, firm and interruptible transportation services, and stand-by sales services) and to adopt a new rate making methodology to determine appropriate rates for those services. In subsequent orders, the FERC largely affirmed Order 636 and denied a stay of the implementation of the new rules pending judicial review. The FERC has also recently embarked on regulatory initiatives relating to its jurisdiction over rates for natural gas gathering services provided by interstate pipelines and to the availability of market-based and other alternative rate mechanisms to such pipelines for transmission and storage services. Inasmuch as the rates for these pipeline services can affect the gas prices received by the Company for the sale of its production, the FERC's actions may have an impact on the Company EMPLOYEES As of December 31, 1995, the Company had 115 employees. None of the Company's employees are presently represented by a union for collective bargaining purposes. The Company considers its relations with its employees to be excellent. ITEM 2. PROPERTIES. The information appearing in Item 1 of this Annual Report is incorporated herein by reference. PRINCIPAL PRODUCING PROPERTIES As of January 1, 1996, six significant producing areas, of which five are located in the Gulf of Mexico and the sixth is located in New Mexico, accounted for approximately 42% of the estimated proved natural gas reserves and approximately 56% of the estimated oil, condensate and natural gas liquids reserves of the Company. These six producing areas also accounted for approximately 77% of natural gas production and 97% of oil, condensate and natural gas liquids production for 1995. Reserves, as estimated by Ryder Scott, and production data, as estimated by the Company, for the six principal producing areas are shown in the following table. No other major producing area accounted for more than 2.5% of the estimated discounted future net revenues attributable to the Company's estimated proved reserves as of January 1, 1996. Because it is not yet a producing property, the Company's Thailand concession does not appear on the following table even though it 15 17 accounts for approximately 41% of the Company's total net proved oil and gas equivalent reserves. See "Business -- International Operations." SIGNIFICANT PRODUCING AREAS
1995 AVERAGE NET NET PROVED RESERVES DAILY PRODUCTION AS OF JANUARY 1, 1996 ----------------------------- DISCOUNTED ------------------------------ FUTURE NATURAL GAS LIQUIDS(A) NATURAL GAS LIQUIDS(A) NET ------------- -------------- ------------- ------------- REVENUES(B) (MMcf) % (MBbls) % (Mcf) % (Bbls) % % ------ ---- ------- ---- ------ ---- ------ ---- ----------- OFFSHORE Eugene Island............... 46,799 14.3% 7,932 17.6% 51,532 42.6% 4,835 35.1% 22.4% Main Pass................... 15,947 4.9 5,226 11.6 6,268 5.2 1,721 12.5 10.4 South Pass.................. 23,480 7.2 1,251 2.8 6,312 5.2 712 5.2 7.8 East Cameron................ 25,260 7.7 306 .7 15,660 12.9 175 1.3 4.6 South Marsh Island.......... 6,909 2.1 1,954 4.3 2,710 2.2 1,301 9.4 3.9 ONSHORE New Mexico Lea/Eddy Counties.................. 18,172 5.5 8,440 18.7 10,482 8.7 4,593 33.3 14.4
- --------------- (a) "Liquids," includes oil, condensate and natural gas liquids. (b) Before income taxes, discounted at 10%. Set forth below are descriptions of certain of the Company's significant producing areas. Unless otherwise specifically identified, the information set forth in such descriptions, including production rates and the number of wells, platforms and blocks, is presented on a gross basis, rather than net to the Company. Eugene Island A significant portion of the Company's reserves and a substantial part of its production are located in the Eugene Island area off the Louisiana coast in the Gulf of Mexico. The Eugene Island area has been an important part of the Company's operations since the first lease in that area was purchased in 1970 and production began in 1973. The Company currently holds interests in 13 blocks in the Eugene Island area. These blocks comprise eight fields containing 86 oil and gas wells producing from multiple reservoirs and horizons. The Eugene Island Block 330 field is the Company's most significant producing asset, with 28 productive Pleistocene horizons between 4,000 and 8,000 feet, containing multiple reservoirs. The field, located in 245 feet of water, contains three drilling and production platforms in which the Company holds a 35% working interest, as well as an additional platform in which the Company holds a 30% working interest. There are currently 13 wells producing primarily natural gas and 35 wells producing primarily oil on the block. In 1995, a successful well workover program was completed and more workover and development drilling is currently planned for 1996. Since initial production in 1973, the Eugene Island Block 330 field has produced approximately 660 Bcf of natural gas and 131 MMBbls of oil and condensate (178 Bcf and 38 MMBbls attributable to the Company's net revenue interest). Reserves have been added to this field consistently since production commenced. These increases have been derived from new exploratory horizons, infill drilling, field expansions and higher than anticipated recovery efficiencies. Another significant field to the Company is the Eugene Island Block 295 field. In production since 1973, this block has recorded gross production of over 429 Bcf of natural gas and over 3.0 MMBbls of oil and condensate during its twenty-three year life. During the fourth quarter of 1993, the Company successfully drilled and completed five horizontal wells to exploit the natural gas potential located in certain shallow reservoirs on this block in an area where it has a 100% working interest. A platform was set and production commenced from these wells in late February 1994. For the 22 months ending in December 1995, the Company had produced approximately 37 Bcf (26 Bcf attributable to the Company's net revenue interest) 16 18 from these shallow reservoirs. During December 1995, natural gas production from these reservoirs averaged approximately 24.2 MMcf per day. The Eugene Island Block 212 field consists of Eugene Island Blocks 211 and 212 and Ship Shoal Block 175. The field contains eight productive horizons which have four oil wells and one natural gas well producing from a platform set in 1985. During 1995, the Company acquired a 3-D survey over this field that it is currently evaluating in anticipation of additional development drilling. Main Pass The Company's lease blocks in the Main Pass area are located near the mouth of the Mississippi River in the Gulf of Mexico and include leases in which it has held an interest since 1974. The Company acquired four new leases in the Main Pass area during 1995, bringing the Company's total lease interest in this area to twelve blocks as of the end of 1995. The primary drilling objectives in these fields are Pliocene and Miocene sandstone reservoirs with productive formation depths from 5,000 to 12,000 feet. The Company's interests in the Main Pass area include 42 producing oil and gas wells producing from seven platforms. The Company currently plans an active exploratory drilling program during 1996 to evaluate the new blocks that it acquired in the Main Pass Area during 1995. A field including Main Pass Blocks 72, 73 and 72/74 was unitized in 1982. The Company's working interest in this field is currently 35%. This field contains 22 producing oil wells and 9 producing natural gas wells from three platforms operated by one of the Company's joint venture partners. The field is located in 125 feet of water with 38 mapped horizons adjacent to and surrounding a salt dome. These horizons contain over 150 separate reservoirs between 5,000 and 12,000 feet. A successful workover and three well development drilling program was completed in 1995. The Company currently plans to continue its workover program and to drill additional wells in this field during 1996 based in part on the analysis of a recent 3-D seismic survey over the field. Main Pass Block 123 was acquired in the federal lease sale of 1990. Pogo Gulf Coast, for which the Company is the general partner, has a 75% working interest and is the operator on the block. Along with its non-operating joint venture partner, Pogo Gulf Coast drilled two discovery wells on the block in 1993 and two additional wells in 1994. Installation of a platform and construction of a pipeline from the platform to an existing main pipeline was completed in January 1995. Platform start-up was completed and full production from this field commenced in February 1995. During December 1995, production from this field averaged approximately 1,200 Bbls of oil and 3.2 MMcf of natural gas per day. South Pass The Company acquired its first leasehold interest in the South Pass area off of the mouth of the Mississippi River in September 1972. The Company currently owns interests in portions of seven blocks in this area on which four production platforms have been set that produce oil and gas from 27 wells which have been completed principally in Pleistocene, Pliocene and Miocene reservoirs at depths ranging from approximately 4,000 to 14,800 feet. One of the Company's fields in the South Pass area is located on South Pass Blocks 49 and 50. The Company currently holds a 50% working interest in South Pass Block 50 and a 20% interest in South Pass Block 49. The Company currently plans to drill an additional three wells in this field during 1996. Another field in which the Company has an interest in the South Pass area is the South Pass Block 78 field. The South Pass Block 78 field, which commenced production in 1981, had ceased production. Following analysis of a recently acquired 3-D seismic survey, the Company increased its working interest in the field from 9% to 35% and assumed the operatorship of the field in June 1995. Operating from an existing platform, the Company drilled and completed three highly deviated wells into previously unexplored reservoirs which, as of March 1, 1996, had a combined flow rate in excess of 35 MMcf per day. A fourth well is currently being drilled from the same platform, with additional wells currently planned for 1996. 17 19 East Cameron The first leasehold interest acquired by the Company in the East Cameron area off the Texas/Louisiana border in the Gulf of Mexico commenced production in February 1973. Presently, the Company has interests in three offshore blocks in this area which contain two fields and 16 producing gas wells. During 1992, the Company and its partners conducted a 3-D seismic survey of the East Cameron Block 334/335 field area where the Company has a 42% working interest. Analysis of this 3-D seismic survey resulted in the drilling of four successful development wells. In 1995, an exploratory well, in which the Company held a 70% working interest, was drilled on East Cameron Block 334 which resulted in the discovery of significant new reserves. The Company currently plans to set a platform over this new well and commence production during the third quarter of 1996. In addition, the Company currently plans to drill another exploratory well from the platform in late 1996 after it is installed. South Marsh Island The Company currently owns interests in portions of seven blocks in the South Marsh Island area, located offshore Louisiana. Three of the leases were acquired in 1974, a fourth in 1980, a fifth in 1992 and portions of two more leases were acquired in 1994 through farmins. Three blocks contain a total of five drilling and production platforms. These platforms currently have 47 oil and gas wells producing from Pleistocene age sandstone reservoirs located at depths from 5,000 to 10,000 feet. The South Marsh Island Block 128 field, in which the Company owns a 16% working interest, is comprised of South Marsh Island Blocks 125, 127, 128 and 141. This field primarily produces oil, with 36 oil wells and eight natural gas wells producing from 20 separate reservoirs. In 1995, the Company commenced a workover program designed to increase oil and gas deliverability from the field, with additional workover work currently planned for 1996 based, in part, on a recently completed detailed reservoir study of the field. In addition, the Company currently plans a multi-well drilling program for this field in 1996. New Mexico The Company considers southeastern New Mexico to be an area of significant growth in both production and reserves as a result of recent exploration and development activities. The Company believes that during the past four years it has been one of the most active companies drilling for oil and natural gas in the southeastern New Mexico (Lea and Eddy Counties) portion of the Permian Basin where the Company has interests in over 77,000 gross acres. The Company's primary drilling objective is the Brushy Canyon (Delaware) formation. Fields in the Brushy Canyon (Delaware) formation in the southeastern New Mexico portion of the Permian Basin are generally characterized by production from relatively shallow depths (6,000 to 9,000 feet), multiple producing zones in most wells and relatively high initial rates of production (frequently equaling the top field allowables which range from of 142 Bbls to 230 Bbls per day, depending on the depth of production from the field). The Company has achieved rapid cost recovery with respect to its New Mexico wells drilled to date because of relatively low capital costs and high initial rates of production. Since the Company began exploring in the Brushy Canyon (Delaware) formation in October 1989, it has participated in the drilling of 259 wells through December 31, 1995, including, among others, 91 wells in the Sand Dunes field where the Company's working interest ranges from 4% to 100%, 27 wells in the East Loving field where the Company's working interest ranges from 33% to 98%, 52 wells in the Livingston Ridge field where the Company's working interest ranges from 25% to 100%; and 47 wells in the Red Tank field where the Company's working interest ranges from 89% to 100%. The oil fields in this area are generally developed on a 40 acre spacing pattern. The Company anticipates drilling many additional locations in these and other fields in southeastern New Mexico during 1996 and in future years. 18 20 DOMESTIC OFFSHORE PROPERTIES The following is a listing of the Company's domestic offshore properties and contains information as of December 31, 1995.
POGO EXPLORATORY DEVELOPMENT DATE OR WORKING WELLS PLATFORMS WELLS LEASE ANTICIPATED INTEREST DRILLED OR SET OR DRILLED OR DATE EFFECTIVE DATE OF BLOCK % DRILLING ANNOUNCED DRILLING ACQUIRED DATE PRODUCTION - --------------------------------------------------------------------------------------------------------------------------- OFFSHORE TEXAS -- FEDERAL Matagorda Island A-4 27.0 3 1 2 8-83 10-1-83 9-89 - --------------------------------------------------------------------------------------------------------------------------- 670 30.7[A] 1 1 2 8-83 10-1-83 10-89 - --------------------------------------------------------------------------------------------------------------------------- Brazos A-104 10.8 1 1 8-89 10-1-89 6-90 - --------------------------------------------------------------------------------------------------------------------------- Galveston 325 20.0 8-91 11-1-91 - --------------------------------------------------------------------------------------------------------------------------- High Island/South Addition A-515 25.0 2 1 11-79 1-1-80 11-84 - --------------------------------------------------------------------------------------------------------------------------- High Island/East Addition/South Extension A-94 100.0 9-95 1-1-96 - --------------------------------------------------------------------------------------------------------------------------- A-95 100.0 9-95 1-1-96 - --------------------------------------------------------------------------------------------------------------------------- A-323 1.8 4 1 17 6-73 8-1-73 6-78 - --------------------------------------------------------------------------------------------------------------------------- A-325 9.9[A] 8[B] 3[C] 9 6-73 8-1-73 8-81 - --------------------------------------------------------------------------------------------------------------------------- A-356 50.0 1 1 4 5-74 7-1-74 7-80 - --------------------------------------------------------------------------------------------------------------------------- A-377 50.0 9-95 11-1-95 - --------------------------------------------------------------------------------------------------------------------------- A-451 50.0 2 1 1 8-94 12-1-94 12-95 - --------------------------------------------------------------------------------------------------------------------------- TOTAL TEXAS 22 10 35 - --------------------------------------------------------------------------------------------------------------------------- OFFSHORE LOUISIANA -- FEDERAL West Cameron 63 20.0 3-91 5-1-91 - --------------------------------------------------------------------------------------------------------------------------- 196 [D] 3 1 2 5-83 7-1-83 12-90 - --------------------------------------------------------------------------------------------------------------------------- 202 39.3 3 1 2 11-82 1-1-83 8-85 - --------------------------------------------------------------------------------------------------------------------------- 252 80.0 1 Share 253 Platform 2 11-82 1-1-83 8-84 - --------------------------------------------------------------------------------------------------------------------------- 253 80.0 1 1 6 6-77 8-1-77 7-84 - --------------------------------------------------------------------------------------------------------------------------- 310 20.0 3-91 7-1-91 - --------------------------------------------------------------------------------------------------------------------------- 352 15.0 1 1 9 10-74 12-1-74 8-79 - --------------------------------------------------------------------------------------------------------------------------- 532 4.0 5 Share 533 Platform 3 12-72 2-1-73 9-76 - --------------------------------------------------------------------------------------------------------------------------- 533 4.0 2[E] 2 7 12-72 2-1-73 9-76 - --------------------------------------------------------------------------------------------------------------------------- 609 16.0 1 1 7 10-74 12-1-74 7-78 - --------------------------------------------------------------------------------------------------------------------------- East Cameron 270 30.0 3 1 30 12-70 1-1-71 1-73 - --------------------------------------------------------------------------------------------------------------------------- 334* 42.0/70.0 6[E] 2 11 12-70 2-1-71 8-77 - --------------------------------------------------------------------------------------------------------------------------- 335 42.0 3 2 27 6-73 8-1-73 8-77 - ---------------------------------------------------------------------------------------------------------------------------
(footnotes at end of table) 19 21
POGO EXPLORATORY DEVELOPMENT DATE OR WORKING WELLS PLATFORMS WELLS LEASE ANTICIPATED INTEREST DRILLED OR SET OR DRILLED OR DATE EFFECTIVE DATE OF BLOCK % DRILLING ANNOUNCED DRILLING ACQUIRED DATE PRODUCTION - --------------------------------------------------------------------------------------------------------------------------- Vermilion 175 70.0 1 1 5-91 9-1-85 12-91 - --------------------------------------------------------------------------------------------------------------------------- 335 37.5 3-94 5-1-94 - --------------------------------------------------------------------------------------------------------------------------- 346 33.3 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- South March Island 125 16.0 3 1 8 10-74 12-1-74 7-77 - --------------------------------------------------------------------------------------------------------------------------- 127 16.0 Share 128 Platform 3 10-74 12-1-74 7-77 - --------------------------------------------------------------------------------------------------------------------------- 128 16.0 6 3 62 3-74 5-1-74 7-77 - --------------------------------------------------------------------------------------------------------------------------- +141 16.0[F] Share 128 Platform 2 3-94 12-1-74 3-94 - --------------------------------------------------------------------------------------------------------------------------- 160 25.0 2 1 5 9-80 11-1-80 2-84 - --------------------------------------------------------------------------------------------------------------------------- +161 25.0[F] Share 160 Platform 1 5-94 9-1-81 12-94 - --------------------------------------------------------------------------------------------------------------------------- 188 25.0 5-92 9-1-92 - --------------------------------------------------------------------------------------------------------------------------- Eugene Island 101 20.0 3-91 5-1-91 - --------------------------------------------------------------------------------------------------------------------------- 102 20.0 3-91 5-1-91 - --------------------------------------------------------------------------------------------------------------------------- 211 33.3 Share 212 Platform 3 5-83 7-1-83 1-87 - --------------------------------------------------------------------------------------------------------------------------- 212 33.3 1 1 3 5-83 7-1-83 1-87 - --------------------------------------------------------------------------------------------------------------------------- 256 69.2 5 1 7 12-70 2-1-71 10-79 - --------------------------------------------------------------------------------------------------------------------------- 261 66.7 2 1 17 10-74 12-1-74 10-79 - --------------------------------------------------------------------------------------------------------------------------- 295** 20.0/100.0 7[E] 2 30 12-70 2-1-71 2-73 - --------------------------------------------------------------------------------------------------------------------------- 312 4.0 5 1 + Share 333 Platform 8 3-74 5-1-74 7-77 - --------------------------------------------------------------------------------------------------------------------------- 318 20.0 1 3-91 6-1-91 - --------------------------------------------------------------------------------------------------------------------------- 330 35.0[G] 10[E] 4 94 12-70 1-1-71 4-73 - --------------------------------------------------------------------------------------------------------------------------- 333 4.0 3 2 22 12-72 2-1-73 7-77 - --------------------------------------------------------------------------------------------------------------------------- 337 37.5 3 1 8 2-76 3-1-76 6-85 - --------------------------------------------------------------------------------------------------------------------------- Ship Shoal 175 33.3 Share EI 212 Platform 2 5-83 7-1-83 7-88 - --------------------------------------------------------------------------------------------------------------------------- 240 30.0 2 2 3-89 6-1-89 12-94 - --------------------------------------------------------------------------------------------------------------------------- 256 30.0 1 1 3-90 5-1-90 12-94 - --------------------------------------------------------------------------------------------------------------------------- South Timbalier 198 25.0 2 1 4 5-85 9-1-85 8-90 - --------------------------------------------------------------------------------------------------------------------------- 316 50.0 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- 317 50.0 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- South Pass +33 15.9[F] Share 49 Platform 2 10-74 12-1-74 2-83 - --------------------------------------------------------------------------------------------------------------------------- 49 15.9[H] 5[E] 1 19 9-72 11-1-72 10-80 - --------------------------------------------------------------------------------------------------------------------------- 50 50.0 1 Share 49 Platform 7-93 8-1-88 12-93 - --------------------------------------------------------------------------------------------------------------------------- +57 12.0 Share 57/58 Platform 3 11-76 1-1-77 11-82 - --------------------------------------------------------------------------------------------------------------------------- 73 35.0 5-95 7-1-95 - --------------------------------------------------------------------------------------------------------------------------- +78 35.0 7 1 13 9-72 10-1-72 4-81 - --------------------------------------------------------------------------------------------------------------------------- Mississippi Canyon 63 20.0 2 1 5 5-75 7-1-75 6-84 - --------------------------------------------------------------------------------------------------------------------------- 64 33.3 5-95 7-1-95 - ---------------------------------------------------------------------------------------------------------------------------
(footnotes at end of table) 20 22
POGO EXPLORATORY DEVELOPMENT DATE OR WORKING WELLS PLATFORMS WELLS LEASE ANTICIPATED INTEREST DRILLED OR SET OR DRILLED OR DATE EFFECTIVE DATE OF BLOCK % DRILLING ANNOUNCED DRILLING ACQUIRED DATE PRODUCTION - --------------------------------------------------------------------------------------------------------------------------- Main Pass +30 25.0[A] 2 1 8[B] 10-81 12-1-81 12-87 - --------------------------------------------------------------------------------------------------------------------------- 37 25.0 4 1 5 7-79 10-1-79 7-82 - --------------------------------------------------------------------------------------------------------------------------- +72 35.3 1 Share 73 Platform 2 5-75 7-1-75 8-79 - --------------------------------------------------------------------------------------------------------------------------- +72/74 35.3 5 2 48 11-76 1-1-77 8-79 - --------------------------------------------------------------------------------------------------------------------------- 73 35.3 4 1 17 10-74 12-1-74 8-79 - --------------------------------------------------------------------------------------------------------------------------- 123 30.0 4 1 3-90 5-1-90 1-95 - --------------------------------------------------------------------------------------------------------------------------- 131 50.0 1 5-92 9-1-92 - --------------------------------------------------------------------------------------------------------------------------- 207 50.0 1 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- 212 25.0 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- 213 25.0 5-95 9-1-95 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LOUISIANA 120 44 507 - --------------------------------------------------------------------------------------------------------------------------- STATE LEASES Offshore Louisiana South Pass +57/58 12.0 3 1 13 5-74 5-13-74 7-82 - --------------------------------------------------------------------------------------------------------------------------- Main Pass 31 50.0 1 1 1 3-85 3-18-85 2-90 - --------------------------------------------------------------------------------------------------------------------------- 76 50.0 9-95 9-18-95 - --------------------------------------------------------------------------------------------------------------------------- Breton Sound 2 100.0[A] 2[B] 1 1 4-80 9-15-80 8-87 - --------------------------------------------------------------------------------------------------------------------------- 23 82.5 1 1 9-78 9-18-78 7-84 - --------------------------------------------------------------------------------------------------------------------------- 24 22.5 1 1 1 9-78 9-18-78 7-84 - --------------------------------------------------------------------------------------------------------------------------- North Lighthouse Point S/L 340 50.0 1 3 5-84 5-1-84 10-84 - --------------------------------------------------------------------------------------------------------------------------- TOTAL STATE LEASES 9 5 19 - --------------------------------------------------------------------------------------------------------------------------- TOTAL DOMESTIC OFFSHORE 151 59 561 - ---------------------------------------------------------------------------------------------------------------------------
[A] Portion of block farmed out [B] Includes one farmout well [C] Includes one farmout platform [D] Block farmed out - Overriding Royalty Interest only [E] Includes offset contribution well [F] Block farmed in [G] Pogo owns 35% in "A", "B", and "C" platform area and 30% in platform "D" area [H] Pogo owns 20% in a non-unit area [+] Represents portion of block * Pogo owns 70% interest in certain portions of this block ** Pogo owns 20% in rights below 3,000 feet and 100% in rights above 3,000 feet in certain portions of the block ITEM 3. LEGAL PROCEEDINGS. The Company is a party to various other legal proceedings consisting of routine litigation incidental to its businesses, but believes that any potential liabilities resulting from these proceedings are adequately covered by insurance or are otherwise immaterial at this time. See "Business -- Government Regulation; Other Laws and Regulations." 21 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. Not Applicable. ITEM S-K 401(B). EXECUTIVE OFFICERS OF REGISTRANT. Executive officers of the Company are appointed annually to serve for the ensuing year or until their successors have been elected or appointed. The executive officers of the Company, their age as of March 1, 1996, and the year each was elected to his present position are as follows:
YEAR EXECUTIVE OFFICER EXECUTIVE OFFICE AGE ELECTED ------------------------------------- ------------------------------- --- ------- Paul G. Van Wagenen.................. Chairman of the Board, President and Chief Executive Officer 50 1991 Kenneth R. Good...................... Senior Vice President -- Land and Budgets 58 1991 Stuart P. Burbach.................... Vice President and Offshore Division Manager 43 1991 Jerry A. Cooper...................... Vice President and Western Division Manager 47 1990 John W. Elsenhans.................... Vice President and Treasurer 43 1995 Harvey L. Gold....................... Vice President -- Engineering 60 1988 Thomas E. Hart....................... Vice President and Controller 53 1988 R. Phillip Laney..................... Vice President and International Division Manager 55 1991 John O. McCoy, Jr.................... Vice President and Chief Administrative Officer 44 1989 J. D. McGregor....................... Vice President -- Sales 51 1988 Ronald B. Manning.................... Vice President and General Counsel 42 1995 Sammie M. Shaw....................... Vice President -- Operations 64 1992 Gerald A. Morton..................... Corporate Secretary and Associate General Counsel 37 1995
Prior to assuming their present positions with the Company, the business experience of each executive officer for more than the last five years was as follows: Mr. Van Wagenen, who joined the Company in 1979, served as President and Chief Operating Officer of the Company since 1990; Mr. Good, who joined the Company in 1977, served as Vice President -- Land of the Company since 1988; Mr. Burbach was Vice President of Norfolk Holding Inc. since 1986; Mr. Cooper served in various positions since joining the Company in 1979; Mr. Elsenhans was Director, Corporate Finance for the Company since 1991 and prior thereto held various positions with Chemical Bank and its affiliates since 1984; Mr. Gold was Manager of Reservoir Engineering for the Company since joining the Company in 1977; Mr. Hart was Controller for the Company since joining the Company in 1977; Mr. Laney, who joined the Company in 1977, served as International Exploration Manager for the Company since 1983; Mr. McCoy served as Director of Personnel and Administration for the Company since joining the Company in 1978; Mr. McGregor was Manager of Hydrocarbon Sales and Contracts for the Company since joining the Company in 1981; Mr. Manning, who joined the Company in 1987, was Corporate Secretary and an Associate General Counsel for the Company since 1990; Mr. Shaw was Operations Manager for the Company since joining the Company in 1981; Mr. Morton was an Associate General Counsel for the Company since 1993 and prior thereto was an attorney with the law firm of Weil, Gotshal & Manges since 1988. 22 24 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The following table shows the range of low and high sales prices of the Company's Common Stock (the "Common Stock") on the New York Stock Exchange composite tape where the Company's common stock trades under the symbol PPP. The Company's common stock is also listed on the Pacific Stock Exchange.
LOW HIGH --- ---- 1994 1st Quarter............................................... 15 5/8 21 1/2 2nd Quarter............................................... 15 5/8 24 1/4 3rd Quarter............................................... 19 5/8 23 5/8 4th Quarter............................................... 16 1/8 23 1/8 1995 1st Quarter............................................... 16 20 1/2 2nd Quarter............................................... 19 1/2 25 3/8 3rd Quarter............................................... 21 1/8 25 4th Quarter............................................... 19 3/8 29
As of March 1, 1996, there were 3,431 holders of record of the Company's Common Stock. In 1995, the Company paid four quarterly dividends of $0.03 per share on its Common Stock. In this regard, the Company reinstated the practice of declaring a quarterly cash dividend commencing in the third quarter of 1994. However, the declaration and payment of future dividends will depend upon, among other things, the Company's future earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate and other factors deemed relevant by the Company's Board of Directors. Pursuant to the Company's revolving credit agreement with its banks under which the Company has borrowed funds, the Company may not, subject to certain exceptions, pay any dividends on its capital stock or make any other distributions on shares of its capital stock (other than dividends or distributions payable solely in shares of such capital stock) or apply any funds, property or assets to the purchase, redemption, sinking fund or other retirement of its capital stock, if the aggregate amount of all such dividends, purchases, and redemptions would exceed an amount determined based on the consolidated income of the Company and its consolidated subsidiaries from and after a specified date plus the proceeds of the issuance of capital stock after the same specified date or if the net worth of the Company is negative. As of December 31, 1995, $71,708,000 was available for dividends under this limitation. 23 25 ITEM 6. SELECTED FINANCIAL DATA.
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- FINANCIAL DATA (Expressed in thousands, except per share data) Revenues: Crude oil and condensate........................ $ 76,557 $ 65,141 $ 64,042 $ 64,224 $ 54,420 Natural gas..................................... 72,032 99,093 66,173 67,366 63,225 Natural gas liquids............................. 8,097 9,189 7,288 5,833 3,442 Other, net...................................... 773 133 (950) 1,705 3,338 -------- -------- -------- -------- -------- Oil and gas revenues............................ 157,459 173,556 136,553 139,128 124,425 Interest on tax refunds......................... -- -- 2,322 -- -- Gains on sales.................................. 100 52 679 1,702 44 -------- -------- -------- -------- -------- Total.................................... $157,559 $173,608 $139,554 $140,830 $124,469 ======== ======== ======== ======== ======== Income before extraordinary item.................. $ 9,230 $ 27,374 $ 25,061 $ 18,495 $ 10,322 Extraordinary gains (losses)...................... -- (307) -- -- 1,336 -------- -------- -------- -------- -------- Net income........................................ $ 9,230 $ 27,067 $ 25,061 $ 18,495 $ 11,658 ======== ======== ======== ======== ======== Per share data: Primary and fully diluted earnings: Before extraordinary item..................... $ 0.28 $ 0.82 $ 0.76 $ 0.66 $ 0.37 Extraordinary item............................ -- (0.01) -- -- 0.05 -------- -------- -------- -------- -------- Net income.................................... $ 0.28 $ 0.81 $ 0.76 $ 0.66 $ 0.42 ======== ======== ======== ======== ======== Price range of common stock: High.......................................... $ 29.00 $ 24.25 $ 21.00 $ 13.88 $ 8.25 Low........................................... $ 16.00 $ 15.63 $ 9.75 $ 5.13 $ 4.63 Weighted average number of common and common equivalent shares outstanding................... 33,490 33,352 32,860 27,929 27,611 Long-term debt at year-end........................ $163,249 $149,249 $130,539 $129,260 $184,260 Production payment obligation at year-end......... $ -- $ -- $ -- $ 24,854 $ 45,475 Shareholders' equity (deficit) at year-end........ $ 71,708 $ 64,037 $ 33,803 $ 5,648 $(56,636) Total assets at year-end.......................... $338,177 $298,826 $239,774 $206,347 $213,772 PRODUCTION (SALES) DATA Net daily average production and weighted average price: Natural gas (Mcf per day)..................... 121,000 144,800 91,700 105,200 104,200 Price (per Mcf)............................. $ 1.63 $ 1.88 $ 1.98 $ 1.75 $ 1.66 Crude oil-condensate (Bbl. per day)........... 11,786 11,100 9,851 8,699 7,108 Price (per Bbl.)............................ $ 17.80 $ 16.08 $ 17.81 $ 20.17 $ 20.98 Natural gas liquids (Bbl. per day)............ 1,998 2,222 1,678 1,181 663 Price (per Bbl.)............................ $ 11.10 $ 11.33 $ 11.90 $ 13.50 $ 14.21 CAPITAL EXPENDITURES (Expressed in thousands) Oil and gas: Domestic Offshore -- Exploration................................... $ 13,300 $ 2,800 $ 4,600 $ 1,700 $ 1,600 Development................................... 17,800 44,100 33,700 5,500 23,600 Purchase of reserves.......................... -- 32,600 -- 8,900 5,100 Domestic Onshore-- Exploration................................... 8,800 6,800 5,200 4,900 4,700 Development................................... 22,400 23,700 24,300 15,600 13,900 Purchase of reserves.......................... 7,900 -- -- -- -- International -- Exploration................................... 5,500 5,100 4,600 1,400 -- Development................................... 24,400 -- -- -- -- Purchase of reserves.......................... 4,200 -- -- -- -- -------- -------- -------- -------- -------- Total oil and gas........................ 104,300 115,100 72,400 38,000 48,900 Other............................................. 500 1,200 200 600 2,400 -------- -------- -------- -------- -------- Total.................................... $104,800 $116,300 $ 72,600 $ 38,600 $ 51,300 ======== ======== ======== ======== ========
24 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The Company reported net income for 1995 of $9,230,000 or $0.28 per share compared to net income for 1994 of $27,067,000 or $0.81 per share and net income for 1993 of $25,061,000 or $0.76 per share. The Company recorded an extraordinary loss of $307,000 during the second quarter of 1994 related to the early retirement of the Company's 10.25% Convertible Subordinated Notes, due 1999 (the "10.25% Notes") with the proceeds from the Company's issuance on March 16, 1994, of its 5 1/2% Convertible Subordinated Notes, due 2004 (the "5 1/2% Notes"). Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding for 1995 of 33,490,000 compared to 33,352,000 for 1994 and 32,860,000 for 1993. The yearly increases in the weighted average number of common and common equivalent shares outstanding resulted primarily from the issuance of shares of common stock upon the exercise of stock options pursuant to the Company's stock option plans. Earnings per common share computations on a fully diluted basis primarily reflect additional common shares issuable upon the assumed conversion of the Company's 5 1/2% Notes in 1994 (the only convertible securities of the Company that were dilutive during the applicable periods) and the elimination of related interest requirements, as adjusted for applicable federal income taxes. However, the dilution resulting from the assumed conversion of the 5 1/2% Notes in 1994 was not sufficient to change reported earnings per share. The Company's total revenues for 1995 were $157,559,000, a decrease of approximately 9% from total revenues of $173,608,000 for 1994, and an increase of approximately 13% from total revenues of $139,554,000 for 1993. The decrease in the Company's total revenues for 1995, compared to 1994, resulted primarily from decreases in the Company's natural gas production volumes and the substantial decrease in prices that the Company received for such natural gas production volumes, which were not entirely offset by increases in the Company's liquid hydrocarbon (including crude oil, condensate and natural gas liquid ("NGL")) production volumes and increased prices that the Company received for its liquid hydrocarbon production volumes. The increase in the Company's total revenues for 1995, compared to 1993, resulted primarily from increases in the Company's natural gas and total liquid hydrocarbon production volumes, which were only partially offset by the decreased prices that the Company received for such natural gas and total liquid hydrocarbon production volumes. In addition, the Company's total revenues in 1993 were positively affected by revenues from the settlement of an issue with the Internal Revenue Service for which there were no comparable offsets in 1995. The Company's oil and gas revenues for 1995 were $157,459,000, a decrease of approximately 9% from oil and gas revenues of $173,556,000 for 1994, and an increase of approximately 15% from oil and gas revenues of $136,553,000 for 1993. The following table reflects an analysis of variances in the Company's oil and gas revenues between 1995 and the previous two years:
1995 COMPARED TO --------------------- 1994 1993 -------- -------- (IN THOUSANDS) Increase (decrease) in oil and gas revenues resulting from variances in: Natural Gas Price..................................................... $(12,891) $(11,547) Production................................................ (14,170) 17,406 -------- -------- (27,061) 5,859 -------- -------- Crude oil and condensate Price..................................................... 6,956 (54) Production................................................ 4,460 12,569 -------- -------- 11,416 12,515 -------- -------- Natural gas liquids ("NGL") and other, net................... (452) 2,532 -------- -------- Increase (decrease) in oil and gas revenues.................... $(16,097) $ 20,906 ======== ========
Average natural gas prices received by the Company during 1995 were marked by extreme volatility, ranging from a low of $1.43 for the month of August 1995, to a high of $2.10 for the month of December 1995, 25 27 with an average price for the year of $1.63 per Mcf. The average price that the Company received for its natural gas production in 1995 compared unfavorably with the average price that the Company had received during the preceding two years of $1.88 per Mcf for 1994 (a decrease of approximately 13%) and $1.98 per Mcf for 1993 (a decrease of approximately 18%), and constituted a fifteen year low. See "Business -- Miscellaneous; Competition and Market Conditions." The Company's natural gas production for 1995 averaged 121 MMcf per day, a decrease of approximately 16% from average production of 144.8 MMcf per day in 1994, and an increase of approximately 32% from average production of 91.7 MMcf per day for 1993. The decrease in the Company's average natural gas production for 1995, compared to 1994, resulted primarily from the difference between the high initial natural gas production rates from horizontal wells drilled from the Company's Eugene Island 295 "B" platform which commenced in late February 1994 and the subsequent natural production decline from those reservoirs, the slowdown of development drilling, workover and recompletion work on certain of the Company's non-operated properties in the Gulf of Mexico, largely due to a decrease in planned drilling by the operators of such properties and production curtailments due to adverse weather conditions (and drilling and workover operations on certain of the Company's properties), along with the natural decline in deliverability from certain of the Company's more mature properties. Those decreases were only partially offset by new and increased production from the Company's continued offshore drilling and workover program. As of March 1, 1996, the Company was not a party to any natural gas futures contracts. Crude oil and condensate prices received by the Company averaged $17.80 per barrel in 1995, an increase of approximately 11% compared to an average of $16.08 per barrel in 1994, but essentially unchanged from an average price of $17.81 per barrel that the Company received in 1993. Crude oil and condensate production for 1995 averaged 11,786 Bbls per day, an increase of approximately 6% from 11,100 Bbls per day for 1994, and an increase of approximately 20% from 9,851 Bbls per day for 1993. The increase in the Company's crude oil and condensate production for 1995, compared to 1994 and 1993, resulted primarily from ongoing development drilling and workover programs in the Gulf of Mexico and in Lea and Eddy Counties of southeastern New Mexico, which was only partially offset by the slowdown of development drilling, workover and recompletion work on certain of the Company's non-operated properties in the Gulf of Mexico, largely due to a decrease in planned drilling by the operators of such properties and production curtailments due to adverse weather conditions (and drilling and workover operations on certain of the Company's properties), along with the natural decline in deliverability from certain of the Company's more mature properties. See "Properties -- Principal Properties" and "Business -- Domestic Offshore Operations; Lease Acquisitions." As of March 1, 1996, the Company was not a party to any crude oil swap agreements. Liquid products are often extracted from natural gas streams and sold separately as NGL. In addition, the Company's oil and gas revenues for 1995, 1994 and 1993 also reflect adjustments for various miscellaneous items. The Company's NGL and other, net revenues for 1995 decreased $452,000 from those reported in 1994, but increased $2,532,000 from those reported in 1993. The decrease in NGL and other, net revenues in 1995, compared with 1994, primarily related to a decrease in the Company's NGL production volumes, together with a decline in the prices received for such production, which was only partially offset by other items, primarily the net proceeds resulting from the settlement of a gas balancing dispute. The increase in NGL and other, net revenues for 1995, compared with 1993, primarily related to an increase in the Company's NGL production volumes and the net proceeds from the gas balancing dispute referred to above, which were only partially offset by decreases in the prices that the Company received for its NGL production volumes and the settlement of other disputes in 1993, including certain litigation with the State of Louisiana relating to alleged royalties due on certain of the Company's Louisiana state leases. The Company's average liquid hydrocarbon (including crude oil, condensate and NGL) production during 1995 was 13,784 Bbls per day, an increase of approximately 3% from an average total liquids production of 13,322 Bbls per day for 1994, and an increase of approximately 20% from an average total liquids production of 11,529 Bbls per day for 1993. The increase in the Company's average liquid hydrocarbon production during 1995, compared to 1994, was adversely affected by the decline in the Company's NGL production, which more closely parallels the Company's natural gas production than it does its crude oil and condensate production. 26 28 Lease operating expenses for 1995 were $35,071,000, an increase of approximately 18% from lease operating expenses of $29,768,000 for 1994, and an increase of approximately 32% from lease operating expenses of $26,633,000 for 1993. The increase in lease operating expenses for 1995, compared to 1994 and 1993, resulted primarily from increased costs to the Company (and the entire offshore oil industry) because of an increasing shortage of qualified offshore service contractors, which has permitted such contractors to increase the costs of their services significantly in the last year, a year to year increase in the level of the Company's operating activities, including increased operating costs related to additional properties brought on production and an increased ownership interest in certain properties as a result of the acquisition of such interests. To a lesser extent, lease operating expenses for 1995, compared to 1994 and 1993, also increased as a result of a general maintenance and repair program that was undertaken on many of the Company's operated properties, for which no corresponding offsets of such magnitude existed in the comparable prior periods. General and administrative expenses for 1995 were $16,400,000, an increase of approximately 3% from general and administrative expenses of $15,984,000 for 1994, and an increase of approximately 13% from general and administrative expenses of $14,550,000 for 1993. The increase in general and administrative expenses for 1995, compared to 1994 and 1993, was related to, among other things, the costs associated with the establishment of a Company office in Bangkok, Thailand in connection with the Company's development project and other activities in the Gulf of Thailand, an increase in the number of Company employees resulting from the Company's increased exploration and production related activities and to normal salary and concomitant benefit expense adjustments. Exploration expenses consist primarily of delay rentals and geological and geophysical costs which are expensed as incurred. Exploration expenses for 1995 were $7,468,000, an increase of approximately 42% from exploration expenses of $5,257,000 for 1994, and an increase of approximately 204% from exploration expenses of $2,455,000 for 1993. The increase in exploration expenses for 1995, compared to 1994 and 1993, resulted primarily from increased geophysical activity by the Company, including the costs of conducting and processing certain proprietary 3-D seismic surveys on its domestic onshore and offshore properties, as well as in the Gulf of Thailand, together with the cost of acquiring several non-proprietary 3-D seismic surveys in the Gulf of Mexico. In addition, a portion of the increase in exploration expenses was attributable to increased delay rental expense resulting from the Company's acquisition of additional prospective oil and gas acreage. Dry hole and impairment expenses relate to costs of unsuccessful wells drilled along with impairments due to decreases in expected reserves from producing wells. The Company's dry hole and impairment expenses for 1995 were $6,703,000, a decrease of approximately 5% from dry hole and impairment costs of $7,088,000 for 1994, but an increase of approximately 43% from dry hole and impairment costs of $4,690,000 for 1993. The Company accounts for its oil and gas activities using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs are expensed as incurred. The provision for depreciation, depletion and amortization ("DD&A") is based on capitalized costs, as determined in the preceding paragraph, plus future costs to abandon offshore wells and platforms, and is determined on a cost center by cost center basis using the units of production method. The Company's DD&A expense for 1995 was $68,489,000, an increase of approximately 8% from DD&A expenses of $63,308,000 for 1994, and an increase of approximately 68% from DD&A expenses of $40,693,000 for 1993. The increases in the Company's DD&A expenses for 1995, compared to 1994 and 1993, resulted primarily from increased volumes produced (largely related to the increased natural gas production discussed above) and, to a lesser extent, an increase in the composite DD&A rate. The composite DD&A rate for all of the Company's producing fields for 1995 was $0.91 per equivalent Mcf ($5.47 per equivalent barrel), an increase of approximately 18% from a composite DD&A rate of $0.77 per equivalent Mcf ($4.59 per equivalent barrel) for 1994, and an increase of 32% from a composite DD&A rate of $0.69 per equivalent Mcf ($4.11 per equivalent barrel) for 1993. The Company produced 74,337,000 equivalent Mcf (12,389,000 equivalent Bbls) 27 29 in 1995, a decrease of approximately 9% from the 82,008,000 equivalent Mcf (13,668,000 equivalent Bbls) produced in 1994, and an increase of approximately 27% from the 58,718,000 equivalent Mcf (9,786,000 equivalent Bbls) produced in 1993. See "Financial Statements and Supplementary Data -- Note 1 of Notes to Consolidated Financial Statements." Interest charges for 1995 were $11,167,000, an increase of approximately 11% from interest charges of $10,104,000 for 1994, and an increase of approximately 2% from interest charges of $10,956,000 for 1993. The increase in the Company's interest charges for 1995, compared to 1994 and 1993, resulted primarily from an increase in the amount of debt outstanding that, with respect to 1995 compared primarily to 1993, was partially offset by a decrease in debt issue amortization expenses, a lower average interest rate level on the debt outstanding (as a result of refinancing of the 10.25% Debentures in 1994). The increases in interest charges for 1995, compared to 1994, were also partially offset by decreased commitment fees resulting from decreased availability under the Company's bank revolving credit facility, as well as a decreased fee structure on the Company's revolving credit facility that was negotiated in 1995. See "Financial Statements and Supplementary Data -- Note 3 of Notes to Consolidated Financial Statements," and "-- Liquidity and Capital Resources." Capitalized interest for 1995 was $1,834,000 an increase of approximately 148% from capitalized interest of $739,000 for 1994, and an increase of approximately 307% from capitalized interest of $451,000 for 1993. The increase in the amount of interest capitalized by the Company in 1995, compared to 1994 and 1993, related primarily to the capitalization of interest expenses resulting from the engineering, acquisition and construction of facilities and equipment for the Company's Tantawan Field that commenced in 1995 and for which no comparable activity of such magnitude existed in the prior periods. As of March 1, 1996, the Company was a party to an interest rate swap agreement. The swap agreement, which terminates on March 10, 1998, effectively changes the interest rate paid by the Company on $5,000,000 of debt from a market based variable rate to a fixed rate of 7.2%. Income tax expense for 1995 was $4,891,000, a decrease of approximately 68% from income tax expense of $15,517,000 for 1994, and a decrease of approximately 67% from income tax expense of $14,981,000 for 1993. The decrease in income tax expense for 1995, compared to 1994 and 1993, resulted primarily from decreased pretax income. LIQUIDITY AND CAPITAL RESOURCES The Company's Consolidated Statement of Cash Flows for the year ended December 31, 1995, reflects net cash provided by operating activities of $96,333,000. In addition to the net cash provided by operating activities, the Company also received $1,717,000 from the exercise of stock options, $100,000 from the sale of certain non-strategic properties, and had net borrowings of $17,000,000 under its revolving credit agreement and uncommitted money market credit lines with certain banks. The Company invested $96,403,000 of such cash flow in capital projects during 1995, purchased certain proved reserves for $11,921,000, paid $3,946,000 ($0.03 per share for four quarters) in cash dividends to holders of the Company's common stock and, in satisfaction of its sinking fund obligations under its 8% Convertible Subordinated Debentures, due 2005 (the "8% Debentures"), repaid $871,000 principal amount of the 8% Debentures and purchased 8% Debentures in the open market for $450,000. Of the $96,403,000 invested in capital projects, $26,497,000 was applicable to 1994 projects and $69,906,000 was applicable to 1995 capital projects. The Company's total debt at December 31, 1995, was $166,249,000, an increase of approximately 10% from total debt of $150,531,000 at December 31, 1994. The increase in the Company's total debt at the end of 1995, compared with year end 1994, resulted primarily from increased capital expenditures and decreased revenues during 1995 as compared to 1994, which were not entirely offset by the purchase of fewer proved reserves in 1995, compared to 1994. As of December 31, 1995, the Company had $4,481,000 in cash and cash investments. The Company's capital and exploration budget for 1996, which does not include any amounts which may be expended for the purchase of proved reserves or any interest which may be capitalized resulting from projects in progress, has been established by the Company's Board of Directors at $165,000,000, an increase of approximately 67% from the Company's capital and exploration expenditures (excluding purchased reserves and interest capitalized) of $98,560,000 for 1995, an increase of approximately 88% over capital and 28 30 exploration expenditures (excluding purchased reserves and interest capitalized) of $88,300,000 for 1994, and an increase of approximately 115% over capital and exploration expenditures (excluding purchased reserves and interest capitalized) of approximately $74,600,000 for 1993. In addition to anticipated capital and exploration expenses, other material 1996 cash requirements that the Company currently anticipates include ongoing operating, general and administrative, income tax, and interest expense, sinking fund payments and the payment of dividends on its common stock, including a $0.03 per share dividend on its common stock paid on February 24, 1996, to stockholders of record on February 5, 1996. The Company currently anticipates that cash provided by operating activities and funds available under its Credit Agreement and uncommitted money market credit lines will be sufficient to fund the Company's ongoing expenses, its 1996 capital and exploration budget and anticipated future cash dividend payments. In this regard, the Company reinstated the practice of declaring a quarterly cash dividend commencing in the third quarter of 1994. However, the declaration and payment of future dividends will depend upon, among other things, the Company's future earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate and other factors deemed relevant by the Company's Board of Directors. Effective June 1, 1995, the Company entered into an amended and restated credit agreement (the "Credit Agreement") with the same banks that were parties to the credit agreement that it superseded. The Credit Agreement provides for an unsecured $150,000,000 revolving/term credit facility which will be fully revolving until January 1, 1998, after which the balance will be due in eight quarterly term loan installments, commencing April 30, 1998. Effective November 1, 1995, the Company voluntarily reduced, on a temporary basis, the lenders' commitment under the Credit Agreement to $125,000,000. The amount that may be borrowed under the Credit Agreement may not exceed a borrowing base, determined semiannually by the lenders in accordance with the Credit Agreement, based on the discounted present value of future net revenues from certain of the Company's oil and gas reserves and the provisions of the Credit Agreement. As of March 1, 1996, the borrowing base exceeded $125,000,000. The Credit Agreement is governed by various financial and other covenants, including requirements to maintain positive working capital (excluding current maturities of debt) and a fixed charge coverage ratio, and limitations on indebtedness, creation of liens, the prepayment of subordinated debt, the payment of dividends, mergers and consolidations, investments and asset dispositions. See "Market for the Registrant's Common Stock and Related Security Holder Matters." In addition, the Company is prohibited from pledging borrowing base properties as security for other debt. Borrowings under the Credit Agreement currently bear interest at a Base (Prime) rate, a certificate of deposit rate plus 1 1/8%, or LIBOR plus 1%, at the Company's option. A commitment fee on the unborrowed amount under the Credit Agreement is also charged. The commitment fee is 5/16 of 1% per annum on the unborrowed amount under the Credit Agreement that is designated as "active" and 1/8 of 1% per annum on the unborrowed amount under the Credit Agreement that is designated as "inactive." Of the $125,000,000 that is currently available under the Credit Agreement, $100,000,000 is designated as "active" and $25,000,000 is designated as "inactive." The Company has also entered into separate letter agreements with two banks under which each bank may provide a $10,000,000 uncommitted money market line of credit. The two lines of credit are on an as available or offered basis and neither bank has an obligation to make any advances under its respective line of credit. Although loans made under these letter agreements are for a maximum term of 30 days, they are reflected as long-term debt on the Company's balance sheet because the Company currently has the ability and intent to reborrow such amounts under its Credit Agreement. Both letter agreements permit either party to terminate such letter agreement at any time. Under its Credit Agreement, the Company is currently limited to incurring a maximum of $10,000,000 of additional senior debt, which would include debt incurred under these lines of credit. As of December 31, 1995, indebtedness in the principal amount of $38,000,000 was outstanding under the Credit Agreement and the two letter agreements. The outstanding principal amount of 5 1/2% Notes was $86,250,000 as of December 31, 1995. The 5 1/2% Notes are convertible into Common Stock at $22.188 per share, subject to adjustment upon the occurrence of certain events. The 5 1/2% Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 1998, at a redemption price of 103.3% of their principal amount and decreasing 29 31 percentages thereafter. No sinking fund payments are required on the 5 1/2% Notes. The 5 1/2% Notes are redeemable at the option of the holder, upon the occurrence of a repurchase event (a change of control as defined in the indenture governing the 5 1/2% Notes), at 100% of the principal amount. The outstanding principal amount of the 8% Debentures was $41,999,000 as of December 31, 1995. The 8% Debentures are convertible into Common Stock at $39.50 per share, subject to adjustment in certain circumstances, including stock splits. The 8% Debentures are redeemable at the option of the Company at 102% of their principal amount through December 30, 1996, and decreasing percentages thereafter, and are subject to mandatory annual sinking fund requirements of $3,000,000, due each December, with a final maturity of December 31, 2005. The sinking fund requirements for the 8% Debentures will be sufficient to retire all but $15,000,000 of the issue prior to maturity. See "Financial Statements and Supplementary Data -- Note 3 to Notes to Consolidated Financial Statements." As of February 9, 1996, Tantawan Services, LLC ("TS"), a company that is currently a wholly owned subsidiary of the Company, entered into a Bareboat Charter Agreement (the "Charter") with Tantawan Production B.V. for the charter of a FPSO for use in the Tantawan Field. See "Business -- International Operations." The initial term of the Charter is for ten years, subject to extension, with an anticipated commencement date in mid-December 1996. In addition, TS has a purchase option on the FPSO throughout the term of the Charter. The Charter currently provides for an estimated charter hire commitment of $20,075,000 per year ($9,303,050 net to Thaipo), commencing upon its installation in the field. TS has also contracted with another company, SBM Marine Services Thailand Ltd., to operate the FPSO on a reimbursable basis throughout the initial term of the Charter. Performance of both the Charter and the agreement to operate the FPSO are non-recourse to TS and the Company. However, performance is secured by a lien on any hydrocarbons stored on the FPSO and is guaranteed by each of the working interest holders in the Tantawan Field, including Thaipo. Thaipo's guarantee is limited to its percentage interest in the Tantawan Field (currently 46.34%). OTHER MATTERS Publicly held companies are asked to comment on the effects of inflation on their business. Currently annual inflation in terms of the decrease in the general purchasing power of the dollar is running much below the general annual inflation rates experienced in the past. While the Company, like other companies, continues to be affected by fluctuations in the purchasing power of the dollar, such effect is not currently considered significant. 30 32 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 POGO PRODUCING COMPANY AND SUBSIDIARIES HOUSTON, TEXAS 31 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Pogo Producing Company: We have audited the accompanying consolidated balance sheets of Pogo Producing Company (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of Pogo's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pogo Producing Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas February 1, 1996 32 34 POGO PRODUCING COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Oil and gas................................................ $157,459 $173,556 $136,553 Interest on tax refund..................................... -- -- 2,322 Gains on sales............................................. 100 52 679 -------- -------- -------- Total.............................................. 157,559 173,608 139,554 -------- -------- -------- Operating Costs and Expenses: Lease operating............................................ 35,071 29,768 26,633 General and administrative................................. 16,400 15,984 14,550 Exploration................................................ 7,468 5,257 2,455 Dry hole and impairment.................................... 6,703 7,088 4,690 Depreciation, depletion and amortization................... 68,489 63,308 40,693 -------- -------- -------- Total.............................................. 134,131 121,405 89,021 -------- -------- -------- Operating Income............................................. 23,428 52,203 50,533 Interest: Charges.................................................... (11,167) (10,104) (10,956) Income..................................................... 26 53 14 Capitalized................................................ 1,834 739 451 -------- -------- -------- Income Before Taxes and Extraordinary Item................... 14,121 42,891 40,042 -------- -------- -------- Income Tax Expense........................................... (4,891) (15,517) (14,981) -------- -------- -------- Income Before Extraordinary Item............................. 9,230 27,374 25,061 Extraordinary Loss on Early Extinguishment of Debt, net of tax........................................................ -- (307) -- -------- -------- -------- Net Income................................................... $ 9,230 $ 27,067 $ 25,061 ======== ======== ======== Primary and Fully Diluted Earnings per Common Share: Before extraordinary item.......................... $ 0.28 $ 0.82 $ 0.76 Extraordinary item................................. -- (0.01) -- -------- -------- -------- Net income......................................... $ 0.28 $ 0.81 $ 0.76 ======== ======== ======== Dividends per Common Share................................... $ 0.12 $ 0.06 $ -- ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part hereof. 33 35 POGO PRODUCING COMPANY & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, ---------------------- 1995 1994 --------- -------- (EXPRESSED IN THOUSANDS) Current Assets: Cash and cash investments.......................................... $ 4,481 $ 2,922 Accounts receivable................................................ 21,820 28,915 Other receivables.................................................. 30,504 14,717 Inventories........................................................ 6,438 2,422 Other.............................................................. 722 745 --------- -------- Total current assets....................................... 63,965 49,721 --------- -------- Property and Equipment: Oil and gas, on the basis of successful efforts accounting Proved properties being amortized............................... 963,330 913,865 Unevaluated properties and properties under development, not being amortized................................................ 47,431 6,890 Other, at cost..................................................... 8,811 8,268 --------- -------- 1,019,572 929,023 Less -- accumulated depreciation, depletion, and amortization, including $5,603 and $5,040 respectively, applicable to other property........................................................ 757,739 691,110 --------- -------- 261,833 237,913 --------- -------- Other................................................................ 12,379 11,192 --------- -------- $ 338,177 $298,826 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable................................................... $ 10,007 $ 8,065 Other payables..................................................... 35,254 26,497 Current portion of long-term debt.................................. 3,000 1,282 Accrued interest payable........................................... 1,714 1,583 Accrued payroll and related benefits............................... 1,239 1,237 Other.............................................................. 103 40 --------- -------- Total current liabilities.................................. 51,317 38,704 Long-Term Debt....................................................... 163,249 149,249 Deferred Federal Income Tax.......................................... 41,409 36,487 Deferred Credits..................................................... 10,494 10,349 --------- -------- Total liabilities.......................................... 266,469 234,789 --------- -------- Shareholders' Equity: Preferred stock, $1 par; 2,000,000 shares authorized............... -- -- Common stock, $1 par; 100,000,000 and 43,333,333 shares authorized respectively, and 33,006,972 and 32,825,836 shares issued, respectively.................................................... 33,007 32,826 Additional capital................................................. 132,881 130,675 Retained earnings (deficit)........................................ (93,856) (99,140) Treasury stock, at cost............................................ (324) (324) --------- -------- Total shareholders' equity................................. 71,708 64,037 --------- -------- $ 338,177 $298,826 ========= ========
The accompanying notes to consolidated financial statements are an integral part hereof. 34 36 POGO PRODUCING COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 --------- --------- -------- (EXPRESSED IN THOUSANDS) Cash flows from operating activities: Cash received from customers..................................... $ 164,065 $ 165,549 $141,012 Federal income taxes and interest received....................... 6,000 3,364 -- Operating, exploration, and general and administrative expenses paid........................................................... (56,997) (50,894) (45,051) Interest paid.................................................... (11,036) (9,620) (10,912) Federal income taxes paid........................................ (6,000) (7,500) (2,800) Settlement of natural gas transportation and exchange imbalance...................................................... -- (2,168) -- Other............................................................ 301 542 895 --------- --------- -------- Net cash provided by operating activities................. 96,333 99,273 83,144 --------- --------- -------- Cash flows from investing activities: Capital expenditures............................................. (96,403) (85,375) (62,353) Purchase of proved reserves...................................... (11,921) (32,578) -- Proceeds from the sale of property and tubular stock............. 100 52 2,713 --------- --------- -------- Net cash used in investing activities..................... (108,224) (117,901) (59,640) --------- --------- -------- Cash flows from financing activities: Net borrowings (payments) under revolving credit agreements...... 15,000 (53,000) 8,000 Net borrowings under uncommitted lines of credit with banks...... 2,000 7,000 -- Proceeds from issuance of new debt............................... -- 86,250 -- Proceeds from exercise of stock options.......................... 1,717 3,687 2,026 Principal payments of other long-term debt obligations........... (871) (24,472) (7,000) Principal payments of production payment obligation.............. -- -- (24,854) Debt issue expenses paid......................................... -- (2,446) -- Payment of cash dividends on common stock........................ (3,946) (1,966) -- Purchase of 8% debentures due 2005............................... (450) (216) -- --------- --------- -------- Net cash provided by (used in) financing activities....... 13,450 14,837 (21,828) --------- --------- -------- Net increase (decrease) in cash and cash investments............... 1,559 (3,791) 1,676 Cash and cash investments at the beginning of the year............. 2,922 6,713 5,037 --------- --------- -------- Cash and cash investments at the end of the year................... $ 4,481 $ 2,922 $ 6,713 ========= ========= ======== Reconciliation of net income to net cash provided by operating activities: Net income....................................................... $ 9,230 $ 27,067 $ 25,061 Adjustments to reconcile net income to net cash provided by operating activities Extraordinary loss on early extinguishment of debt, net of tax.......................................................... -- 307 -- Gains on sales................................................. (100) (52) (679) Depreciation, depletion and amortization....................... 68,489 63,308 40,693 Dry hole and impairment........................................ 6,703 7,088 4,690 Interest capitalized........................................... (1,834) (739) (451) Increase in deferred federal income taxes...................... 5,592 8,374 13,356 Change in assets and liabilities: (Increase) decrease in accounts receivable................... 7,095 (10,435) 4,172 (Increase) decrease in federal income taxes and interest receivable................................................ -- 3,320 (3,320) (Increase) decrease in other current assets.................. 23 (18) (360) (Increase) decrease in other assets.......................... (1,187) (1,426) 838 Increase (decrease) in accounts payable...................... 1,942 (242) (1,592) Increase in accrued interest payable......................... 131 381 80 Increase in accrued payroll and related benefits............. 2 232 63 Increase (decrease) in other current liabilities............. 63 (124) (20) Increase in deferred credits................................. 184 2,232 613 --------- --------- -------- Net cash provided by operating activities.......................... $ 96,333 $ 99,273 $ 83,144 ========= ========= ========
The accompanying notes to consolidated financial statements are an integral part hereof. 35 37 POGO PRODUCING COMPANY & SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED SHARES COMMON ADDITIONAL EARNINGS TREASURY SHAREHOLDERS' OUTSTANDING STOCK CAPITAL (DEFICIT) STOCK EQUITY ----------- ------- ---------- --------- -------- ------------- (DOLLARS EXPRESSED IN THOUSANDS) BALANCE AT DECEMBER 31, 1992..... 32,103,864 $32,104 $ 122,846 $(149,302) $ -- $ 5,648 Net income....................... -- -- -- 25,061 -- 25,061 Exercise of stock options........ 345,308 345 3,072 -- -- 3,417 Acquisition of treasury stock, at cost........................ (15,575) -- -- -- (324) (324) Conversion of debenture.......... 25 -- 1 -- -- 1 ---------- ------- --------- --------- ------ ------- BALANCE AT DECEMBER 31, 1993..... 32,433,622 32,449 125,919 (124,241) (324) 33,803 Net income....................... -- -- -- 27,067 -- 27,067 Exercise of stock options........ 376,639 377 4,756 -- -- 5,133 Dividends ($0.06 per common share)......................... -- -- -- (1,966) -- (1,966) ---------- ------- --------- --------- ------ ------- BALANCE AT DECEMBER 31, 1994..... 32,810,261 32,826 130,675 (99,140) (324) 64,037 Net income....................... -- -- -- 9,230 -- 9,230 Exercise of stock options........ 181,136 181 2,206 -- -- 2,387 Dividends ($0.12 per common share)......................... -- -- -- (3,946) -- (3,946) ---------- ------- --------- --------- ------ ------- BALANCE AT DECEMBER 31, 1995..... 32,991,397 $33,007 $ 132,881 $ (93,856) $ (324) $71,708 ========== ======= ========= ========= ====== =======
The accompanying notes to consolidated financial statements are an integral part hereof. 36 38 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations -- Pogo Producing Company was incorporated in 1970. Pogo Producing Company and its subsidiaries (the "Company") are engaged in oil and gas exploration, development and production activities on its properties located offshore in the Gulf of Mexico and onshore in the United States. The Company is also engaged in exploration of its license concession in the Gulf of Thailand, and has commenced, with its joint venture partners, a development program in connection with its oil and gas discoveries on that concession. The Company has interest in 78 lease blocks offshore Louisiana and Texas, approximately 151,000 gross acres onshore in the United States and approximately 1,300,000 gross acres offshore in the Kingdom of Thailand. Use of Estimates -- The preparation of these financial statements require the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Depreciation, depletion and amortization of oil and gas properties and the impairment of oil and gas properties are determined using estimates of proved oil and gas reserves. There are numerous uncertainties in estimating the quantity of proved reserves and in projecting the future rates of production and timing of development expenditures. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. Proved reserves of crude oil, condensate, natural gas and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Principles of Consolidation -- The consolidated financial statements include the accounts of Pogo Producing Company and its wholly-owned subsidiaries, after elimination of all significant intercompany transactions. Inventories -- Inventories consist primarily of tubular goods used in the Company's operations and are stated at the lower of average cost or market value. Interest Capitalized -- Interest costs related to financing major oil and gas projects in progress are capitalized until the projects are evaluated or until production commences if the projects are evaluated as successful. Earnings per Share -- Earnings per common and common equivalent share (primary earnings per share) are based on the weighted average number of shares of Common Stock and common equivalent shares outstanding during the periods. The dilutive effect of stock options was considered in the earnings per share reported for the periods. The 8% Debentures are common stock equivalents and were anti-dilutive in all periods. Earnings per common and common equivalent share assuming full dilution (fully diluted earnings per share) considered the 10.25% Notes (retired on April 18, 1994) which were anti-dilutive in all periods in which they were outstanding and the 5 1/2% Notes (issued on March 16, 1994) which were dilutive for the portion of 1994 in which they were 37 39 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) outstanding (such dilution was not sufficient to change reported earnings per share) and anti-dilutive in 1995. Earnings per share are based on the following:
1995 1994 1993 ------ ------- ------- (EXPRESSED IN THOUSANDS) Earnings applicable to Common Stock: Primary -- Income before extraordinary loss.................... $9,230 $27,374 $25,061 Extraordinary loss.................................. -- (307) -- ------ ------- ------- Net income.......................................... $9,230 $27,067 $25,061 ====== ======= ======= Fully diluted -- Income before extraordinary loss.................... $9,230 $29,755 $25,061 Extraordinary loss.................................. -- (307) -- ------ ------- ------- Net income.......................................... $9,230 $29,448 $25,061 ====== ======= ======= Weighted average number of Common Stock and common equivalent shares outstanding: Primary............................................. 33,490 33,352 32,860 Fully diluted....................................... 33,490 36,451 32,894
Production Imbalances -- Owners of an oil and gas property often take more or less production from a property than entitled to based on their ownership percentages in the property. This results in a condition known in the industry as a production imbalance. The Company follows the "take" (cash) method of accounting for production imbalances. Under this method, the Company recognizes revenues on production as it is taken and delivered to its purchasers. The Company's crude oil imbalances are not significant. At December 31, 1995, the Company had taken approximately 1,872 MMcf of natural gas less than it was entitled to based on its interest in those properties, and approximately 1,675 MMcf more than its entitlement on other properties placing the Company at year-end in a net under-delivered position of approximately 197 MMcf of natural gas based on its working interest ownership in the properties. Oil and Gas Activities and Depreciation, Depletion, and Amortization -- The Company follows the successful efforts method of accounting for its oil and gas activities. Under the successful efforts method, lease acquisition costs and all development costs are capitalized. Properties are reviewed quarterly to determine if there has been impairment of the carrying value, with any such impairment charged to expense in the period. Exploratory drilling costs are capitalized until the results are determined. If proved reserves are not discovered, the exploratory drilling costs are expensed. Other exploratory costs are expensed as incurred. The provision for depreciation, depletion and amortization is based on capitalized costs, as determined above, plus future costs to abandon offshore wells and platforms, and is determined on a cost center by cost center basis using the units of production method. Other properties are depreciated using a straight-line method in amounts which in the opinion of management are adequate to allocate the cost of the properties over their estimated useful lives. Effective January 1, 1995, the Company adopted Financial Accounting Standard No. 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121")). SFAS 121 requires the Company to review its oil and gas properties whenever events or changes in the circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amount of any of the Company's oil and gas properties (determined on a cost center by cost center basis) is greater 38 40 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) than its fair market value, an impairment loss is recognized. Adoption of SFAS 121 did not have a material effect on the Company's financial statements for the year ended December 31, 1995. Consolidated Statements of Cash Flows -- For the purpose of cash flows, the Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. Significant transactions may occur which do not directly affect cash balances and as such will not be disclosed in the Consolidated Statements of Cash Flows. Certain such noncash transactions are disclosed in the Consolidated Statements of Shareholders' Equity relating to the acquisition of treasury stock in 1993 in exchange for stock options exercised and the conversion in 1993 of a debenture into Common Stock. In addition, the Company in 1993, exchanged its working interest in thirteen Gulf of Mexico oil and gas properties for an increased working interest in five other Gulf of Mexico oil and gas properties in a noncash "like kind" exchange. The oil and gas property and accumulated depreciation, depletion and amortization accounts as reflected in the Consolidated Balance Sheets have been adjusted to reflect the appropriate amounts to record the working interests acquired and disposed of. The oil and gas reserves acquired and disposed of are reflected as purchases and sales in the "Estimates of Proved Reserves" roll forward included in the "Unaudited Supplementary Financial Data" included elsewhere herein. Commitments and Contingencies -- The Company's office rent expense was $861,000, $819,000, and $868,000 in 1995, 1994, and 1993, respectively. The Company has lease commitments for office space of $1,067,000 in 1996, $1,056,000 in 1997, $1,007,000 in 1998, and $962,000 in 1999 and 2000. The Company's subsidiary in Thailand, along with the other working interest owners in the Tantawan Field, have guaranteed performance under a 10-year charter agreement for a floating production, storage and offloading system. The Company currently estimates its subsidiary's share of the commitment made under this agreement will be $9,303,000 per year commencing in December 1996. (2) INCOME TAXES The components of income (loss) before income taxes for each of the three years in the period ended December 31, 1995, are as follows (expressed in thousands):
1995 1994 1993 ------- ------- ------- United States........................................... $16,899 $44,931 $43,749 Foreign................................................. (2,778) (2,040) (3,707) ------- ------- ------- Total......................................... $14,121 $42,891 $40,042 ======= ======= =======
The components of federal income tax expense (benefit) for each of the three years in the period ended December 31, 1995, are as follows (expressed in thousands):
1995 1994 1993 ------ ------- ------- United States, current................................... $ -- $ 7,500 $ 2,800 United States, deferred(a)............................... 5,602 8,374 12,360 Foreign, current......................................... (711) (357) (179) ------ ------- ------- Total.......................................... $4,891 $15,517 $14,981 ====== ======= =======
- --------------- (a) Excludes $165,000 of deferred tax benefits on a $472,000 extraordinary loss in 1994. 39 41 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total federal income tax expense (benefit) for each of the three years in the period ended December 31, 1995, differs from the amounts computed by applying the statutory federal income tax rate to income before taxes as follows (expressed as a percent of pretax income):
1995 1994 1993 ---- ---- ---- Federal statutory income tax rate............................ 35.0% 35.0% 35.0% Increases (reductions) resulting from: Statutory depletion in excess of tax basis................. (2.2) (0.1) (0.4) Foreign taxes.............................................. 1.6 0.9 2.9 Other...................................................... 0.2 0.4 -- ---- ---- ---- 34.6% 36.2% 37.5% ==== ==== ====
The deferred federal income tax provision is the result of the difference between deferred tax liabilities determined at each balance sheet date. The deferred tax liabilities are determined by applying current tax laws to temporary differences in the recognition of revenue and expense for tax and financial purposes. The principal components of the Company's deferred income tax liability include the following at December 31, 1995 and 1994 (expressed in thousands):
DECEMBER 31, ---------------------- 1995 1994 --------- -------- Temporary differences arise primarily from the following -- Intangible drilling costs, capitalized and amortized for financial statement purposes and deducted for income tax purposes................................................. $ 168,753 $132,500 Differences in depletion and depreciation rates used for tangible assets for financial and income tax purposes.... (100,491) (78,457) Charges to property and equipment, expensed for financial statement purposes, and capitalized and amortized for income tax purposes...................................... (47,915) (35,266) Interest charges, capitalized and amortized for financial statement purposes and deducted for income tax purposes................................................. 21,062 17,710 --------- -------- Deferred tax liability...................................... $ 41,409 $ 36,487 ========= ========
40 42 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (3) LONG-TERM DEBT Long-term debt and the amount due within one year at December 31, 1995 and 1994, consists of the following (dollars expressed in thousands):
DECEMBER 31, --------------------- 1995 1994 -------- -------- Senior debt -- Bank revolving credit agreement debt: Prime rate based loans, borrowings at December 31, 1995 at an interest rate of 8.5%................................ $ 2,000 $ -- LIBO Rate based loans, borrowings at December 31, 1995 and 1994 at average interest rates of 6.81% and 7.63%, respectively............................................ 27,000 14,000 -------- -------- Total bank revolving credit agreement debt........... 29,000 14,000 Uncommitted credit lines with banks, borrowings at December 31, 1995 and 1994 at average interest rates of 6.8% and 7.21%, respectively....................................... 9,000 7,000 -------- -------- Total senior debt.............................................. 38,000 21,000 -------- -------- Subordinated debt -- 5 1/2% Convertible subordinated notes, due 2004.............. 86,250 86,250 8% Convertible subordinated debentures, due 2005, and a $3,000 annual sinking fund requirement.................... 41,999 43,281 -------- -------- Total subordinated debt........................................ 128,249 129,531 -------- -------- Total debt..................................................... 166,249 150,531 -------- -------- Amount due within one year -- Current portion of long-term debt, consisting of sinking fund requirements on 8% Debentures............................. (3,000) (1,282) -------- -------- Long-term debt................................................. $163,249 $149,249 ======== ========
Effective June 1, 1995, the Company entered into an amended and restated bank revolving credit agreement which extends to the Company an unsecured $150,000,000 revolving/term credit facility. The facility will be fully revolving until January 1, 1998, and will convert to a term loan with eight quarterly installments commencing April 30, 1998. Effective November 1, 1995, the Company voluntarily reduced, on a temporary basis, the commitment under the facility to $125,000,000. The amount that may be borrowed under the facility may not exceed a borrowing base, determined semiannually by the lenders based on the discounted present value of future net revenues from certain of the Company's oil and gas reserves and the provisions of the agreement. The borrowing base currently exceeds $125,000,000. The facility is governed by various financial covenants including the maintenance of positive working capital (excluding current maturities of debt), a fixed charge ratio, as defined, of 2.0 or greater, a limit of $300,000,000 on total debt, as defined, a $10,000,000 limit on other senior debt, and a $10,000,000 limit on prepayment (without refinancing) of subordinated debt in any one year and $20,000,000 in total through February 1, 1998. The Company is prohibited from pledging borrowing base properties as security for other debt. Borrowings under the facility bear interest at a Base (Prime) rate, certificate of deposit rate plus 1 1/8%, or LIBOR plus 1%, at the Company's option. A commitment fee on the unborrowed amount under the facility is also charged. The Commitment fee is 5/16 of 1% per annum on the unborrowed amount under the "active" portion of the facility and 1/8 of 1% per annum on the unborrowed amount of the "inactive" portion of the facility. Of the $125,000,000 that is currently available under the facility, $100,000,000 is designated as "active" and 41 43 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $25,000,000 is designated as "inactive". The Company incurred commitments fees of $352,000 in 1995, $409,000 in 1994, and $149,000 in 1993 under this and a prior revolving credit agreement. The Company has also entered into separate letter agreements with two banks under which each bank may provide a $10,000,000 uncommitted money market line of credit. The two lines of credit are on an as available or offered basis and the banks have no obligations to make any advances under the lines. Loans made under the agreements are for a maximum term of 30 days and are reflected as long-term debt as the Company has the intent and ability to reborrow such amounts under its bank revolving credit agreement discussed above. The agreements may be terminated at any time by the Company or either bank. The 5 1/2% convertible subordinated notes, due 2004 (the "5 1/2% Notes") are convertible into Common Stock at $22.188 per share subject to adjustment upon the occurrence of certain events. The 5 1/2% Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 1998, at a redemption price of 103.3% and decreasing percentages thereafter. No sinking fund is provided. The 5 1/2% Notes are redeemable at the option of the holder, upon the occurrence of a repurchase event (a change in control, as defined), at 100% of the principal amount. The 8% convertible subordinated debentures, due 2005 (the "8% Debentures") are convertible into Common Stock at $39.50 per share subject to adjustments under certain circumstances, including stock splits. The 8% Debentures are redeemable at the option of the Company at 102% through December 30, 1996, and decreasing percentages thereafter, and are subject to mandatory annual sinking fund requirements of $3,000,000 which commenced December 31, 1990. Such requirements will be sufficient to retire 75% of the issue prior to maturity. As of December 31, 1995, the Company has purchased $14,409,000 principal amount of the bonds at less than face value resulting in both ordinary and extraordinary gains. The Company has applied the entire principal amount of these bonds towards the sinking fund requirements. Current maturities and sinking fund requirements during the next five years in connection with the above long-term debt are $3,000,000 in 1996, $3,000,000 in 1997, $20,100,000 in 1998, $20,100,000 in 1999 and $6,800,000 in 2000. Included in the current maturities reflected above are $17,100,000 in 1998, $17,100,000 in 1999, and $3,800,000 in 2000 relative to bank debt. The Company has established a history of refinancing its bank debt before scheduled maturities and expects to do so again before the amortization of bank debt commences in 1998. (4) SALES TO MAJOR CUSTOMERS The Company is an oil and gas exploration and production company that generally sells its oil and gas to numerous customers on a month-to-month basis. Sales to the following customers exceeded 10 percent of revenues during the years indicated (expressed in thousands):
1995 1994 1993 ------- ------- ------- Enron Corp. and affiliates.............................. $42,895 $27,630 $16,437 Coastal Gas Marketing Company........................... $18,117 $27,609 $ 4,682 Scurlock Oil Company.................................... $ 1,757 $21,134 $38,510
(5) CREDIT RISK Substantially all of the Company's accounts receivable at December 31, 1995 and 1994, result from oil and gas sales and joint interest billings to other companies in the oil and gas industry. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by industry-wide changes in economic or other conditions. Such receivables are generally not collateralized. Historically, credit losses incurred by the 42 44 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company on receivables generally have not been material. No known material credit losses were experienced during 1995 or 1994. (6) EMPLOYEE BENEFITS A total of 3,295,294 shares of Common Stock are reserved for issuance to key employees and non-employee directors under the Company's stock option plans. The stock option plans authorize the granting of options at prices equivalent to the market value at the date of grant. Options generally become exercisable in three annual installments commencing one year after the date granted and, if not exercised, expire 10 years from the date of grant. At January 1, 1995, 1,387,537 shares were issuable under stock options outstanding. Options for 379,000 shares were granted during 1995 at prices ranging from $22.00 to $23.88 per share. During 1995, 181,136 options were exercised at prices ranging from $4.38 to $23.88 per share and options to purchase 20,000 shares at a price of $14.88 were cancelled. At December 31, 1995, options to purchase 1,565,401 shares were outstanding (982,380 were exercisable) at prices ranging from $4.38 to $23.88. In October 1995, the Financial Accounting Standards Board issued Statement No. 123 ("SFAS No. 123") a new standard on accounting for stock based compensation. This standard establishes a fair value based method of accounting for stock compensation plans awarded after December 31, 1995 and encourages companies to adopt SFAS No. 123 in place of the existing accounting method which requires expense recognition only in situations where stock compensation plans award intrinsic value to recipients at the date of grant. Companies that do not follow SFAS No. 123 for accounting purposes must make annual proforma disclosures of its effects. Adoption of the standard by the Company is required in 1996, although earlier implementation is permitted. The Company is currently evaluating what effect, if any, SFAS No. 123 will have on its financial position and results of operations. The Company has a tax-advantaged savings plan in which all salaried employees may participate. Under such plan, a participating employee may allocate up to 10% of his salary, and the Company makes matching contributions of up to 6% thereof. Funds contributed by the employee and the matching funds contributed by the Company are held in trust by a bank trustee in six separate funds. Amounts contributed by the employee and earnings and accretions thereon may be used to purchase shares of Common Stock, invest in a money market fund or invest in four stock, bond, or blended stock and bond mutual funds according to instructions from the employee. Matching funds contributed to the savings plan by the Company are invested only in Common Stock. The Company contributed $277,000 to the savings plan in 1995, $375,000 in 1994, and $125,000 in 1993. 43 45 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A trusteed retirement plan has been adopted by the Company for its salaried employees. The benefits are based on years of service and the employee's average compensation for five consecutive years within the final ten years of service which produce the highest average compensation. The Company makes annual contributions to the plan in the amount of retirement plan cost accrued or the maximum amount which can be deducted for federal income tax purposes. The following table sets forth the plan's funded status (in thousands of dollars) as of December 31, 1995, 1994, and 1993.
1995 1994 1993 ------- ------- ------- Actuarial present value (discounted at 7 1/4, 8 1/2, and 7 1/2%, respectively) of benefit obligations: Accumulated benefit obligations -- Vested............................................. $ 5,488 $ 3,940 $ 4,019 Non-vested......................................... 1,173 820 717 ------- ------- ------- Total accumulated benefit obligations.............. 6,661 4,760 4,736 Projected salary increases (escalated at 5%, 6% and 6%, respectively) and other changes................ 1,734 1,434 1,500 ------- ------- ------- Projected benefit obligations for service rendered to date............................................... 8,395 6,194 6,236 Plan assets at fair value, primarily listed securities with an expected long-term rate of return of 8 1/2%... 19,089 13,988 13,481 ------- ------- ------- Plan assets in excess of projected benefit obligations........................................... 10,694 7,794 7,245 Unrecognized: Net overfunding being recognized over 15 years........ (543) (646) (750) Net gain arising from the difference between actual experience and that assumed........................ (5,989) (3,443) (3,209) Prior service cost.................................... (387) (430) (473) ------- ------- ------- Accrued retirement plan asset........................... $ 3,775 $ 3,275 $ 2,813 ======= ======= ======= Retirement plan cost (benefit) for 1995, 1994, and 1993 included the following components: Service cost, benefits accruing each year with proration for future salary increases.............. $ 480 $ 499 $ 611 Interest cost on projected benefit obligations........ 535 476 524 Actual return on plan assets.......................... (1,182) (1,139) (1,164) Net amortization and deferral......................... (333) (298) (278) ------- ------- ------- Accrued retirement plan cost (benefit)................ $ (500) $ (462) $ (307) ======= ======= =======
Effective January 1, 1992, the Company adopted the provisions of the Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company currently provides full medical benefits to its retired employees and dependents. For current employees, the company assumes all or a portion of post retirement medical and term life insurance costs based on the employee's age and length of service with the Company. The postretirement medical plan has no assets and is currently funded by the Company on a pay-as-you-go basis. 44 46 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is an analysis (in thousands of dollars) of the annual expense and activity in the deferred cost and benefits obligation accounts for 1993, 1994 and 1995. The computation assumes that future increases in medical costs will trend down from 8.8% to 5% per year over the next 9 years for purposes of estimating future costs. The medical cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed medical cost trend rate by one percent in each year would increase the aggregate of service and interest cost components of net periodic postretirement benefit cost for 1995 by $115,000 and the accumulated post retirement benefit obligation as of December 31, 1995 by $850,000.
ANNUAL DEFERRED BENEFIT EXPENSE COSTS OBLIGATION ------- -------- ---------- Balance at January 1, 1993................................. $3,958 $ (4,758) Amortization of transition costs over 14 years representing the average remaining service period of eligible employees................................................ $ 305 (305) 305 Service cost, including interest........................... 368 Interest cost on transition obligation..................... 407 ------ 1993 expense............................................... $1,080 (1,080) ====== Current benefits paid...................................... 246 Unrecognized net loss...................................... (1,400) ------ -------- Balance at December 31, 1993............................... 3,653 (6,687) Amortization of transition costs over 14 years............. $ 304 (304) 304 Amortization of net loss from earlier periods.............. 57 57 Service cost, including interest........................... 395 Interest cost on transition obligation..................... 494 ------ 1994 expense............................................... $1,250 (1,250) ====== Current benefits paid...................................... 126 Unrecognized net gain...................................... 1,963 ------ -------- Balance at December 31, 1994............................... 3,349 (5,487) Amortization of transition costs over 14 years............. $ 304 (304) 304 Amortization of net gain from earlier periods.............. (69) (69) Service cost, including interest........................... 241 Interest cost on transition obligation..................... 399 ------ 1995 expense............................................... $ 875 (875) ====== Current benefits paid...................................... 145 Unrecognized net gain...................................... 541 ------ Balance at December 31, 1995............................... $3,045 ====== Plan assets at fair value.................................. -- -------- Funded status at December 31, 1995 (discounted at 7 1/4%).................................................. $ (5,441) ========
The accumulated postretirement benefit obligation (in thousands of dollars) at December 31, 1995 is attributable to the following groups: Retirees and beneficiaries................................................. $ 1,890 Dependents of retirees..................................................... 947 Fully eligible active employees............................................ 481 Active employees, not fully eligible....................................... 2,123 ------- $ 5,441 =======
45 47 POGO PRODUCING COMPANY & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Cash Investments Fair value is carrying value as no cash equivalents or cash investments are included in the balances as of December 31, 1995 and 1994. Debt
INSTRUMENT BASIS OF FAIR VALUE ESTIMATE - ------------------------------------ -------------------------------------------------- Bank revolving credit agreement Fair value is carrying value as of December 31, 1995 and 1994, based on 1995 negotiations with the lenders and the market value interest rates. Uncommitted credit lines with banks Fair value is carrying value as of December 31, 1995 and 1994 based on the market value interest rates. 5 1/2% Notes Fair value is 118% and 94%, of carrying value as of December 31, 1995 and 1994, respectively, based on the quoted market prices for this publicly traded debt. 8% Debentures Fair value is 102.5% and 98.75%, of carrying value as of December 31, 1995 and 1994, respectively, based on the quoted market prices for this publicly traded debt.
The carrying value and estimated fair value of the Company's financial instruments at December 31, 1995 and 1994 (in thousands of dollars) are as follows:
1995 1994 --------------------- -------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- --------- -------- -------- Cash and cash investments................. $ 4,481 $ 4,481 $ 2,922 $ 2,922 Debt: Bank revolving credit agreement......... (29,000) (29,000) (14,000) (14,000) Uncommitted credit lines with banks..... (9,000) (9,000) (7,000) (7,000) 5 1/2% Notes............................ (86,250) (101,775) (86,250) (81,075) 8% Debentures........................... (41,999) (43,049) (43,281) (42,740)
The Company occasionally enters into forward and futures contracts to minimize the impact of oil and gas price fluctuations. However, the Company does not consider its forward and futures contracts to be financial instruments since these contracts require or permit settlement by the delivery of the underlying commodity. Gains and losses on these activities are recognized in revenues when the hedged production occurs. 46 48 UNAUDITED SUPPLEMENTARY FINANCIAL DATA OIL AND GAS PRODUCING ACTIVITIES The results of operations from oil and gas producing activities excludes non-oil and gas revenues, general and administrative expenses, interest charges, interest income and interest capitalized. United States income tax expense was determined by applying the statutory rates to pretax operating results with adjustments for permanent differences. Kingdom of Thailand tax expense was determined by applying the statutory tax rate to Thailand taxable income.
UNITED KINGDOM OF TOTAL STATES THAILAND -------- -------- ---------- (EXPRESSED IN THOUSANDS) 1995 ----------------------------------- Oil and gas revenues................................ $157,459 $157,536 $ (77) Lease operating expense............................. (35,071) (35,071) -- Exploration expense................................. (7,468) (6,111) (1,357) Dry hole and impairment expense..................... (6,703) (6,703) -- Depreciation, depletion and amortization expense.... (67,831) (67,798) (33) -------- -------- -------- Pretax operating results............................ 40,386 41,853 (1,467) Income tax (expense) benefit........................ (13,623) (14,334) 711 -------- -------- -------- Operating results................................... $ 26,763 $ 27,519 $ (756) ======== ======== ======== 1994 ----------------------------------- Oil and gas revenues................................ $173,556 $173,518 $ 38 Lease operating expense............................. (29,768) (29,768) -- Exploration expense................................. (5,257) (3,931) (1,326) Dry hole and impairment expense..................... (7,088) (7,088) -- Depreciation, depletion and amortization expense.... (62,723) (62,690) (33) -------- -------- -------- Pretax operating results............................ 68,720 70,041 (1,321) Income tax (expense) benefit........................ (24,262) (24,619) 357 -------- -------- -------- Operating results................................... $ 44,458 $ 45,422 $ (964) ======== ======== ======== 1993 ----------------------------------- Oil and gas revenues................................ $136,553 $136,525 $ 28 Lease operating expense............................. (26,633) (26,633) -- Exploration expense................................. (2,455) (1,060) (1,395) Dry hole and impairment expense..................... (4,690) (2,737) (1,953) Depreciation, depletion and amortization expense.... (40,224) (40,193) (31) -------- -------- -------- Pretax operating results............................ 62,551 65,902 (3,351) Income tax expense.................................. (22,712) (22,891) 179 -------- -------- -------- Operating results................................... $ 39,839 $ 43,011 $ (3,172) ======== ======== ========
47 49 UNAUDITED SUPPLEMENTARY FINANCIAL DATA -- (CONTINUED) The following table sets forth the Company's capitalized costs (expressed in thousands) incurred for oil and gas producing activities during the years indicated.
1995 1994 1993 -------- -------- ------- Capitalized costs incurred: Property acquisition -- United States............. $ 14,864 $ 36,354 $ 1,520 Property acquisition -- Kingdom of Thailand....... 4,171 -- -- Exploration -- United States...................... 14,562 5,803 8,267 Exploration -- Kingdom of Thailand................ 5,418 5,022 4,583 Development -- United States...................... 39,461 67,143 57,648 Development -- Kingdom of Thailand................ 23,994 -- -- Interest capitalized.............................. 1,834 739 451 -------- -------- ------- $104,304 $115,061 $72,469 ======== ======== ======= Provision for depreciation, depletion and amortization: United States..................................... $ 67,798 $ 62,690 $40,193 Kingdom of Thailand............................... 33 33 31 -------- -------- ------- $ 67,831 $ 62,723 $40,224 ======== ======== =======
48 50 UNAUDITED SUPPLEMENTARY FINANCIAL DATA -- (CONTINUED) The following information regarding estimates of the Company's proved oil and gas reserves, which are located offshore in United States waters of the Gulf of Mexico, onshore in the United States and offshore in the Kingdom of Thailand is based on reports prepared by Ryder Scott Company Petroleum Engineers. Their summary report dated February 5, 1996 is set forth as an exhibit to this Form 10-K and includes definitions and assumptions that served as the basis for the discussions under the caption "Item 1, Business -- Exploration and Production Data -- Reserves." Such definitions and assumptions should be referred to in connection with the following information. ESTIMATES OF PROVED RESERVES
TOTAL COMPANY UNITED STATES KINGDOM OF THAILAND ------------------------- ------------------------- ------------------------- OIL OIL OIL CONDENSATE & CONDENSATE & CONDENSATE & NATURAL GAS NATURAL GAS NATURAL GAS LIQUIDS NATURAL GAS LIQUIDS NATURAL GAS LIQUIDS NATURAL GAS (BBLS) (MMCF) (BBLS) (MMCF) (BBLS) (MMCF) ------------ ----------- ------------ ----------- ------------ ----------- Proved reserves as of December 31, 1992........... 22,555,788 207,068 19,978,881 196,400 2,576,907 10,668 Revisions of previous estimates................ 342,022 1,148 342,022 1,148 -- -- Extensions, discoveries and other additions.......... 9,764,408 55,626 6,916,502 32,820 2,847,906 22,806 Purchase of properties...... 182,610 13,192 182,610 13,192 -- -- Sale of properties.......... (356,514) (11,849) (356,514) (11,849) -- -- Estimated 1993 production... (4,219,873) (32,319) (4,219,873) (32,319) -- -- ---------- ------- ---------- ------- ---------- ------- Proved reserves as of December 31, 1993........... 28,268,441 232,866 22,843,628 199,392 5,424,813 33,474 Revisions of previous estimates................ 1,286,984 (2,558) 1,286,984 (2,558) -- -- Extensions, discoveries and other additions.......... 6,565,442 49,517 4,315,883 26,252 2,249,559 23,265 Purchase of properties...... 2,686,919 15,792 2,686,919 15,792 -- -- Sale of properties.......... (497) (109) (497) (109) -- -- Estimated 1994 production... (4,945,677) (52,618) (4,945,677) (52,618) -- -- ---------- ------- ---------- ------- ---------- ------- Proved reserves as of December 31, 1994........... 33,861,612 242,890 26,187,240 186,151 7,674,372 56,739 Revisions of previous estimates................ 496,849 21,800 363,213 16,592 133,636 5,208 Extensions, discoveries and other additions.......... 11,901,880 78,434 4,267,871 35,058 7,634,009 43,376 Purchase of properties...... 4,015,131 30,054 460,156 3,770 3,554,975 26,284 Sale of properties.......... (15,144) (748) (15,144) (748) -- -- Estimated 1995 production... (5,078,326) (44,369) (5,078,326) (44,369) -- -- ---------- ------- ---------- ------- ---------- ------- Proved reserves as of December 31, 1995........... 45,182,002 328,061 26,185,010 196,454 18,996,992 131,607 ========== ======= ========== ======= ========== ======= Proved developed reserves as of: December 31, 1992........... 18,798,149 175,523 18,798,149 175,523 -- -- December 31, 1993........... 20,976,194 183,139 20,976,194 183,139 -- -- December 31, 1994........... 24,669,755 178,518 24,669,755 178,518 -- -- December 31, 1995........... 22,487,608 164,679 22,487,608 164,679 -- --
49 51 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES -- UNAUDITED
TOTAL UNITED KINGDOM OF COMPANY STATES THAILAND --------- --------- ---------- (EXPRESSED IN THOUSANDS) 1995 ------------------------------------ Future gross revenues..................................... $1,495,320 $ 873,578 $ 621,742 Future production costs: Lease operating expense................................. (415,829) (208,477) (207,352) Future development and abandonment costs.................. (247,019) (119,821) (127,198) ---------- --------- ---------- Future net cash flows before income taxes................. 832,472 545,280 287,192 Discount at 10% per annum................................. (299,997) (144,435) (155,562) ---------- --------- ---------- Discounted future net cash flow before income taxes....... 532,475 400,845 131,630 Future income taxes, net of discount at 10% per annum..... (155,330) (104,864) (50,466) ---------- --------- ---------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves................. $ 377,145 $ 295,981 $ 81,164 ========== ========= ========== 1994 ------------------------------------ Future gross revenues..................................... $ 985,888 $ 720,086 $ 265,802 Future production costs: Lease operating expense................................. (253,140) (192,834) (60,306) Future development and abandonment costs.................. (180,839) (86,684) (94,155) ---------- --------- ---------- Future net cash flows before income taxes................. 551,909 440,568 111,341 Discount at 10% per annum................................. (168,929) (109,700) (59,229) ---------- --------- ---------- Discounted future net cash flow before income taxes....... 382,980 330,868 52,112 Future income taxes, net of discount at 10% per annum..... (92,911) (73,602) (19,309) ---------- --------- ---------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves................. $ 290,069 $ 257,266 $ 32,803 ========== ========= ========== 1993 ------------------------------------ Future gross revenues..................................... $ 869,783 $ 744,201 $ 125,582 Future production costs: Lease operating expense................................. (186,464) (158,934) (27,530) Future development and abandonment costs.................. (133,258) (79,735) (53,523) ---------- --------- ---------- Future net cash flows before income taxes................. 550,061 505,532 44,529 Discount at 10% per annum................................. (146,221) (118,858) (27,363) ---------- --------- ---------- Discounted future net cash flow before income taxes....... 403,840 386,674 17,166 Future income taxes, net of discount at 10% per annum..... (103,580) (98,788) (4,792) ---------- --------- ---------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves................. $ 300,260 $ 287,886 $ 12,374 ========== ========= ==========
The standardized measure of discounted future net cash flows from the production of proved reserves is developed as follows: 1. Estimates are made of quantities of proved reserves and the future periods in which they are expected to be produced based on year end economic conditions. 50 52 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES - UNAUDITED - (CONTINUED) 2. The estimated future gross revenues from proved reserves are priced on the basis of year end prices, except in those instances where fixed and determinable natural gas price escalations are covered by contracts. 3. The future gross revenue streams are reduced by estimated future costs to develop and to produce the proved reserves, as well as certain abandonment costs based on year end cost estimates, and the estimated effect of future income taxes. These cost estimates are subject to some uncertainty, particularly those estimates relating to the Company's properties located in the Kingdom of Thailand. The standardized measure of discounted future net cash flows does not purport to present the fair market value of the Company's oil and gas reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves in excess of proved reserves, anticipated future changes in prices and costs, a discount factor more representative of the time value of money and the risks inherent in reserve estimates. The following are the principal sources of change in the standardized measure of discounted future net cash flows. All amounts are related to changes in reserves located in the United States and the Kingdom of Thailand, as noted.
YEAR ENDED DECEMBER 31, 1995 ------------------------------------ TOTAL UNITED KINGDOM OF COMPANY STATES THAILAND --------- --------- ---------- (EXPRESSED IN THOUSANDS) Beginning balance.......................................... $ 290,069 $ 257,266 $ 32,803 Revisions to prior years' proved reserves: Net changes in prices and production costs............... 34,004 69,988 (35,984) Net changes due to revisions in quantity estimates....... 29,630 26,109 3,521 Net changes in estimates of future development costs..... (8,632) (36,721) 28,089 Accretion of discount.................................... 38,298 33,087 5,211 Changes in production rate............................... (14,754) (15,792) 1,038 Other.................................................... (4,393) (432) (3,961) --------- --------- -------- Total revisions.................................. 74,153 76,239 (2,086) New field discoveries and extensions, net of future production and development costs......................... 105,172 71,701 33,471 Purchases of properties.................................... 29,299 5,160 24,139 Sales of properties........................................ (969) (969) -- Sales of oil and gas produced, net of production costs..... (121,615) (121,615) -- Previously estimated development costs incurred............ 63,455 39,461 23,994 Net change in income taxes................................. (62,419) (31,262) (31,157) --------- --------- -------- Net change in standardized measure of discounted future net cash flows.......................... 87,076 38,715 48,361 --------- --------- -------- Ending balance............................................. $ 377,145 $ 295,981 $ 81,164 ========= ========= ========
51 53 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES - UNAUDITED - (CONTINUED)
YEAR ENDED DECEMBER 31, 1994 ------------------------------------ TOTAL UNITED KINGDOM OF COMPANY STATES THAILAND --------- --------- ---------- (EXPRESSED IN THOUSANDS) Beginning balance.......................................... $ 300,260 $ 287,886 $ 12,374 Revisions to prior years' proved reserves: Net changes in prices and production costs............... (30,813) (44,948) 14,135 Net changes due to revisions in quantity estimates....... 5,947 5,947 -- Net changes in estimates of future development costs..... (45,370) (47,880) 2,510 Accretion of discount.................................... 40,384 38,667 1,717 Changes in production rate............................... 1,162 (9,574) 10,736 Other.................................................... 5,326 5,421 (95) --------- --------- -------- Total revisions.................................. (23,364) (52,367) 29,003 New field discoveries and extensions, net of future production and development costs......................... 59,047 53,104 5,943 Purchases of properties.................................... 22,973 22,973 -- Sales of properties........................................ (4,114) (4,114) -- Sales of oil and gas produced, net of production costs..... (143,655) (143,655) -- Previously estimated development costs incurred............ 68,252 68,252 -- Net change in income taxes................................. 10,670 25,187 (14,517) --------- --------- -------- Net change in standardized measure of discounted future net cash flows.......................... (10,191) (30,620) 20,429 --------- --------- -------- Ending balance............................................. $ 290,069 $ 257,266 $ 32,803 ========= ========= ========
YEAR ENDED DECEMBER 31, 1993 ------------------------------------ TOTAL UNITED KINGDOM OF COMPANY STATES THAILAND --------- --------- ---------- (EXPRESSED IN THOUSANDS) Beginning balance.......................................... $ 307,657 $ 299,045 $ 8,612 Revisions to prior years' proved reserves: Net changes in prices and production costs............... (41,775) (34,842) (6,933) Net changes due to revisions in quantity estimates....... 4,066 4,066 -- Net changes in estimates of future development costs..... 662 (871) 1,533 Accretion of discount.................................... 40,510 39,089 1,421 Changes in production rate............................... 5,134 6,728 (1,594) Other.................................................... 2,278 3,935 (1,657) --------- --------- -------- Total revisions.................................. 10,875 18,105 (7,230) New field discoveries and extensions, net of future production and development costs......................... 39,247 29,059 10,188 Purchases of properties.................................... 22,516 22,516 -- Sales of properties........................................ (19,633) (19,633) -- Sales of oil and gas produced, net of production costs..... (110,870) (110,870) -- Previously estimated development costs incurred............ 56,604 56,604 -- Net change in income taxes................................. (6,136) (6,940) 804 --------- --------- -------- Net change in standardized measure of discounted future net cash flows.......................... (7,397) (11,159) 3,762 --------- --------- -------- Ending balance............................................. $ 300,260 $ 287,886 $ 12,374 ========= ========= ========
52 54 QUARTERLY RESULTS - UNAUDITED Summaries of the Company's results of operations by quarter for the years 1995 and 1994 are as follows:
QUARTER ENDED ----------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 Revenues...................................... $41,810 $41,738 $ 36,967 $37,044 Gross profit(a)............................... $12,063 $13,562 $ 6,849 $ 7,354 Net income.................................... $ 3,431 $ 4,353 $ 722 $ 724 Earnings per share (primary and fully diluted)................. $ 0.10 $ 0.13 $ 0.02 $ 0.02 1994 Revenues...................................... $37,892 $49,734 $ 46,452 $39,530 Gross profit(a)............................... $17,355 $21,782 $ 17,762 $11,288 Income before extraordinary loss.............. $ 7,278 $ 9,903 $ 7,433 $ 2,760 Extraordinary loss on early extinguishment of debt........................................ -- $ (307) -- -- Net income.................................... $ 7,278 $ 9,596 $ 7,433 $ 2,760 Earnings per share: Primary -- Income before extraordinary loss......... $ 0.22 $ 0.30 $ 0.22 $ 0.08 Extraordinary loss....................... -- $ (0.01) -- -- Net income............................... $ 0.22 $ 0.29 $ 0.22 $ 0.08 Fully diluted -- Income before extraordinary loss......... $ 0.22 $ 0.29 $ 0.22 $ 0.08 Extraordinary loss....................... -- $ (0.01) -- -- Net income............................... $ 0.22 $ 0.28 $ 0.22 $ 0.08
- --------------- (a) Represents revenues less lease operating, exploration, dry hole and impairment, and depreciation depletion and amortization expenses. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. Not applicable. 53 55 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information regarding nominees and continuing directors in the Company's definitive Proxy Statement for its annual meeting to be held on April 23, 1996, to be filed within 120 days of December 31, 1995 pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the Company's "1996 Proxy Statement"), is incorporated herein by reference. See also Item S-K 401(b) appearing in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information regarding executive compensation in the Company's 1996 Proxy Statement, other than the information regarding the Compensation Committee Report on Executive Compensation, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information regarding ownership of the Company securities by management and certain other beneficial owners in the Company's 1996 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information regarding certain relationships and related transactions with management in the Company's 1996 Proxy Statement is incorporated herein by reference. 54 56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS 1. Financial Statements and Supplementary Data:
PAGE ---- Report of Independent Public Accountants...................... 32 Consolidated statements of income............................. 33 Consolidated balance sheets................................... 34 Consolidated statements of cash flows......................... 35 Consolidated statements of shareholders' equity............... 36 Notes to consolidated financial statements.................... 37 Unaudited supplementary financial data........................ 47
2. Financial Statement Schedules: All Financial Statement Schedules have been omitted because they are not required, are not applicable or the information required has been included elsewhere herein. 3. Exhibits: * 3(a) -- Restated Certificate of Incorporation of Pogo Producing Company. (Exhibit 3(a), Annual Report on Form 10-K for the year ended December 31, 1987, File No. 0-5468). * 3(a)(i) -- Certificate of Designation, Preferences and Rights of Preferred Stock of Pogo Producing Company, dated March 25, 1987. (Exhibit 3(a)(1), Annual Report on Form 10-K for the year ended December 31, 1987, File No. 0-5468). * 3(b) -- Bylaws of Pogo Producing Company, as amended and restated through July 24, 1990. (Exhibit 3(a), Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, File No. 0-5468). * 4(a) -- Amended and Restated Credit Agreement dated as of June 1, 1995 among Pogo Producing Company, certain commercial lending institutions, Bank of Montreal as the Agent and Banque Paribas as the Co-Agent. (Exhibit 4(a), Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 1-7792). * 4(b) -- Indenture dated as of October 15, 1980 to Chemical Bank, as Trustee. (Exhibit 4, File No. 2-69428). * 4(c) -- Indenture dated as of March 23, 1994 to Shawmut Bank Connecticut, National Association, as Trustee. (Exhibit 4(c), Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-7792) * 4(d) -- Rights Agreement dated as of April 26, 1994 between Pogo Producing Company and Harris Trust Company of New York, as Rights Agent. (Exhibit 4, Current Report on Form 8-K filed April 26, 1994, File No. 1-7792). * 4(e) -- Certificate of Designations of Series A Junior Participating Preferred Stock of Pogo Producing Company dated April 26, 1994. (Exhibit 4(d), Registration Statement on Form S-8 filed August 9, 1994, File No. 33-54969). Pogo Producing Company agrees to furnish to the Commission upon request a copy of any agreement defining the rights of holders of long-term debt of Pogo Producing Company and all its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed under which the total amount of securities authorized does not exceed 10% of the total assets of Pogo Producing Company and its subsidiaries on a consolidated basis.
55 57 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (comprising Exhibits 10(a) through 10(g)(2), inclusive) *10(a) -- 1977 Stock Option Plan of Pogo Producing Company, as amended as of September 28, 1981 and July 24, 1984. (Exhibit 10(a), Annual Report on Form 10-K for the year ended December 31, 1984, File No. 0-5468). *10(a)(1) -- Form of Amended Nonqualified Stock Option Agreement under 1977 Stock Option Plan (with stock appreciation rights and without employment restrictions). (Exhibit 10(a)(1), Annual Report on From 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(2) -- Form of Amended Incentive Stock Option Agreement under 1977 Stock Option Plan (with stock option appreciation rights and without employment restrictions), (Exhibit 10(a)(2), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(3) -- Form of Amended Nonqualified Stock Option Agreement under 1977 Stock Option Plan (without stock appreciation rights and with employment restrictions). (Exhibit 10(a)(3), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(4) -- Form of Amended Incentive Stock Option Agreement under 1977 Stock Option Plan (without stock option appreciation rights and with employment restrictions). (Exhibit 10(a)(4), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(5) -- Form of Amended Nonqualified Stock Option Agreement under 1977 Stock Option Plan (with stock appreciation rights and with employment restrictions). (Exhibit 10(a)(5), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(6) -- Form of Amended Incentive Stock Option Agreement under 1977 Stock Option Plan (with stock option appreciation rights and with employment restrictions). (Exhibit 10(a)(6), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(7) -- Form of Amended Nonqualified Stock Option Agreement under 1977 Stock Option Plan (without stock appreciation rights and without employment restrictions). (Exhibit 10(a)(7), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(a)(8) -- Form of Amended Incentive Stock Option Agreement under 1977 Stock Option Plan (without stock option appreciation rights and without employment restrictions). (Exhibit 10(a)(8), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(b) -- 1981 Stock Option Plan of Pogo Producing Company, as amended as of July 24, 1984. (Exhibit 10(b), Annual Report on Form 10-K for the year ended December 31, 1984, File No. 0-5468). *10(b)(1) -- Form of Stock Option Agreement under 1981 Nonqualified Stock Option Plan (with stock appreciation rights). Exhibit 10(b)(1), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(b)(2) -- Form of Stock Option Agreement under 1981 Nonqualified Stock Option Plan (without stock appreciation rights). Exhibit 10(b)(2), Annual Report on Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(c) -- 1981 Incentive and Nonqualified Stock Option Plan of Pogo Producing Company, as amended as of July 24, 1984. (Exhibit 10(c), Annual Report on Form 10-K for the year ended December 31, 1984, File No. 0-5468).
56 58 *10(c)(1) -- Form of Stock Option Agreement under 1981 Incentive Stock Option Plan. (Exhibit 10(c)(1), Annual Report of Form 10-K for the year ended December 31, 1981, File No. 0-5468). *10(d) -- 1989 Incentive and Nonqualified Stock Option Plan of Pogo Producing Company, as amended and restated effective January 25, 1994. (Exhibit 99, Definitive Proxy Statement on Schedule 14A, filed March 22, 1994, File No. 1-7792). *10(d)(1) -- Form of Stock Option Agreement under 1989 Incentive and Nonqualified Stock Option Plan, as amended and restated effective January 22, 1991. (Exhibit 10(d)(1), Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-5468). *10(d)(2) -- Form of Director Stock Option Agreement under 1989 Incentive and Nonqualified Stock Option Plan as amended and restated effective January 22, 1991. (Exhibit 10(d)(2), Annual Report on Form 10-K for the year ended December 31, 1991, File No. 0-5468). *10(e) -- Form of Letter Agreement respecting treatment of options upon change in control. (Exhibit 19(f), Quarterly Report on Form 10-Q for the quarter ended June 30, 1982. File No. 0-5468). 10(f)(1) -- Executive Employment Agreement by and between Pogo Producing Company and Stuart P. Burbach, dated February 1, 1996. 10(f)(2) -- Executive Employment Agreement by and between Pogo Producing Company and Jerry A. Cooper, dated February 1, 1996. 10(f)(3) -- Executive Employment Agreement by and between Pogo Producing Company and Kenneth R. Good, dated February 1, 1996. 10(f)(4) -- Executive Employment Agreement by and between Pogo Producing Company and R. Phillip Laney, dated February 1, 1996. 10(f)(5) -- Executive Employment Agreement by and between Pogo Producing Company and John O. McCoy, Jr., dated February 1, 1996. 10(f)(6) -- Executive Employment Agreement by and between Pogo Producing Company and Paul G. Van Wagenen, dated February 1, 1996. 10(g)(1) -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Kenneth R. Good, dated March 2, 1995. 10(g)(2) -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Paul G. Van Wagenen, dated March 2, 1995. *10(h) -- Undertaking by Pogo Producing Company dated as of August 8, 1977. (Exhibit 10(e), Annual Report on Form 10-K for the year ended December 31, 1980, File No. 0-5468). *10(i) -- Limited partnership agreement of Pogo Gulf Coast, Ltd. (Exhibit 19, Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, File No. 0-5468). 10(j) -- Bareboat Charter Agreement by and between Tantawan Services, LLC and Tantawan Production B.V., dated as of February 9, 1996. 21 -- List of Subsidiaries of Pogo Producing Company. 23(a) -- Consent of Independent Public Accountants. 23(b) -- Consent of Independent Petroleum Engineers.
57 59 24 -- Powers of Attorney from each Director of Pogo Producing Company whose signature is affixed to this Form 10-K for the year ended December 31, 1995. 27 -- Financial Data Schedule. 28 -- Summary of Reserve Report of Ryder Scott Company Petroleum Engineers dated February 5, 1996 relating to oil and gas reserves of Pogo Producing Company.
- --------------- * Asterisk indicates exhibits incorporated by reference as shown. (B) REPORTS ON FORM 8-K None 58 60 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. POGO PRODUCING COMPANY (Registrant) By: /s/ PAUL G. VAN WAGENEN ------------------------------------ Paul G. Van Wagenen Chairman of the Board, President and Chief Executive Officer Date: March 4, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 4, 1996.
SIGNATURES TITLE - ------------------------------------------ ------------------------------ /s/ PAUL G. VAN WAGENEN Principal Executive - ------------------------------------------ Officer and Director Paul G. Van Wagenen Chairman of the Board, President and Chief Executive Officer /s/ JOHN W. ELSENHANS Principal Financial - ------------------------------------------ Officer John W. Elsenhans Vice President and Treasurer /s/ THOMAS E. HART Principal Accounting Officer - ------------------------------------------ Thomas E. Hart Vice President and Controller TOBIN ARMSTRONG* Director - ------------------------------------------ Tobin Armstrong JACK S. BLANTON* Director - ------------------------------------------ Jack S. Blanton W. M. BRUMLEY, JR.* Director - ------------------------------------------ W. M. Brumley, Jr. JOHN B. CARTER, JR.* Director - ------------------------------------------ John B. Carter, Jr. WILLIAM L. FISHER* Director - ------------------------------------------ William L. Fisher
59 61
SIGNATURES TITLE - ------------------------------------------ ----------------------------- WILLIAM E. GIPSON* Director - ------------------------------------------ William E. Gipson GERRIT W. GONG* Director - ------------------------------------------ Gerrit W. Gong J. STUART HUNT* Director - ------------------------------------------ J. Stuart Hunt FREDERICK A. KLINGENSTEIN* Director - ------------------------------------------ Frederick A. Klingenstein NICHOLAS R. PETRY* Director - ------------------------------------------ Nicholas R. Petry JACK A. VICKERS* Director - ------------------------------------------ Jack A. Vickers *By: /s/ THOMAS E. HART - ------------------------------------------ Thomas E. Hart Attorney-in-Fact
60 62 EXHIBIT INDEX 10(f)(1) -- Executive Employment Agreement by and between Pogo Producing Company and Stuart P. Burbach, dated February 1, 1996. 10(f)(2) -- Executive Employment Agreement by and between Pogo Producing Company and Jerry A. Cooper, dated February 1, 1996. 10(f)(3) -- Executive Employment Agreement by and between Pogo Producing Company and Kenneth R. Good, dated February 1, 1996. 10(f)(4) -- Executive Employment Agreement by and between Pogo Producing Company and R. Phillip Laney, dated February 1, 1996. 10(f)(5) -- Executive Employment Agreement by and between Pogo Producing Company and John O. McCoy, Jr., dated February 1, 1996. 10(f)(6) -- Executive Employment Agreement by and between Pogo Producing Company and Paul G. Van Wagenen, dated February 1, 1996. 10(g)(1) -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Kenneth R. Good, dated March 2, 1995. 10(g)(2) -- Excess Benefits Letter Agreement by and between Pogo Producing Company and Paul G. Van Wagenen, dated March 2, 1995. 10(j) -- Bareboat Charter Agreement by and between Tantawan Services, LLC and Tantawan Production B.V., dated as of February 9, 1996. 21 -- List of Subsidiaries of Pogo Producing Company. 23(a) -- Consent of Independent Public Accountants. 23(b) -- Consent of Independent Petroleum Engineers. 24 -- Powers of Attorney from each Director of Pogo Producing Company whose signature is affixed to this Form 10-K for the year ended December 31, 1995. 27 -- Financial Data Schedule. 28 -- Summary of Reserve Report of Ryder Scott Company Petroleum Engineers dated February 5, 1996 relating to oil and gas reserves of Pogo Producing Company.
EX-10.F.1 2 EXEC. EMPLOYMENT AGMT. - STUART P. BURBACH 1 EXHIBIT 10(F)(1) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and STUART P. BURBACH (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control 8 occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Stuart P. Burbach 11 Autumn Crescent Woodlands, Texas 77381 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ STUART P. BURBACH POGO PRODUCING COMPANY By: /s/ PAUL G. VAN WAGENEN EX-10.F.2 3 EXEC. EMPLOYMENT AGMT. - JERRY A. COOPER 1 EXHIBIT 10(F)(2) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and JERRY A. COOPER (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control 8 occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Jerry A. Cooper 2906 Goddard Place Midland, Texas 77905 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ JERRY A. COOPER POGO PRODUCING COMPANY By: /s/ PAUL G. VAN WAGENEN EX-10.F.3 4 EXEC. EMPLOYMENT AGMT. - KENNETH R. GOOD 1 EXHIBIT 10(F)(3) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and KENNETH R. GOOD (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control 8 occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Kenneth R. Good Two Hilshire Oaks Court Houston, Texas 77055 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ KENNETH R. GOOD POGO PRODUCING COMPANY By: /s/ PAUL G. VAN WAGENEN EX-10.F.4 5 EXEC. EMPLOYMENT AGMT. - R. PHILLIP LANEY 1 EXHIBIT 10(F)(4) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and RADFORD P. LANEY (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control 8 occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Radford P. Laney 15914 Fleetwood Oaks Drive Houston, Texas 77079 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ RADFORD P. LANEY POGO PRODUCING COMPANY By: /s/ PAUL G. VAN WAGENEN EX-10.F.5 6 EXEC. EMPLOYMENT AGMT. - JOHN O. MCCOY, JR. 1 EXHIBIT 10(F)(5) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and JOHN O. MCCOY, JR. (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control 8 occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: John O. McCoy, Jr. 6619 Brompton Houston, Texas 77005 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ JOHN O. MCCOY, JR. POGO PRODUCING COMPANY By: /s/ PAUL G. VAN WAGENEN EX-10.F.6 7 EXEC. EMPLOYMENT AGMT. - PAUL G. VAN WAGENEN 1 EXHIBIT 10(F)(6) EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT by and between POGO PRODUCING COMPANY, a Delaware corporation (the "Company") and PAUL G. VAN WAGENEN (the "Executive"), dated as of the 1st day of February, 1996. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, and to provide the Executive with compensation and benefits arrangements which are competitive with those of other corporations and which ensure that the compensation and benefits expectations of the Executive will be satisfied. The Board also believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to insure the continuation of favorable compensation and benefits upon a Change of Control. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement, which shall supersede the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS; 1. Certain Definitions. (a) The "Effective Date" shall mean the date of this Agreement. (b) The "Employment Period" shall mean the period commencing on the Effective Date and ending on the second anniversary of such date; provided, however, that on each annual anniversary of the Effective Date (the "Renewal Date"), the Employment Period shall be reviewed, to determine whether, in the discretion of the Company, it should be extended for one additional year so as to terminate two years from such Renewal Date. Any such one year extension shall be effective only if, prior 2 to the Renewal Date, the Company shall give notice to the Executive that the Employment Period shall be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"). Notwithstanding anything in this Agreement to the contrary, the following shall not constitute a Change of Control: (i) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by State Farm Mutual Automobile Insurance Company and certain affiliates ("State Farm") or Klingenstein, Fields & Co., L.P. ("Klingenstein") ("Specified Stockholders") of beneficial ownership of Outstanding Company Voting Securities resulting in an accumulation of said securities up to and including the following amounts: A. In the case of State Farm, 30% of Outstanding Voting Securities, and B. In the case of Klingenstein, 30% of Outstanding Voting Securities, or (v) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Section 2 are satisfied; or 3 (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (i) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who where the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more, respectively, of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the shareholders of the Company of (i) a 4 complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which following such sale or other disposition (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person [excluding the Company, any Specified Stockholder, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be] beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation where members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 3. Employment Agreement. The Company hereby agrees to continue the Executive in its employ in accordance with the terms and provisions of this Agreement, for the Employment Period. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the later of the Effective Date, the most recent Renewal Date or a Change of Control, if any, (the "Applicable Date") and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Applicable Date or any office which is the headquarters of the Company and is less than 35 miles from such location. (ii) During the Employment Period, and 5 excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement; provided Executive may not serve on the board of a publicly traded for profit corporation or similar body of a publicly traded for profit business organized in other than corporate form without the consent of the Compensation Committee of the Board of Directors of the Company. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Applicable Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Applicable Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid on a monthly basis, at least equal to twelve times the highest monthly base salary paid or payable to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Applicable Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed at least annually and may be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other executives of the Company and its affiliated companies. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive may be awarded at the discretion of the Company for any fiscal year ending during the Employment Period, a bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall 6 provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, equal to the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Applicable Date. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Company and its affiliated companies. Such plans, practices, policies and programs shall provide the Executive with benefits which are equal, in the aggregate, to the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 90-day period immediately preceding the Applicable Date. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most 7 favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 90-day period immediately preceding the Applicable Date. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(c) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material violation by the Executive of the Executive's obligations under Section 4(a) of this Agreement (other than as a result of incapacity due to physical or mental illness) which is willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such violation is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such violation or (ii) the conviction of the Executive of a felony involving moral turpitude. (c) Good Reason; Window Period; Other Terminations. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason, (ii) during the Window Period by the Executive without any reason or (iii) by Executive other than (A) for Good Reason or (B) during a Window Period. For purposes of this Agreement, the "Window Period" shall mean the 180-day period immediately following the date a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control 8 occurs, and if it is reasonably demonstrated by the Executive that such termination of employment or cessation of status as an officer (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control or (ii) otherwise arose in connection with or anticipation of the Change of Control, then for all purposes of this Agreement the "date a Change of Control occurs" shall mean the date immediately prior to the date of such termination of employment or cessation of status as an officer. For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities excluding for this purpose an insubstantial or inadvertent action which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an insubstantial or inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that described in Section 4(a)(i)(B) hereof; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive without any reason during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(c) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined 9 below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's right hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iv) if the Executive's employment is terminated by the Executive other than for Good Reason or during a Window Period, the date of the receipt of the Notice of Termination or any later date specified therein. 6. Obligations of the Company upon Termination. (a) Good Reason or during the Window Period; Other than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment either for Good Reason or without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the product of (1) three and 10 (2) the sum of (x) the Executive's Annual Base Salary and (y) any bonus described in Section 4(b)(ii) paid or payable in respect of the most recently completed fiscal year of the Company; and, provided further, that such amount shall be reduced by the present value (determined as provided in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code")) of any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, severance policy or severance arrangement of the Company; and C. a separate lump sum supplemental retirement benefit equal to the difference between (1) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Employees Retirement Plan for Pogo Producing Company (or any successor plan thereto) (the "Retirement Plan") during the 90-day period immediately preceding the Applicable Date) of the benefit payable under the Retirement Plan and any supplemental and/or excess retirement plan of the Company and its affiliated companies providing benefits for the Executive (the "SERP") which the Executive would receive if the Executive's employment continued at the compensation level provided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment Period, assuming for this purpose that all accrued benefits are fully vested and that benefit accrual formulas are no less advantageous to the Executive than those in effect during the 90-day period immediately preceding the Applicable Date, and (2) the actuarial equivalent (utilizing for this purpose the actuarial assumptions utilized with respect to the Retirement Plan during the 90-day period immediately preceding the Applicable Date) of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP (the amount of such benefit shall be hereinafter referred to as the "Supplemental Retirement Amount"); and (ii) for the remainder of the Employment Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable 11 period of eligibility (such continuation of such benefits for the applicable period herein set forth shall be hereinafter referred to as "Welfare Benefit Continuation"). For purposes of determining eligibility of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and (iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided or which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other executives and their families during the 90-day period immediately preceding the Applicable Date (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits and (ii) payment to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the sum of the Severance Amount and the Supplemental Retirement Amount. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (which shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation and Other Benefits (excluding, in each case, Disability Benefits (as defined below)) and (ii) payment to the Executive in a lump sum in cash within 30 days of the Date of Termination of an amount equal to the greater of (A) the sum of the Severance Amount and the Supplemental Retirement Amount and (B) the present value (determined as provided in Section 280G(d)(4) of the Code) of any cash amount to be received by the Executive as a disability benefit pursuant to the terms of any long term disability plan, policy or arrangement of the Company and its affiliated companies, but not including any proceeds of disability insurance covering 12 the Executive to the extent paid for on a contributory basis by the Executive (which shall be paid in any event as an Other Benefit) (the benefits included in this clause (B) shall be hereinafter referred to as the "Disability Benefits"). (d) Cause; By Executive Other than for Good Reason And Other Than During a Window Period. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid. If the Executive terminates employment during the Employment Period, excluding a termination either for Good Reason or without any reason during the Window Period, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Except as provided in Section 6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as provided in Section 6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the Executive obtains other employment. If there is any contest by the Company concerning the Payments or benefits to be provided to the Executive 13 hereunder whether through litigation, arbitration or mediation, or with respect to the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, and the Executive is the prevailing party, the Company agrees to pay promptly upon conclusion of the contest all legal fees and expenses which the Executive may reasonably have incurred. (b) If there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that Good Reason did not exist, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 6(a) hereof as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking (which need not be secured) by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when Gross-Up Payment is required and the amount of such Gross-Up 14 Payment and the assumptions to be utilized in arriving at such determination, shall be made by Arthur Andersen LLP (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claims by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, 15 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section (c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) 16 promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) This Agreement shall be an unfunded obligation of the Company. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Paul G. Van Wagenen 6433 Sewanee Houston, Texas 77005 If to the Company: Pogo Producing Company P.O. Box 2504 Houston, Texas 77252-2504 Attention: Chief Administrative Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (d) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (e) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (f) The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of 18 this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (g) This Agreement supersedes the Employment Agreement between Company and Executive dated as of February 1, 1992 and extended and renewed most recently as of February 1, 1995, which shall no longer be of any force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ PAUL G. VAN WAGENEN POGO PRODUCING COMPANY By: /s/ JOHN O. MCCOY, JR. EX-10.G.1 8 EXCESS BENEFITS LETTER AGMT. - KENNETH R. GOOD 1 EXHIBIT 10(G)(1) EXCESS BENEFITS LETTER AGREEMENT Mr. Kenneth R. Good Senior Vice President - Land and Budgets Pogo Producing Company 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 Dear Mr. Good: Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), imposes limitations on the annual benefits which the Employees Retirement Plan for Pogo Producing Company (the "Retirement Plan") may pay to or on behalf of each individual plan participant. Section 401(a)(17) of the Code imposes limitations on the amount of each individual plan participant's annual compensation that the Retirement Plan may take into account in determining the annual benefit payable to or on behalf of the participant. As these limitations may reduce the Retirement Allowance and Spouse's Allowance otherwise payable to you and your spouse under the Retirement Plan, the Board of Directors of the Company has authorized the payment to you and your spouse of certain direct benefit payments under this Excess Benefits Letter Agreement. The benefit payments under this Excess Benefits Letter Agreement are designed to allow you and your spouse to recoup any reduction in your allowances under the Retirement Plan caused by the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code. Pursuant to the authorization of the Board of Directors mentioned above, the Company hereby agrees to make benefit payments to you or on your behalf as additional compensation in consideration of your past contribution to the growth and development of the Company and in consideration for services to be rendered by you as an officer of the Company, the terms and conditions of which are as follows: (1) Upon your retirement or termination of services with the Company for any reason other than your death, the Company shall pay to you a monthly benefit for life, commencing on the date your Retirement Allowance commences under the Retirement Plan, in an amount equal to the monthly annuity payment which you would be entitled to receive as a Retirement Allowance under the Retirement Plan if the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code were not applicable, less the monthly annuity payment actually payable to you as a Retirement Allowance under the Retirement Plan. 2 (2) Upon your death while in the service of the Company or after termination of service with the Company, the Company shall pay to your spouse, if she survives you and is eligible for a Spouse's Allowance under the Retirement Plan, a monthly lifetime benefit, commencing on the first day of the month following your death, in an amount equal to the monthly installment which she would be entitled to receive as a Spouse's Allowance under the Retirement Plan if the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code were not applicable, less the monthly installment actually payable to her as a Spouse's Allowance under the Retirement Plan. (3) The benefits payable under this Excess Benefits Letter Agreement shall be paid by the Company each month out of its general assets and shall not be funded in any manner. This Excess Benefits Letter Agreement shall be effective as of the date set forth below. If you find that this Excess Benefit Letter Agreement accurately describes the agreement between Pogo Producing Company and you concerning your unfunded deferred compensation described herein, please sign two copies of this letter and return one to the Company, whereupon this letter shall constitute a binding agreement between Pogo Producing Company and you. Yours very truly, POGO PRODUCING COMPANY By: /s/ JOHN O. MCCOY, JR. John O. McCoy, Jr. Vice President and Chief Administrative Officer Date: March 2, 1995 Accepted and agreed: /s/ KENNETH R. GOOD Kenneth R. Good EX-10.G.1 9 EXCESS BENEFITS LETTER AGMT. - PAUL G. VAN WAGENEN 1 EXHIBIT 10(G)(2) EXCESS BENEFITS LETTER AGREEMENT Mr. Paul G. Van Wagenen Chief Executive Officer Pogo Producing Company 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 Dear Mr. Van Wagenen: Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), imposes limitations on the annual benefits which the Employees Retirement Plan for Pogo Producing Company (the "Retirement Plan") may pay to or on behalf of each individual plan participant. Section 401(a)(17) of the Code imposes limitations on the amount of each individual plan participant's annual compensation that the Retirement Plan may take into account in determining the annual benefit payable to or on behalf of the participant. As these limitations may reduce the Retirement Allowance and Spouse's Allowance otherwise payable to you and your spouse under the Retirement Plan, the Board of Directors of the Company has authorized the payment to you and your spouse of certain direct benefit payments under this Excess Benefits Letter Agreement. The benefit payments under this Excess Benefits Letter Agreement are designed to allow you and your spouse to recoup any reduction in your allowances under the Retirement Plan caused by the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code. Pursuant to the authorization of the Board of Directors mentioned above, the Company hereby agrees to make benefit payments to you or on your behalf as additional compensation in consideration of your past contribution to the growth and development of the Company and in consideration for services to be rendered by you as an officer of the Company, the terms and conditions of which are as follows: (1) Upon your retirement or termination of services with the Company for any reason other than your death, the Company shall pay to you a monthly benefit for life, commencing on the date your Retirement Allowance commences under the Retirement Plan, in an amount equal to the monthly annuity payment which you would be entitled to receive as a Retirement Allowance under the Retirement Plan if the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code were not applicable, less the monthly annuity payment actually payable to you as a Retirement Allowance under the Retirement Plan. 2 (2) Upon your death while in the service of the Company or after termination of service with the Company, the Company shall pay to your spouse, if she survives you and is eligible for a Spouse's Allowance under the Retirement Plan, a monthly lifetime benefit, commencing on the first day of the month following your death, in an amount equal to the monthly installment which she would be entitled to receive as a Spouse's Allowance under the Retirement Plan if the limitations on retirement benefits provided in Sections 415 and 401(a)(17) of the Code were not applicable, less the monthly installment actually payable to her as a Spouse's Allowance under the Retirement Plan. (3) The benefits payable under this Excess Benefits Letter Agreement shall be paid by the Company each month out of its general assets and shall not be funded in any manner. This Excess Benefits Letter Agreement shall be effective as of the date set forth below. If you find that this Excess Benefit Letter Agreement accurately describes the agreement between Pogo Producing Company and you concerning your unfunded deferred compensation described herein, please sign two copies of this letter and return one to the Company, whereupon this letter shall constitute a binding agreement between Pogo Producing Company and you. Yours very truly, POGO PRODUCING COMPANY By: /s/ JOHN O. MCCOY, JR. John O. McCoy, Jr. Vice President and Chief Administrative Officer Date: March 2, 1995 Accepted and agreed: /s/ PAUL G. VAN WAGENEN Paul G. Van Wagenen EX-10.J 10 BAREBOAT CHARTER AGREEMENT 1 EXHIBIT 10(J) BAREBOAT CHARTER BETWEEN TANTAWAN PRODUCTION B.V. AND TANTAWAN SERVICES, L L C DATED as of February 9, 1996 2 BAREBOAT CHARTER TABLE OF CONTENTS
ARTICLE TITLE PAGE 1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FPSO . . . . . . . . . . . . . . .-1- 2. FPSO TO BE CHARTERED. . . . . . . . . . .-2- 3. SERVICE . . . . . . . . . . . . . . . . .-2- 4. DURATION OF CHARTER . . . . . . . . . . .-2- 5. GUARANTEES. . . . . . . . . . . . . . . .-3- 6. REPRESENTATIONS AND WARRANTIES. . . . . .-4- 7. MAINTENANCE AND OPERATION . . . . . . . .-5- 8. INSPECTION. . . . . . . . . . . . . . . .-7- 9. COMPENSATION. . . . . . . . . . . . . . .-8- 10. CHANGE IN LAW . . . . . . . . . . . . . -10- 11. TAXES . . . . . . . . . . . . . . . . . -10- 12. CONFLICTS OF INTEREST . . . . . . . . . -10- 13. LIENS AGAINST THE FPSO. . . . . . . . . -11- 14. INVENTORY . . . . . . . . . . . . . . . -12- 15. GAS SALES AGREEMENT . . . . . . . . . . -12- 16. DOWNTIME. . . . . . . . . . . . . . . . -12- 17. INSURANCE . . . . . . . . . . . . . . . -13- 18. INDEMNITY . . . . . . . . . . . . . . . -16-
-i- 3 19. NON-WAIVER OF DEFAULTS; NON-RECOURSE. . -18- 20. FORCE MAJEURE . . . . . . . . . . . . . -18- 21. LAW AND ARBITRATION . . . . . . . . . . -19- 22. NOTICES . . . . . . . . . . . . . . . . -20- 23. PURCHASE OPTION . . . . . . . . . . . . -21- 24. REVENUES. . . . . . . . . . . . . . . . -22- 25. REDELIVERY OF FPSO. . . . . . . . . . . -23- 26. REQUISITION . . . . . . . . . . . . . . -23- 27. GENERAL AND PARTICULAR AVERAGE. . . . . -24- 28. SALVAGE . . . . . . . . . . . . . . . . -24- 29. AUDIT . . . . . . . . . . . . . . . . . -24- 30. DEFAULT . . . . . . . . . . . . . . . . -24- 31. REMEDIES. . . . . . . . . . . . . . . . -25- 32. MISCELLANEOUS . . . . . . . . . . . . . -27-
Appendix A TECHNICAL DESCRIPTION AND DESIGN BASIS Appendix B-1 FORM OF JOINT VENTURER GUARANTEE AND INDEMNITY Appendix B-2 FORM OF LESSOR PARENT COMPANY GUARANTEE AND INDEMNITY Appendix C PURCHASE OPTION PRICE -ii- 4 BAREBOAT CHARTER This Bareboat Charter (this "Agreement"), made and entered into as of the 9th day of February 1996, by and between Tantawan Production B.V., a Netherlands corporation("Lessor"), and Tantawan Services, L L C, a Delaware limited liability company ("Charterer"), acting through its Thai branch. W I T N E S S E T H WHEREAS, the Petroleum Authority of Thailand ("PTT") and Thaipo Limited, Thai Romo Limited and The Sophonpanich Co., Ltd. have entered into that certain Gas Sales Agreement dated November 7, 1995 (the "Gas Sales Agreement") in connection with the Petroleum Concession Agreement No. 1/2534/36, dated August 1, 1991, covering block B8/32 offshore Thailand, awarded by the Ministry of Industry to Maersk Oil (Thailand) Ltd., Thaipo, Limited and Thai Romo, Limited, and Supplementary Petroleum Concession No. 1 to Petroleum Concession No. 1/2534/36, dated March 6, 1992, whereby The Sophonpanich Co., Ltd., entered into Petroleum Concession No. 1/2534/36 (collectively, the "Concession Agreement"); WHEREAS Thaipo Limited, Thai Romo Limited and Sophon Thai Gulf Limited (as successor in interest to The Sophonpanich Co. Ltd) are currently the Concessionaires under the Concession Agreement (collectively "the Concessionaires"); WHEREAS, Charterer desires to charter from Lessor on a bareboat basis a Floating Production Storage and Offloading System known as the "Tantawan Explorer" (the "FPSO"), for use in the Tantawan Field, Thailand; NOW, THEREFORE, in consideration of the mutual covenants herein contained, Lessor and Charterer agree as follows: 1. TRANSPORTATION, INSTALLATION AND COMMISSIONING OF THE FPSO Lessor shall be responsible for delivery (the "Delivery") of the FPSO to Charterer in international waters offshore the yard at which the FPSO is being converted (the "Delivery Site") as evidenced by a certificate of delivery issued by Lessor and countersigned by Charterer. Prior to Delivery, Lessor shall be fully responsible for and assume all risks with respect to the FPSO. Charterer has hired an operator ("Operator") pursuant to an Operating Agreement (the "Operating Agreement") to operate the FPSO commencing with Delivery. Operator shall be responsible for completing all work to be performed in respect of the FPSO until Field Acceptance, as herein defined, has occurred, including transporting the FPSO from the Delivery Site to the site in the Tantawan Field designated by Charterer (the "Offshore Site"), hooking-up the FPSO on its anchoring system and hydrostatic, electrical and instrumentation testing. Operator shall also be responsible for commissioning the FPSO. 5 2. FPSO TO BE CHARTERED Charterer hereby agrees to bareboat charter the FPSO as described in Appendix A and its inventory from Lessor, for the period and upon the terms and conditions stated herein. Lessor represents, undertakes and warrants that at the time of Delivery the FPSO shall comply with the requirements of the design basis set forth in Appendix A hereto (the "Design Basis") and shall be properly documented and classed as ABS A1 Floating Production, Storage and Offloading System, with no recommendations and as per the particulars of Appendix A. Lessor shall before and at the time of Delivery make the FPSO seaworthy and in every respect ready in hull, machinery and equipment for service hereunder. 3. SERVICE Charterer shall have the full use of the FPSO at the Offshore Site and, subject to Lessor's approval, at any other place in the world where its operation is not prohibited by applicable law and/or regulations. Charterer may subcontract to identified subcontractors certain of its obligations hereunder, including, but not limited to, those relating to the operation, maintenance and repair of the FPSO. However, such subcontracts shall not relieve Charterer of such obligations. 4. DURATION OF CHARTER 4.1 The term (the "Initial Term") of this Agreement shall commence upon Delivery. The Initial Term shall end on a date ten (10) years after Hire Commencement Date (as defined in Article 9.1). 4.2 When the FPSO is hooked up at the Offshore Site and is ready to receive hydrocarbons, when hydrostatic tests have been satisfactorily completed and, to the extent possible, when electrical and instrumentation tests have been satisfactorily completed, Charterer or its nominee will make an inspection to determine whether such events have occurred. Within twenty-four (24) hours of the inspection, Charterer will notify Lessor in writing of whether or not such events have occurred. Lessor will cause Operator to have available at the Offshore Site appropriate and experienced staff to promptly correct all items found to be unacceptable. When Charterer is satisfied that such events have occurred ("Field Acceptance"), Charterer shall sign a certificate of field acceptance to this effect. (If Charterer's affiliate shall fail to perform or cause to be performed the work of installing pipeline end manifolds ("PLEMs") and the anchoring of the mooring system for the FPSO at the Offshore Site and such failure shall have directly and solely prevented the occurrence of Field Acceptance, then Field Acceptance shall be deemed to have occurred as of the date Field Acceptance would have occurred but for Charterer's actions or failure to perform such action.) Field Acceptance by Charterer shall not be construed as a waiver or discharge of any of the representations, warranties or undertakings of Lessor in or with respect to this Agreement or the FPSO. -2- 6 4.3 Upon the expiration of the Initial Term, Charterer shall have the option to terminate this Agreement, extend this Agreement on an annual basis at prices to be agreed upon by Lessor and Charterer, or purchase the FPSO pursuant to Article 23. The election of any such option may be exercised by Charterer's giving Lessor notice thereof at least 360 days prior to the expiration of the Initial Term. If no such notice is received, Charterer shall be deemed to have exercised its option to terminate this Agreement as of the end of the Initial Term. If Charterer elects to extend this Agreement, then Charterer and Lessor shall negotiate in good faith in an effort to reach agreement prior to the end of the Initial Term on a Total Bareboat Rate for the subsequent annual term. If no such agreement is reached, Charterer shall have the additional option to purchase the FPSO as aforesaid by notice to Lessor at least 180 days prior to the end of the Initial Term. If no agreement on a Total Bareboat Rate for an extended term is timely reached and if no notice of an election to purchase the FPSO is timely given, Charterer shall be deemed to have exercised its option to terminate this Agreement as of the end of the Initial Term. If an agreement on Total Bareboat Rate for an extended term is reached, this Agreement shall be extended until the first anniversary date of the end of the Initial Term and this Article 4.3 shall apply at the end of said extended term mutatis mutandis. 5. GUARANTEES 5.1 Simultaneously with the execution of this Agreement, Charterer shall furnish to Lessor several guarantees limited to field percentage interest (the "Joint Venturer Guarantees") of Charterer's performance under this Agreement which shall be given by Thaipo Limited, Thai Romo Limited and Sophon Thai Gulf Limited (the "Joint Venturers") in the form of Appendix B-1 hereto. 5.2 As security for payment of Hire (as hereinafter defined) and other amounts due to Lessor hereunder, Charterer shall grant or cause the Concessionaires to grant (to the extent permitted by Thai law) a security interest to Lessor in all oil produced from the Tantawan Field taken on board the FPSO and the proceeds thereof, such security interest to be subordinate to royalties, taxes and field operating expenses and granted on a pari passu basis, with all lenders financing the development of the Tantawan Field. Charterer shall fully assist Lessor in perfecting such a security interest, to the extent permitted by the laws of the United States of America and the laws of Thailand. Charterer shall not agree to permit such other lenders to perfect their security interests if Lessor is unable or elects not to perfect its security interest. 5.3 Lessor has delivered to Charterer a Guarantee and Indemnity Agreement ("Lessor Parent Company Guarantee") in the form of Appendix B-2 hereto, executed by its ultimate corporate parent, IHC Caland N.V., guaranteeing the performance by Lessor of its obligations hereunder. -3- 7 6. REPRESENTATIONS AND WARRANTIES 6.1 Lessor represents and warrants to Charterer that: a) Lessor is a corporation duly organized and in good standing under the laws of the Netherlands; has all requisite corporate power and all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could be reasonably expected to have a material adverse effect on its business. b) Lessor has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by Lessor of this Agreement has been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by Lessor and constitutes its legal, valid and binding obligation, enforceable against Lessor in accordance with its terms except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditor's rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). c) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of the articles of association (statuten) of Lessor or any applicable law or regulation or any material agreement or instrument to which Lessor is a party or by which it is bound or to which it is subject or constitute a default under any such material agreement or instrument. d) All authorizations, approvals and consents of, and filings or registrations with, any governmental or regulatory authority or agency, as are at the date of Delivery necessary for the execution, delivery or performance by Lessor of this Agreement and for the legality, validity, or enforceability hereof, will have been obtained at such date and thereafter will be maintained until the expiration or termination of this Agreement. 6.2 Charterer represents and warrants to Lessor that: a) Charterer is a corporation duly organized and in good standing under the laws of the State of Delaware; has all requisite corporate power and all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could be reasonably expected to have a material adverse effect on its business. b) Charterer has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance -4- 8 by Charterer of this Agreement has been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by Charterer and constitutes its legal, valid and binding obligation, enforceable against Charterer in accordance with its terms except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditor's rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). c) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of the certificate of incorporation or by-laws of Charterer or any applicable law or regulation or any material agreement or instrument to which Charterer is a party or by which it is bound or to which it is subject or constitute a default under any such material agreement or instrument. (d) All authorizations, approvals and consents of, and filings or registrations with, any governmental or regulatory authority or agency, as are at the date of Delivery necessary for the execution, delivery or performance by Charterer of this Agreement and for the legality, validity, or enforceability hereof, will have been obtained at such date and thereafter will be maintained until the expiration or termination of this Agreement. (e) Charterer will not, for the duration of the charter term, engage in significant activities or own substantial assets located in the United States of America. 6.3 OTHER THAN AS SPECIFICALLY STATED IN THIS AGREEMENT NEITHER PARTY SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE TITLE, SEAWORTHINESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR USE OF THE FPSO OR ANY PART THEREOF. 7. MAINTENANCE AND OPERATION 7.1 Lessor agrees that the FPSO shall, for the duration of the charter term, be in the full possession and at the absolute disposal for all purposes of Charterer and under its complete control in every respect. Subject to Article 7.3, as necessary to meet and maintain requirements of the American Bureau of Shipping ("ABS"), Charterer shall maintain the FPSO in a good state of repair. In addition, Charterer shall maintain the FPSO in efficient operating condition and in accordance with good commercial maintenance practice, and shall keep the FPSO with valid, unexpired classification of the class as indicated in Article 2, free of recommendations and notations affecting class. Charterer shall furnish Lessor with one duplicate original or certified true copy of all class and flag certificates issued or notated during the duration of the charter upon their issuance or notation. Lessor shall keep all Thai, Bahamian (the "Country of Registry") and other required certificates valid, up-to-date and in full force at all times. Charterer shall maintain the following maintenance reports, records, surveys and documents: Planned Maintenance System, Continuous Survey of Machinery and such other reports, records, surveys and documents as Lessor shall -5- 9 reasonably specify in writing. Charterer shall provide copies of such documents to Lessor upon Lessor's request. Lessor shall provide Charterer and Operator with all authorizations which Charterer may reasonably require in order to accomplish the actions required or permitted to Charterer under this Article 7. 7.2 Subject to Article 7.3, Charterer shall take immediate steps to have all necessary repairs done within a reasonable time. 7.3 Notwithstanding the terms of Articles 7.1 and 7.2, Major Repairs necessary to meet and maintain ABS requirements and the Design Basis shall be the responsibility of Lessor provided always that Charterer has not caused the need for such repairs as a result of Charterer's gross negligence or willful misconduct. "Major Repairs" shall mean all repairs to the FPSO other than: (a) repairs resulting from corrosion caused by a combination of carbon dioxide and water in the gas stream, and (b) repairs costing less than U.S. $100,000 per incident. Such Major Repairs shall be carried out by Lessor and Charterer shall provide all necessary assistance. 7.4 In the event of any improvement, structural changes or new equipment becoming necessary for the continued operation of the FPSO by reason of new class requirements or compulsory legislation or in order to maintain the FPSO in compliance with the Design Basis, then Lessor shall carry out such work at its expense. 7.5 Charterer shall establish and maintain financial security of responsibility in respect of oil or other pollution damage as required by any government or other division or authority thereof, to enable the FPSO, without penalty or charge, lawfully to enter and remain at the Offshore Site in performance of this Agreement or in the case of removal of the FPSO to another site as may be permitted by the terms hereof, at such other site. Charterer shall make and maintain all arrangements by bond or otherwise as may be necessary to satisfy such requirements at Charterer's sole expense. 7.6 Charterer shall at its own expense and by its own procurement, except as stated to the contrary elsewhere, man, victual, operate, supply, fuel and repair the FPSO whenever required during the duration of this Agreement and shall pay all charges and expenses of every kind and nature whatsoever incidental to its use and operation of the FPSO under this Agreement. The Master, officers, crew and production personnel of the FPSO shall be the servants of Charterer for all purposes whatsoever. 7.7 Charterer shall comply with the regulations of the Country of Registry and, to the extent applicable, the Kingdom of Thailand. Charterer will cause the FPSO to comply at all times with all applicable laws, treaties and conventions and with all rules and regulations issued thereunder and to have on board, when required thereby, valid certificates showing compliance therewith. 7.8 During the duration of this Agreement the FPSO shall retain her present name and shall remain under and fly the Bahamian flag, provided, however, that Charterer shall have the liberty to paint the FPSO in its own colors, install and display its funnel insignia and fly its -6- 10 own house flag. Painting and repainting, installment and re-instalment shall be for Charterer's account. 7.9 (a) Subject to Article 7.4 and Lessor's approval, which shall not be unreasonably withheld, Charterer shall have the right to add additional equipment, modify existing equipment or connect additional production facilities. Any such additions or modifications, including the installation thereof, shall be at the sole cost, risk and expense of Charterer. Such additions, modifications and connections so installed shall, without necessity of further act, become part of the FPSO and the property of Lessor; provided, however, that so long as no Event of Default shall have occurred and be continuing, any such additions, modifications and connections not required to be installed in order to meet the requirements of Article 7.4 hereof and not installed as replacements for property included on board the FPSO on the date of Field Acceptance may be removed (so long as such removal can be accomplished without damage to the FPSO) by Charterer, at its own expense and risk, at any time during, or at the expiration of, the Initial Term upon reasonable prior notice, whereupon such equipment shall, without necessity of further act, become the property of Charterer. (b) Charterer may, in the ordinary course of maintenance, repair or overhaul of the FPSO, remove any item of property constituting a part of the FPSO; provided, however, that such item is replaced as promptly as possible by an item of property which is free and clear of all liens, encumbrances and rights of others and is in as good operating condition, is as seaworthy and has a value and utility at least equal to the item of property being replaced. Any item of property removed from the FPSO as provided in the preceding sentence shall remain the property of Lessor until replaced in accordance with the terms of such sentence, but shall then, without further act, become the property of Charterer. Any such replacement item of property shall, without further act, become the property of Lessor and be deemed part of the FPSO as defined herein for all purposes hereof. 7.10 Charterer shall have the use of all items of inventory, equipment and spares being part of or on board the FPSO on the date of Delivery, which Lessor undertakes to provide. Such inventory will be specified pursuant to Article 14. 8. INSPECTION 8.1 Lessor shall have the right at any reasonable time to inspect or survey the FPSO itself or to instruct a duly authorized third-party surveyor to carry out such survey on its behalf to ascertain the condition of the FPSO, and to satisfy itself that the FPSO is being properly repaired, maintained and operated. Such inspections and surveys shall be for Lessor's account. Charterer shall provide, free of charge to Lessor, upon reasonable request by Lessor, transportation from the shore base to the FPSO and vice versa on its regular flights and, to the extent available, accommodations, catering and communication on board for such inspectors or surveyors. 8.2 Charterer shall also permit Lessor to inspect the FPSO's log books whenever requested and shall immediately furnish Lessor with full information regarding any casualties or other accidents or damage to or caused by the FPSO. -7- 11 9. COMPENSATION 9.1 As full compensation for the performance by Lessor of its obligations under this Agreement, Charterer shall pay Lessor a hire ("Hire"). Hire shall accrue in accordance with this Article 9 commencing at 0001 hours local time at the Offshore Site on the date ("Hire Commencement Date") on which both (a) Field Acceptance, and (b) the earlier of (i) December 20, 1996 or (ii) the date on which hydrocarbons begin flowing through the FPSO, shall have occurred. Except as otherwise provided herein, Hire shall continue to accrue until the date and hour when the FPSO is redelivered to Lessor under the terms of this Agreement. Hire shall be paid at the rate of $55,000 per day (the "Total Bareboat Rate"), subject to change pursuant to mutual agreement of the parties, in the manner provided for in Article 24, and, except as otherwise specifically provided herein, no other compensation or reimbursement shall be due to Lessor for the performance of its obligations hereunder. 9.2 Payment of Hire shall be made monthly in arrears, without any discount, adjustment, set off or deduction, except as specifically set forth in this Article 9 or otherwise in this Agreement. Lessor shall provide invoices to Charterer covering each payment of Hire at least ten (10) days before due. Payment of Hire shall be made to such U.S. Dollar account or accounts with such European office of a first class bank as Lessor shall designate in writing. Lessor shall not change such designations without Charterer's consent, which consent shall not be withheld unless Charterer determines that: (i) such change would increase Charterer's costs; or (ii) such change would expose Charterer to the risk of double payment. The first payment of Hire shall be paid in same day funds before the close of business at the place of payment on the first business day of the calendar month beginning after the Hire Commencement Date. Except as otherwise provided in this Agreement, subsequent payments of Hire shall be paid in same day funds at the place of payment on the first business day of each applicable calendar month during the Initial Term or an extended term ("Hire Payment Date"). Hire shall accrue on a daily basis; provided that Hire for any periods that constitute less than a calendar day shall be a pro rata portion of Hire for such calendar day. If a Hire Payment Date falls on a day which is not a banking day at the place of payment, payment shall instead be made on the next succeeding day that is a banking day at such place. Any Hire paid but not earned shall be refunded on the next Hire Payment Date (or as otherwise provided under this Agreement) to Charterer by Lessor. 9.3 Upon request by Charterer, Lessor shall promptly pay to Charterer, or at the option of Charterer, at any time following an Event of Default by Lessor hereunder or a default under the Lessor Parent Company Guarantee, Charterer shall be entitled to deduct from the payments of Hire: (i) actual or reasonably estimated disbursements, if any, for Lessor's account; -8- 12 (ii) any advances to the master of the FPSO (the "Master") or to Lessor's affiliates, contractors, subcontractors, or agents for expenses or disbursements for Lessor's account; (iii) any previous overpayment of Hire, including payments made with respect to periods of Downtime; (iv) any sums due in respect of Lessor's failure to meet Lessor's performance undertakings under this Agreement; and (v) any other sums or credits to which Charterer is entitled under this Agreement. If a deduction is made based on an estimate, the next Hire payment shall be adjusted, if necessary, to reflect any difference between such estimate and the actual amount of deduction that Charterer is able to verify. All deductions from Hire shall be verified by Charterer by production of vouchers or supporting documentation corresponding to the deductions within thirty (30) days after the applicable Hire Payment Date. 9.4 Notwithstanding anything contained in this Article 9 to the contrary, the final payment of Hire hereunder shall be made on the date of redelivery of the FPSO to Lessor. Deductions, to the extent permitted by Article 9.3, from said final payment shall be those reasonably estimated by Charterer if the actual amounts have not been determined and also less the amount estimated by Charterer to become payable by Lessor for fuel and supplies on redelivery of the FPSO to Lessor as provided in Article 25. 9.5 Should the FPSO become an actual total loss, Hire shall cease at the time of her loss or, if such time is unknown, at the time when the FPSO was last heard of. If the FPSO should become a constructive total loss, Hire shall cease at the time of the casualty resulting in such loss. Within ninety (90) days after Hire has ceased under this Article 9.5, all monies owing to Charterer under the provisions of this Agreement at the time Hire ceases under this Article 9.5 shall be paid to Charterer, and likewise Lessor shall be paid the net amount of all sums due from Charterer. If the FPSO shall have been missing for at least forty-eight (48) hours when a payment of Hire would otherwise be due, such payment shall be postponed until the safety of the FPSO is ascertained. 9.6 In the event Charterer fails to make any payment (including without limitation any payment of Hire) due and owing to Lessor under this Agreement, Lessor shall so notify Charterer. If Charterer fails to pay amounts due and owing within five (5) business days after receipt of such notice, Charterer shall pay to Lessor, in addition to all other amounts then due and owing, a late fee at a rate equal to one-month LIBOR plus two percent (2%) on the amounts then due and owing for the period of said fifth (5th) day until paid without prejudice to any other remedies under this Agreement. 9.7 All payments of Hire and other amounts due hereunder from one party to the other shall be made in U.S. Dollars by interbank transfer. Except as otherwise provided herein, all sums due by one party to the other shall be paid within 30 days of receipt of invoice. -9- 13 9.8 Charterer shall be responsible for obtaining and shall use all reasonable efforts to obtain exchange control approval for payments under this Agreement. 10. CHANGE IN LAW 10.1 The Total Bareboat Rate is based on the tax laws of Thailand and Holland as of the date of this Agreement and assumes a tax burden of 1.1% of the Total Bareboat Rate. In the event there are any changes in Thailand tax laws or their interpretation which affect the cost to the Lessor of chartering the FPSO, the Total Bareboat Rate shall be revised upwards or downwards to take into account such change in costs; provided, however, Charterer shall not be obligated to pay any Thai, Dutch or U.S. tax burden up to a total amount equal to 2.2% of the Total Bareboat Rate and further provided Lessor shall use all reasonable efforts to maintain its present status under the tax treaty between Thailand and the Netherlands and shall take all reasonable actions to prevent or minimize any such increased expenses. Any increase in the total tax burden on the Total Bareboat Rate in excess of 2.2% of the Total Bareboat Rate attributable to any changes in Dutch tax laws shall be for Lessor's account. Any adjustment of said compensation shall be effective as of the effective date of the change in such tax burden; provided, Lessor shall furnish to Charterer the necessary supporting documentation evidencing such changes within a reasonable time. 10.2 The parties hereto do not believe that any U.S. taxes are applicable to payments made under this Agreement. To the extent that U.S. withholding taxes are assessed on Hire payable hereunder, Hire shall be increased such that the net Hire received by Lessor hereunder shall not be affected by such U.S. withholding taxes. Lessor agrees to use its best efforts to promptly obtain a refund of any such U.S. income taxes which have been withheld in excess of Lessor's U.S. tax obligations and to promptly repay such refund to Charterer. 11. TAXES Subject to Article 10, all taxes (including income and withholding taxes) which are due with respect to the payment of the Total Bareboat Rate pursuant to this Agreement shall be paid by Lessor or reimbursed to Charterer by Lessor, except that Thailand value added taxes ("VAT"), other Thailand sales/use taxes and Thailand customs and import duties applicable to the FPSO, shall be paid by Charterer or reimbursed to Lessor by Charterer. Charterer or its designee on the behalf of the Concessionaires shall be designated as the importer of the FPSO and be responsible for customs clearance and obtaining import licenses on the FPSO. 12. CONFLICTS OF INTEREST Neither Lessor nor any of its subcontractors shall pay any fee, commission, rebate or other thing of value to, or for the benefit of, any employee of Charterer, its principals or any of its or their affiliates, nor shall Lessor do business with any company knowing that the results thereof might benefit an employee of the Charterer, its principals or any of its or their affiliates. -10- 14 13. LIENS AGAINST THE FPSO 13.1 a) Neither Charterer nor the master of the FPSO nor any other person shall have any right, power or authority to create, incur or permit to exist upon the FPSO any lien, charge or encumbrance other than Permitted Encumbrances. Lessor may fasten to the FPSO in a conspicuous place and maintain during the term of this Agreement a notice reading as follows: Notice of Charter This Vessel is mortgaged to _________________ , and is under charter to Tantawan Services, L L C With the exception of such mortgage, under the terms of said charter, neither the charterer, any subcharterer, the master of this Vessel, nor any other person has the right, power or authority to create, incur or permit to be placed or imposed upon this Vessel, or its profits, any lien whatsoever, other than liens for master's and crew's wages or salvage or as otherwise provided under said charter. b) Lessor warrants that it has not created and covenants that it will not create or permit to exist, and shall indemnify, hold harmless and defend Charterer against any loss which Charterer may sustain by reason of, any Owner Encumbrances. c) "Permitted Encumbrances" shall mean (i) the rights of Charterer under this Agreement, (ii) the rights of Lessor under this Agreement, (iii) during the Initial Term or any extended term, liens for current master's and crew's wages and salvage, (iv) Lessor Group's mortgage of the FPSO in favor of certain lending institutions ("Lenders") provided Charterer shall have received satisfactory assurances from the Lenders as to the exercise of Charterer's rights under this Agreement in the absence of an Event of Default by Charterer and the expiration of all cure periods relevant thereto, and (v) liens arising in tort which are covered by insurance; and "Permitted Encumbrance" shall mean any of the foregoing. d) "Owner Encumbrances" shall mean any liens, security interests or encumbrances resulting from voluntary action by Lessor Group, as hereinafter defined, taken without the prior written approval of Charterer and not taken as the result of an Event of Default by Charterer. 13.2 Charterer agrees that if a libel or a complaint in admiralty (for purposes of this Article 13.2 called a "claim") shall be filed against the FPSO, or if the FPSO shall be otherwise levied upon or taken into custody or detained or sequestered by virtue of proceedings in any court or tribunal or by any government or other authority because of any claim (excluding a claim against Lessor), Charterer shall at its own expense within 15 days thereafter cause the FPSO to be released and each such claim to be discharged (except to the extent that the same shall be contested by Charterer in good faith by appropriate proceedings and shall not affect the continued use of the FPSO). Charterer agrees forthwith to notify Lessor by telegram or -11- 15 telex, confirmed by letter, of each such claim involving amounts in excess of $500,000 and of the release and discharge of each such claim. Charterer agrees to advise in writing at least once in each three-month period as to the status and merits of all such claims not released and discharged within 15 days as provided above, which either are not bonded or affect the ability of Charterer to use the FPSO in the ordinary course of its business. Charterer agrees to indemnify, hold harmless and defend Lessor against any loss which Lessor may sustain by reason of any liens, security interests or encumbrances resulting from voluntary action by Charterer Group taken without the prior written approval of Lessor and not taken as the result of an Event of Default by Lessor. 14. INVENTORY A complete inventory of the FPSO's entire outfit, equipment (including vessel equipment and supplies, cabin, crew and galley equipment), furniture, furnishings, appliances, spare and replacement parts and all unbroached consumable stores, fuel and lubricants onboard shall be jointly taken within thirty (30) days following Field Acceptance by representatives of Lessor and Charterer or by an independent outside firm as may be mutually agreed upon. A similar inventory shall be taken and mutually agreed upon at the time of Redelivery. 15. GAS SALES AGREEMENT Charterer and Lessor recognize that compliance with the terms of the Gas Sales Agreement will be required by the parties thereto, and Lessor and Charterer will generally cooperate in facilitating such compliance by the parties thereto. 16. DOWNTIME 16.1 Downtime shall mean any calendar day on which the FPSO is unable to process sufficient gas so as to deliver (and actually deliver) into the export pipeline the lesser of (i) 150 million cubic feet ("Mmcf") of gas or (ii) the amount of gas that Charterer, its affiliates and designees are capable of delivering to the FPSO, as determined in good faith by Charterer on the basis of demonstrated measured data; provided that any shortfall in gas delivery on a given calendar day may be made up so as to avoid Downtime hereunder over the three succeeding calendar days. Downtime shall also mean any calendar day on which the FPSO is unable to process and deliver into the FPSO storage tanks the lesser of (i) 40,000 barrels of liquids or (ii) the amount of liquids that Charterer, its affiliates and designees are capable of delivering to the FPSO, as determined in good faith by Charterer on the basis of demonstrated measured data; provided, however, that no Downtime shall be deemed to have occurred pursuant to this sentence if the FPSO's inability to process the liquids so required results solely from the FPSO's inability to process the quantity of gas required by the immediately preceding sentence. Downtime shall also mean any calendar day on which the FPSO is unable to offload into shuttle tankers the oil stored on the FPSO, other than for adverse weather conditions as specified in the Terminal Regulations Manual, as defined in the Operating Agreement and in Charterer's reasonable opinion this adversely affects the normal operation of the fields served by the FPSO. For purposes of this Article 16.1, -12- 16 "process" shall be interpreted to mean the processing on board the FPSO of gas and liquids having the properties given in the Design Basis in circumstances which conform to the design criteria given in the Design Basis. 16.2 Downtime shall occur notwithstanding the fact that maintenance or repairs (including Major Repairs but excluding those resulting from Charterer's gross negligence or willful misconduct) are occurring. Downtime shall not occur during the period that Charterer is adding or modifying equipment or connecting additional facilities pursuant to Article 7.9 hereof. 16.3 Lessor shall give Charterer sixty (60) days' prior notice of any Major Repairs to the FPSO. 16.4 Downtime shall be deemed not to occur during an event which is a Force Majeure event hereunder. 16.5 A Downtime Penalty Period shall mean any year based upon a historical rolling year beginning after the earlier of (i) February 28, 1997 or (ii) the Contractual Delivery Date, as defined in the Gas Sales Agreement. If Charterer desires to fix the commencement of the Downtime Penalty Period by reference to a Contractual Delivery Date based on completion of the seventy two (72) hour test ("Test") referred to in clause 6.3 of the Gas Sales Agreement, Charterer shall be required to obtain confirmation from Lessor prior to commencement of the Test that the FPSO is able to process and deliver Sales Gas, as defined in the Gas Sales Agreement, consistent with the PTT nomination made pursuant to said clause 6.3. During any Downtime Penalty Period (i) Charterer shall not be obligated to pay Lessor the Total Bareboat Rate in respect of any Downtime occurring after the first thirty (30) days of Downtime and (ii) if the first thirty (30) days of Downtime are consecutive, in addition to the foregoing, Charterer shall not be obligated to pay Lessor the Total Bareboat Rate for said first thirty (30)-day period (and if Charterer has previously paid any or all of the Total Bareboat Rate in respect of said first thirty (30) day period, Lessor shall promptly refund such amount to Charterer). 17. INSURANCE 17.1 Lessor shall maintain in force or shall cause one of its affiliates to maintain during the term of this Agreement the following insurance coverages. Deductibles for insurance obtained pursuant to Article 17.1 a), b) and c) shall be shared equally by Charterer and Lessor; all other deductibles shall be for the account of Lessor. a) Hull and Machinery and Increased Value Insurance on the FPSO in the amount of one hundred twenty percent (120%) of the estimated value of the FPSO on the London Institute Hull Clauses, or equivalent, including Collision Liability to the extent not provided under Article 17.1 (d) below. b) Confiscation and Expropriation Insurance on the FPSO in the amount of one hundred twenty percent (120%) of the estimated value of the FPSO. -13- 17 c) War Risk Insurance on the FPSO subject to London Institute Hull War Risk and Strikes Clauses, or equivalent, in the amount of one hundred twenty percent (120%) of the estimated value of the FPSO, and War Risk Protection and Indemnity Clauses with a limit of one hundred twenty percent (120%) of the estimated value of the FPSO. d) Protection and Indemnity Insurance on the FPSO, subject to the rules of a Protection and Indemnity Club who are members of the International Group of P & I Clubs. The P & I entry to include that proportion, if any, of Collision Liabilities not covered under Article 17.1 (a) above. e) Workmen's Compensation and Employer's Liability Insurance covering Lessor Group's (as hereinafter defined) employees for statutory benefits as set out and required by local law in the area of operation or any area in which Lessor Group may become legally obligated to pay benefits. Appropriate maritime coverage shall be included. f) Comprehensive General Liability and Automobile Liability Insurance covering premises and operations, independent contractors and contractual liability, as well as all owned, hired and non-owned vehicles. Minimum policy limits for personal injury and property damage shall be: i) Comprehensive General Liability: US$25,000,000 single limit per occurrence; ii) Automobile Liability: US$1,000,000 single limit per occurrence or such greater amount as required by applicable law. g) Pollution Insurance for the FPSO for US$300 million per occurrence, subject to market availability. 17.2 Before commencing performance of this Agreement, Lessor shall furnish Charterer with Certificates of Insurance indicating: a) the kinds and amounts of insurance as required; b) the insurance company or companies providing the aforesaid coverages; c) the effective and expiration dates of policies; d) that Charterer will be given thirty (30) days' (7 days for War Risk insurance policy) written advance notice of any material change, non-renewal or cancellation of any policy; e) the territorial limits of all policies; and f) that Charterer Group (as hereinafter defined) has been named as an additional insured on all policies referred to in Article 17.1 (except Article 17.1e)) with waivers of subrogation on the policies in Article 17.1. -14- 18 17.3 Charterer shall maintain in force during the term of this Agreement the following insurance coverages. Deductibles shall be for the account of Charterer. a) Workman's Compensation and Employer's Liability Insurance covering Charterer Group's employees for statutory benefits as set out and required by local law in the area of operation or area in which Charterer Group may become legally obligated to pay benefits. Appropriate maritime coverage shall be included. b) Comprehensive General Liability and Automobile Liability Insurance covering premises and operations, independent contractors and contractual liability, as well as all owned, hired and non-owned vehicles. Minimum policy limits for personal injury and property damage shall be: i) Comprehensive General Liability: US$25,000,000 single limit per occurrence; and ii) Automobile Liability: US$1,000,000 single limit per occurrence or such greater amount as required by applicable law. c) Seepage and Pollution Insurance on normal industry terms for the reservoir and oil field installations for US$50 million per occurrence. 17.4 Charterer shall furnish Lessor with Certificates of Insurance indicating: a) the kinds and amounts of insurance as required; b) insurance company or companies providing the aforesaid coverages; c) effective and expiration dates of policies; d) Lessor will be given thirty (30) days' written advance notice of any material change, non-renewal or cancellation of any policy; e) the territorial limits of all policies; and f) that Lessor Group has been named as an additional insured on all policies referred to in Article 17.3 b) and c) with waivers of subrogation on the policies in Article 17.3. Charterer shall use reasonable efforts to obtain an agreement from PTT to indemnify Lessor Group and Charterer Group for losses and damages resulting from operations of shuttle tankers used or hired to transport oil from the FPSO. 17.5 Except as specifically provided above in this Article 17, Lessor and Charterer shall work toward establishing insurance values, amounts, coverages and deductibles on forms and with insurers which are compatible and consistent with the standards of prudent owners and operators of vessels of similar type, size, age, location and activity as the FPSO. -15- 19 18. INDEMNITY 18.1 Charterer Group shall have no liability or responsibility whatsoever for injury, illness or death of or property loss or damage (including to the FPSO) sustained by Lessor and its affiliates, associates, co-venturers, subcontractors at all levels, sub-suppliers, lenders and their respective shareholders, officers and employees and agents and the Master and crew of the FPSO (hereinafter all such persons and companies called "Lessor Group") howsoever caused or arising. Lessor shall protect, defend, indemnify and hold harmless Charterer and its affiliates, associates, co-venturers, co-venturers of subsidiaries and affiliates, and subcontractors at all levels and their respective shareholders, officers, employees and agents (hereinafter all such companies and persons called "Charterer Group") from and against any loss, damage, claim, expense, suit or liability (including attorneys' fees and legal costs) as a result of such injury, illness or death or property loss or damage. 18.2 Lessor Group shall have no liability or responsibility whatsoever for injury, illness or death or property loss or damage (including oil and gas reservoirs, pipelines and platforms in which Charterer Group has an interest) sustained by Charterer Group, howsoever caused or arising, including the unseaworthiness of the FPSO or otherwise. Charterer shall protect, defend, indemnify and hold harmless Lessor Group from and against any loss, damage, claim, expense, suit or liability (including attorneys' fees and legal costs) as a result of such injury, illness or death or property loss or damage. 18.3 Subject to the provisions of Articles 18.5, 18.6 and 18.9, with respect to claims by third parties (which shall exclude Charterer Group and Lessor Group) to the extent arising out of Lessor Group's negligence, Lessor agrees to indemnify, defend and save Charterer Group harmless from and against any and all losses, claims, demands, liabilities, damages, suits or actions in rem or otherwise (including expenses and attorneys' fees) for loss or damage to or injury, illness or death of such third parties. 18.4 Subject to the provisions of Articles 18.5, 18.6 and 18.9, with respect to claims by third parties (which shall exclude Charterer Group and Lessor Group) to the extent arising out of Charterer Group's negligence, Charterer agrees to indemnify, defend and save Lessor Group harmless from and against any and all losses, claims, demands, liabilities, damages, suits or actions in rem or otherwise (including expenses and attorneys' fees) for loss or damage to or injury, illness or death of such third parties. 18.5 From and after Field Acceptance, Charterer shall be solely responsible for (i) seepage or pollution from reservoirs, pipelines, platforms and other property related thereto owned or leased by Charterer Group while such property is in Charterer Group's custody and control, including cost of cleanup of same, and (ii) with respect to amounts in excess of $10,000,000 per occurrence, pollution from the FPSO (including its risers). Charterer agrees to indemnify, defend and save Lessor Group harmless from and against any and all losses, claims, demands, liabilities, damages, suits or actions in rem or otherwise (including expenses and attorneys' fees) for loss or damage to Lessor Group arising out of the seepage or pollution described in clause (i) and the pollution (for amounts in excess of $10,000,000 per occurrence) described in clause (ii). With respect to said pollution from the FPSO, Charterer shall conduct cleanup operations and Lessor shall provide all reasonable -16- 20 assistance; ultimate financial responsibility for the cost of such cleanup (to the extent less than $10,000,000) will be allocated by mutual agreement of the parties or pursuant to applicable law. If Charterer causes crude oil or gas described in this Article 18.5 to be insured, Charterer shall cause Lessor Group to be named as co- insured in such policy as their interests may appear. 18.6 a) Notwithstanding Article 18.5, Lessor shall be solely responsible for all liabilities, costs, expenses, penalties and/or fines arising from or caused by any pollution originating in or above the surface of the water from (i) spills of fuels, bunkers, slop tanks, lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge, garbage and sewage in Lessor Group's possession or control (including the FPSO) and (ii) any property or equipment (other than the FPSO) owned, leased or provided by the Lessor Group while such equipment is in a member of Lessor Group's custody and control, including costs of cleanup of same. b) Notwithstanding Article 18.5, Charterer shall be solely responsible for all liabilities, costs, expenses, penalties and/or fines arising from or caused by any pollution originating in or above the surface of the water from (i) spills of fuels, bunkers, slop tanks, lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge, garbage and sewage in Charterer Group's possession or control (other than the FPSO) and (ii) any property or equipment owned, leased or provided by the Charterer Group (other than the FPSO) while such equipment is in a member of Charterer Group's custody and control, including costs of cleanup of same. 18.7 All excuses from liability for one party and all indemnities given by one party to the other party or to the other party's Group pursuant to this Agreement, including but not limited to the indemnities in this Article 18, shall apply regardless of the sole or concurrent negligence or gross negligence or breach of duty or strict liability of the parties to be indemnified but shall not apply in the case of willful misconduct. 18.8 As used herein, "affiliate" shall mean any company or legal entity which (i) controls either directly or indirectly a party hereto, (ii) which is itself effectively controlled directly or indirectly by such party or (iii) is directly or indirectly effectively controlled by a company or entity which directly or indirectly controls such party. "Control" means the right to exercise forty percent (40%) or more of the voting rights in the appointment of the directors of the company concerned. 18.9 In no event shall either party's Group be liable for any loss of production, loss of oil or gas, loss of revenue or profit, loss of commercial advantage, demurrage, or any consequential or indirect losses or damages suffered by the other party's Group as a result of any act or omission or negligence, unseaworthiness of the FPSO or otherwise, and each party shall protect, defend, indemnify and hold harmless the other party's Group with respect to its Group's losses in this regard. 18.10 The provisions of this Article 18 are intended to specifically allocate certain liabilities between the parties hereto in the events described in this Article 18 but shall not be -17- 21 interpreted to waive or excuse performance by any party of its representations, warranties and covenants set forth in this Agreement. 19. NON-WAIVER OF DEFAULTS; NON-RECOURSE 19.1 Any failure by either party at any time, or from time to time, to enforce or require the strict keeping and performance of any of the terms or conditions of this Agreement, or to exercise a right hereunder, shall not constitute a waiver of such terms or conditions. 19.2 Notwithstanding any provision herein to the contrary, Lessor's recourse in the event of occurrence of any Event of Default hereunder shall be as provided in Article 31 hereof, provided that Lessor shall have no recourse to the assets of Charterer (other than its rights with respect of the FPSO), but shall be permitted to exercise any and all rights under and with respect to the guarantees and collateral referred to in Article 5 . 20. FORCE MAJEURE 20.1 Any loss or damage or delay in, or failure of performance of either party shall not constitute default hereunder or give rise to any claims for damages if and to the extent that such loss, damage, delay or failure is caused by "Force Majeure." 20.2 In this Agreement "Force Majeure" shall denote any event the happening of which could not be prevented even though a person against whom it happened or threatened to happen were to take such appropriate care as might be expected of a Reasonable and Prudent Operator, as hereinafter defined. "Reasonable and Prudent Operator" when used to describe the standard of care to be exercised by a party in performing its obligations means the degree of diligence and prudence and foresight reasonably and ordinarily exercised by experienced operators engaged in the same line of business under the same or similar circumstances and conditions and when used to determine the action that would be required of a party means the action an experienced commercial operator engaged in the same line of business under the same or similar circumstances and conditions would take in the exercise of such due diligence, prudence and foresight. Notwithstanding Article 20.1, Force Majeure shall not release either party from any obligation to give a notice or make any payment (including, in particular, any payment of Hire) under this Agreement except where the making of a payment is prevented by a Force Majeure event affecting the transfer of monies by the payor. Any payments which are so prevented from being made by reason of Force Majeure shall, upon the cessation of the Force Majeure event, be made as soon as practicable thereafter in addition to any other amounts which may then be payable by such party under this Agreement. 20.3 Events which may, subject to Article 20.2, be considered Force Majeure events shall include but not be limited to acts of government, strikes, lock-outs, acts of public enemy, wars whether declared or undeclared, blockades, insurrection, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, freezing of wells or lines of pipe, partial -18- 22 or entire failure of wells, inability to obtain necessary materials or supplies due to changes in laws and regulations, material changes in the obligations of the concessionaire under the Concession Agreement, as herein defined, imposed unilaterally by the Government of Thailand, and inability of PTT to accept delivery of natural gas delivered to PTT under the Gas Sales Agreement where such inability constitutes an event of Force Majeure under the Gas Sales Agreement which has been declared. 20.4 A party claiming relief on account of Force Majeure shall: (i) as soon as practicable give notice to the other party of the happening said to constitute Force Majeure, such notice to include full information about the circumstances and a statement of the steps and time believed necessary to remedy the failure but neither party shall be obligated to settle or prevent any strike or other industrial action except on terms which, in its sole judgment, are acceptable to it; and (ii) proceed as a Reasonable and Prudent Operator at its own expense to remedy the failure as rapidly as possible. 21. LAW AND ARBITRATION 21.1 This Agreement shall be construed and governed in accordance with the maritime law of the United States of America and, to the extent such law is inapplicable, with the laws of the State of New York excluding any conflict of law rules. In connection with the interpretation of any exhibit hereto, the choice of law of this Agreement shall prevail. 21.2 Any dispute arising under or in connection with this Agreement shall be settled by arbitration in New York City under the rules of the American Arbitration Association, except as provided herein. The party requesting arbitration shall be entitled to have arbitration of the dispute consolidated with any other pending dispute under this Agreement or with any dispute arising under the Operating Agreement. The party requesting arbitration shall serve upon the other party a written demand for arbitration with the name and address of the arbitrator appointed by it, and such other party shall, within ten (10) days thereafter, appoint an arbitrator, and the two arbitrators so named, if they can agree, shall appoint a third, and the decision or award of any two shall be final and binding upon the parties. In no event shall any dispute or consolidated group of disputes be determined by more than three arbitrators. Should the party upon whom the demand for arbitration is served fail or refuse to appoint an arbitrator within ten (10) days, the single arbitrator shall have the right to decide alone, and his decision or award shall be final and binding upon the parties. The arbitrator(s) shall have the discretion to impose the cost of the arbitration proceedings, including reasonable attorney's fees upon the losing party, or divide it between the parties on any terms which may appear just. Any decision or award rendered hereunder may be made and entered as a rule or judgment of any Court, in any country having jurisdiction. 21.3 Judgment upon the arbitration award rendered may be entered in any Court having either personal or in rem jurisdiction, or application may be made to such Court for a judicial acceptance of the award and an Order of Enforcement, as the case may be. -19- 23 22. NOTICES 22.1 Notices or other communications required to be given by either party pursuant to this Agreement shall be written in English and sent in letter form or by telex or facsimile to the address of the other party set forth in Article 22.2 below, or to such other address as may from time to time be designated by the other party through notification of such party. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: 22.1.1 Notices given by personal delivery shall be deemed effectively given on the date of personal delivery; 22.1.2 Notices given in letter form shall be deemed effectively given on the seventh day after the date mailed (as indicated by the postmark) by registered airmail, postage prepaid, or the third day after delivery to an internationally recognized courier service; 22.1.3 Notices given by telex shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question; and 22.1.4 Notices given by facsimile shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question. 22.2 Except as otherwise provided in Article 22.1, the parties shall give all notices and send all invoices and communications under this Agreement to: 22.2.1 If to Lessor: Tantawan Production B.V. 557's - Gravelandseweg 3119 XT Schiedam The Netherlands Attention: R. Smulders 31-10-4260430 (ph) 31-10-4731434 (fax) -20- 24 22.2.2 If to Charterer: Tantawan Services, L.L.C. c/o Pogo Producing Company 5 Greenway Plaza, Suite 2700 P.O. Box 2504 Houston, TX 77046-0504 Houston,TX 77252-2504 Attention: Vice President - Operations (713) 297-5000 (ph) (713) 297-5100 (fax) 22.3 All references in this Agreement to a business day shall refer to a day when both parties are open for business or, in the case of payments under Article 9, a day when banks at the place of payment are open for business. 23. PURCHASE OPTION Provided that an Event of Default by Charterer under Article 30 of this Agreement is not existing, Charterer shall have the right to exercise an option (the "Purchase Option") to purchase the FPSO (including its on-board spare parts) from Lessor free from all encumbrances (except encumbrances created by Charterer), (i) at the expiration of the Initial Term for a price of five million dollars ($5,000,000) or (ii) at any time during the Initial Term or during an extended term at a price to be determined by reference to Appendix C less any amounts due from Lessor under this Agreement which have been established at the time of such purchase; provided, the FPSO shall not be moved to operate in another field outside of Thailand or, if within Thailand, (i) to a field in which a current or future member of the Charterer Group (as defined in Article 18.1) does not have an interest, or (ii) unless pursuant to the Concession Agreement. Any Thailand sales or transfer taxes attributable to the sale will be paid by Charterer. Charterer must notify Lessor of its intent to exercise the Purchase Option as provided in Article 4.3, or if not so provided, 360 days prior to the date of purchase. Upon notification by Charterer of its intent to exercise the Purchase Option, Lessor shall use due diligence to cause the release of all liens (except liens caused or created by Charterer Group) on the FPSO to be effective not later than closing of the sale. In the event the Purchase Option is exercised, unless agreed otherwise between Charterer and Lessor, Lessor shall sell the FPSO and Charterer shall purchase the FPSO "as is," safely afloat, at the time and place of redelivery of the FPSO pursuant to Article 25, at which time: a) Lessor shall deliver to Charterer: (i) A certificate signed by a duly authorized executive of Lessor to the effect that the FPSO is free from all encumbrances (except encumbrances created by Charterer), (ii) A certificate signed by the appropriate government official of the Country of Registry showing Lessor as the sole owner of the FPSO and no liens of record other than encumbrances to be satisfied out of the FPSO's sales proceeds, -21- 25 (iii) One or more bills of sale executed by duly authorized officers of Lessor on behalf of Lessor conveying full title of the FPSO to Charterer in suitable form for recording or registering title, (iv) Copies of class and trading certificates (where relevant to its class) for the FPSO valid at the time of re-delivery, (v) All government approvals necessary to transfer the FPSO to Charterer and, if requested by Charterer, to delete the FPSO from registry in the Country of Registry and any country claiming jurisdiction over Lessor's power to sell the FPSO, (vi) Copies of all log books, classification certificates, manuals and other documents in the Lessor's or Lessor's manager's possession related to the FPSO's operation and maintenance, and (vii) Physical possession of the FPSO. b) On delivery Charterer shall pay the purchase price to Lessor or its designee by transfer to Lessor's account then designated for receipt of Hire payments. c) Each party shall deliver to the other party such additional documentation or take such additional action as such other party may reasonably request or as may be customary at the time with respect to the sale of vessels registered in the Country of Registry and which is not in conflict with the provisions of this Agreement, provided that Lessor shall not be required to arrange or pay for a drydocking or inspection of the FPSO for purposes of said sale and purchase. 24. REVENUES It is contemplated that Lessor and Charterer will enter into an escrow agreement ("Escrow Agreement") on terms mutually and reasonably acceptable to Lessor and Charterer pursuant to which PTT will be directed to pay all revenues due under the Gas Sales Agreement and any oil and condensate sales contracts with respect to the Tantawan Field, to the extent permitted by the Gas Sales Agreement, to an escrow account in a mutually acceptable bank located in Bangkok, Thailand (which direction will not be changed without the prior written consent of Lessor) for conversion to U.S. Dollars (to the extent applicable, after payment of royalties, taxes and field operating expenses denominated in Thai Baht (including payments to Operator under the Operating Agreement and excluding exploration expenses and expenses to drill exploration wells) applicable to the Concession Agreement and operations related thereto) and transfer to, for deposit with, a bank mutually acceptable to Lessor and Charterer ("Escrow Agent") to be distributed each month by the Escrow Agent: first, to remaining royalties and taxes , second to field operating expenses (including payments to Operator under the Operating Agreement and excluding exploration expenses and expenses to drill exploration wells) applicable to the Concession Agreement and operations related -22- 26 thereto; third, to Hire hereunder; ; and fourth, to the Concessionaires in their respective field percentage interests or as they may direct. 25. REDELIVERY OF FPSO The FPSO shall at the expiration or termination or as provided in Article 31.2 (b) of this Agreement (unless lost or a constructive total loss or under requisition or purchased by Charterer) be redelivered to Lessor at the Offshore Site (the "Redelivery"), as is - where is, in accordance with the following conditions. The FPSO shall be redelivered to Lessor properly documented and in class with no recommendations, fair wear and tear not affecting class excepted. Charterer shall have discharged substantially all free crude oil (other than tank bottoms) from the FPSO. Any expenses of degassing or demucking conducted within 12 months of Redelivery shall be borne by Charterer. The FPSO shall upon Redelivery have her class certificates valid. Charterer will render the FPSO available to Lessor at the time of Redelivery for survey, inspection, testing and inventory check at Lessor's expense. Charterer at its expense shall meet its Redelivery obligations and the charter period shall be extended for the period necessary to make any deficiencies good. During any such period the compensation payable under Article 9 before Redelivery shall not be so payable provided Charterer's obligations herein are met promptly and expeditiously. Prior to and during the Redelivery of the FPSO, Charterer shall provide such reasonable assistance to Lessor as Lessor requests in order to effect taking Redelivery of the FPSO, including but not limited to temporary office facilities onshore and transportation from Charterer's shore base to the FPSO and vice versa for Lessor's personnel and supplies as is reasonable under the circumstances. On Redelivery, Lessor shall be free (i) to cut and either remove or abandon the anchor chains, the risers, buoyancy tanks and the control umbilicals (but so as to leave no hazard to shipping and to avoid damage to Charterer's wells, wellheads, pipelines, PLEMS or other equipment) and to remove the FPSO from the Offshore Site but without having any obligation to remove subsurface equipment or materials including piling or any other obligation to clear the Offshore Site and (ii) to remove any free crude oil not previously removed by Charterer at Charterer's expense. 26. REQUISITION 26.1 If the FPSO is seized, expropriated, confiscated, nationalized or requisitioned by any authority (other than the government, or any department, commission or agency thereof, of the Country of Registry, whether a legally constituted governmental authority or otherwise), and such seizure, expropriation, confiscation, nationalization or requisition has continued for a period of at least 30 consecutive days, this Agreement, at the option of Charterer, may continue in force or may be terminated at any time during the period of seizure, expropriation, confiscation, nationalization or requisition, provided that in the event Charterer elects to terminate, notice shall be given to Lessor by Charterer and compensation, as specified in Article 9, shall cease as of the date occurring 30 days prior to the date of notice of termination and the FPSO shall be deemed to have been Redelivered to Lessor by Charterer. If Charterer has previously paid any or all of such compensation in respect of such 30 day period, Lessor shall promptly refund such amount to Charterer. -23- 27 26.2 In the event the FPSO is seized, expropriated, confiscated, nationalized or requisitioned by the government, or any department, commission or agency thereof, of the Country of Registry, whether a legally constituted governmental authority or otherwise, this Agreement shall be deemed terminated and compensation, as specified in Article 9.1, shall cease as of the date of seizure, expropriation, confiscation, nationalization or requisition, and the FPSO shall be deemed to have been redelivered to Lessor by Charterer. 26.3 In the event any seizure, expropriation, confiscation, nationalization or requisition of the FPSO occurs, Lessor shall use its best efforts to arrange the release of the FPSO therefrom (including, without limitation, changing the Country of Registry of the FPSO) and shall afford Charterer the opportunity to join in any such action. 27. GENERAL AND PARTICULAR AVERAGE General average if any shall be adjusted according to the York-Antwerp Rules 1994 or any subsequent modification thereof current at the time of the casualty. 28. SALVAGE All salvage and towage shall be for Lessor's benefit and the cost of repairing damage occasioned thereby shall be borne by Lessor. 29. AUDIT Lessor shall maintain its records which pertain to Articles 9 and 11 hereof in accordance with generally accepted international accounting principles and will keep copies of all applicable documents, forms and third-party invoices, etc., and will permit Charterer to inspect such records at any time upon request during regular business hours. 30. DEFAULT The following events by either party hereto or any guarantor ("Guarantor") under a Joint Venturer Guarantee or Lessor Parent Company Guarantee (any such Guarantee being defined as a "Guarantee") shall constitute an Event of Default: a) failure to observe any material covenant, condition or agreement to be performed or observed by said party hereunder or any Guarantor under the Guarantees; or b) any representation or warranty made herewith or pursuant hereto or pursuant to any of the Guarantees shall prove to be incorrect at any time in any material respect; or c) said party or Guarantor shall become insolvent or bankrupt or consent to the appointment of a trustee or receiver, or a trustee or receiver shall be appointed for -24- 28 said party or for a substantial part of its property without its consent and shall not be dismissed for a period of thirty (30) days, or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against said party and, if instituted against said party, shall not be dismissed for a period of thirty (30) days, and at any time thereafter so long as the same shall be continuing; or d) an Event of Default with respect to that party or its Guarantor shall have occurred under the Operating Agreement (for purpose of this paragraph d) only, an Event of Default by Operator under the Operating Agreement shall be deemed an Event of Default by Lessor hereunder); or e) A Force Majeure Event shall have occurred preventing payment by either party and such failure to pay continues unremedied for a period of 60 consecutive days. 31. REMEDIES 31.1 Upon the occurrence of an Event of Default by Lessor or its affiliate and at any time thereafter so long as the same shall be continuing, Charterer may, at its option, upon ninety (90) days' notice thereof to Lessor, declare this Agreement to be in default; and, at any time thereafter, so long as Lessor shall not have remedied or have commenced and at all times thereafter diligently acted to remedy all outstanding Events of Default, Charterer (a) may terminate this Agreement, compensation as specified in Article 9.1 shall cease as of the date of termination and Charterer shall redeliver the FPSO to Lessor as if the FPSO were being redelivered pursuant to Article 25 hereof, or (b) accelerate its right to exercise the Purchase Option at a price to be determined by reference to Appendix C (offsetting any damages which have been established at the time of such purchase against the purchase price of the FPSO) and terminate compensation under Article 9.1. Lessor shall be liable for any and all damages to Charterer resulting from termination of this Agreement and for all legal fees and any other costs and expenses whatsoever incurred by Charterer by reason of the occurrence of any Event of Default or by reason of the exercise by Charterer of any remedy hereunder, including, without limitation, any costs and expenses incurred by Charterer in connection with Redelivery of the FPSO. Notwithstanding the remedies available to Charterer under this Article 31, the provisions of Article 18.9 shall apply so as to limit the damages of Charterer and any guarantors of Charterer's obligations hereunder, provided that if Lessor shall breach its obligation other than for reasons wholly outside its control to sell the FPSO to Charterer if Charterer exercises its Purchase Option under sub-clause (b) above, Lessor shall be liable to such guarantors for direct damages to the guarantors or any of their affiliates which are parties to the Gas Sales Agreement arising under Articles XV or XVIII of the Gas Sales Agreement. To the extent that such guarantors (and such affiliates) claim direct damages under the Gas Sales Agreement as provided in the preceding sentence, such guarantors and affiliates must use their reasonable efforts to mitigate their damages. Charterer must use reasonable efforts to mitigate its damages. 31.2 Upon the occurrence of an Event of Default by Charterer or its affiliate (provided that such Event of Default did not arise out of or result from actions, or omissions to act, of Operator under the Operating Agreement) and at any time thereafter so long as the same shall be -25- 29 continuing, Lessor may, at its option, upon ninety (90) (or, in the case of an Event of Default based on a failure to pay money when due (including a failure by reason of Force Majeure), thirty (30)) days' notice thereof to Charterer, declare this Agreement to be in default; and, at any time thereafter, so long as Charterer shall not have remedied or (except as to an Event of Default based on a failure to pay money when due) have commenced and at all times thereafter diligently acted to remedy all outstanding Events of Default Lessor may do, and Charterer shall comply with, one or more of the following, as Lessor in its sole discretion shall so elect, to the extent permitted by, and subject to compliance with any mandatory requirements of applicable law then in effect. Lessor must use reasonable efforts to mitigate its damages and shall apply any amounts received from the sale or re-charter (for a period equal to the remainder of the term of this Agreement) of the FPSO (after deducting Lessor's direct out-of-pocket expenses of making the FPSO ready for sale or re-charter) to reduce the amount of any charter hire and other amounts payable by Charterer to Lessor pursuant to the last paragraph of this Article 31.2. To the extent that Charterer fails to maintain in force any insurance coverage described in Article 17.3 and is not diligently acting to replace such coverage, Lessor shall be entitled to obtain such insurance for the account of Charterer. a) Lessor may terminate this Agreement. b) Upon written demand, Lessor may cause Charterer to, and Charterer hereby agrees that it will, redeliver the FPSO to Lessor within a reasonable period of time not to exceed 45 days and in the same manner and in the same condition as if the FPSO were being redelivered pursuant to Article 25 hereof; or Lessor or its agent, at Lessor's option, may, but shall be under no obligation to, retake the FPSO irrespective of whether Charterer or any other person may be in possession of the FPSO, upon 24 hours prior notice but without prior demand and without legal process, and for that purpose Lessor or its agent may take possession thereof. c) Lessor or its agent may sell the FPSO at public or private sale, with notice to Charterer, or otherwise may dispose of, hold, use, operate, charter (whether for a period greater or less than the balance of what would have been the charter period for the FPSO in the absence of the termination of Charterer's rights to the FPSO) to others or keep idle, all on such terms and conditions and at such place or places as Lessor may determine. In addition, Charterer shall be liable for and shall pay to Lessor within thirty days after Lessor takes redelivery or possession of the FPSO a lump sum equal to any and all additional Hire payable during the Initial Term and for all legal fees and any other costs and expenses whatsoever incurred by Lessor by reason of the occurrence of any Event of Default or by reason of the exercise by Lessor of any remedy hereunder, including, without limitation, any costs and expenses incurred by Lessor in connection with the Redelivery or retaking of the FPSO. 31.3 Each party's remedies referred to in this Article 31 are intended to be the exclusive remedies of such party under this Agreement; provided, however, that either party may enforce performance of these remedies by all legal or equitable means. -26- 30 31.4 No express or implied waiver by either party of any Event of Default shall be in any way, or be construed to be, a waiver of any further or subsequent Event of Default. 32. MISCELLANEOUS 32.1 a) All terms and conditions of this Agreement shall be binding upon and shall enure to the benefit of the parties hereto and their respective successors and permitted assigns. Any purported assignment in contravention of this Article 32 shall be null and void. b) Charterer shall be entitled to assign its rights, duties and obligations hereunder to an affiliate without the consent of Lessor provided that Lessor receives simultaneously with such assignment guarantees from the Joint Venturers in respect of such assignee's obligations in the terms set out in Article 5 hereof. c) Any party having rights under this Agreement shall be entitled to pledge and/or assign its rights and, to the extent possible, and if requested, its duties and obligations under this Agreement by way of security to any lending institution providing financing for the transactions contemplated hereby or related to the development of the Tantawan Field or a collateral agent on their behalf provided that any such pledge or assignment does not release the assignor or any guarantor of the assignor's obligations hereunder, from any of their respective obligations to the Lessor or the Charterer as the case may be. d) Charterer shall not subcharter the FPSO to any party including an affiliate without the prior written consent of Lessor such consent not to be unreasonably withheld. Save as specifically provided above, neither party hereto shall be entitled to assign any rights or obligations under this Agreement without the prior consent of the other party, not to be unreasonably withheld. [The Remainder of This Page is Intentionally Blank] -27- 31 32.2 This Agreement may be executed in one or more counterparts, all of which, taken together, shall constitute one original document. 32.3 Except as specifically provided herein to the contrary, each party hereto intends that this Agreement shall not benefit or create any right or cause of action to any person other than parties hereto or their permitted assignees. 32.4 The making, execution and delivery of this Agreement by the parties hereto have been induced by no representation, statements, warranties or agreements other than those herein expressed or set forth in the attached exhibits or schedules. This Agreement and such exhibits or schedules embody the entire understanding of the parties, and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof, unless expressly referred to by reference herein. 32.5 This Agreement may be amended or modified and any condition herein specified may be waived by mutual consent of the parties by a written instrument executed on behalf of the parties. 32.6 The captions contained in this Agreement are for convenience of reference only and do not form a part of this Agreement and shall not affect the interpretation hereof. 32.7 If any portion of this Agreement shall be deemed by an arbitration tribunal or a court of competent jurisdiction to be unenforceable, the remaining portions shall be valid and enforceable only if, after excluding the portion deemed to be unenforceable, the remaining terms hereof shall provide for the consummation of the transactions contemplated herein in substantially the same manner as originally set forth at the date this Agreement was executed. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate as of the 9th day of February, 1996. TANTAWAN PRODUCTION B.V. TANTAWAN SERVICES, L L C By: THAILAND FINANCE COMPANY, its Managing Member By: /s/ G. HAYTHORNTHWAITE By: /s/ JOHN W. ELSENHANS Name: G. Haythornthwaite Name: John W. Elsenhans Title: Managing Director Title: Vice President & Treasurer -28- 32 APPENDIX A 33 FPSO FOR POGO, TANTAWAN FIELD (HI 39040) TECHNICAL DESCRIPTION INTRODUCTION POGO Producing Company, an affiliate of THAIPO Ltd., on behalf of its Joint Venture Partners, plans to develop hydrocarbon reserves from its Gulf of Thailand Block B8/32 Tantawan Field. This field is located in 240 feet waterdepth, approximately 265 miles south of Bangkok, Thailand. Initially the Tantawan field will be developed through two fixed drilling/production platforms with integrated flowlines connecting the platforms to a Floating Production Storage and Offloading (FPSO) system. Process facilities will be installed on the platforms to separate the wellhead production into high pressure gas, intermediate pressure gas and low pressure liquid streams. Three flowlines will transport production from each individual platform to a subsea tie-in skid from where the total production is transported to an import Pipe Line End Manifold (Plem) providing the connection with the FPSO via flexible risers and a Single Point Turret mounted on the vessel's bow. Following on-board processing, crude oil will be regularly offloaded from the FPSO by means of tandem moored offloading tankers while the produced gas will be compressed and transported through flexible risers to an export PLEM connected to an export gas sales pipeline which connects to a trunkline to shore. TANKER CONVERSION The selected tanker the "Tantawan Explorer" as detailed in Appendix A will be converted to an FPSO by adding equipment and modifying existing configuration generally as follows: 1.0 Design Life The design life for the vessel conversion, refurbishment, process equipment and turret mooring system is ten (10) years. 2.0 Oil and Gas Production Facilities An oil and gas production facility shall be installed, comprising of gas/oil separation, oil dehydration, gas compression, gas dehydration, sales gas metering, produced water treatment modules, fuel gas and other utilities. Design Throughput: Capacities: Oil/condensate 50,000 bpd Gas 150 MMscfd Produced Water 25,000 bpd Produced Liquids 50 bpd (Oil, condensate & Water) Page 1 34 Product Specifications: Oil RVP Less than 11 psi Oil Maximum BS&W 1.0% by volume Max Water content Export Gas 7.0 lb/mmscf Oil in Overboard Water Less than 20 ppm Below follows a brief description of the main process systems. Gas/Oil Separation Bulk production arrives from the wellhead platforms in three 12" nominal diameter flow lines, respectively dedicated to HP gas service, IP gas service and LP liquid service. The process system consists of an HP separator, an IP separator, an LP separator, heat exchangers, and a treater / coalescer / degasser. Design oil treating capacity is 50000 bpd; gas processing capacity is 150 mmscfd. High pressure gas is routed to the HP separator, intermediate pressure gas is routed to the IP separator and the low pressure unstabilized oil and condensate is routed to the LP separator. The HP and IP separator are two phase, the LP separator is three phase. Liquids from the HP separator are cascaded down through the IP separator to the LP separator then to the treater / degasser where it is dehydrated to sales quality. All flash gas produced by the decreasing liquid pressure systems is compressed and sent to the gas sales system. Gas Compression and Export Metering Compression is provided to bring the gas to export pressure. Two 75 mmscfd gas dehydration trains are provided to dry the gas prior to exporting. At the 150 mmscfd design rate, gas from the HP separator and the IP compressors will be compressed by means of three of the four 50 mmscfd reciprocating gas engine driven compressors. Gas from the IP separator and the LP compressors will be compressed by two of the three 25 mmscfd reciprocating gas engine driven compressors. Finally the flash gas from the LP separator and treater / degasser will be compressed in a three stage reciprocating gas engine driven LP compressor. This brings the total number of compressors to eight (4 x HP, 3 x LP and 1 x LP). Gas will be dehydrated prior to sales gas compression by means of two 75 mmscfd glycol dehydration trains. The gas will finally be fiscally metered by a sales gas metering system prior to export via the pipeline. Facilities have been designated to provide for 100% backup of the guaranteed minimum daily gas sales volume of 75 mmscfd. Produced Water Treatment Produced water from the LP separator will be routed to a hydrocyclone oil / water separation package. The reject oil stream from the hydrocyclone will be returned to the LP separator. The water will flow to a degassing drum prior to discharge overboard. Recovered skimmed oil from the degassing drum will be pumped back to the LP separator. Page 2 35 Overboard water will be automatically monitored to ensure its oil content is less than 20 ppm. If it exceeds 20 ppm it will be automatically diverted to a large dedicated 'off-spec' water tank in the FPSO. This tank allows further water treating to ensure that all overboard water contains less than 20 ppm oil in water. Page 3 36 Modules The following skids and modules will be installed as process equipment on the tanker: HP/IP SEPARATOR & GAS METERING MODULE - HP separator - IP separator - Gas Metering Skid GLYCOL DEHYDRATION MODULE - Glycol reboilers - Still columns - Glycol-glycol heat exchangers - Electric motor driven glycol circulation pumps - Gas-glycol-hydrocarbon separators - Glycol filters-element type - Glycol filters-activated charcoal type - Glycol contactors - Gas inlet/filter separators - Gas/glycol heat exchangers LP SEPARATOR/TREATER/DEGASSER MODULE - LP separator - Crude oil electrostatic heater treater / degasser vessel - Oil cross exchanger - Crude oil cooler LP COMPRESSOR SKID - LP compressor with engine associated auxiliaries, coolers and scrubbers WATER TREATMENT SKID - Produced water hydrocyclones - Produced water flash vessel - Produced water circulation pumps FUEL GAS SKID - Fuel gas heaters - Fuel gas KO drum - Fuel gas filters Page 4 37 INSTRUMENT AIR SKID - Instrument air compressor - Instrument air cooler - Instrument air after cooler - Instrument air separator - Instrument air pre-filters - Instrument air after-filters - Instrument air dryer - Instrument air receiver CHEMICAL INJECTION SKID - Chemical injection tanks - Chemical injection pumps SALES GAS/IP COMPRESSOR SKID - Three IP compressor skids, complete with interstage coolers and scrubbers - Four sales HP gas compressor skids, complete with interstage coolers and scrubbers FLARE SCRUBBER SKID - HP flare scrubber - LP flare scrubber - Scrubber transfer pumps DRAIN SUMP SKIDS - Closed drain sump skid LP PIG RECEIVER SKID - LP pig receiver - FPSO inlet manifold FLARE TIP PACKAGE - HP Flare tip assembly - LP Flare tip assembly MCC MODULE - 440V MCC - Transformers and panel boards for small power and lighting supply - UPS - SCADA terminal - Emergency lighting panel powered from emergency generator panel The modules/equipment skids will be installed on raised steel structures above the main deck. Page 5 38 3.0 Turret Mooring System A Bow Mounted Turret Mooring System shall be installed for mooring the FPSO and connecting the import and export flexible risers to the PLEMs. This system shall also incorporate the HP and IP pipeline pig receivers. The mooring system consists of a fixed external turret provided with 6 catenary chain anchor legs which will be attached to anchor piles. Each Mooring Chain will be comprised of a combination of 5 1/2" and 5 1/4" ORQ + 10% anchor chain. Product Swivel The product swivel has a total number of five 12" nominal bore paths. The LP import swivel is piggable. The HP and IP riser are piggable to below the swivels and gas export swivels and risers are not piggable. Details of the product swivel are as follows: Number of Paths 5 off 2 x Export - 12" NB Sch 140 - 10.75" ID 3 x Import - 12" NB Sch 120 / 60 Varies Design Pressure Swivel 2220 psig Import Lines 3 x 1420 psig Export Lines 2 x 2220 psig Design Temperature 145 Deg F Pigging LP Liquid Phase Import - In Line Piggable through swivel HP & IP Gas Import Piggable to pig receivers below swivel Export No Pigging Facilities Designed Page 6 39 4.0 Vessel modifications The two main boilers shall be modified for duel firing capability using both liquid fuel and/or natural gas. These modifications shall include the installation of new burners, burner management system, combustion controls and fuel gas piping. A helideck deigned for a Super Puma helicopter and helicopter fuelling system shall be installed on the stern of the vessel. The vessel shall be outfitted with the following additional equipment:- 1) In the engine room:- o Freshwater distilling plant o Process cooling pumps o Diesel Transfer pumps o Fresh water transfer pumps o Turbo Alternator o Marine Growth Prevention System 2) On the deck:- o Deck crane o Cargo Stripping Pump o Cargo Tank Gauging, temperature monitoring and high level alarm. o Two new lifeboats and davits o Helideck o Oil and Production Facilities o Tandem Mooring and Offloading Equipment. o Diesel Generator. The installation of this equipment shall require hull structural modifications and modifications for the associated utilities (e.g. power, air, cooling water, etc.). Fire Protection/Safety Systems The existing fire protection and safety systems on the vessel shall be modified to incorporate the additional modifications for the FPSO conversion including a helideck foam system, Fire and Gas system, two diesel driven fire water pumps and fire water piping, emergency shutdown systems and alarms, and a jockey pump. Electrical systems The electrical system shall be upgraded/modified to satisfy the additional loads, and shall include installation of new switchgear, new navigation lights, new deck floodlighting, new public address/alarm system, external communication systems, installation of power cabling from the engine room to the production facility and modifications to the power distribution system. Page 7 40 Accommodation Upgrade The accommodation shall be upgraded to provide a total of 70 berths, all associated services to meet this requirement will be modified as required (e.g. air conditioning, domestic fresh water, laundry and mess room facilities). Corrosion Protection A corrosion protection system designed for a 10 year service shall be installed, incorporating hull anodes, tank anodes and impressed current cathodic protection. 5.0 Environmental Conditions The environmental conditions applied for the design of the FPSO are provided in "The Design Basis For The Tantawan Field Development" prepared for POGO Producing Company, by INTEC Engineering, Document No E-013.1-DEB-03-001 Rev B 10-95. Page 8 41 APPENDIX A Main Particulars of the converted Vessel GENERAL DATA Size 136,960 DWT Year Built 1976 Builder HDW, Kiel, Germany Class Germanischer Lloyd 100 A5 Oil Tanker Mach Class MC Aut Inert CONVERSION INFORMATION Year 1996 Class American Bureau Of Shipping A1 - FPSO Floating Production and Offloading System PRINCIPLE DIMENSIONS LOA 284.06 M LBD 272.68 M Breadth 43.4 M Depth 20.6 M Draft 15.7 M - Summer TONNAGE Tonnage 66,914 Gross 50,432 Net MACHINERY Boilers 2 x 36 TPH, 60 Bar - Boilers converted for diesel fuel/heavy fuel oil/gas combustion operations AC Generators Main 1 x 1860 Kw - Steam Turbine Standby 2 x 900 Kw - Diesel Emergency 1 x 165 Kw - Diesel Voltage 440V - 60 Hz Cargo Pumps 4 x 3000 MT/Hr at 150 M with Vac Strip Ballast Pump 1 x 2200 MT/Hr at 40 M Propulsion HDW 24,000 SHP steam turbine (Decommissioned on location) HULL / SHIP'S EQUIPMENT Accommodation 70 men Mess facilities For two shifts Stores Dry/refrigerated 30 days (100 cu-m approx) Refuse Disposal Garbage Compactor and Incinerator Life Boats 2 x 70 man Rescue Boat 1 x 30 man Page 9 42 HELIDECK Design Super Puma Location Stern TANK CAPACITY Cargo Capacity 980258 bbls with heating coils Produced Water Cap 32889 bbls Ballast Capacity 18,176 cu-m Diesel Oil 1500 cu-m Heavy Fuel Oil 1520 cu-m STERN OFFLOADING Offloading Rate 24,000 BOPH - Max Storage Temp 135 Deg F - Max 100 Deg F - Min PROCESS FACILITIES As described in Section 2 APPENDIX E FPSO General Plan HI39040 DF9708 C2 Page 10 43 APPENDIX B-1 (Joint Venturer - Bareboat Charter) GUARANTY AND INDEMNITY This GUARANTY (the "Guaranty") is made as of the 9th day of February, 1996 by _____________________, a ______________ organized under the laws of ___________, (the "Guarantor") to Tantawan Production B.V. ("Lessor"). PRELIMINARY STATEMENT. Tantawan Services, L L C, a Delaware limited liability company ("Charterer") and Lessor are parties to that certain Bareboat Charter, dated as of February 9, 1996 ("Bareboat Charter"). The Guarantor is an affiliate of Charterer and the Guarantor expects to derive substantial benefit from the Bareboat Charter. It is a condition precedent to the effectiveness of the Bareboat Charter that the Guarantor shall have executed and delivered this Guaranty to Lessor. Terms not defined herein shall have the meanings given to them in the Bareboat Charter. NOW, THEREFORE, in consideration of the premises and in order to induce Lessor to execute and deliver the Bareboat Charter, the Guarantor hereby agrees as follows: SECTION 1. Guaranty. The Guarantor hereby unconditionally and irrevocably (a) guarantees the punctual performance when due and the punctual payment when due, whether at stated time of performance or maturity, by acceleration, by prepayment or otherwise, of any and all liabilities and/or obligations of Charterer to Lessor pursuant to the terms of the Bareboat Charter and subject to all defenses, set offs and counterclaims of Charterer thereunder now or hereafter existing of whatever kind or nature, whether in respect of representations, warranties, agreements or covenants or for principal, interest, expenses, taxes, costs, losses, compensation, hire, the purchase price in exercise of the purchase option, reimbursements or any other amount payable to Lessor and (b) agrees to pay any and all costs and expenses (including, without limitation, reasonable counsel fees and expenses) incurred by Lessor in enforcing any rights under this Guaranty (all of the above being hereinafter called the "Guaranteed Obligations"). Within five (5) business days of demand, the Guarantor hereby agrees to perform and/or pay the Guaranteed Obligations then due in the currency provided in the Bareboat Charter. Notwithstanding any provision herein to the contrary, the maximum aggregate liability of the Guarantor under this Guaranty shall be limited to _______% (or such other percentage provided in Section 17) of each of the Guaranteed Obligations, and the Guarantor shall not be obligated (but in its sole discretion may elect) to perform or pay any remaining percentage of such Guaranteed Obligation which another guarantor of the Guaranteed Obligation has failed to perform or pay. SECTION 2. Guaranty Absolute. The Guarantor guarantees that the Guaranteed Obligations will be performed and paid strictly in accordance with the terms of any agreement or instrument executed in connection therewith, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Lessor 44 with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of and shall not be discharged or in any way affected, reduced or extinguished by any circumstance or event (whether or not known to the Guarantor) including without limitation: (a) any lack of validity or enforceability of or defect or deficiency in any agreement or instrument executed in connection with the Guaranteed Obligations; (b) any change in the time, manner, terms or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or extension or termination of or any consent to departure from any agreement or instrument executed in connection therewith; (c) any sale, exchange, release or non-perfection of any property standing as security for the liabilities hereby guaranteed or any liabilities incurred directly or indirectly hereunder or any setoff against any of said liabilities, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, or otherwise limit recourse to Charterer or any other individual, partnership, joint venture, corporation, association, trust or other enterprise ("Person") that is a party to any agreement or instrument (including any guarantor) in respect of the Guaranteed Obligations; (e) the winding up, liquidation, bankruptcy or similar proceeding by or against the Charterer; or (f) any change in the name or the ownership of Charterer. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any performance or payment of any of the Guaranteed Obligations is canceled, suspended, rescinded or must otherwise be returned by Lessor upon the receivership, insolvency, bankruptcy, liquidation, dissolution or reorganization of Charterer, or any other guarantor or otherwise, all as though such payment had not been made. The obligations of the Guarantor under this Guaranty shall not be affected by any performance or payment by Charterer (other than the full and final performance and payment of all of the Guaranteed Obligations), allocation by Lessor of any repayment, any compromise or discharge of the Guaranteed Obligations, any application, release or substitution of collateral or other security therefor, release of any guarantor, surety or other person obligated in connection with any agreement or instrument, or any advances to Charterer, or for any other reason. SECTION 3. Continuing Guaranty. This is a continuing Guaranty, and all extensions of credit and financial accommodations heretofore, concurrently herewith or hereafter -2- 45 made by Lessor to Charterer and all obligations and indebtedness of Charterer now owned or hereafter acquired by Lessor shall be conclusively presumed to have been made or acquired in acceptance hereof. SECTION 4. Covenants. Until the Guaranteed Obligations have been irrevocably paid and discharged in full and except as expressly permitted by this Guaranty, the Guarantor hereby covenants: (a) not to seek payment of, or take security for, or exercise any right of setoff or accelerate or assign or transfer any intercompany loan or advance owed to it by Charterer or exercise any rights of contribution against any guarantor of the Guaranteed Obligations; (b) not to take any action on its part to cancel or terminate in whole the Concession Agreement (other than by reason of a voluntary surrender of acreage pursuant thereto) or the Gas Sales Agreement; (c) not to contest or vary the order of priority of payments referred to in Article 24 of the Bareboat Charter; (d) to maintain in full force and effect all applicable authorizations and consents necessary for performance of its obligations under this Guaranty; (e) to provide to the Lessor a copy of the summary annual reserve report provided by Ryder Scott Engineers with respect to the Tantawan Field, subject to Lessor's execution of a Confidentiality Agreement reasonably satisfactory to Guarantor. SECTION 5. Waiver. This is an absolute Guaranty of performance and of payment and not of collection, and the Guarantor hereby waives (a) promptness, diligence, notice of acceptance, presentment, demand, protest, notice of protest and dishonor, notice of intent to accelerate, notice of acceleration and any other notice with respect to any of the Guaranteed Obligations and this Guaranty; (b) any requirement that Lessor protect, secure, perfect or insure any security interest or lien on any property subject thereto or exhaust any right or take any action against Charterer or any other Person or any collateral or that Charterer or any other Person be joined in any action hereunder. Should Lessor seek to enforce the obligations of the Guarantor hereunder by action in any court, the Guarantor waives any necessity, substantive or procedural, that a judgment previously be rendered against Charterer or any other Person, or that any action be brought against Charterer or any other Person, or that Charterer or any other Person should be joined in such cause. Such waiver shall be without prejudice to Lessor at its option to proceed against Charterer or any other Person, whether by separate action or by joinder. SECTION 6. Several Obligations. The obligations of the Guarantor hereunder are several from Charterer or any other Person, and are primary obligations concerning which the Guarantor is the principal obligor. The Guarantor agrees that this Guaranty shall not be discharged except by complete performance of the obligations of Charterer in respect of the -3- 46 Guaranteed Obligations and under any agreement or instrument executed in connection therewith and the obligations of the Guarantor hereunder. The obligations of the Guarantor hereunder shall not be affected in any way by any receivership, insolvency, bankruptcy or other proceedings affecting Charterer, Lessor or any other guarantor of the Guaranteed Obligations or any of Charterer's assets, or the release or discharge of Charterer from the performance of any obligation contained in any agreement or other instrument issued in connection with, evidencing or securing any obligation guaranteed by this instrument, whether occurring by reason of law or any other cause, whether similar or dissimilar to the foregoing. SECTION 7. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation, reimbursement or indemnity under this Guaranty, by any performance or payment made hereunder or otherwise, until all the Guaranteed Obligations shall have been performed and paid in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all the Guaranteed Obligations shall not have been performed and paid in full, such amount shall be held in trust for the benefit of Lessor and shall forthwith be paid to Lessor to be applied to the Guaranteed Obligations in such order as Lessor shall select. If (a) the Guarantor shall perform and shall make payment to Lessor of all or any part of the Guaranteed Obligations and (b) all the Guaranteed Obligations shall be performed and paid in full, Lessor will, at the Guarantor's request, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of any interest in the Guaranteed Obligations resulting from such performance and payment by the Guarantor. SECTION 8. Representations and Warranties. The Guarantor hereby represents and warrants as follows: (a) The Guarantor has received, or will receive, direct or indirect benefit from the making of this Guaranty. (b) Save as has been obtained or will be obtained as and when required, no authorization or approval or other action by, and no notice to or filing with, any court, agency, authority, department or instrumentality of any nature of any governmental or quasi-governmental unit ("Governmental Authority") is required for the due execution, delivery and performance by the Guarantor of this Guaranty and the other documents and instruments executed in connection therewith, all of which have been duly obtained or made and are in full force and effect. (c) This Guaranty is, and all other documents and instruments executed in connection therewith, when delivered will be, legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their respective terms, except as such enforceability may be (i) limited by the effect of any applicable bankruptcy, insolvency or similar laws affecting creditor's rights generally and (ii) subject to the effect of general principles of equity. -4- 47 (d) The Guarantor's execution, delivery and performance of this Guaranty do not require the consent or approval of any other Person save as has been obtained. (e) Neither the execution and delivery of this Guaranty nor the performance of the transactions contemplated hereby will result in any violation of, or conflict with nor constitute a default under, or result in the creation of any encumbrance, lien or security interest over any asset of the Guarantor pursuant to (i) any provision of its constituent governing documents, (ii) any agreement or instrument to which the Guarantor is a party, or (iii) any applicable law or regulation to which the Guarantor is subject. (f) As of the date hereof, the Guarantor is a holder of ________% of the Tantawan production area as designated in that certain letter dated August 23, 1995 from the Department of Mineral Resources to Thaipo, Inc. [sic] ("Tantawan Field") included in the concession guaranteed by the Petroleum Concession Agreement No. 1/2534/36, dated August 1, 1991, covering block B8/32 offshore Thailand, awarded by the Ministry of Industry to Maersk Oil (Thailand) Ltd., Thaipo Limited and Thai Romo Limited, and Supplementary Petroleum Concession No. 1 to Petroleum Concession No. 1/2534/36, dated March 6, 1992, whereby The Sophonpanich Co., Ltd. entered into Petroleum Concession No. 1/2534/36. SECTION 9. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by Lessor and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 10. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the Lessor, at its address at 557's Gravelandseweg, 3119 XT Schiedam, The Netherlands Attention: R. Smulders, Telecopy No. 31-10.473 1434; if to Guarantor at its address at _____________________________________,, Telecopy No. ___________________, or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: (a) Notices given by personal delivery shall be deemed effectively given on the date of personal delivery; (b) Notices given in letter form shall be deemed effectively given on the seventh day after the date mailed (as indicated by the postmark) by registered airmail, postage prepaid, or the third day after delivery to an internationally recognized courier service; (c) Notices given by telex shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question; and -5- 48 (d) Notices given by facsimile shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question. SECTION 11. No Waiver; Remedies. No failure on the part of Lessor to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12. Right of Setoff. Upon the occurrence and during the continuance of any default by Charterer in the performance of any of its obligations to Lessor or by the Guarantor hereunder, Lessor is hereby authorized at any time and from time to time, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Lessor to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not Lessor shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. Lessor agrees promptly to notify the Guarantor after any such setoff and application made by Lessor provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of Lessor under this Section 12 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Lessor may have. SECTION 13. Costs, Expenses and Taxes. The Guarantor agrees to pay, and cause to be paid, on demand all costs and expenses actually incurred by Lessor in connection with the filing, recording and administration of this Guaranty and any of the documents or instruments evidencing the Guaranteed Obligations and any other agreements or documents delivered in connection with any of the Guaranteed Obligations, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Lessor with respect thereto and with respect to advising Lessor as to its rights and responsibilities under this Guaranty, and all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Guaranty. The Guarantor agrees to pay interest on any expenses or other sums due to Lessor hereunder that are not paid when due at a rate per annum equal to the lesser of (a) the highest lawful rate permitted by applicable law or (b) one-month LIBOR plus two percent (2%). In addition, the Guarantor shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Guaranty and agrees to save Lessor harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. The agreements of the Guarantor contained in this Section 13 shall survive the payment of all other amounts owing hereunder or under any of the other obligations. SECTION 14. INDEMNITY. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR AGREES TO INDEMNIFY, PROTECT AND SAVE -6- 49 HARMLESS LESSOR FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS GUARANTY), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR, PROVIDED THAT IT IS THE INTENTION OF THE GUARANTOR TO INDEMNIFY LESSOR AGAINST THE CONSEQUENCES OF ITS OWN NEGLIGENCE. SECTION 15. Separability. Should any clause, sentence, paragraph, subsection or Section of this Guaranty be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Guaranty, and the parties hereto agree that the part or parts of this Guaranty so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 16. Captions. The captions in this Guaranty have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Guaranty. SECTION 17. General Provisions. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until performance and payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, notwithstanding the lawful termination or cancellation of the Bareboat Charter; (b) be binding upon the Guarantor, its successors and permitted assigns, except that the Guarantor may not assign any of its rights or obligations under this Guaranty without the prior written consent of Lessor not to be unreasonably withheld; and (c) inure to the benefit of and be enforceable by Lessor and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), Lessor may assign or otherwise transfer the benefit of this Guaranty to any other Person and such other Person shall thereupon become vested with all the rights and benefits in respect thereof granted to Lessor herein or otherwise. Notwithstanding the foregoing clause (b), Guarantor may assign all or any part of its interest in the Tantawan Field to any Other Guarantor (as hereinafter defined) without the prior consent of Lessor. In such event, the Guarantor shall assign its rights and obligations hereunder to such Other Guarantor to whom the Guarantor assigns its interest. Upon such an assignment and the assumption by such Other Guarantor of a percentage of Guarantor's obligations hereunder equal to the percentage of the Guarantor's interest in the Tantawan Field assigned to such Other Guarantor, the Guarantor shall be automatically released from the same percentage of its obligations hereunder as shall be assumed by such Other Guarantor. In the event that the Guarantor acquires all, or a percentage of, the interest of any Other Guarantor in the Tantawan Field, the Guarantor will assume (in addition to its percentage already guaranteed hereunder) such percentage of the Other Guarantor's obligations under its guarantee -7- 50 of the Charterer's obligations under the Bareboat Charter as is equal to the percentage of such Other Guarantor's interest in the Tantawan Field acquired by the Guarantor. As used in this Section 17 "Other Guarantor" means either of the other parties at the date hereof to the Joint Operating Agreement relating to the Tantawan Field. SECTION 18. Limitation by Law. All rights, remedies and powers provided in this Guaranty may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Guaranty are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Guaranty invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. SECTION 19. Arbitration. Any dispute arising under this Guaranty shall be settled by arbitration in New York City under the rules of the American Arbitration Association, except as provided herein. The party requesting arbitration shall be entitled to have arbitration of the dispute consolidated with any other pending dispute under this Guaranty or with any dispute arising under the Bareboat Charter. The party requesting arbitration shall serve upon the other party a written demand for arbitration with the name and address of the arbitrator appointed by it, and such other party shall, within ten (10) days thereafter, appoint an arbitrator, and the two arbitrators so named, if they can agree, shall appoint a third, and the decision or award of any two shall be final and binding upon the parties. In no event shall any dispute or consolidated group of disputes be determined by more than three arbitrators. Should the party upon whom the demand for arbitration is served fail or refuse to appoint an arbitrator within ten (10) days, the single arbitrator shall have the right to decide alone, and his decision or award shall be final and binding upon the parties. The arbitrator(s) shall have the discretion to impose the cost of the arbitration proceedings, including reasonable attorney's fees, upon the losing party, or divide it between the parties on any terms which may appear just. Any decision or award rendered hereunder may be made and entered as a rule or judgment of any Court, in any country having jurisdiction. Judgment upon the arbitration award rendered may be entered in any Court having either personal or in rem jurisdiction, or application may be made to such Court for a judicial acceptance of the award and an Order of Enforcement, as the case may be. SECTION 20. GOVERNING LAW. THIS GUARANTY AND INDEMNITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 21. TAXES. All payments by the Guarantor under this Guaranty shall be made in full and without deduction for or on account of any Dutch, Thai or United States taxes, except to the extent that the Guarantor is required by law to make payment subject to any Dutch, Thai or United States taxes. If any such tax or amounts in respect of such tax exceed the amount contemplated to be paid or suffered by Lessor pursuant to the Bareboat Charter, and must -8- 51 be deducted from any amounts payable or paid by the Guarantor under this Guaranty, the Guarantor shall pay such additional amounts as may be necessary to ensure that the Lessor receives a net amount equal to the full amount which it would have received under the Bareboat Charter with respect to the Guarantor's percentage of the Guaranteed Obligations had payment not been made subject to such additional tax. [ The Remainder of This Page Is Intentionally Blank ] -9- 52 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed by an officer of Guarantor thereunto duly authorized, as of the date first above written. By: Name: Title: -10- 53 APPENDIX B-2 (IHC Caland N.V. - Bareboat Charter) GUARANTY AND INDEMNITY This GUARANTY (the "Guaranty") is made as of the 9th day of February, 1996 by IHC Caland N.V., a Dutch corporation (the "Guarantor") to Tantawan Services , L L C, a Delaware limited liability company ("Charterer"). PRELIMINARY STATEMENT. Tantawan Production B.V., a Dutch corporation ("Lessor") and Charterer are parties to that certain Bareboat Charter, dated as of January February 9, 1996 ("Bareboat Charter"). The Guarantor is the ultimate corporate parent of Lessor and the Guarantor expects to derive substantial benefit from the Bareboat Charter. It is a condition precedent to the effectiveness of the Bareboat Charter that the Guarantor shall have executed and delivered this Guaranty to Charterer. Terms not defined herein shall have the meanings given to them in the Bareboat Charter. NOW, THEREFORE, in consideration of the premises and in order to induce Charterer to execute and deliver the Bareboat Charter, the Guarantor hereby agrees as follows: SECTION 1. Guaranty. The Guarantor hereby unconditionally and irrevocably (a) guarantees the punctual performance when due and the punctual payment when due, whether at stated time of performance or maturity, by acceleration, by prepayment or otherwise, of any and all liabilities and/or obligations of Lessor to Charterer pursuant to the terms of the Bareboat Charter and subject to all defenses, set offs and counterclaims of Lessor thereunder now or hereafter existing of whatever kind or nature, whether in respect of representations, warranties, agreements or covenants or for principal, interest, expenses, taxes, costs, losses, compensation, reimbursements or any other amount payable to Charterer, and (b) agrees to pay any and all costs and expenses (including, without limitation, reasonable counsel fees and expenses) incurred by Charterer in enforcing any rights under this Guaranty (all of the above being hereinafter called the "Guaranteed Obligations"). Within five (5) business days of demand, the Guarantor hereby agrees to perform and/or pay the Guaranteed Obligations then due in the currency provided in the Bareboat Charter. SECTION 2. Guaranty Absolute. The Guarantor guarantees that the Guaranteed Obligations will be performed and paid strictly in accordance with the terms of any agreement or instrument executed in connection therewith, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Charterer with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of and shall not be discharged or in any way affected, reduced or extinguished by any circumstance or event (whether or not known to the Guarantor) including without limitation: 54 (a) any lack of validity or enforceability of or defect or deficiency in any agreement or instrument executed in connection with the Guaranteed Obligations; (b) any change in the time, manner, terms or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment or waiver of or extension or termination of or any consent to departure from any agreement or instrument executed in connection therewith; (c) any sale, exchange, release or non-perfection of any property standing as security for the liabilities hereby guaranteed or any liabilities incurred directly or indirectly hereunder or any setoff against any of said liabilities, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, or otherwise limit recourse to Lessor or any other individual, partnership, joint venture, corporation, association, trust or other enterprise ("Person") that is a party to any agreement or instrument (including any guarantor) in respect of the Guaranteed Obligations; (e) the winding up, liquidation, bankruptcy or similar proceeding by or against the Lessor; or (f) any change in the name or the ownership of Lessor. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any performance or payment of any of the Guaranteed Obligations is canceled, suspended, rescinded or must otherwise be returned by Charterer upon the receivership, insolvency, bankruptcy, liquidation, dissolution or reorganization of Lessor, or any other guarantor or otherwise, all as though such payment had not been made. The obligations of the Guarantor under this Guaranty shall not be affected by any performance or payment by Lessor (other than the full and final performance and payment of all of the Guaranteed Obligations), allocation by Charterer of any repayment, any compromise or discharge of the Guaranteed Obligations, any application, release or substitution of collateral or other security therefor, release of any guarantor, surety or other person obligated in connection with any agreement or instrument, or any advances to Lessor, or for any other reason. SECTION 3. Continuing Guaranty. This is a continuing Guaranty, and all extensions of credit and financial accommodations heretofore, concurrently herewith or hereafter made by Charterer to Lessor and all obligations and indebtedness of Lessor now owned or hereafter acquired by Charterer shall be conclusively presumed to have been made or acquired in acceptance hereof. -2- 55 SECTION 4. Waiver. This is an absolute Guaranty of performance and of payment and not of collection, and the Guarantor hereby waives (a) promptness, diligence, notice of acceptance, presentment, demand, protest, notice of protest and dishonor, notice of intent to accelerate, notice of acceleration and any other notice with respect to any of the Guaranteed Obligations and this Guaranty; (b) any requirement that Charterer protect, secure, perfect or insure any security interest or lien on any property subject thereto or exhaust any right or take any action against Lessor or any other Person or any collateral or that Lessor or any other Person be joined in any action hereunder. Should Charterer seek to enforce the obligations of the Guarantor hereunder by action in any court, the Guarantor waives any necessity, substantive or procedural, that a judgment previously be rendered against Lessor or any other Person, or that any action be brought against Lessor or any other Person, or that Lessor or any other Person should be joined in such cause. Such waiver shall be without prejudice to Charterer at its option to proceed against Lessor or any other Person, whether by separate action or by joinder. SECTION 5. Several Obligations. The obligations of the Guarantor hereunder are several from Lessor or any other Person, and are primary obligations concerning which the Guarantor is the principal obligor. The Guarantor agrees that this Guaranty shall not be discharged except by complete performance of the obligations of Lessor in respect of the Guaranteed Obligations and under any agreement or instrument executed in connection therewith and the obligations of the Guarantor hereunder. The obligations of the Guarantor hereunder shall not be affected in any way by any receivership, insolvency, bankruptcy or other proceedings affecting Lessor, Charterer or any of Lessor's assets, or the release or discharge of Lessor from the performance of any obligation contained in any agreement or other instrument issued in connection with, evidencing or securing any obligation guaranteed by this instrument, whether occurring by reason of law or any other cause, whether similar or dissimilar to the foregoing. SECTION 6. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation, reimbursement or indemnity under this Guaranty, by any performance or payment made hereunder or otherwise, until all the Guaranteed Obligations shall have been performed and paid in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all the Guaranteed Obligations shall not have been performed and paid in full, such amount shall be held in trust for the benefit of Charterer and shall forthwith be paid to Charterer to be applied to the Guaranteed Obligations in such order as Charterer shall select. If (a) the Guarantor shall perform and shall make payment to Charterer of all or any part of the Guaranteed Obligations and (b) all the Guaranteed Obligations shall be performed and paid in full, Charterer will, at the Guarantor's request, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of any interest in the Guaranteed Obligations resulting from such performance and payment by the Guarantor. SECTION 7. Representations and Warranties. The Guarantor hereby represents and warrants as follows: -3- 56 (a) The Guarantor has received, or will receive, direct or indirect benefit from the making of this Guaranty. (b) Save as has been obtained or will be obtained as and when required, no authorization or approval or other action by, and no notice to or filing with, any court, agency, authority, department or instrumentality of any nature of any governmental or quasi-governmental unit ("Governmental Authority") is required for the due execution, delivery and performance by the Guarantor of this Guaranty and the other documents and instruments executed in connection therewith, all of which have been duly obtained or made and are in full force and effect. (c) This Guaranty is, and all other documents and instruments executed in connection therewith, when delivered will be, legal, valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their respective terms, except as such enforceability may be (i) limited by the effect of any applicable bankruptcy, insolvency or similar laws affecting creditor's rights generally and (ii) subject to the effect of general principles of equity. (d) The Guarantor's execution, delivery and performance of this Guaranty do not require the consent or approval of any other Person save as has been obtained. (e) Neither the execution and delivery of this Guaranty nor the performance of the transactions contemplated hereby will result in any violation of, or conflict with nor constitute a default under, or result in the creation of any encumbrance, lien or security interest over any asset of the Guarantor pursuant to (i) any provision of its constituent governing documents, (ii) any agreement or instrument to which the Guarantor is a party, or (iii) any applicable law or regulation to which the Guarantor is subject. SECTION 8. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by Charterer, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 9. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the Guarantor, at its address at 557's-Gravelandseweg, 3119 XT Schiedam, The Netherlands, Attention: R. Smulders, Telecopy No. 31-10-473 1434 ; if to Charterer, at its address at c/o Pogo Producing Company, 5 Greenway Plaza, Suite 2700, Houston, TX 77046-0504, Attention: Vice President-Operations, Telecopy No. (713) 297-5100, or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. The dates on which notices shall be deemed to have been effectively given shall be determined as follows: -4- 57 (a) Notices given by personal delivery shall be deemed effectively given on the date of personal delivery; (b) Notices given in letter form shall be deemed effectively given on the seventh day after the date mailed (as indicated by the postmark) by registered airmail, postage prepaid, or the third day after delivery to an internationally recognized courier service; (c) Notices given by telex shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question; and (d) Notices given by facsimile shall be deemed effectively given on the first business day following the date of transmission, as indicated on the document in question. SECTION 10. No Waiver; Remedies. No failure on the part of Charterer to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 11. Right of Setoff. Upon the occurrence and during the continuance of any default by Lessor in the performance of any of its obligations to Charterer or by the Guarantor hereunder, Charterer is hereby authorized at any time and from time to time, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Charterer to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not Charterer shall have made any demand under this Guaranty and although such obligations may be contingent and unmatured. Charterer agrees promptly to notify the Guarantor after any such setoff and application made by Charterer provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of Charterer under this Section 11 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Charterer may have. SECTION 12. Costs, Expenses and Taxes. The Guarantor agrees to pay, and cause to be paid, on demand all costs and expenses actually incurred by Charterer in connection with the filing, recording and administration of this Guaranty and any of the documents or instruments evidencing the Guaranteed Obligations and any other agreements or documents delivered in connection with any of the Guaranteed Obligations, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Charterer with respect thereto and with respect to advising Charterer as to its rights and responsibilities under this Guaranty, and all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Guaranty. The Guarantor agrees to pay interest on any expenses or other sums due to Charterer -5- 58 hereunder that are not paid when due at a rate per annum equal to the lesser of (a) the highest lawful rate permitted by applicable law or (b) one-month LIBOR plus two percent (2%). In addition, the Guarantor shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Guaranty and agrees to save Charterer harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. The agreements of the Guarantor contained in this Section 12 shall survive the payment of all other amounts owing hereunder or under any of the other obligations. SECTION 13. INDEMNITY. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS CHARTERER FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES GROWING OUT OF OR RESULTING FROM THIS GUARANTY (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS GUARANTY), EXCEPT CLAIMS, LOSSES OR LIABILITIES RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF CHARTERER, PROVIDED THAT IT IS THE INTENTION OF THE GUARANTOR TO INDEMNIFY CHARTERER AGAINST THE CONSEQUENCES OF ITS OWN NEGLIGENCE. SECTION 14. Separability. Should any clause, sentence, paragraph, subsection or Section of this Guaranty be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Guaranty, and the parties hereto agree that the part or parts of this Guaranty so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. SECTION 15. Captions. The captions in this Guaranty have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Guaranty. SECTION 16. General Provisions. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until performance and payment in full of the Guaranteed Obligations and all other amounts payable under this Guaranty, notwithstanding the lawful termination or cancellation of the Bareboat Charter; (b) be binding upon the Guarantor, its successors and permitted assigns, except that the Guarantor may not assign any of its rights or obligations under this Guaranty without the prior written consent of Charterer not to be unreasonably withheld; and (c) inure to the benefit of and be enforceable by Charterer and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), Charterer may assign or otherwise transfer the benefit of this Guaranty to any other Person and such other Person shall thereupon become vested with all the rights and benefits in respect thereof granted to Charterer herein or otherwise. -6- 59 SECTION 17. Limitation by Law. All rights, remedies and powers provided in this Guaranty may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Guaranty are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Guaranty invalid, unenforceable, in whole or in part, or not entitled to be recorded, registered or filed under the provisions of any applicable law. SECTION 18. Arbitration. Any dispute arising under this Guaranty shall be settled by arbitration in New York City under the rules of the American Arbitration Association, except as provided herein. The party requesting arbitration shall be entitled to have arbitration of the dispute consolidated with any other pending dispute under this Guaranty or with any dispute arising under the Bareboat Charter. The party requesting arbitration shall serve upon the other party a written demand for arbitration with the name and address of the arbitrator appointed by it, and such other party shall, within ten (10) days thereafter, appoint an arbitrator, and the two arbitrators so named, if they can agree, shall appoint a third, and the decision or award of any two shall be final and binding upon the parties. In no event shall any dispute or consolidated group of disputes be determined by more than three arbitrators. Should the party upon whom the demand for arbitration is served fail or refuse to appoint an arbitrator within ten (10) days, the single arbitrator shall have the right to decide alone, and his decision or award shall be final and binding upon the parties. The arbitrator(s) shall have the discretion to impose the cost of the arbitration proceedings, including reasonable attorney's fees, upon the losing party, or divide it between the parties on any terms which may appear just. Any decision or award rendered hereunder may be made and entered as a rule or judgment of any Court, in any country having jurisdiction. Judgment upon the arbitration award rendered may be entered in any Court having either personal or in rem jurisdiction, or application may be made to such Court for a judicial acceptance of the award and an Order of Enforcement, as the case may be. SECTION 19. GOVERNING LAW. THIS GUARANTY AND INDEMNITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. SECTION 20. Taxes. All payments by the Guarantor under this Guaranty shall be made in full and without deduction for or on account of any Dutch or Thai taxes, except to the extent that the Guarantor is required by law to make payment subject to any Dutch or Thai taxes. If any such tax or amounts in respect of such tax exceed the amount contemplated to be paid or suffered by Charterer pursuant to the Bareboat Charter, and must be deducted from any amounts payable or paid by the Guarantor under this Guaranty, the Guarantor shall pay such additional amounts as may be necessary to ensure that the Charterer receives a net amount equal to the full amount which it would have received under the Bareboat Charter had payment not been made subject to such tax. -7- 60 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed by an officer of Guarantor thereunto duly authorized, as of the date first above written. I H C CALAND N.V. By: Name: Title: -8- 61 APPENDIX C PERIODS (END OF) US$ 000 Year 0 120,000 Year 1 108,000 Year 2 98,000 Year 3 88,000 Year 4 78,000 Year 5 66,000 Year 6 55,000 Year 7 43,000 Year 8 30,000 Year 9 20,000 Year 10 5,000 NOTES: 1. Purchases other than at year end will be calculated on a pro-rata basis. 2. For any extended Term, the price will be as negotiated by the parties. EX-21 11 LIST OF SUBSIDIARIES 1 EXHIBIT 21 List of Subsidiaries of POGO PRODUCING COMPANY
Jurisdiction of Name Incorporation ------------------ ---------------------- 1. Pogo Gulf Coast, Ltd. Texas Limited Partnership (The Company is the general partner and a 40% limited partner) 2. Pogo Hungary Oil and Gas Kft Republic of Hungary 3. Pogo Offshore Pipeline Co. Delaware 4. Sampack Inc. Delaware 5. Tantawan Services, LLC Delaware (Directly owned by Thailand Finance Company (51%) and Sampack Inc. (49%), with Thailand Finance Company as the managing member.) 6. Thailand Finance Company Delaware 7. Thiapo Limited Kingdom of Thailand 8. Van Apeldoorn Energy The Netherlands Company B.V.
EX-23.A 12 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 1, 1996 included in this Annual Report on Form 10-K, into Pogo Producing Company's previously filed Registration Statement File Nos. 2-60725, 2-62690, 2-65374, 2-79500 and 33-54969. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Houston, Texas March 4, 1996 EX-23.B 13 CONSENT OF RYDER SCOTT COMPANY 1 EXHIBIT 23(b) CONSENT OF INDEPENDENT PETROLEUM ENGINEERS As independent petroleum engineers, we hereby consent to the use of our name in the Annual Report on Form 10-K for the year ended December 31, 1995. We further consent to the inclusion of our estimate of reserves and present value of future net reserves in such Annual Report. /s/ RYDER SCOTT COMPANY PETROLEUM ENGINEERS RYDER SCOTT COMPANY PETROLEUM ENGINEERS Houston, Texas March 4, 1996 EX-24 14 POWERS OF ATTORNEY 1 POWER OF ATTORNEY I Tobin Armstrong, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ TOBIN ARMSTRONG Tobin Armstrong 2 POWER OF ATTORNEY I Jack S. Blanton, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ JACK S. BLANTON Jack S. Blanton 3 POWER OF ATTORNEY I W. M. Brumley, Jr., in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ W. M. BRUMLEY, JR. W. M. Brumley, Jr. 4 POWER OF ATTORNEY I John B. Carter, Jr., in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ JOHN B. CARTER, JR. John B. Carter, Jr. 5 POWER OF ATTORNEY I William L. Fisher, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ WILLIAM L. FISHER William L. Fisher 6 POWER OF ATTORNEY I William E. Gipson, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ WILLIAM E. GIPSON William E. Gipson 7 POWER OF ATTORNEY I Gerrit W. Gong, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ GERRIT W. GONG Gerrit W. Gong 8 POWER OF ATTORNEY I J. Stuart Hunt, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ J. STUART HUNT J. Stuart Hunt 9 POWER OF ATTORNEY I Frederick A. Klingenstein, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ FREDERICK A. KLINGENSTEIN Frederick A. Klingenstein 10 POWER OF ATTORNEY I Nicholas R. Petry, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ NICHOLAS R. PETRY Nicholas R. Petry 11 POWER OF ATTORNEY I Jack A. Vickers, in my individual capacity and as a director of Pogo Producing Company (the "Company"), do hereby appoint PAUL G. VAN WAGENEN and THOMAS E. HART, and each of them severally, my true and lawful attorney or attorneys with power to act with or without the other, and with full power of substitution and resubstitution, to prepare, execute and file, in my name, place and stead in my individual capacity and as a director of the Company, such documents, reports and filings as may be necessary or advisable under the Securities Exchange Act of 1934, as amended (the "Act"), the Securities Act of 1933, as amended (the "Securities Act") or any other federal, state or local law regulating the Company including, without limitation, the Company's Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as prescribed by the Securities and Exchange Commission (the "Commission") pursuant to the Act, and the rules and regulations promulgated thereunder, with any and all exhibits and other documents relating thereto, any and all amendments to said Annual Report and all instruments as said attorneys or any of them shall deem necessary or incidental in connection therewith and to file the same with the Commission. Each of said attorneys shall have full power and authority to do and perform in my name and on my behalf any act whatsoever to accomplish the purpose and intent of the forgoing that said attorneys deem may be necessary or desirable to be done in the premises as fully and to all intents and purposes as I might or could do in person, and by my signature hereto, I hereby ratify and approve any and all of such acts of said attorneys and each of them. IN WITNESS WHEREOF, I have executed this instrument on this 23rd day of January, 1996. /s/ JACK A. VICKERS Jack A. Vickers EX-27 15 FINANCIAL DATA SCHEDULE
5 This Financial Data Schedule contains summary financial information extracted from the Consolidated Financial Statements of Pogo Producing Company, including the Consolidated Balance Sheets as of December 31, 1995 and the Consolidated Statements of Income for the twelve months ended December 31, 1995, and is qualified in its entirety by reference to such Consolidated Financial Statements. 1,000 12-MOS DEC-31-1995 DEC-31-1995 4,481 0 52,324 0 6,438 63,965 1,019,572 757,739 338,177 51,317 163,249 33,007 0 0 38,701 338,177 157,459 157,559 35,071 35,071 99,060 0 11,167 14,121 4,891 9,230 0 0 0 9,230 0.28 0.28 This amount is not disclosed on the face of the Consolidated Financial Statements due to lack of materiality, but is included as a contra-asset in Accounts Receivable. Does not include Gains on Property Sales. Includes Lease Operating Expense, but excludes General and Administrative, Exploration, Dry Hole and Impairment and Depreciation, Depletion and Amortization Expenses. Includes General and Administrative, Exploration, Dry Hole and Impairment and Depreciation, Depletion and Amortization Expenses. This amount is not disclosed on the face of the Consolidated Financial Statements due to lack of materiality, but is included in Oil and Gas Revenues.
EX-28 16 SUMMARY OF RESERVE REPORT OF RYDER SCOTT COMPANY 1 EXHIBIT 28 RYDER SCOTT COMPANY FAX (713) 651-0849 - ----------- PETROLEUM ENGINEERS TELEPHONE (713) 651-9191 1100 LOUISIANA SUITE 3800 HOUSTON, TEXAS 77002-5218 February 5, 1996 Pogo Producing Company Post Office Box 2504 Houston, Texas 77252-2504 Gentlemen: At your request we have prepared an estimate of the reserves, future production, and income attributable to certain leasehold and royalty interests of Pogo Producing Company and its wholly owned subsidiaries (the Company) as of December 31, 1995. In accordance with the requirements of FASB 69, our estimates of the Company's net proved reserves as of December 31, 1992, 1993, 1994, and 1995, as contained in this report and our previous reports, are presented in attached Table No. 1 together with a tabulation of the components of the differences in the estimates as of such dates. The Company's reserves in the United States are located in the states of Louisiana, New Mexico, Oklahoma, Texas, and in state and federal waters offshore Louisiana and Texas. The Company's foreign reserves are located offshore Thailand. The estimated reserve volumes and future income amounts presented in this report are related to hydrocarbon prices. December 1995 hydrocarbon prices were used in the preparation of this report as required by Securities and Exchange Commission (SEC) and Financial Accounting Standards Bulletin No. 69 (FASB 69) guidelines; however, actual future prices may vary significantly from December 1995 prices. Therefore, volumes of reserves actually recovered and amounts of income actually received may differ from the estimated quantities presented in this report. Our estimates of the proved net reserves attributable to the interests of the Company as of December 31, 1995 are shown below: Proved Net Reserves As of December 31, 1995
Liquid, Barrels Gas, MMCF --------------- --------- Developed and Undeveloped United States 26,185,010 196,454 Foreign 18,996,992 131,607 ---------- ------- Total Worldwide 45,182,002 328,061 Developed United States 22,487,608 164,679 Foreign 0 0 ---------- ------- Total Worldwide 22,487,608 164,679
The "Liquid" reserves shown above are comprised of crude oil, condensate, and natural gas liquids. Natural gas liquids comprise 15 percent of the Company's developed liquid reserves and 9 percent of the Company's developed and undeveloped liquid reserves. All hydrocarbon liquid reserves are expressed in standard 42 gallon barrels. All gas volumes are sales gas expressed in MMCF at the pressure and temperature bases of the area where the gas reserves are located. 2 Pogo Producing Company February 5, 1996 Page 2 The proved reserves presented in this report comply with the SEC's Regulation S-X Part 210.4-10 Sec. (a) as clarified by subsequent Commission Staff Accounting Bulletins, and are based on the following definitions and criteria: Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by fluid contacts, if any, and (2) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data become available. Proved natural gas reserves are comprised of non-associated, associated, and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of natural gas liquids, for lease and plant fuel, and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of improved recovery techniques are included in the proved classification when these qualifications are met: (1) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (2) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (1) pressure maintenance, (2) cycling, and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, natural gas, or natural gas liquids being held in underground storage. Depending on the status of development, these proved reserves are further subdivided into: (i) "developed reserves" which are those proved reserves reasonably expected to be recovered through existing wells with existing equipment and operating methods, including (a) "developed producing reserves" which are those proved developed reserves reasonably expected to be produced from existing completion intervals now open for production in existing wells, and (b) "developed non-producing reserves" which are those proved developed reserves which exist behind the casing of existing wells which are reasonably expected to be produced through these wells in the predictable future where the cost of making such hydrocarbons available for production should be relatively small compared to the cost of a new well; and (ii) "undeveloped reserves" which are those proved reserves reasonably expected to be recovered from new wells on undrilled acreage, from existing wells where a relatively large expenditure is required, and from acreage for which an application of fluid injection or other improved recovery technique is contemplated where the technique has been proved effective by actual tests in the area in the same reservoir. Reserves from undrilled acreage are limited to those drilling units offsetting productive units that 3 Pogo Producing Company February 5, 1996 Page 3 are reasonably certain of production when drilled. Proved reserves for other undrilled units are included only where it can be demonstrated with reasonable certainty that there is continuity of production from the existing productive formation. Because of the direct relationship between volumes of proved undeveloped reserves and development plans, we include in the proved undeveloped category only reserves assigned to undeveloped locations that we have been assured will definitely be drilled and reserves assigned to the undeveloped portions of secondary or tertiary projects which we have been assured will definitely be developed. The Company has interests in certain tracts which have substantial additional hydrocarbon quantities which cannot be classified as proved and consequently are not included herein. The Company has active exploratory and development drilling programs which may result in the reclassification of significant additional volumes to the proved category. In accordance with the requirements of FASB 69, our estimates of future cash inflows, future costs, and future net cash inflows before income tax as of December 31, 1995 from this report and as of December 31, 1994 from our previous report are presented below.
As of December 31 --------------------------------- 1995 1994 --------------- ------------ Future Cash Inflows $1,495,319,661 $985,887,955 Future Costs Production $ 415,830,130 $253,140,202 Development 247,017,456 180,838,861 -------------- ------------ Total Costs $ 662,847,588 $433,979,063 Future Net Cash Inflows Before Income Tax $ 832,472,075 $551,908,892 Present Value at 10% Before Income Tax $ 532,475,185 $382,979,729
Our estimates as of December 31, 1995 and 1994 of future cash inflows, future costs, future net cash inflows before income tax, and present value at 10 percent before income tax are shown individually for total worldwide, total United States (onshore and offshore), and foreign areas in Table No. 2 which is attached. The future cash inflows are gross revenues before any deductions. The production costs were based on current data and include production taxes, ad valorem taxes, and certain other items such as transportation costs in addition to the operating costs directly applicable to the individual leases or wells. The development costs were based on current data and include dismantlement and abandonment costs net of salvage for those properties where such costs are considered relatively significant by the company. The Company furnished us with gas prices in effect at December 31, 1995 and with its forecasts of future gas prices which take into account SEC guidelines, current market prices, contract prices, and fixed and determinable price escalations where applicable. In accordance with SEC guidelines, the future gas prices used in this report make no allowances for future gas price increases which may occur as a result of inflation nor do they account for seasonal variations in gas prices which may cause future yearly average gas prices to be somewhat lower than December gas prices. 4 Pogo Producing Company February 5, 1996 Page 4 For gas sold under contract, the contract gas price including fixed and determinable escalations exclusive of inflation adjustments, was used until the contract expires and then was adjusted to the current market price for the area and held at this adjusted price to depletion of the reserves. The Company furnished us with liquid prices in effect at December 31, 1995 and these prices were held constant to depletion of the properties. In accordance with SEC guidelines, changes in liquid prices subsequent to December 31, 1995 were not considered in this report. The estimates of future net revenue from the Company's foreign property are based on existing law. Operating costs for the leases and wells in this report were based on the operating expense reports of the Company and include only those costs directly applicable to the leases or wells. When applicable, the operating costs include a portion of general and administrative costs allocated directly to the leases and wells under terms of operating agreements. Development costs were furnished to us by the Company and are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The current operating and development costs were held constant throughout the life of the properties. At the request of the Company, their estimate of zero net abandonment costs after salvage value for onshore properties was used in this report. Ryder Scott has not performed a detailed study of the abandonment costs nor the salvage value and makes no warranty for the Company's estimate. The estimated net cost of abandonment after salvage was included for offshore properties where abandonment costs net of salvage are significant. The estimates of the offshore net abandonment costs furnished by the Company were accepted without independent verification. No deduction was made for indirect costs such as general administration and overhead expenses, loan repayments, interest expenses, and exploration and development prepayments. The Company supplied data on accumulated gas production imbalances which were taken into account in our estimates of future production and income. The estimates of reserves presented herein are based upon a detailed study of the properties in which the Company owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities which may exist nor were any costs included for potential liability to restore and clean up damages, if any, caused by past operating practices. The Company has informed us that they have furnished us all of the accounts, records, geological and engineering data and reports, and other data required for this investigation. The ownership interests, prices, and other factual data furnished by the Company were accepted without independent verification. The estimates presented in this report are based on data available through December 1995. The reserves included in this report are estimates only and should not be construed as being exact quantities. They may or may not be actually recovered, and if recovered, the revenues therefrom and the actual costs related thereto could be more or less than the estimated amounts. Moreover, estimates of reserves may increase or decrease as a result of future operations. In general, we estimate that future gas production rates will continue to be the same as the average rate for the latest available 12 months of actual production until such time that the well or wells are incapable of producing at this rate. The well or wells were then projected to decline at their decreasing delivery capacity rate. Our general policy on estimates of future gas production rates is adjusted when necessary to reflect actual gas market conditions in specific cases. The future production rates from wells now on production may be more or less than estimated because of changes in market demand or allowables set by regulatory bodies. Wells or locations which are not currently producing may start producing earlier or later than anticipated in our estimates of their future production rates. 5 Pogo Producing Company February 5, 1996 Page 5 While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may also increase or decrease from existing levels, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation. Neither we nor any of our employees have any interest in the subject properties and neither the employment to make this study nor the compensation is contingent on our estimates of reserves and future cash inflows for the subject properties. Very truly yours, RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ FRED P. RICHOUX Fred P. Richoux, P.E. Group Vice President FPR/sw 6 TABLE NO. 1 POGO PRODUCING COMPANY Proved Net Reserve Data
UNITED STATES TOTAL WORLDWIDE TOTAL ONSHORE AND OFFSHORE --------------------------------------------------- --------------------------------- 1995 1994 1993 1995 1994 ------------- ------------- ------------- ------------- ------------- Net Proved Liquid(1) Reserves, Barrels - -------------------------------- Developed and Undeveloped Beginning of Year 33,861,612 28,268,441 22,555,788 26,187,240 22,843,628 Revisions 496,849 1,286,984 342,022 363,213 1,286,984 Extensions and Discoveries 11,901,880 6,565,442 9,764,408 4,267,871 4,315,883 Improved Recovery 0 0 0 0 0 Estimated Production (5,078,326) (4,945,677) (4,219,873) (5,078,326) (4,945,677) Purchase of Reserves In-Place 4,015,131 2,688,919 182,610 460,156 2,686,919 Sales of Reserves In-Place (15,144) (497) (356,514) (15,144) (497) ------------- ------------- ------------- ------------- ------------- End of Year 45,182,002 33,861,612 28,268,441 26,185,010 26,187,240 Developed Beginning of Year 24,669,755 20,976,194 18,798,149 24,669,755 20,976,194 End of Year 22,487,608 24,669,755 20,976,194 22,487,608 24,669,755 Net Proved Gas Reserves, Millions of Cubic Feet - -------------------------------- Developed and Undeveloped Beginning of Year 242,890 232,866 207,068 186,151 199,392 Revisions 21,800 (2,558) 1,148 16,592 (2,558) Extensions and Discoveries 78,434 49,517 55,626 35,058 26,252 Improved Recovery 0 0 0 0 0 Estimated Production (44,369) (52,618) (32,319) (44,369) (52,618) Purchase of Reserves In-Place 30,054 15,792 13,192 3,770 15,792 Sales of Reserves In-Place (748) (109) (11,849) (748) (109) ------------- ------------- ------------- ------------- ------------- End of Year 328,061 242,890 232,866 196,454 186,151 Developed Beginning of Year 178,518 183,139 175,523 178,518 183,139 End of Year 164,679 178,518 183,139 164,679 178,518 UNITED STATES FOREIGN TOTAL ONSHORE AND OFFSHORE THAILAND OFFSHORE -------------------------- ----------------------------------------------------- 1993 1995 1994 1993 ------------- -------------- ------------ ------------ Net Proved Liquid(1) Reserves, Barrels - -------------------------------- Developed and Undeveloped Beginning of Year 19,978,881 7,674,372 5,424,813 2,576,907 Revisions 342,022 133,636 0 0 Extensions and Discoveries 6,916,502 7,634,009 2,249,559 2,847,906 Improved Recovery 0 0 0 0 Estimated Production (4,219,873) 0 0 0 Purchase of Reserves In-Place 182,610 3,554,975 0 0 Sales of Reserves In-Place (356,514) 0 0 0 ------------- -------------- ------------ ------------ End of Year 22,843,628 16,996,992 7,674,372 5,424,813 Developed Beginning of Year 18,798,149 0 0 0 End of Year 20,976,194 0 0 0 Net Proved Gas Reserves, Millions of Cubic Feet - -------------------------------- Developed and Undeveloped Beginning of Year 196,400 56,739 33,474 10,668 Revisions 1,148 5,208 0 0 Extensions and Discoveries 32,820 43,376 23,265 22,806 Improved Recovery 0 0 0 0 Estimated Production (32,319) 0 0 0 Purchase of Reserves In-Place 13,192 26,284 0 0 Sales of Reserves In-Place (11,849) 0 0 0 ------------- -------------- ------------ ------------ End of Year 199,392 131,607 56,739 33,474 Developed Beginning of Year 175,523 0 0 0 End of Year 183,139 0 0 0
- ---------------- (1) Liquid reserves shown above are comprised of crude oil, condensate, and natural gas liquids. 7 TABLE NO. 2 POGO PRODUCING COMPANY CASH INFLOW AND COST DATA (U.S. DOLLARS)
UNITED STATES TOTAL WORLDWIDE ONSHORE AND OFFSHORE THAILAND OFFSHORE AS OF DECEMBER 31 AS OF DECEMBER 31 AS OF DECEMBER 31 ------------------------------ --------------------------- ----------------------------- 1995 1994 1995 1994 1995 1994 -------------- ------------ ------------ ------------ ------------ ------------ Future Cash Inflows(1) $1,495,319,661 $985,887,955 $873,577,735 $720,085,779 $621,741,926 $265,802,176 Future Costs Production(2) $ 415,830,130 $253,140,202 $208,477,740 $192,833,675 $207,352,390 $ 60,306,527 Development(3) 247,017,456 180,838,861 119,819,654 86,683,951 127,197,802 94,154,910 -------------- ------------ ------------ ------------ ------------ ------------ Total Costs $ 662,847,586 $433,979,063 $328,297,394 $279,517,626 $334,550,192 $154,461,437 Future Cash Inflows Before Income Tax $ 832,472,075 $551,908,892 $545,280,341 $440,568,153 $287,191,734 $111,340,739 Present Value @ 10% Before Income Tax $ 532,475,185 $382,979,729 $400,844,626 $330,867,582 $131,630,559 $ 52,112,147
- --------------- (1) Gross revenues before any deductions. (2) Includes production taxes in the U.S.A., SRB taxes in Thailand, ad valorem taxes and certain other items such as transportation charges. (3) Includes future abandonment costs net of salvage for offshore properties where such costs are relatively significant. -----END PRIVACY-ENHANCED MESSAGE-----