-----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, U/1YwWlK9Lho2Ehco0HpaNduWSW30Pju2/p7zX/d+eYaSdRtStabsjpLVAlyHoMG Fwq66C4h8D2DHLomzZAOcw== 0000927356-98-001336.txt : 19980814 0000927356-98-001336.hdr.sgml : 19980814 ACCESSION NUMBER: 0000927356-98-001336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF CANADA RESOURCES LTD CENTRAL INDEX KEY: 0000316456 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980086499 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09073 FILM NUMBER: 98685209 BUSINESS ADDRESS: STREET 1: ONE NORWEST CTR STREET 2: 1700 LINCOLN STE 5000 CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038133800 MAIL ADDRESS: STREET 1: ONE NORWEST CTR STREET 2: 1700 LINCOLN STE 5000 CITY: DENVER STATE: CO ZIP: 80203 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 -------------------------------------------- OR [_] TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _________ COMMISSION FILE NUMBER 316456 GULF CANADA RESOURCES LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CANADA (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 98-0086499 (I.R.S. EMPLOYER IDENTIFICATION NO.) ONE NORWEST CENTER 1700 LINCOLN STREET, SUITE 5000 DENVER, COLORADO 80203-4525 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) TELEPHONE (303) 813-3800 (REGISTRANT'S TELEPHONE CODE, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. [X] YES [_] NO ON JULY 31, 1998, THERE WERE 348,938,994 ORDINARY SHARES ISSUED AND OUTSTANDING. GULF CANADA RESOURCES LIMITED INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION: Item 1. Unaudited Consolidated Financial Statements 3 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 PART II. OTHER INFORMATION 15 - 17 2 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 1998 Dec. 31, 1997 - -------------------------------------------------------------------------------------- (millions of Canadian dollars) (UNAUDITED) ====================================================================================== ASSETS CURRENT Cash and short-term investments $ 180 $ 188 Accounts receivable 338 346 Other 143 121 - -------------------------------------------------------------------------------------- 661 655 INVESTMENTS, DEFERRED CHARGES AND OTHER ASSETS 251 238 PROPERTY, PLANT AND EQUIPMENT 5,234 5,736 - -------------------------------------------------------------------------------------- $ 6,146 $ 6,629 ====================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Short-term loans $ 24 $ 51 Accounts payable 336 420 Current portion of long-term debt 0 29 Current portion of other long-term liabilities 59 37 Other 149 129 - --------------------------------------------------------------------------------------- 568 666 LONG-TERM DEBT 2,531 2,785 OTHER LONG-TERM LIABILITIES 226 201 DEFERRED INCOME TAXES 209 307 MINORITY INTEREST 214 220 - --------------------------------------------------------------------------------------- 3,748 4,179 - --------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital Senior preference shares 577 577 Ordinary shares 1,718 1,660 Contributed surplus 35 35 Retained earnings 64 181 Foreign currency translation adjustment 4 (3) - --------------------------------------------------------------------------------------- 2,398 2,450 - --------------------------------------------------------------------------------------- $ 6,146 $ 6,629 ======================================================================================= The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
3 GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS
(Unaudited) Three months Six months ended June 30, ended June 30, (millions of Canadian dollars) 1998 1997 1998 1997 ====================================================================================================== EARNINGS (LOSS) REVENUES Net oil and gas $ 256 $ 290 $ 538 $ 548 Net gain on asset disposals 17 41 22 48 Other 38 11 74 35 - ------------------------------------------------------------------------------------------------------ 311 342 634 631 - ------------------------------------------------------------------------------------------------------ EXPENSES Operating - production 103 100 213 179 - other 29 3 49 5 Exploration 33 30 76 51 General and administrative 17 17 38 32 Depreciation, depletion and amortization 120 115 252 206 Restructuring charges 2 4 3 5 Finance charges, net 62 58 120 103 Income tax expense 3 25 (9) 48 Minority interest (3) 0 (6) 0 - ------------------------------------------------------------------------------------------------------ 366 352 736 629 - ------------------------------------------------------------------------------------------------------ EARNINGS (LOSS) FOR THE PERIOD $ (55) $ (10) $ (102) $ 2 ====================================================================================================== RETAINED EARNINGS BALANCE, BEGINNING OF PERIOD $ 127 $ 6 $ 181 $ 0 Earnings (loss) for the period (55) (10) (102) 2 Dividends declared on preference shares (8) (5) (15) (11) - ------------------------------------------------------------------------------------------------------ BALANCE, END OF PERIOD $ 64 $ (9) $ 64 $ (9) ====================================================================================================== PER SHARE INFORMATION EARNINGS (LOSS) (dollars per share) $(0.18) $(0.06) $(0.34) $(0.03) ====================================================================================================== Certain amounts for 1997 have been reclassified to conform with the presentation adopted for 1998. Earnings (loss) per share is after deduction of senior preference share dividends (but does not include the special dividends for payment of arrears which have been charged to contributed surplus). This per share amount was calculated based upon the following: Ordinary shares outstanding during the period (millions): Average 348.8 268.8 347.9 266.7 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
4 GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months Six months ended June 30, ended June 30, 1998 1997 1998 1997 (millions of Canadian dollars) - ---------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES EARNINGS (LOSS) FOR THE PERIOD $ (55) $ (10) $(102) $ 2 NON-CASH ITEMS INCLUDED IN EARNINGS (LOSS): Depreciation, depletion and amortization 120 115 252 206 Net gain on asset disposals (17) (41) (22) (48) Amortization of deferred foreign exchange losses 12 3 17 6 Exploration expense 33 30 76 51 Deferred income taxes (5) 13 (23) 27 Other (5) (4) (10) 2 - ----------------------------------------------------------------------------------------------------------------- CASH GENERATED FROM OPERATIONS 83 106 188 246 Other long-term liabilities (7) (9) (6) (7) Changes in non-cash working capital 40 15 (28) 55 Other, net 1 0 (2) 1 - ----------------------------------------------------------------------------------------------------------------- 117 112 152 295 - ----------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds on asset disposals 512 55 587 73 Acquisitions (39) (7) (55) (1,066) Capital expenditures and exploration expenses (196) (307) (461) (551) Changes in non-cash working capital (9) (148) (6) (15) Other, net (1) 5 (10) 72 - ----------------------------------------------------------------------------------------------------------------- 267 (402) 55 (1,487) - ----------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Short-term loans (78) 175 (27) 791 Proceeds from issue of long-term debt 49 122 146 429 Long-term debt repayments (367) (260) (377) (260) Issue of equity 1 5 58 240 Regular dividends declared on preference shares (8) (5) (15) (11) Special dividends declared on preference shares 0 (4) 0 (7) Other 0 0 0 1 - ------------------------------------------------------------------------------------------------------------------ (403) 33 (215) 1,183 - ------------------------------------------------------------------------------------------------------------------ DECREASE IN CASH AND CASH EQUIVALENTS (19) (257) (8) (9) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 199 301 188 53 - ------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD 180 44 180 44 - ------------------------------------------------------------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are in integral part of this statement.
5 GULF CANADA RESOURCES LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The interim financial information and notes thereto should be read in conjunction with the Company's latest annual report to the shareholders. The unaudited financial statements contained herein are prepared in accordance with Canadian generally accepted accounting principles. The results of operations for the three- month and six-month periods ended June 30, 1998 are not necessarily indicative of results to be expected for the entire year. 2. CONTINGENCIES AND OTHER MATTERS As part of Gulf's upstream operations and as a result of certain discontinued downstream operations, Gulf has ongoing site restoration and remediation responsibilities. Site restoration costs within upstream operations involve the surface clean-up and reclamation of wellsites and field production facilities to ensure that they can be safely returned to appropriate alternative land uses. In addition, over the long-term, certain plant facilities will require decommissioning which will involve dismantling of facilities as well as the decontamination and reclamation of these lands. Gulf has accrued $173 million ($34 million as current) for future upstream site restoration costs and continues to accrue these costs on a consistent basis. There have been no other significant subsequent developments relating to the downstream potential liabilities since year-end, and as such the estimated costs and associated accrual have not changed materially since year-end. Gulf is involved in various litigation, regulatory and other environmental matters in the ordinary course of business. In management's opinion, an adverse resolution of these matters would not have a material impact on operations or financial position. 6 3. DIVESTITURES Effective May 15, 1998, the Company completed the sale of its U.K. North Sea assets for net cash proceeds of approximately $450 million after reflection of the purchaser's assumption of $110 million of debt and other closing adjustments. 4. RECLASSIFICATIONS Certain amounts for 1997 have been reclassified to conform with the presentation adopted for 1998. 5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("U.S. GAAP") AND ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP If U.S. GAAP had been followed, the earnings (loss) and loss per ordinary share would have been as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------------------------------------------------------ 1998 1997 1998 1997 ------------------------------------------------------------------------ (MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS) EARNINGS (LOSS) FOR THE PERIOD, as reported $ (55) $ (10) $ (102) $ 2 Adjustments: Interest rate swap (b) (3) (2) (5) (4) New asset values (a)(i) 8 (12) (50) (20) Foreign exchange (c) (49) 4 (29) (4) Restructuring charges (e) 0 0 (7) 0 Income tax (expense) recovery 57 6 102 (10) ------ ------ ------ ------ LOSS, as adjusted (42) (14) (91) (36) Cumulative dividends on senior preference shares (8) (5) (15) (11) ------ ------ ------ ------ LOSS TO ORDINARY SHAREHOLDERS $ (50) $ (19) $ (106) $ (47) ====== ====== ====== ====== PER ORDINARY SHARE, as adjusted (DOLLARS) (DOLLARS) - Loss $(0.14) $(0.04) $(0.30) $(0.15)
7 If U.S. GAAP were followed, amounts on the Consolidated Statements of Financial Position would be increased (decreased) as follows:
JUNE 30, DECEMBER 31, 1998 1997 --------------------------------------------- (MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS) ASSETS Accounts receivable (b) $ 4 $ 2 Current deferred income taxes (a) (ii) 5 6 Investments, deferred charges and other assets (b)(c) 32 61 Property, plant and equipment (a) (i) 1,110 1,313 ------- ------- $ 1,151 $ 1,382 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current portion of other long-term liabilities (b) $ (12) $ (12) Other current liabilities (a)(i)(b) 10 (1) Long-term debt (b) 200 200 Other long-term liabilities (b) (d) (e) (f) 41 39 Deferred income taxes (a) (i) (ii) (b) (c) (f) 1,119 1,374 Share capital, ordinary shares (a) (i) (89) (89) Deficit (118) (129) ------- ------- $ 1,151 $ 1,382 ======= =======
The financial statements have been prepared in accordance with accounting principles generally accepted in Canada which, in the case of Gulf, conform in all material respects with those in the United States except that: (a) The financial statements would reflect the following effects of adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). (i) SFAS 109 requires a restatement, to pre-tax amounts, of the new asset values reflected in the accounts in connection with the change of control in 1986 of Gulf Canada Limited and the acquisition of new subsidiaries. This restatement, along with differences between the tax bases and recorded amounts of other asset transfers, would result in property, plant and equipment (PP&E) and deferred income taxes both being $1,110 million higher than under Canadian generally accepted accounting principles ("Canadian GAAP") at June 30, 1998 (December 31, 1997 - $1,313 million). These differences are amortized to earnings over the lives of the related assets or adjusted as assets are sold or otherwise disposed. The application of previous accounting standards at the time of the change in control results in ordinary share capital being lower by $89 million. 8 (ii) Measurement and presentation of deferred income taxes according to SFAS 109 would result in recording current and non-current deferred tax assets and liabilities, for a net increase in the deferred tax liability of $85 million at June 30, 1998 (December 31, 1997 - a net increase of $94 million). (b) A special purpose entity has $200 million 11 per cent public debentures issued and outstanding which mature on October 31, 2000, and assets consisting of a $200 million oil indexed debenture maturing on October 31, 2000 and an interest rate swap. These are not included in Gulf's statement of financial position, but under U.S. GAAP would have been included in long-term debt and investments and other assets, respectively. Earnings include amortization of a provision for losses on a related swap agreement of $5 million ($3 million after tax) for the six months ended June 30, 1998 and $4 million ($2 million after tax) for the six months ended June 30, 1997. (c) Unrealized gains or losses arising on translation of long-term liabilities repayable in foreign funds would be included in earnings in the period in which they arise under U.S. GAAP. The balances of such deferred losses were $168 million at June 30, 1998 and $139 million at December 31, 1997. (d) Under U.S. GAAP, the costs of providing all forms of post-retirement benefits to employees would be recognized during the active service lives of the employees rather than expensed as incurred. The accumulated post- retirement benefit obligation at June 30, 1998 is estimated to be $44 million ($25 million after tax) using a discount rate of 7.5 per cent. There is no material difference between the net period service cost under U.S. GAAP and the pay-as-you-go amount under Canadian GAAP for the three- month and six-month periods ended June 30, 1998 and 1997. (e) Under U.S. GAAP a liability for non-contractual involuntary employee termination benefits is not incurred until the terms of the termination are communicated to the affected individual employees. Under Canadian GAAP, the liability is recorded when the Company made the termination decision. As such, under U.S. GAAP, the liability is recorded prior to employees being notified is reversed and recognized in the year of notification. (f) Under U.S. GAAP, as at June 30, 1998 and December 31, 1997, an additional minimum pension liability of $8 million ($4 million after tax) must be accrued for the deficit between the market value of the Company's pension plan assets and its accumulated benefit obligations. 9 CHANGES IN U. S. ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board released Statement No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and Related Information". Both statements become effective for fiscal years beginning after December 15, 1997 with early adoption permitted. SFAS 130 established standards for reporting and display of certain components of changes in equity that arise from non-owner sources. SFAS 131 establishes standards for reporting information about operating segments and related disclosures. Neither section addresses issues of recognition or measurement in the financial statements, and their adoption is not expected to have any effect on the results of operations or financial position of the Company. In March 1998, the Financial Accounting Standards Board issued Statement No. 132 (SFAS 132), Employers' Disclosures about Pensions and Other Postretirement Benefits, which is effective for fiscal years beginning after December 15, 1997. This statement revises employers' disclosures about pension and other postretirement benefit plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefits obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when SFAS No. 87 and No. 88 were issued. Gulf will provide these disclosures at December 31, 1998. 10 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS This document includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). All statements other than statements of historical facts included in this document, including without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding Gulf's financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of management of Gulf for future operations and covenant compliance, are forward-looking statements. Although Gulf believes that the assumptions upon which such forward-looking statements are based are reasonable, it can give no assurances that such assumptions will prove to have been correct. Important factors that could cause actual results to differ materially from Gulf's expectations ("Cautionary Statements") are disclosed below and elsewhere in this document. All subsequent written and oral forward-looking statements attributable to Gulf or persons acting on its behalf are expressly qualified by the Cautionary Statements. FINANCIAL REVIEW The following discussion and analysis has been prepared based upon the financial results of operations as presented in this document, which were prepared in accordance with Canadian generally accepted accounting principles. Refer to Note 5 for differences between Canadian and U.S. generally accepted accounting principles. All dollar amounts set forth herein are in Canadian dollars, except where otherwise indicated. Gulf follows the successful efforts method of accounting for oil and gas exploration and development costs. The initial acquisition costs of oil and gas properties and the costs of drilling and equipping successful exploratory wells are capitalized. The costs of unsuccessful exploration wells are charged to earnings. All other exploration costs are charged to earnings as incurred. All development costs, including the costs of liquid injectants used in enhanced oil recovery projects, are capitalized. Maintenance and repairs are charged to earnings; renewals and betterments, which extend the economic life of the assets, are capitalized. Capitalized costs of proved oil and gas properties are amortized using the unit-of-production method based on estimated proved oil and gas reserves. Depreciation of plant and equipment is based on estimated remaining useful lives of the assets using either the straight-line method or the unit-of-production method based on estimated proved oil and gas reserves. Individually insignificant unproved properties are amortized on a group basis at rates determined after considering past experience and lease terms. As changes in circumstances warrant, the net carrying values of proved properties, plant and equipment are assessed to ensure that they do not exceed future cash flows from use. Capitalized costs of significant unproved properties are also assessed regularly to determine whether an impairment in value has occurred. Gulf's revenues, cash flow, profitability and future rate of growth are substantially dependent upon prevailing prices for oil and gas. Prices for oil and gas are subject to wide fluctuations in response to relatively minor changes in supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond the control of Gulf. CASH GENERATED FROM OPERATIONS & EARNINGS (LOSS) Gulf's net oil and gas revenues for the six months ended June 30, 1998 were $538 million, down $10 million from revenues of $548 million for the first half of 1997. Second quarter 1998 revenues of $256 million were $34 million lower than the same period in 1997. The revenue decreases reflect the impact of significantly lower 1998 liquids prices which more than offset volume improvements. Daily production volumes increased by 12.9 mboe/d during the second quarter of 1998 compared to the same period last year and 25.1 mboe/d on a year to date basis. Volumes in both 1998 periods benefited from the third quarter 1997 acquisition of Stampeder Exploration Ltd. but were partially offset by volume declines in Western Canada as a result of natural declines, asset divestitures and gas processing plant turnarounds. Price declines were mitigated somewhat by Gulf's commodity hedging program which increased revenues by $25 million in the first half of 1998, compared with a net loss of $31 million on hedging activities for the same period in 1997. There was a $15 million net improvement quarter over quarter. 11 The average realized liquids price for the first half of the year decreased 29 per cent from $25.37 per barrel in the first half of 1997 to $18.02 per barrel in 1998. The Company's average realized liquids price for the second quarter of 1998 was $17.36 per barrel, down $7.44 per barrel over the same period in 1997. Natural gas prices remained strong with the Company realizing an average price of $2.17 per mcf for gas in the first half of 1998 compared to $1.99 per mcf during the same period in 1997. Second quarter natural gas prices were also improved over 1997 with the Company realizing an improvement of $0.14 per mcf quarter over quarter. Gulf's cash generation decreased to $188 million for the first six months of 1998, a $58 million decrease over the same period last year. Cash generated by operating activities in the second quarter of 1998 was $83 million compared with $106 million in the same period of 1997. Lower 1998 second quarter operating and G&A costs on a boe basis, coupled with lower cash financing charges for the quarter did not compensate for the impact of the lower prices. On a segmented basis, North America conventional oil and gas operations generated $174 million of cash for the first six months of 1998 versus $236 million the year before, while Gulf's Syncrude interest generated $20 million, down from $33 million for the first half of 1997. Gulf's heavy oil division and Surmont required a cash outlay of $12 million, as operating costs exceeded revenues as a result of depressed heavy oil market prices. In Indonesia, six- month cash generation decreased by $19 million to $40 million as lower crude oil market prices offset the impact of lower Indonesian royalties. Cash generated from Gulf's North Sea operations for the first half of 1998 included $38 million from the United Kingdom and $44 million from the Netherlands compared to $48 million and $30 million, respectively, in 1997. Cash generation from other international operations was $11 million versus $10 million in 1997. The corporate segment, which includes general and administrative charges, hedging, gains and losses on asset disposals, and taxes, required cash of $127 million during the first six months of 1998 compared to $170 million in 1997. The Company incurred a loss of $102 million during the first six months of 1998 compared with earnings of $2 million during the first half of 1997. Higher oil and gas production was offset by a sharp decline in oil prices, higher depreciation, depletion and amortization expense associated with the increased production, high exploration costs, and lower net gains on asset sales. The above factors also contributed to a net loss of $55 million in the second quarter of 1998 compared with a net loss of $10 million in the second quarter of last year. During the second quarter of 1998 the Company recognized a gain on the sale of two oil sands leases and a gain on the sale of its U.K. subsidiary. Other revenues and other operating expenses increased in 1998 over 1997 reflecting significantly increased activity in Gulf's contract drilling services. Production costs for the first six months of 1998 were $213 million, compared to $179 million for the same period in 1997, reflecting the costs associated with Stampeder production and increased workover and plant turnaround projects in Western Canada. Quarter over quarter production costs increased $3 million but decreased on a unit of production basis from $6.57 per boe to $6.37 per boe. Exploration expenses increased by $25 million to $76 million for the first half of 1998 primarily due to dry hole costs associated with higher onshore and offshore exploration activity in Indonesia. General and administrative expenses in the first six months of 1998 increased $6 million from a year ago. These costs are mainly attributable to increased building rentals and the foreign exchange on payments. Depreciation, depletion and amortization (DD&A) charges rose from $206 million in 1997 to $252 million in 1998. For the quarter, DD&A rose from $115 million in 1997 to $120 million in 1998. Finance charges for the first half of 1998 were $120 million, up $17 million from the first six months of 1997 due mainly to additional interest expense on long-term debt associated with acquisitions and the amorization of translation losses on U.S. dollar denominated debt. On a quarterly basis, net finance charges increased by $4 million between periods at $62 million in 1998 versus $58 million in 1997. Volume and price information for the Company's 1998 and 1997 second quarter and first six months oil and gas production is summarized in the following table: 12 SUPPLEMENTARY INFORMATION (Unaudited)
Three months Six months ended June 30, ended June 30, - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1997 1998 1997 ==================================================================================================================================== VOLUMES SOLD /(1)/ (gross/net) Crude oil and natural gas liquids (thousands of barrels per day) North America - Conventional light crude oil 35.3 / 30.4 36.7 / 30.0 37.1 / 31.3 39.8 / 32.3 - Conventional heavy crude oil 18.2 / 16.5 0.0 / 0.0 18.5 / 16.8 0.0 / 0.0 - Synthetic crude oil 21.0 / 21.0 15.8 / 17.2 18.6 / 18.6 16.3 / 16.0 - Condensate 6.0 / 4.2 5.0 / 3.2 6.1 / 4.3 5.5 / 3.7 - Other natural gas liquids 9.8 / 7.4 8.8 / 6.9 10.7 / 8.4 10.1 / 8.3 - ------------------------------------------------------------------------------------------------------------------------------------ 90.3 / 79.5 66.3 / 57.3 91.0 / 79.4 71.7 / 60.3 - ------------------------------------------------------------------------------------------------------------------------------------ International - Indonesia 19.6 / 16.0 25.6 / 18.6 20.3 / 16.7 21.6 / 15.6 - United Kingdom 9.8 / 9.2 18.9 / 18.2 14.5 / 13.7 14.0 / 13.3 - Other 4.5 / 4.5 2.0 / 1.9 3.6 / 3.5 1.4 / 1.3 - ------------------------------------------------------------------------------------------------------------------------------------ 33.9 / 29.7 46.5 / 38.7 38.4 / 33.9 37.0 / 30.2 - ------------------------------------------------------------------------------------------------------------------------------------ Total liquids 124.2 / 109.2 112.8 / 96.0 129.4 / 113.3 108.7 / 90.5 ==================================================================================================================================== Natural gas (millions of cubic feet per day) - North America 380 / 316 377 / 300 384 / 311 390 / 319 - Netherlands 68 / 67 70 / 69 74 / 73 53 / 52 - Other international 34 / 33 25 / 22 27 / 26 18 / 16 - ------------------------------------------------------------------------------------------------------------------------------------ Total natural gas 482 / 416 472 / 391 485 / 410 461 / 387 ==================================================================================================================================== Total barrels of oil equivalent per day/(2)/ 179.2 157.5 166.3 141.2 184.6 160.9 159.5 133.7 ====================================================================================================================================
(1) "Gross" sales include royalties; "net" sales are after royalties. Volumes exclude:
- NGL re-injection requirements (3.6) (4.2) (3.3) (4.3) -inventory drawdown/(build-up) (0.9) (2.3) 0.0 (1.0)
(2) Canadian gas converted @ 10:1, North Sea and other international @ 6:1
GROSS AVERAGE PRICES Crude oil and natural gas liquids (dollars per barrel) North America - Conventional light crude oil 17.91 25.26 18.77 27.21 - Conventional heavy crude oil 7.76 0.00 6.87 0.00 - Synthetic crude oil 20.43 27.15 20.85 28.68 - Condensate 20.22 27.55 22.80 29.25 - Other natural gas liquids 10.24 17.52 12.32 20.36 International - Indonesia 18.35 26.70 18.75 26.98 - United Kingdom 17.17 24.53 17.96 23.46 - Other international 21.58 28.47 19.73 29.16 Average - unhedged 16.56 25.29 16.96 26.40 - hedged 17.36 24.80 18.02 25.37 Natural gas (dollars per thousand cubic feet) North America - unhedged 1.90 1.61 1.92 1.92 - hedged 1.90 1.64 1.92 1.76 International 2.86 3.23 3.11 3.24 Average - unhedged 2.10 1.94 2.17 2.12 - hedged 2.10 1.96 2.17 1.99 - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE EXCHANGE RATES (Cdn$1) US$ 0.691 US$ 0.721 US$ 0.695 US$ 0.729 - ------------------------------------------------------------------------------------------------------------------------------------
13 NET CASH FLOW AND FINANCIAL POSITION The Company received $587 million in net proceeds from asset sales during the first six months of 1998 compared with $73 million during the same period in 1997. Effective May 15, 1998 the Company completed the sale of its U.K. North Sea assets for net cash proceeds of approximately $450 million after reflection of the purchaser's assumption of $110 million of debt and other closing adjustments. Capital expenditures and exploration expenses were $461 million for the first half of 1998. Western Canada conventional accounted for $211 million. In addition, Gulf spent $33 million on Syncrude and Surmont, $135 million in Indonesia and $82 million on other international projects during the first six months of 1998. Gulf's total capital cost for the Corridor Block Gas Project is expected to be US$374 million, of which US$324 million has been spent at June 30, 1998. At June 30, 1998, the Company had drawn US$213 million from the Corridor Facility, including US$23 million during the second quarter. During 1998 the Company paid down short and long-term debt of $258 million. In addition, debt was further reduced by $110 million when such debt was assumed by the purchaser of the Company's U.K. assets. Of the $146 million of long-term debt issued during 1998, $90 million related to the financing of the Corridor project. As at June 30, 1998 the Canadian dollar equivalent of Gulf's U.S. dollar-denominated debt had increased by $59 million since December 31, 1997 as a result of the decline in value of the Canadian dollar. At June 30, 1998 the Company's total forward sales of U.S. dollars for the remainder of this year were US$196 million at an average rate of US$0.70. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS All holders of Ordinary Shares of the Corporation at the close of business on March 12, 1998 received a copy of the Management Proxy Circular regarding the following matters voted on at the annual and special meeting of shareholders held on April 29, 1998: 1. The election as director of all twelve nominees as listed below: Name For Withheld - ---- --- -------- R. H. Allen 139,559,914 1,410,204 R. H. Auchinleck 139,559,382 1,410,736 S. H. Hartt 139,560,248 1,409,870 S. H. Hefner, Jr. 139,562,189 1,407,929 H. E. Joudrie 139,548,869 1,421,249 T. M. Long 139,562,936 1,407,182 D. F. Mazankowski 139,554,310 1,415,808 A. H. Michell 139,558,610 1,411,508 H. M. Neldner 139,560,693 1,409,425 W. O'Donoghue 139,561,809 1,408,309 R. N. Robertson 139,560,208 1,409,910 M. Sabia 139,548,521 1,421,597 2. The appointment of Ernst & Young as auditors, with remuneration to be fixed by the directors. For: 139,316,411 Withheld: 1,653,707 3. The ratification of the Shareholder Rights Plan as described in the Management Proxy Circular. For: 25,839,899 Restricted, but in favour (see Note): 31,071,958 Against: 23,604,091 Not Voted: 60,454,170 No other matters were brought up at the meeting. 15 Note: Please note that under the TSE rules and terms of the Plan adopted pursuant to the TSE rules, the Rights and the Rights Agreement are required to be ratified by a majority of the votes cast at the Meeting and by a majority of the votes cast by Independent Shareholders at the Meeting. Under the ME rules, AGRC and the Participants were not entitled to vote on this matter. ITEM 5: OTHER INFORMATION None. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The following exhibits are filed with this Form 10-Q and they are identified by the number indicated. Exhibit - ------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession* (3) Articles of Incorporation and By-laws 3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Company's 10-Q filed for quarter ended June 30, 1997, filed August 14, 1997) 3.2 By-laws of the Registrant (incorporated by reference to Exhibit 3.1 of the Company's 10-Q filed for quarter ended June 30, 1997, filed August 14, 1997) (4) Instruments defining rights of security holders, including indentures 4.1 Indenture between the Registrant and Chase Manhattan Bank dated July 1, 1989 pertaining to the Registrant's 9% Debentures due 1999 (incorporated herein by reference to the Registrant's Registration Statement on Form F- 10, Reg. No. 33- 30138) 4.2 Indenture between the Registrant and The Bank of New York dated January 27, 1994 pertaining to the Registrant's 9-1/4% Senior Subordinated Debentures due 2004 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10, Reg. No. 33- 73252) 4.3 Indenture between the Registrant and The Bank of New York dated July 5, 1995 pertaining to the Registrant's 9-5/8% Senior Subordinated Debentures due 2005 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10, Reg. No. 33-93452) 4.4 Indenture between the Registrant and The Bank of New York dated August 7, 1996 pertaining to the Registrant's 8.35% Senior Notes due 2006 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10, Reg. No. 333-5332) 4.5 Indenture between the Registrant and The Bank of New York dated March 21, 1997 pertaining to the Registrant's 8-1/4% Senior Notes due 2017 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10, Reg. No. 333-6608) 4.6 Incentive Stock Plan 1994 (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997) 16 (10) Material Contracts 10.1 Loan Agreement dated July 18, 1997 with a syndicate of banks (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997) 10.2 Amendment to Employment Agreement with Mr. Auchinleck 10.3 Amendment to Employment Agreement with Mr. Glick 10.4 Amendment to Employment Agreement with Mr. Feuchuk 10.5 Shareholder Rights Plan dated as of February 19, 1998 between the Registrant and Montreal Trust Company of Canada (incorporated herein by reference to Exhibit 1 to the Registrant's Form 8-A filed in March 11, 1998) (27) Financial Data Schedule _________________________________ *Inapplicable to this filing b. Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GULF CANADA RESOURCES LIMITED DATE: AUGUST 14, 1998 BY: /s/ CRAIG GLICK CRAIG GLICK EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY (DULY AUTHORIZED OFFICER AND PRINCIPLE FINANCIAL OFFICER) 17 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 Loan Agreement dated July 18, 1997 with a syndicate of banks (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997) 10.2 Amendment to Employment Agreement with Mr. Auchinleck 10.3 Amendment to Employment Agreement with Mr. Glick 10.4 Amendment to Employment Agreement with Mr. Feuchuk 10.5 Shareholder Rights Plan dated as of February 19, 1998 between the Registrant and Montreal Trust Company of Canada (incorporated herein by reference to Exhibit 1 to the Registrant's Form 8-A filed in March 11, 1998) 27 Financial Data Schedule 18 EX-10.2 2 AMENDED EMPLOYMENT AGREEMENT WITH MR. AUCHINLECK EXHIBIT 10.2 AMENDING AGREEMENT Dated effective as of February 19, 1998 between GULF CANADA RESOURCES LIMITED (hereinafter the "Corporation") OF THE FIRST PART - and - RICHARD H. AUCHINLECK (hereinafter called the "Executive") OF THE SECOND PART WHEREAS the parties desire to amend the Executive Employment Contract dated as of February 7, 1996 to reflect the changes to such contract deriving from the relocation of the Executive to the Corporation's executive offices in Denver, Colorado; WHEREAS the Compensation Committee of the Board of the Corporation recommended amendment to this agreement at a meeting on February 19, 1998; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows: 1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2) years". 2. The following is added as Section 2.9 to the Executive Employment Contract: 2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY In the event the Executive receives a payment or distribution pursuant to Section 2.6(c) which is determined to be an "excess parachute payment" within the meaning of Sections 4999 and 280G of the Internal Revenue Code (the "Code") and subject to tax under Code Section 4999 ("Excess Parachute Tax"), the following provisions shall apply: (a) Notwithstanding anything in this Agreement, if (A) the Company makes a payment or distribution to or for the benefit of the Executive pursuant to Section 2.6(c) (a "Payment"), and (B) the Payment is determined under the procedures provided in Section 2.9(b) to be an "excess parachute payment" within the meaning of Code Sections 4999 and 280G, subject to the Parachute Tax to any extent, the Executive shall be entitled to receive an additional payment ("the Gross-up Payment"). The Gross-up Payment shall be in an amount such that after payment by the Executive of the Excess Parachute Tax (including any interest or penalties imposed with respect to such tax) on the Payment, and all federal, state and local income taxes, employment taxes and Excess Parachute Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-up Payment, the Executive retains an amount equal to the Payment that the Executive would have had if the Payment had not given rise to any Excess Parachute Tax. (b) Subject to the provisions of Section 2.9(c), all determinations of amounts required to be made under this Section 2.9, including whether and when a Gross-up Payment is required, shall be made by the Company's external auditors (the "Accounting Firm"). The parties shall direct that within 15 days of a request the Accounting Firm shall provide a written opinion setting forth its detailed supporting calculations to both the Company and the Executive. If payment is due to the Executive, the Company shall make such payment within five days of the delivery of the Accounting Firm's written opinion. The Accounting Firm's opinion shall be binding on the parties. The Accounting Firm's fees shall be paid by the Company. (c) The Executive shall timely notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. The Executive's notification shall include a statement of the nature of the claim and the date on which such claim is requested to be paid. The Executive shall not pay the claim until it receives written notification from the Company stating whether the Company desires to contest such claim. Written notice of the Company's proposed course of action with respect to the claim shall be given no later than 5 days prior to the date on which the claim is requested to be paid. If the Company notifies the Executive that it desires to contest such claim, the Executive shall cooperate with the Company in good faith in order to effectively contest such claim. 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 Excess Parachute Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo 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 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 (the "Gross-up Payment Advance"). The Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable, and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm, it is possible that the Gross-up Payment may be under or over paid. In the event the Company exhausts its remedies pursuant to Section 2.9(c) and the Executive is required to make a payment of any Excess Parachute Tax in excess of the Gross-up Payment, (an "Underpayment"), 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. If, after the Executive receives either a Gross-up Payment or a Gross-up Payment Advance, the Executive becomes entitled to receive any refund with respect to such Gross-up Payment or Gross-up Payment Advance, (an "Overpayment"), the Executive shall promptly pay to the Company the amount of the Overpayment (together with any interest paid or credited thereon after taxes applicable thereto). 3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A- 1", a copy of which is attached hereto. 4. Section 2.1 of the Executive Employment Contract is amended by deleting the words "by the Chief Executive Officer and" in the second lines of subsections (a) and subsections (b). Section 2.1(b) is further amended by deleting the words "Senior Vice-President, Exploration and International" and replacing it with "Chief Executive Officer". In Witness Whereof the parties hereto have duly executed and delivered this Amending Agreement. GULF CANADA RESOURCES LIMITED /s/ Craig S. Glick -------------------------------- /s/ Lynne Walker -------------------------------- /s/ Lana A. Burrell /s/ Richard H. Auchinleck - ------------------- -------------------------------- Witness RICHARD H. AUCHINLECK EX-10.3 3 AMENDED EMPLOYMENT AGREEMENT WITH MR. GLICK AMENDING AGREEMENT EXHIBIT 10.3 Dated effective as of February 19, 1998 between GULF CANADA RESOURCES LIMITED (hereinafter the "Corporation") OF THE FIRST PART - and - CRAIG S. GLICK (hereinafter called the "Executive") OF THE SECOND PART WHEREAS the parties desire to amend the Executive Employment Contract dated as of February 7, 1996 to reflect the changes to such contract deriving from the relocation of the Executive to the Corporation's executive offices in Denver, Colorado; WHEREAS the Compensation Committee of the Board of the Corporation recommended amendment to this agreement at a meeting on February 19, 1998; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows: 1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2) years". 2. The following is added as Section 2.9 to the Executive Employment Contract: 2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY In the event the Executive receives a payment or distribution pursuant to Section 2.6(c) which is determined to be an "excess parachute payment" within the meaning of Sections 4999 and 280G of the Internal Revenue Code (the "Code") and subject to tax under Code Section 4999 ("Excess Parachute Tax"), the following provisions shall apply: (a) Notwithstanding anything in this Agreement, if (A) the Company makes a payment or distribution to or for the benefit of the Executive pursuant to Section 2.6(c) (a "Payment"), and (B) the Payment is determined under the procedures provided in Section 2.9(b) to be an "excess parachute payment" within the meaning of Code Sections 4999 and 280G, subject to the Parachute Tax to any extent, the Executive shall be entitled to receive an additional payment ("the Gross-up Payment"). The Gross-up Payment shall be in an amount such that after payment by the Executive of the Excess Parachute Tax (including any interest or penalties imposed with respect to such tax) on the Payment, and all federal, state and local income taxes, employment taxes and Excess Parachute Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-up Payment, the Executive retains an amount equal to the Payment that the Executive would have had if the Payment had not given rise to any Excess Parachute Tax. (b) Subject to the provisions of Section 2.9(c), all determinations of amounts required to be made under this Section 2.9, including whether and when a Gross-up Payment is required, shall be made by the Company's external auditors (the "Accounting Firm"). The parties shall direct that within 15 days of a request the Accounting Firm shall provide a written opinion setting forth its detailed supporting calculations to both the Company and the Executive. If payment is due to the Executive, the Company shall make such payment within five days of the delivery of the Accounting Firm's written opinion. The Accounting Firm's opinion shall be binding on the parties. The Accounting Firm's fees shall be paid by the Company. (c) The Executive shall timely notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. The Executive's notification shall include a statement of the nature of the claim and the date on which such claim is requested to be paid. The Executive shall not pay the claim until it receives written notification from the Company stating whether the Company desires to contest such claim. Written notice of the Company's proposed course of action with respect to the claim shall be given no later than 5 days prior to the date on which the claim is requested to be paid. If the Company notifies the Executive that it desires to contest such claim, the Executive shall cooperate with the Company in good faith in order to effectively contest such claim. 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 Excess Parachute Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo 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 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 (the "Gross-up Payment Advance"). The Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable, and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm, it is possible that the Gross-up Payment may be under or over paid. In the event the Company exhausts its remedies pursuant to Section 2.9(c) and the Executive is required to make a payment of any Excess Parachute Tax in excess of the Gross-up Payment, (an "Underpayment"), 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. If, after the Executive receives either a Gross-up Payment or a Gross-up Payment Advance, the Executive becomes entitled to receive any refund with respect to such Gross-up Payment or Gross-up Payment Advance, (an "Overpayment"), the Executive shall promptly pay to the Company the amount of the Overpayment (together with any interest paid or credited thereon after taxes applicable thereto). 3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A- 1", a copy of which is attached hereto. In Witness Whereof the parties hereto have duly executed and delivered this Amending Agreement. GULF CANADA RESOURCES LIMITED /s/ Richard H. Auchinleck ------------------------------ /s/ Lynne Walker ------------------------------ /s/ Lana A. Burrell /s/ Craig S. Glick - ------------------- ------------------------------ Witness CRAIG S. GLICK EX-10.4 4 AMENDED EMPLOYMENT AGREEMENT WITH MR. FEUCHUK EXHIBIT 10.4 AMENDING AGREEMENT Dated effective as of February 19, 1998 between GULF CANADA RESOURCES LIMITED (hereinafter the "Corporation") OF THE FIRST PART - and - DENNIS G. FEUCHUK (hereinafter called the "Executive") OF THE SECOND PART WHEREAS the parties desire to amend the Executive Employment Contract dated as of February 7, 1996 to reflect the changes to such contract deriving from the relocation of the Executive to the Corporation's executive offices in Denver, Colorado; WHEREAS the Compensation Committee of the Board of the Corporation recommended amendment to this agreement at a meeting on February 19, 1998; NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of $1, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows: 1. Section 2.6(c)(6) is amended by changing "one (1) year" to "two (2) years". 2. The following is added as Section 2.9 to the Executive Employment Contract: 2.9 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY In the event the Executive receives a payment or distribution pursuant to Section 2.6(c) which is determined to be an "excess parachute payment" within the meaning of Sections 4999 and 280G of the Internal Revenue Code (the "Code") and subject to tax under Code Section 4999 ("Excess Parachute Tax"), the following provisions shall apply: (a) Notwithstanding anything in this Agreement, if (A) the Company makes a payment or distribution to or for the benefit of the Executive pursuant to Section 2.6(c) (a "Payment"), and (B) the Payment is determined under the procedures provided in Section 2.9(b) to be an "excess parachute payment" within the meaning of Code Sections 4999 and 280G, subject to the Parachute Tax to any extent, the Executive shall be entitled to receive an additional payment ("the Gross-up Payment"). The Gross-up Payment shall be in an amount such that after payment by the Executive of the Excess Parachute Tax (including any interest or penalties imposed with respect to such tax) on the Payment, and all federal, state and local income taxes, employment taxes and Excess Parachute Tax (including any interest or penalties imposed with respect to such taxes) on the Gross-up Payment, the Executive retains an amount equal to the Payment that the Executive would have had if the Payment had not given rise to any Excess Parachute Tax. (b) Subject to the provisions of Section 2.9(c), all determinations of amounts required to be made under this Section 2.9, including whether and when a Gross-up Payment is required, shall be made by the Company's external auditors (the "Accounting Firm"). The parties shall direct that within 15 days of a request the Accounting Firm shall provide a written opinion setting forth its detailed supporting calculations to both the Company and the Executive. If payment is due to the Executive, the Company shall make such payment within five days of the delivery of the Accounting Firm's written opinion. The Accounting Firm's opinion shall be binding on the parties. The Accounting Firm's fees shall be paid by the Company. (c) The Executive shall timely notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. The Executive's notification shall include a statement of the nature of the claim and the date on which such claim is requested to be paid. The Executive shall not pay the claim until it receives written notification from the Company stating whether the Company desires to contest such claim. Written notice of the Company's proposed course of action with respect to the claim shall be given no later than 5 days prior to the date on which the claim is requested to be paid. If the Company notifies the Executive that it desires to contest such claim, the Executive shall cooperate with the Company in good faith in order to effectively contest such claim. 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 Excess Parachute Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo 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 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 (the "Gross-up Payment Advance"). The Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable, and the Executive shall be entitled to settle or contest, as the case may be, any other issues raised by the Internal Revenue Service or any other taxing authority. (d) As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Accounting Firm, it is possible that the Gross-up Payment may be under or over paid. In the event the Company exhausts its remedies pursuant to Section 2.9(c) and the Executive is required to make a payment of any Excess Parachute Tax in excess of the Gross-up Payment, (an "Underpayment"), 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. If, after the Executive receives either a Gross-up Payment or a Gross-up Payment Advance, the Executive becomes entitled to receive any refund with respect to such Gross-up Payment or Gross-up Payment Advance, (an "Overpayment"), the Executive shall promptly pay to the Company the amount of the Overpayment (together with any interest paid or credited thereon after taxes applicable thereto). 3. Schedule "A" is deleted in its entirety and is replaced by Schedule "A- 1", a copy of which is attached hereto. In Witness Whereof the parties hereto have duly executed and delivered this Amending Agreement. GULF CANADA RESOURCES LIMITED /s/ Craig S. Glick ------------------------------ /s/ Lynne Walker ------------------------------ /s/ Janice K. Synhorst /s/ Dennis G. Feuchuk - ---------------------- ------------------------------ Witness DENNIS G. FEUCHUK EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000,000 CANADIAN 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 0.695 180 0 338 0 25 118 7,256 2,022 6,146 568 2,531 0 577 1,718 103 6,146 538 634 0 590 35 0 120 (111) (9) (102) 0 0 0 (102) (0.34) (0.34)
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