-----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, IS1o1TH6Hk4EYZhX+NFvYzD+FhuROFnRsW/fFwKVzihQ3eDts2xTqQVYZX92z/am sQ09jZdq+D2u6RPcDezaig== 0000320321-00-000004.txt : 20000329 0000320321-00-000004.hdr.sgml : 20000329 ACCESSION NUMBER: 0000320321-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN ENERGY INC /TX/ CENTRAL INDEX KEY: 0000320321 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 741764876 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08094 FILM NUMBER: 581021 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 1600 CITY: HOUSTON STATE: TX ZIP: 77002-6714 BUSINESS PHONE: 7132656000 MAIL ADDRESS: STREET 1: 1001 FANNIN, SUITE 1600 CITY: HOUSTON STATE: TX ZIP: 77002-6714 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL ENERGY CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL PIPELINE CORP DATE OF NAME CHANGE: 19830815 10-K 1 1999 FORM 10-K ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 Form 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-8094 Ocean Energy, Inc. (Exact name of registrant as specified in its charter) Texas 74-1764876 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1001 Fannin, Suite 1600 Houston, Texas 77002-6714 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 265-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, par value $.10 per share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ 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. [] As of March 22, 2000, the aggregate market value of the outstanding shares of Common Stock of the Company held by non-affiliates (based on the closing price of these shares on the New York Stock Exchange) was approximately $1,973,247,000. As of March 22, 2000, 166,648,211 shares of Common Stock, par value $0.10 per share, were outstanding. Documents Incorporated by Reference Document Part of Form 10-K (1) Annual Report to Shareholders for PARTS I and II year ended December 31, 1999 (2) Proxy Statement for Annual meeting PART III of Shareholders to be held on May 10, 2000 ================================================================================ Ocean Energy, Inc. Index Page Part I Item 1. Business....................................................... 1 Oil and Gas Operations....................................... 2 U.S. Regulation.............................................. 9 Competition.................................................. 10 International Operations..................................... 10 Environmental Matters........................................ 11 Risk Factors................................................. 12 Employees.................................................... 15 Executive Officers of the Company............................ 16 Item 2. Properties................................................... 18 Item 3. Legal Proceedings............................................ 22 Item 4. Submission of Matters to a Vote of Security Holders.......... 22 Part II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters................................ 22 Item 6. Selected Financial Data...................................... 23 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 23 Item 7a. Quantitative and Qualitative Disclosures About Market Risk... 23 Item 8. Financial Statements and Supplementary Data.................. 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 24 Part III Item 10. Directors and Executive Officers of the Registrant........... 24 Item 11. Executive Compensation....................................... 24 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 24 Item 13. Certain Relationships and Related Transactions............... 24 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................ 25 Signatures............................................................. 32 (i) Ocean Energy, Inc. Part I Item 1. Business Ocean Energy, Inc. (the "Company" or "Ocean") is an independent energy company engaged in the exploration, development, production, and acquisition of crude oil and natural gas. North American operations are focused primarily in the shelf and deepwater areas of the Gulf of Mexico, the Permian Basin, Midcontinent, Arklatex, South Texas and Rocky Mountain areas. Internationally, the Company explores for and produces oil and gas in West Africa (Angola, Cote d'Ivoire and Equatorial Guinea), Egypt, Pakistan and Yemen. Ocean also has exploration and exploitation programs underway in Russia and Indonesia. On March 30, 1999, the Company merged with and into Seagull Energy Corporation (the "Seagull Merger"). The resulting company was renamed Ocean Energy, Inc. The merger was treated for accounting purposes as an acquisition of Seagull by Ocean in a purchase business transaction. As such, the financial and operating results and property descriptions presented here, unless expressly noted otherwise, are those of Ocean Energy, Inc. on a stand-alone basis for the first quarter of 1999 and of the combined company for the remainder of 1999, compared to Ocean's results for 1998 and 1997 on a stand-alone basis ("Old Ocean"). The Seagull Merger united the best of the two companies' technical, commercial and financial staffs. The new Ocean emerged with a commitment to produce low-cost energy, thereby enhancing shareholder success and value. At the time of the Seagull Merger, management pledged to reduce the Company's high debt levels, reduce general and administrative expenses by $45 million per year, achieve a minimum 100% replacement of production and significantly improve finding and development costs. By the end of the year, Ocean had surpassed those targets by: - - selling more than $700 million of assets, thereby decreasing the Company's debt to total capital ratio from 78% at the end of 1998 to 58% at the end of 1999; - - achieving 504% reserve replacement from all sources and 130% reserve replacement, excluding acquisitions; - - improving finding and development costs to $5.13 per BOE from all sources and $4.98 per BOE excluding acquisitions; - - eliminating over $50 million in general and administrative expenses; and - - reducing 1999 all-in costs to $12.57 per BOE from $13.27 per BOE for 1998. As Ocean moves forward, the Company is committed to maintaining its focus on efficiency in its operations and strengthening its capital structure. Progress in this area will be achieved by maintaining low finding and development costs, and holding down lease operating and general and administrative expenses. 1 Ocean Energy, Inc. Forward-Looking Statements May Prove Inaccurate This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this document, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for the future operations of the Company are forward-looking statements. Although the Company believes that such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will in fact occur. Important factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements are subject to risks and uncertainties and include information concerning general economic conditions and possible or assumed future results of operations of the Company, estimates of oil and gas production and reserves, drilling plans, future cash flows, anticipated capital expenditures, the Company's realization of its deferred tax assets, the level of future expenditures for environmental costs, and management's strategies, plans and objectives as set forth herein. Oil and Gas Operations The Company's operating activities are focused primarily in three operating areas: (i) certain onshore areas of North America, (ii) the continental shelf and deepwater areas (water depth of over 1,500 feet) of the Gulf of Mexico, and (iii) the international area comprising the West African countries of Angola, Cote d'Ivoire and Equatorial Guinea, the Asian Basin countries of Pakistan and Indonesia, the Middle East country of Republic of Yemen, the Northern African country of Egypt, and Russia. The Company's capital investment program during 2000 is expected to total approximately $500 million. The spending is expected to be funded from the Company's cash flow from operations based on anticipated commodity prices, and is subject to change if market conditions shift or new opportunities are identified. Of the budget, approximately 31 percent will be spent on exploratory drilling, 25 percent on development drilling, 20 percent on construction to bring on production, 4 percent for leasehold and geological and geophysical costs and 2 percent on corporate costs. In addition, capitalized interest and general and administrative expenses are expected to be approximately $80 million. 2 Ocean Energy, Inc. Ocean's principal oil and gas producing areas include the following:
Proved Reserves at December 31, 1999 -------------------------------------------------------------------- Gas (Bcf) Oil (MMBbl) MMBOE ------------------- -------------------- ------------------ Domestic: North America Onshore........ 833.2 28.6 167.5 Gulf of Mexico............... 322.8 61.2 115.0 International: Equatorial Guinea............ - 48.2 48.2 Cote d'Ivoire................ 177.0 7.1 36.6 Egypt........................ 1.4 20.5 20.7 Other International.......... 52.8 18.2 27.0 ------------------- ------------------ -------------------- Total........................... 1,387.2 183.8 415.0 =================== ================== ====================
For additional information relating to the Company's oil and gas reserves, see Note 15 to Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders and as Exhibit 13 attached hereto. As required, Ocean also files estimates of oil and gas reserve data with various governmental regulatory authorities and agencies. These estimates were not materially different from the reserve estimates reported in the Consolidated Financial Statements. Domestic The Company's domestic activities reside in two main areas: the Gulf of Mexico and certain onshore areas of North America. The domestic area accounts for 68% of the Company's reserves and 69% of total production for the year ended December 31, 1999. Gulf of Mexico - The Company's Gulf of Mexico properties are located in offshore waters along the coasts of Texas and Louisiana. For 1999, the Gulf of Mexico area had average daily production of approximately 52 MBOE per day. This area currently accounts for 31% of company-wide production and will be the focus of nearly half of the Company's planned capital expenditures in 2000. The major growth area in this area is within Ocean's deepwater prospects (in water depth of over 1,500 feet). The Company had four deepwater discoveries in 1999, one each at Nansen, Boomvang, Magnolia and Orion II. Development scenarios are being evaluated for these areas and Ocean expects to spend $90 million to $100 million of its planned 2000 capital expenditures on deepwater projects. North America Onshore - Ocean's portfolio of onshore properties in North America is focused primarily in the Anadarko Basin of the Texas Panhandle and western Oklahoma, the Arklatex area of east Texas and northwest Louisiana, the Permian Basin, South Texas, and the Bear Paw Field in north central Montana. These properties are located mostly in mature fields where the Company can take advantage of low-cost exploitation to maintain and replace reserves without utilizing significant amounts of capital resources that can propel other growth platforms. 3 Ocean Energy, Inc. For 1999, the North America Onshore area had average daily production of approximately 48 MBOE per day. International Internationally, the Company produces in five countries - Equatorial Guinea, Cote d'Ivoire, Egypt, Russia and Indonesia. In addition, the Company has interests in various other countries around the world, including Angola, Pakistan and Yemen. The following is a description of each of the Company's major international operating areas. Equatorial Guinea - In Equatorial Guinea, the Company has four PSCs through which the Company holds contract interests ranging from 24% to 94%. For 1999, the Company had production of over 20,000 Mbbl per day from the Zafiro Field in Block B. Additional development activity is underway in 2000 with the installation of a new platform and additional drilling that should further increase production capabilities from the field. Exploratory efforts in 2000 are concentrated upon both Block B and Block C. Ocean plans to participate in the Oreja Marina well on Block C that will test the Isongo formation which the Company believes has significant reserve potential. Other potential exploratory activities include the drilling of the Calcedonia prospect on Block B that will test one of the sands from which the Zafiro Field produces. Cote d'Ivoire - In Cote d'Ivoire, the Company operates five PSCs and a liquified petroleum gas extraction plant. During 1999, the Company produced approximately 10,000 BOE per day in Cote d'Ivoire. Egypt - The Company's Egyptian operations consist of working interests in six concessions that were acquired in the Seagull Merger. Four of these concessions are producing concessions - Qarun, East Zeit, East Beni Suef and West Abu Gharadig. For 1999, Ocean had production in Egypt of over 8,000 BOE per day. Ocean also holds interests in two exploratory blocks in the Gulf of Suez and plans to test one of these prospects, in the Southeast Gulf of Suez, in 2000. Other International - The Company's other international operations include additional exploratory opportunities and producing properties. In the Republic of Angola, Ocean holds interests in approximately 1.2 million gross acres in Block 19, in the Lower Congo Basin where several large fields have been discovered, and another approximately 1.2 million gross acres in Block 24 in the neighboring Kwanza Basin - a new deepwater play. In 2000, the Company expects to drill an exploratory well on Block 24 and continue seismic evaluation of Block 19 with drilling scheduled for late 2000 or early 2001. The Company drilled its first exploratory well offshore Pakistan during 1999 to gain further information about the 6.2 million offshore acres in which it holds interests. As evaluations continue on the information gained from this well, the Company is drilling another exploratory well on a nearby offshore concession. 4 Ocean Energy, Inc. During 2000, the Company expects to drill two onshore wells in Yemen's Block 43 in which the Company has a 59.5% working interest. In the Seagull Merger, the Company acquired a net 45% interest in a joint venture in Tatarstan, a republic in the Russian Federation located west of the Ural Mountains and east of the Volga River. During 1999, the joint venture's activities included vapor recovery projects and the development and operation of the Onbysk and Demkino fields. During 1999, the Company produced over 3,000 BOE per day in Russia. Also in the Seagull Merger, Ocean acquired a 1.7% interest in a joint venture for the exploration, development and production of oil and gas in approximately 1.1 million acres in East Kalimantan, Indonesia. The majority of the joint venture's revenue results from the sale of liquified natural gas. In January 2000, the Company announced a decision to discontinue any further operations in Bangladesh. The Company's acreage in the international area is generally held pursuant to Production Sharing Contracts ("PSCs") with host governments. Generally, under a PSC, the working interest partners pay all of the capital and operating costs and production is split between the government and the working interest partners. Working interest partners recover costs from a percentage of produced and sold petroleum. The remaining oil and gas produced and sold, and any portion of cost recovery not used to recover costs, is divided between the government and the working interest partners. Included in the government's share of remaining petroleum are all government royalties and, in certain situations, the applicable income taxes for the working interest partners. Production The following table summarizes the Company's production, average sales prices and operating costs for the periods indicated:
Year Ended December 31, ------------------------------------------------------------ 1999 1998 1997 ----------------- --------------- ---------------- Domestic (1) : Net production: Gas (MMcf)...................................... 137,195 99,346 81,154 Oil and NGL (Mbbl).............................. 13,532 14,660 12,159 Average sales price: (2) Gas (per Mcf)................................... $ 2.11 $ 1.96 $ 2.41 Oil and NGL (per Bbl)........................... $ 16.94 $ 12.46 $ 18.88 Average operating costs (per BOE) (3)............. $ 4.43 $ 5.03 $ 4.72 Equatorial Guinea: Oil production (Mbbl)............................. 7,323 6,537 4,453 Average oil sales price (per Bbl) (2)............. $ 17.91 $ 11.35 $ 17.71 Average operating costs (per BOE) (3)............. $ 3.02 $ 1.99 $ 1.24
5 Ocean Energy, Inc.
Cote d'Ivoire (1): Net production: Gas (MMcf)...................................... 11,050 7,824 4,939 Oil and NGL (Mbbl).............................. 1,765 1,081 1,027 Average sales price: (2) Gas (per Mcf)................................... $ 1.68 $ 1.64 $ 1.81 Oil and NGL (per Bbl)........................... $ 18.24 $ 12.56 $ 18.35 Average operating costs (per BOE) (3)............. $ 3.16 $ 3.29 $ 3.03 Egypt (1): Net production: Gas (MMcf)...................................... 264 - - Oil and NGL (Mbbl).............................. 2,999 - - Average sales price: (2) Gas (per Mcf)................................... $ 3.66 $ - $ - Oil and NGL (per Bbl) (2)....................... $ 19.32 $ - $ - Average operating costs (per BOE) (3)............. $ 3.51 $ - $ - Other International (1): Net production: Gas (MMcf)...................................... 5,666 10,135 7,630 Oil and NGL (Mbbl)............................. 1,366 450 439 Average sales price: (2) Gas (per Mcf)................................... $ 1.81 $ 1.37 $ 1.40 Oil and NGL (per Bbl)........................... $ 12.31 $ 11.78 $ 17.97 Average operating costs (per BOE ) (3)............ $ 3.30 $ 3.30 $ 4.03 Total (1): Net production: Gas (MMcf)...................................... 154,175 117,305 93,723 Oil and NGL (Mbbl)............................. 26,985 22,728 18,078 Average sales price: (2) Gas (per Mcf)................................... $ 2.08 $ 1.89 $ 2.30 Oil and NGL (per Bbl)........................... $ 17.32 $ 12.13 $ 18.54 Average sales price including hedging: (2) Gas (per Mcf)................................... $ 2.10 $ 1.89 $ 2.28 Oil and NGL (per Bbl)........................... $ 15.27 $ 13.21 $ 18.54 Average operating costs (per BOE) (3) ............ $ 4.12 $ 4.38 $ 4.14
(1) The Company's Egyptian operations and a portion of its domestic, Cote d'Ivorian and other international operations were acquired as a result of the Seagull Merger on March 30, 1999. In addition, Other International for 1998 and 1997 consists solely of the Company's Canadian operations which were sold in April 1999. (2) Average sales prices are before deduction of production, severance, and other taxes and after deduction of certain transportation costs. (3) Operating costs represent costs incurred to operate and maintain wells and related equipment and facilities. These costs include, among other things, repairs and maintenance, workover expenses, labor, materials, supplies, property taxes, insurance, severance taxes, and general operating expenses. Oil and Gas Drilling Activities Ocean's oil and gas exploratory and developmental drilling activities are as follows for the periods indicated. A well is considered productive for purposes of the following table if it justifies the installation of permanent equipment for the production of oil or gas. The term "gross wells" means the total number of wells in which Ocean owns an interest, while the term "net wells" means the sum of the fractional working interests Ocean owns in gross wells. The information should not be considered indicative of future performance, nor should it be assumed 6 Ocean Energy, Inc. that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value.
Year Ended December 31, ------------------------------------------------------------------------------ 1999 1998 1997 ---------------------- ------------------------- ---------------------- Gross Net Gross Net Gross Net --------- --------- --------- ----------- --------- --------- Domestic (1): Exploratory Drilling: Productive Wells................. 21 9.7 41 24.6 31 20.9 Dry Holes........................ 12 5.6 19 10.4 22 11.8 Development Drilling: Productive Wells................. 151 93.6 207 98.3 221 89.9 Dry Holes........................ 38 31.4 17 13.6 19 11.0 Equatorial Guinea: Exploratory Drilling: Productive Wells................. - - 3 2.3 3 1.3 Dry Holes........................ 3 0.7 5 3.5 4 1.5 Development Drilling: Productive Wells................. 3 0.7 5 1.2 9 2.3 Dry Holes........................ - - - - - - Cote d'Ivoire (1): Exploratory Drilling: Productive Wells................. - - 2 1.6 2 0.7 Dry Holes........................ 1 0.4 3 2.3 4 1.5 Development Drilling: Productive Wells................. - - - - 4 1.4 Dry Holes........................ - - - - 1 0.5 Egypt (1): Exploratory Drilling: Productive Wells................. - - - - - - Dry Holes........................ 1 0.3 - - - - Development Drilling: Productive Wells................. 5 1.5 - - - - Dry Holes........................ - - - - - - Other International (1): Exploratory Drilling: Productive Wells................ 1 0.5 12 8.2 11 5.8 Dry Holes....................... 1 1.0 10 6.8 9 5.5 Development Drilling: Productive Wells................ 16 7.6 52 12.9 55 8.7 Dry Holes....................... - - 2 0.2 3 1.4 Total: Exploratory Drilling: Productive Wells................. 22 10.2 58 36.7 47 28.7 Dry Holes........................ 18 8.0 37 23.0 39 20.3 Development Drilling: Productive Wells................. 175 103.4 264 112.4 289 102.3 Dry Holes........................ 38 31.4 19 13.8 23 12.9
(1) The Company's Egyptian operations and a portion of its domestic, Cote d'Ivorian and other international operations were acquired as a result of the Seagull Merger on March 30, 1999. In addition, Other International for 1998 and 1997 consists solely of the Company's Canadian operations which were sold in April 1999. 7 Ocean Energy, Inc. The Company had 31 gross (13.5 net) exploratory wells and 46 gross (24.4 net) development wells in progress at December 31, 1999. Wells classified as "in progress" at year-end represent wells where drilling activity is ongoing, wells awaiting installation of permanent equipment and wells awaiting the drilling of additional delineation wells. The following table sets forth information regarding the number of productive wells in which the Company held a working interest at December 31, 1999. Productive wells are either producing wells or wells capable of commercial production although currently shut-in. One or more completions in the same borehole are counted as one well.
Gross Wells Net Wells ---------------------------------------------- ---------------------------------------------- Multiple Multiple Gas Oil Total Completions Gas Oil Total Completions ---------- --------- --------- ------------ -------- --------- ---------- ------------ Domestic: North America Onshore..... 2,801 2,115 4,916 95 1,477.6 298.8 1,776.4 43.6 Gulf of Mexico 154 583 737 74 79.5 502.6 582.1 60.1 Equatorial Guinea - 22 22 - - 5.5 5.5 - Cote d'Ivoire.... 4 14 18 2 1.9 6.7 8.6 1.0 Egypt............ - 68 68 10 - 27.2 27.2 2.8 Other International - 210 210 - - 105.0 105.0 - ---------- --------- --------- ------------ -------- --------- ---------- ------------ 2,959 3,012 5,971 181 1,559.0 945.8 2,504.8 107.5 ========== ========= ========= ============ ======== ========= ========== ============
Developed and Undeveloped Oil and Gas Acreage As of December 31, 1999, the Company owned working interests in the following developed and undeveloped oil and gas acreage (amounts in thousands):
Developed Undeveloped --------------------------------- ---------------------------------- Gross Net Gross Net ------------- ------------- -------------- -------------- Domestic: North America Onshore......... 1,000 576 1,813 597 Gulf of Mexico................ 542 260 1,141 632 International: Equatorial Guinea............. 36 9 1,619 797 Cote d'Ivoire................. 13 7 1,727 1,010 Egypt......................... 438 117 8,359 3,443 Other International........... 39 19 12,888 9,158 ------------- ------------- -------------- -------------- Total 2,068 988 27,547 15,637 ============= ============= ============== ==============
Additionally, as of December 31, 1999, the Company owned mineral and/or royalty interests in 185,000 gross (2,000 net) developed acres located primarily in Australia and Indonesia and 9,786,000 gross (3,252,000 net) undeveloped acres, located primarily in Equatorial Guinea. For additional information relating to oil and gas producing activities, see Note 15 of Notes to the Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. 8 Ocean Energy, Inc. U.S. Regulation The availability of a ready market for oil and natural gas production depends upon numerous regulatory factors beyond the Company's control. These factors include regulation of oil and natural gas production, federal and state regulations governing environmental quality and pollution control and state limits on allowable rates of production by a well or proration unit. State and federal regulations generally are intended to prevent waste of oil and natural gas, protect rights to produce oil and natural gas between owners in a common reservoir, control the amount of oil and natural gas produced by assigning allowable rates of production and control contamination of the environment. Regulation of Oil and Natural Gas Exploration and Production. Exploration and production operations of the Company are subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilling and the plugging and abandonment of wells. The Company's operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the density of wells which may be drilled and unitization or pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In addition, state conservation laws establish maximum rates of production requirements regarding the ratability of production. Federal Regulation of Sales and Transportation of Natural Gas. Historically, the transportation and sale for resale of natural gas in U.S. interstate commerce has been regulated pursuant to several laws enacted by Congress and the regulations promulgated under these laws by the Federal Energy Regulatory Commission ("FERC"). In the past, the U.S. government has regulated the prices at which gas could be sold. Congress removed all price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993. Congress could, however, reenact price controls in the future. Our sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation are subject to extensive federal and state regulation. From 1985 to the present, several major regulatory changes have been implemented by Congress and the FERC that affect the economics of natural gas production, transportation and sales. In addition, the FERC is continually proposing and implementing new rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission companies, that remain subject to the FERC's jurisdiction. These initiatives may also affect the intrastate transportation of gas under certain circumstances. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry and these initiatives generally reflect more light-handed regulation. The ultimate impact of the complex rules and regulations issued by the FERC since 1985 cannot be predicted. In addition, many aspects of these regulatory developments are still pending judicial and FERC final decisions. We cannot predict what further action the FERC will take on these matters. Some of the FERC's more 9 Ocean Energy, Inc. recent proposals may, however, adversely affect the availability and reliability of interruptible transportation service on interstate pipelines. We do not believe that we will be affected by any action taken materially differently than other natural gas producers, gatherers and marketers with which we compete. Offshore Leasing. U.S. offshore operations the Company conducts are on federal oil and gas leases. Ocean must comply with regulatory restrictions from numerous agencies, including the U.S. Minerals Management Service ("MMS"), U.S. Bureau of Land Management, U.S. Coast Guard and U.S. Environmental Protection Agency. For offshore operations, the Company must obtain regulatory approval for exploration, development and production plans prior to the commencement of such operations. These agencies have stringent engineering and construction specifications, safety-related regulations concerning the design and operating procedures for offshore production platforms and pipelines, regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization, regulations governing the plugging and abandonment of wells located offshore and the removal of all production facilities and other rules and regulations governing many phases of offshore operations. To cover the various obligations of lessees, governmental agencies generally require substantial bonds or other acceptable assurances that such obligations will be met. The restructuring of oil and gas markets has resulted in a shifting of markets downstream from the wells. Deregulation has altered the marketplace such that lessors, including the MMS, are challenging the methods of valuation of production for royalty purposes. In addition, the MMS is conducting an inquiry into certain contract settlement agreements from which producers on MMS leases have received settlement proceeds that are royalty bearing and the extent to which producers have paid the appropriate royalties on those proceeds. Competition The Company's competitors in oil and gas exploration, development and production include major oil companies, as well as numerous independent oil and gas companies, individuals and drilling partnerships. Some of these competitors have financial and personnel resources substantially in excess of those available to the Company and, therefore, the Company may be placed at a competitive disadvantage. The Company's success in discovering reserves will depend on its ability to select suitable prospects for future exploration in today's competitive environment. For further discussion of the Company's customers and markets see Note 2 of Notes to the Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. International Operations The Company's interests in countries outside the United States are subject to the various risks inherent in foreign operations. Operations in foreign countries, particularly in the oil and gas business, are subject to political, economic and other uncertainties, including: the risk of war, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, 10 Ocean Energy, Inc. import, export and transportation regulations and tariffs; taxation policies, including royalty and tax increases and retroactive tax claims; and exchange controls and currency fluctuations. 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's international operations may also be adversely affected by laws and policies of the United States affecting foreign trade, taxation and investment. The Company seeks to manage these risks by, among other things, concentrating its international exploration efforts in areas where the Company believes that the existing government is favorably disposed towards United States exploration and production companies. If a country claims superior rights to oil and gas leases or concessions granted to the Company by another country, the Company's interests could be lost or decreased in value. Certain areas of Africa and other areas of the world have a history of political and economic instability. This instability could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign-owned assets. This could adversely affect the Company's interests. Environmental Matters Ocean's operations are subject to federal, foreign, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental departments issue rules and regulations to implement and enforce such laws which are often difficult and costly to comply with and which carry substantial penalties for failure to comply. These laws and regulations may require the acquisition of a permit before drilling or production commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, restrict the rate of oil and gas production and impose substantial liabilities for pollution resulting from the Company's operations. State laws often require some form of remedial action to prevent pollution from former operations, such as pit closure and plugging abandoned wells. In addition, these laws and regulations may impose substantial liabilities and penalties for the Company's failure to comply with them or for any contamination resulting from the Company's operations. The Company has established policies and procedures for continuing compliance with environmental laws and regulations; however the Company does not believe costs relating to these laws and regulations have had a material adverse effect on the Company's operations or financial condition in the past. As these laws and regulations are becoming more stringent and complex, there is no assurance that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact in the future. The requirements imposed by these laws and regulations are frequently changed and subject to new interpretations. It is likely that the costs of compliance with environmental laws and regulations could increase 11 Ocean Energy, Inc. the cost of operating drilling equipment or significantly limit drilling and operation or production activities. Risk Factors In addition to the other information in this document, investors in our common stock should consider carefully the following risks. Dependence On Oil and Gas Prices. Ocean's success will depend on the market prices of oil and gas. These market prices tend to fluctuate significantly in response to market factors beyond our control. Oil prices in particular have reached multi-year highs in some markets in recent months, but we cannot assure you that these price levels will continue. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable and could result in charges to earnings for impairment of the value of these assets. Significant Capital Requirements. Ocean must make a substantial amount of capital expenditures for the acquisition, exploration and development of oil and gas reserves. Historically, we have paid for these expenditures with cash from operating activities, proceeds from debt and equity financings and asset sales. Ocean's revenues or cash flows could be reduced because of lower oil and gas prices or for some other reason. If Ocean's revenues or cash flows decrease, we may not have the funds available to replace our reserves or to maintain production at current levels. If this occurs, it would reduce production over time. Other sources of financing may not be available if Ocean's cash flows from operations are not sufficient to fund its capital expenditure requirements. Where Ocean is not the majority owner or operator of an oil and gas project, it may have no control over the timing or amount of capital expenditures associated with the particular project. If Ocean cannot fund its capital expenditures, its interests in some projects may be reduced or forfeited. Our Oil and Gas Reserve Information Is Estimated. The proved oil and gas reserve information included in this document represents only estimates. These estimates are based primarily on reports prepared by internal reserve engineers. The estimates were calculated using oil and gas prices as of December 31, 1999, which could change. Petroleum engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, including the following: - - historical production from the area compared with production from other producing areas; - - the assumed effects of regulations by governmental agencies; - - assumptions concerning future oil and gas prices; and - - assumptions concerning future operating costs, severance and excise taxes, development costs and workover and remedial costs. 12 Ocean Energy, Inc. Because all reserve estimates are to some degree subjective, each of the following items may differ materially from those assumed in estimating reserves: - - the quantities of oil and gas that are ultimately recovered; - - the production and operating costs incurred; - - the amount and timing of future development expenditures; and - - future oil and gas sales prices. Furthermore, different reserve engineers may make different estimates of reserves and cash flows based on the same available data. Ocean's actual production, revenues and expenditures with respect to reserves will likely be different from estimates and the differences may be material. The discounted future net cash flows included in this document should not be considered as the current market value of the estimated oil and gas reserves attributable to Ocean's properties. As required by the SEC, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower. Actual future net cash flows also will be affected by factors such as: - - the amount and timing of actual production; - - supply and demand for oil and gas; - - increases or decreases in consumption; and - - changes in governmental regulations or taxation. In addition, the 10% discount factor, which is required by the SEC to be used to calculate discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the Company or the oil and gas industry in general. Ocean Operates in Foreign Countries and Will Be Subject to Political, Economic and Other Uncertainties. Ocean conducts significant operations in foreign countries, including Angola, Equatorial Guinea and Cote d'Ivoire in Western Africa and in Yemen, Egypt, Pakistan, Indonesia and the Russian Republic of Tatarstan. Ocean may also operate in other countries in the future. Operations in foreign countries, particularly in the oil and gas business, are subject to political, economic and other uncertainties, including: - - the risk of war, revolution, border disputes, expropriation, renegotiation or modification of existing contracts, import, export and transportation regulations and tariffs; - - taxation policies, including royalty and tax increases and retroactive tax claims; - - exchange controls, currency fluctuations and other uncertainties arising out of foreign government sovereignty over Ocean's international operations; 13 Ocean Energy, Inc. - - laws and policies of the United States affecting foreign trade, taxation and investment; and - - the possibility of having to be subject to the exclusive jurisdiction of foreign courts in connection with legal disputes and the possible inability to subject foreign persons to the jurisdiction of courts in the United States. Nigeria and other African countries have occasionally asserted rights to land, including oil and gas properties, through border disputes. If a country claims superior rights to oil and gas leases or concessions granted to Ocean by another country, Ocean's interests could be lost or decreased in value. Regions of Africa and other regions of the world have a history of political and economic instability. This instability could result in new governments or the adoption of new policies that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign-owned assets. This could adversely affect Ocean's interests. Oil and Gas Operations Involve Substantial Costs and Are Subject to Various Economic Risks. The oil and gas operations of Ocean are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire producing properties and to drill exploratory wells. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause Ocean's exploration, development and production activities to be unsuccessful. This could result in a total loss of Ocean's investment. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. Drilling Oil and Gas Wells Could Involve Blowouts, Hurricanes, Environmental Hazards and Other Operating Risks. The nature of the oil and gas business involves certain operating hazards such as well blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, formations with abnormal pressures, pollution, releases of toxic gas and other environmental hazards and risks. Any of these operating hazards could result in substantial losses to Ocean. In addition, Ocean may be liable for environmental damages caused by previous owners of property purchased by Ocean or its predecessors. As a result, substantial liabilities to third parties or governmental entities may be incurred. The payment of these amounts could reduce or eliminate the funds available for exploration, development or acquisitions. These reductions in funds could result in a loss of Ocean's properties. Additionally, some of Ocean's oil and gas operations are located in areas that are subject to tropical weather disturbances. Some of these disturbances can be severe enough to cause substantial damage to facilities and possibly interrupt production. In accordance with customary industry practices, Ocean maintains insurance against some, but not all, of such risks and losses. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on the financial position and results of operations of Ocean. Competition Within the Oil and Gas Industry is Intense. The exploration and production business is highly competitive. Many of Ocean's competitors have substantially larger financial 14 Ocean Energy, Inc. resources, staffs and facilities than Ocean. These competitors include other independent oil and gas producers such as Anadarko Petroleum Corporation, Apache Corporation, Burlington Resources Inc., EEX Corporation, EOG Resources, Inc., Equitable Resources, Inc., Noble Affiliates, Inc., Nuevo Energy Company, Oryx Energy Company, Pioneer Natural Resources Company, Pogo Producing Company, Santa Fe Snyder Corporation, Union Pacific Resources Group Inc. and Vastar Resources, Inc. as well as major oil and gas companies such as Exxon Mobil Corporation, Shell Oil Company and BP Amoco Corporation. Government Agencies Can Increase Costs and Can Terminate or Suspend Operations. Ocean's business is subject to foreign, federal, state and local laws and regulations relating to the exploration for, and the development, production and transportation of, oil and gas, as well as environmental and safety matters. Many of these laws and regulations have become stricter in recent years. These laws and regulations often impose greater liability on a larger number of potentially responsible parties. Under some circumstances, the U.S. Minerals Management Service may require the operations of Ocean on federal leases to be suspended or terminated. These circumstances include Ocean's failure to pay royalties, Ocean's failure to comply with safety and environmental regulations and the MMS' reaction to political pressure to limit offshore drilling in environmentally sensitive areas. This could have a material adverse effect on Ocean's financial condition and operations. The requirements imposed by these laws and regulations are frequently changed and subject to new interpretations. It is likely that the costs of compliance could increase the cost of operating offshore drilling equipment or significantly limit drilling activity. Employees As of February 29, 2000, the Company had 1,150 employees. In addition to the services of its full time employees, the Company employs, as needed, the services of consulting geologists, engineers, regulatory consultants, contract pumpers and certain other temporary employees. Except for local national employees in Cote d'Ivoire, none of the Company's employees are represented by a labor union. The Company considers its relations with its employees to be satisfactory. 15 Ocean Energy, Inc. Executive Officers of the Company The executive officers of the Company, each of whom has been elected to serve until his successor is elected and qualified, are as follows:
Name Age Present Position and Prior Business Experience James T. Hackett.............. 46 President and Chief Executive Officer since March 1999 and Chairman of the Board since January 2000; President and Chief Executive Officer of Seagull from September 1998 and Chairman of the Board of Seagull from January 1999 to March 1999; Group President of Duke Energy's unregulated operations and Executive Vice President of Panenergy from January 1996 to September 1998. Prior to joining Duke Energy, he was Senior Vice President of NGC Corporation (formerly Natural Gas Clearinghouse) and President of NGC's gathering, processing and liquids marketing division. He became Executive Vice President, partner and a member of the management committee of Natural Gas Clearinghouse in 1993. James C. Flores............... 40 Vice Chairman since January 2000; Chairman of the Board from March 1999 to January 2000; President and Chief Executive Officer of Old Ocean from July 1995 to March 1999; Chairman of the Board of Old Ocean from inception in 1992 to March 1998. William L. Transier........... 45 Executive Vice President and Chief Financial Officer since March 1999; Executive Vice President and Chief Financial Officer of Seagull from September 1998 to March 1999; Senior Vice President and Chief Financial Officer of Seagull from May 1996 to September 1998; For the previous 20 years, he held a variety of positions at KPMG LLP including partner from July 1986 until April 1996. Robert K . Reeves............. 42 Executive Vice President, General Counsel and Secretary since March 1999; Executive Vice President, General Counsel and Secretary of Old Ocean from June 1997 to March 1999; Senior Vice President, General Counsel and Secretary of Old Ocean from May 1994 to June 1997. John D. Schiller, Jr.......... 40 Executive Vice President, Operations since March 2000; Senior Vice President, North America Onshore and International Operations from March 1999 to March 2000; Senior Vice President, Operations of Seagull from September 1998 to March 1999; Production Manager - Gulf Coast Division of Burlington Resources from October 1997 to August 1998; Engineering Manager - Offshore Division of Burlington Resources from April 1994 to September 1997. William S. Flores, Jr......... 43 Senior Vice President, Drilling since March 1999; Vice President, Drilling of Old Ocean from March 1998 to March 1999; Vice President, Operations of Old Ocean from August 1993 to March 1998.
16 Ocean Energy, Inc.
Scott A. Griffiths............ 46 Senior Vice President of International Exploration since March 1999; Senior Vice President Domestic Exploration of Seagull from September 1998 to March 1999; Vice President Domestic Exploration of Seagull from May 1997 to September 1998; Vice President of Domestic Exploration of Seagull from October 1996 to May 1997; Vice President of Exploration of Global Natural Resources from 1992 to October 1996. Stephen A. Thorington......... 44 Senior Vice President, Finance, Treasury and Corporate Development since March 1999; Vice President, Finance and Treasurer of Seagull from May 1996 to March 1999; Managing Director of Chase Securities Inc. from April 1994 to May 1996. Bruce Busmire ................ 42 Vice President, Investor Relations since February 2000; Controller of Altura Energy Ltd. From March 1997 to January 2000; For the previous 16 years, Mr. Busmire held a variety of positions in finance, accounting and investor relations at Amoco Corporation. Mario M. Coll, III............ 38 Vice President, Operational Planning and Chief Information Officer since October 1999; Vice President, Operational Planning from March 1999 to October 1999; Vice President, Planning - Corporate and International of Old Ocean from April 1998 to March 1999; Business Planning Coordinator of Old Ocean from September 1996 to April 1998; From March 1987 to September 1996, Mr. Coll held a variety of positions in engineering and business development at Mobil Exploration and Producing U.S., Inc and Mobil New Business Development. Peggy T. d'Hemecourt.......... 48 Vice President, Human Resources since March 1999; Director, Human Resources of Old Ocean from March 1998 to February 1999; Vice President, Human Resources of UMC Petroleum Corporation from April 1997 to February 1998; Director, Human Resources of United Meridian Corporation ("UMC") from January 1996 to March 1997; From 1974 to 1994, Ms. d'Hemecourt held a variety of positions in Human Resources at Baroid Corporation. Gordon L. McConnell........... 53 Vice President and Controller of the Company since March 1999; Vice President and Controller of Seagull from November 1996 to March 1999; Vice President - Accounting of Global Natural Resources from January 1996 to November 1996; Controller of Global Natural Resources from July 1993 to January 1996. John J. Patton................ 59 Vice President and Associate General Counsel, since September 1999; Vice President and Assistant General Counsel - International of Old Ocean from March 1998 to March 1999; Senior Vice President and General Counsel of UMC from April 1995 to March 1998. Andrew J. Sheu................ 37 Vice President, Tax since March 1999; Assistant Vice President, Tax of Seagull from January 1998 to March 1999; Director, Tax of Torch Energy Advisors, Inc. from December 1995 to January 1998. Tax Senior Manager at KPMG LLP from July 1991 to November 1995.
17 Ocean Energy, Inc.
Winston M. Talbert............ 37 Assistant Treasurer, Corporate Finance since October 1999; Assistant Treasurer of PennzEnergy Company from November 1998 to October 1999; Manager, International Finance of Pennzoil Company from December 1996 to November 1998; Manager, Corporate Development & Finance of Brown & Root from February 1996 to December 1996; Business Development Manager of Destec Europe March 1994 to February 1996. Frank D. Willoughby........... 34 Vice President, Financial Planning since March 1999; Prior to the Seagull Merger, Mr. Willoughby held various financial positions with Old Ocean, including Treasurer and Controller. Carl E. Volke................. 56 Vice President, Administration since March 1999; Vice President, Administration of Seagull from November 1996 to March 1999; Director, Administration of Seagull from November 1986 to November 1996.
Defined Terms Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl"). Mmcfe and Mcfe represent the equivalent of one million and one thousand cubic feet of natural gas, respectively. Oil, condensate and NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. MMBOE, MBOE and BOE represent one million barrels, one thousand barrels and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid. "Net" acres, production or wells refers to the total acres, production or wells in which the Company has a working interest, multiplied by the percentage working interest owned by the Company. Item 2. Properties The following information presents production and wells drilled information for the registrant - formerly Seagull Energy Corporation - in compliance with the requirements of Item 2. As such this information represents historical Seagull on a stand-alone basis for the first quarter of 1999 and of the combined company for the remainder of 1999, compared to Seagull's results for 1998 and 1997 on a stand-alone basis. The remainder of the information required by Item 2 is incorporated herein by reference to Item 1 of this Annual Report on Form 10-K. 18 Ocean Energy, Inc. Production - Historical Information for Seagull Energy Corporation for 1998 and 1997 The following table summarizes the registrant's production, average sales prices and operating costs for the periods indicated:
Year Ended December 31, ----------------------------------------------------------- 1999 1998 1997 ---------------- --------------- ----------------- Domestic:(1) Net production: Gas (MMcf)..................................... 137,896 104,023 110,595 Oil and NGL (Mbbl)............................. 10,318 1,834 1,763 Average sales price: (2) Gas (per Mcf).................................. $ 2.12 $ 1.94 $ 2.30 Oil and NGL (per Bbl).......................... $ 19.29 $ 11.41 $ 17.60 Average operating costs (per BOE) (3)............ $ 4.32 $ 3.04 $ 2.79 Equatorial Guinea:(1) Oil production (Mbbl)............................ 5,577 - - Average oil sales price (per Bbl) (2)............ $ 19.99 $ - $ - Average operating costs (per BOE) (3)............ $ 2.79 $ - $ - Cote d'Ivoire:(1) Net production: Gas (MMcf)..................................... 9,814 3,106 2,245 Oil and NGL (Mbbl)............................. 1,449 360 603 Average sales price: (2) Gas (per Mcf).................................. $ 1.64 $ 1.59 $ 1.93 Oil and NGL (per Bbl).......................... $ 20.10 $ 10.51 $ 19.34 Average operating costs (per BOE) (3)............ $ 3.39 $ 3.11 $ 3.95 Egypt: Net production: Gas (MMcf)..................................... 300 301 - Oil and NGL (Mbbl)............................. 3,911 4,002 3,383 Average sales price: (2) Gas (per Mcf).................................. $ 3.63 $ 1.42 - Oil and NGL (per Bbl) ......................... $ 17.36 $ 11.79 $ 18.26 Average operating costs (per BOE) (3)............ $ 3.70 $ 4.18 $ 3.46 Other International:(1) Net production: Gas (MMcf)..................................... 3,143 2,867 17,475 Oil and NGL (Mbbl)............................ 1,637 1,568 1,811 Average sales price: (2) Gas (per Mcf).................................. $ 2.18 $ 2.31 $ 1.90 Oil and NGL (per Bbl).......................... $ 11.10 $ 7.93 $ 14.71 Average operating costs (per BOE ) (3)........... $ 5.02 $ 6.76 $ 4.90
19 Ocean Energy, Inc.
Year Ended December 31, ----------------------------------------------------------- 1999 1998 1997 ---------------- --------------- ----------------- Total: Net production: Gas (MMcf)..................................... 151,153 110,297 130,315 Oil and NGL (Mbbl)............................ 22,892 7,764 7,560 Average sales price: (2) Gas (per Mcf).................................. $ 2.09 $ 1.94 $ 2.24 Oil and NGL (per Bbl).......................... $ 18.60 $ 10.86 $ 17.34 Average sales price including hedging: (2) Gas (per Mcf).................................. $ 2.11 $ 1.93 $ 2.17 Oil and NGL (per Bbl).......................... $ 16.19 $ 10.86 $ 17.34 Average operating costs (per BOE ) (3) $ 4.07 $ 3.51 $ 3.25
(1) The Company's Equatorial Guinea operations and a portion of its domestic, Cote d'Ivorian and other international operations were acquired as a result of the Seagull Merger on March 30, 1999. (2) Average sales prices are before deduction of production, severance, and other taxes and after deduction of certain transportation costs. (3) Operating costs represent costs incurred to operate and maintain wells and related equipment and facilities. These costs include, among other things, repairs and maintenance, workover expenses, labor, materials, supplies, property taxes, insurance, severance taxes, and general operating expenses. 20 Ocean Energy, Inc. Oil and Gas Drilling Activities - Historical Information for Seagull Energy Corporation for 1998 and 1997 The registrant's oil and gas exploratory and developmental drilling activities are as follows for the periods indicated.
Year Ended December 31, ------------------------------------------------------------------------------ 1999 1998 1997 ---------------------- ------------------------- ---------------------- Gross Net Gross Net Gross Net --------- --------- --------- ----------- --------- --------- Domestic (1): Exploratory Drilling: Productive Wells................. 10 5.6 7 1.5 18 9.5 Dry Holes........................ 8 3.6 12 5.0 12 4.2 Development Drilling: Productive Wells................. 137 88.5 138 60.9 142 73.9 Dry Holes........................ 38 31.4 11 7.0 12 6.3 Equatorial Guinea:(1) Exploratory Drilling: Productive Wells................. - - - - - - Dry Holes........................ 3 0.7 - - - - Development Drilling: - - - - Productive Wells................. 1 0.2 - - - - Dry Holes........................ - - Cote d'Ivoire (1): Exploratory Drilling: Productive Wells................. - - 1 0.1 1 0.1 Dry Holes........................ 1 0.4 1 0.2 2 0.3 Development Drilling: Productive Wells................. - - - - 3 0.4 Dry Holes........................ - - - - - - Egypt: Exploratory Drilling: Productive Wells................. - - 4 1.3 4 2.8 Dry Holes........................ 1 0.3 13 5.1 11 3.0 Development Drilling: Productive Wells................. 5 1.5 7 2.8 14 3.5 Dry Holes........................ - - 3 1.3 - - Other International (1): Exploratory Drilling: Productive Wells................ - - - - 4 2.2 Dry Holes....................... - - - - 2 1.2 Development Drilling: Productive Wells................ 4 2.0 10 5.0 78 39.4 Dry Holes....................... - - 1 0.5 1 0.3 Total: Exploratory Drilling: Productive Wells................. 10 5.6 12 2.9 27 14.6 Dry Holes........................ 13 5.0 26 10.3 27 8.7 Development Drilling: Productive Wells................. 147 92.2 155 68.7 237 117.2 Dry Holes........................ 38 31.4 15 8.8 13 6.6
(1) The Company's Equatorial Guinea operations and a portion of its domestic, Cote d'Ivorian and other international operations were acquired as a result of the Seagull Merger on March 30, 1999. 21 Ocean Energy, Inc. Item 3. Legal Proceedings The Company is a named defendant in lawsuits and is a party in governmental proceedings from time to time arising in the ordinary course of business. While the outcome of such lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial positions or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders None during the fourth quarter of 1999. Part II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters A. The Company's Common Stock (the "Common Stock") is traded on the New York Stock Exchange under the ticker symbol "OEI." The high and low sales prices on the New York Stock Exchange Composite Tape for each quarterly period during the last two fiscal years for the registrant, formerly Seagull Energy Corporation, were as follows:
1999 1998 --------------------------------------- --------------------------------------- High Low High Low ----------------- ----------------- ----------------- ----------------- First Quarter............. $ 7.63 $4.31 $20.94 $15.44 Second Quarter............ 10.94 6.38 19.44 13.94 Third Quarter............. 11.81 9.13 17.69 7.63 Fourth Quarter............ 10.69 6.31 12.44 5.69
B. As of March 22, 2000, there were approximately 4,123 holders of record of Common Stock. C. The Company did not declare any cash dividends on its Common Stock in 1999, 1998 or 1997. The decision to pay Common Stock dividends in the future will depend upon the Company's earnings and financial condition and such other factors as the Company's Board of Directors deems relevant. The Company's revolving credit agreement and outstanding indentures restrict the Company's declaration or payment of dividends on and repurchases of Common Stock. Under the most restrictive of these tests, as of December 31, 1999, approximately $150 million was available for payment of dividends or repurchase of Common Stock. For a description of such restrictions, reference is made to Note 7 of the Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. In addition, the terms of the Company's Series C Convertible Preferred Stock and certain debt securities limit the Company's ability to pay cash dividends. 22 Ocean Energy, Inc. Item 6. Selected Financial Data Selected Financial Data (1) (Amounts in Thousands Except Per Share Data)
Year Ended December 31, --------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- -------------- -------------- -------------- Revenues.......................... $ 735,518 $ 522,150 $ 549,194 $ 394,980 $ 241,321 Net income (loss) from continuing operations(2)................... (21,552) (406,879) 62,220 55,000 5,552 Earnings (loss) from continuing operations per share(2): Basic.......................... (0.16) (4.04) 0.67 0.65 0.06 Diluted........................ (0.16) (4.04) 0.64 0.62 0.06 Net cash provided by operating activities before changes in operating assets and liabilities 336,148 219,075 332,115 227,183 104,628 Net cash provided by operating activities...................... 333,751 229,924 364,202 207,249 103,354 Total assets...................... 2,783,143 2,006,960 1,642,995 1,121,241 724,460 Long-term debt.................... 1,333,410 1,371,890 672,298 440,974 416,491 Shareholders' equity.............. 947,695 376,943 725,337 493,072 171,326 Capital expenditures.............. 369,026 961,979 845,376 445,783 240,025 Acquisitions, net of cash acquired 991,409 - - - - Standardized measure of discounted future net cash flows.......................... 2,415,418 903,823 1,220,407 1,326,514 667,941
(1) Includes the effect of the Seagull Merger since March 30, 1999. (2) Includes after-tax impairments of $43 million and $335 million in 1999 and 1998, respectively, and after-tax merger expenses of $31 million and $33 million in 1999 and 1998, respectively. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated herein by reference to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. Item 7.a. Quantitative and Qualitative Disclosures About Market Risk Incorporated herein by reference to the Market Risk Disclosures included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. Item 8. Financial Statements and Supplementary Data Incorporated herein by reference to the Consolidated Financial Statements included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto. 23 Ocean Energy, Inc. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure KPMG LLP, the independent auditors of the registrant, formerly Seagull Energy Corporation, were appointed as independent auditors of the Company for the fiscal year ending December 31, 1999. Such appointment of KPMG LLP was ratified by the Company's shareholders at the annual meeting of shareholders held on May 25, 1999. Part III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to "Election of Directors" included in the Proxy Statement for the Company's Annual Meeting of Shareholders to be held on May 10, 2000 (the "Proxy Statement"). See also "Executive Officers of the Company" included in Part I of this Annual Report on Form 10-K, which is incorporated by reference herein. Item 11. Executive Compensation Incorporated herein by reference to "Executive Compensation--Summary Compensation Table," "--Compensation Arrangements," "--Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values," "--Option/SAR Grants in Last Fiscal Year," and "--Executive Supplemental Retirement Plan" and "Election of Directors--Compensation of Directors" included in the Proxy Statement. Notwithstanding any provision in this Annual Report on Form 10-K to the contrary, under no circumstances are the "Report of the Organization and Compensation Committee on Executive Compenstion" or the information under the heading "Shareholder Return Performance Presentation" incorporated herein for any purpose. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to "Principal Shareholders" and "Election of Directors--Security Ownership of Directors and Management" included in the Proxy Statement. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to "Election of Directors--Certain Transactions" included in the Proxy Statement. 24 Ocean Energy, Inc. Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements: The Consolidated Financial Statements, Notes to Consolidated Financial Statements and Independent Auditors' Reports thereon are included in the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached hereto, and are incorporated herein by reference. 2. Schedules: All schedules have been omitted because the required information is insignificant or not applicable. 3. Exhibits:
3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended June 30, 1999). 4.1 Amended and Restated Rights Agreement dated March 17, 1989, as amended effective June 13, 1992, and amended and restated as of December 12, 1997, between the Company and BankBoston, N.A. (as successor to NCNB Texas National Bank), including Form of Statement of Resolution Establishing the Series B Junior Participating Preferred Stock, the Form of Right Certificate and Form of Summary of Rights to Purchase Preferred Shares (the Agreement is incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated December 15, 1997; Amendment No. 1 dated November 24, 1998 is incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on December 1, 1998). Amendment No. 2, dated as of March 10, 1999, is incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 12, 1999; Amendment No. 3, dated as of May 19, 1999, is incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 1999). 4.2 Revolving Credit Agreement, dated as of March 30, 1999, among the Company, Chase Bank of Texas, National Association ("Chase Texas") (Individually and as Administrative Agent), The Chase Manhattan Bank ("Chase Manhattan") (as Auction Administrative Agent), Bank of America National Trust and Savings Association ("Bank of America") (Individually and as Syndication Agent), Bank One Texas, N. A. ("Bank One") (Individually and as Documentation Agent), Societe Generale, Southwest Agency ("Societe Generale") (Individually and as Managing Agent), the Bank of Montreal (Individually and as Managing Agent), and the other Banks signatory thereto (incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 1999). *4.3 364-Day Credit Agreement, dated as of November 9, 1999, among the Company, Credit Suisse First Boston (Individually and as Administrative Agent and as Auction Administrative Agent), Bank of America, N. A. (Individually and as Syndication Agent), Chase Bank of Texas, National Association (Individually and as Documentation Agent), and the other Banks signatory thereto, filed herewith). 4.4 Senior Indenture dated as of July 15, 1993, relating to the 7 7/8% Notes due 2003, by and between
25 Ocean Energy, Inc.
the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.11 to the Company's Form 10-Q for the period ended March 31, 1999). 4.5 Senior Subordinated Indenture dated as of July 15, 1993, relating to the 8 5/8% Notes due 2005 by and between the Company and The Bank of New York, as Trustee (the Indenture is incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.12 to the Company's Form 10-Q for the period ended March 31, 1999). 4.6 Senior Indenture among the Company and The Bank of New York, as Trustee, and Specimen of 7 1/2% Senior Notes (incorporated by reference to Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1997; the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.10 to the Company's Form 10-Q for the period ended March 31, 1999). 4.7 Terms Agreement and the resolutions of adoption by the Chairman of the Board of Directors related to Exhibit 4.6 (incorporated by reference to Exhibit 2.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 1997). 4.8 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and U.S. Bank Trust National Association, relating to the 8 3/8% Series A Senior Subordinated Notes due 2008 and the 8 3/8% Series B Senior Subordinated Notes due 2008 (the Indenture is incorporated by reference to Exhibit 10.22 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.3 to the Company's Form 10-Q for the period ended March 31, 1999). 4.9 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and Norwest Bank Minnesota, National Association (Norwest Bank) as Trustee, relating to the 7 5/8% Senior Notes due 2005 (the Indenture is incorporated by reference to Exhibit 10.23 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.4 to the Company's Form 10-Q for the period ended March 31, 1999). 4.10 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and Norwest Bank as Trustee, relating to the 8 1/4% Senior Notes due 2018 (the Indenture is incorporated by reference to Exhibit 10.24 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.5 to the Company's Form 10-Q for the period ended March 31, 1999). 4.11 Indenture, dated as of July 2, 1997, among Ocean Energy, Inc., the Subsidiary Guarantors Named Therein and State Street Bank and Trust Company, as Trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (the Indenture is incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (No. 333-32715) of Ocean Energy, Inc.; the First Supplemental Indenture, dated as of March 27, 1998, is incorporated by reference to Exhibit 10.11 to the Form 8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; the Second Supplemental Indenture, dated as of March 30, 1999 is incorporated by reference to Exhibit 4.6 to the Company's Form 10-Q for the period ended March 31, 1999). 10.1 Agreement and Plan of Merger, dated as of November 24, 1998 among Seagull and Ocean Energy, Inc. ("OEI"), including amendments (Agreement and Plan of Merger is incorporated by
26 Ocean Energy, Inc.
reference to Exhibit 2.1 to Current Report on Form 8-K filed on December 1, 1998; Amendment No. 1 is incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4 (Reg. No. 333-68679)). #10.2 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the period ended June 30, 1999). #10.3 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.4 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as amended (plan is incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.5 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.6 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements, as amended (incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K for the year ended December 31, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.7 Global Natural Resources Inc. 1989 Key Employees Stock Option Plan (the Plan is incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-31537 of Global Natural Resources Inc.; the Form of Stock Option Agreement is incorporated by reference to Exhibit 4.2 to Registration Statement No. 33-31537 of Global Natural Resources Inc.; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.8 Global Natural Resources Inc. 1992 Stock Option Plan (the Plan is incorporated by reference to Exhibit 10.47 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); the Form of Stock Option Agreement is incorporated by reference to Exhibit 10.48 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.9 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of agreements, as amended (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). #10.10 Seagull Energy Corporation 1993 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). #10.11 1995 Omnibus Stock Plan (the Plan is incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.12 1998 Omnibus Stock Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
27 Ocean Energy, Inc.
#10.13 UMC 1987 Nonqualified Stock Option Plan, as amended, (the Plan is incorporated herein by reference to Exhibit 10.3 to UMC's Form S-1 (No. 33-63532) filed with the SEC on May 28, 1993; the Third Amendment, dated November 16, 1993, is incorporated herein by reference to Exhibit 10.4 to UMC's Form 10-K for the year ended December 31, 1993; the Fourth Amendment, dated April 6, 1994, is incorporated by reference to Exhibit 10.6 to UMC's Form 10-K for the year ended December 31, 1994; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.7 to UMC's Form S-3 (No. 333-42467); the Sixth Amendment, dated March 27, 1998, and the Seventh Amendment, dated February 1, 1999, are incorporated by reference to Exhibit 10.3 to Form 10-Q for the period ended March 31, 1999). #10.14 UMC 1994 Employee Nonqualified Stock Option Plan, as amended (the Plan is incorporated by reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994; the First Amendment, dated November 16, 1994, is incorporated by reference to Exhibit 4.11.1 to UMC's Form S-8 (No. 33-86480) filed with the SEC on November 18, 1994; the Second Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.3.2 to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Third Amendment, dated November 13, 1996, is incorporated by reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fourth Amendment, dated May 29, 1997, is incorporated herein by reference to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.8 to UMC's Form S-3 (No. 333-42467) filed with the SEC on December 17, 1997; the Sixth Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.4 to Form 10-Q for the period ended March 31, 1999). #10.15 Amendment to UMC 1994 Non-Qualified Stock Option Agreement for Former Employees of General Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf (incorporated by reference to Exhibit 10.22 to UMC's Form 10-Q for the period ended September 30, 1996). #10.16 UMC 1994 Outside Directors' Nonqualified Stock Option Plan, as amended (the Plan is incorporated herein by reference to Exhibit 4.15 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994; the First Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.4.1 to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Second Amendment, dated November 13, 1996, is incorporated herein by reference to Exhibit 4.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Third Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.9 to UMC's Form S-3 (No. 333-42467); Fourth Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended March 31, 1999). #10.17 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the Board of Directors on March 29, 1994 (the Plan is incorporated by reference to Exhibit 10.10 to UMC's Form 10-K filed for the year ended December 31, 1994; the Second Amendment dated March 30, 1999 is incorporated by reference to Exhibit 10.7 to Form 10-Q for the period ended March 31, 1999). #10.18 1994 Long-Term Incentive Plan (the Plan, as amended, is incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Registration Statement on Form S-1 (No. 33-84308) of Ocean Energy, Inc. (Registration No. 0-25058); the Second Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999). #10.19 1996 Long-Term Incentive Plan, as amended (the Plan, as amended, is incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45117) of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on January 29, 1998; the Second Amendment, dated March 27, 1998, is incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
28 Ocean Energy, Inc.
*#10.20 Long-Term Incentive Plan for Non-Executive Employees, as amended (the Plan, as amended, is incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45119) of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 2, incorporated by reference to Exhibit 99.2 to the Form S-8 (No. 333-49185) of Ocean Energy, Inc.; Amendment No. 3, dated as of May 20, 1998, is incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 4 is filed herewith). #10.21 1998 Long-Term Incentive Plan (incorporated by reference to Appendix E to Ocean Energy, Inc.'s Joint Proxy Statement Prospectus on Form S-4 (333-43933) filed with the SEC on January 9, 1998). #10.22 Seagull Energy Corporation Management Stability Plan (the Plan is incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1994; the First Amendment is incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the year ended December 31, 1996; the Second and Third Amendments are incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment is incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the year ended December 31, 1998; the Fifth Amendment is incorporated by reference to Exhibit 10.14 to Form 10-Q for the period ended March 31, 1999). *#10.23 Outside Directors Deferred Fee Plan, as amended and restated effective March 30, 1999. #10.24 Executive Supplemental Retirement Plan, as amended (the Plan, as amended, is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; the Third Amendment is incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.25 Supplemental Benefit Plan, as amended, including the First Amendment thereto (the Plan, as amended, is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the year ended December 31, 1995; the Third Amendment is incorporated by reference to Exhibit 10.12 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment is incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 1998). #10.26 Ocean Energy, Inc. 1999 Change of Control Severance Plan dated February 8, 1999; the First Amendment dated March 29, 1999 (incorporated by reference to Exhibit 10.17 to Form 10-Q for the period ended March 31, 1999). #10.27 Form of Indemnification Agreements among the Company and certain executive officers and directors (incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended March 31, 1999). #10.28 Employment Agreement by and between the Company and James T. Hackett, as amended (the Agreement is incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; Amendment to Employment Agreement dated November 24, 1998 is incorporated by reference to Exhibit 10.15 to Form 10-Q for the period ended March 31, 1999; Second Amendment to Employment Agreement, effective as of December 15, 1999, is incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2000). #10.29 Employment and Consulting Agreement by and between the Company and Barry J. Galt, as amended (the Agreement is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
29 Ocean Energy, Inc.
10-Q for the quarter ended September 30, 1998; Amendment to Employment and Consulting Agreement dated November 24, 1998 is incorporated by reference to Exhibit 10.16 to Form 10-Q for the period ended March 31, 1999; Second Amendment to Employment and Consulting Agreement is incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended June 30, 1999). #10.30 Employment Agreement, dated as of March 27, 1998, among Ocean Energy, Inc. and John B. Brock, as amended (the Agreement is incorporated by reference to Exhibit 10.1 to the Form 8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; Amendment No.1, dated as of November 24, 1998, is incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058)). #10.31 Form of Employment Agreement between the Company and Robert K. Reeves (incorporated by reference to Exhibit 10.41 to Form 10-Q for the period ended June 30, 1999). #10.32 Form of Employment Agreement between the Company and William L. Transier (incorporated by reference to Exhibit 10.5 to Form 10-Q for the period ended June 30, 1999). #10.33 Letter Agreement between the Company and James C. Flores, dated December 22, 1999 (incorporated by reference to Exhibit 99.3 to Current Report on Form 8-K filed on January 7, 2000). #10.34 Employment Agreement between the Company and James C. Flores, effective as of January 1, 2000 (incorporated by reference to Exhibit 99.4 to Current Report on Form 8-K filed on January 7, 2000). #10.35 Severance Agreement between Ocean Energy, Inc., (the "Company") a Texas corporation formerly known as Seagull Energy Corporation, and John D. Schiller Jr. ("Executive") dated September 27, 1999 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended September 30, 1999). #10.36 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James T. Hackett (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.37 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J. Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). #10.38 Severance Agreement between the Company and James T. Hackett, as amended (incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). Amendment to Severance Agreement, effective as of December 15, 1999, incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2000. #10.39 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Barry J. Galt (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.40 Promissory Note between John D. Schiller, Jr. and Seagull (incorporated by reference to Exhibit 10.31 to Annual Report on Form 10-K for the year ended December 31, 1998). 10.41 Promissory Note between William L. Transier and Seagull (incorporated by reference to Exhibit
30 Ocean Energy, Inc.
10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.42 Promissory Note between Barry J. Galt and Seagull (incorporated by reference to Exhibit 10.33 to Annual Report on Form 10-K for the year ended December 31, 1998). 10.43 Purchase and Sale Agreement dated June 15, 1999, between the Company, as Seller, and SEMCO ENERGY, Inc., as Purchaser, for the sale of ENSTAR (incorporated by reference to Exhibit 10.2 to Form 10-Q for the period ended June 30, 1999). 10.44 Purchase and Sale Agreement dated July 30, 1999, between the Company as Seller, and Cross Timbers Oil Company, as Purchaser, for the sale of the Arkoma properties (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended June 30, 1999). *10.45 Natural Gas Purchase and Sale Agreement dated October 1, 1999 between the Company as Seller and Duke Energy Trading and Marketing, L.L.C., as Buyer, filed herewith. *13.0 1999 Annual Report of the Company (selected portions), filed herewith. *23.1 Consent of KPMG LLP. *23.2 Consent of Arthur Andersen LLP. *27.1 Financial Data Schedule.
(b) Reports on Form 8-K On February 23, 2000, the Company filed a Current Report on Form 8-K dated February 23, 2000 concerning disclosure of year 2000 estimates. On January 7, 2000, the Company filed a Current Report on Form 8-K dated December 15, 1999 concerning Mr. Hackett's assumption of the responsibilities of Chairman of the Board of Directors of the Company. 31 Ocean Energy, Inc. 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. Ocean Energy, Inc. Date: March 27, 2000 By: /s/ James T. Hackett James T. Hackett, Chairman of the Board, President and Chief Executive Officer 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 and on the dates indicated. By: /s/ James T. Hackett By: /s/ Peter J. Fluor ------------------------------------------------- ----------------------------------------------- James T. Hackett, Chairman of the Board, Peter J. Fluor, Director President, Chief Executive Officer and Director Date: March 27, 2000 (Principal Executive Officer) Date: March _27, 2000 By: /s/ Barry J. Galt ----------------------------------------------- Barry J. Galt, Director By: /s/ William L. Transier Date: March 27, 2000 ------------------------------------------------- William L. Transier, Executive Vice President and Chief Financial Officer /s/ Robert L. Howard (Principal Financial Officer) ----------------------------------------------- By: Robert L. Howard, Director Date: March 27, 2000 By: /s/ Gordon L. McConnell /s/ Elvis L. Mason ------------------------------------------------- ----------------------------------------------- Gordon L. McConnell, Vice President and By: Elvis L. Mason, Director Controller (Principal Accounting Officer) Date: March 27, 2000 Date: March 27, 2000 /s/ Charles F. Mitchell, M.D. ----------------------------------------------- By: /s/ James C. Flores By: Charles F. Mitchell, M.D., Director ------------------------------------------------- Date: March 27, 2000 James C. Flores, Vice Chairman Date: March _27, 2000 /s/ David K. Newbigging ----------------------------------------------- By: /s/ J. Evans Attwell By: David K. Newbigging, Director ------------------------------------------------- Date: March 27, 2000 J. Evans Attwell, Director Date: March 27, 2000 /s/ Dee S. Osborne ----------------------------------------------- By: /s/ John B. Brock By: Dee S. Osborne, Director ------------------------------------------------- Date: March 27, 2000 John B. Brock, Director Date: March 27, 2000 /s/ R. A. Walker ----------------------------------------------- By: /s/ Milton Carroll By: R. A. Walker, Director ------------------------------------------------- Date: March 27, 2000 Milton Carroll, Director Date: March 27, 2000 By: /s/ Thomas D. Clark, Jr. ------------------------------------------------- Thomas D. Clark, Jr., Director Date: March 27, 2000
32 Ocean Energy, Inc. EXHIBIT INDEX
Page 3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the period ended June 30, 1999). 4.1 Amended and Restated Rights Agreement dated March 17, 1989, as amended effective June 13, 1992, and amended and restated as of December 12, 1997, between the Company and BankBoston, N.A. (as successor to NCNB Texas National Bank), including Form of Statement of Resolution Establishing the Series B Junior Participating Preferred Stock, the Form of Right Certificate and Form of Summary of Rights to Purchase Preferred Shares (the Agreement is incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated December 15, 1997; Amendment No. 1 dated November 24, 1998 is incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on December 1, 1998). Amendment No. 2, dated as of March 10, 1999, is incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 12, 1999; Amendment No. 3, dated as of May 19, 1999, is incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 1999). 4.2 Revolving Credit Agreement, dated as of March 30, 1999, among the Company, Chase Bank of Texas, National Association ("Chase Texas") (Individually and as Administrative Agent), The Chase Manhattan Bank ("Chase Manhattan") (as Auction Administrative Agent), Bank of America National Trust and Savings Association ("Bank of America") (Individually and as Syndication Agent), Bank One Texas, N. A. ("Bank One") (Individually and as Documentation Agent), Societe Generale, Southwest Agency ("Societe Generale") (Individually and as Managing Agent), the Bank of Montreal (Individually and as Managing Agent), and the other Banks signatory thereto (incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 1999). *4.3 364-Day Credit Agreement, dated as of November 9, 1999, among the Company, Credit Suisse First Boston (Individually and as Administrative Agent and as Auction Administrative Agent), Bank of America, N. A. (Individually and as Syndication Agent), Chase Bank of Texas, National Association (Individually and as Documentation Agent), and the other Banks signatory thereto, filed herewith). 4.4 Senior Indenture dated as of July 15, 1993, relating to the 7 7/8% Notes due 2003, by and between the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.11 to the Company's Form 10-Q for the period ended March 31, 1999). 4.5 Senior Subordinated Indenture dated as of July 15, 1993, relating to the 8 5/8% Notes due 2005 by and between the Company and The Bank of New York, as Trustee (the Indenture is incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.12 to the Company's Form 10-Q for the period ended March 31, 1999). 4.6 Senior Indenture among the Company and The Bank of New York, as Trustee, and Specimen of 7 1/2% Senior Notes (incorporated by reference to Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1997; the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.10 to the Company's Form 10-Q for the period ended March 31, 1999). 4.7 Terms Agreement and the resolutions of adoption by the Chairman of the Board of Directors related to Exhibit 4.6 (incorporated by reference to Exhibit 2.3 to Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 1997). 4.8 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and U.S. Bank Trust National Association, relating to the 8 3/8% Series A Senior Subordinated Notes due 2008 and the 8 3/8% Series B Senior Subordinated Notes due 2008 (the Indenture is incorporated by reference to Exhibit 10.22 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.3 to the Company's Form 10-Q for the period ended March 31, 1999). 4.9 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and Norwest Bank Minnesota, National Association (Norwest Bank) as Trustee, relating to the 7 5/8% Senior Notes due 2005 (the Indenture is incorporated by reference to Exhibit 10.23 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.4 to the Company's Form 10-Q for the period ended March 31, 1999). 4.10 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and Norwest Bank as Trustee, relating to the 8 1/4% Senior Notes due 2018 (the Indenture is incorporated by reference to Exhibit 10.24 to the Form 10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.5 to the Company's Form 10-Q for the period ended March 31, 1999). 4.11 Indenture, dated as of July 2, 1997, among Ocean Energy, Inc., the Subsidiary Guarantors Named Therein and State Street Bank and Trust Company, as Trustee, relating to the 8 7/8% Senior Subordinated Notes due 2007 (the Indenture is incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (No. 333-32715) of Ocean Energy, Inc.; the First Supplemental Indenture, dated as of March 27, 1998, is incorporated by reference to Exhibit 10.11 to the Form 8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; the Second Supplemental Indenture, dated as of March 30, 1999 is incorporated by reference to Exhibit 4.6 to the Company's Form 10-Q for the period ended March 31, 1999).
33 Ocean Energy, Inc. EXHIBIT INDEX
10.1 Agreement and Plan of Merger, dated as of November 24, 1998 among Seagull and Ocean Energy, Inc. ("OEI"), including amendments (Agreement and Plan of Merger is incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on December 1, 1998; Amendment No. 1 is incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4 (Reg. No. 333-68679)). #10.2 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the period ended June 30, 1999). #10.3 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.4 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as amended (plan is incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.5 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as amended (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). #10.6 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements, as amended (incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K for the year ended December 31, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.7 Global Natural Resources Inc. 1989 Key Employees Stock Option Plan (the Plan is incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-31537 of Global Natural Resources Inc.; the Form of Stock Option Agreement is incorporated by reference to Exhibit 4.2 to Registration Statement No. 33-31537 of Global Natural Resources Inc.; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.8 Global Natural Resources Inc. 1992 Stock Option Plan (the Plan is incorporated by reference to Exhibit 10.47 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); the Form of Stock Option Agreement is incorporated by reference to Exhibit 10.48 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the year ended December 31, 1996). #10.9 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of agreements, as amended (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). #10.10 Seagull Energy Corporation 1993 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). #10.11 1995 Omnibus Stock Plan (the Plan is incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the year ended December 31, 1996).
34 Ocean Energy, Inc. EXHIBIT INDEX
#10.12 1998 Omnibus Stock Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). #10.13 UMC 1987 Nonqualified Stock Option Plan, as amended, (the Plan is incorporated herein by reference to Exhibit 10.3 to UMC's Form S-1 (No. 33-63532) filed with the SEC on May 28, 1993; the Third Amendment, dated November 16, 1993, is incorporated herein by reference to Exhibit 10.4 to UMC's Form 10-K for the year ended December 31, 1993; the Fourth Amendment, dated April 6, 1994, is incorporated by reference to Exhibit 10.6 to UMC's Form 10-K for the year ended December 31, 1994; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.7 to UMC's Form S-3 (No. 333-42467); the Sixth Amendment, dated March 27, 1998, and the Seventh Amendment, dated February 1, 1999, are incorporated by reference to Exhibit 10.3 to Form 10-Q for the period ended March 31, 1999). #10.14 UMC 1994 Employee Nonqualified Stock Option Plan, as amended (the Plan is incorporated by reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994; the First Amendment, dated November 16, 1994, is incorporated by reference to Exhibit 4.11.1 to UMC's Form S-8 (No. 33-86480) filed with the SEC on November 18, 1994; the Second Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.3.2 to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Third Amendment, dated November 13, 1996, is incorporated by reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fourth Amendment, dated May 29, 1997, is incorporated herein by reference to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.8 to UMC's Form S-3 (No. 333-42467) filed with the SEC on December 17, 1997; the Sixth Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.4 to Form 10-Q for the period ended March 31, 1999). #10.15 Amendment to UMC 1994 Non-Qualified Stock Option Agreement for Former Employees of General Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf (incorporated by reference to Exhibit 10.22 to UMC's Form 10-Q for the period ended September 30, 1996). #10.16 UMC 1994 Outside Directors' Nonqualified Stock Option Plan, as amended (the Plan is incorporated herein by reference to Exhibit 4.15 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994; the First Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.4.1 to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Second Amendment, dated November 13, 1996, is incorporated herein by reference to Exhibit 4.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Third Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.9 to UMC's Form S-3 (No. 333-42467); Fourth Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended March 31, 1999). #10.17 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the Board of Directors on March 29, 1994 (the Plan is incorporated by reference to Exhibit 10.10 to UMC's Form 10-K filed for the year ended December 31, 1994; the Second Amendment dated March 30, 1999 is incorporated by reference to Exhibit 10.7 to Form 10-Q for the period ended March 31, 1999). #10.18 1994 Long-Term Incentive Plan (the Plan, as amended, is incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Registration Statement on Form S-1 (No. 33-84308) of Ocean Energy, Inc. (Registration No. 0-25058); the Second Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
35 Ocean Energy, Inc. EXHIBIT INDEX
#10.19 1996 Long-Term Incentive Plan, as amended (the Plan, as amended, is incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45117) of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on January 29, 1998; the Second Amendment, dated March 27, 1998, is incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999). *#10.20 Long-Term Incentive Plan for Non-Executive Employees, as amended (the Plan, as amended, is incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45119) of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 2, incorporated by reference to Exhibit 99.2 to the Form S-8 (No. 333-49185) of Ocean Energy, Inc.; Amendment No. 3, dated as of May 20, 1998, is incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 4 is filed herewith). #10.21 1998 Long-Term Incentive Plan (incorporated by reference to Appendix E to Ocean Energy, Inc.'s Joint Proxy Statement Prospectus on Form S-4 (333-43933) filed with the SEC on January 9, 1998). #10.22 Seagull Energy Corporation Management Stability Plan (the Plan is incorporated by reference to Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1994; the First Amendment is incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the year ended December 31, 1996; the Second and Third Amendments are incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment is incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the year ended December 31, 1998; the Fifth Amendment is incorporated by reference to Exhibit 10.14 to Form 10-Q for the period ended March 31, 1999). *#10.23 Outside Directors Deferred Fee Plan, as amended and restated effective March 30, 1999. #10.24 Executive Supplemental Retirement Plan, as amended (the Plan, as amended, is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; the Third Amendment is incorporated by reference to Exhibit 10.11 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.25 Supplemental Benefit Plan, as amended, including the First Amendment thereto (the Plan, as amended, is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the year ended December 31, 1995; the Third Amendment is incorporated by reference to Exhibit 10.12 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment is incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year ended December 31, 1998). #10.26 Ocean Energy, Inc. 1999 Change of Control Severance Plan dated February 8, 1999; the First Amendment dated March 29, 1999 (incorporated by reference to Exhibit 10.17 to Form 10-Q for the period ended March 31, 1999). #10.27 Form of Indemnification Agreements among the Company and certain executive officers and directors (incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended March 31, 1999). #10.28 Employment Agreement by and between the Company and James T. Hackett, as amended (the Agreement is incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; Amendment to Employment Agreement dated November 24, 1998 is incorporated by reference to Exhibit 10.15 to Form 10-Q for the period ended March 31, 1999; Second Amendment to Employment Agreement, effective as of December 15, 1999, is incorporated by reference to Exhibit 99.2 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2000).
36 Ocean Energy, Inc. EXHIBIT INDEX
#10.29 Employment and Consulting Agreement by and between the Company and Barry J. Galt, as amended (the Agreement is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; Amendment to Employment and Consulting Agreement dated November 24, 1998 is incorporated by reference to Exhibit 10.16 to Form 10-Q for the period ended March 31, 1999; Second Amendment to Employment and Consulting Agreement is incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended June 30, 1999). #10.30 Employment Agreement, dated as of March 27, 1998, among Ocean Energy, Inc. and John B. Brock, as amended (the Agreement is incorporated by reference to Exhibit 10.1 to the Form 8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; Amendment No.1, dated as of November 24, 1998, is incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058)). #10.31 Form of Employment Agreement between the Company and Robert K. Reeves (incorporated by reference to Exhibit 10.41 to Form 10-Q for the period ended June 30, 1999). #10.32 Form of Employment Agreement between the Company and William L. Transier (incorporated by reference to Exhibit 10.5 to Form 10-Q for the period ended June 30, 1999). #10.33 Letter Agreement between the Company and James C. Flores, dated December 22, 1999 (incorporated by reference to Exhibit 99.3 to Current Report on Form 8-K filed on January 7, 2000). #10.34 Employment Agreement between the Company and James C. Flores, effective as of January 1, 2000 (incorporated by reference to Exhibit 99.4 to Current Report on Form 8-K filed on January 7, 2000). #10.35 Severance Agreement between Ocean Energy, Inc., (the "Company") a Texas corporation formerly known as Seagull Energy Corporation, and John D. Schiller Jr. ("Executive") dated September 27, 1999 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended September 30, 1999). #10.36 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James T. Hackett (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.37 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J. Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). #10.38 Severance Agreement between the Company and James T. Hackett, as amended (incorporated by reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). Amendment to Severance Agreement, effective as of December 15, 1999, incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on January 7, 2000.
37 Ocean Energy, Inc. EXHIBIT INDEX
#10.39 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Barry J. Galt (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). #10.40 Promissory Note between John D. Schiller, Jr. and Seagull (incorporated by reference to Exhibit 10.31 to Annual Report on Form 10-K for the year ended December 31, 1998). 10.41 Promissory Note between William L. Transier and Seagull (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.42 Promissory Note between Barry J. Galt and Seagull (incorporated by reference to Exhibit 10.33 to Annual Report on Form 10-K for the year ended December 31, 1998). 10.43 Purchase and Sale Agreement dated June 15, 1999, between the Company, as Seller, and SEMCO ENERGY, Inc., as Purchaser, for the sale of ENSTAR (incorporated by reference to Exhibit 10.2 to Form 10-Q for the period ended June 30, 1999). 10.44 Purchase and Sale Agreement dated July 30, 1999, between the Company as Seller, and Cross Timbers Oil Company, as Purchaser, for the sale of the Arkoma properties (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended June 30, 1999). *10.45 Natural Gas Purchase and Sale Agreement dated October 1, 1999 between the Company as Seller and Duke Energy Trading and Marketing, L.L.C., as Buyer, filed herewith. *13.0 1999 Annual Report of the Company (selected portions), filed herewith. *23.1 Consent of KPMG LLP. *23.2 Consent of Arthur Andersen LLP. *27.1 Financial Data Schedule.
38 EX-4.3 2 364 DAY AGREEMENT 364-DAY CREDIT AGREEMENT $200,000,000 CREDIT AND COMPETITIVE BID FACILITY AMONG OCEAN ENERGY, INC., CREDIT SUISSE FIRST BOSTON, Individually and as Administrative Agent, CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent, BANK OF AMERICA, N.A., Individually, and as Syndication Agent, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, Individually, and as Documentation Agent, AND THE OTHER BANKS SIGNATORY HERETO November 9, 1999 ----------------- CREDIT SUISSE FIRST BOSTON, as Lead Arranger and Sole Book Manager TABLE OF CONTENTS Section 1. Definitions and Accounting Matters.......................1 1.1 Certain Defined Terms....................................1 1.2 Accounting Terms and Determinations.....................18 1.3 Types of Loans..........................................18 1.4 Miscellaneous...........................................18 Section 2. Commitments; Competitive Bid Facility...................18 2.1 Committed Loans.........................................18 (a) Revolving Loans..................................18 (b) Term Loans.......................................19 2.2 Extension of Revolving Commitment Termination Date and Revolving Commitments............................19 2.3 Reductions and Changes of Commitments...................21 2.4 Fees....................................................22 2.5 Affiliates; Lending Offices.............................22 2.6 Several Obligations.....................................22 2.7 Repayment of Loans; Evidence of Debt....................23 2.8 Use of Proceeds.........................................23 2.9 Competitive Bid Procedure...............................23 Section 3. Borrowings, Prepayments and Selection of Interest Rates...................................25 3.1 Borrowings..............................................25 3.2 Prepayments.............................................26 3.3 Selection of Interest Rates.............................26 Section 4. Payments of Principal and Interest......................26 4.1 Repayment of Loans......................................26 4.2 Interest................................................27 Section 5. Payments; Pro Rata Treatment; Computations, Etc.........27 5.1 Payments................................................27 5.2 Pro Rata Treatment......................................28 5.3 Computations............................................28 5.4 Minimum and Maximum Amounts.............................28 5.5 Certain Actions, Notices, Etc...........................29 5.6 Non-Receipt of Funds by Administrative Agent............30 5.7 Sharing of Payments, Etc................................30 Section 6. Yield Protection and Illegality.........................31 6.1 Additional Costs........................................31 6.2 Limitation on Types of Loans............................32 6.3 Illegality..............................................33 6.4 Substitute Alternate Base Rate Loans....................33 6.5 Compensation............................................34 6.6 [Intentionally omitted].................................34 6.7 Capital Adequacy........................................34 6.8 Limitation on Additional Charges; Substitute Banks; Non-Discrimination...............................35 Section 7. Conditions Precedent....................................35 7.1 Initial Loans...........................................35 7.2 Initial and Subsequent Loan.............................37 Section 8. Representations and Warranties..........................38 8.1 Corporate Existence.....................................38 8.2 Corporate Power and Authorization.......................38 8.3 Binding Obligations.....................................38 8.4 No Legal Bar or Resultant Lien..........................39 8.5 No Consent..............................................39 8.6 Financial Condition.....................................39 8.7 Investments and Guaranties..............................39 8.8 Liabilities and Litigation..............................40 8.9 Taxes and Governmental Charges..........................40 8.10 Title to Properties.....................................40 8.11 Defaults................................................40 8.12 Location of Businesses and Offices......................40 8.13 Compliance with Law.....................................41 8.14 Margin Stock............................................41 8.15 Subsidiaries............................................41 8.16 ERISA...................................................41 8.17 Investment Company Act..................................42 8.18 Public Utility Holding Company Act......................42 8.19 Environmental Matters...................................42 8.20 Claims and Liabilities..................................43 8.21 Solvency................................................43 8.22 Year 2000...............................................43 Section 9. Affirmative Covenants...................................43 9.1 Financial Statements and Reports........................43 9.2 Officers' Certificates..................................45 9.3 Taxes and Other Liens...................................45 9.4 Maintenance.............................................46 9.5 Further Assurances......................................46 9.6 Performance of Obligations..............................46 9.7 Reimbursement of Expenses...............................46 9.8 Insurance...............................................47 9.9 Accounts and Records....................................48 9.10 Notice of Certain Events................................48 9.11 ERISA Information and Compliance........................49 Section 10. Negative Covenants......................................50 10.1 Debts, Guaranties and Other Obligations.................50 10.2 Liens...................................................53 10.3 Dividend Payment Restrictions...........................56 10.4 Mergers and Sales of Assets.............................56 10.5 Proceeds of Loans.......................................57 10.6 ERISA Compliance........................................57 10.7 Total Leverage Ratio....................................57 10.8 Senior Leverage Ratio...................................57 10.9 Minimum Net Worth.......................................57 10.10 Nature of Business......................................57 10.11 Covenants in Other Agreements...........................58 Section 11. Defaults................................................58 11.1 Events of Default.......................................58 11.2 [Intentionally omitted].................................60 11.3 [Intentionally omitted].................................60 11.4 Right of Setoff.........................................60 Section 12. Agents..................................................61 12.1 Appointment, Powers and Immunities......................61 12.2 Reliance by Agents......................................62 12.3 Defaults................................................62 12.4 Rights as a Bank........................................62 12.5 Indemnification.........................................63 12.6 Non-Reliance on Agents and Other Banks..................63 12.7 Failure to Act..........................................64 12.8 Resignation or Removal of Administrative Agent..........64 Section 13. Miscellaneous...........................................64 13.1 Waiver..................................................64 13.2 Notices.................................................65 13.3 Indemnification.........................................65 13.4 Amendments, Etc.........................................66 13.5 Successors and Assigns..................................66 13.6 Limitation of Interest..................................70 13.7 Survival................................................71 13.8 Captions................................................71 13.9 Counterparts............................................71 13.10 GOVERNING LAW; FORUM SELECTION; CONSENT TO JURISDICTION.71 13.11 WAIVER OF JURY TRIAL; PUNITIVE DAMAGES..................72 13.12 Severability............................................72 13.13 [Intentionally omitted].................................72 13.14 Confidential Information................................73 13.15 Tax Forms...............................................73 13.16 Entire Agreement........................................74 EXHIBITS: Exhibit A Unrestricted Subsidiaries Exhibit B Form of Request for Extension of Credit Exhibit C Subsidiaries (with Addresses) Exhibit D Form of Compliance Certificate Exhibit E Assignment and Acceptance Exhibit F Form of Competitive Bid Request Exhibit G Form of Notice to Banks of Competitive Bid Request Exhibit H Form of Competitive Bid Exhibit I Form of Competitive Bid Administrative Questionnaire Exhibit J Form of Certificate of Extension Exhibit K Form of Guaranty Agreement Exhibit L Disclosure Statement Exhibit M Commitments 364-DAY CREDIT AGREEMENT This 364-DAY CREDIT AGREEMENT, dated as of November 9, 1999 (the Effective Date"), is by and among OCEAN ENERGY, INC. ("the Company"), a corporation duly organized and validly existing under the laws of the State of Texas, each of the banks which is or which may from time to time become a signatory hereto (individually, a "Bank" and, collectively, the "Banks"), CREDIT SUISSE FIRST BOSTON ("CSFB"), as Administrative Agent for the Banks (in such capacity, together with its successors in such capacity, "Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks (in such capacity, the "Auction Administrative Agent"), BANK OF AMERICA, N.A. ("Bank of America"), as Syndication Agent for the Banks (in such capacity, the "Syndication Agent"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Chase"), as Documentation Agent for the Banks (in such capacity, the "Documentation Agent"). The parties hereto agree as follows: Section 1. Definitions and Accounting Matters. 1.1 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Accepting Banks" shall have the meaning set forth in Section 2.2(c). "Additional Costs" shall have the meaning ascribed to such term in Section 6.1 hereof. "Affiliate" shall mean, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person and, if such Person is an individual, any member of the immediate family (including parents, siblings, spouse, children, stepchildren, grandchildren, nephews and nieces) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Agents" shall mean the Administrative Agent, the Auction Administrative Agent, the Documentation Agent and the Syndication Agent, together with any successors in any such capacities. "Agreement" shall mean this 364-Day Credit Agreement, as such agreement from time to time may be amended, amended and restated, supplemented or otherwise modified. "Alternate Base Rate" shall mean, for any day, a rate per annum equal to the higher of (a)the Prime Rate in effect on such day or (b) 1/2 of 1% plus the Federal Funds Rate in effect for such day (rounded upwards, if necessary, to the nearest 1/16th of 1%). For purposes hereof, "Federal Funds Rate" shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by it. For purposes of this Agreement, any change in the Alternate Base Rate due to a change in the Federal Funds Rate shall be effective on the effective date of such change in the Federal Funds Rate. If for any reason Administrative Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including, without limitation, the inability or failure of Administrative Agent to obtain sufficient bids or publications in accordance with the terms hereof, the Alternate Base Rate shall be the Prime Rate until the circumstances giving rise to such inability no longer exist. For the purposes hereof, "Prime Rate" shall mean the prime rate as announced from time to time by Administrative Agent, and thereafter entered in the minutes of Administrative Agent's Loan and Discount Committee. Without notice to the Company or any other Person, the Prime Rate shall change automatically from time to time as and in the amount by which said prime rate shall fluctuate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. For purposes of this Agreement any change in the Alternate Base Rate due to a change in the Prime Rate shall be effective on the date such change in the Prime Rate is announced. "Alternate Base Rate Loans" shall mean Loans which bear interest at a rate based upon the Alternate Base Rate. "Applicable Lending Office" shall mean, for each Bank and for each Type of Loan, such office of such Bank (or of an Affiliate of such Bank) as such Bank may from time to time specify to Administrative Agent and the Company as the office by which its Loans of such Type are to be made and/or issued and maintained. "Applicable Margin" shall mean, on any day, with respect to any Alternate Base Rate Loan or Eurodollar Loan, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Rating as of the close of business on the preceding Business Day:
=============================== ================================ ============================ Alternate Base Rate Eurodollar Loan Rating Loan Applicable Margin Applicable Margin ------------------------------- -------------------------------- ---------------------------- ------------------------------- -------------------------------- ---------------------------- BBB-/Baa3 and higher 0.000% 1.075% ------------------------------- -------------------------------- ---------------------------- ------------------------------- -------------------------------- ---------------------------- BB+/Ba1 0.250% 1.250% ------------------------------- -------------------------------- ---------------------------- ------------------------------- -------------------------------- ---------------------------- BB/Ba2 0.500% 1.500% ------------------------------- -------------------------------- ---------------------------- ------------------------------- -------------------------------- ---------------------------- BB-/Ba3 and lower 0.750% 1.750% =============================== ================================ ============================
"Assignment and Acceptance" shall have the meaning set forth in Section 13.5(b). "Bankruptcy Code" shall mean the United States Bankruptcy Code, as amended, and any successor statute. "Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in Houston, Texas or New York, New York, and where such term is used in the definition of "Quarterly Date" in this Section 1.1 or if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment or Interest Period, a day which is also a day on which dealings in Dollar deposits are carried out in the relevant interbank market. "Capital Lease Obligations" shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Certificate of Extension" shall mean a certificate of Company, executed by a Responsible Officer and delivered to the Administrative Agent, in substantially the form of Exhibit J, which requests an extension of the then scheduled Revolving Commitment Termination Date pursuant to Section 2.2. "Change of Control" shall mean a change resulting when any Unrelated Person or any Unrelated Persons acting together which would constitute a Group together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own more than 35% of the aggregate voting power of all classes of Voting Stock of the Company or (ii) during any period of two consecutive years ending on or after the Effective Date, as determined as of the last day of each calendar quarter after the Effective Date, the individuals (the "Incumbent Directors") who at the beginning of such period constituted the Board of Directors of the Company (other than additions thereto or removals therefrom from time to time thereafter approved by a vote of the Board of Directors in accordance with the Company's by-laws) shall cease for any reason to constitute 51% or more of the Board of Directors of the Company. As used herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person other than the Company or any Subsidiary and other than any trust for any employee benefit plan of the Company or any Subsidiary of the Company; (d) "Related Person" of any Person shall mean any other Person owning (1) 5% or more of the outstanding common stock of such Person or (2) 5% or more of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Chapter 1D" shall mean Chapter 1D of Article 5069 of the Texas Credit Title, Title 79, Vernon's Texas Civil Statutes, as amended (formerly Article 5069-1.04, Vernon's Texas Civil Statutes, as amended). "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service. "Commitment Percentage" shall mean, as to any Bank, the percentage equivalent of a fraction the numerator of which is the amount of such Bank's Commitment and the denominator of which is the aggregate amount of the Commitments of all Banks. "Commitment" shall mean, as to any Bank, such Bank's Revolving Commitment or Term Commitment then in effect, as the case may be. "Committed Loans" shall mean the Revolving Loans and the Term Loans provided for in Section 2.1 hereof. "Competitive Bid" shall mean an offer by a Bank to make a Competitive Loan pursuant to Section 2.9 hereof. "Competitive Bid Administrative Questionnaire" shall mean a questionnaire substantially in the form of Exhibit I hereto. "Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Bank pursuant to Section 2.9 hereof, the fixed rate of interest, in each case, offered by the Bank making such Competitive Bid. "Competitive Bid Request" shall have the meaning ascribed to such term in Section 2.9 hereof. "Competitive Loans" shall mean loans provided for in Section 2.9 hereof. "Consolidated Net Worth" means, with respect to the Company and its Subsidiaries, the sum of preferred stock (if any), par value of common stock, capital in excess of par value of common stock and retained earnings, less treasury stock (if any), goodwill, cost in excess of fair value of net assets acquired and all other assets that are properly classified as intangible assets, but plus any expenses associated with the Merger occurring prior to December 31, 1999 and not in excess of $30,000,000 in the aggregate, and the amount of noncash write downs occurring on or after January 1, 1999 of long-lived assets in compliance with GAAP or SEC guidelines, and excluding any extraordinary or non-recurring net gains or losses together with any related provision for taxes on such gain or loss, realized in connection with any extraordinary or nonrecurring gains or losses, and plus or minus, as appropriate, foreign currency translation adjustments, all as determined on a consolidated basis. "Declining Banks" shall have the meaning set forth in Section 2.2(c). "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosure Statement" shall mean the Disclosure Statement delivered to Administrative Agent by the Company and attached as Exhibit L hereto. "Dividend Payment" shall mean, with respect to any Person, dividends (in cash, property or obligations) on, or other payments or distributions on account of, or the redemption of, or the setting apart of money for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any shares of any class of capital stock of such Person, or the exchange or conversion of any shares of any class of capital stock of such Person for or into any obligations of or shares of any other class of capital stock of such Person or any other property, but excluding dividends to the extent payable in, or exchanges or conversions for or into, shares of common stock of the Company or options or warrants to purchase common stock of the Company. "Dollars" and "$' shall mean lawful money of the United States of America. "EBITDAX" shall mean net earnings (excluding material gains and losses on sales and retirement of assets, non-cash write downs, charges resulting from accounting convention changes and deductions for exploration expenses) before deduction for federal and state taxes, interest expense (including capitalized interest), operating lease rentals or depreciation, depletion and amortization expense, all determined in accordance with GAAP; provided, however, for the purpose of any calculation, that (i) for the fiscal quarter ending March 31, 1998, EBITDAX shall be deemed to equal $159,765,000, (ii) for the fiscal quarter ending June 30, 1998, EBITDAX shall be deemed to equal $142,023,000, (iii) for the fiscal quarter ending September 30, 1998, EBITDAX shall be deemed to equal $107,171,000, (iv) for the fiscal quarter ending December 31, 1998, EBITDAX shall be deemed to equal $122,134,000, and (v) for the fiscal quarter ending March 31, 1999, EBITDAX shall be deemed to equal $117,296,000. "Environmental Claim" means any third party (including Governmental Authorities and employees) action, lawsuit, claim or proceeding (including claims or proceedings at common law or under the Occupational Safety and Health Act or similar laws relating to safety of employees) which seeks to impose liability for (i) noise; (ii) pollution or contamination of the air, surface water, ground water or land or the clean-up of such pollution or contamination; (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; (v) the safety or health of employees or (vi) the manufacture, processing, distribution in commerce or use of Hazardous Substances. An "Environmental Claim" includes, but is not limited to, a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit, or to adopt or amend a regulation to the extent that such a proceeding attempts to redress violations of an applicable permit, license, or regulation as alleged by any Governmental Authority. "Environmental Liabilities" includes all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including but not limited to: remedial, removal, response, abatement, investigative, monitoring, personal injury and damage to property or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit including reasonable attorneys' fees and court costs. "Environmental Permit" means any permit, license, approval or other authorization under any applicable Legal Requirement relating to pollution or protection of health or the environment, including laws, regulations or other requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants or hazardous substances or toxic materials or wastes into ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or Hazardous Substances. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules, regulations and interpretations by the Internal Revenue Service or the Department of Labor thereunder. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) which is a member of a group of which any Obligor is a member and which is under common control within the meaning of the regulations under Section 414 of the Code. "Eurodollar Base Rate" shall mean, with respect to any Interest Period for any Eurodollar Loan, the lesser of (A) the rate per annum determined by the Administrative Agent at approximately 11:00 a.m., London, England time, on the date that is two (2) Business Days prior to the beginning of the relevant Interest Period by reference to the British Bankers Association Interest Settlement Rates for deposits in U.S. dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent that has been nominated by the British Bankers Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period or (B) the Highest Lawful Rate; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, LIBOR shall be the lesser of (A) the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in U.S. dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Administrative Agent at approximately 11:00 a.m., London, England time, on the date that is two (2) Business Days prior to the beginning of such Interest Period or (B) the Highest Lawful Rate. Each determination of the Eurodollar Base Rate shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. "Eurodollar Loans" shall mean Loans the interest on which is determined on the basis of rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.1. "Eurodollar Rate" shall mean, for any Interest Period for any Eurodollar Loan, a rate per annum determined by Administrative Agent to be equal to the Eurodollar Base Rate for such Loan for such Interest Period. "Event of Default" shall have the meaning assigned to such term in Section 11.1 hereof. "Facility Amount" shall mean the aggregate amount of the Commitments (which amount shall initially be $200,000,000), as such amount may be reduced from time to time pursuant to the terms of this Agreement. "Facility Fee Percentage" shall mean, on any date, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Rating as of the close of business on the preceding Business Day: =================================== ================================= Rating Facility Fee Percentage ----------------------------------- --------------------------------- ----------------------------------- --------------------------------- BBB-/Baa3 and higher 0.175% ----------------------------------- --------------------------------- ----------------------------------- --------------------------------- BB+/Ba1 and lower 0.250% =================================== =================================
"Financial Statements" shall mean the financial statement or statements, together with the notes and schedules thereto, described or referred to in Sections 8.6 and 9.1. "GAAP" shall mean as to a particular Person, such accounting practice as, in the opinion of KPMG Peat Marwick or other independent accountants of recognized national standing retained by such Person and acceptable to the Majority Banks, conforms at the time to generally accepted accounting principles, consistently applied. Generally accepted accounting principles means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to the Banks, except only for such changes in principles and practices with which the applicable independent public accountants concur and which are disclosed to the Banks in writing, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition and results of operations of such Person. "Governmental Authority" shall mean any sovereign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any central bank, agency, instrumentality, department, commission, board, bureau, authority, court or other tribunal or quasi-governmental authority in each case whether executive, legislative, judicial, regulatory or administrative, having jurisdiction over the Company, any of its Subsidiaries, any of their respective property, Administrative Agent or any Bank. "Granting Bank" shall have the meaning specified in Section 13.5(i). "Guarantee" by any Person means any obligation, contingent or otherwise, of any such Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise, other than agreements to purchase assets, goods, securities or services at an arm's length price in the ordinary course of business) or (ii) entered into for the purpose of assuring in any other manner the holder of such Indebtedness of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor" shall mean Ocean Energy, Inc., a Louisiana corporation. "Guaranty Agreement" shall mean the guaranty agreement substantially in the form of Exhibit K, with appropriate insertions and deletions, executed or to be executed by the Guarantor, as such agreement from time to time may be amended, amended and restated, supplemented or otherwise modified. "Havre" shall mean Havre Pipeline Company, LLC, a Texas limited liability company. "Hazardous Substance" shall mean petroleum products, and any hazardous or toxic waste or substance defined or regulated as such from time to time by any law, rule, regulation or order described in the definition of "Requirements of Environmental Law". "Highest Lawful Rate" shall mean, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas law permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter 1D establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the "applicable interest rate ceiling" (as defined in Chapter 1D) for that day. "Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate and all other liquid or gaseous hydrocarbons and related minerals, in each case whether in a natural or a processed state. "Indebtedness" shall mean, as to any Person, without duplication: (i) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase or acquisition price of property or services, including, without limitation, obligations payable out of Hydrocarbon production; (ii) obligations, whether fixed or contingent, of such Person in respect of letters of credit, acceptances or similar instruments issued or accepted by banks and other financial institutions for the account of such Person or any other Person; (iii) Capital Lease Obligations of such Person; (iv) Redemption Obligations of such Person and other obligations of such Person to redeem or otherwise retire shares of capital stock of such Person or any other Person, in each case to the extent that the redemption obligations will arise prior to the stated maturity of the Obligations; (v) indebtedness of others of the type described in clause (i), (ii), (iii) or (iv) above secured by a Lien on the property of such Person, whether or not the respective obligation so secured has been assumed by such Person, to the extent of the fair market value of such property; and (vii) indebtedness of others of the type described in clause (i), (ii), (iii) or (iv) above Guaranteed by such Person, to the extent of such Guarantee. "Interest Period" shall mean: (a) With respect to any Eurodollar Loan, the period commencing on (i) the date such Loan is made or converted into or continued as a Eurodollar Loan or (ii) in the case of a roll-over to a successive Interest Period, the last day of the immediately preceding Interest Period and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 5.5 hereof, except that each such Interest Period which commences on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month shall end on the last Business Day of the appropriate subsequent calendar month. (b) With respect to any other Competitive Loan, the period commencing on the date such Loan is made and ending on the date specified in the Competitive Bid in which the offer to make the Competitive Loan was extended; provided, however, that each such period shall have a duration of not less than seven calendar days or more than 180 calendar days. Notwithstanding the foregoing: (i) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest Period for Eurodollar Loans, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (ii) with respect to each Bank, no Interest Period applicable to any Eurodollar Loan or any Competitive Loan shall extend beyond the then scheduled Stated Maturity Date applicable to each such Bank, and (iii) no Interest Period for any Eurodollar Loans shall have a duration of less than one month and, if the Interest Period therefor would otherwise be a shorter period, such Loans shall not be available hereunder. "Investments" shall mean with respect to any Person any advance, loan or other extension of credit or capital contribution (other than prepaid expenses in the ordinary course of business) to (by means of transfers of property or assets or otherwise) purchase or own any stocks, bonds, notes, debentures or other securities of, or incur contingent liability with respect to (except for the endorsement of checks in the ordinary course of business and except for the Indebtedness and Liens permitted under this Agreement), any other Person. "Legal Requirement" shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, now or hereafter in effect. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, collateral assignment, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan Documents" shall mean this Agreement, the Guaranty Agreement, all instruments, certificates and agreements now or hereafter executed or delivered to Administrative Agent or any Bank pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. "Loans" shall mean Committed Loans and Competitive Loans. "Majority Banks" shall mean (a) prior to the termination of the Commitments, Banks having greater than 50% of the aggregate amount of the Commitments and (b) after the termination of the Commitments, Banks having greater than 50% of the aggregate principal amount of the Loans. "Margin Regulations" shall mean, as applicable, Regulations U and X of the Board of Governors of the Federal Reserve System, as from time to time in effect. "Material Adverse Effect" shall mean a material adverse effect on the business, condition (financial or otherwise), operations or properties (including proven oil and gas reserves) of the Company and its Subsidiaries, taken as a whole, or on the ability of the Company to perform its material obligations under any Loan Document to which it is a party. "Merger" shall mean that certain merger among Seagull and Old Ocean Energy pursuant to that certain Agreement and Plan of Merger, dated November 24, 1998, as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of December 9, 1998, among such parties. "Net Cash Proceeds" shall mean the cash or cash equivalent proceeds received by the Company or any Subsidiary as a result of any Public Debt Transaction of Company or any Subsidiary, in each case after deducting all of the following, as applicable, (I) all brokerage commissions, legal fees, accounting fees and other fees, costs and expenses paid, reimbursed or accrued by the Company or any of its Subsidiaries and allocable to such transaction, and (ii) any reserves maintained by the Company or any of its Subsidiaries for any indemnity or other obligations in connection with such transaction. "95 Indenture" shall mean that certain Indenture among the Company (as successor by merger to Old Ocean Energy), as issuer, Guarantor (as successor by merger to UMC), as initial subsidiary guarantor, and U.S. Bank Trust National Association (formerly known as First Bank of New York, National Association), as trustee, dated as of October 30, 1995, providing for the issuance of the Company's $150,000,000 10-3/8% Senior Subordinated Notes due 2005, as amended by (i) the First Supplemental Indenture thereto dated as of November 4, 1997, (ii) the Second Supplemental Indenture thereto dated as of March 27, 1998 and (iii) the Third Supplemental Indenture thereto dated as of March 30, 1999, and all notes or securities issued under any of the foregoing, any subsidiary guarantees issued pursuant to the terms of any of the foregoing, and all amendments and supplements to the foregoing permitted hereunder. "96 Indenture" shall mean that certain indenture dated as of September 26, 1996" among the Company (as successor by merger to Old Ocean Energy), as issuer, the subsidiary guarantor named therein, and State Street Bank and Trust Company, as trustee, providing for the issuance of the Company's $160,000,000 9-3/4% Senior Subordinated Notes due 2006, as amended by (i) the First Supplemental Indenture thereto dated as of March 27, 1998 and (ii) the Second Supplemental Indenture thereto dated as of March 30, 1999, and all notes or securities issued under any of the foregoing, any subsidiary guarantees issued pursuant to the terms of any of the foregoing, and all amendments and supplements to the foregoing permitted hereunder. "97 Indenture" shall mean that certain Indenture dated as of July 2, 1997 among the Company (as successor by merger to Old Ocean Energy), as issuer, the subsidiary guarantor named therein, and State Street Bank and Trust Company, as trustee, providing for the issuance of the Company's $200,000,000 8-7/8% Senior Subordinated Notes due 2007, as amended by (i) the First Supplemental Indenture thereto dated as of March 27, 1998 and (ii) the Second Supplemental Indenture thereto dated as of March 30, 1999, and all notes or securities issued under any of the foregoing, any subsidiary guarantees issued pursuant to the terms of any of the foregoing, and all amendments and supplements to the foregoing permitted hereunder. "98 Senior Subordinated Indenture" shall mean that certain Indenture dated as of July 8, 1998 among the Company (as successor by merger to Old Ocean Energy), as issuer, the subsidiary guarantor named therein, U.S. Bank Trust National Association, as trustee, providing for the issuance of the Company's $250,000,000 8-3/8% Senior Subordinated Notes due 2008, as amended by the First Supplemental Indenture thereto dated as of March 30, 1999, and all notes or securities issued under any of the foregoing, any subsidiary guarantees issued pursuant to the terms of any of the foregoing, and all amendments and supplements to the foregoing permitted hereunder. "Obligations" shall mean, as at any date of determination thereof, the sum of the following: (i) the aggregate principal amount of Loans outstanding hereunder plus (ii) all other liabilities, obligations and indebtedness of the Company, any Subsidiary of the Company or any other Obligor under any Loan Document. "Obligor" shall mean the Company and the Guarantor. "Offer to Purchase" shall have the meaning set forth in Section 7.1(j). "Offer Agreement" shall have the meaning set forth in Section 7.1(j). "Old Ocean Energy" shall mean Ocean Energy, Inc., a Delaware corporation. "Organizational Documents" shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture; with respect to a limited liability company, the certificate of formation and operating agreement (or comparable documents) of such limited liability company; and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof. "Original Revolving Commitment Termination Date" means November 7, 2000. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, a corporation, a company, a bank, a voluntary association, a partnership, a trust, an unincorporated organization, any Governmental Authority or any other entity. "Plan" shall mean an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by the Company or any ERISA Affiliate for employees of the Company or any ERISA Affiliate or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Company or any ERISA Affiliate is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount payable by the Company under this Agreement or any other Loan Document which is not paid when due (whether at stated maturity, by acceleration, or otherwise), a rate per annum during the period commencing on the due date until such amount is paid in full equal to the lesser of (a) the sum of (x) with respect to Eurodollar Loans, 2% per annum plus the applicable Eurodollar Rate then in effect plus the Applicable Margin for Eurodollar Loans until the expiration of the applicable Interest Period, (y) with respect to Competitive Loans, 2% per annum plus the applicable fixed rate offered by the applicable Bank and accepted by the Company in accordance with Section 2.9 hereof, and (z) with respect to Alternate Base Rate Loans and with respect to Eurodollar Loans after the expiration of the applicable Interest Period (and also with respect to indebtedness other than Loans), 2% plus the Alternate Base Rate as in effect from time to time plus the Applicable Margin for Alternate Base Rate Loans or (b) the Highest Lawful Rate. "Principal Office" shall mean the principal office of Administrative Agent, presently located at 11 Madison Avenue, 20th Floor, New York, New York 10010-3629, Attention: Julia Kingsbury, Phone: (212) 325-9937, Fax: (212) 325-8304. "Public Debt Transaction" shall have the meaning set forth in Section 2.3(a)(ii). "Quarterly Dates" shall mean the last day of each March, June, September and December, provided that, if any such date is not a Business Day, then the relevant Quarterly Date shall be the next succeeding Business Day. "Rating" shall mean the senior unsecured debt rating for the Company publicly announced by Standard & Poor's Ratings Group or Moody's Investors Service, Inc., or their respective successors. In the event the ratings are not equivalent, the higher rating shall be treated as the "rating" hereunder; provided, that if such ratings differ by more than one (1) level, the Rating shall be the average, rounded upwards, of the two ratings. In the event that there is no Rating published by either Standard & Poor's Ratings Group or Moody's Investors Service, Inc. or their respective successors, then the Rating shall be deemed to be BB-/Ba3. "Redemption Obligations" shall mean with respect to any Person all mandatory redemption obligations of such Person with respect to preferred stock or other equity securities issued by such Person or put rights in favor of the holder of such preferred stock or other equity securities, to the extent that such redemption obligations or put rights will arise prior to the stated maturity of the Obligations. Notwithstanding the foregoing, customary redemption obligations and put rights associated with a Change of Control or sale of assets shall not constitute Redemption Obligations. Reference Banks" shall mean CSFB and such other Banks (up to a maximum of two (2) additional Banks) as the Company, with the approval of Administrative Agent (which approval shall not be unreasonably withheld), may from time to time designate. "Register" shall have the meaning set forth in Section 13.5(d). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time and any successor or other regulation relating to reserve requirements. "Regulatory Change" shall mean, with respect to any Bank, any change on or after the date of this Agreement in Legal Requirements (including Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of banks including such Bank under any Legal Requirements (whether or not having the force of law) by any Governmental Authority. "Relevant Party" shall mean the Company and each other party to any of the Loan Documents other than (a) the Banks and (b) the Agents. "Replacement Banks" shall have the meaning set forth in Section 2.2(c)(ii). "Request for Extension of Credit" shall mean a request for extension of credit duly executed by any Responsible Officer of the Company, appropriately completed and substantially in the form of Exhibit B attached hereto. "Requirements of Environmental Law" means all requirements imposed by any law (including for example and without limitation The Resource Conservation and Recovery Act and The Comprehensive Environmental Response, Compensation, and Liability Act), rule, regulation, or order of any federal, state or local executive, legislative, judicial, regulatory or administrative agency, board or authority in effect at the applicable time which relate to (i) noise; (ii) pollution, protection or clean-up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; (v) the safety or health of employees or (vi) regulation of the manufacture, processing, distribution in commerce, use, discharge or storage of Hazardous Substances. "Reserve Requirement" shall mean, for any Eurodollar Loan for any Interest Period therefor, the stated maximum rate for all reserves (including any marginal, supplemental or emergency reserves) required to be maintained during such Interest Period under Regulation D by any member bank of the Federal Reserve System or any Bank against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect and include any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.1 or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. Any determination by Administrative Agent of the Reserve Requirement shall be conclusive and binding, absent manifest error, and may be made using any reasonable averaging and attribution method. "Responsible Officer" shall mean the chairman of the board, the president, any executive vice president, the vice president of finance and administration, the chief executive officer or the chief operating officer or any equivalent officer (regardless of title) and in the case of the Company, any other vice president, and in respect of financial or accounting matters, shall also include the chief financial officer, the treasurer and the controller or any equivalent officer (regardless of title). "Restricted Subsidiary" shall mean each Subsidiary of the Company that, at the particular time in question, (i) owns directly or indirectly any material assets or any interest in any other Restricted Subsidiary and (ii) has been designated as a Restricted Subsidiary by the Company or has not been designated as an Unrestricted Subsidiary by the Company either (a) on Exhibit A attached hereto or (b) in accordance with the terms and provisions of this Agreement. The Unrestricted Subsidiaries on the Effective Date are listed on Exhibit A attached hereto and each other Subsidiary of Company as of the Effective Date shall be a Restricted Subsidiary. A Restricted Subsidiary shall remain such (even if it no longer owns directly or indirectly any interest in any of the material assets or any interest in any other Restricted Subsidiary) until designated as an Unrestricted Subsidiary in accordance with the terms and provisions of this Agreement. "Revolving Commitment" shall mean, as to any Bank, the obligation, if any, of such Bank to make Revolving Loans in an aggregate principal amount at any one time outstanding up to but not exceeding the amount, if any, set forth opposite such Bank's name on Exhibit M under the caption "Commitment" (as the same may be reduced from time to time pursuant to Sections 2.2(c), 2.3 and 6.8(c)). "Revolving Commitment Termination Date" shall mean the earliest of: (a) the Original Revolving Commitment Termination Date, or such other later date as may result from any extension requested by Company and consented to by the Banks pursuant to Section 2.2; (b) the date on which all of the Commitments are terminated in full or reduced to zero pursuant to Section 2.3; and (c) the date on which the Commitments otherwise are terminated in full and reduced to zero pursuant to the terms of Section 11.1. Upon the occurrence of any event described in clause (b) or (c), the Revolving Commitments shall terminate automatically and without any further action. "Revolving Credit Agreement" shall mean that certain Revolving Credit Agreement, dated as of March 30, 1999, by and among the Company, each of the banks which is or which may from time to time become a signatory thereto, Bank of America National Trust and Savings Association, as Documentation Agent, Bank One, Texas, N.A., as Syndication Agent, Societe Generale, Southwest Agency and Bank of Montreal, as Managing Agents for the Banks, The Chase Manhattan Bank, as Auction Administrative Agent for the Banks, and Chase Bank of Texas, National Association, as Administrative Agent, as such agreement from time to time may be amended, amended and restated, supplemented or otherwise modified. "Revolving Loans" shall mean the loans provided for in Section 2.1(a) hereof. "Seagull" shall mean Seagull Energy Corporation, a Texas corporation. "Senior Debt" shall mean Total Debt, other than Subordinated Indebtedness. "Senior Leverage Ratio" shall mean the ratio of (a) Senior Debt to (b) EBITDAX of the Company and its Restricted Subsidiaries on a consolidated basis for the last four rolling fiscal quarters. "SPC" shall have the meaning specified in Section 13.5(i). 'Stated Maturity Date" shall mean the date occurring 364 days after the Term Commitment Termination Date. "Subordinated Indebtedness" shall mean all unsecured Indebtedness of the Company which is subordinated in right of payment to the payment in full of all Obligations. "Subsidiary" shall mean, with respect to any Person (the "parent"), (a) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the parent or one or more of the Subsidiaries of the parent or by the parent and one or more of the Subsidiaries of the parent, and (b) any partnership, limited partnership, joint venture or other form of entity, the majority of the legal or beneficial ownership of which is at the time directly or indirectly owned or controlled by the parent or one or more of the Subsidiaries of the parent or by the parent and one or more of the Subsidiaries of the parent. "Tangible Net Worth" shall mean with respect to any Person the sum of the redemption price of preferred stock, par value of common stock, capital in excess of par value of common stock (additional paid-in capital) and retained earnings, less treasury stock, goodwill, deferred development costs, franchises, licenses, patents, trademarks and copyrights and all other assets which are properly classified as intangible assets in accordance with GAAP and any Redemption Obligations. "Term Commitment" shall mean, as to any Bank, such Bank's obligation to make Term Loans pursuant to Section 2.1(b) of this Agreement in an aggregate principal amount equal to the lesser of (i) the aggregate Revolving Loans outstanding to all Banks as of the Revolving Commitment Termination Date or (ii) the Revolving Commitments in effect as of the Revolving Commitment Termination Date. "Term Commitment Termination Date" shall mean the earlier of (a) the Business Day after the Revolving Commitment Termination Date; and (b) the date on which the Commitments otherwise are terminated in full and reduced to zero pursuant to the terms of Section 11.1. Upon the occurrence of any event described in clause (b), the Term Commitments shall terminate automatically and without any further action. "Term Loans" shall mean the loans provided for in Section 2.1(b) hereof. "Total Debt" shall mean all Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis, but excluding (i) Indebtedness of the Company or any Restricted Subsidiary of the types described in Section 10.1, part (i), clauses (c) through (g), (j), (k) and (l), (ii) fifty percent (50%) of the amount of (A) obligations in respect of letters of credit or similar instruments not supporting indebtedness for borrowed money and (B) obligations in connection with bank guarantees, bonds, surety or similar obligations required or requested by Governmental Authorities in connection with the usual and customary operation of and the obtaining of oil and gas properties, and (iii) Indebtedness of the Company or any Restricted Subsidiary of the types described in Section 10.1, part (i), clause (h), up to an aggregate amount of $10,000,000. "Total Leverage Ratio" shall mean the ratio of (a) Total Debt to (b) EBITDAX of the Company and its Restricted Subsidiaries on a consolidated basis for the last four rolling fiscal quarters. "Type" shall have the meaning assigned to such term in Section 1.3 hereof. "Unfunded Liabilities" shall mean, with respect to any Plan, at any time, the amount (if any) by which (a) the present value of all benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent actuarial valuation report for such Plan, but only to the extent that such excess represents a potential liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA. "United States" or "U.S." shall mean the United States of America, its fifty states and the District of Columbia. "Unrestricted Subsidiary" shall mean each Subsidiary of the Company which is (i) designated as an Unrestricted Subsidiary on Exhibit A attached hereto or (ii) designated as an Unrestricted Subsidiary by the Company at any time after the Effective Date and either (A) such Subsidiary has a Tangible Net Worth of less than $25,000,000 or (B) with the consent of the Administrative Agent and the Majority Banks. An Unrestricted Subsidiary shall remain such until designated as a Restricted Subsidiary in accordance with the terms and provisions of this Agreement. 1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be delivered hereunder shall be prepared, in accordance with GAAP. To enable the ready determination of compliance with the provisions hereof, the Company will not change from December 31 in each year the date on which its fiscal year ends, nor from March 31, June 30 and September 30 the dates on which the first three fiscal quarters in each fiscal year end. 1.3 Types of Loans. Loans hereunder are distinguished by "Type". The "Type" of a Loan refers to the determination whether such Loan is a Eurodollar Loan, a Competitive Loan or an Alternate Base Rate Loan. 1.4 Miscellaneous. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Any reference to Sections shall refer to Sections of this Agreement. Section 2. Commitments; Competitive Bid Facility. 2.1 Committed Loans. From time to time on or after the date hereof on the terms and subject to the conditions of this Agreement, each Bank shall make Committed Loans described in this Section 2.1. (a) Revolving Loans. From time to time on or after the date hereof and prior to the Revolving Commitment Termination Date, each Bank shall make Revolving Loans under this Section to the Company in an aggregate principal amount at any one time outstanding up to but not exceeding such Bank's Commitment Percentage of the amount by which the Facility Amount exceeds the aggregate unpaid principal balance of all Competitive Loans from time to time outstanding. Subject to the conditions herein, any such Revolving Loan repaid prior to the Revolving Commitment Termination Date may be reborrowed pursuant to the terms of this Agreement. (b) Term Loans. On the Revolving Commitment Termination Date (unless such date shall occur as a result of clause (c) of the definition thereof), each Bank will make one Term Loan to the Company equal to such Bank's Commitment Percentage of the Term Commitment. No amounts paid or prepaid with respect to the Term Loan may be reborrowed. Eurodollar Loans and Competitive Loans for which the Interest Period shall not have terminated as of the Revolving Commitment Termination Date shall be continued as Eurodollar Loans or Competitive Loans, as the case may be, for the applicable Interest Period and Alternate Base Rate Loans shall be continued as Alternate Base Rate Loans after the Revolving Commitment Termination Date, unless the Company shall have elected otherwise by delivery of a Request for Extension of Credit. Any principal repayments received on the Revolving Commitment Termination Date for Revolving Loans not converted into Term Loans shall be applied first to Alternate Base Rate Loans and, after Alternate Base Rate Loans have been paid in full, to either Eurodollar Loans and Competitive Loans, unless the Company shall have otherwise instructed the Administrative Agent in writing. Upon a Bank making such Term Loan, its Term Commitment shall terminate and it shall have no further Commitment to make Loans. 2.2 Extension of Revolving Commitment Termination Date and Revolving Commitments. (a) Subject to the other provisions of this Agreement, the Revolving Commitments shall be effective for an initial period from the date hereof to the Original Revolving Commitment Termination Date; provided that the Revolving Commitment Termination Date, and concomitantly the Revolving Commitments, may be extended for successive 364 day periods expiring on the date which is 364 days from the then scheduled Revolving Commitment Termination Date. If Company shall request in a Certificate of Extension delivered to the Administrative Agent not more than 60 days and not less than 45 days prior to the Revolving Commitment Termination Date that the Revolving Commitment Termination Date be extended for 364 days from the then scheduled Revolving Credit Termination Date, then the Administrative Agent shall promptly notify each Bank of such request and each Bank shall notify the Administrative Agent, no later than 30 days prior to the Revolving Credit Termination Date, whether such Bank, in the exercise of its sole discretion, will extend the Revolving Commitment Termination Date for such 364 day period. Any Bank which shall not timely notify the Administrative Agent whether it will extend the Revolving Commitment Termination Date shall be deemed to not have agreed to extend the Revolving Commitment Termination Date. No Bank shall have any obligation whatsoever to agree to extend the Revolving Commitment Termination Date. Any agreement to extend the Revolving Commitment Termination Date by any Bank shall be irrevocable, except as provided in clause (c) of this Section. (b) If all Banks notify the Administrative Agent pursuant to clause (a) of this Section of their agreement to extend the Revolving Commitment Termination Date, then the Administrative Agent shall so notify each Bank and Company, and such extension shall be effective without other or further action by any party hereto for such additional 364 day period. (c) If Banks constituting at least the Majority Banks approve the extension of the then scheduled Revolving Commitment Termination Date (such Banks agreeing to extend the Revolving Commitment Termination Date herein called the "Accepting Banks") and if one or more Banks shall notify, or be deemed to notify, the Administrative Agent pursuant to clause (a) of this Section that they will not extend the then scheduled Revolving Commitment Termination Date (such Banks herein called the "Declining Banks"), then (A) the Administrative Agent shall promptly so notify Company and the Accepting Banks, (B) the Accepting Banks shall, upon Company's election to extend the then scheduled Revolving Commitment Termination Date in accordance with clause (i) or (ii) below, extend the then scheduled Revolving Commitment Termination Date and (C) Company shall, pursuant to a notice delivered to the Administrative Agent, the Accepting Banks and the Declining Banks, no later than the tenth (10th) day following the date by which each Bank is required, pursuant to clause (a) of this Section, to approve or disapprove the requested extension of the Revolving Commitment Termination Date, either: (i) elect to extend the Revolving Commitment Termination Date with respect to the Accepting Banks and direct the Declining Banks to terminate their Revolving Commitments, which termination shall become effective on the date which would have been the Revolving Commitment Termination Date except for the operation of this Section. On such date, (x) Company shall deliver a notice of the effectiveness of the termination of the Revolving Commitments of such Declining Banks to the Declining Banks with a copy to the Administrative Agent and (y) Company shall request a Term Loan from such Declining Banks (other than Declining Banks that are replaced by Replacement Banks pursuant to paragraph (ii) below) pursuant to the terms of Section 2.1(b) (and each such Declining Bank shall make such Term Loan), and (z) upon the payment in full in immediately available funds of all Obligations of Company owing to such Declining Banks in connection with such Term Loans on the Stated Maturity Date in effect at the time each such Declining Bank made its election to be a Declining Bank (i.e., 364 days after the date of such Term Loan), including any amounts required pursuant to Section 6, the Declining Banks shall each cease to be Banks hereunder for all purposes, other than for purposes of Sections 6 and 13, and shall cease to have any obligations or any Commitment hereunder, other than to the Agents pursuant to Section 12, and the Administrative Agent shall promptly notify the Accepting Banks and Company of the new Revolving Commitment Termination Date applicable to such Accepting Banks; or (ii) elect to extend the Revolving Commitment Termination Date with respect to the Accepting Banks and, prior to or no later than the then scheduled Revolving Commitment Termination Date, (A) to replace one or more of the Declining Banks with another lender or lenders reasonably acceptable to the Administrative Agent (such lenders herein called the "Replacement Banks") and (B) Company shall pay in full in immediately available funds all Obligations of Company owing to any Declining Bank that is not being replaced pursuant to this paragraph (other than Obligations being purchased by the Replacement Banks); provided that (x) the Replacement Bank or Replacement Banks shall purchase, and the Declining Bank or Declining Banks shall sell, the Declining Bank's or Declining Banks' rights and obligations hereunder without recourse or expense to, or warranty by, such Declining Bank or Declining Banks being replaced for a purchase price equal to the aggregate outstanding principal amount of the Obligations payable to such Declining Bank or Declining Banks plus any accrued but unpaid interest on such Obligations and accrued but unpaid fees or other amounts owing in respect of such Declining Bank's or Declining Banks' Loans and Commitments hereunder, and (y) upon the payment of such amounts referred to in clause (x) and the execution of an Assignment and Acceptance agreement by the Replacement Bank or Replacement Banks and the Declining Bank or Declining Banks (which each such Declining Bank agrees to execute promptly), the Replacement Bank or Replacement Banks shall each constitute a Bank hereunder and the Declining Bank or Declining Banks being so replaced shall no longer constitute a Bank (other than for purposes of Sections 6 and 13), and shall no longer have any obligations hereunder, other than to the Agents pursuant to Section 12; or (iii) elect to revoke and cancel the extension request in such Certificate of Extension by giving notice of such revocation and cancellation to the Administrative Agent (which shall promptly notify the Banks thereof) no later than the tenth (10th) day following the date by which each Bank is required, pursuant to clause (a) of this Section, to approve or disapprove the requested extension of the Revolving Commitment Termination Date, and concomitantly the total Revolving Commitments. If Company fails to timely provide the election notice referred to in this clause (c), Company shall be deemed to have revoked and canceled the extension request in the Certificate of Extension and to have elected not to extend the Revolving Commitment Termination Date. 2.3 Reductions and Changes of Commitments. (a) Mandatory. (i) On the Stated Maturity Date, all Commitments shall be terminated in their entirety unless terminated at an earlier date pursuant to Section 11.1. (ii) Upon the consummation of any offering of debt securities pursuant to a registered offering or an exempt offering under Rule 144A ("Public Debt Transaction") of the Company or any of its Subsidiaries, (i) the Revolving Commitment or the Term Commitment, as applicable, automatically and permanently shall be reduced by, and (ii) the Commitment of each Bank automatically and permanently shall be reduced on a pro-rata basis by, an amount equal to Net Cash Proceeds in the aggregate for such Public Debt Transaction, and the Company shall make mandatory prepayments on the Loans on or within ten (10) days after receipt of such Net Cash Proceeds to the extent necessary so that after giving effect to such mandatory prepayments the sum of all Loans (including any Loan to be made but not yet made pursuant to a Request for Extension of Credit) outstanding at any time would not exceed the total Commitments. (b) Optional. The Company shall have the right to terminate or reduce the unused portion of the Commitments at any time or from time to time, provided that: (i) the Company shall give notice of each such termination or reduction to Administrative Agent as provided in Section 5.5 hereof and (ii) each such partial reduction shall be permanent and in an aggregate amount equal to an integral multiple of $1,000,000 which equals or exceeds $5,000,000. (c) No Reinstatement. Any reduction in or termination of the Commitments may not be reinstated without the approval of Administrative Agent and any Bank whose Commitment (or the applicable part thereof) is to be so reinstated. 2.4 Fees. (a) The Company shall pay to Administrative Agent for the account of each Bank a facility fee accruing from the Effective Date, computed for each day at a rate per annum equal to the Facility Fee Percentage times such Bank's pro rata share (based on its respective Commitment) of the Facility Amount on such day. Such facility fees shall be payable on the Quarterly Dates and on the earlier of the date the Commitments are terminated in their entirety or the Stated Maturity Date. (b) The Company agrees to pay to Administrative Agent for the account of each Bank the fees provided for in the separate letter agreement executed by and between Administrative Agent and the Company. 2.5 Affiliates; Lending Offices. (a) Any Bank may, if it so elects, fulfill any obligation to make a Eurodollar Loan or Competitive Loan by causing a branch, foreign or otherwise, or Affiliate of such Bank to make such Loan and may transfer and carry such Loan at, to or for the account of any branch office or Affiliate of such Bank; provided that, in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Bank and the obligation of the Company to repay such Loan shall nevertheless be to such Bank and shall be deemed to be held by such Bank and, to the extent of such Loan, to have been made for the account of such branch or Affiliate. (b) Notwithstanding any provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its funding of all or any part of its Loans hereunder in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Bank had actually funded and maintained each Eurodollar Loan during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. 2.6 Several Obligations. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but neither Administrative Agent nor any Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank. 2.7 Repayment of Loans; Evidence of Debt. (a) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Company to such Bank resulting from each Loan made by such Bank, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder. (b) Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Company to each Bank hereunder and (iii) the amount of any sum received by Administrative Agent hereunder for the account of the Banks and each Bank's share thereof. (c) The entries made in the accounts maintained pursuant to paragraph (a) or (b) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Bank or Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of any Obligor to repay the Loans or other Obligations in accordance with the terms of this Agreement or the other Loan Documents. (d) Any Bank may request that Loans made by it be evidenced by a promissory note. In such event, Company shall prepare, execute and deliver to such Bank promissory notes payable to the order of such Bank (or, if requested by such Bank, to such Bank and its registered assigns and in a form approved by Administrative Agent). Thereafter, the Loans evidenced by such promissory notes and interest thereon may (including after assignment pursuant to Section 13.5) be represented by one or more promissory notes in such form payable to the order of the payee named therein. 2.8 Use of Proceeds. The proceeds of the Loans shall be used for general corporate purposes. 2.9 Competitive Bid Procedure. (a) In order to request Competitive Bids, the Company shall hand deliver, telex or telecopy to Auction Administrative Agent a duly completed request substantially in the form of Exhibit F, with the blanks appropriately completed (a "Competitive Bid Request"), to be received by Auction Administrative Agent not later than noon, New York, New York time, five (5) Business Days before the date specified for a proposed Competitive Loan. No Alternate Base Rate Loan shall be requested in, or, except pursuant to Section 6, made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit F may be rejected at Auction Administrative Agent's sole discretion, and Auction Administrative Agent shall promptly notify the Company of such rejection by telecopier. Each Competitive Bid Request shall in each case refer to this Agreement and specify (x) the date of such Competitive Loans (which shall be a Business Day) and the aggregate principal amount thereof (which shall not be less than $25,000,000 or greater than the unused portion of the Facility Amount on such date and shall be an integral multiple of $5,000,000) and (y) the Interest Period with respect thereto (which may not end after the termination of the then scheduled Stated Maturity Date). Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, Auction Administrative Agent shall invite by telecopier (in substantially the form set forth in Exhibit G hereto) the Banks to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to such Competitive Bid Request. Notwithstanding the foregoing, Auction Administrative Agent shall have no obligation to invite any Bank to make a Competitive Bid pursuant to this Section until such Bank has delivered a properly completed Competitive Bid Administrative Questionnaire to Auction Administrative Agent. (b) Each Bank may, in its sole discretion, make one or more Competitive Bids to the Company responsive to each Competitive Bid Request. Each Competitive Bid by a Bank must be received by Auction Administrative Agent via telecopier, in the form of Exhibit H hereto, not later than noon, New York, New York time, four (4) Business Days before the date specified for a proposed Competitive Loan. Competitive Bids that do not conform substantially to the format of Exhibit H may be rejected by Auction Administrative Agent after conferring with, and upon the instruction of, the Company, and Auction Administrative Agent shall notify the Bank of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and (x) specify the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire aggregate principal amount of the Competitive Loan requested by the Company) of the Competitive Loan that the Bank is willing to make to the Company, (y) specify the Competitive Bid Rate at which the Bank is prepared to make the Competitive Loan and (z) confirm the Interest Period with respect thereto specified by the Company in its Competitive Bid Request. A Competitive Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable. (c Auction Administrative Agent shall, by 3:00 p.m., New York, New York time, four (4) Business Days before the date specified for a proposed Competitive Loan, notify the Company by telecopier of all the Competitive Bids made, the Competitive Bid Rate and the maximum principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Bank that made each bid. Auction Administrative Agent shall send a copy of all Competitive Bids to the Company for its records as soon as practicable after completion of the bidding process set forth in this Section 2.9. (d The Company may in its sole and absolute discretion, subject only to the provisions of this Section 2.9(d), accept or reject any Competitive Bid referred to in Section 2.9(c); provided, however, that the aggregate amount of the Competitive Bids so accepted by the Company may not exceed the principal amount of the Competitive Loan requested by the Company. The Company shall notify Auction Administrative Agent by telecopier whether and to what extent it has decided to accept or reject any or all of the bids referred to in Section 2.9(c), not later than noon, New York, New York time, three (3) Business Days before the date specified for a proposed Competitive Loan; provided, however, that (w) the failure by the Company to give such notice shall be deemed to be a rejection of all the bids referred to in Section 2.9(c) and (x) no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000. Notwithstanding the foregoing, if the Company accepts more than one bid made in response to a Competitive Bid Request and the available principal amount of Competitive Loans to be allocated among the Banks is not sufficient to enable Competitive Loans to be allocated to each Bank in a minimum principal amount of $5,000,000 and in integral multiples of $1,000,000, then the Company shall select the Banks to be allocated such Competitive Loans and shall round allocations up or down to the next higher or lower multiple of $1,000,000 as it shall deem appropriate. In addition, the Company shall be permitted under the foregoing procedures to accept a bid or bids in a principal amount of less than $5,000,000 (i) in order to enable the Company to accept bids equal to (but not in excess of) the principal amount of the Competitive Loan requested by the Company or (ii) in order to enable the Company to accept all remaining bids, or all remaining bids at a particular Competitive Bid Rate. A notice given by Company pursuant to this paragraph (d) shall be irrevocable. (e Auction Administrative Agent shall promptly notify each bidding Bank whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telex or telecopier sent by Auction Administrative Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. After completing the notifications referred to in the immediately preceding sentence, Auction Administrative Agent shall (i) notify Administrative Agent of each Competitive Bid that has been accepted, the amount thereof and the Competitive Bid Rate therefor and (ii) notify each Bank of the aggregate principal amount of all Competitive Bids accepted. (f No Competitive Loan shall be made within five (5) Business Days of the date of any other Competitive Loan, unless the Company and Auction Administrative Agent shall mutually agree otherwise. (g If Administrative Agent shall at any time have a Commitment hereunder and shall elect to submit a Competitive Bid in its capacity as a Bank, it shall submit such bid directly to the Company one quarter of an hour earlier than the latest time at which the other Banks are required to submit their bids to Auction Administrative Agent pursuant to paragraph (b) above. (h All notices required by this Section 2.9 shall be made in accordance with Section 13.2 and the Competitive Bid Administrative Questionnaire most recently placed on file by each Bank with Auction Administrative Agent. Section 3. Borrowings, Prepayments and Selection of Interest Rates. 3.1 Borrowings. The Company shall give Administrative Agent notice of each borrowing to be made hereunder as provided in Sections 2.9 and 5.5 hereof. Not later than 3:00 p.m. New York, New York time on the date specified for each such borrowing hereunder, each Bank shall make available the amount of the Loan, if any, to be made by it on such date to Administrative Agent, at its Principal Office, in immediately available funds, for the account of the Company. The amount so received by Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account designated in writing by the Company. 3.2 Prepayments. (a Optional Prepayments. Subject to the provisions of Sections 4, 5 and 6, the Company shall have the right to prepay, on any Business Day, in whole or in part, without the payment of any penalty or fee, Loans at any time or from time to time, provided that, the Company shall give Administrative Agent notice of each such prepayment as provided in Section 5.5 hereof. Neither Eurodollar Loans nor Competitive Loans may be otherwise prepaid unless prepayment is accompanied by payment of all compensation required by Section 6. (b Mandatory Prepayments. Subject to Section 2.3(a)(ii), the Company shall from time to time on demand by Administrative Agent prepay the Loans in such amounts as shall be necessary so that at all times the aggregate outstanding principal amount of all Loans shall not be in excess of the aggregate amount of the Commitments, as reduced from time to time pursuant to Section 2.3 hereof. 3.3 Selection of Interest Rates. Subject to the terms and provisions of this Agreement, the Company shall have the right either to convert any Loan (in whole or in part) into a Loan of another Type (provided that no such conversion of Eurodollar Loans or Competitive Loans shall be permitted other than on the last day of an Interest Period applicable thereto) or to continue such Loan (in whole or in part) as a Loan of the same Type. In the event the Company fails to so give such notice prior to the end of the applicable Interest Period with respect to any Eurodollar Loan or Competitive Loan, such Loan shall become an Alternate Base Rate Loan on the last day of such Interest Period. Notwithstanding any other provision of this Agreement, if a Default shall have occurred and be continuing on the last day of an Interest Period applicable to a Eurodollar Loan or Competitive Loan, such Loan shall automatically be converted to an Alternate Base Rate Loan. Section 4. Payments of Principal and Interest. 4.1 Repayment of Loans. The Company hereby unconditionally promises to pay to Administrative Agent for the account of each Bank (a) each Loan in full at the end of the Interest Period applicable to such Loan unless such Loan is continued or converted in accordance with the terms hereof, and (b) the then unpaid principal amount of all outstanding Loans on the then scheduled Stated Maturity Date. 4.2 Interest. (a Subject to Section 13.6 hereof, the Company will pay to Administrative Agent for the account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period commencing on the date of such Loan to but excluding the date such Loan shall be paid in full, at the lesser of (I) the following rates per annum: (i0 if such Loan is an Alternate Base Rate Loan, the Alternate Base Rate plus the Applicable Margin, (ii0 if such Loan is a Eurodollar Loan, the applicable Eurodollar Rate plus the Applicable Margin, and (iii0 if such Loan is a Competitive Loan, the applicable fixed rate offered by the applicable Bank and accepted by the Company in accordance with Section 2.9 hereof, or (II) the Highest Lawful Rate. (b Notwithstanding any of the foregoing but subject to Section 13.6 hereof, the Company will pay to Administrative Agent for the account of each Bank interest at the applicable Post-Default Rate on any principal of any Loan made by such Bank and on any other amount payable by the Company hereunder to or for the account of such Bank (but, if such amount is interest, only to the extent legally allowed), which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full. (c Accrued interest on each Alternate Base Rate Loan shall be payable on each Quarterly Date. Accrued interest on each Eurodollar Loan or Competitive Bid Loan shall be payable on the last day of each Interest Period for such Loan (and, if such Interest Period exceeds three months' duration, on the last day of each three month period, commencing on the first three month anniversary of such Interest Period). Notwithstanding the foregoing, (i) accrued interest payable at the Post-Default Rate shall be due and payable from time to time on demand of Administrative Agent or the Majority Banks (through Administrative Agent) and (ii) accrued interest on any amount prepaid or converted pursuant to Section 6 hereof shall be paid on the amount so prepaid or converted. Section 5. Payments; Pro Rata Treatment; Computations, Etc. 5.1 Payments. (a Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company or any other Obligor hereunder shall be made in Dollars, in immediately available funds, to Administrative Agent at the Principal Office (or in the case of a successor Administrative Agent, at the principal office of such successor Administrative Agent in the United States), not later than noon, New York, New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b The Company or such other Obligor shall, at the time of making each payment hereunder, specify to Administrative Agent the Loans or other amounts payable by the Company or such Obligor hereunder or thereunder to which such payment is to be applied. Each payment received by Administrative Agent hereunder or any other Loan Document for the account of a Bank shall be paid promptly to such Bank, in immediately available funds for the account of such Bank's Applicable Lending Office. (c If the due date of any payment hereunder or any other Loan Document falls on a day which is not a Business Day, the due date for such payment (subject to the definition of Interest Period) shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 5.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be made ratably from the Banks on the basis of their respective Commitments and each payment of commitment or facility fees shall be made for the account of the Banks, and each termination or reduction of the Commitments of the Banks under Section 2.3 hereof shall be applied, pro rata, according to the Banks' respective Commitments; and (b) each payment by the Company of principal of or interest on Loans of a particular Type shall be made to Administrative Agent for the account of the Banks pro rata in accordance with the respective unpaid principal amounts of such Loans held by the Banks. 5.3 Computations. Interest on Competitive Loans and interest based on the Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless the effect of so computing shall be to cause the rate of interest to exceed the Highest Lawful Rate, in which case interest shall be calculated on the basis of the actual number of days elapsed in a year composed of 365 or 366 days, as the case may be. All other interest and fees shall be computed on the basis of a year of 365 (or 366) days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 5.4 Minimum and Maximum Amounts. Except for prepayments made pursuant to Section 3.2(b) hereof, and subject to the provisions of Section 2.9 hereof with respect to Competitive Loans, each borrowing and repayment of principal of Loans, each termination or reduction of Commitments, each optional prepayment and each conversion of Type shall be in an aggregate principal amount at least equal to (a) in the case of Eurodollar Loans and Competitive Loans, $5,000,000, and (b) in the case of Alternate Base Rate Loans, $1,000,000 (borrowings or prepayments of Loans of different Types or, in the case of Eurodollar Loans and Competitive Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings and prepayments for purposes of the foregoing, one for each Type or Interest Period). Upon any mandatory prepayment that would reduce Eurodollar Loans or Competitive Loans, respectively, having the same Interest Period to less than $5,000,000 such Loans shall automatically be converted into Alternate Base Rate Loans on the last day of the applicable Interest Period. Notwithstanding anything to the contrary contained in this Agreement, there shall not be, at any one time, more than eight (8) Interest Periods in effect with respect to Eurodollar Loans or Competitive Loans, in the aggregate. 5.5 Certain Actions, Notices, Etc. Notices to Administrative Agent of any termination or reduction of Commitments, of borrowings and prepayments, conversions and continuations of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by Administrative Agent not later than noon, New York, New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing and/or prepayment, conversion or continuance specified below: ================================================ ======================================= Notice Number of Business Days Prior ------------------------------------------------ --------------------------------------- Termination or Reduction of Commitments 2 ------------------------------------------------ --------------------------------------- Borrowing or prepayment of or conversion into same day Alternate Base Rate Loans ------------------------------------------------ --------------------------------------- Borrowing or prepayment of or conversion into 3 or continuance of Eurodollar Loans ================================================ =======================================
Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. Each such notice of borrowing or prepayment shall specify the amount and Type of the Loans to be borrowed or prepaid (subject to Sections 3.2(a) and 5.4 hereof), the date of borrowing or prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans, the duration of the Interest Period therefor (subject to the definition of "Interest Period"). Each such notice of conversion of a Loan into a Loan of another Type shall identify such Loan (or portion thereof) being converted and specify the Type of Loan into which such Loan is being converted (subject to Section 5.4 hereof) and the date for conversion (which shall be a Business Day) and, unless such Loan is being converted into an Alternate Base Rate Loan, the duration (subject to the definition of "Interest Period") of the Interest Period therefor which is to commence as of the last day of the then current Interest Period therefor (or the date of conversion, if such Loan is being converted from an Alternate Base Rate Loan). Each such notice of continuation of a Loan (or portion thereof) as the same Type of Loan shall identify such Loan (or portion thereof) being continued (subject to Section 5.4 hereof) and the duration (subject to the definition of "Interest Period") of the Interest Period therefor which is to commence as of the last day of the then current Interest Period therefor. Administrative Agent shall promptly notify the affected Banks of the contents of each such notice. Notice of any prepayment having been given, the principal amount specified in such notice, together with interest thereon to the date of prepayment, shall be due and payable on such prepayment date. Section 2.9 hereof shall control the time periods applicable to Competitive Loans. 5.6 Non-Receipt of Funds by Administrative Agent. Unless Administrative Agent shall have been notified by a Bank or the Company (the "Payor") prior to the date on which such Bank is to make payment to Administrative Agent of the proceeds of a Loan to be made by it hereunder or the Company is to make a payment to Administrative Agent for the account of one or more of the Banks, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to Administrative Agent, Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to Administrative Agent on or before such date, the recipient of such payment shall, on demand, pay to Administrative Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by Administrative Agent until the date Administrative Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period. 5.7 Sharing of Payments, Etc. If a Bank shall obtain payment of any principal of or interest on any Loan made by it under this Agreement, or on any other obligation then due to such Bank hereunder, through the exercise of any right of set-off, banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Banks participations in the Loans made, or other obligations held, by the other Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Banks shall share the benefit of such payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them (provided, however, that the foregoing shall not apply to payments of Competitive Loans made prior to the termination of the Commitments following the occurrence of an Event of Default). To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Company agrees, to the fullest extent it may effectively do so under applicable law, that any Bank so purchasing a participation in the Loans made, or other obligations held, by other Banks may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans and other obligations in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of any Obligor. Section 6. Yield Protection and Illegality. 6.1 Additional Costs. (a Subject to Section 13.6, the Company shall pay to Administrative Agent, on demand for the account of each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs incurred by such Bank which such Bank determines are attributable to its making or maintaining of any Eurodollar Loan or any Competitive Loan hereunder or its obligation to make any such Loan hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any Regulatory Change which: (i0 subjects such Bank (or makes it apparent that such Bank is subject) to any tax (including without limitation any United States interest equalization tax), levy, impost, duty, charge or fee (collectively, "Taxes"), or any deduction or withholding for any Taxes on or from the payment due under any Eurodollar Loan or any Competitive Loan or other amounts due hereunder, other than income and franchise taxes of each jurisdiction (or any subdivision thereof) in which such Bank has an office or its Applicable Lending Office; or (ii0 changes the basis of taxation of any amounts payable to such Bank under this Agreement in respect of any of such Loans (other than changes which affect taxes measured by or imposed on the overall net income or franchise taxes of such Bank or of its Applicable Lending Office for any of such Loans by each jurisdiction (or any subdivision thereof) in which such Bank has an office or such Applicable Lending Office); or (iii0 imposes or modifies or increases or deems applicable any reserve, special deposit or similar requirements (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank or loans made by such Bank, or against any other funds, obligations or other property owned or held by such Bank (including any of such Loans or any deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof); provided that such Bank actually incurs such additional costs. Each Bank (if so requested by the Company through Administrative Agent) will designate a different available Applicable Lending Office for the Eurodollar Loans or the Competitive Loans of such Bank or take such other action as the Company may request if such designation or action will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank exercised in good faith, be disadvantageous to such Bank (provided that such Bank shall have no obligation so to designate an Applicable Lending Office for Eurodollar Loans located in the United States of America). Each Bank will furnish the Company with a statement setting forth the basis and amount of each request by such Bank for compensation under this Section 6.1(a); subject to Section 6.8, such certificate shall be conclusive, absent manifest error, and may be prepared using any reasonable averaging and attribution methods. (b Without limiting the effect of the foregoing provisions of this Section 6.1, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Loans or Competitive Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Company (with a copy to Administrative Agent), the obligation of such Bank to make Eurodollar Loans or Competitive Loans, as the case may be, hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (in which case the provisions of Section 6.4 hereof shall be applicable). (c Good faith determinations and allocations by any Bank for purposes of this Section .1 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Loans or of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate such Bank in respect of any Additional Costs, shall be conclusive, absent manifest error. (d) The Company's obligation to pay Additional Costs and compensation with regard to each Eurodollar Loan and each Competitive Loan shall survive termination of this Agreement. 6.2 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, with respect to any Eurodollar Loans: (a Administrative Agent determines in good faith (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof are not being provided by the Reference Banks in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Loans for Interest Periods therefor as provided in this Agreement; or (b the Majority Banks determine in good faith (which determination shall be conclusive) and notify Administrative Agent that the relevant rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof upon the basis of which the rates of interest for such Loans are to be determined do not accurately reflect the cost to such Banks of making or maintaining such Loans for Interest Periods therefor; or (c Administrative Agent determines in good faith (which determination shall be conclusive) that by reason of circumstances affecting the interbank Dollar market generally, deposits in United States dollars in the relevant interbank Dollar market are not being offered for the applicable Interest Period and in an amount equal to the amount of the Eurodollar Loan requested by the Company; then Administrative Agent shall promptly notify the Company and each Bank thereof, and, so long as such condition remains in effect, the Banks shall be under no obligation to make Eurodollar Loans (but shall maintain until the end of the Interest Period then in effect the Eurodollar Loans then outstanding). 6.3 Illegality. Notwithstanding any other provision of this Agreement to the contrary, if (x) by reason of the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Bank with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority or (y) circumstances affecting the relevant interbank Dollar market or the position of a Bank therein shall at any time make it unlawful or impracticable in the sole discretion of a Bank exercised in good faith for such Bank or its Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans or Competitive Loans hereunder, or (b) maintain Eurodollar Loans or Competitive Loans hereunder, then such Bank shall promptly notify the Company thereof through Administrative Agent and such Bank's obligation to make or maintain Eurodollar Loans or Competitive Loans, as the case may be, hereunder shall be suspended until such time as such Bank may again make and maintain Eurodollar Loans or Competitive Loans, as the case may be (in which case the provisions of Sections 6.4 and 6.8 hereof shall be applicable). Before giving such notice pursuant to this Section 6.3, such Bank will designate a different available Applicable Lending Office for the Eurodollar Loans or the Competitive Loans, as the case may be, of such Bank or take such other action as the Company may request if such designation or action will avoid the need to suspend such Bank's obligation to make Eurodollar Loans or Competitive Loans, as the case may be, hereunder and will not, in the sole opinion of such Bank exercised in good faith, be disadvantageous to such Bank (provided, that such Bank shall have no obligation so to designate an Applicable Lending Office for Eurodollar Loans located in the United States of America). 6.4 Substitute Alternate Base Rate Loans. If the obligation of any Bank to make or maintain Eurodollar Loans or Competitive Loans, as the case may be, shall be suspended pursuant to Section 6.1, 6.2 or 6.3 hereof, all Loans which would otherwise be made by such Bank as Eurodollar Loans or Competitive Loans, as the case may be, shall be made instead as Alternate Base Rate Loans (and, if an event referred to in Section 6.1(b) or 6.3 hereof has occurred and such Bank so requests by notice to the Company with a copy to Administrative Agent, each Eurodollar Loan or each Competitive Loan, as the case may be, of such Bank then outstanding shall be automatically converted into an Alternate Base Rate Loan on the date specified by such Bank in such notice) and, to the extent that Eurodollar Loans or Competitive Loans, as the case may be, are so made as (or converted into) Alternate Base Rate Loans, all payments of principal which would otherwise be applied to such Eurodollar Loans or such Competitive Loans, as the case may be, shall be applied instead to such Alternate Base Rate Loans. 6.5 Compensation. Subject to Section 13.6 hereof, the Company shall pay to Administrative Agent for the account of each Bank, within four (4) Business Days after demand therefor by such Bank through Administrative Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense actually incurred by it (exclusive of any lost profits or opportunity costs) as a result of: (a any payment, prepayment or conversion of a Eurodollar Loan or a Competitive Loan made by such Bank on a date other than the last day of an Interest Period for such Loan; or (b any failure by the Company to borrow a Eurodollar Loan or a Competitive Loan to be made by such Bank on the date for such borrowing specified in the relevant notice of borrowing under Section 5.5 or Section 2.9 hereof; such compensation to include, without limitation, any loss or expense actually incurred (exclusive of any lost profits or opportunity costs) by reason of the liquidation or reemployment of deposits or other funds acquired by the applicable Bank to fund or maintain its share of any Loan. Subject to Section 6.8, each determination of the amount of such compensation by a Bank shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. 6.6 [Intentionally omitted]. 6.7 Capital Adequacy. If any Bank shall have determined that a Regulatory Change resulting in the adoption after the date hereof or effectiveness after the date hereof (whether or not previously announced) of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein after the date hereof, or any change in the interpretation or administration thereof after the date hereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of such Bank's obligations hereunder and under the Loans made by it to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, upon satisfaction of the conditions precedent set forth in this Section 6.7, upon demand by such Bank (with a copy to Administrative Agent), the Company (subject to Section 13.6 hereof) shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. A certificate as to such amounts, submitted to the Company and Administrative Agent by such Bank, setting forth the basis for such Bank's determination of such amounts, shall constitute a demand therefor and shall be conclusive and binding for all purposes, absent manifest error. The Company shall pay the amount shown as due on any such certificate within four (4) Business Days after delivery of such certificate. Subject to Section 6.8, in preparing such certificate, a Bank may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 6.8 Limitation on Additional Charges; Substitute Banks; Non-Discrimination. Anything in this Section 6 notwithstanding: (a) the Company shall not be required to pay to any Bank reimbursement with regard to any costs or expenses, unless such Bank notifies the Company of such costs or expenses within 90 days after the date paid or incurred; (b) none of the Banks shall be permitted to pass through to the Company charges and costs under this Section 6 on a discriminatory basis (i.e., which are not also passed through by such Bank to other customers of such Bank similarly situated where such customer is subject to documents providing for such pass through); and (c) if any Bank elects to pass through to the Company any material charge or cost under this Section 6 or elects to terminate the availability of Eurodollar Loans for any material period of time, the Company may, within 60 days after the date of such event and so long as no Default shall have occurred and be continuing, elect to terminate such Bank as a party to this Agreement; provided that, concurrently with such termination the Company shall (i) if Administrative Agent and each of the other Banks shall consent, pay that Bank all principal, interest and fees and other amounts owed to such Bank through such date of termination or (ii) have arranged for another financial institution approved by Administrative Agent (such approval not to be unreasonably withheld) as of such date, to become a substitute Bank for all purposes under this Agreement in the manner provided in Section 13.5; provided further that, prior to substitution for any Bank, the Company shall have given written notice to Administrative Agent of such intention and the Banks shall have the option, but no obligation, for a period of 60 days after receipt of such notice, to increase their Commitments in order to replace the affected Bank in lieu of such substitution. Section 7. Conditions Precedent. 7.1 Initial Loans. The obligation of each Bank to make its initial Loans on or after the date hereof is subject to the following conditions precedent, each of which shall have been fulfilled or waived to the satisfaction of the Administrative Agent: (a Corporate Action and Status. Administrative Agent shall have received from the appropriate Governmental Authorities certified copies of the Organizational Documents (other than bylaws) of the Company and the Guarantor, and evidence satisfactory to Administrative Agent of all corporate action taken by the Company and the Guarantor authorizing the execution, delivery and performance of the Loan Documents and all other documents related to this Agreement to which it is a party (including, without limitation, a certificate of the secretary of each such party setting forth the resolutions of its Board of Directors authorizing the transactions contemplated thereby and attaching a copy of its bylaws), together with such certificates as may be appropriate to demonstrate the qualification and good standing of and payment of taxes by the Company and the Guarantor in Texas and Louisiana, as applicable. (b Incumbency. The Company, the Guarantor and each other Relevant Party shall have delivered to Administrative Agent a certificate in respect of the name and signature of each of the officers (i) who is authorized to sign on its behalf the applicable Loan Documents related to any Loan and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with any Loan. Administrative Agent and each Bank may conclusively rely on such certificates until they receive notice in writing from the Company, the Guarantor or the appropriate Relevant Party to the contrary. (c [Intentionally omitted]. (d Loan Documents. The Company and each other Relevant Party shall have duly executed and delivered the other Loan Documents to which it is a party (in such number of copies as Administrative Agent shall have requested) and each such Loan Document shall be in form satisfactory to the Administrative Agent. Each such Loan Document shall be in substantially the form furnished to the Banks prior to their execution of this Agreement, together with such changes therein as the Administrative Agent may approve. (e Fees and Expenses. The Company shall have paid to Administrative Agent for the account of each Bank all accrued and unpaid fees in the amounts previously agreed upon in writing among the Company and Administrative Agent; and shall have in addition paid to each Agent all amounts payable under the letter agreements referred to in Section 2.4(b) hereof and under Section 9.7 hereof on or before the date of this Agreement. (f Opinions of Counsel. Administrative Agent shall have received an opinion of Vinson & Elkins L.L.P., counsel to the Company and the Guarantor, in form and substance reasonably satisfactory to the Agents. (g Execution by Banks and Agents. Administrative Agent shall have received counterparts of this Agreement executed and delivered by or on behalf of each of the Banks and the Agents or Administrative Agent shall have received evidence satisfactory to it of the execution and delivery by each of the Banks and Agents of a counterpart hereof. (h Consents. Administrative Agent shall have received evidence satisfactory to it that, except as disclosed in the Disclosure Statement, all material consents of each Governmental Authority and of each other Person, if any, reasonably required in connection with (a) the Loans, and (b) the execution, delivery and performance of this Agreement and the other Loan Documents have been satisfactorily obtained. (i Margin Regulations. After giving effect to such Loan, the Company and Banks shall be in compliance with the Margin Regulations. (j Consummation of Offer to Purchase. The offer to purchase (the "Offer to Purchase") shall have been consummated (including the payment for all such notes tendered thereunder) as contemplated by and pursuant to that certain Offer to Purchase and Consent Solicitation Statement of Company which offers to purchase for cash all of the Company's outstanding 10.375% Senior Subordinated Notes due 2005 (CUSIP No. 674812AD4, originally issued by United Meridian Corporation) and 9.75% Senior Subordinated Notes due 2006 (CUSIP No. 34039CAB3, originally issued by Flores & Rucks, Inc.) (the "Offer Agreement"), and Administrative Agent shall have received (i) satisfactory evidence of the consummation (at least with respect to the 10.375% Senior Subordinated Notes due 2005) of such Offer to Purchase and (ii) a certificate from a Responsible Officer of the Company certifying that such Offer to Purchase has been consummated (at least with respect to the 10.375% Senior Subordinated Notes due 2005). (k Financial Reports; Filings. Administrative Agent shall have received copies of all financial statements, reports, notices and proxy statements either (A) requested by the Administrative Agent or any Bank or (B) sent by the Company to its stockholders. (l Other Documents. Administrative Agent shall have received such other documents consistent with the terms of this Agreement and relating to the transactions contemplated hereby as Administrative Agent may reasonably request. All provisions and payments required by this Section 7.1 are subject to the provisions of Section 13.6. 7.2 Initial and Subsequent Loans. The obligation of each Bank to make any Loan (including, without limitation, its initial Loan) to be made by it hereunder (excluding conversions of Loans to Alternate Base Rate Loans or Term Loans made pursuant to Section 2.1(b), in each case as to which no conditions precedent exist) is subject to the additional conditions precedent that (i)Administrative Agent shall have received a Request for Extension of Credit and such other certifications as Administrative Agent may reasonably require, (ii) in the case of Competitive Loans, the Company shall have complied with the provisions of Section 2.9 hereof and (iii) as of the date of such Loan, and after giving effect thereto: (a no Default shall have occurred and be continuing; (b except for facts timely disclosed to Administrative Agent from time to time in writing, which facts (i) are not materially more adverse to the Company and its Subsidiaries or any other Obligor, (ii) do not materially decrease the ability of the Banks to collect the Obligations as and when due and payable and (iii) do not materially increase the liability of any Agent or any of the Banks, in each case compared to those facts existing on the date hereof and the material details of which have been set forth in the Financial Statements delivered to Administrative Agent prior to the date hereof or in the Disclosure Statement, and except for the representations set forth in the Loan Documents which, by their terms, are expressly (or by means of similar phrasing) made as of the Effective Date or as of the date hereof, as the case may be, only, the representations and warranties made in each Loan Document shall be true and correct in all material respects on and as of the date of the making of such Loan, with the same force and effect as if made on and as of such date; (c) the making of such Loan shall not violate any Legal Requirement applicable to any Bank; and (d) no event or condition shall have occurred since December 31, 1998 which reasonably could be expected to result in a Material Adverse Effect. Each Request for Extension of Credit by the Company hereunder shall include a representation and warranty by the Company to the effect set forth in Subsections 7.2(a) and (b) (both as of the date of such notice and, unless the Company otherwise notifies Administrative Agent prior to the date of such borrowing, as of the date of such borrowing). Section 8. Representations and Warranties. To induce the Banks to enter into this Agreement and to make the Loans, the Company represents and warrants (such representations and warranties to survive any investigation and the making of the Loans) to the Banks and the Agents as follows: 8.1 Corporate Existence. The Company, the Guarantor and each Subsidiary of the Company are duly organized, legally existing and in good standing under the laws of the respective jurisdictions in which they are formed, and are duly qualified in all jurisdictions wherein the property owned or the business transacted by them makes such qualification necessary and the failure to so qualify could reasonably be expected to result in a Material Adverse Effect. 8.2 Corporate Power and Authorization. Each of the Company, the Guarantor and each Subsidiary of the Company is duly authorized and empowered to execute, deliver, and perform this Agreement and the other Loan Documents to which it is a party; and all corporate action on the Company's part and on the part of the Guarantor and each Subsidiary of the Company for the due execution, delivery, and performance of this Agreement and the other Loan Documents to which each of the Company, the Guarantor and each such Subsidiary is a party has been duly and effectively taken. 8.3 Binding Obligations. This Agreement and the other Loan Documents constitute legal, valid and binding obligations of the Company and its Subsidiaries and the Guarantor, to the extent each is a party thereto, enforceable against the Company and its Subsidiaries and the Guarantor, to the extent each is a party thereto, in accordance with their respective terms, except as may be limited by any bankruptcy, insolvency, moratorium or other similar laws or judicial decisions affecting creditors' rights generally and general principles of equity whether considered at law or in equity. 8.4 No Legal Bar or Resultant Lien. The Company's and each of its Subsidiaries' and the Guarantor's creation, issuance, execution, delivery and performance of this Agreement and the other Loan Documents, to the extent they are parties thereto, do not and will not violate any provisions of the Organizational Documents of the Company, the Guarantor or any Subsidiary of the Company or any Legal Requirement to which the Company, the Guarantor or any Subsidiary of the Company is subject or by which its property may be presently bound or encumbered, or result in the creation or imposition of any Lien upon any properties of the Company, the Guarantor or any Subsidiary of the Company, other than those permitted by this Agreement. 8.5 No Consent. The Company's and each of its Subsidiaries' and the Guarantor's execution, delivery, and performance of this Agreement and the other Loan Documents to which they are parties do not and will not require the consent or approval of any Person other than such consents and/or approvals obtained by the Company contemporaneously with or prior to the execution of this Agreement, including, without limitation, any Governmental Authorities, other than those consents the failure to obtain which could not be reasonably expected to have a Material Adverse Effect. 8.6 Financial Condition. (a The audited consolidated annual financial statements of Seagull and its Subsidiaries for the year ended December 31, 1998, which have been delivered to the Banks, have been prepared in accordance with GAAP, and present fairly, in all material respects, the financial condition and results of the operations of Seagull and its Subsidiaries for the period or periods stated. The audited consolidated annual financial statements of Old Ocean Energy and its Subsidiaries for the year ended December 31, 1998, which have been delivered to the Banks, have been prepared in accordance with GAAP, and present fairly, in all material respects, the financial condition and results of the operations of Old Ocean Energy and its Subsidiaries for the period or periods stated. No Material Adverse Effect has occurred since December 31, 1998, except as disclosed to the Banks in the Disclosure Statement. (b The unaudited pro forma consolidated annual financial statements of the Company and its Subsidiaries for the year ended December 31, 1998, which have been delivered to the Banks, have been prepared in accordance with GAAP. No material adverse change, either in any case or in the aggregate, has occurred since December 31, 1998 in the assets, liabilities, financial condition, business, operations, affairs or circumstances of the Company and its Subsidiaries taken as a whole, except as disclosed to the Banks in the Disclosure Statement. 8.7 Investments and Guaranties. As of the Effective Date, no Subsidiary of the Company had made Investments in or advances to, and neither the Company nor any Subsidiary of any of them had made Guarantees of, the obligations of any Person, except as (a) disclosed to the Banks in the Disclosure Statement or (b) not prohibited by applicable provisions of Section 10. 8.8 Liabilities and Litigation. Neither the Company nor any Subsidiary of the Company has any material (individually or in the aggregate) liabilities, direct or contingent, except as (a) disclosed or referred to in the Financial Statements, (b) disclosed to the Banks in the Disclosure Statement, (c) disclosed in a notice to Administrative Agent pursuant to Section 9.10 with respect to such as could reasonably be expected to have a Material Adverse Effect or (d) not prohibited by applicable provisions of Section 10. Except as (a) described in the Financial Statements, (b) otherwise disclosed to the Banks in the Disclosure Statement, (c) disclosed in a notice to Administrative Agent pursuant to Section 9.10 with respect to such as could reasonably be expected to have a Material Adverse Effect or (d) not prohibited by applicable provisions of Section 10, no litigation, legal, administrative or arbitral proceeding, investigation, or other action of any nature exists or (to the knowledge of the Company) is threatened against or affecting the Company or any Subsidiary of the Company which could reasonably be expected to result in any judgment which could reasonably be expected to have a Material Adverse Effect, or which in any manner challenges or may challenge or draw into question the validity of this Agreement or any other Loan Document, or enjoins or threatens to enjoin or otherwise restrain any of the transactions contemplated by any of them. 8.9 Taxes and Governmental Charges. The Company and its Subsidiaries have filed, or obtained extensions with respect to the filing of, all material tax returns and reports required to be filed and have paid all material taxes, assessments, fees and other governmental charges levied upon any of them or upon any of their respective properties or income which are due and payable, including interest and penalties, or have provided adequate reserves for the payment thereof. 8.10 Title to Properties. The Company and its Subsidiaries and the Guarantor have good and defensible title to their respective properties (including, without limitation, all fee and leasehold interests), free and clear of all Liens except (a) those referred to in the Financial Statements, (b) as disclosed to the Banks in the Disclosure Statement or (c) as permitted by Section 10.2. 8.11 Defaults. Neither the Company nor any Subsidiary of the Company is in default, which default could reasonably be expected to have a Material Adverse Effect, under any indenture, mortgage, deed of trust, agreement or other instrument to which the Company or any Subsidiary of the Company is a party or by which the Company or any Subsidiary of the Company or the property of the Company or any Subsidiary of the Company is bound, except as (a) disclosed to the Banks in the Disclosure Statement, (b) disclosed in a notice to Administrative Agent pursuant to Section 9.10 with respect to such as could reasonably be expected to have a Material Adverse Effect or (c) specifically permitted by applicable provisions of Section 10. No Default under this Agreement or any other Loan Document has occurred and is continuing. 8.12 Location of Businesses and Offices. Except to the extent that Administrative Agent has been furnished written notice to the contrary or of additional locations, pursuant to Section 9.10, the Company s principal place of business and chief executive offices are located at the address stated on the signature page hereof and the principal places of business and chief executive offices of the Guarantor and each other Subsidiary are described on Exhibit C hereto. 8.13 Compliance with Law. Neither the Company nor any Subsidiary of the Company (except as (a) disclosed to the Banks in the Disclosure Statement, (b) disclosed in a notice to Administrative Agent pursuant to Section 9.10 with respect to such as could reasonably be expected to have a Material Adverse Effect or (c) not prohibited by applicable provisions of Section 10): (a) is in violation of any Legal Requirement; or (b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of any of their respective properties or the conduct of their respective business; which violation or failure could reasonably be expected to have a Material Adverse Effect. 8.14 Margin Stock. None of the proceeds of the Loans will be used for the purpose of, and neither the Company, the Guarantor nor any Subsidiary of the Company is engaged in the business of extending credit for the purpose of (a) purchasing or carrying any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221) or (b) reducing or retiring any indebtedness which was originally incurred to purchase or carry margin stock, if such purpose under either (a) or (b) above would constitute this transaction a "purpose credit" within the meaning of said Regulation U, or for any other purpose which would constitute this transaction a "purpose credit". Neither the Company, the Guarantor nor any Subsidiary of the Company is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stocks. Neither the Company, the Guarantor nor any Subsidiary of the Company nor any Person acting on behalf of the Company, the Guarantor or any Subsidiary of the Company has taken or will take any action which might cause any of the Loan Documents, including this Agreement, to violate Regulation U or any other regulation of the Board of Governors of the Federal Reserve System, or to violate any similar provision of the Securities Exchange Act of 1934 or any rule or regulation under any such provision thereof. 8.15 Subsidiaries. The Company has no Subsidiaries as of the date of this Agreement except those shown in Exhibit C hereto. 8.16 ERISA. With respect to each Plan, the Company and each ERISA Affiliate have fulfilled their obligations, including obligations under the minimum funding standards of ERISA and the Code, and are in compliance in all material respects with the provisions of ERISA and the Code. The Company has no knowledge of any event which could result in a liability of the Company or any ERISA Affiliate to the PBGC or a Plan (other than to make contributions in the ordinary course). Since the effective date of Title IV of ERISA, there have not been any nor are there now existing any events or conditions that would cause the Lien provided under Section 4068 of ERISA to attach to any property of the Company or any ERISA Affiliate. There are no Unfunded Liabilities with respect to any Plan. No "prohibited transaction" has occurred with respect to any Plan. 8.17 Investment Company Act. Neither the Company nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act. 8.18 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries (i) is subject to regulation under the Public Utility Holding Company Act of 1935, as amended (the "PUHC Act"), except as to Section 9(a)(2) thereof (15 U.S.C.A. Section 79(i)(a)(2))or(ii)is in violation of any of the provisions, rules, regulations or orders of or under the PUHC Act. Further, none of the transactions contemplated under this Agreement, including without limitation, the making of the Loans, shall cause or constitute a violation of any of the provisions, rules, regulations or orders of or under the PUHC Act and the PUHC Act does not in any manner impair the legality, validity or enforceability of this Agreement. 8.19 Environmental Matters. Except as disclosed in the Disclosure Statement, (i) the Company and its Subsidiaries have obtained and maintained in effect all Environmental Permits (or has initiated the necessary steps to transfer the Environmental Permits into its name), the failure to obtain which could reasonably be expected to have a Material Adverse Effect, (ii) the Company and its Subsidiaries and their properties, assets, business and operations have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits failure to comply with which could reasonably be expected to have a Material Adverse Effect, (iii) the Company and its Subsidiaries and their properties, assets, business and operations are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, and whether known or unknown, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect, and (iv) no Responsible Officer of the Company or any of its Subsidiaries has received any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with its assets, properties, business or operations which could reasonably be expected to have a Material Adverse Effect. The liability (including without limitation any Environmental Liability and any other damage to persons or property), if any, of the Company and its Subsidiaries and with respect to their properties, assets, business and operations which is reasonably expected to arise in connection with Requirements of Environmental Laws currently in effect and other environmental matters presently known by a Responsible Officer of the Company will not have a Material Adverse Effect. No Responsible Officer of the Company knows of any event or condition with respect to Environmental Matters with respect to any of its properties or the properties of any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. For purposes of this Section 8.19, "Environmental Matters" shall mean matters relating to pollution or protection of the environment, including, without limitation, emissions, discharges, releases or threatened releases of Hazardous Substances into the environment (including, without limitation, ambient air, surface water or ground water, or land surface or subsurface), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances. 8.20 Claims and Liabilities. Except as disclosed to the Banks in writing, neither the Company or any of its Subsidiaries nor the Guarantor has accrued any liabilities under gas purchase contracts for gas not taken, but for which it is liable to pay if not made up and which, if not paid, would have a Material Adverse Effect. Except as disclosed to the Banks in writing, no claims exist against the Company or its Subsidiaries or the Guarantor for gas imbalances which claims if adversely determined would have a Material Adverse Effect. No purchaser of product supplied by the Company or any of its Subsidiaries or the Guarantor has any claim against the Company or any of its Subsidiaries for product paid for, but for which delivery was not taken as and when paid for, which claim if adversely determined would have a Material Adverse Effect. 8.21 Solvency. Neither the Company, the Guarantor nor the Company and its Subsidiaries, on a consolidated basis, is "insolvent", as such term is used and defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. Section 24.001 et seq. 8.22 Year 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the computer systems of the Company and its Subsidiaries and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the systems interface of the Company and its Subsidiaries) and the testing of all such systems and equipment, as so reprogrammed, has been completed in all material respects. The cost to the Company and its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Company and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Company to conduct its business without Material Adverse Effect. Section 9. Affirmative Covenants. A deviation from the provisions of this Section 9 will not constitute a Default under this Agreement if such deviation is consented to in writing by the Majority Banks. Without the prior written consent of the Majority Banks, the Company agrees with the Banks and the Agents that, so long as any of the Commitments is in effect and until payment in full of all Obligations: 9.1 Financial Statements and Reports. The Company will promptly furnish to any Bank from time to time upon request such information regarding the business and affairs and financial condition of the Company and its Subsidiaries and the Guarantor as such Bank may reasonably request, and will furnish to the Agents and each of the Banks: (a) Annual Reports - promptly after becoming available and in any event within 100 days after the close of each fiscal year of the Company: (i) the audited consolidated balance sheet of the Company and its Subsidiaries as of the end of such year; (ii) the audited consolidated statement of earnings of the Company and its Subsidiaries for such year; (iii) the audited consolidated statement of cash flows of the Company and its Subsidiaries for such year; setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and, in the case of the audited Financial Statements, audited and accompanied by the related opinion of KPMG Peat Marwick or other independent certified public accountants of recognized national standing acceptable to the Majority Banks, which opinion shall state that such audited balance sheets and statements have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present, in all material respects, the consolidated financial condition and results of operations of the applicable Persons as at the end of, and for, such fiscal year; and (b) Quarterly Reports - as soon as available and in any event within 50 days after the end of each of the first three quarterly periods in each fiscal year of the Company: (i) the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter; (ii) the unaudited consolidated statement of earnings of the Company and its Subsidiaries for such quarter and for the period from the beginning of the fiscal year to the close of such quarter; (iii) the unaudited consolidated statement of cash flows of the Company and its Subsidiaries for such quarter and for the period from the beginning of the fiscal year to the close of such quarter; all of items (i) through (iii) above prepared on substantially the same accounting basis as the annual reports described in Subsection 9.1(a), subject to normal changes resulting from year-end adjustments; and (c) [Intentionally omitted]; and (d) SEC and Other Reports - promptly upon their becoming publicly available, one copy of each financial statement, report, notice or definitive proxy statement sent by the Company or any Subsidiary to shareholders generally, and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Company or any of its Subsidiaries with, or received by the Company or any of its Subsidiaries in connection therewith from, any securities exchange or the Securities and Exchange Commission or any successor agency. All of the balance sheets and other financial statements referred to in this Section 9.1 will be in such detail as any Bank may reasonably request and will conform to GAAP applied on a basis consistent with those of the Financial Statements as of December 31, 1998. In addition, if GAAP shall change with respect to any matter relative to determination of compliance with this Agreement, the Company will also provide financial information necessary for the Banks to determine compliance with this Agreement. 9.2 Officers' Certificates. (a) Concurrently with the furnishing of the annual financial statements pursuant to Subsection 9.1(a), commencing with the annual financial statements required to be delivered in 2000, the Company will furnish or cause to be furnished to Administrative Agent certificates of compliance, as follows: (i) a certificate signed by the principal financial officer of the Company in the form of Exhibit D; and (ii) a certificate from the independent public accountants stating that their audit has not disclosed the existence of any condition which constitutes a Default, or if their audit has disclosed the existence of any such condition, specifying the nature and period of existence. (b) Concurrently with the furnishing of the quarterly financial statements pursuant to Subsection 9.1(b), the Company will furnish to Administrative Agent a principal financial officer's certificate in the form of Exhibit D. 9.3 Taxes and Other Liens. The Company will and will cause each Subsidiary of the Company to pay and discharge promptly all taxes, assessments and governmental charges or levies imposed upon the Company or such Subsidiary, or upon the income or any property of the Company or such Subsidiary, as well as all claims of any kind (including claims for labor, materials, supplies, rent and payment of proceeds attributable to Hydrocarbon production) which, if unpaid, might result in or become a Lien upon any or all of the property of the Company or such Subsidiary; provided, however, that neither the Company nor such Subsidiary will be required to pay any such tax, assessment, charge, levy or claims if the amount, applicability or validity thereof will currently be contested in good faith by appropriate proceedings diligently conducted and if the Company or such Subsidiary will have set up reserves therefor adequate under GAAP. 9.4 Maintenance. Except as referred to in Sections 8.1 and 8.13 and except as permitted under Section 10.4 the Company will and will cause each Subsidiary of the Company to: (i) maintain its corporate existence; (ii) maintain its rights and franchises, except for any mergers or consolidations otherwise permitted by this Agreement and except to the extent failure to so maintain the same would not have a Material Adverse Effect; (iii) observe and comply (to the extent that any failure would have a Material Adverse Effect) with all valid Legal Requirements (including without limitation Requirements of Environmental Law); and (iv) maintain (except to the extent failure to so maintain the same would not have a Material Adverse Effect) its properties (and any properties leased by or consigned to it or held under title retention or conditional sales contracts) consistent with the standards of a reasonably prudent operator at all times and make all repairs, replacements, additions, betterments and improvements to its properties consistent with the standards of a reasonably prudent operator. 9.5 Further Assurances. The Company will, and will cause each Subsidiary of the Company to, cure promptly any defects in the execution and delivery of the Loan Documents, including this Agreement. The Company at its expense will promptly execute and deliver to Administrative Agent upon request all such other and further documents, agreements and instruments (or cause any of its Subsidiaries to take such action) in compliance with or accomplishment of the covenants and agreements of the Company or any of its Subsidiaries in the Loan Documents, including this Agreement, or to correct any omissions in the Loan Documents, or to make any recordings, to file any notices, or obtain any consents, all as may be necessary or appropriate in connection therewith. 9.6 Performance of Obligations. The Company will pay the Loans according to the reading, tenor and effect of this Agreement; and the Company will do and perform every act and discharge all of the obligations provided to be performed and discharged by the Company under this Agreement and the other Loan Documents at the time or times and in the manner specified, and cause each of its Subsidiaries to take such action with respect to their obligations to be performed and discharged under the Loan Documents to which they respectively are parties. 9.7 Reimbursement of Expenses. Whether or not any Loan is ever made, the Company agrees to pay or reimburse Administrative Agent for paying the reasonable fees and expenses of Mayer, Brown & Platt, special counsel to the Agents, together with the reasonable fees and expenses of local counsel engaged by the Agents, in connection with the negotiation of the terms and structure of the Obligations, the preparation, execution and delivery of this Agreement and the other Loan Documents and the making of the Loans hereunder, as well as any modification, supplement or waiver of any of the terms of this Agreement and the other Loan Documents. The Company will promptly upon request and in any event within 30 days from the date of receipt by the Company of a copy of a bill for such amounts, reimburse any Bank or any Agent for all amounts reasonably expended, advanced or incurred by such Bank or such Agent to satisfy any obligation of the Company under this Agreement or any other Loan Document, to protect the properties or business of the Company or any Subsidiary of the Company, to collect the Obligations, or to enforce the rights of such Bank or such Agent under this Agreement or any other Loan Document, which amounts will include without limitation all court costs, attorneys' fees (but not including allocated costs of in-house counsel), any engineering fees and expenses, fees of auditors, accountants and appraisers, investigation expenses, all transfer, stamp, documentary or similar taxes, assessments or charges levied by any Governmental Authority in respect of any of the Loan Documents or any other document referred to therein, all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any Lien contemplated by any of the Loan Documents or any document referred to therein, fees and expenses incurred in connection with such Bank's participation as a member of a creditors' committee in a case commenced under the Bankruptcy Code or other similar law of the United States or any state thereof, fees and expenses incurred in connection with lifting the automatic stay prescribed in Section 362 Title 11 of the United States Code, and fees and expenses incurred in connection with any action pursuant to Section 1129 Title 11 of the United States Code and all other customary out-of-pocket expenses incurred by such Bank or such Agent in connection with such matters, together with interest after the expiration of the 30-day period stated above in this Section if no Event of Default has occurred and is continuing, or from the date of the request to the Company if an Event of Default has occurred and is continuing, at either (i) the Post-Default Rate on each such amount until the date of reimbursement to such Bank or such Agent, or (ii) if no Event of Default will have occurred and be continuing, the Alternate Base Rate plus the highest Applicable Margin for Alternate Base Rate Loans (not to exceed the Highest Lawful Rate) on each such amount until the date of the Company's receipt of written demand or request by such Bank or such Agent for the reimbursement of same, and thereafter at the applicable Post-Default Rate until the date of reimbursement to such Bank or such Agent. The obligations of the Company under this Section are compensatory in nature, shall be deemed liquidated as to amount upon receipt by the Company of a copy of any invoice therefor, and will survive the non-assumption of this Agreement in a case commenced under the Bankruptcy Code or other similar law of the United States or any state thereof, and will remain binding on the Company and any trustee, receiver, or liquidator of the Company appointed in any such case. 9.8 Insurance. The Company and its Subsidiaries will maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and business against such liabilities, casualties, risks and contingencies and in such types and amounts as is customary in the case of corporations engaged in the same or similar businesses and similarly situated. Upon the request of Administrative Agent acting at the instruction of the Majority Banks, the Company will furnish or cause to be furnished to Administrative Agent from time to time a summary of the insurance coverage of the Company and its Subsidiaries in form and substance satisfactory to the Majority Banks in their reasonable judgment, and if requested will furnish Administrative Agent copies of the applicable policies. In the case of any fire, accident or other casualty causing loss or damage to any properties of the Company or any of its Subsidiaries, the proceeds of such policies will be used (i) to repair or replace the damaged property, (ii) to prepay the Obligations, or (iii) so long as no Default has occurred and is continuing, for general corporate purposes, at the election of the Company. 9.9 Accounts and Records. The Company will keep and will cause each Subsidiary of the Company to keep books of record and account which fairly reflect all dealings or transactions in relation to their respective businesses and activities, in accordance with GAAP, which books of record and account will be maintained, to the extent necessary to enable compliance with all provisions of this Agreement, separately for each such Subsidiary, the Company and any division of the Company. 9.10 Notice of Certain Events. The Company will promptly notify Administrative Agent (and Administrative Agent will then notify all of the Banks and other Agents) if a Responsible Officer of the Company learns of the occurrence of, or if the Company causes or intends to cause, as the case may be: (i) any event which constitutes a Default, together with a detailed statement by a Responsible Officer of the Company of the steps being taken to cure the effect of such Default; or (ii) the receipt of any notice from, or the taking of any other action by, the holder of any promissory note, debenture or other evidence of indebtedness of the Company or any Subsidiary of the Company or of any security (as defined in the Securities Act of 1933, as amended) of the Company or any Subsidiary of the Company with respect to a claimed default, together with a detailed statement by a Responsible Officer of the Company specifying the notice given or other action taken by such holder and the nature of the claimed default and what action the Company or such Subsidiary is taking or proposes to take with respect thereto; or (iii) any legal, judicial or regulatory proceedings affecting the Company or any Subsidiary of the Company or any of the properties of the Company or any Subsidiary of the Company in which the amount involved is materially adverse to the Company and its Subsidiaries taken as a whole, and is not covered by insurance or which, if adversely determined, would have a Material Adverse Effect; or (iv) any dispute between the Company or any Subsidiary of the Company and any Governmental Authority or any other Person which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; or (v) the occurrence of a default or event of default by the Company or any Subsidiary of the Company under any other agreement to which it is a party, which default or event of default could reasonably be expected to have a Material Adverse Effect; or (vi) any change in the accuracy of the representations and warranties of the Company or any Subsidiary contained in this Agreement or any other Loan Document; or (vii) any material violation or alleged material violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim or any Environmental Liability; or (viii) any tariff and rate cases and other material reports filed by the Company or any of its Subsidiaries with any Governmental Authority and any notice to the Company or any of its Subsidiaries from any Governmental Authority concerning noncompliance with any applicable Legal Requirement; or (ix) within 10 days after the date on which a Responsible Officer of the Company has actual knowledge thereof, the receipt of any notice by the Company or any of its Subsidiaries of any claim of nonpayment of, or any attempt to collect or enforce, accounts payable of the Company or any of its Subsidiaries exceeding, in the case of any one account payable at one time outstanding, $5,000,000 and in the case of all accounts payable in the aggregate at any one time outstanding, $10,000,000; or (x) any requirement for the payment of all or any portion of any Indebtedness of the Company or any of its Subsidiaries prior to the stated maturity thereof (whether by acceleration or otherwise) or as the result of any failure to maintain or the reaching of any threshold amount provided in any promissory note, bond, debenture, or other evidence of Indebtedness or under any credit agreement, loan agreement, indenture or similar agreement executed in connection with any of the foregoing; or (xi) any notice from the Securities and Exchange Commission with respect to any Application (as defined in Section 8.18 hereof). 9.11 ERISA Information and Compliance. The Company will promptly furnish to Administrative Agent (i) immediately upon receipt, a copy of any notice of complete or partial withdrawal liability under Title IV of ERISA and any notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, (ii) if requested by Administrative Agent, acting on the instruction of the Majority Banks, promptly after the filing thereof with the United States Secretary of Labor or the PBGC or the Internal Revenue Service, copies of each annual and other report with respect to each Plan or any trust created thereunder, (iii) immediately upon becoming aware of the occurrence of any "reportable event", as such term is defined in Section 4043 of ERISA, for which the disclosure requirements of Regulation Section 2615.3 promulgated by the PBGC have not been waived, or of any "prohibited transaction", as such term is defined in Section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal financial officer of the Company or the applicable ERISA Affiliate specifying the nature thereof, what action the Company or the applicable ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken by the PBGC, the Internal Revenue Service or the Department of Labor with respect thereto, (iv) promptly after the filing or receiving thereof by the Company or any ERISA Affiliate of any notice of the institution of any proceedings or other actions which may result in the termination of any Plan, and (v) each request for waiver of the funding standards or extension of the amortization periods required by Sections 303 and 304 of ERISA or Section 412 of the Code promptly after the request is submitted by the Company or any ERISA Affiliate to the Secretary of the Treasury, the Department of Labor or the Internal Revenue Service, as the case may be. To the extent required under applicable statutory funding requirements, the Company will fund, or will cause each ERISA Affiliate to fund, all current service pension liabilities as they are incurred under the provisions of all Plans from time to time in effect, and comply with all applicable provisions of ERISA, except to the extent that any such failure to comply could not reasonably be expected to have a Material Adverse Effect. The Company covenants that it shall and shall cause each ERISA Affiliate to (1) make contributions to each Plan in a timely manner and in an amount sufficient to comply with the contribution obligations under such Plan and the minimum funding standards requirements of ERISA; (2) prepare and file in a timely manner all notices and reports required under the terms of ERISA including but not limited to annual reports; and (3) pay in a timely manner all required PBGC premiums, in each case, to the extent failure to do so would have a Material Adverse Effect. Section 10. Negative Covenants. A deviation from the provisions of this Section 10 will not constitute a Default under this Agreement if such deviation is consented to in writing by the Majority Banks. The Company agrees with the Banks and the Agents that, so long as any of the Commitments is in effect and until payment in full of all Obligations: 10.1 Debts, Guaranties and Other Obligations. (i) Of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to incur, create, assume or in any manner become or be liable in respect of any Indebtedness (including obligations for the payment of rentals); and the Company will not permit any of its Restricted Subsidiaries to Guarantee or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the Indebtedness of any other Person or agreement for the furnishing of funds to any other Person through the purchase or lease of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging the Indebtedness of any other Person, or otherwise, except that the foregoing restrictions will not apply to: (a) Indebtedness pursuant to the Loan Documents; (b) Indebtedness of any Restricted Subsidiary existing on the date of this Agreement which is described in the Disclosure Statement, and (A) with respect to any such Indebtedness which constitutes Senior Debt, any extensions, renewals or replacements of such Indebtedness upon terms no more onerous to such Restricted Subsidiary than the terms of this Agreement or the terms of the instruments evidencing such Senior Debt as of the effective date of this Agreement, and (B) with respect to any such Indebtedness which constitutes Subordinated Indebtedness, any extensions, renewals or replacements of such Indebtedness which (I) remains Subordinated Indebtedness and (II) does not require principal repayment of such Subordinated Indebtedness prior to the then scheduled Stated Maturity Date; (c) endorsements of negotiable or similar instruments for collection or deposit in the ordinary course of business; (d) trade payables, lease acquisition and lease maintenance obligations, extensions of credit from suppliers or contractors, liabilities incurred in exploration, development and operation of any Restricted Subsidiary's oil and gas properties or similar obligations from time to time incurred in the ordinary course of business, other than for borrowed money, which are paid within 90 days after the invoice date (inclusive of applicable grace periods) or (i) are being contested in good faith, if such reserve as required by GAAP has been made therefor or (ii) trade accounts payable of any Restricted Subsidiaries (with respect to which no legal proceeding to enforce collection has been commenced or, to the knowledge of any Responsible Officer of the Company, threatened) not exceeding, in the aggregate at any time outstanding, $50,000,000; (e) taxes, assessments or other government charges which are not yet due or are being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as will be required by GAAP will have been made therefor; (f) intercompany Indebtedness owed to the Company by any Restricted Subsidiary and intercompany Indebtedness owed to any Restricted Subsidiary by any other Restricted Subsidiary; (g) any Guarantee existing on the date of this Agreement of payment or performance by any Person under any agreement so long as the obligation guaranteed does not constitute Indebtedness for borrowed money; (h) obligations of any Restricted Subsidiary under oil or gas purchase contracts for oil or gas not taken, as to which such Restricted Subsidiary is liable to pay if not made up; (i) obligations of any Restricted Subsidiary under any contract for sale for future delivery of oil or gas (whether or not the subject oil or gas is to be delivered) or other similar agreement; (j) obligations of any Restricted Subsidiary under any hedging contract, forward contract, swap agreement, futures contract or other similar agreement; (k) obligations of any Restricted Subsidiary under any interest rate or currency swap agreement, or any contract implementing any interest rate or currency cap, collar or floor, or any similar interest rate or currency hedging contract; (l) obligations in connection with gas imbalances arising in the ordinary course of business; (m) Guarantees of obligations of Havre by Guarantor in an amount not exceeding $20,000,000 in the aggregate in connection with Indebtedness of Havre; (n) liabilities under capital leases and lease agreements which do not cover oil and gas properties to the extent (i) the incurrence and existence of such liabilities will still enable each Restricted Subsidiary to comply with all requirements of this Agreement and (ii) not exceeding, in the aggregate at any time outstanding, $35,000,000; (o) until such time as the Guaranty Agreement is no longer in effect, any Guarantee by Guarantor of the payment or performance of the Company with respect to Indebtedness of Company permitted by Section 10.1(iii); (p) obligations in connection with bank guarantees, bonds, surety or similar obligations required or requested by Governmental Authorities in connection with the usual and customary operation of and the obtaining of oil and gas properties; and (q) in addition to Indebtedness permitted by clauses (a) through (p) above, Indebtedness of any Restricted Subsidiary in an aggregate principal amount not exceeding $10,000,000 at any time outstanding. (ii) Of Unrestricted Subsidiaries. The Company will not permit any of its Unrestricted Subsidiaries to (a) incur, create, assume or in any manner become or be liable in respect of any Indebtedness (including obligations for the payment of rentals), or (b) Guarantee or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the Indebtedness of any other Person or agreement for the furnishing of funds to any other Person through the purchase or lease of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging the Indebtedness of any other Person, or otherwise, except that the foregoing restrictions will not apply to any Indebtedness not exceeding $200,000,000 in the aggregate for all Unrestricted Subsidiaries. (iii) Of the Company. The Company may incur Indebtedness for borrowed money only if such Indebtedness is at prevailing market rates of interest and contains covenants, conditions and events of default not materially more onerous to the Company than the covenants, conditions and event of default set forth in one or more of the various indentures and other debt instruments of the Company in existence on the Effective Date. 10.2 Liens. The Company will not and will not permit any of its Restricted Subsidiaries to create, incur, assume or permit to exist any Lien on any of its or their properties (now owned or hereafter acquired), except: (a) Liens securing (i) the Loans or other obligations under the Loan Documents, and (ii) the obligations under any debt facility permitted pursuant to Section 10.1(iii) of this Agreement which by its terms requires that such debt facility be secured on a ratable basis with other Senior Debt upon the incurrence of Liens generally, provided that such Liens (A) are for the equal and ratable benefit of the Agents and the Banks under each of this Agreement and such debt facilities and (B) cover the same collateral, (b) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as will be required by GAAP will have been made therefor; (c) Liens of landlords, vendors, contractors, subcontractors, carriers, warehousemen, mechanics, laborers or materialmen or other like Liens arising by law or contract in the ordinary course of business for sums not yet due or being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as will be required by GAAP will have been made therefor; (d) Liens existing on property owned by the Company or any of its Restricted Subsidiaries on the date of this Agreement which have been disclosed to the Banks in the Disclosure Statement, together with any renewals, extensions, amendments, refinancings, rearrangements, modifications, restatements or supplements, but not increases, thereof from time to time; (e) pledges or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance, social security and other like laws; (f) inchoate liens arising under ERISA to secure the contingent liability of the Company permitted by Section 9.11; (g) Liens in the ordinary course of business, not to exceed in the aggregate $25,000,000 as to the Company and its Restricted Subsidiaries at any time in effect, regarding (i) the performance of bids, tenders, contracts (other than for the repayment of borrowed money or the deferred purchase price of property or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or (iv) Liens to secure progress or partial payments made to the Company or any of its Restricted Subsidiaries and other Liens of like nature; (h) covenants, restrictions, easements, servitudes, permits, conditions, exceptions, reservations, minor rights, minor encumbrances, minor irregularities in title or conventional rights of reassignment prior to abandonment which do not materially interfere with the occupation, use and enjoyment by the Company or any Restricted Subsidiary of its respective assets in the normal course of business as presently conducted, or materially impair the value thereof for the purpose of such business; (i) Liens of operators under joint operating agreements or similar contractual arrangements with respect to the relevant entity's proportionate share of the expense of exploration, development and operation of oil, gas and mineral leasehold or fee interests owned jointly with others, to the extent that same relate to sums not yet due or which are being contested in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as will be required by GAAP will have been made therefor; (j) Liens created pursuant to the creation of trusts or other arrangements funded solely with cash, cash equivalents or other marketable investments or securities of the type customarily subject to such arrangements in customary financial practice with respect to long-term or medium-term indebtedness for borrowed money, the sole purpose of which is to make provision for the retirement or defeasance, without prepayment, of Indebtedness permitted under Section 10.1; (k) [Intentionally omitted]; (l) Liens securing purchase money Indebtedness or Capital Lease Obligations incurred in compliance with Section 10.1 of this Agreement; (m) Liens on the capital stock or other equity interest of any Unrestricted Subsidiary securing obligations of such Unrestricted Subsidiary; (n) any Lien existing on any real or personal property of any Person at the time it becomes a Restricted Subsidiary, or existing prior to the time of acquisition upon any real or personal property acquired by the Company or any of its Restricted Subsidiaries; (o) legal or equitable encumbrances deemed to exist by reason of the existence of any litigation or other legal proceeding or arising out of a judgment or award with respect to which an appeal is being prosecuted in good faith by appropriate action promptly initiated and diligently conducted, if such reserve as will be required by GAAP will have been made therefor; (p) any Liens securing Indebtedness neither assumed nor guaranteed by the Company or any of its Restricted Subsidiaries nor on which it customarily pays interest, existing upon real estate or rights in or relating to real estate acquired by the Company or any of its Restricted Subsidiaries for substation, metering station, pump station, storage, gathering line, transmission line, transportation line, distribution line or right-of-way purposes, and any Liens reserved in leases for rent and full compliance with the terms of the leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause arises in the normal course of business as presently conducted and does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Company or its applicable Restricted Subsidiary; (q) rights reserved to or vested in any municipality or governmental, statutory or public authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the property of the Company or any of its Restricted Subsidiaries; (r) rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of the Company or any of its Restricted Subsidiaries, or to use such property in a manner which does not materially impair the use of such property for the purposes for which it is held by the Company or its applicable Restricted Subsidiary; (s) any obligations or duties affecting the property of the Company or any of its Restricted Subsidiaries to any municipality, governmental, statutory or public authority with respect to any franchise, grant, license or permit; (t) rights of a common owner of any interest in real estate, rights-of-way or easements held by the Company or any of its Restricted Subsidiaries and such common owner as tenants in common or through other common ownership; (u) as to assets located in Canada, reservations, limitations, provisos and conditions in any original grant from the Crown or freehold lessor of any of the properties of the Company or its Subsidiaries; (v) other Liens securing Indebtedness not exceeding, in the aggregate, $10,000,000 at any one time outstanding; (w) Liens covering cash collateral accounts relating to obligations pursuant to Letters of Credit issued in connection with the Revolving Credit Agreement; (x) Liens securing Indebtedness of the Company or any Restricted Subsidiary of the types described in Section 10.1(i)(p) covering the oil and gas properties to which such Indebtedness relates, provided that the aggregate amount of all such Indebtedness so secured under this Section 10.2(x) shall not exceed $50,000,000 in the aggregate at any one time outstanding; and (y) Liens (i) granted to or existing in favor of third parties on margin accounts of the Company or any of its Restricted Subsidiaries relating to exchange traded contracts for the delivery of natural gas pursuant to which the Company or any such Restricted Subsidiary intends to take actual delivery of such natural gas within forty (40) days from the then current date in the ordinary course of business and not for speculative purposes, and (ii) on margin accounts of the Company or any of its Restricted Subsidiaries relating to exchange traded contracts for the delivery of natural gas, provided, however, the aggregate balance of the margin accounts subject to the Liens permitted by this clause (ii) shall not exceed from time to time $10,000,000. 10.3 Dividend Payment Restrictions. The Company will not declare or make any Dividend Payment if any Default or Event of Default has occurred and is continuing or would result therefrom. 10.4 Mergers and Sales of Assets. The Company will not (a) merge or consolidate with, or sell, assign, lease or otherwise dispose of, whether in one transaction or in a series of transactions, more than (i) ten percent (10%) in the aggregate of the Company's and its Restricted Subsidiaries' consolidated total assets (whether now owned or hereafter acquired) to any Person or Persons during any twelve month period occurring after the date hereof or (ii) twenty-five percent (25%) in the aggregate of the Company's and its Restricted Subsidiaries' consolidated total assets as of the date hereof to any Person or Persons prior to the Stated Maturity Date, or permit any Restricted Subsidiary to do so (other than to the Company or another Restricted Subsidiary or the issuance by any Restricted Subsidiary of any stock to the Company or another Restricted Subsidiary), or (b) sell, assign, lease or otherwise dispose of, whether in one transaction or in a series of transactions, any other properties if receiving therefor consideration other than cash or other consideration readily convertible to cash or which is less than the fair market value of the relevant properties, or permit any Restricted Subsidiary to do so; provided that the Company or any Restricted Subsidiary may merge or consolidate with any other Person and any Restricted Subsidiary may transfer properties to any other Restricted Subsidiary or to the Company so long as, in each case, (i) immediately thereafter and giving effect thereto, no event will occur and be continuing which constitutes a Default, (ii) in the case of any such merger or consolidation to which the Company is a party, the Company is the surviving Person, (iii) in the case of any such merger or consolidation to which any Restricted Subsidiary is a party (but not the Company), after giving effect to all transactions closing concurrently relating to such merger or consolidation, the surviving Person is a Restricted Subsidiary and (iv) the surviving Person ratifies each applicable Loan Document and provided further that any Restricted Subsidiary may merge or consolidate with any other Restricted Subsidiary so long as, in each case (i) immediately thereafter and giving effect thereto, no event will occur and be continuing which constitutes a Default and (ii) the surviving Person ratifies each applicable Loan Document. 10.5 Proceeds of Loans. The Company will not permit the proceeds of the Loans to be used for any purpose other than those permitted by this Agreement. 10.6 ERISA Compliance. The Company will not at any time permit any Plan maintained by it or any Restricted Subsidiary to: (a) engage in any "prohibited transaction" as such term is defined in Section 4975 of the Code; (b) incur any "accumulated funding deficiency" as such term is defined in Section 302 of ERISA; or (c) terminate or be terminated in a manner which could result in the imposition of a Lien on the property of the Company or any Restricted Subsidiary pursuant to Section 4068 of ERISA, in each case, to the extent that permitting the Plan to do so would have a Material Adverse Effect. 10.7 Total Leverage Ratio. The Company will not permit its Total Leverage Ratio to be (i) at any time through March 31, 2001, more than 4.25 to 1.00, (ii) at any time from April 1, 2001 through March 31, 2002, more than 4.00 to 1.00, (iii) at any time on or after April 1, 2002, more than 3.75 to 1.00. 10.8 Senior Leverage Ratio. The Company will not permit its Senior Leverage Ratio to be at any time more than 3.00 to 1.00. 10.9 Minimum Net Worth. The Company will not permit its Consolidated Net Worth as of the end of any fiscal quarter to be less than (i)$770,000,000 plus (ii) an amount equal to 50% of the sum of the Company's and its Restricted Subsidiaries' consolidated net income for each calendar quarter, beginning with the calendar quarter ending March 31, 1999, during which such consolidated net income is greater than $0 plus (iii) an amount equal to 50% of the net cash proceeds received by the Company and its Restricted Subsidiaries from the issuance of any common stock, preferred stock or other equity for each calendar quarter, beginning with the calendar quarter ending March 31, 1999. 10.10 Nature of Business. The Company will not engage in, and will not permit any Restricted Subsidiary to engage in, businesses other than oil and gas exploration and production, gas processing, transmission, distribution, marketing and storage and gas and liquids pipeline operations and activities related or ancillary thereto; provided, that if the Company acquires one or more Restricted Subsidiaries in transactions otherwise permitted by the terms hereof, any such Restricted Subsidiary may be engaged in businesses other than those listed in this Section so long as the assets of such Restricted Subsidiaries which are used in the conduct of such other businesses do not constitute more than five percent (5%) of the consolidated total assets of the Company (inclusive of the assets of the Restricted Subsidiary so acquired). 10.11 Covenants in Other Agreements. The Company will not and will not permit any of its Restricted Subsidiaries to become a party to or to agree that it or any of its property is bound by any agreement, indenture, mortgage, deed of trust or any other instrument directly or indirectly (i) restricting any loans, advances or any other Investments to or in the Company by any of its Restricted Subsidiaries, (ii) restricting the ability of any Restricted Subsidiary to make tax payments or management fee payments to the Company, or (iii) restricting the ability or capacity of any Restricted Subsidiary to make Dividend Payments to the Company, except for (a) instruments in existence on the date hereof and (b) instruments entered into after the date hereof containing restrictions not materially more restrictive than the restrictions permitted under clause (a) above. Section 11. Defaults. 11.1 Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) Payments - (i) the Company or any other Relevant Party fails to make any payment or prepayment of any installment of principal on the Loans payable under this Agreement or the other Loan Documents when due or (ii) the Company or any other Relevant Party fails to make any payment or prepayment of interest with respect to the Loans or any other fee, amount or Obligation under this Agreement or the other Loan Documents and such failure to pay continues unremedied for a period of five (5) Business Days; or (b) Representations and Warranties - any representation or warranty made by the Company or any other Relevant Party in this Agreement or in any other Loan Document or in any instrument executed in connection herewith or therewith proves to have been incorrect in any material respect as of the date thereof; or any representation, statement (including Financial Statements), certificate or data furnished or made by the Company or any other Relevant Party (or any officer of the Company or any other Relevant Party) under or in connection with this Agreement or any other Loan Document, including without limitation in the Disclosure Statement, proves to have been untrue in any material respect, as of the date as of which the facts therein set forth were stated or certified; or (c) Affirmative Covenants - (i) default shall be made in the due observance or performance of any of the covenants or agreements contained in Sections 9.10 (or in Section 9.6 to the extent such default is considered an Event of Default under the other Subsections of this Section 11.1) or (ii) default is made in the due observance or performance of any of the other covenants or agreements contained in Section 9 of this Agreement or any other affirmative covenant of the Company or any other Relevant Party contained in this Agreement or any other Loan Document and such default continues unremedied for a period of 30 days after (x) notice thereof is given by Administrative Agent to the Company or (y) such default otherwise becomes known to the Company, whichever is earlier; or (d) Negative Covenants - default is made in the due observance or performance by the Company of any of the covenants or agreements contained in Section 10 of this Agreement or of any other negative covenant of the Company or any other Relevant Party contained in this Agreement or any other Loan Document; or (e) Other Obligations - default is made in the due observance or performance by the Company or any of its Restricted Subsidiaries (as principal or guarantor or other surety) of any of the covenants or agreements contained in any bond, debenture, note or other evidence of Indebtedness in excess of $25,000,000 (singly or aggregating several such bonds, debentures, notes or other evidence of Indebtedness) which default gives the holder the right to accelerate the maturity of such Indebtedness, other than the Loan Documents, or under any credit agreement, loan agreement, indenture, promissory note or similar agreement or instrument executed in connection with any of the foregoing, to which it (respectively) is a party and such default is unwaived or continues unremedied beyond the expiration of any applicable grace period which may be expressly allowed under such instrument or agreement; or (f) Involuntary Bankruptcy or Receivership Proceedings - a receiver, conservator, liquidator or trustee of the Company, the Guarantor, any Restricted Subsidiary or of any of their property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction, and such decree or order remains in effect for more than 60 days; or the Company, the Guarantor or any Restricted Subsidiary is adjudicated bankrupt or insolvent; or any of its property is sequestered by court order and such order remains in effect for more than 60 days; or a petition is filed against the Company, the Guarantor or any Restricted Subsidiary under any state or federal bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or receivership law of any jurisdiction, whether now or hereafter in effect, and is not dismissed within 60 days after such filing; or (g) Voluntary Petitions or Consents - the Company, the Guarantor or any Restricted Subsidiary commences a voluntary case or other proceeding seeking liquidation, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other relief with respect to itself or its debt or other liabilities under any bankruptcy, insolvency or other similar law nor or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or fails generally to, or cannot, pay its debts generally as they become due or takes any corporate action to authorize or effect any of the foregoing; or (h) Assignments for Benefit of Creditors or Admissions of Insolvency - the Company, the Guarantor or any Restricted Subsidiary makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of the Company, the Guarantor, any Restricted Subsidiary or of all or any part of their property; or (i) Undischarged Judgments - judgments (individually or in the aggregate) for the payment of money in excess of $10,000,000 in excess of insurance coverage are rendered by any court or other governmental body against the Company or any of its Restricted Subsidiaries or the Guarantor and the Company or such Restricted Subsidiary or the Guarantor does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 60 days from the date of entry thereof, and within said period of 60 days from the date of entry thereof or such longer period during which execution of such judgment will have been stayed, the Company, such Restricted Subsidiary or the Guarantor fails to appeal therefrom and cause the execution thereof to be stayed during such appeal while providing such reserves therefor as may be required under GAAP; or (j) Subsidiary Defaults - the Guarantor or any Restricted Subsidiary of the Company takes, suffers, or permits to exist any of the events or conditions referred to in Subsections 11.1(f), (g) or (h); or (k) Change in Control - there should occur any Change of Control. THEREUPON: Administrative Agent may (and, if directed by the Majority Banks, shall) (a) declare the Commitments terminated (whereupon the Commitments shall be terminated) and/or (b) declare the principal amount then outstanding of and the accrued interest on the Loans and all fees and all other Obligations to be forthwith due and payable, whereupon such amounts shall be and become immediately due and payable, without notice (including without limitation notice of acceleration and notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company; provided that in the case of the occurrence of an Event of Default with respect to the Company referred to in clause (f) or (g) of this Section 11.1 or in clause (j) of this Section 11.1 to the extent it refers to clauses (f) or (g), the Commitments shall be automatically terminated and the principal amount then outstanding of and the accrued interest on the Loans and all fees and all other Obligations payable hereunder shall be and become automatically and immediately due and payable, without notice (including but not limited to notice of intent to accelerate and notice of acceleration) and without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and/or (d) exercise any and all other rights available to it under the Loan Documents, at law or in equity. 11.2 [Intentionally omitted]. 11.3 [Intentionally omitted]. 11.4 Right of Setoff. Upon (i) the occurrence and during the continuance of any Event of Default referred to in clauses (f), (g) or (h) of Section 11.1, or in clause (j) of Section 11.1 to the extent it refers to clauses (f), (g) or (h), or upon (ii) the occurrence and continuance of any other Event of Default and upon the making of the notice specified in Section 11.1 to authorize Administrative Agent to declare the Loans due and payable pursuant to the provisions of this Agreement, or if (iii) the Company or any of its Subsidiaries becomes insolvent, however evidenced, the Banks are hereby authorized at any time and from time to time, without notice to the Company or any of its Subsidiaries (any such notice being expressly waived by the Company and its Subsidiaries), to setoff and apply any and all deposits (general or special, time or demand, provisional or final, whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit) at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by any Bank to or for the credit or the account of the Company against any and all of the Obligations irrespective of whether or not such Bank will have made any demand under this Agreement and although such obligations may be unmatured. Should the right of any Bank to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Banks shall make restitution or refund to the Company pro rata in accordance with their Commitments. The Banks agree promptly to notify the Company and Administrative Agent after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Agents and the Banks under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Agents or the Banks may have. Section 12. Agents. 12.1 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes each Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to such Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. Each Agent (which term as used in this Section 12 shall include reference to its Affiliates and its own and their Affiliates' officers, directors, employees and agents) shall not (a) have any duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, or shall by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Bank; (b) be responsible to any Bank for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Relevant Party or any other Person to perform any of its obligations hereunder or thereunder; (c) be required to initiate or conduct any litigation or collection proceedings hereunder or any other Loan Document except to the extent such Agent is so requested by the Majority Banks, or (d) be responsible for any action taken or omitted to be taken by it hereunder or any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, INCLUDING, WITHOUT LIMITATION, PURSUANT TO THEIR OWN NEGLIGENCE, except for its own gross negligence or willful misconduct. Each Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. In any foreclosure proceeding concerning any collateral for the Loans, each holder of a Loan if bidding for its own account or for its own account and the accounts of other Banks is prohibited from including in the amount of its bid an amount to be applied as a credit against Obligations owing to such Bank or the Obligations owing to the other Banks; instead, such holder must bid in cash only; provided that this provision is for the sole benefit of the Agents and the Banks and shall not inure to the benefit of the Company or any of its Subsidiaries. However, in any such foreclosure proceeding, Administrative Agent may (but shall not be obligated to) submit a bid for all Banks (including itself) in the form of a credit against the Obligations of all of the Banks, and Administrative Agent or its designee may (but shall not be obligated to) accept title to such collateral for and on behalf of all Banks. 12.2 Reliance by Agents. Each Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Company), independent accountants and other experts selected by such Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, each Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Banks (or, where unanimous consent is required by the terms hereof or of the other Loan Documents, all of the Banks), and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. Pursuant to instructions of the Majority Banks (except as otherwise provided in Section 13.4 hereof), Administrative Agent shall have the authority to execute releases of security documents on behalf of the Banks without the joinder of any Bank. The Company and any third-party may conclusively rely upon any such release delivered by Administrative Agent without investigation as to whether such release has been approved by the Majority Banks. 12.3 Defaults. Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless it has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that Administrative Agent receives such a notice of the occurrence of a Default, Administrative Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). Administrative Agent shall (subject to Section 12.7 hereof) take such action with respect to such Default as shall be directed by the Majority Banks and within its rights under the Loan Documents and at law or in equity, provided that, unless and until Administrative Agent shall have received such directions, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, permitted hereby with respect to such Default as it shall deem advisable in the best interests of the Banks and within its rights under the Loan Documents, at law or in equity. 12.4 Rights as a Bank. With respect to its Commitments and the Loans made, CSFB, Chase and Bank of America, respectively, each in its capacity as a Bank hereunder, shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as an Agent and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include CSFB, Chase and Bank of America, respectively, each in its individual capacity. Administrative Agent may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Company (and any of its Affiliates) as if it were not acting as Administrative Agent, and Administrative Agent may accept fees and other consideration from the Company and its Affiliates (in addition to the fees heretofore agreed to between the Company and Administrative Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 12.5 Indemnification. The Banks agree to indemnify each Agent (to the extent not reimbursed under Section 9.7 or Section 13.3 hereof, but without limiting the obligations of the Company under said Sections 9.7 and 13.3), ratably in accordance with their respective Commitments, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever (INCLUDING, BUT NOT LIMITED TO, THE CONSEQUENCES OF THE NEGLIGENCE OF SUCH AGENT) which may be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Company is obligated to pay under Sections 9.7 and 13.3 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of their respective agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. The obligations of the Banks under this Section 12.5 shall survive the termination of this Agreement and the repayment of the Obligations. 12.6 Non-Reliance on Agents and Other Banks. Each Bank agrees that it has received current financial information with respect to the Company and its Subsidiaries and that it has, independently and without reliance on any Agent or any other Bank and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon any Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. Each Agent shall not be required to keep itself informed as to the performance or observance by any Relevant Party of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Company or any Relevant Party. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by Administrative Agent hereunder, under the other Loan Documents, the Agents shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any other Relevant Party (or any of their Affiliates) which may come into the possession of such Agent. 12.7 Failure to Act. Except for action expressly required of Administrative Agent hereunder and under the other Loan Documents, Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Banks of their indemnification obligations under Section 12.5 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 12.8 Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, Administrative Agent may resign at any time by giving notice thereof to the Banks and the Company, and Administrative Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent (subject to the consent of the Company, which consent shall not be unreasonably withheld), provided deposits with a successor Administrative Agent shall be insured by the Federal Deposit Insurance Corporation or its successor. If no successor Administrative Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent (subject to the consent of the Company, which consent shall not be unreasonably withheld). Any successor Administrative Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. A successor Administrative Agent shall promptly specify by notice to the Company and the Banks its Principal Office referred to in Sections 3.1 and 5.1. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 12 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as an Administrative Agent. Section 13. Miscellaneous. 13.1 Waiver. No waiver of any Default shall be a waiver of any other Default. No failure on the part of any Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. 13.2 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telegraph, telecopy (confirmed by mail), cable, mail or other writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to the Company and Administrative Agent given in accordance with this Section 13.2. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly received when transmitted by telex or telecopier during regular business hours, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, three (3) days after deposit in the United States mails, postage prepaid, certified mail with return receipt requested (or upon actual receipt, if earlier), in each case given or addressed as aforesaid. 13.3 Indemnification. The Company shall indemnify the Agents, the Banks, and each Affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject (REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE SIMPLE (BUT NOT GROSS) NEGLIGENCE OF THE PERSON INDEMNIFIED), insofar as such losses, liabilities, claims or damages arise out of or result from any (i) actual or proposed use by the Company of the proceeds of any extension of credit by any Bank hereunder, (ii) breach by the Company of this Agreement or any other Loan Document, (iii) violation by the Company or any of its Subsidiaries of any Legal Requirement, including but not limited to those relating to Hazardous Substances, (iv) Liens or security interests previously or hereafter granted on any real or personal property, to the extent resulting from any Hazardous Substance located in, on or under any such property, (v) ownership by the Banks or the Agents of any real or personal property following foreclosure, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance located in, on or under such property, including, without limitation, losses, liabilities, claims or damages which are imposed upon Persons under laws relating to or regulating Hazardous Substances solely by virtue of ownership, (vi) Bank's or Agent's being deemed an operator of any such real or personal property by a court or other regulatory or administrative agency or tribunal in circumstances in which neither any of the Agents nor any of the Banks is generally operating or generally exercising control over such property, to the extent such losses, liabilities, claims or damages arise out of or result from any Hazardous Substance located in, on or under such property, (vii) investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to any of the foregoing, and the Company shall reimburse each Agent, each Bank, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand, for any expenses (including legal fees) incurred in connection with any such investigation or proceeding or (viii) taxes (excluding income taxes and franchise taxes) payable or ruled payable by any Governmental Authority in respect of any Loan Document, together with interest and penalties, if any; provided, however, that the Company shall not have any obligations pursuant to this Section 13.3 with respect to any losses, liabilities, claims, damages or expenses (a) arising from or relating solely to events, conditions or circumstances which, as to clauses (iv), (v) or (vi) above, first came into existence or which first occurred after the date on which the Company or any of its Subsidiaries conveyed to an unrelated third party all of the Company's or the applicable Subsidiary's rights, titles and interests to the applicable real or personal property (whether by deed, deed-in-lieu, foreclosure or otherwise) other than a conveyance made in violation of any Loan Document, (b) incurred by the Person seeking indemnification by reason of the gross negligence or willful misconduct of such Person, or (c) asserted by one or more indemnified parties or stockholders thereof against one or more indemnified parties. If the Company ever disputes a good faith claim for indemnification under this Section 13.3 on the basis of the proviso set forth in the preceding sentence, the full amount of indemnification provided for shall nonetheless be paid, subject to later adjustment or reimbursement at such time (if any) as a court of competent jurisdiction enters a final judgment as to the applicability of any such exceptions or an agreement is reached with respect thereto. 13.4 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor any consent to any departure by the Company or any Obligor therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Majority Banks and the Company, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver or consent shall, unless in writing and signed by each Bank affected thereby, do any of the following: (a) increase the Commitment of such Bank (it being understood that the waiver of any reduction in the Commitments or any mandatory repayment other than (x) the repayment of all Loans on the Stated Maturity Date and (y) the mandatory reductions of the Commitments provided for in Section 2.3(a) and (z) the mandatory prepayments required by the terms of Section 3.2(b), shall not be deemed to be an increase in any Commitment) or subject the Banks to any additional obligation; (b) reduce the principal of, or interest on, any Loan or fee hereunder; (c) postpone any scheduled date fixed for any payment or mandatory prepayment of principal of, or interest on, any Loan, fee or other sum to be paid hereunder; (d) change the percentage of any of the Commitments or of the aggregate unpaid principal amount of any of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Agreement; (e) change any provision contained in Sections 9.7 or 13.3 hereof or this Section 13.4 or Section 6.7 hereof, or (f) release all or substantially all of any security for the obligations of the Company under this Agreement or all or substantially all of the personal liability of any obligor created under any of the Loan Documents. Anything in this Section 13.4 to the contrary, no amendment, waiver or consent shall be made with respect to Section 12 without the consent of Administrative Agent. 13.5 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Agents and the Banks and their respective successors and assigns. The Company may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all of the Banks. Each Bank may sell participations to any Person in all or part of any Loan, or all or part of its Commitments, in which event, without limiting the foregoing, the provisions of Section 6 shall inure to the benefit of each purchaser of a participation and the pro rata treatment of payments, as described in Section 5.2, shall be determined as if such Bank had not sold such participation. In the event any Bank shall sell any participation, such Bank shall retain the sole right and responsibility to enforce the obligations of the Company relating to the Loans, including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document other than amendments, modifications or waivers with respect to (i) any fees payable hereunder to the Banks and (ii) the amount of principal or the rate of interest payable on, or the dates fixed for the scheduled repayment of principal of, the Loans. (b) Each Bank may assign to one or more Banks or any other Person all or a portion of its interests, rights and obligations under this Agreement, provided, however, that (i) other than in the case of an assignment to another Bank that is, at the time of such assignment, a party hereto or an Affiliate of such Bank, the Company must give its prior written consent, which consent will not be unreasonably withheld, (ii) the aggregate amount of the Commitment and/or Loans of the assigning Bank subject to each such assignment (determined as of the date the Assignment and Acceptance (as defined below) with respect to such assignment is delivered to Administrative Agent) shall in no event be less than $10,000,000 (or $5,000,000 in the case of an assignment to an Affiliate of a Bank or between Banks) unless either (A) if Bank's Commitment is less than $10,000,000 or $5,000,000, as applicable, such amount is equal to all of such Bank's Commitment under this Agreement or (B) each of the Company and the Administrative Agent otherwise consents, (iii) notwithstanding any other term or provision of this Agreement, unless the Company shall have otherwise consented in writing (such consent not to be unreasonably withheld), each such assignment shall be pro rata with respect to the Loans and the Commitment of the assignor, and (iv) the parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance in the form of Exhibit E hereto (each an "Assignment and Acceptance") with blanks appropriately completed, together with any note or notes subject to such assignment and a processing and recordation fee of $2,500 paid by the assignee (for which the Company shall have no liability). Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (B) the Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement. (c) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Bank assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such Bank assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and its Subsidiaries or the performance or observance by the Company and its Subsidiaries of any of its obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Sections 8.6 and 9.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such Bank assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Bank. (d) Administrative Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Agents and the Banks may treat each Person the name of which is recorded in the Register as a Bank hereunder for all purposes of this Agreement and the other Loan Documents. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and the assignee thereunder together with any note or notes subject to such assignment, the written consent to such assignment executed by the Company and the fee payable in respect thereto, Administrative Agent shall, if such Assignment and Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. If applicable, within five (5) Business Days after receipt of notice, the Company, at its own expense, shall execute and deliver to Administrative Agent in exchange for the surrendered notes new notes to the order of such assignee in an amount equal to the Commitments and/or Loans assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained Commitments and/or Loans hereunder, new notes to the order of the assigning Bank in an amount equal to the Commitment and/or Loans retained by it hereunder. Such new notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the respective note. Thereafter, such surrendered notes, if any, shall be marked renewed and substituted and the originals delivered to the Company (with copies, certified by the Company as true, correct and complete, to be retained by Administrative Agent). (f) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 13.5, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Company furnished to such Bank by or on behalf of the Company; provided, however, that, prior to any such disclosure, the Company shall have consented thereto, which consent shall not be unreasonably withheld, and each such assignee or participant, or proposed assignee or participant, shall execute an agreement whereby such assignee or participant shall agree to preserve the confidentiality of any Confidential Information (defined in Section 3.14) on terms substantially the same as those provided in Section 13.14. (g) The Company will have the right to consent to any material intercreditor arrangements in connection with an assignment by any Bank of any interest, right or obligation under this Agreement which is not pro rata with respect to the Loans and the Commitment of the assignor and the Company may deny its consent to any such arrangements which, in the reasonable judgement of the Company, would adversely affect the Company in a material respect. (h) The provisions of this Section shall not apply to the assignment and pledge of a Bank's rights hereunder or under any note to any Federal Reserve Bank for collateral purposes pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank; provided that such assignment and pledge shall not relieve such Bank of any of its obligations hereunder. (i) Notwithstanding anything to the contrary contained herein, any Bank (a "Granting Bank") may grant to a special purpose funding vehicle (a "SPC"), identified as such in writing from time to time by the Granting Bank to the Administrative Agent and the Company, the option to provide to the Company all or any part of any Loan that such Granting Bank would otherwise be obligated to make to the Company pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Loan were made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section, any SPC may (i) with notice to, but without the prior written consent of, the Company and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loan to the Granting Bank or to any financial institutions (consented to by the Company and Administrative Agent), providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loan and (ii) provided that the recipient conforms with the requirements of Section 13.14, disclose on a confidential basis any Confidential Information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of the SPC. 13.6 Limitation of Interest. The Company, the Agents and the Banks intend to strictly comply with all applicable laws, including applicable usury laws. Accordingly, the provisions of this Section 13.6 shall govern and control over every other provision of this Agreement or any other Loan Document which conflicts or is inconsistent with this Section, even if such provision declares that it controls. As used in this Section, the term "interest" includes the aggregate of all charges, fees, benefits or other compensation which constitute interest under applicable law, provided that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall be characterized as an expense or as compensation for something other than the use, forbearance or detention of money and not as interest, and (b) all interest at any time contracted for, reserved, charged or received shall be amortized, prorated, allocated and spread, in equal parts during the full term of the Obligations. In no event shall the Company or any other Person be obligated to pay, or any Bank have any right or privilege to contract for, charge, reserve, receive or retain, (a) any interest in excess of the maximum amount of nonusurious interest permitted under the laws of the State of Texas or the applicable laws (if any) of the United States or of any other applicable state, or (b) total interest in excess of the amount which such Bank could lawfully have contracted for, reserved, received, retained or charged had the interest been calculated for the full term of the Obligations at the Highest Lawful Rate. On each day, if any, that the interest rate (the "Stated Rate") called for under this Agreement or any other Loan Document exceeds the Highest Lawful Rate, the rate at which interest shall accrue shall automatically be fixed by operation of this sentence at the Highest Lawful Rate for that day, and shall remain fixed at the Highest Lawful Rate for each day thereafter until the total amount of interest accrued equals the total amount of interest which would have accrued if there were no such ceiling rate as is imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the Highest Lawful Rate when the provisions of the immediately preceding sentence shall again automatically operate to limit the interest accrual rate. The daily interest rates to be used in calculating interest at the Highest Lawful Rate shall be determined by dividing the applicable Highest Lawful Rate per annum by the number of days in the calendar year for which such calculation is being made. None of the terms and provisions contained in this Agreement or in any other Loan Document which directly or indirectly relate to interest shall ever be construed without reference to this Section 13.6, or be construed to create a contract to pay for the use, forbearance or detention of money at an interest rate in excess of the Highest Lawful Rate. If the term of any Obligation is shortened by reason of acceleration of maturity as a result of any Default or by any other cause, or by reason of any required or permitted prepayment, and if for that (or any other) reason any Bank at any time, including but not limited to, the stated maturity, is owed or receives (and/or has received) interest in excess of interest calculated at the Highest Lawful Rate, then and in any such event all of any such excess interest shall be canceled automatically as of the date of such acceleration, prepayment or other event which produces the excess, and, if such excess interest has been paid to such Bank, it shall be credited pro tanto against the then-outstanding principal balance of the Company's obligations to such Bank, effective as of the date or dates when the event occurs which causes it to be excess interest, until such excess is exhausted or all of such principal has been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess shall be promptly refunded to its payor. Chapter 346 of the Texas Finance Code (which regulates certain revolving credit accounts (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this Agreement or to any Loan, nor shall this Agreement or any Loan be governed by or be subject to the provisions of such Chapter 346 in any manner whatsoever. 13.7 Survival. The obligations of the Company under Sections 6, 9.7 and 13.3 hereof and the obligations of the Banks under Sections 13.6 and 13.14 hereof shall survive the repayment of the Loans and the termination of the Commitments. 13.8 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 13.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart. 13.10 GOVERNING LAW; FORUM SELECTION; CONSENT TO JURISDICTION. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS ARE PERFORMABLE IN HARRIS COUNTY, TEXAS, WHICH SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN RESPECT THEREOF. THE COMPANY IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING IN RESPECT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE BROUGHT IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION (COLLECTIVELY, THE "SPECIFIED COURTS"). THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN ANY SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY FURTHER (1) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE CITY OF HOUSTON, TEXAS, IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO ADMINISTRATIVE AGENT EVIDENCE THEREOF AND (2) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE SPECIFIED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS AS PROVIDED IN THIS AGREEMENT OR AS OTHERWISE PROVIDED BY TEXAS LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY AGENT OR ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 13.11 WAIVER OF JURY TRIAL; PUNITIVE DAMAGES. THE COMPANY, EACH AGENT AND EACH BANK HEREBY (I) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. 13.12 Severability. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of any Loan Document shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions of such Loan Document shall not be affected or impaired thereby. 13.13 [Intentionally omitted]. 13.14 Confidential Information. Each Agent and each Bank separately agrees that: (a) As used herein, the term "Confidential Information" means written information about the Company or any of its Subsidiaries or the transactions contemplated herein furnished by the Company to the Agents and/or the Banks which is specifically designated as confidential by the Company; Confidential Information, however, shall not include information which (i) was publicly known or available, or otherwise available on a non-confidential basis to any Bank, at the time of disclosure from a source other than the Company, (ii) subsequently becomes publicly known through no act or omission by such Bank, (iii) otherwise becomes available on a non-confidential basis to any Bank other than through disclosure by the Company or (iv) has been in the possession of any Bank for a period of more than two years from the date on which such information originally was furnished to such Bank by the Company, unless the Company shall have requested the Agents and the Banks in writing, at least 30 days prior to the end of such two-year period, to maintain the confidentiality of such information for another two (2) year period (or for successive two (2) year periods); provided that the Company shall not unreasonably withhold its consent to a request made after the initial two (2) year period to eliminate information from "Confidential Information". (b) Each Agent and each Bank agrees that it will take normal and reasonable precautions to maintain the confidentiality of any Confidential Information furnished to such Person; provided, however, that such Person may disclose Confidential Information (i) upon the Company's consent; (ii) to its auditors; (iii) when required by any Legal Requirement; (iv) as may be required or appropriate in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over it; (v) to such Person's and its Subsidiaries' or Affiliates' officers, directors, employees, agents, representatives and professional consultants in connection with this Agreement or administration of the Loans; (vi) as may be required or appropriate, should such Bank elect to assign or grant participations in any of the Obligations in connection with (1) the enforcement of the Obligations by any such Person under any of the Loan Documents or related agreements, or (2) any potential transfer pursuant to this Agreement of any Obligation owned by any Bank (provided any potential transferee has been approved by the Company if required by this Agreement, which approval shall not be unreasonably withheld, and has agreed in writing to be bound by substantially the same provisions regarding Confidential Information contained in this Section); (vii) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation or administrative proceeding; (viii) to any other Bank; (ix) to the extent reasonably required in connection with the exercise of any remedy hereunder or under the other Loan Documents; or (x) to correct any false or misleading information which may become public concerning such Person's relationship to the Company. 13.15 Tax Forms. With respect to each Bank which is organized under the laws of a jurisdiction outside the United States, on the day of the initial borrowing hereunder and from time to time thereafter if requested by the Company or Administrative Agent, such Bank shall provide Administrative Agent and the Company with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Bank's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Bank hereunder or other Loan Documents or indicating that all payments to be made to such Bank hereunder are subject to such tax at a rate reduced by an applicable tax treaty. Unless the Company and Administrative Agent shall have received such forms or such documents indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Company or Administrative Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States. 13.16 Entire Agreement. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] [SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT] S - 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. OCEAN ENERGY, INC., a Texas corporation By: Name: Stephen A. Thorington Title: Senior Vice President, Finance, Treasury and Corporate Development Address for Notices: 1001 Fannin, Suite 1700 Houston, Texas 77002 Attention: Stephen A. Thorington Phone:(713) 265-6190 Fax: (713) 265-8024 CREDIT SUISSE FIRST BOSTON, as a Bank and as Administrative Agent and Auction Administrative Agent By: Name: Title: By: Name: Title: Address for Notices: 11 Madison Avenue, 20th Floor New York, New York 10010-3629 Attention: Douglas E. Maher Phone:(212) 325-3641 Fax: (212) 325-8615 with further notice to: 600 Travis Street, 30th Floor Houston, Texas 77002 Attention: R. Scott Brown Phone:(713)220-6774 Fax: (713)237-0325 BANK OF AMERICA, N.A., as a Bank and as Syndication Agent By: Name: Title: Address for Notices: 700 Louisiana, 8th Floor Houston, Texas 77002 Attention:Mr. Paul Squires Phone:(713) 247-6952 Fax: (713) 247-6568 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and as Documentation Agent By: Name: Title: Address for Notices: 1 Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Ms. Debbie Rockower Phone:(212) 552-7446 Fax: (212) 552-5700 with a copy to: Chase Bank of Texas, National Association 712 Main Street Houston, Texas 77002 Attention: Manager, Energy Division Exhibit A - 1 Exhibit A Unrestricted Subsidiaries 1. Seagull UK Ltd. 2. SGO Isle of Man Ltd. 3. Seagull Energy International, Inc. 4. Seagull Egypt Company 5. Seagull Ireland Ltd. 6. GNR International (Argentina), Inc. 7. Seagull (Malaysia) Ltd. 8. Texneft Inc. 9. GNR International (Turkey), Inc. 10. Havre Pipeline Company, LLC 11. Lion GPL, S.A. 12. Ocean Yemen Corporation 13. Thousand Oaks Dev. Corp. J.V. 14. UMC Angola Corporation 15. Ocean Bangladesh Corporation 16. Ocean Pakistan Corporation Exhibit B - 3 Exhibit B Form of Request for Extension of Credit [OCEAN ENERGY, INC. LETTERHEAD] REQUEST FOR EXTENSION OF CREDIT ________________, _____ Credit Suisse First Boston, as Administrative Agent 11 Madison Avenue, 20th Floor New York, New York 10010-3629 Attention: Ms. Julia Kingsbury Gentlemen: The undersigned hereby certifies that he is the of OCEAN ENERGY, INC., a Texas corporation (the "Company"), and that as such he is authorized to execute this Request for Extension of Credit (the "Request") on behalf of the Company pursuant to the 364-Day Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Agreement") dated as of November 9, 1999, by and among the Company, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks, and the Banks therein named. The Loan being requested hereby is to be in the amount set forth in (b) below and is requested to be made on ________________, _______, which is a Business Day. The Loan is to be (check one) [___] a Eurodollar Loan [___] an Alternate Base Rate Loan. If the Loan is to be a Eurodollar Loan, the Interest Period is to be (check one) [__] 1, [__] 2, [__] 3 or [__] 6 months. On behalf of the Company, the undersigned further certifies, represents and warrants that to his knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified herein): (a) As of the date hereof: (1) The Facility Amount [COMPLETE WITH THE AGGREGATE COMMITMENTS) is: $__________ (2) Aggregate outstanding amount of Loans is: $__________ (3) Amount currently available under the Agreement (the amount in (a)(1) above minus the amount in (a)(2) above) is: $__________ (b) If and only if the amount shown in Line (a)(3) above is positive, the Company hereby requests under this Request a Loan in the amount of $__________ (which is no more than the positive amount set forth in Line (a)(3) above). (c) Except for the facts heretofore disclosed to the Administrative Agent in writing, which facts (I) are not materially more adverse to the Company and its Subsidiaries or any other Obligor, (II) do not materially decrease the ability of the Banks to collect the Obligations as and when due and payable and (III) do not materially increase the liability of any Agent or any of the Banks, in each case compared to those facts existing on the date hereof and the material details of which have been set forth in the Financial Statements delivered to the Administrative Agent prior to the date hereof or in the Disclosure Statement, and except for the representations set forth in the Loan Documents which, by their terms, are expressly (or by means of similar phrasing) made as of the date of the Agreement, only, the representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. (d) The interest rate and Interest Period selected above comply with all applicable provisions of the Agreement. (e) No Default has occurred and is continuing. (f) No event or condition shall have occurred since December 31, 1998, which is reasonably expected to result in a Material Adverse Effect. [Items (c), (d) and (f) above may be omitted at the discretion of the Company if appropriate in the case of the conversion of Competitive Loan or a Eurodollar Loan to an Alternate Base Rate Loan. In the event of the occurrence and continuation of a Default, Item (e) may be replaced with a statement regarding the existence of such Default.] Thank you for your attention to this matter. Very truly yours, OCEAN ENERGY, INC., a Texas corporation By: Name: Title: Exhibit C - 3 Exhibit C Subsidiaries (with Addresses) 1. Seagull Energy E&P Inc. 2. Seagull UK Ltd. 3. SGO Isle of Man Ltd. 4. Seagull Energy International, Inc. 5. Seagull Egypt Company 6. Seagull Ireland Ltd. 7. Seagull International Holdings Ltd. 8. Seagull East Zeit Petroleum Ltd. 9. Global Natural Resources Inc. 10. Global Natural Resources Corporation of Nevada 11. Seagull (Cote D'Ivoire) Ltd. 12. Seagull (Cote D'Ivoire) CI-12 Ltd. 13. Seagull (Cote D'Ivoire) CI-104 Ltd 14. Seagull (Egypt) Ltd. 15. Seagull (Egypt) Darag, Ltd. 16. Seagull (Egypt) East Beni Suef, Ltd. 17. GNR International (Argentina), Inc. 18. Seagull (Malaysia) Ltd. 19. Texneft Inc. 20. GNR Eastern 21. GNR International (Turkey), Inc. 22. Thousand Oaks Development Corporation 23. Seagull Pipeline & Marketing Company 24. Seagull Marketing Services, Inc. 25. Seagull Power Services Inc. 26. Seagull Products Pipeline Corporation 27. Seagull Field Services Company 28. Seagull Pipeline Company 29. Seagull WAG Petroleum Ltd. 30. Ocean Energy, Inc. (a Louisiana corporation) 31. UMC Pipeline Corporation 32. Ocean International Ltd. 33. Ocean Energy Cote d'lvoire Corporation 34. Ocean (C1-01) Corporation 35. Ocean (C1-02) Corporation 36. Ocean (C1-12) Corporation 37. Ocean (C1-105) Corporation 38. UMC Angola Corporation 39. Ocean Bangladesh Corporation 40. Ocean Pakistan Corporation 41. Ocean Ghana Corporation 42. Ocean Energy Qatar Corporation (a Cayman Islands corporation) 43. Ocean Exploration, Inc. (100% of the capital stock is owned by OEI-Louisiana). 44. Ocean Energy Resources, Inc.,1670 Broadway, Suite 2800, Denver, Colorado 80202. 45. Ocean Equatorial Guinea Corporation 46. Big Sky Gas Marketing Corporation 47. UMC Colorado LLC (a Colorado limited liability company), 410 17th Street, Suite 1400, Denver, Colorado 80202 48. Ocean Yemen Corporation, Ugland House, George Town, Grand Cayman, BWI c/o Adrian Pope, Maples & Calder. 49. Havre Pipeline Company, LLC, 410 17th Street, Suite 1400, Denver, Colorado 80202 50. Lion GPL, SA, BP 827, Abidjan 04, Republic of Cote d'Ivoire 51. Buckeye Geostratic 52. Equitable 79 II 53. Kingfisher Partners, Ltd. 54. Kingfisher Partners, Ltd. 1979 - I 55. MWJ 78-2. Ltd. Drilling Program 56. Mewbourne Oil, Ltd., 1978 - A 57. Petroleum Discovery Partners, Ltd. - I 58. Petroleum Discovery Partners, Ltd. - IV 59. Rankin Oil & Gas Lease 60. Ricks Drilling Program 1975 61. Ricks Drilling Program 1976 -1 62. Ricks Drilling Program 1976 - 2 63. Ricks Drilling Program 1977 - 1 64. Ricks Drilling Program 1977 - 2 65. Ricks 1978 Private Drilling Program 1978 - 1 66. Ricks Drilling Program 1978 - 2 67. Ricks Drilling Program 1979 - 1 68. Ricks 1979 Private Drilling - 2 69. Seneca Exploration Ltd. 70. Smith Petroleum 1978 - A Ltd. 71. Struthers 1978 - A Oil & Gas Program 72. Struthers 1978 - B Oil & Gas Program 73. Joseph I. O'Neill, Jr. - Anadarko Gas Program: 1974 A 74. Joseph I. O'Neill, Jr. - Anadarko Gas Program: 1974 B 75. 1969 Oil & Gas Program (Adams Resources) 76. 1970 Oil & Gas Program 77. 1971 Oil & Gas Program 78. Wil-Mc 1975 Fund Ltd. 79. Foxco Energy Limited Partnership 1986 80. JMI 1983 81. Taurus 1991 82. Taurus 1993 83. Taurus 1994 84. Taurus 1996 85. Dominion 1987 86. Dominion (CDN) 87. Fidelity 86/87 (Lincoln Road, McCullen Bluff) 88. Fidelity 1989 89. Fidelity 1989 (CDN) 90. Fidelity 1991 91. Fidelity 1991 (CDN) 92. Fidelity 1993 93. Fidelity 1993 (CDN) 94. Fidelity 1994 95. Fidelity 1994 (CDN) 96. Fidelity 1996 In each case (unless otherwise noted), the address for notice is: c/o Ocean Energy, Inc. 1001 Fannin, Suite 1700 Houston, Texas 77002 Exhibit D - 4 Exhibit D Form of Compliance Certificate The undersigned, the ___________________ of OCEAN ENERGY, INC., a Texas corporation (the "Company"), hereby certifies that he is authorized to execute this certificate on behalf of the Company, pursuant to the 364-Day Credit Agreement (the "Credit Agreement"), dated as of November 9, 1999, by and among the Company, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks, and the Banks therein named, as amended; and that a review of the Company and its Subsidiaries has been made under his supervision with a view to determining whether the Company and its Subsidiaries have fulfilled all of their respective obligations under the Credit Agreement and the other Loan Documents; and on behalf of the Company further certifies, represents and warrants that to his knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): As of , ______: (a) The Company and its Subsidiaries have fulfilled their respective obligations under the Credit Agreement and the other Loan Documents as each applies after giving effect to any amendments, consents and/or waivers that may be in effect from time to time. (b) Except for the facts heretofore disclosed to the Administrative Agent under the Credit Agreement in writing, which facts (I) are not materially more adverse to the Company and its Subsidiaries or any other Obligor, (II) do not materially decrease the ability of the Banks to collect the Obligations as and when due and payable and (III) do not materially increase the liability of the Agents or any of the Banks, in each case compared to those facts existing on the date hereof and the material details of which have been set forth in the Financial Statements delivered to the Administrative Agent under the Credit Agreement prior to the date hereof or in the Disclosure Statements provided for in the Credit Agreement, and except for the representations set forth in the Loan Documents which, by their terms, are expressly (or by means of similar phrasing) made as of the date of the Credit Agreement, only, the representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. (c) The Financial Statements delivered to the Administrative Agent under the Credit Agreement concurrently with this Compliance Certificate have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present, in all material respects, the consolidated financial condition and results of operations of the applicable Persons as at the end of, and for, the period indicated (subject, in the case of quarterly Financial Statements, to normal changes resulting from year-end adjustments). (d) No Default has occurred and is continuing. In this regard the compliance with the provisions of Sections 10.7, 10.8 and 10.9 of the Credit Agreement is as follows: (i) Section 10.7 of the Credit Agreement - Total Leverage Ratio Total Debt (1) $_________ EBITDAX (2) $_________ Total Leverage Ratio (1)/(2) _________ Note: Must be no greater than amount specified in Section 10.7. (ii) Section 10.8 of the Credit Agreement - Senior Leverage Ratio Total Debt $__________ Less: Subordinated Indebtedness $__________ Senior Debt (1) $__________ EBITDAX (2) $__________ Senior Leverage Ratio (1)/(2) __________ Note: Must be no greater than 3.00 to 1.00. (iii) Section 10.9 of the Credit Agreement - Minimum Consolidated Net Worth Preferred stock (if any), par value of common stock, capital in excess of par value of common stock and retained earnings of Company and its Subsidiaries (1) $__________ Less treasury stock (if any), goodwill, cost in excess of fair value of net assets acquired and all other assets that are properly classified as intangible assets of Company and its Subsidiaries (2) $__________ Plus any expenses associated with the Merger occurring prior to December 31, 1999 and not in excess of $30,000,000 in the aggregate, and the amount of noncash write downs of long-lived assets in compliance with GAAP or SEC guidelines (3) $__________ Plus or minus, as appropriate, any extraordinary or non-recurring net gains or losses together with any related provision for taxes on such gain or loss, realized in connection with any extraordinary or nonrecurring gains or losses (4) $__________ Plus or minus, as appropriate, foreign currency translation adjustments applicable to Company and its Subsidiaries (5) $__________ Consolidated Net Worth [(1) - (2) + (3) +/- (4) +/- (5)] $__________ Consolidated Net Worth Requirement Initial Amount (i) $770,000,000 Plus 50% of the sum of Company's and its Restricted Subsidiaries consolidated net income for each fiscal quarter beginning with the calendar quarter ending March 31, 1999 (ii) $__________ Plus 50% of the net cash proceeds received by the Company and its Restricted Subsidiaries from the issuance of any common stock, preferred stock or other equity for each fiscal quarter beginning with the calendar quarter ending March 31, 1999. (iii) $__________ Total CNW Requirement [(i) + (ii) + (iii)] $__________ Note: Consolidated Net Worth must be equal to or greater than the Total CNW Requirement (f) There has occurred no Material Adverse Effect since the date of the most recent Financial Statements delivered to the Banks. (g) The following Letters of Credit are issued and currently outstanding: Issuer: Beneficiary: L/C No.: Amount: Date of Issue: Expiration: DATED as of ____________________, ____. OCEAN ENERGY, INC. By: Name: Title: Exhibit E - 6 Exhibit E Form of Assignment and Acceptance Dated: _______________, _____ Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999 (as restated, amended, modified, supplemented and in effect from time to time, the "Credit Agreement"), among OCEAN ENERGY, INC., a Texas corporation (the "Company"), CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks, and the Banks therein named. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. This Assignment and Acceptance, between the Assignor (as defined and set forth on Schedule I hereto and made a part hereof) and the Assignee (as defined and set forth on Schedule I hereto and made a part hereof) is dated as of the Effective Date (as set forth on Schedule I hereto and made a part hereof). 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date, an undivided interest (the "Assigned Interest") in and to all the Assignor's rights and obligations under the Credit Agreement respecting those, and only those, credit facilities contained in the Credit Agreement as are set forth on Schedule 1 (collectively, the "Assigned Facilities," individually, an "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on Schedule I. 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or its Subsidiaries or the performance or observance by the Company or its Subsidiaries of any of its respective obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto; and (iii) if applicable, attaches the note(s) held by it evidencing the Assigned Facility or Facilities, as the case may be, and requests that the Administrative Agent exchange such note(s) for a new note or notes payable to the Assignor (if the Assignor has retained any interest in the Assigned Facility or Facilities) and a new note or notes payable to the Assignee in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance and that it is a permitted assignee under Section 13.5 of the Credit Agreement; (ii)confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 8.6, or if later, the most recent financial statements delivered pursuant to Section 9.1 thereof, and such other documents and information as it has deemed appropriate to make its own credit analysis; (iii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the Loan Documents; (iv) appoints and authorizes the each Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to such Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (vi) if the Assignee is organized under the laws of a jurisdiction outside the United States, attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied the information requested on the administrative questionnaire attached hereto as Exhibit A. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and the Company and recording by the Administrative Agent pursuant to Section 13.5(e) of the Credit Agreement, effective as of the Effective Date (which Effective Date shall, unless otherwise agreed to by the Administrative Agent, be at least five Business Days after the execution of this Assignment and Acceptance). 5. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee, whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by the Administrative Agent or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder, and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective duly authorized officers on Schedule I hereto. Schedule I to Assignment and Acceptance Legal Name of Assignor: Legal Name of Assignee: Effective Date of Assignment: , ______ || Percentage Assigned of Each Facility (to at least 8 decimals) (Shown as a percentage of aggregate Assigned Principal original principal amount Facilities Amount Assigned of all Banks - ------------------- ------------------------- ---------------------------- - ------------------- ------------------------- ---------------------------- Committed Loans: $_______________ __________% - ------------------- -------------------------- --------------------------- - ------------------- -------------------------- --------------------------- Competitive Loans:$_______________ - ------------------- -------------------------- --------------------------- || Accepted: CREDIT SUISSE FIRST BOSTON, as Administrative Agent as Assignor By: By: Name: Name: Title: Title: OCEAN ENERGY, INC. as Assignee By: By: Name: Name: Title: Title: EXHIBIT A Administrative Questionnaire Primary Contact Bank Name: Address: Primary Contact: Title: Department: Telephone Number: Telecopier Number: Alternate Contact Alternate Contact: Title: Department: Telephone Number: Telecopier Number: Exhibit F - 2 Exhibit F Form of Competitive Bid Request _______________, _____ Credit Suisse First Boston, as Auction Administrative Agent 11 Madison Avenue, 20th Floor New York, New York 10010-3629 Attention: Ms. Julia Kingsbury Dear Sirs: Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999, as modified and amended (the "Credit Agreement"), among the undersigned, the Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby gives you notice pursuant to Section 2.9 of the Credit Agreement that it requests a Competitive Loan under the Credit Agreement, and in that connection sets forth below the terms on which such Competitive Loan is requested to be made: (A) Borrowing Date of Competitive Loan (which is a Business Day) (B) Principal Amount of Competitive Loan1 (C) Interest Period and the last day thereof 2 By each of the delivery of this Request for Competitive Bids and the acceptance of any or all of the Loans offered by the Banks in response to this Competitive Bid Request, the undersigned represents and warrants that the applicable conditions to lending specified in the Credit Agreement have been satisfied with respect to the Competitive Loan requested hereby. Very truly yours, OCEAN ENERGY, INC. By: Name: Title: Exhibit G - 2 Exhibit G Form of Notice to Banks of Competitive Bid Request [Name of Bank] [Address of Bank] Attention: _______________, _____ Dear Sirs: Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999, as modified and amended (the "Credit Agreement"), among OCEAN ENERGY, INC. (the "Company"), the Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company delivered a Request for Competitive Bid by [Date] /Time].1 Your Competitive Bid must comply with Section 2.9 of the Credit Agreement and the terms set forth below on which the Notice of Competitive Loan was made: (A) Date of Competitive Loan (B) Principal Amount of Competitive Loan (C) Interest Period and the last day thereof Very truly yours, CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent By: Name: Title: Exhibit H - 3 Exhibit H Form of Competitive Bid Credit Suisse First Boston, as Auction Administrative Agent 11 Madison Avenue, 20th Floor New York, New York 10010-3629 Attention: Ms. Julia Kingsbury _________, ______ Dear Sirs: The undersigned, [Name of Bank], referred to in the 364-Day Credit Agreement dated as of November 9, 1999, as modified and amended (the "Credit Agreement"), among OCEAN ENERGY, INC. (the "Company"), the Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby makes a Competitive Bid pursuant to Section 2.9 of the Credit Agreement, in response to the Request for Competitive Bids (the "Competitive Bid Request") made by the Company on _______________, _____, and in that connection sets forth below the terms on which such Competitive Bid is made: (A) Principal Amount 1 (B) Competitive Bid Rate 2 (C) Interest Period and the last day thereof 3 The undersigned hereby confirms that it is prepared to extend credit to the Company upon acceptance by the Company of this bid in accordance with Section 2.9 of the Credit Agreement. Very truly yours, [NAME OF BANK] By: Name: Title: Exhibit I - 1 Exhibit I Form of Competitive Bid Administrative Questionnaire Primary Contact Competitive Auctions Bank Name: Address: Primary Contact: Title: Department: Telephone Number: Telecopier Number: Alternate Contact Competitive Auctions Alternate Contact: Title: Department: Telephone Number: Telecopier Number: Exhibit J - 3 Exhibit J [Form of] Certificate of Extension , Credit Suisse First Boston, as Administrative Agent 11 Madison Avenue, 20th Floor New York, New York 10010-3629 Attention:Ms. Julia Kingsbury Re: Extension of Revolving Commitment Termination Date - 364 Day Credit Agreement Dear Sirs: Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999, as modified and amended (the "Credit Agreement"), among the undersigned, the Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the Banks. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. Pursuant to the terms of Section 2.2 of the Credit Agreement, Company hereby requests an extension of the Revolving Commitment Termination Date under the Credit Agreement for a period of 364 days from the current Revolving Commitment Termination Date. To induce Banks to make such an extension of the current Revolving Commitment Termination Date, Company hereby represents, warrants, acknowledges, and agrees to and with each Agent and each Bank that: (a) The Responsible Officer of Company signing this instrument is a duly elected, qualified and acting officer of Company, holding the office indicated below such officer's signature hereto and having all necessary authority to act for Company in making and delivering this Certificate of Extension. (b) Except for the facts heretofore disclosed to the Administrative Agent under the Credit Agreement in writing, which facts (I) are not materially more adverse to the Company and its Subsidiaries or any other Obligor, (II) do not materially decrease the ability of the Banks to collect the Obligations as and when due and payable and (III) do not materially increase the liability of the Agents or any of the Banks, in each case compared to those facts existing on the date hereof and the material details of which have been set forth in the Financial Statements delivered to the Administrative Agent under the Credit Agreement prior to the date hereof or in the Disclosure Statements provided for in the Credit Agreement, and except for the representations set forth in the Loan Documents which, by their terms, are expressly (or by means of similar phrasing) made as of the date of the Credit Agreement, only, the representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. (c) There does not exist on the date hereof any condition or event which constitutes a Default which has not been waived in writing as provided in Section 13.1 of the Credit Agreement. (d) Except to the extent waived in writing as provided in Section 13.1 of the Credit Agreement, Company has performed and complied with all agreements and conditions in the Credit Agreement required to be performed or complied with by Company on or prior to the date hereof. (e) The Loan Documents have not been modified, amended or supplemented by any unwritten representations or promises, by any course of dealing, or by any other means not provided for in Section 13.4 of the Credit Agreement. The Credit Agreement and the other Loan Documents are hereby ratified, approved, and confirmed in all respects. Company agrees that if, prior to the time of the extension of the current Revolving Commitment Termination Date requested hereby, any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify Administrative Agent. Except to the extent, if any, that, prior to the time of the extension of the current Revolving Commitment Termination Date requested hereby, Administrative Agent shall have received written notice from Company to the contrary, each matter certified herein shall be deemed once again to be certified as true and correct as of the date of such extension as if then made. The Responsible Officer of Company signing this instrument hereby certifies that, to the best of his knowledge, the above representations, warranties, acknowledgments and agreements of Company are true, correct and complete. OCEAN ENERGY, INC. By: Name: Title: Exhibit K - 1 Exhibit K [Form of] GUARANTY AGREEMENT Exhibit L - 1 Exhibit L DISCLOSURE STATEMENT I. Indebtedness of any Restricted Subsidiary existing on the date of this Agreement per Section 10.1(i)(b): Guarantee of "95 Indenture" as defined in the Agreement Guarantee of "96 Indenture" as defined in the Agreement Guarantee of "97 Indenture" as defined in the Agreement Guarantee of "98 Senior Subordinated Indenture" as defined in the Agreement Guarantee of Ocean Energy, Inc. $125,000,000 13 1/2% Senior Notes issued December 1, 1994 due 2004 Guarantee of Ocean Energy, Inc. $125,000,000 7 5/8% Senior Notes issued July 8, 1998 due 2005 Guarantee of Ocean Energy, Inc. $125,000,000 8 1/4% Senior Notes issued July 8, 1998 due 2018 Guarantee of Seagull Energy Corporation $100,000,000 7 7/8% Senior Notes issued July 1993 due August 1, 2003 Guarantee of Seagull Energy Corporation $150,000,000 8 5/8% Senior Subordinated Notes issued July 1993 due August 1, 2005 Guarantee of Seagull Energy Corporation $150,000,000 7 1/2% Senior Notes issued September 30, 1997 due September 15, 2027 Guarantee of obligations of Havre (as defined in the Agreement) in an amount not exceeding $20,000,000 in the aggregate in connection with Indebtedness of Havre Exhibit M - 1 Exhibit M Commitments - --------------------------------- --------------------------------------- Name of Bank Commitment - --------------------------------- --------------------------------------- - --------------------------------- --------------------------------------- Credit Suisse First Boston $100,000,000 - --------------------------------- --------------------------------------- - --------------------------------- --------------------------------------- Chase Bank of Texas, National Association $50,000,000 - --------------------------------- --------------------------------------- - --------------------------------- --------------------------------------- Bank of America, N.A. $50,000,000 - --------------------------------- --------------------------------------- - --------------------------------- --------------------------------------- Total: $200,000,000 - --------------------------------- --------------------------------------- 1/ Not less than $25,000,000 or greater than the unused Total Commitment and in integral multiples of $5,000,000. 2/ Which, subject to the Credit Agreement, shall have a duration of not less than seven calendar days nor more than 180 calendar days, and which shall end not later than the Termination Date. 1/ The Competitive Bid must be received by the Auction Administrative Agent not later than noon, New York, New York time, four Business Days before the date of the proposed Competitive Loan. 1/ Not less than $25,000,000 or greater than the available Total Commitment and in integral multiples of $5,000,000. Multiple bids will be accepted by the Auction Administrative Agent. 2/ Expressed as a percentage 3/ The Interest Period must be the Interest Period specified in the Competitive Bid Request. EX-10.20 3 AMNDMNT 4 LONG TERM INCENTIVE PLAN NON-EXECUTIVE FOURTH AMENDMENT TO THE OCEAN ENERGY, INC. LONG-TERM INCENTIVE PLAN FOR NONEXECUTIVE EMPLOYEES WHEREAS, there is reserved to the Board of Directors of Ocean Energy, Inc. (the "Board") in Section 7 of the Ocean Energy, Inc. Long-Term Incentive Plan for Nonexecutive Employees (the "Plan") the right to amend the Plan: WHEREAS, the Board desires to amend the Plan; NOW, THEREFORE, effective as of January 1, 2000, the Plan is amended as follows: 1. Section 4(a) of the Plan shall be deleted and the following shall be substituted therefor: "(a) Shares Available. Subject to adjustment as provided in Section 4(c), the number of Shares with respect to which Awards may be granted under the Plan shall be 2,500,000; provided, however, if as of any January 1 the number of Shares that are available for Awards under the Plan is less than 2,500,000 Shares, the maximum number of Shares available for Awards shall be increased automatically on such January 1, by the number of Shares necessary to equal 2,500,000 Shares available for Awards. If any Shares covered by an Award granted under the Plan, or to which such an Award relates, are forfeited, or if an Award otherwise terminates or is canceled without the delivery of Shares or of other consideration, then the Shares covered by such Award, or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such forfeiture, termination or cancellation, shall again be, or shall become, Shares with respect to which Awards may be granted, but only if, and to the extent that, the number of Shares then available for Awards does not exceed 2,500,000 Shares." 2. As amended hereby, the Plan is specifically ratified and reaffirmed. Houston:60062.2 EX-10.23 4 OUTSIDE DIRECTOR'S FEE PLAN OCEAN ENERGY, INC. OUTSIDE DIRECTORS DEFERRED FEE PLAN (As Amended and Restated Effective March 30, 1999) 1. History and Purposes of the Plan The Ocean Energy, Inc. Outside Directors Deferred Fee Plan ("Plan") was originally adopted on May 16, 1983 by Ocean Energy, Inc., a Texas corporation (the "Company"), formerly known as Seagull Energy Corporation and Seagull Pipeline Corporation, and is intended to provide a method for attracting and retaining qualified outside directors for the Company and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. Effective as of March 30, 1999 (the "Effective Date"), the Company merged the Ocean Energy, Inc. Outside Directors Fee Plan (the "OEI Plan") with and into the Plan and amended and restated the Plan in order to reflect the plan merger and the merger of Ocean Energy, Inc., a Delaware corporation ("OEI") with and into Seagull Energy Corporation. 2. Administration of the Plan Except as otherwise specifically provided herein, the Plan shall be administered by a committee (the "Committee") appointed by the Board of Directors of the Company (the "Board") or such other committee designated from time to time by the Board. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee shall be final. All expenses incurred in connection with the administration of the Plan shall be borne by the Company. In certain cases arising under the Plan, action or approval must be taken by either the full Board or by a committee of "Non-Employee Directors" as described in Rule 16b-3 promulgated by the Securities Exchange Commission (such board or committee being referred to herein as the "Rule 16b-3 Committee") 3. Participation in the Plan (a) Participation. Each outside director who was a participant in the Plan ("Participant") or the OEI Plan on the Effective Date shall remain a Participant in this restatement of the Plan as of the Effective Date. Each other director shall be eligible to become a Participant on date he becomes an outside director. For purposes of this Paragraph, an "outside director" is an individual who is a validly elected or appointed director of the Company and who does not perform any services for the Company in a common-law employee capacity. (b) Deferral of Director's Fees. A Participant may elect to defer director's fees (whether annual, periodic or special) to be earned by such Participant for services rendered under the Plan by filing with the Committee an election to defer receipt of all or a designated portion of such fees. (c) Time and Manner of Making Elections. Any deferral election that may be made by a Participant under the Plan shall be made with respect to the period commencing on January 1 (or, if later, the date the Participant is first elected or appointed to the Board) and ending on December 31 of each year ("Service Period") during which services are rendered by such Participant and must be made prior to the first day of such Service Period; provided, however, that the deferral election with respect to a Participant's initial Service Period may be made no later than thirty days after the date the Participant is first elected or appointed to the Board and shall be prospective only. All deferral elections shall be made in the manner and form prescribed by the Committee. Deferral elections made prior to the Effective Date with respect to the Service Period that includes the Effective Date shall remain in effect for the remainder of such Service Period. (d) Nature of Elections. A Participant's election to defer receipt of all or a designated portion of his fees for a Service Period shall continue in force and effect for future Service Periods unless modified or revoked by such Participant. Any such modification or revocation shall be effective only as of the first day of a Service Period and must be made prior to the first day of such Service Period. A modification or revocation of an existing deferral election shall be made in the manner and form prescribed by the Committee. Any deferral election (whether in the nature of an initial election, an unrevised continuing election or a revised continuing election) with respect to a Service Period shall be irrevocable as of the first day of such Service Period or, if later, the day following the last day upon which an election may be made with respect to a Service Period. 4. Crediting of Deferred Fees to Plan Accounts (a) Establishment of Plan Accounts. The Committee shall establish a memorandum bookkeeping account or accounts (the "Plan Accounts") for each Participant in the Plan. As of the Effective Date, a Participant's Required Deferral Account and Elective Deferral Account shall be combined into a single Plan Account. The Committee shall credit to each Participant's Plan Accounts the Participant's deferred fees as of the date such fees are earned by the Participant. (b) Crediting of Interest Equivalents. As of the last day of each calendar quarter in which a Participant has a balance credited to his Plan Accounts, the Committee shall, subject to the other provisions of this Section 4, credit to each Participant's Plan Accounts, as additional deferred fees, a dollar amount equal to simple interest on the amounts credited to each such Account (excluding any amounts being credited during such quarter) computed at the sum of: (1) the prime rate published in The Wall Street Journal on the last business day of such calendar quarter, plus (2) a rate based upon the number of complete years that Participant has served on the Board (including service on the board of directors of any predecessor of the Company or OEI), in accordance with the following schedule: Number of Years Additional Rate of Interest Less than 5 0% 5 but less than 10 1% 10 or more 2% (c) Alternative Investment in Stock Units. (1) In lieu of having his Plan Accounts credited with interest equivalents pursuant to Paragraph (b) above, a Participant may elect from time to time in accordance with the provisions of Paragraphs (d) and (e) below to have all or a portion of the value of such Plan Accounts determined as if it had been credited with a number of shares of stock (the "Phantom Stock") equal to the number of shares of common stock of the Company, par value $.10 per share, that could have been purchased with such portion of his Accounts on the date of such election, or for amounts that are subsequently credited to the Participant's Plan Accounts, on the date so credited, at a price per share equal to the average of the closing prices of the common stock of the Company on the twenty trading days preceding such date. (2) As of the last day of each calendar quarter and as of any other date that the Committee shall determine, the Committee shall redetermine the value of each Participant's Plan Accounts that are credited with Phantom Stock based upon the increase or decrease in the value of the common stock of the Company during such quarter. For the purpose of such redetermination, one share of Phantom Stock shall be deemed to be the equivalent of one share of common stock of the Company. Further, the portion of each Participant's Plan Accounts that are credited with such Phantom Stock shall be credited with the amount of any cash dividends paid with respect to the common stock of the Company during such quarter in accordance with Paragraph (c)(1) above. (3) If, and whenever, the Company shall effect a subdivision or consolidation of the common stock of the Company or the payment of a stock dividend on the common stock of the Company (i) in the event of an increase in the number of outstanding shares of the common stock of the Company, the number of shares of Phantom Stock credited to each Participant's Plan Accounts shall be proportionately increased and (ii) in the event of an reduction in the number of outstanding shares of the common stock of the Company, the number of shares of Phantom Stock credited to each Participant's Plan Accounts shall be proportionately reduced. (d) Crediting Election. In accordance with procedures established by the Committee, prior to the first day of any calendar quarter in which a Participant has a balance credited to his Plan Accounts, but in no event within six months of any election pursuant to Paragraph (e) below, a Participant may elect to have all or a portion of the amounts in his Plan Accounts deemed invested in Phantom Stock pursuant to Paragraph (c) above for all of such quarter. Any such election shall be effective until revoked by the Participant as provided in Paragraph (e) below. If a Participant fails to make any election under this Paragraph, his Plan Accounts shall be credited with interest equivalents pursuant to Paragraph (b) above. (e) Revocation of Election. In accordance with procedures established by the Committee, prior to the first day of any calendar quarter in which a Participant has a balance credited to his Plan Accounts, but in no event within six months of any election pursuant to Paragraph (d) above, a Participant may revoke an election made pursuant to Paragraph (d) above with respect to all or a portion of his Plan Accounts, effective as of the first day of such quarter. The value, as determined as of the last day of the quarter immediately preceding the effective date of such election pursuant to Paragraph (c) above, of the portion of his Plan Accounts that is affected by such revocation shall, as of such first day, be credited with interest equivalents pursuant to Paragraph (b) above. (f) Invalid Elections. An election pursuant to Paragraph (d) or Paragraph (e) above that is attempted within six months of an election made pursuant to the other Paragraph in violation of the prohibitions of such Paragraphs shall have no force or effect and shall be null and void. 5. Payment of Deferred Fees (a) Payment Election Generally. A Participant shall elect, subject to the provisions of Paragraphs (b), (c) and (d) below, the time (which may not be prior to the latest of (i) the date on which he ceases to be a member of the Board, (ii) the date on which he ceases to be a member of the Senior Advisory Council to the Board or (iii) the date that is at least six months from the date of the Participant's last election, if any, pursuant to Section 4(d) above) and the mode (which may either be a lump sum payment or monthly, quarterly, or annual installment payments over a specified term certain) for payment of amounts credited to his Plan Accounts during a Service Period (and the income credited thereto). A Participant may revise his election regarding the time and mode of payment of amounts credited to his Plan Accounts only if, and at such time as, such revised election is approved by a Rule 16b-3 Committee; provided, however, that such revised election shall not be effective until the later of (A) the January 1 following the date such revised election is approved or (B) the date that is six months after the date such revised election is approved. In the absence of direction by a Participant regarding the time or mode of payment of amounts credited to his Plan Accounts during a Service Period (and the income credited thereto), such amounts shall be distributed in monthly installments over a period of ten years, beginning on the first day of the first month after the later of (i) the date on which he ceases to be a member of the Board or (ii) the date on which he ceases to be a member of the Senior Advisory Council to the Board. (b) Payment Upon Death. In the event of a Participant's death, the balance of such Participant's Plan Accounts, computed as of the date of his death, shall be paid in one lump sum to his designated beneficiary within the first four months following the date of such Participant's death. A Participant, by written instrument filed with the Committee in such manner and form as it may prescribe, may designate one or more beneficiaries to receive payment of the amounts credited to his Plan Accounts in the event of his death. Any such beneficiary designation may be changed from time to time prior to the death of the Participant. In the absence of a beneficiary designation on file with the Committee at the time of a Participant's death, the executor or administrator of the Participant's estate shall be deemed to be his designated beneficiary. (c) Payment Upon Plan Termination. In the event the Plan is terminated by the Company, the balance of each Participant's Plan Accounts, computed as of the day immediately following the six-month anniversary of the date of such Plan termination, shall be paid to such Participant in one lump sum as soon as practicable after such date. (d) Payment Upon Change of Control. With respect to any Participant that ceases to be a director of the Company (or any successor) as a result of or in connection with a change of control that is not approved, recommended and supported by at least two-thirds of the directors that were also directors prior to the occurrence of any such change of control in actions taken prior to, and with respect to, such change of control, such Participant's Plan Accounts, computed as of the later of the date such Participant ceases to be a director of the Company or the date of such change of control, shall be paid to such Participant in one lump sum as soon as practicable, but no later than thirty days following such date. For purposes of the Plan, "change of control" shall be deemed to have occurred if (i) any person (other than Participant or the Company) including a "group" as determined in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner of shares of the Company having 40% or more of the total number of votes that may be cast for the election of directors; or (ii) as a result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were directors before the Transaction shall cease to constitute a majority of the Board or any successor thereto. The determinations of whether a change of control has occurred, whether such change of control was not approved, recommended or supported by the Directors in actions taken prior to, and with respect to, such change of control and whether any Participant ceased to be a director of the Company as a result of or in connection with such change of control shall be made by the Committee as existing at least six months prior to the occurrence of such change of control and its determination shall be final. (e) Conversion of Plan Accounts for Purposes of Payment. (1) If a Participant has elected to receive payment of his Plan Accounts in a lump sum pursuant to Paragraph (a) above, the value of his Plan Accounts shall be determined as of the last day of the month preceding the time that he has elected to receive such payment and an amount equal to such value shall be paid to the Participant. To the extent such Participant has elected to have his Plan Accounts credited based on Phantom Stock pursuant to Paragraph 4(d), the value of his Plan Accounts shall be based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date. (2) If a Participant has elected to receive payment of his Plan Accounts in any mode other than lump sum pursuant to Paragraph (a) above, to the extent his Plan Accounts are being credited with Interest Equivalents pursuant to Paragraph 4(b), the value of his Plan Accounts shall be determined as of the last day of the month preceding the date of any such payment and each subsequent interval thereafter, and an amount equal to the value of such Plan Accounts multiplied by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments that the Participant elected, shall be paid as of each interval such Participant elected; provided, however, that any such amounts remaining credited to such Participant's Plan Accounts shall continue to be credited with Interest Equivalents pursuant to Paragraph 4(b), except that the Interest Equivalents so credited shall be paid directly to the Participant. If a Participant has elected to receive payment of his Plan Accounts in a mode other than a lump sum pursuant to Paragraph (a) above, to the extent his Plan Accounts are credited based on Phantom Stock pursuant to Paragraph 4(d), the number of shares of Phantom Stock credited to his Plan Accounts shall be determined as of the last day of the month preceding the date of any such payment and each subsequent interval thereafter, and such number shall be multiplied by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments that the Participant elected, and an amount equal to the value of the resulting number of shares of Phantom Stock, based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date, shall be paid to such Participant. (3) If Paragraphs (b), (c) or (d) above apply, the value of a Participant's Plan Accounts shall be determined as of the date specified in the applicable Paragraph and an amount equal to such value shall be paid to the Participant or his designated beneficiary; provided, however, that if the Participant has elected to have his Plan Accounts credited based on Phantom Stock pursuant to Paragraph 4(d), the value of his Plan Accounts shall be based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date. (f) Form of Payment. All payments under the Plan shall be solely in the form of cash. Without limiting the generality of the foregoing, nothing in the Plan shall be construed as giving any Participant any rights as a holder of common stock or any other equity security of the Company as a result of such Participant's participation in this Plan or his election to credit his Plan Accounts with Phantom Stock. (g) Debiting of Plan Accounts. Once an amount has been paid to a Participant or his beneficiary, such amount or the Phantom Stock equivalent thereof shall be debited from the Participant's Plan Accounts. (h) Six-Month Payment Delay. Notwithstanding any of the foregoing provisions of this Section 5 to the contrary, no payments to a Participant under this Plan shall be made or commenced prior to the expiration of six months from the making of any election pursuant to Paragraph 4(d) above, unless such payments are made on account of the death, disability, retirement or termination of employment of the Participant within the meaning of Rule 16b-3 promulgated by the Securities Exchange Commission. 6. Distributions for Unforseeable Emergency In the event the Rule 16b-3 Committee, in its sole discretion, determines that a Participant has an unforseeable emergency, the Rule 16b-3 Committee may direct that such portion of the amounts credited to a Participant's Plan Accounts as it determines is reasonably needed to satisfy such unforseeable emergency be paid to the Participant in one lump sum payment as soon as practicable following the Rule 16b-3 Committee's determination of the existence and extent of such unforseeable emergency. For purposes of this Paragraph 6, a unforseeable emergency shall mean severe financial hardship to a Participant that arises from a sudden and unexpected illness or accident of the Participant or of a dependent of a Participant, loss of the Participant's property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of such Participant. Further, no payment may be made pursuant to this Paragraph 6 to the extent such severe financial hardship may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. For purposes of this Paragraph 6, the purchase of a house or education expenses for children, shall not be considered to be unforseeable emergencies. The decision of the Rule 16b-3 Committee regarding the existence or nonexistence of an unforseeable emergency of a Participant shall be final and binding. The Rule 16b-3 Committee shall have the authority to require a Participant to provide such proof as it deems necessary to establish the existence and nature of the Participant's unforseeable emergency. The foregoing notwithstanding, a Participant who is a member of the Rule 16b-3 Committee shall not participate in the deliberations or decision of the Rule16b-3 Committee regarding a hardship distribution to such Participant. 7. Prohibition Against Assignment or Encumbrance No right, title, interest or benefit hereunder shall ever be liable for or charged with any of the torts or obligations of a Participant or a person claiming under a Participant, or be subject to seizure by any creditor of a Participant or any person claiming under a Participant. No Participant or any person claiming under a Participant shall have the power to anticipate or dispose of any right, title, interest or benefit hereunder in any manner until same shall have been actually distributed free and clear of the terms of the Plan. 8. Nature of the Plan The Plan and any election agreements executed thereunder constitute an unfunded, unsecured liability of the Company to make payments in accordance with the provisions hereof, and neither a Participant nor any person claiming under the Participant shall have any security or other interest in any specific assets of the Company by virtue of this Plan. Neither the establishment of the Plan, the crediting of amounts to Plan Accounts nor the setting aside of any funds shall be deemed to create a trust. The Company at its election may fund the payment of benefits under the Plan by setting aside and investing, in an account on the Company's books, such funds as the Company may from time to time determine. Legal and equitable title to any funds so set aside shall remain in the Company, and no Participant shall have any security or other interest in such funds. Any funds so set aside shall remain subject to the claims of the creditors of the Company, present and future. 9. Amendment and Termination of Plan The Company shall have the right to alter or amend the Plan or any part thereof from time to time, except the Company shall not make any alteration or amendment that would impair the rights of a Participant with respect to amounts theretofore credited to that Participant's Plan Accounts. The Company may terminate the Plan at any time. If not sooner terminated under the provisions of this paragraph, the Plan shall terminate as of the date on which all amounts theretofore credited to Plan Accounts have been paid. 10. No Tax Guarantee Neither the Plan nor any representation made in connection with it shall be construed to be an assurance or guarantee of a deferral of income for income tax purposes of any amount to be paid pursuant to the Plan. 11. Number and Gender Wherever appropriate herein, words used in the singular shall be considered to include the plural, and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 12. Laws Governing The Plan and any documents executed in connection therewith shall be construed in accordance with and governed by the laws of the State of Texas. OCEAN ENERGY, INC. By: ______________________ Name: ______________________ Title: ______________________ VEHOU02:138559.1 EX-10.45 5 DUKE ENERGY TRADING AND MARKETING October 1, 1999 NATURAL GAS PURCHASE AND SALE AGREEMENT Duke Energy Trading and Marketing, L.L.C., a Delaware limited liability company, ("DETM" or "Buyer") and Seagull Energy E&P Inc., a Delaware corporation, SGO Petroleum Inc., an Oklahoma corporation, Global Natural Resources Corporation of Nevada, a Nevada corporation, Ocean Energy, Inc., a Louisiana corporation, and Ocean Energy Resources, Inc., a Delaware corporation and any permitted successor(s) and assign(s) (collectively "Ocean" or "Seller"), referred to collectively as the "Parties" and individually as "Party", enter into this Natural Gas Purchase and Sale Agreement (this "Agreement") effective as of the 1st day of October, 1999 (the "Effective Date"). ARTICLE I Term and Scope This Agreement shall be in effect from the Effective Date through the later of September 30, 2000 or until terminated by either Party on thirty (30) days prior written notice, subject however to the earlier termination pursuant to other specific provisions of this Agreement. ARTICLE II Quantity Obligations and Notice Procedures The Parties recognize that the natural gas market is volatile; and, therefore, it is mutually desirable to arrange transactions verbally and to be bound by such oral agreements confirmed later in writing. The Parties agree to the following procedures for confirmations of and changes to the quantities and points of equivalent value of Ocean's Gas to be delivered to the Delivery Point(s) by Ocean. Any oral confirmation of or change to the quantities and points of equivalent value of Ocean's Gas made by Ocean shall be binding until superseded by an effective confirmation or change notice. Either Party's telephones may be monitored by recording equipment to record such confirmations and changes in quantities and points of equivalent value of Ocean's Gas. The Parties hereby consent to such recordings and any such recordings shall serve as the best evidence of any oral agreement. Ocean shall sell and deliver and DETM shall, as the exclusive buyer, purchase and receive Ocean's owned and controlled gas volumes ("Ocean's Gas") from properties specified in Appendix "A". Each month during the term of this Agreement, Ocean shall provide to DETM on or before 12:00 p.m. central clock time five (5) Business Days prior to the first day of the next succeeding month a confirmation notice, in the form of Exhibit "A" which shows the daily volumes of Ocean's Gas to be sold and delivered by Ocean and to be purchased and received by DETM at the Delivery Point(s) during the next succeeding month ("Ocean's Baseload Gas"). Any changes to the quantities of Ocean's Gas that will be delivered by Ocean to the Delivery Point(s) will be made by Ocean at least one (1) Business Day prior to the day on which the change is effective and will be confirmed in writing in the form of change notice which is attached hereto as Exhibit "B. "Business Day" shall mean any day on which the member banks of the Federal Reserve System in New York City, New York are open for business. Each party shall use reasonable means to identify as far in advance as possible any scheduled maintenance of facilities producing, delivering or receiving Ocean's Gas to the Delivery Point(s) hereunder and shall notify the other Party as soon as reasonably practicable of such scheduled maintenance. Should a Party not so notify the other Party of scheduled maintenance then such scheduled maintenance will not be an event of Force Majeure hereunder. ARTICLE III Delivery Point The delivery points for Ocean's Gas to be delivered by Ocean and received by DETM hereunder shall be those points specified on Appendix "A" ("Delivery Point(s)"). ARTICLE IV Purchase Price Except as provided in Article X, the purchase price for all Ocean's Gas delivered to the Delivery Point(s) during a month shall be the index price(s) as specified in Appendix "A" ("Index Price") less any actual transportation and fuel charges actually paid by DETM to move Ocean's Gas to the applicable Delivery Point, plus or minus the applicable adjustment as specified in Appendix "A". If a publication referenced in Appendix "A" ceases to exist or does not post an index price representative of a Delivery Point(s), then the Parties shall mutually agree to an alternative publication and posting which reflects the market value of Ocean's Gas at such Delivery Point(s). If the Parties fail to agree on an alternative publication and posting for a Delivery Point within ten (10) Business Days of a notice by a Party to the other Party that an Index Price fails to exist then the new publication and posting will be determined by the one arbitrator procedure of Article XI. ARTICLE V Force Majeure Except with respect to payment obligations, in the event either Party is rendered unable, wholly or in part, by Force Majeure to carry out its obligations hereunder, it is agreed that upon such Party's giving notice of such Force Majeure to the other Party as soon as reasonably possible (to be confirmed in writing via facsimile or email with particulars of the event or occurrence as soon as reasonably possible), the obligations of the Parties, to the extent they are affected by such event, shall be suspended from the inception and during the continuance of the Force Majeure for a period of thirty (30) consecutive days after which time the Party not giving the notice of Force Majeure may declare a breach of this Agreement and terminate this Agreement with respect to Ocean's Gas which was the subject of the notice of Force Majeure upon thirty (30) days written notice to the Party which has given notice of Force Majeure. "Force Majeure" means an event, not anticipated as of the Effective Date which is not within the reasonable control of a Party, or in the case of third party obligations or facilities, the third party, claiming Force Majeure, and which by the exercise of due diligence such Party, or third party, is unable to overcome. Force Majeure shall not include: (i) the loss of Buyer's markets; (ii) Buyer's inability economically to use or resell Ocean's Gas purchased hereunder or (iii) Seller's ability to sell Ocean's Gas to a market at a more advantageous price. "Force Majeure" shall include but not be limited to the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe (other than maintenance), weather related events such as hurricanes or freezing or failure of wells, equipment or lines of pipe; (ii) acts of others such as strikes, riots, sabotage, insurrections or wars; (iii) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, or regulation promulgated by a governmental authority having jurisdiction; and (iv) any other causes, whether of the kind herein enumerated or otherwise not reasonably within the control of the affected Party to prevent or overcome. Seller and Buyer shall make reasonable efforts to avoid Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance with reasonable dispatch. Neither Party shall be entitled to the benefit of the provisions of Force Majeure under either or both of the following circumstances: (i) to the extent the failure to perform was caused by the sole or contributory negligence of the Party claiming excuse; or (ii) to the extent the failure to perform was caused by the Party claiming excuse having failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch. Force Majeure shall not excuse the payment of financial obligations hereunder. ARTICLE VI Title, Risk of Loss, Indemnity and Imbalances Seller warrants that title to Ocean's Gas is free from all liens and adverse claims and warrants its right to sell the same. As between the Parties, Seller shall be deemed to be in exclusive control and possession of Ocean's Gas delivered hereunder and responsible for any damage or injury caused thereby or loss thereto prior to the time the same shall have been delivered to Buyer at the Delivery Point(s). After delivery of Ocean's Gas to Buyer at the Delivery Point(s), Buyer shall be deemed to be in exclusive control and possession thereof and responsible for any injury or damage caused thereby or loss thereto. Each Party assumes all liability for and shall indemnify, defend and hold harmless the other Party from any claims, including death or injury of persons or damage to property arising from any act or incident occurring when title to gas is vested in it. It is the intent of the Parties that this indemnity be without regard to the causes thereof, including without limitation the negligence of any indemnified Party, whether such negligence be sole, joint or concurrent, or active or passive; provided, neither Party shall be liable in respect of any claim to the extent same resulted from the gross negligence, willful misconduct or bad faith of the indemnified Party. Title to Ocean's Gas delivered hereunder shall pass from Seller to Buyer at the Delivery Point(s). Notwithstanding the other provisions of this Article VI, as between Seller and Buyer, Seller will be liable for all claims to the extent that such arise from failure of Ocean's Gas delivered by Seller to the Delivery Point(s) to meet the quality requirements of Article XIII. The Parties shall use reasonable efforts to avoid imposition by any transporter of Ocean's Gas of an imbalance charge, expense or penalty relating to Ocean's Gas. Imbalance charges, expenses and penalties (including, but not limited to, any cash-out costs) imposed by any transporter of Ocean's Gas prior to, at or after the Delivery Point(s) will be the responsibility of and will be paid by DETM unless such imbalance charge, expense or penalty was caused by Ocean's failure to properly deliver, confirm or change its quantity of Ocean's Gas as provided for hereunder and such failure causes a Party to incur and actually pay an imbalance charge, expense or penalty to a transporter or other third party. ARTICLE VII Taxes Seller shall be responsible for and will pay all taxes, transportation charges and expenses and production related costs attributable to Ocean's Gas prior to its delivery to the Delivery Point(s). Seller shall reimburse Buyer for any such taxes, transportation charges and expenses and production related costs actually paid on behalf of Seller by Buyer. Buyer shall be responsible for and will pay all taxes and transportation charges and expenses related to Ocean's Gas at or after the Delivery Point(s) including, but not limited to, all sales or use, gross receipts, consumption and franchise taxes. Buyer shall provide Seller with any applicable certificate or other documentation of sales or use tax exemption; and Buyer shall be liable for any sales or use tax and associated interest or penalties assessed against Seller due to Buyer's failure to timely provide or properly complete any such certificate or documentation. ARTICLE VIII Financial Responsibility If a Party has reasonable grounds to suspect that the other Party's ability to meet its payment obligations hereunder are materially impaired then a Party may require upon notice to the other Party that such other Party make assurance of the other Party's ability to pay which may include (i) the required posting of a letter of credit acceptable to the Party requiring further assurances and the issuing bank; (ii) cash prepayments; (iii) corporate guarantee or (iv) other acceptable security. In the event a Party shall not make adequate assurances as provided above within five (5) Business Days of receipt of the notice requiring same then in addition to any and all other remedies available hereunder or pursuant to law, the other Party shall have the right upon prior notice to such Party to withhold or suspend deliveries or receipts of Ocean's Gas hereunder or terminate the Agreement upon thirty (30) days notice to such Party. ARTICLE IX Billing and Payment Billing and payment will be based on actual quantities of Ocean's Gas delivered to the Delivery Point(s). Properly confirmed and changed quantities of Ocean's Baseload Gas shall be used if such actual quantities are unavailable to make payment by the 25th of the month following the month of deliveries of Ocean's Gas. Within ten (10) days of the request of either Party, the other Party shall provide, to the extent it has a legal right of access thereto and/or such statement which is then available, a copy of the applicable transporter's allocation or imbalance statement requested by the Party. Buyer shall pay Seller the full amount due in U.S. Dollars by wire transfer, Automated Clearinghouse (ACH), electronic funds transfer or other similarly expeditious means, as provided below, on or before the twenty-fifth (25th) day of the month immediately following the delivery month or the first Business Day thereafter. On the day of such payment Buyer will forward to Seller a statement showing the quantity of Ocean's Gas delivered to the Delivery Point(s), the price paid for Ocean's Gas at each Delivery Point and the total amount paid to Seller. In the event Buyer fails to pay the full amount payable by it when due, interest on the unpaid portion shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then effective prime rate of interest for large U.S. Money Center commercial banks, published under "Money Rates" by The Wall Street Journal, plus two percent (2%) per annum from the date due until the date of payment, or (ii) the maximum applicable lawful interest rate. Each of the Parties, at its own expense, shall have the right, upon reasonable notice and at reasonable times during regular business hours, to examine the books and records of the other Party to the extent reasonably necessary to verify the accuracy of any statement, payment, demand, charge, or computation made under this Agreement. Any such audit and any claim based upon errors in any statement must be made within two (2) years of the date of such statement. Neither Party shall have the right to perform more than two (2) such audits per calendar year. Such right to audit shall be available for the term of this Agreement and for two (2) years after its termination. In the event an error is discovered in the amount in any statement rendered hereunder such error shall be rectified by payment within ten (10) days after notice of the error from the discovering Party to the other Party. In the event a dispute arises as to the amount payable in any statement rendered hereunder, the disputing Party shall provide written notice to the other Party indicating the disputed amount and the reason for such dispute. In the event a difference for volumes of Ocean's Gas delivered cannot be reconciled, payment shall be based upon the delivery volumes specified by the delivering transporter(s) to the Delivery Point(s). For a period of ninety (90) days following the date of a statement hereunder no interest shall accrue or be payable by a Party on amounts paid by Buyer which are in dispute hereunder because of the reconciliation in differences of volumes of Ocean's Gas. A payment hereunder shall not be deemed to be a waiver of the right by Buyer to recoup any overpayment, nor shall acceptance of any payment be deemed to be a waiver by Seller of any underpayment except as otherwise provided herein. Payment: Duke Energy Trading and Marketing, L.L.C. By Wire Transfer: Chase Manhattan Bank New York For the Acct of: Duke Energy Trading and Marketing, L.L.C. Account No. 910-2-771269 ABA No. 021000021 Payment: Duke Energy Trading and Marketing, L.L.C. By Check: P.O. Box 201204 Houston, TX 77216-1204 Payment: Ocean Energy Inc. By Wire Transfer: Chase Bank of Texas Houston, Texas Account No. 00101766047 ABA No. 113000609 ARTICLE X Damages For a breach of this Agreement for which an express remedy or measure of damages is herein provided, such express remedy or measure of damages shall be the sole and exclusive remedy hereunder, the obligor's liability shall be limited as set forth herein and all other remedies or damages at law or in equity for any such breach are waived. If no remedy or measure of damages is expressly herein provided for a breach of this Agreement, the obligor's liability shall be limited to actual damages only, such actual damages shall be the sole and exclusive remedy hereunder for any such breach and all other remedies or damages at law or in equity thereof are waived. For a breach of this Agreement involving the failure of Buyer to purchase and receive Ocean's Baseload Gas from Seller at the Delivery Point(s) ("Buyer's failure") the following liquidated damages will be the sole remedy Seller will have for such breach. For Buyer's failure, Seller shall be entitled to receive liquidated damages equal to an amount calculated by multiplying the quantity of Ocean's Baseload Gas (expressed in MMBtu) that was required to be purchased and received by Buyer from Seller at the Delivery Point(s) pursuant to the terms and conditions of this Agreement which was not actually purchased and received by Buyer from Seller at the Delivery Point(s) ("DETM's Default Gas") times an amount per MMBtu equal to the positive difference between the price to be paid by Buyer to Seller hereunder for DETM's Default Gas and the price received by Seller for selling and delivering DETM's Default Gas to other parties at the Delivery Point(s). For breach by Seller in failing to deliver to the Delivery Point(s) Ocean's Baseload Gas, the following liquidated damages will be the sole remedy for such breach. Instead of the purchase price for Ocean's Gas provided for in Article IV above, the purchase price for all volumes of Ocean's Gas delivered on a day to Delivery Point(s) which share a common Index Price in excess of one hundred five percent (105%) of Ocean's Baseload Gas at such Delivery Point(s) shall be the "Daily Midpoint" price published in Gas Daily for such day for the applicable Delivery Point(s) where greater than one hundred five percent (105%) of Ocean's Baseload Gas is delivered by Ocean ("Daily Midpoint Price") less any actual transportation and fuel charges paid by DETM to move Ocean's Gas to the applicable Gas Daily Point ("Adjusted Daily Midpoint Price").. If the downstream transporter(s) does not provide or is unable to make available accurate daily data for Ocean's Gas then the purchase price for such excess Ocean's Gas delivered to a Delivery Point shall be the simple arithmetic average of the Daily Midpoint Price for all of the days in the month (the "Averaged Daily Midpoint Price") less any actual transportation and fuel charges paid by DETM to move Ocean's Gas to the applicable Gas Daily Point. In the event that Ocean fails to deliver to Delivery Point(s) which share a common Index Price a quantity of Ocean's Gas at such Delivery Point(s) that is at least ninety-five percent (95%) of Ocean's Baseload Gas, the following adjustments will be made in a monthly statement and in the purchase price to be paid by Buyer as appropriate for Ocean's Gas delivered to a Delivery Point(s) which was less ninety-five percent (95%) of Ocean's Baseload Gas at such Delivery Point(s) ("Undelivered Baseload"): (i) If the Daily Midpoint Price on the day of Undelivered Baseload is less than the Index Price, the purchase price will be increased by an amount equal to the difference between the Index Price and the Daily Midpoint Price (or the Averaged Daily Midpoint Price, as appropriate, multiplied by the difference between ninety-five percent (95%) of Ocean's Baseload Gas and the actual delivered quantity of Ocean's Gas for the applicable day(s). (ii) If the Daily Midpoint Price on the day of the Underdelivered Baseload is greater than the Index Price, the purchase price will be decreased by an amount equal to the difference between the Daily Midpoint Price (or the Averaged Daily Midpoint price, as appropriate) and the Index price multiplied by the difference between ninety-five percent (95%) of Ocean's Baseload Gas and the actual delivered quantity of Ocean's Gas for the applicable day(s). Both Parties shall use commercially reasonable efforts to notify the other Party of any deficiencies in the receipt or delivery of Ocean's Gas. The Parties recognize that each Party may have access to certain information necessary to confirm deliveries and receipts of Ocean's Gas hereunder ("confirming information") and agree to share such confirming information on a commercially reasonable basis. Therefore, a Party shall not be considered to be in default of its obligation to deliver or receive Ocean's Gas hereunder until it has received the confirming information. A Party shall have until the end of the Business Day following the day it received the confirming information to eliminate the deficiencies in deliveries or receipts of Ocean's Gas. If Ocean's Gas is delivered and received at a Delivery Point(s) where there is an operator balancing agreement or similar agreement in place, then no default hereunder shall be deemed to have occurred so long as DETM pays Ocean for all Ocean's Gas delivered pursuant to this Agreement at such Delivery Point(s). For purposes of this paragraph, a DETM default shall not be deemed to have occurred unless, and then only to the extent that, Ocean's Gas is curtailed and not actually delivered to the Delivery Point(s). UNLESS EXPRESSLY OTHERWISE HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, INDIRECT OR PUNITIVE DAMAGES OF ANY CHARACTER, INCLUDING BUT NOT LIMITED TO LOSS OF USE, LOST PROFITS (PAST AND FUTURE), OR OTHER BUSINESS INTERRUPTION DAMAGES, IRRESPECTIVE OF WHETHER SUCH DAMAGES (OR CLAIMS OR ACTIONS THEREFOR) ARE BASED UPPON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE Notwithstanding any other provision in this Agreement, in no event shall a Party be liable to the other Party for any penalties or charges assessed by a transporter to a Party for the unauthorized delivery of Ocean's Gas. ARTICLE XI Arbitration In the event the Parties are unable to resolve any dispute regarding this Agreement and such dispute involves less than U.S. $5,000,000, both Parties agree to resolve such dispute through the arbitration provisions of this Article XI. Within twenty (20) Business Days of either Party's written notice to the other Party to arbitrate a dispute which arises under this Agreement involving less than U.S. $500,000, the Parties shall agree on one arbitrator to decide any such dispute. As to disputes involving between U.S. $500,000 and U.S. $5,000,000, each Party shall choose one arbitrator within twenty (20) Business Days of either Party's written notice to the other Party to arbitrate, and within ten (10) Business Days after both such arbitrators are chosen, such arbitrators shall choose a third arbitrator thus completing the whole arbitration panel. In the event of a dispute as to whether the applicable amount in dispute is less than U.S. $500,000, or if the Parties are unable to agree to a single arbitrator, the arbitration panel shall consist of three arbitrators. Any arbitrator chosen shall be a disinterested party with knowledge of the industry. The arbitrator(s), once chosen, shall consider any documents, tapes or any other evidence which the arbitrator(s) deem necessary and shall then accept sealed written resolutions of the subject dispute from each Party on a confidential basis to be submitted within twenty (20) Business Days of establishment of the arbitration panel. The written submissions shall be in a form and subject to any limitations as may be prescribed by the arbitrator(s). The arbitrator(s) shall then choose one of the proposed solutions, (without modification) as the fairest solution to the dispute within ten (10) Business Days of receipt of the written submissions of both Parties. In the event of a three member arbitration panel, a majority vote shall govern. The decision of the arbitrators shall be final and nonappealable. Any expenses of the arbitrator(s) shall be shared and paid equally between the Parties. Each Party shall bear and pay its own expenses incurred by each in connection with the arbitration, unless otherwise included in a solution chosen by the arbitration panel. In the event either Party must file a court action to enforce an arbitration award under this Article XI, the prevailing Party shall be entitled to recover its court costs and reasonable attorney fees. This Article XI shall not apply to any disputes involving U.S. $5,000,000 or more, and each Party retains its respective rights to pursue all legal and equitable remedies regarding any such disputes. The Parties, however, may consent to resolve such disputes by the provisions of this Article XI. ARTICLE XII Quality Seller represents that all Ocean's Gas shall meet the effective tariff or published quality specifications of the receiving transporter at the applicable Delivery Point(s) or in the case of Ocean's Gas Processed in a Processing plant downstream of the Delivery Point(s) the quality specifications of the receiving transporter at the tailgate of such Processing plant. Buyer shall have the right not to purchase and receive Ocean's Gas that does not meet such quality specifications. Unless otherwise agreed nothing herein, including an event of Force Majeure, shall require or permit either Party to schedule Ocean's Gas at a point other than a Delivery Point or in excess of Ocean's nominated quantity of Ocean's Gas on such day. If either Party receives an operational flow order from a transporter requiring action (the "OFO"), such Party shall immediately notify the other Party of the OFO and provide a copy of same by facsimile. Each Party shall take all OFO actions required by it and shall indemnify, defend and hold harmless the other Party from any claims related to the OFO under which the indemnifying Party failed to take the action required thereby. ARTICLE XIII Pressure and Measurement DETM will receive Ocean's Gas at the Delivery Point(s) at the pressure prevailing from time to time in the facilities delivering Ocean's Gas thereto. Measurement of Ocean's Gas quantities hereunder shall be in accordance with the effective tariff or published procedures of the receiving transporter(s) at the Delivery Point(s). ARTICLE XIV Processing Seller reserves the ongoing right, at its sole cost and expense, to Process at a Processing plant all Ocean's Gas hereunder upstream and/or downstream of the Delivery Point(s), provided that Processing does not render such gas incapable of meeting the quality specification set forth in Article XII. Seller shall reimburse Buyer for all transportation costs actually paid by Buyer to transport Ocean's PTR and PVR from the Delivery Point(s) to a Processing plant for Processing. "Processing" or "Process" shall mean to separate and/or extract, by whatever method, from gas liquid and liquefiable hydrocarbons and non-hydrocarbons, including any commercially valuable constituents other than methane that are entrained in the gas (together with such methane as must be removed to effect the recovery of the components being extracted). Buyer shall be responsible for and obligated to obtain and maintain during the term of this Agreement transportation agreements to transport Ocean's PTR and PVR from the Delivery Point(s) to Processing plant(s) as shown on Appendix "A". Seller shall reimburse Buyer for all costs incurred for transportation of PTR/PVR. "PTR" shall mean the Btu equivalent of products extracted from Ocean's Gas by a Processing plant, plus the gas used as plant fuel in the Processing plant to Process such gas and to extract those products, plant flare and other plant losses in the Processing plant. When expressed as a volume (in Mcf rather than in Btu) PTR shall mean "PVR". ARTICLE XV EQUAL EMPLOYMENT OPPORTUNITY The Equal Employment Opportunity Clause required under Executive Order No. 11246, the affirmative action commitment for veterans set forth in 41 CFR 60-250.4, the affirmative action clause for handicapped workers set forth in CFR 650-741.4, and the related regulations of the Secretary of Labor, 41 CFR Chapter 60, are incorporated by reference in this Agreement, with which compliance therewith is certified by each Party to the other Party. ARTICLE XVI EVENTS OF DEFAULT Event of Default. Notwithstanding anything herein to the contrary, the occurrence of any of the following events will constitute an event of default under this Agreement (an "Event of Default") with respect to a Party: (a) a failure to pay when due under this Agreement and such failure is not remedied on or before the fifth Business Day after receipt of notice of such failure; (b) a failure to comply with or perform any obligation, other than failure to deliver or receive Ocean's Gas for which a liquidated remedy is provided herein, and such failure is not remedied within five Business Days after receipt of notice of such failure; (c) a general assignment or arrangement for the benefit of creditors; (d) a filing of a petition or otherwise commencing a proceeding under any bankruptcy, insolvency, reorganization or similar law, or having any such petition filed or commenced against it; (e) becoming insolvent, however evidenced, or unable to pay its debts as they fall due; (f) having a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets; (g) challenging its own legal authority or capacity to enter into natural gas purchase and sale agreements with other third parties; (h) is a Defaulting Party under any ISDA Agreement executed between the Parties; (i) is in breach of a representation and warranty of this Agreement and such breach is not remedied on or before the fifth Business Day after receipt of a notice of such breach. Upon the occurrence of an Event of Default, the Party not affected by the event, (hereinafter referred to as the "Non-Defaulting Party") shall be entitled to exercise the remedies as hereinafter set forth in this Article XVI. After an occurrence of an Event of Default, the Non-Defaulting Party shall have the right to terminate this Agreement upon five (5) Business Days prior written notice to the other Party ("Early Termination Date"). ARTICLE XVII Notices All notices, invoices, payments, statements and communications made pursuant to this Agreement shall be in writing and made as follows: BUYER: SELLER: - ----- ------ Duke Energy Trading and Ocean Energy, Inc. Marketing, L.L.C. 1001 Fannin, Suite 1600 10777 Westheimer, Suite 650 Houston, Texas 77002 Houston, Texas 77042 Attention: Contract Administration Attention: Marketing Contract Administration Telephone: 713-260-1800 Telephone: 713-265-6368 Facsimile: 713-260-1825 Facsimile: 713-265-8823 All notices required pursuant to this Agreement may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail, certified mail-return receipt requested, or hand delivered. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending Party's receipt of its facsimile machine's confirmation of successful transmission, if the day on which such facsimile is received is not a business day or is after five p.m. (at the receiving Party's place of business) on a business day, then such facsimile shall be deemed to have been received on the next following business day. Notice by overnight mail or courier shall be deemed to have been received on the next business day after it was sent or such earlier time as is confirmed by the receiving Party. First class mail is deemed delivered three (3) days after mailing. ARTICLE XVIII Assignment and Confidentiality This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Parties hereto, and the covenants, conditions, rights and obligations of this Agreement shall run for the full term of this Agreement. No assignment of this Agreement, in whole or in part, will be made by a Party except that a Party may make an assignment of this Agreement, in whole or in part, to a wholly owned affiliate or to any other party with the consent of the non-assigning Party which consent will not be unreasonably withheld. Notwithstanding any of the other provisions of this Article XVIII to the contrary, if Seller sells any property specified on Appendix "A" then effective at the end of the day on the last day of the month following the closing date of the sale of any such property by Seller this Agreement will terminate as to such property except for the provisions hereof which survive termination of this Agreement in accordance with such provisions. The terms and conditions of this Agreement including, but not limited to, the price, the quantity, the term, the identified transporter(s) and all other material terms hereof shall be kept confidential by the Parties hereto, except to the extent that any information must be disclosed to a third party for the purpose of transporting Ocean's Gas subject to this Agreement, to respond to an audit request or to comply with any order, rule, regulation or directive of any court, legislative body or governmental entity having jurisdiction or to obtain any financing. As a condition of conducting an audit pursuant to the terms of this Agreement, the auditing Party acknowledges that the documents and records provided may contain proprietary or competitively sensitive information, which the auditing Party shall treat as confidential and not use in competition with the audited Party. ARTICLE XIX Forward Contract The Parties agree this Agreement is a forward contract within the meaning of and for the purposes of the United States Bankruptcy Code, as amended. Further, each Party represents to the other Party that it is a forward contract merchant as such term is defined in and for the purposes of the Bankruptcy Code, as amended. Ocean recognizes DETM is not an end user of Ocean's Gas. ARTICLE XX Set Off Both Parties hereto acknowledge and agree that upon the designation or deemed designation of an Early Termination Date under this Agreement the Non-Defaulting Party may set off (i) all amounts, that are due to the Defaulting Party hereunder, plus any cash or other form of collateral then available to the Non-Defaulting Party pursuant to any collateral agreement with the other Party plus any or all other amounts due to the Defaulting Party under any other forward contract with the other Party (including, but not limited to, amounts owed, but not yet paid, for commodities previously delivered in accordance with the forward contracts) and, to the extent it is permitted by law, any amounts due to the Defaulting Party pursuant to the ISDA Agreement (and the Exhibits and Annexes thereto) entered into between the Parties ("ISDA") plus any cash or other form of collateral then available to the Non-Defaulting Party pursuant thereto, against (ii) all such amounts that are due to the Non-Defaulting Party by the other Party, plus any cash or other form of collateral then available to the other Party pursuant to any collateral agreement agreed to by the Parties plus any or all other amounts due to the Non-Defaulting Party under any other forward contracts between the Parties (including, but not limited to, amounts owed, but not yet paid, for commodities previously delivered and reasonable attorney's fees incurred by the Non-Defaulting Party) and, to the extent it is permitted by applicable law, any amounts due to the Non-Defaulting Party pursuant to the ISDA plus any cash or other form of collateral then available to the Defaulting Party pursuant thereto, so that all such amounts shall be netted to a single liquidated amount (the "Termination Payment") payable by one Party to the other Party. The Termination Payment shall be made by the owing Party within five (5) Business Days after notice requesting such is given. The obligations of the Parties under this Agreement, any other forward contract executed by the Parties and the ISDA in respect of such amounts shall be deemed satisfied and discharged to the extent of any such set off. A Party performing a set off under this Article XX will give the other Party notice of such set off as soon as practicable thereafter provided that the failure to give such timely notice shall not affect the validity of the set off. Notwithstanding any contrary provision of this Agreement, where an Event of Default specified in sub-sections (c), (d), (e) or (f) of Article XVI is governed by law which does not permit an Early Termination Date to be declared on or after such an Event of Default then termination of this Agreement shall be deemed to have taken place at a time immediately preceding the occurrence of such Event of Default, and upon the occurrence of any such automatic termination of this Agreement, the Party causing the Event of Default shall indemnify the Non-Defaulting Party on demand against all expense, loss, damage or liability that the Non-Defaulting Party actually incurs with respect to this Agreement as a consequence thereof. ARTICLE XXI Miscellaneous There are no third party beneficiaries to this Agreement and none are intended by the Parties. If any provision of this Agreement is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void or make unenforceable any other provision, agreement or covenant of this Agreement. No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. All rights, duties and obligations arising under this Agreement shall be exercised and discharged in good faith and in a commercially reasonable manner. Each Appendix and Exhibit referenced herein and attached hereto is made a part of this Agreement for all purposes. This Agreement sets forth all understandings between the Parties respecting the subject matter hereof, and any prior contracts, understandings and representations, whether oral or written, relating to such matters are merged into and superseded by this Agreement. This Agreement may be amended only by a writing executed by both Parties. Each Party to this Agreement represents and warrants that it has full and complete authority to enter into and perform this Agreement, including having obtained any regulatory authority necessary to transact business under this Agreement. Each person who executes this Agreement on behalf of either Party represents and warrants that he/she has full and complete authority to do so and that such Party will be bound thereby. Compliance with the confirmation and change in quantities of Ocean's Gas procedures of this Agreement satisfies any "writing" requirements imposed under the Uniform Commercial Code or any other applicable contract law. The interpretation and performance of this Agreement shall be governed by, construed, interpreted and enforced in accordance with the substantive laws of the State of Texas, without reference to its choice of law doctrine. Each Party agrees to submit to the nonexclusive jurisdiction of the courts of the State of Texas. IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals to be effective as of the day and year first written above. DUKE ENERGY TRADING AND MARKETING, L.L.C. By: ____________________________________________ Name: ____________________________________________ Title: ____________________________________________ SEAGULL ENERGY E&P INC. By: ____________________________________________ Name: William L. Transier Title: Executive Vice President & Chief Financial Officer SGO PETROLEUM INC. By: ____________________________________________ Name: William L. Transier Title: Executive Vice President & Chief Financial Officer GLOBAL NATURAL RESOURCES CORPORATION OF NEVADA By: ____________________________________________ Name: William L. Transier Title: Executive Vice President & Chief Financial Officer OCEAN ENERGY RESOURCES, INC. By: ____________________________________________ Name: William L. Transier Title: Executive Vice President & Chief Financial Officer OCEAN ENERGY, INC. By: ____________________________________________ Name: William L. Transier Title: Executive Vice President & Chief Financial Officer EX-13 6 1999 SELECTED PORTIONS OF ANNUAL REPORT Ocean Energy, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in understanding the Company's financial position, results of operations and cash flows for each of the periods indicated. On March 30, 1999, Ocean Energy, Inc. merged with and into Seagull Energy Corporation (the "Seagull Merger"). The resulting company was renamed Ocean Energy, Inc. The merger was treated for accounting purposes as an acquisition of Seagull by Ocean in a purchase business transaction. As such, the financial results presented here are those of Ocean Energy, Inc. on a stand-alone basis for the first quarter of 1999 and of the combined company for the remainder of 1999, compared to Ocean's results for 1998 and 1997 on a stand-alone basis ("Old Ocean"). The Company's accompanying Consolidated Financial Statements contain detailed information that should be referred to in conjunction with the following discussion.
Results Of Operations (Amounts in Thousands) Year Ended December 31, -------------------------------------------------- 1999 1998 1997 -------------- --------------- ------------- Oil and gas operations: Revenues: Natural gas................................. $ 323,345 $ 221,973 $ 214,100 Oil and NGLs................................ 412,173 300,177 335,094 -------------- --------------- ------------- 735,518 522,150 549,194 -------------- --------------- ------------- Operating expenses............................ 216,981 185,076 139,349 Depreciation, depletion and amortization...... 309,699 288,164 243,640 Impairment of oil and gas properties.......... 46,403 539,915 - -------------- --------------- ------------- Operating profit (loss)...................... 162,435 (491,005) 166,205 Corporate........................................ (29,689) (24,950) (20,046) -------------- --------------- ------------- Total operating profit (loss)................. $ 132,746 $ (515,955) $ 146,159 ============== =============== =============
With the Seagull Merger, the Company gained new operations in Egypt, Russia and Indonesia and expanded its operations in the U.S. and Cote d'Ivoire. These expanded operations combined with the recovery of world crude oil and natural gas prices experienced during 1999 resulted in a $213 million increase in revenues. During this period, the Company initiated various cost cutting measures that reduced operating expenses per unit of production by $0.26 per BOE to $4.12 per BOE. As discussed below, the Company recorded impairments of oil and gas properties in the amount of $46 million during 1999. These impairments related primarily to the sale of the Canadian subsidiary and to the discontinuance of certain international operations. During 1998 the Company recognized total noncash impairments in the amount of $540 million pursuant to the ceiling limitation required by the full cost method of accounting for oil and gas properties. The Company had no such impairments in 1999 and 1997. These factors combined to improve total operating profit by $649 million for the year ended December 31, 1999 as compared to 1998. For the year ended December 31, 1999, the Company had net income excluding special items of $50 million or $0.33 per basic share, compared to a loss excluding special items of $40 million or $0.39 per basic share in 1998. Including the effect of the various special items, net loss available to common shareholders in 1999 was $47 million or $0.31 per basic share, compared to a loss of $407 million or $4.04 per basic share in 1998. The following is a reconciliation of income (loss) (excluding special items) to net loss to common shareholders:
Year Ended December 31, -------------------------------------------- 1999 1998 -------------------- -------------------- -------------------- -------------------- Income (Loss) (Excluding Special Items).......... $ 49,850 $ (39,700) Effect of Special Items, Net of Income Tax: Impairment of Oil and Gas Properties.......... (43,168) (334,747) Merger Expenses............................... (31,498) (32,886) Extraordinary Loss............................ (23,413) - Income from Discontinued Operations........... 1,127 - -------------------- -------------------- (96,952) (367,633) -------------------- -------------------- Net Loss to Common Shareholders.................. $ (47,102) $ (407,333) ==================== ====================
In addition, during 1999 the Company embarked on a program to reduce its high debt levels and reduce all-in costs. To those ends, Ocean completed over $700 million in asset sales, most notably the sales of the Arkoma assets for $231 million and ENSTAR for $287 million, and reduced all-in costs from $13.27 per BOE for 1998 to $12.57 per BOE for 1999. For the year ended December 31, 1998, the Company reported a net operating loss of $516 million compared to net operating profit of $146 million for 1997. Due 22 to the significant deterioration of commodity prices which occurred during 1998 the Company experienced a 35% decline in realized crude oil prices and an 18% decline in natural gas prices before hedging activities. The impact of lower commodity prices was partially offset by a 25% increase in production over 1997 volumes. The operating loss for 1998 also included the effects of noncash impairments totaling $540 million. Oil and Gas Operations Revenues - Ocean operates in highly competitive markets where energy prices fluctuate significantly. As oil and gas prices fluctuate, so too do the Company's revenues, results of operations and cash flows. Oil prices declined steadily through out 1997, 1998 and the first quarter of 1999, with oil prices reaching multi-year lows in some markets. Natural gas prices, despite temporary increases, also decreased over this time frame. Beginning in the second quarter of 1999, oil and natural gas prices have increased dramatically. Energy Prices "GRAPHICS OMITTED" NYMEX NYMEX Oil Prices Gas Prices Jan 97 25.18 4.25 Feb 97 22.17 2.87 Mar 97 20.97 1.88 Apr 97 19.73 1.90 May 97 20.87 2.10 Jun 97 19.22 2.33 Jul 97 19.66 2.22 Aug 97 19.95 2.16 Sep 97 19.78 2.51 Oct 97 21.28 3.22 Nov 97 20.22 3.51 Dec 97 18.32 2.68 Jan 98 16.73 2.27 Feb 98 16.08 2.04 Mar 98 15.04 2.23 Apr 98 15.46 2.33 May 98 14.93 2.29 Jun 98 13.67 2.07 Jul 98 14.09 2.35 Aug 98 13.38 1.95 Sep 98 14.97 1.75 Oct 98 14.42 2.13 Nov 98 13.04 2.13 Dec 98 11.31 2.14 Jan 99 12.49 1.81 Feb 99 12.02 1.75 Mar 99 14.68 1.69 Apr 99 17.30 1.85 May 99 17.77 2.33 Jun 99 17.92 2.20 Jul 99 20.10 2.27 Aug 99 21.28 2.57 Sep 99 23.79 2.96 Oct 99 22.67 2.61 Nov 99 24.77 3.04 Dec 99 26.09 2.17 Natural gas revenues increased $101 million, or 45%, to $323 million for the year ended December 31, 1999, from $222 million for the year ended December 31, 1998. This increase is primarily due to production from properties acquired in the Seagull Merger and to higher average gas prices realized during the period. The average realized price for natural gas before hedging activities increased 10% to $2.08 per Mcf for 1999 as compared to $1.89 for 1998. Daily natural gas production for 1999 was 422.5 MMcf, an increase of 31% over 1998 volumes due primarily to the acquisition of producing properties in the Seagull Merger, partially offset by the sale of the Canadian subsidiary. In the low oil price environment of early 1999, the Company entered into collars with floors of $12.00 and $15.00 per barrel and ceilings of $15.00, $18.85 and $19.00 per barrel on a portion of the Company's oil production through the remainder of 1999. With rapidly escalating oil prices, the Company's derivative contracts decreased oil and gas revenues by $52 million for the year ended 1999. For the years ended December 31, 1998 and 1997, oil and gas revenues were increased (decreased) by $25 million and $(1) million, respectively, as a result of derivative contracts. Weighted average oil prices including hedging activities were $15.27, $13.21 and $18.54, respectively, for the years ended December 31, 1999, 1998, and 1997. Weighted average natural gas prices including hedging activities were $2.10, $1.89 and $2.28, respectively, for the years ended December 31, 1999, 1998, and 1997. Natural gas revenues increased $8 million, or 4%, to $222 million for 1998 from $214 million for 1997, the result of increased worldwide production more than offsetting the decline in prices received for gas. Daily natural gas production for 1998 was 321.4 MMcf, an increase of 25% over 1997 volumes due primarily to increased production in the Gulf of Mexico, Cote d'Ivoire and Canada and the impact of acquisitions, partially offset by property sales and natural production declines in North America. The average realized price for natural gas before hedging activities decreased 18% to $1.89 per Mcf for 1998 as compared to $2.30 for 1997. Oil revenues increased $112 million, or 37%, to $412 million for the year ended December 31, 1999, from $300 million for 1998. This increase is the result of production from properties acquired in the Seagull Merger and an increase in the average realized oil price during 1999. The average realized price for oil before hedging activities increased 43% to $17.32 for 1999 compared to $12.13 for 1998. Daily oil production increased 19% to 73,933 Bbl in 1999 as compared to 62,269 Bbl for 1998. Oil revenues decreased $35 million, or 10%, to $300 million for 1998 from $335 million for 1997, as a result of the decline in the average realized price received partially offset by an increase in worldwide oil production. Daily oil production increased 26% to 62,269 MBbls for 1998 as compared to 1997 due primarily to increased oil production in the Gulf of Mexico and 23 Equatorial Guinea. The average sales price for oil before hedging activities decreased 35% to $12.13 for 1998 compared to $18.54 for 1997.
Operating Data (1) Year Ended December 31, ------------------------------------------------------- 1999 1998 1997 ---------------- ----------------- ----------------- Net Daily Natural Gas Production (MMcf): Domestic ................................... 375.9 272.2 222.3 Canada (Sold in April 1999)................. 10.5 27.8 20.9 Cote d'Ivoire .............................. 30.3 21.4 13.6 Egypt....................................... 0.7 - - Indonesia .................................. 5.1 - - ---------------- ----------------- ----------------- Total....................................... 422.5 321.4 256.8 ================ ================= ================= Average Natural Gas Prices ($ per Mcf): Domestic.................................... $ 2.11 $ 1.96 $ 2.41 Canada (Sold in April 1999)................. $ 1.54 $ 1.37 $ 1.40 Cote d'Ivoire .............................. $ 1.68 $ 1.64 $ 1.81 Egypt....................................... $ 3.66 $ - $ - Indonesia .................................. $ 2.37 $ - $ - Weighted Average............................ $ 2.08 $ 1.89 $ 2.30 Average Natural Gas Prices Including Hedging Activities ($ per Mcf)...................... $ 2.10 $ 1.89 $ 2.28 Net Daily Oil and NGL Production (Bbl): Domestic ................................... 37,076 40,165 33,312 Canada (Sold in April 1999)................. 351 1,234 1,203 Cote d'Ivoire .............................. 4,835 2,960 2,814 Equatorial Guinea........................... 20,062 17,910 12,200 Egypt ...................................... 8,217 - - Russia...................................... 3,319 - - Indonesia................................... 73 - - ---------------- ----------------- ----------------- Total....................................... 73,933 62,269 49,529 ================ ================= ================= Average Oil and NGL Prices ($ per Bbl) : Domestic ................................... $ 16.94 $ 12.46 $ 18.88 Canada (Sold in April 1999)................. $ 11.27 $ 11.78 $ 17.97 Cote d'Ivoire .............................. $ 18.24 $ 12.56 $ 18.35 Equatorial Guinea........................... $ 17.91 $ 11.35 $ 17.71 Egypt....................................... $ 19.32 $ - $ - Russia...................................... $ 12.34 $ - $ - Indonesia................................... $ 16.14 $ - $ - Weighted Average............................ $ 17.32 $ 12.13 $ 18.54 Average Oil and NGL Prices Including Hedging Activities ($ per Bbl).............. $ 15.27 $ 13.21 $ 18.54
(1) The Company's Egyptian, Russian and Indonesian operations, and a portion of its domestic and Cote d'Ivoirian operations were acquired as a result of the Seagull Merger on March 30, 1999. Operating Expenses - Operating expenses per BOE decreased 6% to $4.12 per BOE for the year ended December 31, 1999, compared to $4.38 per BOE in 1998. Total operating expenses increased $32 million, or 17%, to $217 million for the year ended December 31, 1999 from $185 million for 1998. This increase primarily resulted from a 25% increase in production volumes which was the result of the acquisition of additional producing properties in the Seagull Merger, as well as from increased production from existing properties. Total operating expenses increased $46 million, or 33%, to $185 million for 1998 from $139 million for 1997. This increase primarily results from a 25% increase in production volumes and from the timing of workover and maintenance activities and the impact of property acquisitions. Operating expenses increased $0.24 per BOE, or 6%, to $4.38 per BOE for 1998, from $4.14 per BOE for 1997. This unit increase is primarily the result of the timing of certain workover and maintenance activities. Depreciation, Depletion and Amortization Expense - Depreciation, depletion and amortization (DD&A) expense per BOE related to oil and gas operations decreased $0.94, or 14%, to $5.88 per BOE for the year ended December 31, 1999, from $6.82 per BOE for 1998. This variance is primarily attributable to the effect of the non-cash impairments of oil and gas properties recognized by the Company in 1998. Total DD&A for oil and gas operations increased 8% to $310 million for the year ended December 31, 1999 compared to $288 million for 1998 primarily due to the increase in production. DD&A expense related to oil and gas operations increased $44 million, or 18%, to $288 million for 1998, from $244 million for 1997. This variance is primarily attributable to the Company's 25% increase in production and to related current and future capital costs from the 1997 and 1998 Gulf of Mexico and international drilling programs and acquisitions. Oil and gas DD&A decreased $0.41 per BOE, or 6%, to $6.82 per BOE for 1998, from $7.23 per BOE for 1997 because of an increase in proved reserves resulting from such programs and acquisitions. Impairment of Oil and Gas Properties - During 1999, the Company recorded impairments of oil and gas properties of $46 million. These impairments related primarily to the sale of the Canadian subsidiary and to the discontinuance of operations in Bangladesh and other international 24 locations. During 1998, the Company recognized impairments of oil and gas properties in the amount of $540 million pursuant to the ceiling limitation required by the full cost method of accounting for oil and gas properties. The 1998 impairments were the result of the precipitous decline in world crude oil prices experienced during the second and fourth quarters of 1998. The Company had no such ceiling limitations in 1999 or 1997. Outlook - At year-end 1999, the Company was producing approximately 397 Mmcf per day of natural gas and 74 Mbbl per day of crude oil worldwide. The Company has targeted a 10% increase in production for 2000 based on the low point for 1999 and all-in costs of $12.00 per BOE. These estimates assume closure of the Company's East Bay sale at the end of the first quarter 2000. No other material acquisition or divestiture activities are expected at this time. While oil prices have been at or near multi-year highs in recent months, there can be no assurance that current price levels will continue. Oil and gas prices have fluctuated significantly in recent years in response to numerous economic, political and environmental factors, and the Company expects that commodity prices will continue to fluctuate significantly in the future. Changes in commodity prices could significantly affect the Company's expected operating results. In addition to directly affecting revenues, price changes can affect expected production because production estimates necessarily assume that oil and gas can profitably be produced at the assumed pricing levels. In addition to the above assumptions, the Company is assuming that demand, curtailment, producibility and general market conditions for the Company's oil and gas for 2000 will be substantially similar to those of 1999. Corporate Corporate expenditures are comprised of general and administrative expenses and DD&A expense for non-oil and gas assets. General and Administrative Expenses - General and administrative expenses increased $3 million or 16% to $22 million for the year ended December 31, 1999 compared to $19 million for 1998. This increase is due to the Seagull Merger offset by a decline in general and administrative expense as cost savings related to personnel reduction, office consolidations and reduced combined expenses for professional fees and other expense items were realized. General and administrative expenses increased $4 million, or 27%, to $19 million for 1998 from $15 million for 1997. This increase is primarily due to costs of increased corporate staffing associated with both an increase in drilling activities during 1998 and the Company's property acquisitions in 1997. DD&A expense for non-oil and gas assets was approximately $8 million, $6 million and $5 million for the years 1999, 1998 and 1997, respectively. Other Interest Expense - Interest expense increased $43 million, or 68%, to $106 million for the year ended December 31, 1999 from $63 million in 1998. This increase is primarily the result of the higher capital spending program in place throughout 1998 and an increase in debt levels in 1999 resulting from the assumption of debt in the Seagull Merger. However, the repayment of existing long-term debt and the repurchase of outstanding public debt during the fourth quarter of 1999 will serve to reduce interest expense for the year 2000 from the 1999 level. Interest expense increased $14 million, or 29%, to $63 million for 1998, from $49 million for 1997. This increase is primarily the result of an increase in debt levels during 1998 resulting from the capital spending program for 1998 and lower than expected cash flows due to the deterioration in product prices, offset by an increase in capitalized interest on significant projects in process. Merger Expense - Merger expenses of $50 million associated with the Merger between Ocean and Seagull have been recorded for the year ended December 31, 1999. These costs consisted primarily of Old Ocean's severance costs ($30 million), the write-off of certain costs relating to Old Ocean's information technology system ($14 million) and compensation expense related to the vesting of Old Ocean's restricted stock ($6 million). Merger expenses of $39 million associated with the March 1998 merger between Old Ocean and UMC were recorded in the first quarter of 1998. Income Tax Benefit - An income tax benefit of $0.1 million was recognized for the year ended December 31, 1999, compared to a benefit of $210 million for the year ended December 31, 1998. The decrease in income tax benefit is primarily the result of three factors: (i) significant 25 improvement in operating results; (ii) changes in the nature of deferred tax assets and liabilities due to the Seagull Merger and subsequent asset sales; and (iii) the relative significance of international operating results and taxes to the Company's total results of operations. An income tax benefit of $210 million was recognized for 1998, compared to a provision of $41 million for 1997. The deferred tax benefit for 1998 was impacted by the noncash impairment of oil and gas properties and the tax treatment of certain merger costs, a portion of which was not deductible for tax purposes. Unaudited Pro Forma Condensed Combined Financial and Operating Data The following table sets forth summary unaudited pro forma condensed combined financial and operating data which are presented to give effect to the Seagull Merger, the repurchase of outstanding debt, and the sales of ENSTAR, the Canadian subsidiary and the Gulf of Mexico and Arkoma oil and gas assets as if each event had occurred as of January 1, 1998. Accordingly, Seagull Merger expense, the extraordinary loss on repurchase of debt, and the results of operations of the disposed assets, including the impairment of Canadian assets, are excluded from net income. The information does not purport to be indicative of actual results, if any of these transactions had been in effect for the periods indicated, or of future results. The information was prepared based on the following assumptions: - - The Seagull Merger, the sales of ENSTAR, the Canadian subsidiary and the Gulf of Mexico and Arkoma oil and gas assets, and the repurchase of the outstanding debt are assumed to have occurred as of January 1, 1998; - - certain costs that Seagull had expensed under the successful efforts method of accounting are capitalized under the full cost method of accounting; - - depreciation, depletion and amortization expense of Seagull is calculated in accordance with the full cost method of accounting applied to the adjusted basis of the properties acquired using the purchase method of accounting; - - a decrease in interest expense results from the revaluation of Seagull debt under the purchase method of accounting, including the elimination of amortization of historical debt issuance costs, and from the repurchase of outstanding public debt; - - the proceeds from the asset sales were used to pay down debt at January 1, 1998; and - - the related income tax effects of these adjustments are recorded based on the applicable statutory tax rate.
Unaudited Pro Forma Information (Amounts in Thousands, Except Per Unit Data) Year Ended December 31, ------------------------------------------- 1999 1998 ------------------- ------------------- Oil and Gas Sales...................................................... $ 749,413 $ 757,986 Operating Profit (Loss)................................................ $ 146,047 $ (496,328) Net Income (Loss) Available to Common Shareholders..................... $ 56,804 $ (387,321) Basic and Diluted Earnings (Loss) per Share............................ $ 0.34 $ (2.36) Operations Data: Net daily natural gas production (MMcf)............................. 434.0 523.6 Net daily oil and NGL production (Bbl).............................. 76,723 79,297 Net daily production (MBOE)......................................... 149.1 166.6 Average natural gas prices ($ per Mcf) (1).......................... $ 2.06 $ 1.93 Average oil and NGL prices ($ per Bbl) (1).......................... $ 17.24 $ 11.83 Average all-in costs ($ per BOE).................................... $ 12.14 $ 12.39
(1) Prices exclude the effects of hedging activities. Weighted average prices including hedging were $15.28 and $12.65 for oil and $2.08 and $1.93 for gas for 1999 and 1998, respectively. Liquidity And Capital Resources Liquidity - During 1998 and 1997, Ocean undertook aggressive capital spending programs to find and produce oil and gas reserves. These capital spending programs required the Company to increase outstanding debt from $441 million at the end of 1996 to $1.4 billion at the end of 1998 by issuing various senior and senior subordinated notes and revolving credit facilities. With the Seagull Merger, the Company had nearly $2 billion in debt at March 30, 1999. One of management's 1999 goals was the reduction of these high debt levels. Ocean undertook over $700 million in asset sales and completed a prepaid crude oil sale for $100 million, reducing debt to $1.3 billion at the end of 1999. The Company's debt to total capitalization ratio has decreased to 58% at December 31, 1999, from 78% at December 31, 1998. Concurrently with the closing of the Seagull Merger on March 30, 1999, the Company entered into two new credit facilities (the "Credit Facilities") which replaced the existing credit facilities of both Old Ocean and Seagull. The Credit Facilities consisted of a $500 million five-year revolving facility and a renewable $300 million 364-day facility with a one-year term loan option. In December 1999 the $300 million facility was replaced with a $200 million facility with substantially the same terms. The Credit Facilities bear interest, at the Company's 26 option, at LIBOR or prime rates plus applicable margins ranging from zero to 1.7% or at a competitive bid. As of December 31, 1999, borrowings outstanding against the Credit Facilities totaled $300 million and Letters of Credit totaled $44 million, leaving $356 million of available credit. In the fourth quarter of 1999, the Company repurchased $150 million of its outstanding 10?% Senior Subordinated Notes due 2005 and $158 million of its outstanding 9 3/4% Senior Subordinated Notes due 2006. The repurchase of these Notes was funded with available cash balances and borrowings under the Credit Facilities. In connection with this repurchase, the Company recorded an after-tax extraordinary loss of $23 million, or $0.16 per basic and diluted share. The extraordinary item is net of a current tax benefit of approximately $13 million. At current rates the Company expects to save approximately $11 million in interest expense annually as a result of the transaction. In 1999, the Company entered into a prepaid crude oil sales contract to deliver approximately 5,600 barrels of crude oil per day beginning in February 2000 through May 2003. In exchange for the crude oil to be provided, the Company received an advance payment of approximately $100 million. The Company has the option to satisfy contract delivery requirements with crude oil purchased from third parties or from oil it produces. The obligation associated with the future delivery of the crude oil has been recorded as deferred revenue and is being amortized into revenue as deliveries of crude oil are made. The obligation is included in accrued liabilities and other noncurrent liabilities and deferred revenue on the consolidated balance sheet. Effects of Leverage - The Company has outstanding indebtedness of approximately $1.3 billion as of December 31, 1999. The Company's level of indebtedness has several important effects on its future operations, including (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on its indebtedness and will not be available for other purposes, (ii) the covenants contained in the various indentures require the Company to meet certain financial tests, and contain other restrictions that limit the Company's ability to borrow additional funds or to dispose of assets and may affect the Company's flexibility in planning for, and reacting to, changes in its business, including possible acquisition activities and (iii) the Company's ability to obtain additional financing in the future for working capital, expenditures, acquisitions, general corporate or other purposes may be impaired.
Capital Expenditures (Amounts in Thousands) Year Ended December 31, ----------------------------------------------------------- 1999 1998 1997 ---------------- ---------------- ----------------- Oil and Gas Operations: Leasehold acquisitions..................... $ 34,043 $ 156,947 $ 246,441 Exploration costs.......................... 148,033 395,827 269,942 Development costs.......................... 159,831 395,351 317,975 ---------------- ---------------- ----------------- 341,907 948,125 834,358 Corporate.................................... 20,177 13,854 11,018 ---------------- ---------------- ----------------- Total Continuing Operations.................. 362,084 961,979 845,376 Discontinued Operations...................... 6,942 - - ---------------- ---------------- ----------------- Total Capital Expenditures................... $ 369,026 $ 961,979 $ 845,376 ================ ================ =================
Capital expenditures, excluding acquisitions, from oil and gas operations in 1999 decreased $606 million or 64% from 1998 as the Company focused its efforts on cost control, sales of non-strategic properties and debt reduction. Domestic spending in 1999 totaled $167 million, of which $91 million was for exploration, $52 million was for development and $24 million was for leasehold acquisitions. International spending in 1999 totaled $175 million, of which $57 million was for exploration, $108 million was for development and $10 million was for leasehold acquisitions. The Company completed drilling 40 exploratory wells during 1999, 22 of which were successful. Another 31 exploratory wells were in progress at year-end. 1999 Actual Expenditures of $369 Million "GRAPHICS OMITTED" Gulf of Mexico 28% North America onshore 17% Other International 16% Equatorial Guinea 31% Corporate and other 8% The Company's capital expenditure budget for the year 2000 is approximately $500 million (excluding proved property acquisitions). Actual capital spending may vary from the capital expenditure budget. The Company will evaluate its level of capital spending throughout the year based upon drilling results, commodity prices, cash flows from operations and property acquisitions. 27 2000 Plan for Capital Expenditures of $500 Million "GRAPHICS OMITTED" Gulf of Mexico 47% North America Onshore 19% Other International 18% Equatorial Guinea 14% Corporate 2% Through drilling, proved property acquisitions and the Seagull Merger, the Company experienced a 504% reserve replacement of 1999 production. The Company's proved oil and gas reserves increased by 42% or 123 MMBOE to 415 MMBOE at December 31, 1999 from 292 MMBOE at December 31, 1998 primarily due to the Seagull Merger, offset by sales of oil and gas properties that occurred during the year. Excluding the effects of acquisitions (primarily the Seagull Merger and the purchase of certain working interests from Duke Energy) reserve replacement was 130%. The Company's finding and development ("F&D") cost per BOE for the year ending December 31, 1999, was $5.13. Excluding the effects of acquisitions, the F&D cost was $4.98 per BOE. The standardized measure of discounted future net cash flows before taxes for the Company's proved oil and gas reserves, calculated based on Securities and Exchange Commission ("SEC") criteria, increased to $3.0 billion at December 31, 1999 compared with $0.9 billion at the end of 1998. This increase was primarily due to the increase in oil and gas prices and the Seagull Merger, offset by property sales. Year-end calculations were made using weighted average prices of $2.04 and $1.83 per Mcf for gas and $23.33 and $10.02 per Bbl for oil for 1999 and 1998, respectively. The Company's average realized prices for the year ended December 31, 1999, excluding the effects of hedging, were $2.08 per Mcf for gas and $17.32 per Bbl for oil. The Company's average realized prices for the month ended January 31, 2000, excluding the effects of hedging, were $2.30 per Mcf for gas and $25.27 per Bbl for oil. Because the disclosure requirements for discounted future net cash flows are standardized by the SEC, significant changes can occur in these estimates based upon oil and gas prices in effect at year-end. The above estimates should not be viewed as an estimate of fair market value. See Note 15 to the Company's Consolidated Financial Statements. The Company makes, and will continue to make, substantial capital expenditures for the acquisition, exploration, development, production and abandonment of its oil and natural gas reserves. The Company has historically funded its expenditures from cash flows from operating activities, bank borrowings, sales of equity and debt securities, sales of non-strategic oil and natural gas properties, sales of partial interests in exploration concessions and project finance borrowings. The Company intends to finance capital expenditures for the year 2000 primarily with cash flow provided by operations. The ability of the Company to satisfy its obligations and fund planned capital expenditures will be dependent upon its future performance. Such future performance is subject to many conditions that are beyond the Company's control, particularly oil and gas prices, and the Company's ability to obtain additional debt and equity financing, if necessary. The Company currently expects that its cash flow from operations and availability under the Credit Facilities will be adequate to execute its business plan for the year 2000. However, no assurance can be given that the Company will not experience liquidity problems from time to time or on a long-term basis. If the Company's cash flow from operations and availability under the Credit Facilities are not sufficient to satisfy its cash requirements, there can be no assurance that additional debt or equity financing will be available to meet its requirements. Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement establishes standards of accounting for and disclosures of derivative instruments and hedging activities. This statement, as amended, is effective for fiscal years beginning after June 15, 2000. While the Company has not yet completed its evaluation of the impact of this statement, the Company does not believe the statement will have a significant impact on its results of operations as it expects that its current derivative activities would continue to qualify under hedge accounting. 28 Environmental Compliance with applicable environmental and safety regulations by the Company has not required any significant capital expenditures or materially affected its business or earnings. The Company believes it is in substantial compliance with environmental and safety regulations and foresees no material expenditures in the future; however, the Company is unable to predict the impact that compliance with future regulations may have on its capital expenditures, earnings and competitive position. Year 2000 Historically, most computer systems (including microprocessors embedded into field equipment and other machinery) utilized software that recognized a calendar year by its last two digits. Beginning in the year 2000, these systems require modification to distinguish twenty-first century dates from twentieth century dates ("Year 2000 issues"). To date, the Company has not experienced any significant problems due to Year 2000 issues. While no assurance can be given, the Company does not believe it will experience any significant Year 2000 issues in the future. Costs of $0.6 million for the Year 2000 compliance review, evaluation, assessment and remediation efforts were incurred through December 31, 1999. Forward-Looking Statements May Prove Inaccurate This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this document, including, without limitation, statements regarding the financial position, business strategy, production and reserve growth and other plans and objectives for the future operations of the Company are forward-looking statements. Although the Company believes that such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will in fact occur. Important factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements are subject to risks and uncertainties and include information concerning general economic conditions and possible or assumed future results of operations of the Company, estimates of oil and gas production and reserves, drilling plans, future cash flows, anticipated capital expenditures, the Company's realization of its deferred tax assets, the level of future expenditures for environmental costs, and management's strategies, plans and objectives as set forth herein. When used in this document, the words "believes," "expects," "anticipates," "intends" or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this document could affect the future results of the energy industry in general and could cause those results to differ materially from those expressed in such forward-looking statements: - - Risks incident to the drilling and operation of oil and gas wells; - - Future production and development costs; - - The effect of existing and future laws and regulatory actions; - - The political and economic climate in the foreign jurisdictions in which the Company conducts oil and gas operations; - - The effect of changes in commodity prices, hedging activities and conditions in the capital markets; and - - Competition from others in the energy industry. Defined Terms Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl"). Oil, condensate and NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. MMBOE, MBOE and BOE represent one million barrels, one thousand barrels and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid. 29 Selected Quarterly Financial Data Summarized quarterly financial data is as follows (amounts in thousands except per share data):
Quarter Ended ------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------------ ------------------ ------------------- ----------------- 1999: Revenues......................... $ 105,694 $ 196,206 $ 214,393 $ 219,225 Operating Profit (Loss) (2)...... $ (31,150) $ 32,744 $ 69,151 $ 62,001 Income (Loss) Before Extraordinary Item(2)......... $ (81,051) $ 2,136 $ 28,805 $ 29,685 Earnings (Loss) per Share Before Extraordinary Item: Basic(1)....................... $ (0.79) $ 0.01 $ 0.17 $ 0.17 Diluted(1)..................... $ (0.79) $ 0.01 $ 0.16 $ 0.17 Net Income (Loss) (2)............ $ (81,051) $ 2,136 $ 28,805 $ 6,272 Earnings (Loss) per Share: Basic(1)....................... $ (0.79) $ 0.01 $ 0.17 $ 0.03 Diluted(1)..................... $ (0.79) $ 0.01 $ 0.16 $ 0.03 1998: Revenues......................... $ 141,056 $ 132,909 $ 123,369 $ 124,816 Operating Profit (Loss) (3)...... $ 21,337 $ (207,692) $ (1,528) $ (328,072) Net Loss(3)...................... $ (28,133) $ (134,846) $ (14,417) $ (229,483) Earnings per Share: Basic(1)....................... $ (0.28) $ (1.34) $ (0.14) $ (2.27) Diluted(1)..................... $ (0.28) $ (1.34) $ (0.14) $ (2.27)
(1) Quarterly earnings (loss) per common share may not total to the full year per share amount, as the weighted average number of shares outstanding for each quarter fluctuated as a result of the assumed exercise of stock options. (2) Includes pre-tax impairments of oil and gas assets of $29 million and $17 million in the first and fourth quarters of 1999, respectively, and merger expense of $41 million, $3 million, and $6 million in the first, third and fourth quarters of 1999, respectively. (3) Includes pre-tax noncash impairments pursuant to the ceiling limitation required by the full cost method of accounting for oil and gas assets of $218 million and $322 million in the second and fourth quarters of 1998, respectively, and merger expense of $39 million in the first quarter of 1998. Market Risk Disclosures The Company experiences market risk in two areas: commodity prices and interest rates. Because the U.S. dollar is the functional currency for all of the Company's existing foreign operations, with predominantly all transactions being denominated in U.S. dollars, the Company has little risk from foreign currency translation. To mitigate a portion of its exposure to fluctuations in energy prices, the Company has entered into various derivative financial instruments for its oil and gas production for the year 2000. See Note 8 to the Company's Consolidated Financial Statements for a discussion of hedging activities during 1999. By applying the 12-month NYMEX oil and gas strip price as of the end of 1999 to the quantity of the Company's oil and gas production hedged as of December 31, 1999, the Company calculated the estimated potential effect of the derivative contracts during the year 2000 to be an approximate $4 million net decrease in revenues. Assuming a 10% increase in oil and gas prices, the potential effect of the derivatives contracts would be an approximate $18 million decrease in revenues for the year ended December 31, 2000. Assuming a 10% decrease in oil and gas prices, the potential effect of the derivatives contracts would be an approximate $15 million increase in revenues for the year ended December 31, 2000. The Company also evaluated the potential effect that reasonably possible near term changes in interest rates may have on the Company's Credit Facilities. Debt outstanding under the Credit Facilities represents approximately 22% of the Company's total debt as of December 31, 1999 and is the only floating rate debt. Based upon an analysis, utilizing the actual interest rates in effect and balances outstanding as of December 31, 1999 and assuming a 10% increase or decrease in interest rates and no changes in the amount of debt outstanding, the potential effect on annual interest expense is approximately $2 million. 30 Ocean Energy, Inc. Report of Management to Shareholders The management of Ocean Energy, Inc. is responsible for the preparation and integrity of financial statements and related data in this Annual Report, whether audited or unaudited. The financial statements were prepared in conformity with generally accepted accounting principles and include certain estimates and judgments which management believes are reasonable under the circumstances. Management is also responsible for and maintains a system of internal accounting controls that is sufficient to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and that financial records are reliable for preparing financial statements, as well as to prevent and detect fraudulent financial reporting. The internal control system is supported by written policies and procedures and the employment of trained, qualified personnel. The Company has an internal audit function which reviews the adequacy of the internal accounting controls and compliance with them. Management has considered the recommendations of internal audit and KPMG LLP, independent certified public accountants, concerning the Company's system of internal controls and has responded appropriately to those recommendations. The accompanying consolidated financial statements of Ocean Energy, Inc. as of December 31, 1999 have been audited by KPMG LLP, independent certified public accountants, and their report is included herein. Their audit was made in accordance with generally accepted auditing standards and included a review of the system of internal controls to the extent considered necessary to determine the audit procedures required to support their opinion on the consolidated financial statements. The Board of Directors, through its Audit Committee composed exclusively of outside directors, meets periodically with representatives of management, internal audit and the independent auditors to ensure the existence of effective internal accounting controls and to ensure that financial information is reported accurately and timely with all appropriate disclosures included. The independent auditors and internal audit have full and free access to, and meet with, the Audit Committee, with and without management present. /s/James T. Hackett /s/William L. Transier /s/Gordon L. McConnell James T. Hackett William L. Transier Gordon L. McConnell Chairman of the Board, Executive Vice President Vice President and President and Chief and Chief Financial Officer Controller Executive Officer January 31, 2000 31 Ocean Energy, Inc. Independent Auditors' Report The Board of Directors and Shareholders Ocean Energy, Inc.: We have audited the accompanying consolidated balance sheet of Ocean Energy, Inc. and subsidiaries as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ocean Energy, Inc. and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/KPMG LLP Houston, Texas January 31, 2000 To the Board of Directors and Shareholders Ocean Energy, Inc.: We have audited the accompanying consolidated balance sheet of Ocean Energy, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company'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 Ocean Energy, Inc. and subsidiaries as of December 31, 1998, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ARTHUR ANDERSEN LLP Houston, Texas February 15, 1999 32 Ocean Energy, Inc. Consolidated Statements of Operations (Amounts in Thousands Except Per Share Data)
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 ---------------- --------------- -------------- Revenues...................................................... $ 735,518 $ 522,150 $ 549,194 Costs of Operations: Operating expenses......................................... 216,981 185,076 139,349 Depreciation, depletion and amortization................... 317,487 293,905 248,423 Impairment of oil and gas properties....................... 46,403 539,915 - General and administrative................................. 21,901 19,209 15,263 ---------------- --------------- -------------- 602,772 1,038,105 403,035 ---------------- --------------- -------------- Operating Profit (Loss)....................................... 132,746 (515,955) 146,159 Other (Income) Expense: Interest expense........................................... 106,081 62,852 49,134 Merger expenses............................................ 49,603 39,000 - Interest income and other.................................. (1,314) (1,229) (6,187) ---------------- --------------- -------------- 154,370 100,623 42,947 ---------------- --------------- -------------- Income (Loss) Before Income Taxes............................. (21,624) (616,578) 103,212 Income Tax Expense (Benefit).................................. (72) (209,699) 40,992 ---------------- --------------- -------------- Income (Loss) from Continuing Operations...................... (21,552) (406,879) 62,220 Income from Discontinued Operations, Net of Income Taxes...... 1,127 - - ---------------- --------------- -------------- Income (Loss) Before Extraordinary Item....................... (20,425) (406,879) 62,220 Extraordinary Loss, Net of Income Taxes....................... (23,413) - (19,301) ---------------- --------------- -------------- Net Income (Loss)............................................. (43,838) (406,879) 42,919 Preferred Stock Dividends..................................... 3,264 454 - ---------------- --------------- -------------- Net Income (Loss) Available to Common Shareholders............ $ (47,102) $ (407,333) $ 42,919 ================ =============== ============== Basic Earnings (Loss) Per Common Share: Income (Loss) From Continuing Operations................... $ (0.16) $ (4.04) $ 0.67 Income from Discontinued Operations, Net of Income Taxes............................................. 0.01 - - Extraordinary Loss, Net of Income Taxes.................... (0.16) - (0.21) ---------------- --------------- -------------- Net Income (Loss) to Common Shareholders................... $ (0.31) $ (4.04) $ 0.46 ================ =============== ============== Diluted Earnings (Loss) Per Common Share: Income (Loss) from Continuing Operations................... $ (0.16) $ (4.04) $ 0.64 Income From Discontinued Operations, Net of Income Taxes............................................. 0.01 - - Extraordinary Loss, Net of Income Taxes.................... (0.16) - (0.20) ---------------- --------------- -------------- Net Income (Loss) to Common Shareholders................... $ (0.31) $ (4.04) $ 0.44 ================ =============== ============== Weighted Average Number of Common Shares Outstanding: Basic...................................................... 151,022 100,705 93,315 ================ =============== ============== Diluted.................................................... 151,022 100,705 96,646 ================ =============== ==============
See accompanying Notes to Consolidated Financial Statements. 33 Ocean Energy, Inc. Consolidated Balance Sheets (Amounts in Thousands Except Share Data)
Assets December 31, -------------------------------------- 1999 1998 ------------------ ----------------- Current Assets: Cash and cash equivalents............................................ $ 64,889 $ 10,706 Accounts receivable, net............................................. 170,034 111,829 Inventories.......................................................... 28,723 16,802 Prepaid expenses and other........................................... 26,304 14,444 ------------------ ----------------- Total Current Assets............................................... 289,950 153,781 Property, Plant and Equipment, at cost, full cost method for oil and gas properties: Evaluated oil and gas properties..................................... 3,706,288 2,759,686 Unevaluated oil and gas properties excluded from amortization........ 507,197 488,689 Other................................................................ 84,410 44,960 ------------------ ----------------- 4,297,895 3,293,335 Accumulated Depreciation, Depletion and Amortization.................... (2,094,885) (1,711,696) ------------------ ----------------- 2,203,010 1,581,639 Deferred Income Taxes................................................... 233,406 217,824 Other Assets............................................................ 56,777 53,716 ------------------ ----------------- Total Assets............................................................ $ 2,783,143 $ 2,006,960 ================== ================= Liabilities and Shareholders' Equity Current Liabilities: Accounts and note payable............................................ $ 275,629 $ 190,727 Accrued interest payable............................................. 41,119 36,206 Accrued liabilities.................................................. 51,542 9,413 Current maturities of long-term debt................................. 13,651 836 ------------------ ----------------- Total Current Liabilities.......................................... 381,941 237,182 Long-Term Debt.......................................................... 1,333,410 1,371,890 Other Noncurrent Liabilities and Deferred Revenue....................... 120,097 20,945 Commitments and Contingencies........................................... - - Shareholders' Equity: Preferred stock, $1.00 and $0.01 par value, respectively; authorized 10,000,000 shares; issued 50,000 shares............................ 50 1 Common stock, $0.10 and $0.01 par value, respectively; authorized 230,000,000 and 250,000,000 shares, respectively; issued 166,979,981 and 101,753,646 shares, respectively................... 16,699 1,018 Additional paid-in capital........................................... 1,484,688 892,339 Accumulated deficit.................................................. (547,216) (500,114) Accumulated other comprehensive loss................................. - (10,720) Less - treasury stock, at cost; 378,171 and no shares, respectively.. (3,114) - Less - notes receivable and other.................................... (3,412) (5,581) ------------------ ----------------- Total Shareholders' Equity......................................... 947,695 376,943 ------------------ ----------------- Total Liabilities and Shareholders' Equity.......................... $ 2,783,143 $ 2,006,960 ================== =================
See accompanying Notes to Consolidated Financial Statements. 34 Ocean Energy, Inc. Consolidated Statements of Cash Flows (Amounts in Thousands)
Year Ended December 31, ------------------------------------------------------------- 1999 1998 1997 ------------------- -------------------- ---------------- Operating Activities: Net income (loss)............................................. $ (43,838) $ (406,879) $ 42,919 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization................. 317,487 293,905 248,423 Impairment of oil and gas properties..................... 46,403 539,915 - Deferred income taxes.................................... (48,123) (213,514) 20,821 Noncash merger expenses.................................. 20,529 - - Noncash items from discontinued operations............... 5,383 - - Extraordinary loss, net of taxes......................... 23,413 - 19,301 Amortization of deferred financing costs................. 8,146 8,125 2,957 Other.................................................... 6,748 (2,477) (2,306) ------------------- -------------------- ---------------- 336,148 219,075 332,115 Changes in operating assets and liabilities, net of acquisitions: Decrease (increase) in accounts receivable............... 475 23,724 (17,338) Decrease (increase) in inventories, prepaid expenses and other..................................... 18,446 8,059 (20,662) Increase (decrease) in accounts and notes payable........ (51,731) (12,836) 48,156 Increase (decrease) in accrued expenses and other........ 30,413 (8,098) 21,931 ------------------- -------------------- ---------------- Net Cash Provided by Operating Activities.................. 333,751 229,924 364,202 ------------------- -------------------- ---------------- Investing Activities: Capital expenditures of continuing operations.............. (362,084) (970,443) (830,483) Capital expenditures of discontinued operations............ (6,942) - - Acquisition costs, net of cash acquired.................... (33,169) - - Proceeds from sales of property, plant and equipment....... 704,055 2,054 52,855 Increase in other assets................................... - - (23,878) ------------------- -------------------- ---------------- Net Cash Provided by (Used in) Investing Activities........ 301,860 (968,389) (801,506) ------------------- -------------------- ---------------- Financing Activities: Proceeds from debt......................................... 1,543,601 1,918,873 826,081 Principal payments on debt ................................ (2,186,852) (1,219,356) (594,977) Proceeds from deferred revenue............................. 100,000 - - Premiums paid on debt buy back............................. (28,837) - (26,700) Purchase of treasury stock................................. (2,840) - - Proceeds from sales of common stock........................ - - 178,108 Proceeds from common stock options exercised............... 2,813 8,695 9,428 Proceeds from issuance of convertible preferred stock...... - 49,954 - Deferred debt issue costs.................................. (6,406) (20,230) (3,648) Preferred stock dividends paid............................. (2,907) (454) - ------------------- -------------------- ---------------- Net Cash Provided by (Used in) Financing Activities........ (581,428) 737,482 388,292 ------------------- -------------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents.............. 54,183 (983) (49,012) Cash and Cash Equivalents at Beginning of Year................ 10,706 11,689 60,701 ------------------- -------------------- ---------------- Cash and Cash Equivalents at End of Year...................... $ 64,889 $ 10,706 $ 11,689 =================== ==================== ================
See accompanying Notes to Consolidated Financial Statements. 35 Ocean Energy, Inc. Consolidated Statement of Shareholders' Equity (Amounts in Thousands)
Preferred Common Additional Accumulated Stock Stock Paid-In-Capital Deficit ------------- ------------- -------------- -------------- Balance, January 1, 1999....................... $ 1 $ 1,018 $ 892,339 $ (500,114) Effect of Seagull Merger..................... 49 15,621 588,088 - Exercise of common stock options............. - 60 3,303 - Treasury stock purchase...................... - - - - Contribution to ESOP......................... - - (236) - Amortization of compensation expense......... - - - - Preferred stock dividends.................... - - - (3,264) Other........................................ - - 1,194 - Comprehensive income: Net loss..................................... - - - (43,838) Other comprehensive income: Foreign currency translation adjustment: Income arising during the year............... - - - - Reclassification adjustment.................. - - - - Net foreign currency translation adjustment.... - - - - ------------- ------------- -------------- -------------- Balance, December 31, 1999..................... $ 50 $ 16,699 $1,484,688 $ (547,216) ============= ============= ============== ============== Balance, January 1, 1998....................... $ - $ 1,001 $ 823,956 $ (92,781) Issuance of preferred stock.................. 1 - 49,953 - Issuance of common stock..................... - 6 5,734 - Exercise of common stock options............. - 11 12,696 - Preferred stock dividends.................... - - - (454) Comprehensive income: Net loss..................................... - - - (406,879) Other comprehensive income (loss): Foreign currency translation adjustment...... - - - - ------------- ------------- -------------- -------------- Balance, December 31, 1998..................... $ 1 $ 1,018 $ 892,339 $ (500,114) ============= ============= ============== ============== Balance, January 1, 1997....................... $ - $ 918 $ 632,111 $ (135,700) Issuance of common stock..................... - 73 177,674 - Exercise of common stock options............. - 10 14,171 - Comprehensive income: Net income................................... - - - 42,919 Other comprehensive income (loss): Foreign currency translation adjustment...... - - - - ------------- ------------- -------------- -------------- Balance, December 31, 1997..................... $ - $ 1,001 $ 823,956 $ (92,781) ============= ============= ============== ==============
See accompanying Notes to Consolidated Financial Statements. 36 Ocean Energy, Inc. Consolidated Statement of Shareholders' Equity (Amounts in Thousands)
Accumulated Other Notes Total Comprehensive Treasury Receivable Shareholder's Comprehensive Income Stock and Other Equity Income ----------------- -------------- -------------- -------------- -------------- Balance, January 1, 1999................... $ (10,720) $ - $ (5,581) $ 376,943 Effect of Seagull Merger................. - (4,293) (4,261) 595,204 Exercise of common stock options......... - - - 3,363 Treasury stock purchase.................. - (2,840) - (2,840) Contribution to ESOP..................... - 4,019 849 4,632 Amortization of compensation expense..... - - 5,581 5,581 Preferred stock dividends................ - - - (3,264) Other.................................... - - - 1,194 Comprehensive income: Net loss................................. - - - (43,838) $ (43,838) Other comprehensive income: Foreign currency translation adjustment: Income arising during the year........... - - - - 981 Reclassification adjustment.............. - - - - 9,739 ------------- Net foreign currency translation adjustment 10,720 - - 10,720 10,720 ------------------ ------------- -------------- -------------- ------------- Balance, December 31, 1999................. $ - $ (3,114) $ (3,412) $ 947,695 $ (33,118) ================== ============= ============== ============== ============= Balance, January 1, 1998................... $ (6,839) $ - $ - $ 725,337 Issuance of preferred stock.............. - - - 49,954 Issuance of common stock................. - - (5,581) 159 Exercise of common stock options......... - - - 12,707 Preferred stock dividends................ - - - (454) Comprehensive income: Net loss................................. - - - (406,879) $ (406,879) Other comprehensive income (loss): Foreign currency translation adjustment.. (3,881) - - (3,881) (3,881) ------------------- ------------- -------------- -------------- ------------- Balance, December 31, 1998................. $ (10,720) $ - $ (5,581) $ 376,943 $ (410,760) =================== ============= ============== ============== ============= Balance, January 1, 1997................... $ (4,257) $ - $ - $ 493,072 Issuance of common stock................. - - - 177,747 Exercise of common stock options......... - - - 14,181 Comprehensive income: Net income............................... - - - 42,919 $ 42,919 Other comprehensive income (loss): Foreign currency translation adjustment.. (2,582) - - (2,582) (2,582) ------------------ ------------- -------------- -------------- ------------- Balance, December 31, 1997................. $ (6,839) $ - $ - $ 725,337 $ 40,337 ================== ============= ============== ============== =============
See accompanying Notes to Consolidated Financial Statements. 37 Ocean Energy, Inc. Notes to Consolidated Financial Statements 1. Organization Ocean Energy, Inc. (the "Company", "OEI", or "Ocean") is an independent energy company engaged in the exploration, development, production and acquisition of oil and natural gas offshore Gulf of Mexico, across North America and in the oil and natural gas producing regions of Cote d'Ivoire, Egypt, Equatorial Guinea, Russian Republic of Tatarstan, Indonesia, Pakistan, Angola and the Republic of Yemen. On November 24, 1998, Ocean Energy, Inc. ("Old Ocean") and Seagull Energy Corporation ("Seagull") entered into a merger agreement that provided for a stock-for-stock merger (the "Seagull Merger") of Old Ocean with and into Seagull. The Seagull Merger was a tax-free transaction and was approved by the Company's stockholders on March 30, 1999. In connection with the Seagull Merger, Old Ocean stockholders received one share of common stock of Seagull for each existing outstanding share of Ocean. Seagull amended its Articles of Incorporation to change its name to Ocean Energy, Inc. ("New Ocean"). After the Seagull Merger, the stockholders of Old Ocean owned approximately 61.5% of the outstanding common stock of New Ocean and the shareholders of Seagull owned the remaining 38.5% of the outstanding common stock of New Ocean. The transaction was treated as a reverse purchase business combination for accounting purposes. Effective March 27, 1998, pursuant to the Agreement and Plan of Merger dated December 22, 1997, United Meridian Corporation ("UMC") was merged into the Company (the "UMC Merger"). As a result of the UMC Merger, each outstanding share of UMC common stock was converted into 1.3 shares of Ocean common stock with approximately 46 million shares issued to the shareholders of UMC representing approximately 46% of all of the issued and outstanding shares of Ocean. The Company's shareholders received 2.34 shares of Ocean common stock for each share outstanding immediately preceding the UMC Merger representing approximately 54% of all of the issued and outstanding shares of Ocean. The UMC Merger was accounted for as a pooling of interests. Accordingly, the accompanying consolidated financial statements for periods prior to the UMC Merger have been restated to combine the historical results of Ocean and UMC. All common share data throughout these financial statements have been restated to reflect the impact of the respective stock splits resulting from the UMC Merger. 2. Summary of Significant Accounting Policies General - The accompanying consolidated financial statements of the Company have been prepared according to generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission. These accounting principles require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications of amounts previously reported have been made to conform to current year presentations. Consolidation - The accompanying consolidated financial statements include the accounts of Ocean Energy, Inc. and its majority-owned entities. All significant intercompany transactions have been eliminated. Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories - Materials and supplies are valued at the lower of average cost or market value (net realizable value). Oil and Gas Properties - The Company's exploration and production activities are accounted for using the full cost method. Under this method, all acquisition, exploration and development costs, including certain related employee costs and a portion of interest expense, incurred for the purpose of finding oil and gas are capitalized. Such amounts include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs, delay rentals and costs related to such activities. Employee costs associated with production operations and general corporate activities are expensed in the period incurred. Transactions involving sales of reserves in place, unless significant, are recorded as adjustments to oil and gas properties. Capitalized costs are limited to the sum of the 38 present value of future net revenues using current unescalated pricing discounted at 10%, related to estimated production of proved reserves and the lower of cost or estimated fair value of unevaluated properties, all net of expected income tax effects. Depreciation, depletion and amortization of oil and gas properties is computed on a country-by-country basis using a unit-of-production method based on estimated proved reserves. All costs associated with evaluated oil and gas properties, including an estimate of future development, restoration, dismantlement and abandonment costs associated therewith, are included in the computation base. The costs of investments in unproved properties and major development projects are excluded from this calculation until the project is evaluated and proved reserves established or impaired. Oil and gas reserves are estimated annually by the Company, with reviews of certain data performed by independent petroleum engineers. Unproved leaseholds with significant acquisition costs are assessed periodically, on a property-by-property basis. If a property has been evaluated, or if impairment is needed, the costs related to that property are reclassified as an evaluated property, and thus subject to the depreciation, depletion and amortization method discussed above. Unproved leaseholds whose acquisition costs are not individually significant are aggregated, and the portion of such costs estimated to ultimately prove nonproductive, based on experience, are amortized over an average holding period. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Pursuant to the ceiling limitation required by the full cost method of accounting for oil and gas properties, the Company recognized total non-cash impairments of oil and gas properties in the amount of $540 million ($335 million after-tax) for the year ended December 31, 1998. These write-downs were primarily the result of the precipitous decline in world crude oil and natural gas prices experienced during 1998. The Company had no such ceiling limitations in 1999 or 1997. The Company recognized impairments in the amount of $46 million ($43 million after-tax) for the year ended December 31, 1999. These impairments related primarily to the sale of the Canadian subsidiary ($23 million, pre-tax) and to the discontinuance of operations in Bangladesh ($18 million, pre-tax) and other international locations ($5 million, pre-tax). Interest cost capitalized as property, plant and equipment amounted to approximately $41 million, $30 million and $13 million in 1999, 1998 and 1997, respectively. The Company also capitalized certain employee-related costs in the amounts of $41 million, $28 million, and $15 million, in 1999, 1998 and 1997, respectively. Other Property, Plant and Equipment - Depreciation of other property is computed principally using the straight-line method over their estimated useful lives, which vary from three to twenty years. The Company groups and evaluates other property, plant and equipment for impairment based on the ability to identify separate cash flows generated therefrom. No impairment charges related to other property, plant and equipment were recorded during 1999, 1998 and 1997. Maintenance, repairs and renewals are charged to operations and maintenance expense except that renewals which extend the life of the asset are capitalized. Environmental Liabilities - Environmental expenditures that relate to current or future revenues are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and that do not contribute to current or future revenue generation, are expensed. Liabilities are accrued when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the Company's commitment to a formal plan of action. Treasury Stock - The Company follows the weighted average cost method of accounting for treasury stock transactions. Revenue Recognition - The Company records oil and natural gas revenue following the entitlements method of accounting for production, in which any excess amount received above the Company's share is treated as a liability. If less than the Company's entitlement is received, the underproduction is recorded as an asset. Discontinued Operations - The Company has operated in Alaska through a division of the Company and a wholly-owned subsidiary (collectively referred to herein as "ENSTAR"). In July 1999, the Company committed to a plan to dispose of ENSTAR, and on November 1, 1999, the Company completed the sale. See Note 5. ENSTAR's 39 net income was $1 million, net of income tax expense of $1 million, for the year ended December 31, 1999. The net assets disposed of comprised net current liabilities of $2 million, property, plant and equipment of $292 million, and other long-term liabilities of $3 million, before liabilities assumed of $57 million. The results of operations of ENSTAR have been reflected as discontinued operations. Derivative Financial Instruments - From time to time, the Company has utilized and expects to continue to utilize hedging transactions with respect to a portion of its oil and gas production to achieve a more predictable cash flow as well as to reduce its exposure to price fluctuations. These transactions generally are swaps or price collars and are entered into with major financial institutions or commodities trading institutions. Derivative financial instruments are intended to reduce the Company's exposure to declines in the market price of natural gas and crude oil. These derivative financial instruments will limit the Company's realized revenues if market prices exceed the contracted ceiling price and limit losses if market prices fall below the contracted floor price. As a result, gains and losses on derivative financial instruments are generally offset by similar changes in the realized price of natural gas and crude oil. The Company uses the hedge or deferral method of accounting for these instruments. To qualify as hedges, these instruments must highly correlate to anticipated future production such that the Company's exposure to the effects of price changes is reduced. Income and costs related to these hedging activities are recognized in oil and gas revenues when the commodities are produced. Income and costs on commodity derivative financial instruments that are closed before the hedged production occurs are also deferred until the production month originally hedged. In the event of a loss of correlation between changes in oil and gas reference prices under a commodity derivative financial instrument and actual oil and gas prices, income or costs are recognized currently to the extent the financial instrument has not offset changes in actual oil and gas prices. Any realized income and costs that are deferred at the balance sheet date are included in net current assets or liabilities. Income Taxes - The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Foreign Currency Translation - The U.S. dollar is the functional currency for all of the Company's existing foreign operations, as predominantly all transactions in these operations are denominated in U.S. dollars. Prior to the disposition of its Canadian subsidiary in April 1999, the Company's Canadian operations used the applicable local currency as the functional currency. Translation from Canadian dollars to U.S. dollars was performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using primarily a weighted average exchange rate during the period. Adjustments resulting from such translation were included as a separate component of shareholders' equity and as a component of comprehensive income. Stock-Based Compensation - The Company accounts for stock-based compensation under the intrinsic value method. Under this method, the Company records no compensation expense for stock options granted when the exercise price of options granted is equal to or greater than the fair market value of the Company's common stock on the date of grant. Concentrations Of Market Risk - The future results of the Company's oil and gas operations will be affected by the market prices of oil and natural gas. The availability of a ready market for natural gas, oil and liquid products in the future will depend on numerous factors beyond the control of the Company, including weather, production of other natural gas, crude oil and liquid products, imports, marketing of competitive fuels, proximity and capacity of oil and gas pipelines and other transportation facilities, any oversupply or undersupply of gas, oil and liquid products, the regulatory environment and other regional and political events, none of which can be predicted with certainty. The Company operates in various phases of the oil and natural gas industry. The Company's receivables include amounts due from purchasers of oil and gas production and amounts due from joint venture partners for their respective portions of operating expense and exploration and development costs. The Company believes that no single customer or joint venture partner exposes the Company to significant credit risk. While certain of these customers and joint venture partners are affected by peri- 40 odic downturns in the economy in general or in their specific segment of the natural gas or oil industry, the Company believes that its level of credit-related losses due to such economic fluctuations has been and will continue to be immaterial to the Company's results of operations in the long term. Trade receivables are generally not collateralized; however, the Company analyzes customers' and joint venture partners' historical credit positions prior to extending credit. At December 31, 1999 and 1998, the Company had an allowance for doubtful accounts receivable of $2 million and $1 million, respectively. For the years ended December 31, 1999, 1998 and 1997, the Company had one customer who accounted for 18%, 15% and 15% of total revenues, respectively. During 1999, the Company had one customer who accounted for 16% and one customer who accounted for 11% of total revenues. In addition, the Company had one customer who accounted for 12% and 21% of total revenues in 1998 and 1997, respectively. The Company has a significant portion of its operations in various international areas. The Company's activities in these areas are subject to risks associated with international operations, including political and economic uncertainties, risks of cancellation or unilateral modification of agreements, operating restrictions, currency repatriation restrictions, expropriation, export restrictions, the imposition of new taxes and the increase of existing taxes, inflation, foreign exchange fluctuations and other risks arising out of international government sovereignty over areas in which the operations are conducted. The Company has endeavored to protect itself against political and commercial risks inherent in these operations. There is no certainty that the steps taken by the Company will provide adequate protection. Concentrations Of Credit Risk - Derivative financial instruments that hedge the price of oil and natural gas and interest rates are generally executed with major financial or commodities trading institutions which expose the Company to acceptable levels of market and credit risks and may at times be concentrated with certain counterparties or groups of counterparties. Although notional amounts are used to express the volume of these contracts, the amounts potentially subject to credit risk, in the event of non-performance by the counterparties, are substantially smaller. The credit worthiness of counterparties is subject to continuing review and full performance is anticipated. Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes standards of accounting for and disclosures of derivative instruments and hedging activities. This statement, as amended, is effective for fiscal years beginning after June 15, 2000. While the Company has not yet completed its evaluation of the impact of this statement, the Company does not believe the statement will have a significant impact on its results of operations as it expects its current derivative activities would continue to qualify under hedge accounting. 3. Earnings Per Share Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the assumption that outstanding stock options have been converted using the average price for the period. For purposes of computing earnings per share in a loss year, common stock equivalents have been excluded from the computation of weighted average common shares outstanding because their effect is antidilutive. For the year ended, December 31, 1997, the assumed conversion of stock options resulted in an additional 3.3 million weighted average common shares included in the diluted earnings calculation. Options to purchase 22,515,302 shares of common stock (of which 5 million were issued in connection with the Seagull Merger) and 12,667,983 shares of common stock were outstanding at December 31, 1999 and 1998, respectively, but were not included in the computation of diluted loss per share because the effect of the assumed exercise of these stock options as of the beginning of the year would have an antidilutive effect. These options had exercise prices ranging from $2.11 to $36.55 and expire at various dates through 2009. Options to purchase approximately 1.5 million shares of common stock at $26.44 to $36.53 per share were outstanding during 1997 but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. These options, which as of December 31, 1997 had various expiration dates from 1998 to 2007, remained outstanding at the end of 1997. 41 4. Supplemental Disclosures of Cash Flow Information Supplemental disclosures of cash flow information (stated in thousands) are as follows:
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 --------------- -------------- -------------- Cash paid during the year for: Interest..................................................... $ 94,229 $ 54,758 $ 49,563 Income taxes................................................. $ 27,493 $ 3,869 $ 6,066
As discussed in Note 5, the Seagull Merger was completed through the issuance of common stock. Therefore, the Seagull Merger increased property, plant and equipment by $1.3 billion, debt by $563 million, other liabilities by $200 million, and equity by $595 million through a noncash transaction that was not reflected in the statement of cash flows. However, $1.8 million of the $33 million of acquisition costs reflected in "investing activities" in the statement of cash flows represents the cash expenses paid in connection with the Seagull Merger, less the cash of Seagull on the date of the Seagull Merger. 5. Acquisition And Disposition of Assets Seagull Merger - On March 30, 1999, the shareholders approved the Seagull Merger. The Seagull Merger has been accounted for as a purchase under generally accepted accounting principles. Because Old Ocean stockholders own a majority of the outstanding shares of common stock of the merged company, the accounting treatment of the Seagull Merger reflects Old Ocean acquiring Seagull in a "reverse purchase." Under this method of accounting, the merged company's historical results for periods prior to the Seagull Merger are the same as Old Ocean's historical results. At the date of the Seagull Merger, assets and liabilities of Old Ocean were recorded based upon their historical costs, and the assets and liabilities of Seagull were recorded at their estimated fair market values. The following is a calculation of the purchase price:
Calculation of the purchase price (in thousands, except per share data): Shares of common stock issued.............................................. 64,630 Average of OEI stock price three days before and after the merger announcement...................................................... $ 9.09 ---------------------- Fair value of stock issued.................................................. $ 587,484 Add: Capitalized merger costs............................................... 54,216 ---------------------- Purchase Price.............................................................. $ 641,700 ======================
Capitalized merger costs consisted primarily of severance costs of Seagull ($19 million), value of Seagull stock options maintained by OEI ($17 million), investment banking fees ($10 million), and other transaction fees and professional expenses ($8 million). In addition, merger costs of $50 million were expensed through December 31, 1999. These costs consisted primarily of Old Ocean's severance costs ($30 million), the write-off of certain costs relating to Old Ocean's information technology system ($14 million) and compensation expense related to the vesting of Old Ocean's restricted stock ($6 million). As of December 31, 1999, $23 million of Old Ocean's severance costs have been paid. Disposition of Assets - The Company disposed of the following assets in 1999 primarily using the proceeds to repay existing long-term debt: - - ENSTAR for net proceeds of $287 million; - - Domestic properties located in the Arkoma Basin and Gulf of Mexico for net proceeds of $231 million and $66 million, respectively; and - - Canadian subsidiary for net proceeds of $68 million. The following reflects the results of operations of the disposed assets (in thousands):
Year Ended December 31, -------------------------------------------- 1999 1998 ----------------------- ------------------ ENSTAR: Revenues....................................................... $ 38,281 $ 93,592 Operating profit............................................... 4,961 23,143 Domestic Properties: Revenues....................................................... 35,894 64,864 Operating profit............................................... 14,516 21,130 Canada: Revenues....................................................... 7,316 19,232 Operating profit (loss) (including impairment)................. (21,123) 4,941
Unaudited Pro Forma Information - The following table sets forth summary unaudited pro forma condensed combined financial and operating data which are presented to give effect to the Seagull Merger, the repurchase of outstanding debt, and the sales of ENSTAR, the Canadian subsidiary and the Gulf of Mexico and Arkoma oil and gas assets as if each event had occurred as of January 1, 1998. Accordingly, Seagull Merger expense, the extraordinary loss on repurchase of debt and the results of operations of the disposed assets, including the impairment of Canadian assets, are excluded from net income. The information does not purport to be indicative of actual results, if any of these transactions had been in effect for the periods indicated, or of future results. The information was prepared based on the following assumptions: 42 - The Seagull Merger, the sales of ENSTAR, the Canadian subsidiary and the Gulf of Mexico and Arkoma oil and gas assets, and the repurchase of the outstanding debt are assumed to have occurred as of January 1, 1998; - certain costs that Seagull had expensed under the successful efforts method of accounting are capitalized under the full cost method of accounting; - depreciation, depletion and amortization expense of Seagull is calculated in accordance with the full cost method of accounting applied to the adjusted basis of the properties acquired using the purchase method of accounting; - a decrease in interest expense results from the revaluation of Seagull debt under the purchase method of accounting, including the elimination of amortization of historical debt issuance costs, and from the repurchase of outstanding public debt; - the proceeds from the asset sales were used to pay down debt at January 1, 1998; and - the related income tax effects of these adjustments are recorded based on the applicable statutory tax rate. Unaudited Pro Forma Information (Amounts in Thousands Except Per Share Data)
Year Ended December 31, -------------------------------------------- 1999 1998 ----------------------- ------------------ Revenues.......................................................... $ 749,413 $ 757,986 Net income (loss) available to common shareholders................ 56,804 (387,321) Basic and diluted earnings (loss) per share....................... 0.34 (2.36)
1998 Transactions - Merger costs of $39 million relating to the Company's merger with UMC were recorded in the first quarter of 1998. These costs consisted primarily of investment banking and other transaction fees, employee severance and relocation costs as well as the write-off of deferred financing costs related to the former credit facilities replaced by the OEI Credit Facility in March 1998. All such costs were paid in 1998. In November 1998, the Company completed the acquisition of incremental interests in several North American oil and gas properties in which it already owned a working interest. The properties were acquired from John Hancock Mutual Life Insurance Company for a net purchase price of $38 million. The acquisition was financed through the issuance of Series A Convertible Preferred Stock. In December 1998, the Company completed its acquisition of certain contract interests in Angola for $39 million. In September 1998, the Company acquired additional contract interests in certain production sharing contracts in Cote d'Ivoire for a net purchase price of $20 million. 1997 Transactions - In March 1997, the Company completed an acquisition of certain interests in various state leases in the Main Pass Block 69 field (the "Main Pass Acquisition"), offshore Plaquemines Parish, Louisiana, for a net purchase price of $56 million. The Main Pass Acquisition included interests situated contiguous to the Company's existing Main Pass 69 holdings acquired in June 1992. In October 1997 the Company acquired certain oil and gas interests in various federal leases in the South Pass 61 and 65 fields for a net purchase price of $60 million and became operator of the properties. In 1997, the Company acquired additional interests in various domestic properties it operates and in which it holds an existing working interest position from several of its institutional partners for a net cost of approximately $50 million. Subsequent Sale - In January 2000 the Company announced that it had executed a purchase and sale agreement to sell all its interests and assets in its East Bay Complex located in the Mississippi Delta Region of the Gulf of Mexico for an agreed price of $86 million. The transaction is expected to close March 31, 2000. 6. Other Noncurrent Assets Other noncurrent assets (stated in thousands) include the following:
December 31, --------------------------------------- 1999 1998 ------------------ ------------------ Oil and gas imbalances (net of current portion of $5 million in 1999)... $ 20,099 $ 6,491 Deferred financing costs................................................ 28,336 31,821 Restricted deposits..................................................... 168 10,773 Other................................................................... 8,174 4,631 ------------------ ------------------ $ 56,777 $ 53,716 ================== ==================
Oil and Gas Imbalances - As discussed in Note 2, the Company records oil and gas revenues following the entitlements method of accounting for production. Deferred Financing Costs - Deferred financing costs represent financing costs incurred in connection with the execution of various debt facilities entered into or securities issued by the Company. These costs are capitalized and amortized to interest expense over the life of the related debt. Restricted Deposits - At December 31, 1998, the Company, as the operator of certain oil and gas properties, was party to two escrow agreements which required monthly deposits into an escrow account. 43 These deposits were to provide for the future plugging and abandonment costs associated with the oil and gas properties. The escrow balances, which totaled approximately $11 million at December 31, 1998, were released in 1999. 7. Debt Long-term debt consisted of the following at December 31, 1999 and 1998 (in thousands):
December 31, --------------------------------------- 1999 1998 ------------------ ------------------ Credit Facilities (average interest rate of 6.3%) due 2004.............. $ 300,000 $ - OEI Credit Facility (average interest rate of 7.0%)..................... - 357,000 Public Notes of Old Ocean: 8 1/4% Senior Notes, due July 2018................................... 125,000 125,000 7 5/8% Senior Notes, due July 2005................................... 125,000 125,000 10 3/8% Senior Subordinated Notes, due October 2005.................. - 150,000 9 3/4% Senior Subordinated Notes, due October 2006................... 1,783 159,318 8 7/8% Senior Subordinated Notes, due July 2007...................... 199,745 199,711 8 3/8% Senior Subordinated Notes, due July 2008...................... 250,000 250,000 Public Notes Assumed in the Seagull Merger: 7 7/8% Senior Notes, due August 2003................................. 98,553 - 7 1/2% Senior Notes, due September 2027.............................. 125,172 - 8 5/8% Senior Subordinated Notes, due August 2005.................... 99,559 - Monetary Production Payment Assumed in the Seagull Merger............... 12,599 - Other................................................................... 9,650 6,697 ------------------ ------------------ 1,347,061 1,372,726 Less: Current maturities............................................... (13,651) (836) ------------------ ------------------ Total Long-Term Debt.................................................... $ 1,333,410 $ 1,371,890 ================== ==================
Credit Facilities - Concurrent with the closing of the Seagull Merger on March 30, 1999, the Company entered into two new credit facilities (the "Credit Facilities") which replaced the existing credit facilities of both Old Ocean and Seagull. The Credit Facilities consisted of a $500 million five-year revolving facility and a renewable $300 million 364-day facility with a one-year term loan option. In December 1999 the $300 million facility was replaced with a $200 million facility with substantially the same terms. The Credit Facilities bear interest, at the Company's option, at LIBOR or prime rates plus applicable margins ranging from zero to 1.7% or at a competitive bid. As of December 31, 1999, borrowings outstanding against the Credit Facilities totaled $300 million and Letters of Credit totaled $44 million, leaving $356 million of available credit. Tender Offer - On November 9, 1999, the Company announced a tender offer to repurchase $150 million of the 10 3/8% Senior Subordinated Notes and $160 million of the 9 3/4% Senior Subordinated Notes. As a result of the tender offer, the Company repurchased on December 10, 1999 all of the 10?% Senior Subordinated Notes and $158 million of the 9 3/4% Senior Subordinated Notes. The repurchase of these Notes was funded with available cash balances and borrowings under the Credit Facilities. In connection with this repurchase, the Company recorded an after-tax extraordinary loss of $23 million, or $0.16 per basic and diluted share, during the fourth quarter of 1999. The extraordinary loss includes a current tax benefit of approximately $13 million. 7 7/8% Senior Notes - In connection with the Seagull Merger, the Company assumed $100 million of 7 7/8% Senior Notes (the "7 7/8% Notes"). The 7 7/8% Notes bear interest at 7 7/8% per annum and are not redeemable prior to maturity or subject to any sinking fund. 7 1/2% Senior Notes - In connection with the Seagull Merger, the Company assumed $150 million of 7 1/2% Senior Notes (the "7 1/2% Notes"), recorded at a discount of $26 million. The 7 1/2% Notes are not redeemable prior to maturity and are not subject to any sinking fund. 8 5/8% Senior Subordinated Notes - In connection with the Seagull Merger, the Company assumed $100 million of 8 5/8% Senior Subordinated Notes (the "8 5/8% Notes"). The 8 5/8% Notes bear interest at 8 5/8% per annum and are not subject to any sinking fund. Monetary Production Payment - In connection with the Seagull Merger, the Company assumed a monetary production payment. The investors receive 99% of the operating cash flow from the properties, less funds required for working capital purposes, until they reach a stated rate of return. Payout is expected to occur sometime during the year 2000. The monetary production payment is included in current maturities at December 31, 1999. Notes Offering - On July 8, 1998, the Company closed an offering of $500 million Senior and Senior Subordinated Notes receiving net proceeds of approximately $488 million, after deducting underwriting discounts and expenses. The offering comprised three separate indentures including $125 million of 7 5/8% Senior Notes, $125 million of 8 1/4% Senior Notes, and $250 million of 8 3/8% Senior Subordinated Notes. On September 21, 1998, the Company filed a registration statement 44 on Form S-4 with the SEC to exchange the Notes for publicly-traded instruments with identical terms. The exchange offer was completed on October 23, 1998. OEI Credit Facility - Concurrent with the closing of the UMC Merger on March 27, 1998, the Company entered into a five-year unsecured revolving credit facility (the "OEI Credit Facility"). The OEI Credit Facility provided for various borrowing options under either a base rate or Eurodollar margin rates. As of December 31, 1998, total borrowings outstanding against the OEI Credit Facility were approximately $357 million. 8 7/8% Senior Subordinated Notes - In 1997, the Company issued $200 million of 8 7/8% Senior Subordinated Notes due 2007 (the "8 7/8% Notes") at a discount for proceeds of approximately $195 million (after offering costs). Proceeds to the Company were used primarily to finance the purchase of outstanding public debt and to repay outstanding indebtedness under the existing credit facility. The Company's senior and senior subordinated debt are general unsecured obligations of the Company and are guaranteed by Ocean Louisiana, a direct subsidiary of the Company, but are subordinate to the Credit Facility. The Company's debt contains conditions and restrictive provisions including, among other things, restrictions on additional indebtedness by the Company and its subsidiaries and entering into sale and leaseback transactions and the maintenance of certain financial ratios. Under the most restrictive of these provisions, approximately $150 million was available for payment of cash dividends on common stock or to repurchase common stock as of December 31, 1999. Other Disclosures - In 1997, the Company repurchased approximately $125 million of outstanding public debt resulting in an extraordinary loss of $19 million, net of a deferred tax benefit of $12 million. At December 31, 1998, the Company was party to a fixed LIBOR interest rate swap contract that provided for fixed interest rates plus interest rate margins to be realized on notional amounts of $45 million. The contract expired in January 1999. Annual Maturities - At December 31, 1999, the Company's aggregate annual maturities of long-term debt are $14 million, $1 million, $1 million, $101 million and $301 million for the years 2000, 2001, 2002, 2003 and 2004, respectively. 8. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies described below. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The estimated fair values of the Company's financial instruments (stated in thousands) are summarized as follows:
December 31, ------------------------------------------------------------------- 1999 1998 -------------------------------- -------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value -------------- --------------- -------------- -------------- Liabilities: Debt..................................... $ 1,347,061 $ 1,297,959 $ 1,372,726 $ 1,349,030 Commodity hedging instruments: In a receivable position.................. - 5,365 - 7,309 In a payable position..................... - (9,552) - -
Debt - The fair value of the public debt is estimated based on quoted market prices for the same or similar issues. The carrying amount of all other debt approximates fair value because these instruments bear interest at rates tied to current market rates or mature in one year. Commodity Hedging Instruments - The fair value of the Company's commodity hedging instruments is the estimated amount the Company would receive or pay to settle the applicable commodity hedging instrument at the reporting date, taking into account the difference between market prices or index prices at year-end and the contract price of the commodity hedging instrument. Certain of the Company's commodity hedging instruments, primarily swaps and options, are off balance sheet transactions and, accordingly, no respective carrying amounts for these instruments were included in the accompanying consolidated balance sheets. As of December 31, 1999, the Company had hedged approximately 9.5 million barrels of oil and 18.3 Bcf of natural gas, representing approximately 35% and 11% of its expected 2000 crude oil and natural gas production, respectively. Assuming current strip prices, the average price of hedged production is estimated at $20.93 per Bbl for crude oil and $2.75 per Mcf for natural gas. The results of hedging increased (decreased) oil and natural gas revenues by approximately $(52) million, $25 million and ($1) million for the years ended December 31, 1999, 1998 and 1997, respectively. 45 9. Other Noncurrent Liabilities and Deferred Revenue
December 31, --------------------------------------- 1999 1998 ------------------ ------------------ Deferred revenue........................................................ $ 71,845 $ - Oil and gas imbalances (net of current portion of $3 million in 1999)... 14,968 5,286 Supplemental benefit and deferred directors fee plans................... 8,361 - Redeemable bearer shares................................................ 6,160 - Deferred income taxes................................................... - 8,010 Other................................................................... 18,763 7,649 ------------------ ------------------ $ 120,097 $ 20,945 ================== ==================
Deferred Revenue - In 1999, the Company entered into a prepaid crude oil sales contract to deliver approximately 5,600 barrels of crude oil per day beginning in February 2000 through May 2003. In exchange for the crude oil to be provided, the Company received an advance payment of approximately $100 million. The Company has the option to satisfy contract delivery requirements with crude oil purchased from third parties or from oil it produces. The obligation associated with the future delivery of the crude oil has been recorded as deferred revenue and is being amortized into revenue as scheduled deliveries of crude oil are made. Oil and Gas Imbalances - As discussed in Note 2, the Company records oil and gas revenues following the entitlements method of accounting for production. Supplemental Benefit and Deferred Directors Fee Plans - Supplemental benefit and deferred directors fee plans represent the Company's obligation under its executive supplemental retirement plan, the deferred directors fee plan and other supplemental benefit plans. Redeemable Bearer Shares - As a result of the Seagull Merger, the Company assumed an obligation in the form of an interest-free loan which is repayable on demand only to the extent certain bearer share warrants are presented for exchange prior to July 2008. At that time, the obligation will cease and remaining cash will revert to the Company as an increase in additional paid-in-capital. 10. Shareholders' Equity The following table reflects the activity in shares of the Company's common stock and preferred stock during the three years ended December 31, 1999:
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 ---------------- --------------- ---------------- Common Stock Outstanding: Shares at beginning of year................................ 101,753,646 100,109,241 91,741,503 Shares issued in connection with Seagull Merger............ 64,629,732 - - Exercise of common stock options........................... 596,603 1,084,405 1,110,277 Issuance of common stock................................... - - 7,254,000 Issuance of restricted stock............................... - 560,000 - Other...................................................... - - 3,461 ---------------- --------------- ---------------- Shares at end of year...................................... 166,979,981 101,753,646 100,109,241 ================ =============== ================ Preferred Stock Outstanding: Shares at beginning of year................................ 50,000 - - Issuance of preferred stock................................ - 50,000 - ---------------- --------------- ---------------- Shares at end of year...................................... 50,000 50,000 - ================ =============== ================ Treasury Stock Outstanding: Shares at beginning of year................................ - - - Shares assumed in connection with Seagull Merger........... (472,278) - - Purchase of shares......................................... (394,000) - - Contribution of shares to ESOP............................. 488,107 - - ---------------- --------------- ---------------- Shares at end of year...................................... (378,171) - - ================ =============== ================
Preferred Stock - The Company is authorized to issue 10,000,000 shares of preferred stock, par value $1.00 and $0.01 per share at December 31, 1999 and 1998, respectively, in one or more series. On November 10, 1998, the Company completed a private placement of 50,000 shares of Convertible Preferred Stock for $38 million of oil and gas properties and $12 million cash from one of its institutional investors and an affiliate of such investor. The preferred stock has a 6.5% cumulative dividend payable semi-annually and ranks senior to the Company's common stock with respect to dividend distribution and distribution upon liquidation. Upon liquidation, the holders of the preferred shares are entitled to receive $1,000 per share, plus any accrued and unpaid dividends. The conversion price of the shares is $15.00. Treasury Stock - In connection with the Seagull Merger, the Company acquired 472,000 shares of treasury stock. 46 In December 1999, the Company purchased 394,000 shares of stock in the open market for $2.8 million and subsequently contributed 488,000 shares of treasury stock to its Employee Stock Option Plan. Preferred Share Purchase Rights - The Company has a Share Purchase Rights Plan to protect the Company's shareholders from coercive or unfair takeover tactics. Under this Plan, each outstanding share and each share of common stock subsequently issued has attached to it one Right, exercisable at $30.75, subject to certain adjustments. In the event a person or group acquires 10% or more of the outstanding common stock, or in the event the Company is acquired in a merger or other business combination or 50% or more of the Company's consolidated assets or earning power is sold, each Right entitles the holder to purchase $30.75 worth of shares of common stock of the Company or of the acquiring company, as the case may be, for half of the then-current, per-share market prices. The Rights, under certain circumstances, are redeemable at the option of OEI's Board of Directors at a price of $0.005 per Right, within 10 days (subject to extension) following the day on which the acquiring person or group exceeds the 10% threshold. If any person or group acquires 10% or more (but less than 50%) of the Company's outstanding common stock, the Board may, at its option, issue common stock in exchange for all or part of the outstanding and exercisable Rights (other than Rights owned by such person or group which would become null and void) at an exchange ratio of one share of common stock for each two shares of common stock for which each Right is then exercisable, subject to adjustment. The Rights expire on May 21, 2000. 11. Benefit Plans Stock Option Plans - The Company currently has various stock option plans. The stock options generally become exercisable over a three-year period and expire 10 years after the date of grant. At December 31, 1999, approximately 3 million shares of common stock were available for grant. Information relating to stock options is summarized as follows:
1999 1998 1997 ---------------------------- ------------------------------- ----------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Price Per Price Per Price Per Shares Share Shares Share Shares Share -------------- ------------- ---------------- -------------- -------------- -------------- Balance outstanding - Beginning of year........ 12,667,983 $ 13.42 9,334,600 $ 12.34 8,090,322 $ 9.30 Seagull options assumed at merger date................. 5,414,601 $ 16.16 - - - - Granted................ 5,261,000 $ 7.23 7,960,300 $ 17.80 2,423,590 $ 20.87 Exercised............. (596,603) $ 5.64 (1,084,405) $ 8.07 (1,111,886) $ 7.07 Forfeited............. (231,679) $ 8.84 (3,542,512) $ 22.05 (67,426) $ 41.09 -------------- ------------- ---------------- -------------- -------------- -------------- Balance outstanding - End of year.............. 22,515,302 $ 12.88 12,667,983 $ 13.42 9,334,600 $ 12.34 ============== ============= ================ ============== ============== ============== Options exercisable - End of year............. 17,559,619 $ 14.45 8,009,163 $ 12.77 4,167,056 $ 8.19 ============== ============= ================ ============== ============== ==============
The weighted average fair value of stock options granted during 1999, 1998 and 1997 was $4.28, $11.42 and $10.56 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model. The model assumed expected volatility of 65%, 61% and 43% to 54%, weighted average risk-free interest rates of 5.24%, 4.73% to 5.75%, and 6.16% to 6.83%, for grants in 1999, 1998 and 1997, respectively, and an expected dividend yield of 0% and an expected life of 5.0 to 6.5 years for each of the three years. Actual value realized, if any, is dependent on the future performance of Ocean common stock and overall stock market conditions. There is no assurance the value realized by an optionee will be at or near the value estimated by the Black-Scholes model. Information relating to stock options outstanding at December 31, 1999 is summarized as follows: 47
Options Outstanding Options Exercisable ------------------------------------------------------ ----------------------------------------- Weighted Weighted Number Average Average Number Weighted Outstanding Remaining Exercise Exercisable at Average Range of at Contractual Price Per December 31, Exercise Price Exercise Prices December 31, 1999 Life Share 1999 Per Share -------------------- --------------- -------------- ----------------- --------------------- $2.11 - 6.80 2,324,551 4.9 $ 4.84 2,324,551 $ 4.84 $6.81 - 6.90 4,348,000 8.8 $ 6.81 131,500 $ 6.81 $6.91 - 8.75 3,722,512 5.3 $ 8.47 3,703,345 $ 8.47 $8.76 - 12.00 3,561,991 5.2 $ 10.68 2,862,541 $ 10.82 $12.01 - 22.00 4,490,517 5.1 $ 17.57 4,490,517 $ 17.57 $22.01 - 36.55 4,067,731 4.9 $ 24.77 4,047,165 $ 24.78 -------------------- --------------- -------------- ----------------- --------------------- 22,515,302 5.8 $ 12.88 17,559,619 $ 14.45 ==================== =============== ============== ================= =====================
All outstanding options were issued at an exercise price equal to fair market value or greater of the Company's common stock as of the date of grant. Accordingly, as discussed in Note 2 for the years ended December 31, 1999, 1998 and 1997, no compensation expense relating to these options was recognized in the Company's results of operations. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant dates for awards made after December 31, 1994 under those plans, the Company's net income (loss) and earnings (loss) per share would have been restated to the pro forma amounts (stated in thousands except per-share data) indicated below:
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 --------------- -------------- -------------- Net income (loss): As reported................................................ $ (43,838) $ (406,879) $ 42,919 Pro forma.................................................. (71,019) (427,166) 36,001 Earnings (loss) per share: Basic: As reported........................ $ (0.31) $ (4.04) $ 0.46 Pro forma.......................... $ (0.49) $ (4.43) $ 0.39 Diluted: As reported........................ $ (0.31) $ (4.04) $ 0.44 Pro forma.......................... $ (0.49) $ (4.43) $ 0.37
Under SFAS No. 123, the acceleration of vesting of options due to the Seagull Merger resulted in the recognition of all remaining pro forma unamortized compensation expense relating to those options in the calculation of the 1999 pro forma amounts above. Restricted Stock - In November 1998 the Company awarded a total of 560,000 shares of restricted stock with a fair market value of $10.25 per share and a three-year vesting period to six executive officers at no cost to the employees. Upon the completion of the Seagull Merger, any unvested shares automatically became vested and all restrictions lapsed. Other Benefit Plans - The Company has various other benefit plans, primarily in the form of profit sharing and thrift plans. Collectively, Company contributions to these plans were approximately $6 million, $2 million and $2 million in 1999, 1998 and 1997, respectively and were included in operating and general and administrative expenses. 12. Income Taxes The income (loss) before income taxes and the components of income tax expense (benefit) for each of the years ended December 31, 1999, 1998 and 1997 (stated in thousands) were as follows:
Year Ended December 31, ----------------------------------------------------- 1999 1998 1997 --------------- ---------------- -------------- Income (loss) before income taxes and extraordinary item: Domestic................................................... $ (67,739) $ (494,687) $ 82,542 Foreign.................................................... 46,115 (121,891) 20,670 --------------- ---------------- -------------- $ (21,624) $ (616,578) $ 103,212 =============== ================ ============== Current income tax expense (benefit): Federal.................................................... $ 21,577 $ 321 $ 169 Foreign.................................................... 20,074 3,512 4,716 State...................................................... 6,400 (18) 1,335 --------------- ---------------- -------------- Total current............................................ 48,051 3,815 6,220 --------------- ---------------- -------------- Deferred income tax expense (benefit): Federal.................................................... (38,179) (198,798) 28,278 Foreign.................................................... (2,362) (13,131) 5,408 State...................................................... (7,582) (1,585) 1,086 --------------- ---------------- -------------- Total deferred........................................... (48,123) (213,514) 34,772 --------------- ---------------- -------------- Income tax expense (benefit).................................. $ (72) $ (209,699) $ 40,992 =============== ================ ==============
In addition, the Company incurred tax expense (benefit) of $1 million on discontinued operations in 1999 and $(13) million and $(12) million on extraordinary items in 1999 and 1997, respectively. 48 As of December 31, 1999 and 1998, the Company and its subsidiaries had U.S. federal net operating loss (NOL) carryforwards of approximately $81 and $193 million, respectively, which will expire in the year 2018. For federal income tax purposes, certain limitations are imposed on an entity's ability to utilize its NOLs in future periods if a change of control, as defined for federal income tax purposes, has taken place. In general terms, the limitation on utilization of NOLs and other tax attributes during any one year is determined by the value of an acquired entity at the date of the change of control multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an acquired entity's value has not yet been addressed by the Internal Revenue Service. The Company has determined that, for federal income tax purposes, a change of control has occurred. However, the Company does not believe such limitations will significantly impact the Company's ability to utilize the NOLs. Income tax expense (benefit) for each of the years ended December 31, 1999, 1998 and 1997 (stated in thousands) was different than the amount computed using the federal statutory rate (35%) for the following reasons:
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 --------------- -------------- -------------- Amount computed using the statutory rate...................... $ (7,568) $ (215,802) $ 36,125 Increase (reduction) in taxes resulting from: Net book deductions not available for tax due to differences in book/tax basis........................................ 283 2,337 329 Tax gain in excess of book gain............................ 9,045 2,310 - Nondeductible merger costs................................. - 7,103 - State and local income taxes, net of federal effect........ (768) (1,575) 1,430 Taxation of foreign operations, net of federal effect...... 7,309 (10,114) 3,020 Accrual to actual adjustments.............................. (1,816) 1,072 459 Increase (decrease) in deferred tax asset valuation allowance (6,570) 4,476 - Other...................................................... 13 494 (371) --------------- -------------- -------------- Income tax expense (benefit).................................. $ (72) $ (209,699) $ 40,992 =============== ============== ==============
The net decrease in the valuation allowance for the year ended December 31, 1999 of approximately $6.6 million included $4.5 million related to the utilization in 1999 of net operating loss carryforwards expiring in 1999 for which a valuation allowance had previously been provided. The remaining change for 1999 is related to management's belief that, due to events occurring in the year of change, it is more likely than not such deferred tax assets, for which a valuation allowance had previously been established, will be realized. The significant components of deferred income tax expense (benefit) attributable to income from continuing operations for the years ended December 31, 1999, 1998 and 1997 (stated in thousands) were as follows:
Year Ended December 31, ------------------------------------------------- 1999 1998 1997 --------------- ---------------- -------------- Deferred tax expense (benefit) exclusive of the effects of other components listed below............................. $ (41,553) $ (217,990) $ 34,772 Increase (decrease) in deferred tax asset valuation allowance. (6,570) 4,476 - --------------- ---------------- -------------- $ (48,123) $ (213,514) $ 34,772 =============== ================ ==============
The tax effects of temporary differences that gave rise to significant portions of the deferred tax liabilities and deferred tax assets as of December 31, 1999 and 1998 (stated in thousands) were as follows:
Year Ended December 31, --------------------------------------- 1999 1998 ----------------- ------------------ Deferred tax assets: Excess of tax basis in oil and gas properties over basis for financial reporting purposes.................................... $ 131,796 $ 136,820 Deferred revenue.................................................. 35,000 - Net operating loss carryforwards.................................. 28,317 108,583 Percentage depletion carryforwards................................ 2,688 2,969 Investment tax credit carryforwards............................... 25 25 Alternative minimum tax credit carryforwards...................... 24,415 4,187 Other............................................................. 17,573 886 ----------------- ------------------ Deferred tax assets.................................................. 239,814 253,470 Less - valuation allowance........................................... (116) (6,686) ----------------- ------------------ Net deferred tax assets.............................................. 239,698 246,784 Deferred tax liabilities: Property, plant and equipment, due to differences in depreciation, depletion and amortization...................................... (3,596) (35,528) Other............................................................. - (2,676) ----------------- ------------------ Deferred tax liabilities............................................. (3,596) (38,204) ----------------- ------------------ Net deferred tax assets.............................................. 236,102 208,580 Less - reclassification to current deferred assets (liabilities)..... (2,696) 1,234 ----------------- ------------------ Net non-current deferred tax assets.................................. $ 233,406 $ 209,814 ================= ==================
49 13. Related Party Transactions The Company conducts a portion of its oil and gas activities in conjunction with a group of institutional and corporate investors that participate in certain of the Company's acquisition, development and exploration programs, and provide the Company with certain carried interests and management fees. Management fee income of $0.3 million, $3 million and $3 million, related to the years ended December 31, 1999, 1998 and 1997, respectively, is included in operating expenses. During 1999, the Company paid fees of $4.9 million to Merrill Lynch & Co., Inc. for financial advisory services related to the Seagull Merger. A member of the Company's Board of Directors also serves on the Board of Merrill Lynch & Co., Inc. During 1999, the Company paid fees totaling $1.1 million to the law firm of Vinson & Elkins, L.L.P. to perform various legal services for the Company. A member of the Company's Board of Directors is of counsel with Vinson and Elkins, L.L.P. The Company pays an annual consulting fee of $425,000 from June 1, 1999 through May 31, 2002 to a member of the Company's Board of Directors. During 1999, 1998 and 1997, the Company paid $0.6 million, $0.8 million and $1.5 million, respectively, to an affiliate of a stockholder associated with an overriding royalty interest owned by it. Effective January 1, 2000, the Company pays an annual salary of $100,000 to the former Chairman of the Board of Directors of the Company for a period of two years. In addition, severance benefits of $5.4 million paid to the former Chairman have been included in Merger expenses for the year ended December 31, 1999. Effective November 1, 1995, the Company entered into a consulting agreement for geological services with a party related to a former officer of the Company. The original term of this agreement expired on October 31, 1999 and the contract is now on a month-to-month basis. In 1999, 1998, and 1997, the Company paid approximately $127,000, $135,000 and $108,000, respectively, relating to the agreement. Management believes that all transactions with the aforementioned entities are under normal industry terms and conditions. 14. Commitments And Contingencies Marketing Contract - Approximately 90% of the Company's monthly domestic gas production is being sold at market prices pursuant to a purchase and sale agreement with Duke Energy Trading and Marketing, L.L.C. The agreement is in effect through September 30, 2000. Transportation Commitments - The Company has entered into various agreements for transportation of specified quantities of natural gas with estimated future minimum transportation expense payments required for years ending December 31, 2000 through 2004 of $6 million, $3 million, $3 million, $2 million and $2 million, respectively. Lease Commitments - The Company leases certain office space and equipment under operating lease arrangements which require future minimum rental payments ranging between $4 million and $8 million in each of the years 2000 through 2004, and total less than $100,000 for all subsequent years. Total rental expense under operating leases was approximately $5 million, $4 million, and $3 million in 1999, 1998, and 1997, respectively. Other - The Company is a party to other ongoing litigation in the normal course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that the effect on its financial condition, results of operations and cash flows, if any, will not be material. 15. Supplemental Oil and Gas Information (Unaudited) As discussed in Note 5, during 1999, the Company sold its Canadian subsidiary and portions of its domestic assets in the Arkoma and Gulf of Mexico regions. Also, as a result of the Seagull Merger, the Company acquired additional foreign operations primarily in Egypt, Russia and Indonesia, and increased its domestic and COte d'Ivorian operations. In the following tables "Other International" information includes primarily Indonesia and Russia at December 31, 1999 and Canada at December 31, 1998 and 1997. 50 Capitalized Costs Relating to Oil and Gas Producing Activities (amounts in thousands)
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total -------------- ----------- ------------ ----------- ------------- ------------ At December 31, 1999: Proved ................... $2,841,940 $227,131 $ 498,747 $ 85,271 $ 53,199 $3,706,288 Unproved ................. 371,265 - - 26,563 109,369 507,197 -------------- ----------- ------------ ----------- ------------- ------------ 3,213,205 227,131 498,747 111,834 162,568 4,213,485 Accumulated depreciation, depletion and amortization (1,707,338) (112,046) (203,288) (18,401) (20,275) (2,061,348) -------------- ----------- ------------ ----------- ------------- ------------ Total Capitalized Costs...... $1,505,867 $115,085 $ 295,459 $ 93,433 $ 142,293 $2,152,137 ============== =========== ============ =========== ============= ============ At December 31, 1998: Proved ................... $2,119,574 $203,822 $309,127 $ - $ 127,163 $2,759,686 Unproved ................. 327,015 1,003 74,681 - 85,990 488,689 -------------- ----------- ------------ ----------- ------------- ------------ 2,446,589 204,825 383,808 - 213,153 3,248,375 Accumulated depreciation, depletion and amortization (1,385,738) (81,484) (167,740) - (56,761) (1,691,723) -------------- ----------- ------------ ----------- ------------- ------------ Total Capitalized Costs...... $1,060,851 $123,341 $216,068 $ - $ 156,392 $1,556,652 ============== =========== ============ =========== ============= ============
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities (amounts in thousands)
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total ------------ ----------- ----------- ----------- ------------- ------------- Year ended December 31, 1999: Acquisition costs: Proved .................... $ 751,266 $ 15,660 $ - $ 82,673 $ 50,717 $ 900,316 Unproved ................... 116,319 - 181 25,855 9,900 152,255 Exploration costs.............. 91,207 4,056 16,886 1,063 34,821 148,033 Development costs.............. 52,321 2,591 97,873 3,717 3,329 159,831 ------------ ----------- ----------- ----------- ------------- ------------- Total costs incurred........... $1,011,113 $ 22,307 $114,940 $113,308 $ 98,767 $ 1,360,435 ============ =========== =========== =========== ============= ============= Year ended December 31, 1998: Acquisition costs: Proved ..................... $ 59,534 $ - $ - $ - $ 5,197 $ 64,731 Unproved .................. 46,417 - - - 45,799 92,216 Exploration costs ............. 261,991 43,745 53,451 - 36,640 395,827 Development costs............. 232,585 29,446 (1) 121,213 - 12,107 395,351 ------------ ----------- ----------- ----------- ------------- ------------- Total costs incurred........... $ 600,527 $ 73,191 $174,664 $ - $ 99,743 $ 948,125 ============ =========== =========== =========== ============= ============= Year ended December 31, 1997: Acquisition costs: Proved .................... $ 120,520 $ - $ - $ - $ 9,554 $ 130,074 Unproved .................. 113,944 - - - 2,423 116,367 Exploration costs ............. 153,113 16,240 90,232 - 10,357 269,942 Development costs.............. 248,363 23,462 (1) 36,842 - 9,308 317,975 ------------ ----------- ----------- ----------- ------------- ------------- Total costs incurred............ $ 635,940 $ 39,702 $127,074 $ - $ 31,642 $ 834,358 ============ =========== =========== =========== ============= =============
(1) Amounts do not include $4,125 and $17,229 incurred on the LPG Plant in Cote d'Ivoire in 1998 and 1997, respectively. 51 Of the $588 million of net unproved property costs (primarily seismic and lease acquisition costs) at December 31, 1999, being excluded from the amortizable base, $207 million was incurred in 1999, $245 million was incurred in 1998, $133 million was incurred in 1997, and $3 million was incurred in prior years. The majority of the costs will be evaluated over a five-year period. Results of Operations for Oil and Gas Producing Activities (amounts in thousands)
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total ------------- ----------- ----------- ----------- ------------- ------------ Year Ended December 31, 1999: Revenues .................... $ 467,565 $ 50,799 $131,153 $ 58,910 $ 27,091 $ 735,518 Operating expenses(1) ....... 161,253 11,390 22,138 10,690 11,510 216,981 DD&A(2)..................... 212,089 20,582 48,262 19,189 9,577 309,699 Impairment of oil and gas properties........... - - - - 46,403 46,403 Income tax expense (benefit)(3).............. 34,391 6,494 23,956 10,389 (12,032) 63,198 ------------- ----------- ----------- ----------- ------------- ------------ Results of activities ....... $ 59,832 $ 12,333 $ 36,797 $ 18,642 $ (28,367) $ 99,237 ============= =========== =========== =========== ============= ============ Year Ended December 31, 1998: Revenues .................... $ 402,301 $ 26,397 $ 74,220 $ - $ 19,232 $ 522,150 Operating expenses(1) ....... 157,155 7,837 13,010 - 7,074 185,076 DD&A(2)..................... 219,189 11,775 49,980 - 7,220 288,164 Impairment of oil and gas properties .......... 435,768 43,723 60,424 - - 539,915 Income tax expense (benefit)(3) (155,728) (14,036) (18,694) - 1,876 (186,582) ------------- ----------- ----------- ----------- ------------- ------------ Results of activities ....... $ (254,083) $(22,902) $(30,500) $ - $ 3,062 $(304,423) ============= =========== =========== =========== ============= ============ Year Ended December 31, 1997: Revenues .................... $ 423,935 $ 27,803 $ 78,861 $ - $ 18,595 $ 549,194 Operating expenses(1) ....... 121,329 5,602 5,520 - 6,898 139,349 DD&A(2)..................... 175,245 14,555 46,474 - 7,366 243,640 Income tax expense(3) ...... 48,397 2,905 10,209 - 1,646 63,157 ------------- ----------- ----------- ----------- ------------- ------------ Results of activities........ $ 78,964 $ 4,741 $ 16,658 $ - $ 2,685 $ 103,048 ============= =========== =========== =========== ============= ============
(1) Operating expenses represent costs incurred to operate and maintain wells and related equipment and facilities. These costs include, among other things, repairs and maintenance, labor, materials, supplies, property taxes, insurance, severance taxes and all overhead expenses directly related to oil and gas producing activities. (2) DD&A represents depreciation, depletion and amortization. (3) Income tax expense (benefit) is calculated by applying the statutory tax rate to operating profit, then adjusting for any applicable permanent tax differences or tax credits and allowances. 52 Reserve Quantity Information
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total -------------- ------------ ------------ ---------- ------------- ----------- Proved reserves (MBOE): January 1, 1999 ..................... 194,106 34,394 41,048 - 22,401 291,949 Revisions of previous estimates.... 7,696 1,036 14,498 (33) 2,469 25,666 Extensions and discoveries ....... 39,131 - - 271 3,638 43,040 Purchases of reserves in place .... 141,850 4,705 - 25,700 24,481 196,736 Sales of reserves in place ........ (63,901) - - (2,173) (23,639) (89,713) Production ........................ (36,399) (3,606) (7,323) (3,043) (2,310) (52,681) -------------- ------------ ------------ ---------- ------------- ----------- December 31, 1999..................... 282,483 36,529 48,223 20,722 27,040 414,997 ============== ============ ============ ========== ============= =========== January 1, 1998 ...................... 182,912 27,972 40,014 - 19,693 270,591 Revisions of previous estimates ... (4,960) 3,945 (1,659) - 750 (1,924) Extensions and discoveries ........ 35,579 467 9,230 - 2,775 48,051 Purchases of reserves in place .... 12,138 4,395 - - 1,578 18,111 Sales of reserves in place ........ (345) - - - (256) (601) Production......................... (31,218) (2,385) (6,537) - (2,139) (42,279) -------------- ------------ ------------ ---------- ------------- ----------- December 31, 1998..................... 194,106 34,394 41,048 - 22,401 291,949 ============== ============ ============ ========== ============= =========== January 1, 1997....................... 141,532 19,218 19,940 - 13,963 194,653 Revisions of previous estimates ... 6,110 3,216 441 - 281 10,048 Extensions and discoveries ........ 35,234 780 24,086 - 3,697 63,797 Purchases of reserves in place .... 28,967 6,608 - - 3,608 39,183 Sales of reserves in place ........ (3,246) - - - (145) (3,391) Production ........................ (25,685) (1,850) (4,453) - (1,711) (33,699) -------------- ------------ ------------ ---------- ------------- ----------- December 31, 1997..................... 182,912 27,972 40,014 - 19,693 270,591 ============== ============ ============ ========== ============= =========== Proved developed reserves (MBOE): December 31, 1999.................. 225,773 13,382 18,381 11,003 18,285 286,824 December 31, 1998.................. 143,603 10,566 10,620 - 21,467 186,256 December 31, 1997 ................. 145,044 8,580 11,482 - 19,693 184,799 Proved developed oil reserves (Mbbl): December 31, 1999 ................ 74,445 2,836 18,381 10,809 11,929 118,400 December 31, 1998 ................ 64,183 2,251 10,620 - 3,900 80,954 December 31, 1997 ................. 70,632 1,861 11,482 - 3,383 87,358 Proved developed gas reserves (MMcf): December 31, 1999 ................. 907,968 63,273 - 1,167 38,134 1,010,542 December 31, 1998 ................. 476,522 49,891 - - 105,401 631,814 December 31, 1997 ................. 446,472 40,313 - - 97,862 584,647
The reserve volumes presented are estimates only and should not be construed as being exact quantities. These reserves may or may not be recovered and may increase or decrease as a result of future operations of the Company and changes in economic conditions. 53 Reserve Quantity Information
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total ------------ ------------ ----------- ----------- ------------ ------------ Proved Oil Reserves (Mbbl): January 1, 1999 ..................... 82,936 6,437 41,048 - 3,900 134,321 Revisions of previous estimates .. 10,234 1,358 14,498 33 2,276 28,399 Extension and discoveries ........ 7,682 - - 271 3,638 11,591 Purchases of reserves in place ... 14,717 1,009 - 25,360 14,262 55,348 Sales of reserves in place ....... (12,229) - - (2,173) (4,473) (18,875) Production ....................... (13,532) (1,765) (7,323) (2,999) (1,366) (26,985) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1999.................... 89,808 7,039 48,223 20,492 18,237 183,799 ============ ============ =========== =========== ============ ============ January 1, 1998 ..................... 88,948 5,257 40,014 - 3,383 137,602 Revisions of previous estimates .. (11,818) 902 (1,659) - 397 (12,178) Extension and discoveries ........ 14,515 373 9,230 - 230 24,348 Purchases of reserves in place ... 6,256 986 - - 360 7,602 Sales of reserves in place ....... (305) - - - (20) (325) Production ....................... (14,660) (1,081) (6,537) - (450) (22,728) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1998.................... 82,936 6,437 41,048 - 3,900 134,321 ============ ============ =========== =========== ============ =========== January 1, 1997 ..................... 67,717 4,150 19,940 - 3,499 95,306 Revisions of previous estimates .. 404 854 441 - 192 1,891 Extension and discoveries ........ 16,809 218 24,086 - 181 41,294 Purchases of reserves in place ... 17,344 1,062 - - 45 18,451 Sales of reserves in place ....... (1,167) - - - (95) (1,262) Production ....................... (12,159) (1,027) (4,453) - (439) (18,078) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1997.................... 88,948 5,257 40,014 - 3,383 137,602 ============ ============ =========== =========== ============ ============ Proved Gas Reserves (MMcf): January 1, 1999 ..................... 667,019 167,743 - - 111,004 945,766 Revisions of previous estimates .. (15,236) (1,927) - (400) 1,171 (16,392) Extension and discoveries ........ 188,693 - - - - 188,693 Purchases of reserves in place ... 762,799 22,177 - 2,039 61,311 848,326 Sales of reserves in place ....... (310,031) - - - (115,000) (425,031) Production........................ (137,195) (11,050) - (264) (5,666) (154,175) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1999.................... 1,156,049 176,943 - 1,375 52,820 1,387,187 ============ ============ =========== =========== ============ ============ January 1, 1998 ..................... 563,783 136,290 - - 97,862 797,935 Revisions of previous estimates .. 41,146 18,256 - - 2,121 61,523 Extension and discoveries ........ 126,388 566 - - 15,262 142,216 Purchases of reserves in place ... 35,291 20,455 - - 7,308 63,054 Sales of reserves in place ....... (243) - - - (1,414) (1,657) Production ....................... (99,346) (7,824) - - (10,135) (117,305) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1998.................... 667,019 167,743 - - 111,004 945,766 ============ ============ =========== =========== ============ ============ January 1, 1997 ..................... 442,890 90,410 - - 62,781 596,081 Revisions of previous estimates .. 34,234 14,174 - - 533 48,941 Extension and discoveries ........ 110,547 3,370 - - 21,102 135,019 Purchases of reserves in place ... 69,740 33,275 - - 21,377 124,392 Sales of reserves in place ....... (12,474) - - - (301) (12,775) Production........................ (81,154) (4,939) - - (7,630) (93,723) ------------ ------------ ----------- ----------- ------------ ------------ December 31, 1997.................... 563,783 136,290 - - 97,862 797,935 ============ ============ =========== =========== ============ ============
54 The Company's standardized measure of discounted future net cash flows as of December 31, 1999 and 1998 and changes therein for each of the years 1999, 1998 and 1997 are provided based on the present value of future net revenues from proved oil and gas reserves estimated by internal petroleum engineers in accordance with guidelines established by the Securities and Exchange Commission. These estimates were computed by applying appropriate year-end prices for oil and gas to estimated future production of proved oil and gas reserves over the economic lives of the reserves and assuming continuation of existing operating conditions. Year-end 1999 and 1998 calculations were made using prices of $23.33 per Bbl and $10.02 per Bbl, respectively, for oil and $2.04 per Mcf and $1.83 per Mcf, respectively, for gas. The Company's average realized prices before hedging for the year ended December 31, 1999 were $17.32 per Bbl and $12.13 per Bbl, respectively, for oil and $2.08 per Mcf and $1.89 per Mcf, respectively for gas. Ocean's average prices before hedging for the month ended January 31, 2000 were $25.27 per Bbl and $2.30 per Mcf for oil and gas, respectively. Because the disclosure requirements are standardized, significant changes can occur in these estimates based upon oil and gas prices in effect at year-end. The following estimates should not be viewed as an estimate of fair market value. Income taxes are computed by applying the statutory income tax rate in the jurisdiction to the net cash inflows relating to proved oil and gas reserves less the tax bases of the properties involved and giving effect to appropriate net operating loss carryforwards, tax credits and allowances relating to such properties. Standardized Measure of Discounted Future Net Cash Flows (amounts in thousands)
Cote Equatorial Other Domestic d'Ivoire Guinea Egypt International Total -------------- ------------- ------------ ------------ ------------- ------------- December 31, 1999: Future cash inflows............... $4,381,919 $ 661,231 $ 1,154,462 $ 482,108 $ 491,695 $7,171,415 Future development costs.......... (569,875) (117,069) (206,963) (31,711) (16,724) (942,342) Future production costs........... (1,285,846) (134,778) (110,286) (80,438) (164,770) (1,776,118) -------------- ------------- ------------ ------------ ------------- ------------- Future net cash flows before income taxes................... 2,526,198 409,384 837,213 369,959 310,201 4,452,955 10% annual discount .............. (897,360) (171,272) (193,135) (98,504) (140,831) (1,501,102) -------------- ------------- ------------ ------------ ------------- ------------- Discounted future net cash flows before income taxes............ 1,628,838 238,112 644,078 271,455 169,370 2,951,853 Discounted income taxes .......... (119,771) (98,239) (126,548) (95,762) (96,115) (536,435) -------------- ------------- ------------ ------------ ------------- ------------- Standardized measure of discounted future net cash flows.......... $1,509,067 $ 139,873 $ 517,530 $ 175,693 $ 73,255 $ 2,415,418 ============== ============= ============ ============ ============= ============= December 31, 1998: Future cash inflows............... $2,115,600 $ 328,562 $ 416,710 $ - $ 217,662 $3,078,534 Future development costs.......... (374,227) (111,048) (214,629) - (3,213) (703,117) Future production costs........... (763,979) (105,528) (89,348) - (63,547) (1,022,402) -------------- ------------- ------------ ------------ ------------- ------------- Future net cash flows before income taxes................... 977,394 111,986 112,733 - 150,902 1,353,015 10% annual discount .............. (283,902) (50,347) (40,066) - (61,619) (435,934) -------------- ------------- ------------ ------------ ------------- ------------- Discounted future net cash flows before income taxes............ 693,492 61,639 72,667 - 89,283 917,081 Discounted income taxes .......... (8,619) 405 2,222 - (7,266) (13,258) -------------- ------------- ------------ ------------ ------------- ------------- Standardized measure of discounted future net cash flows.......... $ 684,873 $ 62,044 $ 74,889 $ - $ 82,017 $ 903,823 ============== ============= ============ ============ ============= =============
55 Principal Sources of Change in the Standardized Measure of Discounted Future Net Cash Flows (amounts in thousands)
Year Ended December 31, --------------------------------------------------- 1999 1998 1997 ---------------- --------------- --------------- Beginning of Year............................................ $ 903,823 $ 1,220,407 $ 1,326,514 Revisions of previous quantity estimates less related costs 312,017 (19,572) 72,113 Extensions and discoveries less related costs............. 200,617 126,854 558,737 Purchases of reserves in place............................ 900,316 47,290 180,707 Sales of reserves in place................................ (417,231) (377) (28,976) Net changes in future prices and production costs......... 1,191,165 (507,478) (793,915) Future development costs incurred during the period....... 159,831 236,170 75,484 Sales of oil and gas produced, net of production costs.... (518,537) (333,978) (424,286) Accretion of discount..................................... 91,708 133,906 149,599 Net changes in income taxes............................... (523,177) 111,025 210,628 Changes in production, future development costs, timing and other ..................................... 114,886 (110,424) (106,198) ---------------- --------------- --------------- 1,511,595 (316,584) (106,107) ---------------- --------------- --------------- End of Year.................................................. $2,415,418 $ 903,823 $ 1,220,407 ================ =============== ===============
16. Supplemental Guarantor Information Ocean Energy, Inc., a Louisiana corporation and wholly-owned subsidiary of the Company ("Ocean Louisiana"), has unconditionally guaranteed the full and prompt performance of the Company's obligations under certain of the notes and related indentures, including the payment of principal, premium (if any) and interest. None of the referenced indentures place significant restrictions on a wholly-owned subsidiary's ability to make distributions to the parent. In order to provide meaningful financial data relating to the guarantor (i.e., Ocean Louisiana on an unconsolidated basis), the following condensed consolidating financial information has been provided following the policies set forth below: 1) Investments in subsidiaries are accounted for by the Company on the cost basis. Earnings of subsidiaries are therefore not reflected in the related investment accounts. 2) Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. 56 Supplemental Condensed Consolidating Statements of Operations For the Three Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands)
Unconsolidated -------------------------------------------------------------- Guarantor Non-Guarantor OEI Subsidiary Subsidiaries Consolidated OEI ------------------ -------------------- ------------------- ------------------ 1999 Revenues........................... $ - $ 223,732 $ 511,786 $ 735,518 Costs of Operations: Operating expenses.............. - 82,823 134,158 216,981 Depreciation, depletion and amortization.................. 7,712 95,229 214,546 317,487 Impairment of oil and gas properties.................... - - 46,403 46,403 General and administrative...... 14,633 7,268 - 21,901 ------------------ -------------------- ------------------- ------------------ Operating Profit (Loss)............ (22,345) 38,412 116,679 132,746 Interest Expense................... 116,398 13,126 (23,443) 106,081 Merger Expenses.................... - 49,603 - 49,603 Interest Income and Other.......... (6,238) (2,576) 7,500 (1,314) ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (132,505) (21,741) 132,622 (21,624) Income Tax Expense (Benefit)....... (48,364) 698 47,594 (72) ------------------ -------------------- ------------------- ------------------ Income (Loss) from Continuing Operations...................... (84,141) (22,439) 85,028 (21,552) Income from Discontinued Operations, Net of Income Taxes. - - 1,127 1,127 Extraordinary Loss (Net of Taxes).. (23,413) - - (23,413) ------------------ -------------------- ------------------- ------------------ Net Income (Loss).................. $ (107,554) $ (22,439) $ 86,155 $ (43,838) ================== ==================== =================== ================== 1998 Revenues........................... $ - $ 307,318 $ 214,832 $ 522,150 Costs of Operations: Operating expenses.............. - 116,424 68,652 185,076 Depreciation, depletion and amortization.................. - 160,353 133,552 293,905 Impairment of oil and gas properties.................... - 399,768 140,147 539,915 General and administrative...... 249 18,116 844 19,209 ------------------ -------------------- ------------------- ------------------ Operating Loss..................... (249) (387,343) (128,363) (515,955) Interest (Income) Expense.......... 36,545 42,950 (16,643) 62,852 Merger Expense..................... - 39,000 - 39,000 Interest Income and Other.......... - 552 (1,781) (1,229) ------------------ -------------------- ------------------- ------------------ Loss Before Taxes.................. (36,794) (469,845) (109,939) (616,578) Income Tax Benefit................. (16,847) (151,444) (41,408) (209,699) ------------------ -------------------- ------------------- ------------------ Net Loss........................... $ (19,947) $ (318,401) $ (68,531) $ (406,879) ================== ==================== =================== ================== 1997 Revenues........................... $ - $ 343,263 $ 205,931 $ 549,194 Costs of Operations: Operating expenses.............. - 87,480 51,869 139,349 Depreciation, depletion and amortization.................. 125,003 123,420 248,423 General and administrative...... 120 14,447 696 15,263 ------------------ -------------------- ------------------- ------------------ Operating Profit (Loss)............ (120) 116,333 29,946 146,159 Interest (Income) Expense.......... 16,115 65,670 (32,651) 49,134 Interest Income and Other.......... - (2,753) (3,434) (6,187) ------------------ -------------------- ------------------- ------------------ Income (Loss) Before Taxes......... (16,235) 53,416 66,031 103,212 Income Tax Expense (Benefit)....... (20,585) 57,556 4,021 40,992 Extraordinary Loss (net of taxes).. (19,301) - (19,301) ------------------ -------------------- ------------------- ------------------ Net Income (Loss).................. $ 4,350 $ (23,441) $ 62,010 $ 42,919 ================== ==================== =================== ==================
57 Supplemental Condensed Consolidating Balance Sheets At December 31, 1999 and 1998 (Amounts in Thousands)
Unconsolidated -------------------------------------------------- Guarantor Non-Guarantor Eliminating Consolidated OEI Subsidiary Subsidiaries Entries OEI -------------- --------------- --------------- --------------- --------------- December 31, 1999 Assets Current Assets................ $ 3,266 $ 60,340 $ 226,344 $ - $ 289,950 Intercompany Investments...... 2,498,760 (167,761) (8,925) (2,322,074) - Property, Plant and Equipment, Net........................ 22,630 586,164 1,594,216 - 2,203,010 Other Assets.................. 72,943 187,393 29,847 - 290,183 -------------- --------------- --------------- --------------- --------------- Total Assets.................. $ 2,597,599 $ 666,136 $ 1,841,482 (2,322,074) $ 2,783,143 ============== =============== =============== =============== =============== Liabilities and Shareholders' Equity Current Liabilities........... $ 131,041 $ 107,628 $ 143,272 $ - $ 381,941 Long-Term Debt................ 1,324,811 - 8,599 - 1,333,410 Other Liabilities............. 102,976 11,390 5,731 - 120,097 Shareholders' Equity.......... 1,038,771 547,118 1,683,880 (2,322,074) 947,695 -------------- --------------- --------------- --------------- --------------- Total Liabilities and Shareholders' Equity....... $ 2,597,599 $ 666,136 $ 1,841,482 (2,322,074) $ 2,783,143 ============== =============== =============== =============== =============== December 31, 1998 Assets Current Assets................ $ - $ 49,680 $ 104,101 $ - $ 153,781 Intercompany Investments...... 1,645,933 174,608 (410,255) (1,410,286) - Property, Plant and Equipment, Net........................ - 674,598 907,041 - 1,581,639 Other Assets.................. 24,686 214,868 31,986 - 271,540 -------------- --------------- --------------- --------------- --------------- Total Assets.................. $ 1,670,619 $ 1,113,754 $ 632,873 $(1,410,286) $ 2,006,960 ============== =============== =============== =============== =============== Liabilities and Shareholders' Equity Current Liabilities........... $ 31,271 $ 187,878 $ 18,033 $ - $ 237,182 Long-Term Debt................ 1,009,274 357,000 5,616 - 1,371,890 Other Liabilities............. - 981 19,964 - 20,945 Shareholders' Equity.......... 630,074 567,895 589,260 (1,410,286) 376,943 -------------- --------------- --------------- --------------- --------------- Total Liabilities and Shareholders' Equity....... $ 1,670,619 $ 1,113,754 $ 632,873 $(1,410,286) $ 2,006,960 ============== =============== =============== =============== ===============
58 Supplemental Condensed Consolidating Statements of Cash Flows For the Three Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands)
Unconsolidated ---------------------------------------------------------- Guarantor Non-Guarantor OEI Subsidiary Subsidiaries Consolidated OEI ------------------ ----------------- ----------------- ------------------ 1999 Cash Flows from Operating Activities: Net Income (Loss)............... $ (107,554) $ (22,439) $ 86,155 $ (43,838) Adjustments to reconcile net income (loss) to net cash from operating activities.......... (35,826) 2,190 413,622 379,986 Changes in operating assets and liabilities, net of acquisitions.................. 383,299 372,990 (758,686) (2,397) ------------------ ----------------- ----------------- ------------------ Net Cash Provided by (Used in) Operating Activities............ 239,919 352,741 (258,909) 333,751 Cash Flows Provided by (Used in) Investing Activities............ (20,194) 10,629 311,425 301,860 Cash Flows Provided by (Used in) Financing Activities............ (218,173) (363,370) 115 (581,428) ------------------ ----------------- ----------------- ------------------ Net Increase in Cash and Cash Equivalents..................... 1,552 - 52,631 54,183 Cash and Cash Equivalents: Beginning of Period............. - - 10,706 10,706 ------------------ ----------------- ----------------- ------------------ End of Period................... $ 1,552 $ - $ 63,337 $ 64,889 ================== ================= ================= ================== 1998 Cash Flows from Operating Activities: Net Loss........................ $ (19,947) $ (318,401) $ (68,531) $ (406,879) Adjustments to reconcile net loss to net cash from operating activities.......... (15,157) 412,254 228,857 625,954 Changes in assets and liabilities 28,030 70,907 (88,088) 10,849 ------------------ ----------------- ----------------- ------------------ Net Cash Provided by (Used in) Operating Activities............ (7,074) 164,760 72,238 229,924 Cash Flows Used in Investing Activities...................... - (500,123) (468,266) (968,389) Cash Flows Provided by Financing Activities...................... 7,072 332,710 397,700 737,482 ------------------ ----------------- ----------------- ------------------ Net Increase (Decrease) in Cash and Cash Equivalents................ (2) (2,653) 1,672 (983) Cash and Cash Equivalents: Beginning of Period............. 2 2,653 9,034 11,689 ------------------ ----------------- ----------------- ------------------ End of Period................... $ - $ - $ 10,706 $ 10,706 ================== ================= ================= ================== 1997 Cash Flows from Operating Activities: Net Income (Loss)............... $ 4,350 $ (23,441) $ 62,010 $ 42,919 Adjustments to reconcile net income (loss) to net cash from operating activities.......... (20,033) 182,475 126,754 289,196 Changes in assets and liabilities (1) 44,685 (12,597) 32,087 ------------------ ----------------- ----------------- ------------------ Net Cash Provided by (Used in) Operating Activities............ (15,684) 203,719 176,167 364,202 Cash Flows Used in Investing Activities...................... - (510,738) (290,768) (801,506) Cash Flows Provided by Financing Activities...................... 15,683 262,154 110,455 388,292 ------------------ ----------------- ----------------- ------------------ Net Decrease in Cash and Cash Equivalents..................... (1) (44,865) (4,146) (49,012) Cash and Cash Equivalents: Beginning of Period............. 3 47,518 13,180 60,701 ------------------ ----------------- ----------------- ------------------ End of Period................... $ 2 $ 2,653 $ 9,034 $ 11,689 ================== ================= ================= ==================
59 EX-23.1 7 KPMG CONSENT Consent of Independent Auditors The Board of Directors Ocean Energy, Inc.: We consent to the incorporation by reference in the following Registration Statements of Ocean Energy, Inc. (formerly Seagull Energy Corporation) of our report dated January 31, 2000, relating to the consolidated balance sheet of Ocean Energy, Inc. and Subsidiaries as of December 31, 1999 and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended, which report is included in the December 31, 1999 Annual Report on Form 10-K of Ocean Energy, Inc. a. Form S-8, Seagull Thrift Plan (2-72014). b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and Incentive Stock Option Plan (2-80834). c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463). d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock Option Plan (2-93087). e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock Option Plan (33-22475). f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483). g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643). h. Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan (33-50645). i. Form S-3, $350,000,000 Debt Securities of Seagull Energy Corporation (33-65118). j. Form S-3, $100,000,000 Debt Securities of Seagull Energy Corporation (333-34841). k. Form S-8, Seagull Energy Corporation 1995 Omnibus Stock Plan (33-64041). l. Form S-3, $300,000,000 Debt Securities, Preferred Stock, Depositary Shares, Common Stock or Securities Warrants of Seagull Energy Corporation (33-64051). m. Form S-8, Global Natural Resources In. 1989 Key Employees Stock Option Plan and Global Natural Resources 1992 Stock Option Plan (333-13393). n. Form S-8, Seagull Energy Corporation 1998 Omnibus Stock Plan (333-71375). o. Form S-8, Ocean Energy, Inc. 1999 Long-Term Incentive Plan (333-95507). p. Form S-3, Ocean Energy, Inc. $1 Billion Debt Securities, Common Stock, Preferred Stock, Depository Shares, Warrants, Guarantees of Debt Securities (333-79765). q. Form S-8, Ocean Energy, Inc. 1996 Long-Term Incentive Plan, Ocean Energy, Inc. 1994 Long-Term Incentive Plan, and United Meridian Corporation 1994 Outside Directors' Nonqualified Stock Option Plan (333-78255). r. Post-Effective Amendment No. 1 to Form S-4 on Form S-8, Ocean Energy, Inc. 1998 Long-Term Incentive Plan, Ocean Energy, Inc. Long-Term Incentive Plan For Nonexecutive Employees, United Meridian Corporation 1994 Employee Nonqualified Stock Option Plan, and United Meridian Corporation 1987 Nonqualified Stock Option Plan (333-68679). s. Form S-4, Seagull/Ocean Merger (333-68679). /s/KPMG LLP Houston, Texas March 27, 2000 EX-23.2 8 ARTHUR ANDERSEN CONSENT CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 15, 1999, on the consolidated balance sheet of Ocean Energy, Inc. and subsidiaries as of December 31, 1998 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1998, incorporated by reference in the Annual Report on Form 10-K of Ocean Energy, Inc. (formerly Seagull Energy Corporation) for the year ended December 31, 1999, into the following previously filed registration statements: (a) Form S-8, Seagull Thrift Plan (2-72014). (b) Form S-8, Seagull Energy Corporation 1981 Non-Qualified and Incentive Stock Option Plan (2-80834). (c) Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463). (d) Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock Option Plan (2-93087). (e) Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock Option Plan (33-22475). (f) Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483). (g) Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643). (h) Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan (33-50645). (i) Form S-3, $350,000,000 Debt Securities of Seagull Energy Corporation (33-65118). (j) Form S-3, $100,000,000 Debt Securities of Seagull Energy Corporation (333-34841). (k) Form S-8, Seagull Energy Corporation 1995 Omnibus Stock Plan (33-64041). (l) Form S-3, $300,000,000 Debt Securities, Preferred Stock, Depositary Shares, Common Stock or Securities Warrants of Seagull Energy Corporation (33-64051). (m) Form S-8, Global Natural Resources Inc. 1989 Key Employees Stock Option Plan and 1992 Stock Option Plan (333-13393). (n) Form S-8, Seagull Energy Corporation 1998 Omnibus Stock Plan (333-71375). (o) Form S-8, Ocean Energy, Inc. 1999 Long-Term Incentive Plan (333-95507). (p) Form S-3, $1 Billion Shelf Registration Statement of c certain Debt and Equity Securities of Ocean Energy,Inc. (333-79765). (q) Form S-8, Ocean Energy, Inc. 1996 Long-Term Incentive Plan, Ocean Energy, Inc. 1994 Long-Term Incentive Plan, United Meridian Corporation, and 1994 Outside Directors' Nonqualified Stock Option Plan (333-78255). (r) Post-Effective Amendment No. 1 to Form S-4 on Form S-8, Ocean Energy, Inc. 1998 Long-Term Incentive Plan, Ocean Energy, Inc. Long-Term Incentive Plan For Nonexecutive Employees, United Meridian Corporation 1994 Employee Nonqualified Stock Option Plan, and United Meridian Corporation 1987 Nonqualified Stock Option Plan (333-68679). (s) Form S-4, Seagull/Ocean Merger (333-68679). /s/Arthur Andersen LLP Houston, Texas March 27, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 Year Dec-31-1999 Dec-31-1999 64,889 0 170,034 0 28,723 289,950 4,297,895 2,094,885 2,783,143 381,941 1,333,410 0 50 16,699 930,946 2,783,143 735,518 735,518 0 580,871 48,289 0 106,081 (21,624) (72) (21,552) 1,127 (23,413) 0 (43,838) (0.31) (0.31)
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