10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended DECEMBER 31, 1994 Commission file number 1-959 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE LOUISIANA LAND AND EXPLORATION COMPANY Exact name of registrant as specified in its charter MARYLAND 72-0244700 State or other jurisdiction of I.R.S. Employer incorporation or organization Identification No. 909 POYDRAS STREET, NEW ORLEANS, LA. 70112 Address of principal executive offices Zip Code Registrant's telephone number, including area code 504-566-6500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS REGISTERED Capital Stock, $.15 par New York Stock Exchange value (including Capital London Stock Exchange Stock Purchase Rights) The Stock Exchanges of Geneva, Zurich and Basle 8-1/4% Notes due 2002 New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE (continued) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X 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 and (2) has been subject to such filing requirements for the past 90 days. YES X . NO . State the aggregate market value of the voting stock held by non-affiliates of the registrant. Aggregate Market Value Class of Voting Stock at February 28, 1995 Capital Stock, $.15 par value $1,155,866,000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Outstanding at Class February 28, 1995 Capital Stock, $.15 par value 33,382,406 shares DOCUMENTS INCORPORATED BY REFERENCE Part III: The Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on May 11, 1995 INDEX Page Number _________________________________________________________________ PART I 4 Items 1 and 2. Business and Properties. 4 The Company 4 Contributions of Principal Products 5 Petroleum Operations 6 General 7 Sales 8 Oil and Gas Properties 9 Oil and Gas Reserves 9 Exploration Activities 14 Development Activities 18 Drilling Activities at December 31, 1994 18 Oil and Gas Wells 20 Crude and Condensate, Plant Products and Natural Gas Production and Prices Realized 21 Refining Operations 22 Regulation 22 Federal Energy Regulatory Commission 22 Environmental Matters 24 Item 3. Legal Proceedings. 24 Item 4. Submission of Matters to a Vote of Security Holders. 25 Executive Officers of the Registrant PART II 26 Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. 26 Item 6. Selected Financial Data. 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 27 Item 8. Financial Statements and Supplementary Data. 91 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. PART III 91 Item 10. Directors and Executive Officers of the Registrant. 91 Item 11. Executive Compensation. 91 Item 12. Security Ownership of Certain Beneficial Owners and Management. 91 Item 13. Certain Relationships and Related Transactions. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 92 (a)(1) Financial Statements and Supplementary Data 92 (a)(2) Financial Statement Schedules 92 (a)(3) Index to Exhibits 92 (b) Reports on Form 8-K 96 Signatures ITEMS 1 AND 2. BUSINESS AND PROPERTIES. The Company The Louisiana Land and Exploration Company and subsidiaries (LL&E or the Company) is engaged principally in the exploration for and the development and production of petroleum natural resources. The major portion of LL&E's petroleum operations are conducted in the continental United States, the federal offshore area in the Gulf of Mexico, the North Sea, Canada, Colombia and Indonesia. In early 1995, the Company announced plans to sell certain non- strategic assets, including remaining oil and gas assets in Canada, which were not material to the Company's operations. LL&E also owns a refinery in Alabama, and also processes natural gas. At December 31, 1994, LL&E had 825 employees. Contributions of Principal Products The table below sets forth the principal products and their contribution to the operating revenues of LL&E's petroleum operations for the periods indicated. Reference is made to Note 16 of "Notes to Consolidated Financial Statements" for additional information on LL&E's operations.
Years ended December 31, (Millions of dollars) 1994 19931 1992 _______________________________________________________________________________________ Crude and condensate $ 235.8 210.0 215.1 Natural gas 169.9 146.0 92.0 Refined products2 361.4 400.2 441.9 Other petroleum products 15.4 14.1 16.8 _______________________________________________________________________________________ Total $ 782.5 770.3 765.8 _______________________________________________________________________________________ 1 Includes NERCO Oil & Gas, Inc. since October 1, 1993. 2 After elimination of intercompany transfers to the Company's refinery. In 1994, 1993 and 1992, such transfers were valued at $24.8, $22.4 and $20.7, respectively.
Petroleum Operations LL&E employs a staff of petrotechnical professionals to initiate, evaluate, plan and execute LL&E's petroleum activities. Typically, the actual tasks of exploration and development, such as seismic surveys and drilling, are performed by independent specialized contractors under the direction of LL&E's professional staff. LL&E's principal domestic exploration activities at December 31, 1994 were in the Gulf of Mexico, Louisiana and Wyoming. Outside the United States, LL&E's principal exploration activities were in the North Sea, Colombia, Algeria and Yemen. In the United States, LL&E has working interests in development and producing operations principally in Alabama, Florida, Louisiana, Wyoming and the federal offshore area in the Gulf of Mexico. Outside the United States, LL&E has working interests in development and producing operations in the Netherlands and United Kingdom sectors of the North Sea, Colombia and Indonesia. The majority of LL&E's working interest activities occur on property leased from others, which leaseholds are acquired by paying a signature bonus, delay rental and production royalty to the owner of the mineral rights. In 1994, working interest revenues accounted for 90% of LL&E's total oil and gas revenues. LL&E receives income from royalties from production by others of oil and gas from portions of the properties LL&E owns and leases in south Louisiana. In addition, LL&E receives income from geophysical options and the leasing of mineral rights to explore undeveloped portions of these properties. CLAM Petroleum Company (CLAM), a 50%-owned, unconsolidated affiliate, is engaged in oil and gas exploration, development and production activities in the Netherlands sector of the North Sea. The tables on the following pages set forth LL&E's 50% equity interest in the operations of CLAM. LL&E Petroleum Marketing, Inc., a wholly owned subsidiary, owns and operates a refinery in Mobile, Alabama. The refinery utilizes various sources of feedstocks including Company-owned and -controlled crude oil which is acquired on a competitive basis with other domestic and foreign crudes from third parties. GENERAL LL&E's petroleum operations are subject to all of the risks and uncertainties normally incident to exploration for and development of oil and gas. Significant capital expenditures are required in connection with such operations, with capital expenditures for offshore operations typically being substantially greater than for similar operations onshore. LL&E's earnings and the scope of its future exploration and development programs will be affected by the extent to which state and federal legislation and regulations applicable to the petroleum industry impact incentives for exploration and production, and permit the recovery of revenues sufficient to meet increasing costs and to expand operations. The marketability of offshore production is limited by the availability of marine transportation facilities, which are barge or pipeline for oil, but only pipeline for gas. In instances where there are no gas pipelines in an area of production, LL&E must await the permitting, certification and construction of pipeline facilities before deliveries of gas can commence. A portion of LL&E's petroleum operations is conducted in foreign countries where LL&E is also subject to regulation, risks of a political nature and other risks. LL&E's oil and gas production is from properties in jurisdictions in which well drilling and production are regulated or subject to limitations by governmental production and conservation authorities. The oil and gas industry is highly competitive in all phases, including the search for and development of new sources of supply and the refining and marketing of crude oil and petroleum products. The oil and gas industry also competes with other industries that supply energy and fuel, and LL&E competes with a number of major integrated oil companies and other companies having greater resources. LL&E participates in bidding for federal leases on the U.S. Outer Continental Shelf, as well as for leases (concessions) in other countries; participation in the bidding for these leases is extremely competitive. The principal raw materials and supplies required directly by LL&E for its petroleum operations, other than refining and natural gas processing, are generally available through multiple sources and acquired through specialized independent contractors. The refinery and gas processing operations' principal raw materials are crude oil and natural gas, a portion of which is Company-owned and -controlled. Internally generated fuels and electricity are the principal energy requirements for the petroleum operations and the refinery, and electricity is the principal energy requirement at the gas processing plants. No serious problems currently exist with respect to the availability of any of these items. SALES The availability of a ready market for oil and gas depends upon numerous factors beyond the Company's control, including the production of crude oil and gas by others, crude oil imports, the marketing of competitive fuels, the proximity and capacity of oil and gas pipelines, the availability of treatment facilities, the regulation of allowable production by governmental authorities and the regulation by the Federal Energy Regulatory Commission (FERC) and various state agencies of the transportation and marketing of natural gas transported or sold in interstate commerce (see "Regulation"). Liquids During 1994, LL&E's crude oil, condensate and plant products production were sold into various domestic and international markets at prices competitive for the area and for quality of production. In some instances, crude oil, condensate and plant products were traded from area to area and were then sold to third parties or transferred to the Company's refinery. LL&E charged transfers of proprietary production to its refinery at appropriate market prices. The 1994 sales period has seen dramatic price fluctuations with crude oil prices ranging between $14/BBL and $21/BBL. Overall, crude oil prices averaged approximately $17/BBL at Cushing, Oklahoma for West Texas Intermediate. This price was approximately $1.50/BBL below the price averaged in 1993. Natural Gas Prior to FERC Orders 436/500 and 636, most of LL&E's sales of natural gas were made to various interstate and intrastate gas pipeline companies under long-term take-or-pay contracts subject to the regulations of the FERC. With the implementation of the above- referenced orders, the structure of the industry has changed drastically. LL&E now has the ability, as other producers do, to ship gas on the nationwide transportation grid and contract directly with downstream customers. Development of this downstream marketing activity has allowed LL&E to gain entry into markets not previously available, reduced the Company's reliance on pipelines to purchase natural gas and given the Company greater flexibility and control of its natural gas reserves. As of February 1, 1995, less than 5 percent of LL&E's natural gas production was being sold to interstate pipeline companies. The remainder of the Company's North American natural gas production is sold primarily to local distribution companies, industrials, electric utilities and aggregators under short- or medium-term contracts at market-responsive prices. The vast majority of the Company's North Sea gas production is sold to distributors, electric generators and aggregators under long-term contracts at prices based on various combinations of commodity and inflation-based indices. Refined Products LL&E's refinery products, which include three grades of gasoline, naphtha, two grades of No. 2 fuel oil, turbine fuel, vacuum gas-oil and vacuum residuum, are generally sold in the spot market, wholesale markets, or under short-term contracts. Products are either sold in local or Gulf Coast markets or exchanged in return for products in pipeline markets. OIL AND GAS PROPERTIES Information regarding LL&E's productive and undeveloped acreage is presented under the heading "Oil and Gas Properties" in Part II, Item 8. - "Financial Statements and Supplementary Data." Working Interest Properties At December 31, 1994, LL&E had working interests in approximately 626 thousand gross (287 thousand net) productive acres and approximately 7.4 million gross (3 million net) undeveloped acres. The total unamortized cost to LL&E of such undeveloped acreage at December 31, 1994 was $51.7 million. Through its affiliate, CLAM Petroleum Company, LL&E had working interests in approximately 40 thousand gross (6 thousand net) productive acres and approximately 772 thousand gross (177 thousand net) undeveloped acres, all located in the Netherlands sector of the North Sea. Leaseholds held by LL&E in the United States on privately owned lands generally reserve to the lessor a 12-1/2% to 25% royalty interest in the production from such lands. Federal leases offshore in the Outer Continental Shelf are acquired by sealed bids, and generally provide for a royalty of 16-2/3% of the value of production. Federal leases onshore generally are acquired by payment of a filing fee and provide for a royalty of 16-2/3% of the value of production. The primary terms of LL&E's leases vary generally from 3 to 10 years (five years in the case of federal offshore leases), but such leases are automatically extended by production for as long thereafter as production continues. Royalty Properties At December 31, 1994, LL&E owned approximately 594 thousand acres in fee lands in south Louisiana of which approximately 142 thousand acres were leased to various other companies for oil and gas exploration, development and production. Of those leased to others, approximately 97 thousand acres are productive and yielded a weighted average royalty to LL&E of 25%. In addition, LL&E holds State of Louisiana leases covering approximately 55 thousand pro- ductive acres which have been assigned to Texaco Inc. under a contract (1928 Texaco Contract). Under the 1928 Texaco Contract, which also covers certain fee lands owned by LL&E, LL&E is entitled to receive a 25% royalty interest in the production from the acreage subject to the lease. LL&E is obligated to pay to the lessor of the leasehold interests subject to the 1928 Texaco Contract a royalty which is, in most cases, 12-1/2% of the proceeds from production for such property. Of the approximately 452 thousand fee acres not leased to others, LL&E conducts operations on approximately 1.1 thousand productive acres; the balance of the fee acreage is classified as undeveloped. From time to time, LL&E conducts exploratory activities on this undeveloped fee acreage. OIL AND GAS RESERVES Information regarding LL&E's proved oil and gas reserves is presented under the heading "Data on Oil and Gas Activities" in Part II, Item 8. - "Financial Statements and Supplementary Data." LL&E and its oil and gas subsidiaries are required to report, at varying times, estimates of oil and gas reserve data with various governmental authorities and agencies, including the Federal Energy Regulatory Commission. The basis for reporting estimates of reserves to these authorities and agencies may not be comparable to that presented because of the nature of the various reports required. The major sources of noncomparability include differences in the times as of which such estimates are made and differences in the definition of the reporting unit, such as, gross, net, total operator, lease by lease, reservoir by reservoir. EXPLORATION ACTIVITIES Working Interest The Company's exploration expenditures totaled $90 million in 1994: $17 million was spent on gathering and evaluating seismic data, over $3 million was expended for unproved leases in the United States and overseas, and $70 million was expended for participation in 44 wells. Of this total, 27 wells were successful completions: 5 oil and 22 gas. South Louisiana One of the Company's most significant gas discoveries in recent years was announced in early 1994 following the successful completion of an exploratory well in a deeper reservoir in the Fresh Water Bayou Field in Vermilion Parish, Louisiana. The Louisiana Furs C-16 well, drilled to a total depth of 19,260 feet and completed, in a producing horizon below 17,500 feet, tested at a rate of 30.3 million cubic feet of gas per day and 192 barrels of condensate per day. The Company owns a 35% gross working interest in the field. A development plan was initiated based on the results from this discovery well. The first development well, the Louisiana Furs C-17, was drilled to a total depth of 20,600 feet and was completed in August in the same producing sand as the C-16 well. The C-17 tested 45.7 million cubic feet of gas per day and 307 barrels of condensate per day. A third development well, the Louisiana Furs C-19, was then drilled and tested 29 million cubic feet of gas per day and 329 barrels of condensate per day. Total gross production from the first two wells has been limited to 55 million cubic feet of gas per day due to pipeline constraints and limited production facilities. Expanded facilities and a new pipeline increased gross production volumes from the field to over 100 million cubic feet of gas per day in March of 1995. Production capacity of approximately 200 million cubic feet of gas per day will be completed by year end in anticipation of the completion of the two new development wells. A 3-D seismic survey was conducted in late 1994 to assist in the further development of the field. Based on information derived from this survey as well as production information from the wells currently onstream, at least two more drilling locations have been identified for drilling during 1995. A potential deeper gas horizon found but not tested in the initial well has also been identified on the 3-D survey and is expected to be tested by one of the two 1995 wells. Interest in 3-D survey acquisition and analysis continued to surge in the mature producing areas of south Louisiana during 1994. The Company was active in 3-D seismic acquisition, adding 267 miles to its inventory. Another 425 square miles is in the execution or planning stages for 1995. Leveraging the value of the Company's 600,000 acre fee land ownership has enabled the Company to structure a variety of arrangements with its partners to maximize data acquisition and drilling exposure while greatly reducing project costs and risk. The effort expended in the acquisition and interpretation of this seismic data over the last two years began to yield meaningful drilling results during 1994. Three successful exploratory wells were drilled on the basis of 3-D seismic. At the Bastian Bay Field, a mature field where the last successful well was drilled in 1981, two 3-D prospects, Mustang and Vino, were successfully completed. Mustang is currently producing 4 million cubic feet of gas per day and 122 barrels of condensate per day and Vino tested 3.5 million cubic feet of gas per day and will be connected for production shortly. The Company owns a 33% working interest in both wells. Due to the Company's fee land ownership in the field and its related royalty interest, the Company's net revenue interests in the two wells are 40.8% and 48.4%, respectively. A second successful 3-D well was also drilled at the Lake Washington Field in late 1994 which recently tested 605 barrels of oil per day and 1.3 million cubic feet of gas per day. The Company owns a 38% working interest and a 47.5% net revenue interest in this well due to its fee land ownership. The Company has successfully completed four of its first seven 3-D exploratory wells drilled in south Louisiana. Gulf of Mexico Acquisition, processing and interpretation of 3-D seismic information on its substantial Gulf of Mexico lease inventory continues to be a focus of activity. In 1994, new 3-D seismic was acquired covering seven producing areas. Four of the surveys are in-house and are being evaluated for drilling potential and the remaining three are expected later this year. An area-wide, multi- company survey begun in late 1993 has produced 110 blocks of data so far and another 134 blocks are scheduled for 1995, the second full year of the program. Total five-year participation in the program will yield over 500 new blocks of 3-D data. The Company is also identifying shallower gas targets on exploratory leases that can be drilled with attractive economics thereby holding the blocks for later evaluation of their deeper subsalt potential. During 1994, four such shallow targets were successfully drilled, thereby protecting those leases from expiration. Also during 1994, the Company participated in drilling its first subsalt well at South Timbalier 289. While the well was plugged and abandoned, geologic information derived from drilling beneath the salt will be valuable in testing future subsalt prospects. The Company has identified a number of prospects on its existing salt-related acreage and expects to participate in drilling two subsalt wells in 1995. Participation in the 1994 offshore Louisiana and Texas lease sales resulted in the acquisition of five new leases covering 24,162 gross and 11,673 net acres. Algeria A number of sizeable oil discoveries in 1994 on blocks immediately adjacent to the Company's Block 405 continue to enhance the prospectiveness of the Company's acreage. During the year, 380 miles of seismic acquired over the block were processed and interpreted. A number of prospects and leads were identified. The site of the first well, the MLE-1, was selected and began drilling near the end of 1994. A second well is planned for later this year. In addition to its 712,910 acres on Block 405, the Company also has a concession on 840,026 acres on Block 215. During 1994, 400 miles of seismic data was processed and interpreted on this block, yielding additional drilling opportunities. The first well on Block 215 is expected to be drilled in 1996. Additional seismic work is planned for Blocks 215 and 405 during 1995. The Company owns a 65% working interest in both of these areas. Yemen Two exploration wells were drilled during 1994 on Block 9 where the Company owns a 17% working interest. Neither of the wells encountered sufficient hydrocarbons to be commercially producible. The Company and its partners are reviewing drilling data from these two wells along with the seismic data acquired to determine if any additional prospects on the block should be drilled before the expiration of the concession. Tunisia Over 1,700 kilometers of seismic data were acquired in early 1994 over the Company's one million acre Ramla Block, about 80 miles offshore Tunisia in the Gulf of Gabes. Processing of the data yielded several leads and prospects with the first well scheduled for drilling by mid-1995. Additional seismic is planned during the year to evaluate the remaining leads. The Company owns a 50% working interest in the block. Other Areas In Colombia, an unsuccessful exploratory well drilled in 1994 in the Barzalosa Association Contract Area resulted in the Company relinquishing its concession in that area. However, the general region remains attractive for exploratory drilling and the Company acquired a concession in the Bambuco Association Contract Area as well as a 45% gross working interest in Block 10 in the Llanos Basin. Seismic studies are planned in each of these areas during 1995 prior to any drilling. The Company withdrew from three concession areas in Australia in 1994 based on interpretation of geophysical and geological studies done over the areas as well as participation in an unsuccessful exploratory well in one of the blocks. In early 1994, the Company formed a joint study group with an Australian exploration company to explore selected areas in Papua New Guinea, New Zealand as well as offshore Australia. The Company and its joint group successfully bid a work program in Australia on Block WA258P located in the Carnarvon Basin. The program commitment includes seismic acquisition and drilling of one well over a two- year period. The Company will have a 33.3% interest in the project. In Papua New Guinea, the Company is in the process of improving its acreage position in the prospective highlands area of the country by restructuring its concession ownership. The Company awaits ratification of a 43.8% working interest in three contiguous blocks in the region. Additional geological and geophysical studies are scheduled for 1995. During the years 1992 through 1994, LL&E and CLAM participated in the drilling of exploratory wells with the results set forth in the table below.
Net wells Oil Gas Dry 1994 1993 1992 1994 1993 1992 1994 1993 1992 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic: Offshore Gulf of Mexico - .5 - 3.3 1.8 - 1.8 1.4 1.0 Colorado - - - - - - - - .5 Louisiana 1.2 .7 .4 1.7 1.1 2.2 2.9 1.8 2.5 Wyoming - - - - - - - - .7 North Sea: United Kingdom .1 .1 - - - - - .1 .1 Other foreign: Australia - - - - - - .3 .6 - Canada .5 13.9 12.4 5.3 1.0 .3 2.9 7.4 7.3 Colombia - - .3 - - - 1.0 - - Egypt - - - - - - - - .2 Yemen - - - - - - .3 - - _______________________________________________________________________________________ Total 1.8 15.2 13.1 10.3 3.9 2.5 9.2 11.3 12.3 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - - - - - .2 .1 .1 _______________________________________________________________________________________
Royalty Interest During 1994, the following exploratory wells were drilled by others on LL&E's fee and leasehold acreage.
Gross wells Oil Gas Dry _______________________________________________________________________________________ Domestic: Gulf of Mexico 2 - - Louisiana 5 3 1 Wyoming - 1 - Other foreign - Canada 3 - 3 _______________________________________________________________________________________ Total 10 4 4 _______________________________________________________________________________________
DEVELOPMENT ACTIVITIES Working Interest Development of the Company's oil and gas properties in 1994 resulted in the expenditures of almost $108 million for participation in 20 wells and the installation of platforms and facilities in the United States and overseas. Successful development drilling resulted in 7 oil and 12 gas wells. In addition, $2 million was spent in the acquisition of additional working interests in proved properties in the United States. Jay Field At the Jay Field in Florida, a depletion enhancement program consisting of well workovers and debottlenecking projects has led to increased production and recoverable reserves from this mature field. Current gross production averages 16,200 barrels of liquids per day. In 1995, field partners plan to expand the existing nitrogen injection program to an area of the field that has not previously been drained by enhanced recovery. The Company currently owns a 46% working interest in this field. Gulf of Mexico At Eugene Island 217, the "C" platform was installed in February 1994 and is currently producing 36 million cubic feet of gas per day and 1,700 barrels of condensate per day from two successful wells. Another step-out well is expected to add to producing capacity. The Company owns a 65% working interest in the property. At Eugene Island 110, a production structure was built, and pipeline and facilities were installed four months after the discovery well was drilled. The well tested at 10 million cubic feet of gas per day and 400 barrels of condensate per day. The Company owns a 42% working interest in the property. Eugene Island 364 #3, the Company's first operated subsea completion, was put online in November 1994. Current production is 10 million cubic feet of gas per day and 400 barrels of condensate per day. This single well completion is owned 100% by the Company and is tied back to the Company's Eugene Island 371 "B" platform. Garden Banks 235 #3, the Company's second 100% owned and operated subsea completion, was also placed on production in November and is currently producing 20 million cubic feet of gas per day. The well is in 802 feet of water and is tied back to a platform in shallower waters at Garden Banks 236. Significant cost savings were achieved by coordinating the completion of both of these facilities concurrently. Four field development projects are currently underway and scheduled for completion over the next 12 months. At Vermilion 395, where the Company is the operator and owns a 50% working interest, a new platform will be installed in 428 feet of water by midyear which will have gross production capacity of 15 million cubic feet of gas per day. At South Pass 34/47 and Vermilion 143/160, initial production is expected later this year from two new facilities that will have combined gross production capacity of 70 million cubic feet of gas per day. The Company owns a 50% and 25% working interest in the two projects, respectively. Two Company-operated platforms to produce four successful exploratory wells drilled on neighboring blocks South Timbalier 229 and 231 and Grand Isle 108 during 1994 are being designed with production startup in early 1996. Wyoming Completion of the Lost Cabin Gas Plant will enable the Company to initiate production in early 1995 from the deep Madison Formation below 24,000 feet. The Company owns a 37% interest in the facility. The gross cost of the plant was $83 million and it initially will process over 50 million cubic feet of gas per day from two previously-drilled wells to this formation, the Bighorn 1- 5 and the Bighorn 2-3. Plant products include natural gas, sulfur and carbon dioxide. Production information from these two wells is key to the further development of this prolific new producing horizon which can add significant new gas production and reserves. A third Madison Formation well, the Bighorn 4-36, is expected to begin drilling in mid-1995. A significant portion of the Company's cost to drill this well is covered by insurance proceeds from the blowout of the Bighorn 3-36 well in early 1993. Expansion of the Lost Cabin Gas Plant to process incremental production from additional wells drilled to the Madison Formation is under study. During 1994, sweet gas production from intervals between 5,500 and 18,000 feet averaged 73 million cubic feet of gas per day, the highest annual average production in the 25-year history of the field. Deliverability at year-end 1994 was in excess of 85 million cubic feet of gas per day. This deliverability increase resulted from the successful drilling of four infill wells and the completion of 16 workovers of existing wells. Each of these new wells cost approximately $1 million to drill and complete and tested at an average rate of 3 million cubic feet of gas per day. To accommodate this increasing level of production, the Madden gas gathering system was expanded during 1994. To assist in the further development of both shallow and deep gas reserves as well as to generate potential prospects in undrilled areas of the field, a 3-D seismic survey covering a 37 square mile area of the field was conducted in 1994. By year end, all field data had been collected and the computer processing and interpretation of the data had begun. North Sea In the U.K. North Sea, annual liquid production volumes from the Brae complex reached a four-year high during 1994. East Brae, the largest of the four Brae fields currently producing, went onstream in late 1993 and reached a peak gross production volume of 110,000 barrels of oil per day in October of 1994. Also during 1994's fourth quarter, the Brae group initiated natural gas sales at a gross rate 260 million cubic feet of gas per day. Prior to that time, all gas produced from the complex was reinjected into the reservoir to optimize liquids recovery. The sales gas is transported to an onshore processing center at St. Fergus, Scotland via the SAGE Pipeline System in which the Brae group owns a 50% equity interest. The Company owns an average 6% working interest in the Brae complex. The Company's net production of liquid and gas from Brae ended this year in excess of 13,000 barrels of oil equivalent per day, an all time high. The plan of development submitted to the U.K. Department of Energy for the Beinn gas/condensate field that partially underlies the North Brae field was approved during 1994. Development costs for these incremental reserves were reduced substantially because of the existing Brae production infrastructure. All Beinn producing wells were completed from the North Brae platform. A third confirmation well, the 16/7a-B22, was completed in June and tested 27.7 million cubic feet of gas per day and 3,103 barrels of condensate per day. Beinn gross liquid production averaged 7,200 barrels of condensate per day during 1994. The Company owns an 11.26% interest in another U.K. North Sea producing complex, the T-Block, located just south of the Brae Field. Two oil fields in the complex, Tiffany and Toni, went on production from a single platform in late 1993 shortly after the Company acquired its interest in the property. Production volumes during 1994 fell below expectations due to continuing mechanical problems at the Tiffany production platform. A number of these problems were gradually resolved during the year and gross production rose steadily, reaching 80,000 barrels of oil per day by year-end 1994, about 10% below its originally forecast plateau rate. The plan of development for two additional T-Block fields, Thelma and Southeast Thelma, is currently pending and is expected to be approved during 1995. Using the same subsea technology employed in the development of the Toni field, both of these new fields will be tied back to the Tiffany platform utilizing subsea completions. Initial oil and gas production from the Thelma fields is expected in 1996. Indonesia In the KAKAP Production Sharing Contract offshore in the Republic of Indonesia, development of the new KG and KRA fields is continuing. The first three of 14 planned development wells were recently drilled and await installation of the platform. The Company's share of KAKAP production will more than double by year- end 1995 as a result of production sharing from the two new fields. Development costs of additional reserves and production should be minimized by utilizing the existing infrastructure in the complex. During the years 1992 through 1994, LL&E and CLAM participated in the drilling of development wells with the results set forth in the table below.
Net wells Oil Gas Dry 1994 1993 1992 1994 1993 1992 1994 1993 1992 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic: Offshore Gulf of Mexico .8 1.5 .2 2.3 1.9 1.0 - .3 - Louisiana - .5 1.6 - - - - - .5 Wyoming - - - .7 1.3 .3 - - - North Sea: Netherlands - - .1 .1 - - - - - United Kingdom .2 .1 .2 - - - .1 - .2 Other foreign- Colombia - - .3 .1 - - - - - _______________________________________________________________________________________ Total 1.0 2.1 2.4 3.2 3.2 1.3 .1 .3 .7 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - .2 .1 .2 .1 - - - _______________________________________________________________________________________
Royalty Interest During 1994, the following development wells were drilled by others on LL&E's fee and leasehold acreage.
Gross wells Oil Gas Dry _______________________________________________________________________________________ Domestic-Louisiana - 1 - _______________________________________________________________________________________
DRILLING ACTIVITIES AT DECEMBER 31, 1994 Working Interest The table below sets forth the working interest wells in the process of drilling at December 31, 1994 by LL&E and by CLAM.
Wells drilling Gross Net _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic 7 3.2 North Sea 4 .6 Other foreign 2 1.0 _______________________________________________________________________________________ Total 13 4.8 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - _______________________________________________________________________________________
Royalty Interest No wells were being drilled by others at December 31, 1994 in which LL&E has a royalty interest. OIL AND GAS WELLS Working Interest The table below shows the number of productive oil and gas wells in which working interests are held by LL&E and by CLAM as of December 31, 1994.
Oil wells Gas wells Gross Net Gross Net _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic 1,384 146.0 314 116.0 North Sea 59 7.6 - - Other foreign 72 17.4 13 6.7 _______________________________________________________________________________________ Total 1,5151 171.0 3272 122.7 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - 52 3.7 _______________________________________________________________________________________ 1 Includes 44 dual completion wells. 2 Includes 32 dual completion wells.
Royalty Interest The table below shows the number of productive oil and gas wells drilled by others in whose production LL&E had a royalty interest as of December 31, 1994.
Gross wells Oil Gas _______________________________________________________________________________________ Domestic 574 206 Other foreign 9 8 _______________________________________________________________________________________ Total 5831 2142 _______________________________________________________________________________________ 1 Includes 20 dual completion wells. 2 Includes 9 dual completion wells.
CRUDE AND CONDENSATE, PLANT PRODUCTS AND NATURAL GAS PRODUCTION AND PRICES REALIZED The production and average price information for the years 1992 through 1994 are presented under the heading "Oil and Gas Operating Data" in Part II, Item 8. - "Financial Statements and Supplementary Data." Lifting Cost per Equivalent Barrel of Production The table below presents the average annual production (lifting) cost per equivalent barrel of production (excluding royalty interest production) for LL&E and for CLAM for the periods indicated. For the purpose of this calculation, natural gas and plant products are converted to equivalent barrels of oil, based on an estimate of their relative BTU content, at the ratios of 6:1 and 1.56:1, respectively.
1994 1993 1992 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic $3.97 4.69 5.51 North Sea 5.89 9.20 7.62 Other foreign 5.59 5.64 5.43 _______________________________________________________________________________________ CLAM Netherlands-North Sea $2.36 3.07 4.05 _______________________________________________________________________________________
Production (lifting) cost, as defined by the Securities and Exchange Commission, consists of costs incurred to operate and maintain wells and related equipment and facilities, as well as property and production taxes. It does not include depletion, depreciation, and amortization of capitalized acquisition, exploration and development costs, general and administrative expenses, interest expense or income taxes. Accordingly, production (lifting) cost reflected in the above table does not represent the total cost involved in producing a barrel of oil. REFINING OPERATIONS General The Company operates a crude oil refinery and terminal in Mobile, Alabama. Refinery capability consists of the following units: Atmospheric and Vacuum Distillation, Distillate Hydrodesulfurization, Sulfur Recovery, Catalytic Reforming and Light Naphtha Isomerization. This equipment is designed to handle both high- and low-sulfur feedstocks. The Company's crude oil terminal is located in Mobile Harbor and can accept vessels up to 35 feet draft. The terminal is connected to the refinery by parallel crude and product lines (approximately seven miles each in length) and can accept and load both crude oil and refined products. Of the $8.3 million in refinery capital expenditures during 1994, $4.6 million was associated with a vacuum tower upgrade project and the remainder was related to miscellaneous capital improvements, safety and environmental items. In 1995, $3 million has been budgeted for capital projects including $1.5 million toward profit enhancement and the balance to maintenance, safety and environmental items. In 1994, the refinery processed an average of 47,000 barrels per day of crude oil and remained under the Independent Producers status during the year. The low industry refinery margins (excluding retail), which began in 1992, continued through 1994. Efforts in 1994 were concentrated on cutting feedstock costs and improving quality, which are expected to improve the refinery's 1995 competitive position. Sales and Prices Realized The sales and average price information for the years 1992 through 1994 are presented under the heading "Refining Operating Data" in Part II, Item 8. - "Financial Statements and Supplementary Data." Regulation FEDERAL ENERGY REGULATORY COMMISSION Natural gas prices were formerly subject to regulation by the Federal Energy Regulatory Commission (FERC) pursuant to the Natural Gas Act of 1938, as amended, and the Natural Gas Policy Act of 1978 (NGPA). Effective December 1, 1978, the NGPA defined certain categories of natural gas and established price ceilings on all first sales of gas, whether interstate or intrastate, for most categories. Price controls on certain categories of gas were removed on various dates through July 1, 1987. On July 26, 1989, the Natural Gas Wellhead Decontrol Act of 1989 was enacted. This legislation amended the Natural Gas Policy Act of 1978, effectively removing wellhead price controls on new wells or wells not covered by a gas contract immediately and all maximum lawful price controls by January 1, 1993. As a result of these legislative acts, none of the Company's natural gas production is currently subject to wellhead price regulation and virtually all of it is priced at competitive market levels. In the winter of 1993-94, FERC implemented its Order 636 on the comparability of pipeline services. The order was designed to eliminate certain competitive advantages interstate pipelines may have had in selling gas and further move the industry toward a more efficient, competitive market environment. Among other things, Order 636 required pipelines to unbundle the various services that they had provided in the past, such as gas supply, gathering, transmission and storage, and offer these services individually to their customers. For producers, the net result is expected to be increased gas sales opportunities. ENVIRONMENTAL MATTERS The protection of our environment has always been a consideration of LL&E and has involved additional operating and facility costs. As federal, state and local environmental statutes evolve, LL&E implements design changes and incorporates pollution control devices at its facilities in response to environmental considerations. This has impacted the cost of new facilities and equipment and has been considered a normal, recurring cost of LL&E's ongoing operations and not an extraordinary cost of compliance with governmental regulations. LL&E believes that the amount of presently known expenditures that will be incurred primarily for environmental controls over the next two to three years will not have a material adverse effect on its results of operations, cash flow or financial position. However, as additional laws or regulations regarding the protection of the environment are adopted, become effective, or are hereafter interpreted, there is no assurance that they will not have such an effect. As a result of anticipated new regulations promulgated under the Clean Air Act Amendments of 1990 (CAAA), additional costs may be incurred at the Company's refining operations and larger production facilities. These regulations are expected to be finalized over the next two to five years with implementation taking effect on a regulatory schedule extending into future years. Since the Company's operations are located in areas currently classified as attainment areas for criteria air pollutants, and most of the Company's operations are below the expected threshold levels of hazardous air emissions to be regulated, at this time the Company does not believe that the cost of compliance with the new CAAA regulations will have a material adverse effect on its results of operations, cash flow or financial position. LL&E has received notice from the Environmental Protection Agency (EPA) that the Company is one of many Potentially Responsible Parties (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, with respect to three National Priorities List sites in Abbeville, Louisiana known as the "D.L. Mud," "Gulf Coast Vacuum" and "PAB Oil and Chemical" sites. Additionally, in 1993, the Company acquired NERCO Oil & Gas, Inc. (NERCO), which is also named a PRP at the Gulf Coast Vacuum and the D.L. Mud sites. With respect to the Gulf Coast Vacuum site, the Company has entered into a de minimis Consent Agreement with EPA on behalf of itself and NERCO, which resolves the Company's and NERCO's liability for remediation of the site for cash consideration of an immaterial amount. With respect to D.L. Mud and the PAB Oil and Chemical sites, based on the Company's evaluation of the potential total cleanup costs, its estimate of its potential exposure, and the viability of the other PRPs, the Company believes that any costs ultimately required to be borne by it at these sites will not have a material adverse effect on its results of operations, cash flow or financial position. In view of recent complaints against other oil and gas companies under the Inventory Update Rule promulgated under the Toxic Substances Control Act, the Company has investigated its obligations to report the manufacture and distribution of certain of its products with respect thereto. As a result of the Company's investigation, the Company has notified and is meeting with the appropriate regulatory authorities to resolve its liability, if any. Based on currently available information, the Company believes that sanctions, if any, will not have a material adverse effect on its results of operations, cash flow or financial position. ITEM 3. LEGAL PROCEEDINGS. Information regarding the Company's legal proceedings is presented in Note 15 under the heading "Notes to Consolidated Financial Statements" in Part II, Item 8. - "Financial Statements and Supplementary Data." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT NAME AGE POSITIONS _________________________________________________________________ H. Leighton Steward (60) Chairman of the Board, President and Chief Executive Officer since 1989. Richard A. Bachmann (50) Director since 1989. Executive Vice President, Finance and Administration and Chief Financial Officer since 1985. John F. Greene (54) Director since 1989. Executive Vice President, Exploration and Production since 1985. Jerry D. Carlisle (49) Vice President and Controller since 1984. Robert J. Chebul (47) Vice President since 1991. Held various managerial positions, including District Manager from 1988 to 1991. William N. Hahne (43) Vice President since December 1994. General Manager-Production from September 1993 to December 1994. Vice President of NERCO Oil & Gas, Inc. from 1991 to September 1993. Held various technical and managerial posi- tions with Union Texas Petroleum and Union Oil Company of California from 1973 to 1991. John O. Lyles (49) Vice President since 1992. Vice President and Treasurer from 1984 to 1992. Joel M. Wilkinson (59) Vice President since 1988. John A. Williams (50) Vice President since 1988. Frederick J. Plaeger, II (41) General Counsel and Corporate Secretary since 1992. Corporate Secretary and Senior Counsel from 1989 to 1992. Louis A. Raspino (43) Treasurer since 1992. Assistant Treasurer from 1984 to 1992. Each officer holds office until the first meeting of the Board of Directors following the annual meeting of shareholders and until his successor shall have been elected and qualified, or until he shall have resigned or been removed as provided in the LL&E By- Laws. No family relationship exists between any of the above listed executive officers or between any such executive officer and any Director of LL&E. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information regarding the Company's Capital Stock is presented under the heading "Capital Stock, Dividends and Other Market Data" in Item 7. - "Management's Discussion and Analysis of Financial Condition and Results of Operations." and under the heading "Market Price and Dividend Data" in Item 8. - "Financial Statements and Supplementary Data." ITEM 6. SELECTED FINANCIAL DATA. The information required hereunder is presented under the heading "Selected Financial Data" in Item 8. - "Financial Statements and Supplementary Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required hereunder is presented under the heading "Management's Discussion and Analysis" in Item 8. - "Financial Statements and Supplementary Data." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following consolidated financial statements and supplementary data of the Company are included herein: Page herein Financial Statements: Report of Management 28 Independent Auditors' Report 29 Consolidated Balance Sheets 30 Consolidated Statements of Earnings (Loss) 31 Consolidated Statements of Stockholders' Equity 32 Consolidated Statements of Cash Flows 33 Notes to Consolidated Financial Statements 34 Unaudited Supplemental Data: Management's Discussion and Analysis 53 Data on Oil and Gas Activities 59 Oil and Gas Operating Data 67 Refining Operating Data 68 Oil and Gas Properties 69 Wells Drilled 70 Selected Financial Data 71 Market Price and Dividend Data 72 Quarterly Data 73 The following financial statements of 50% or less owned persons required by Regulation S-X, Rule 3-09, are included herein: Page herein MaraLou Netherlands Partnership and its wholly owned consolidated subsidiary, CLAM Petroleum Company: Independent Auditors' Report 74 Consolidated Balance Sheets 75 Consolidated Statements of Income 76 Consolidated Statements of Partners' Capital 77 Consolidated Statements of Cash Flows 79 Notes to Consolidated Financial Statements 81 _________________________________________________________________ REPORT OF MANAGEMENT _________________________________________________________________ The consolidated financial statements of The Louisiana Land and Exploration Company and subsidiaries and the related information included in this Annual Report have been prepared by Management in accordance with generally accepted accounting principles and include certain estimates and judgments which Management considers appropriate. To meet its responsibilities for the fair presentation of consolidated financial statements, Management maintains a system of internal controls, including internal accounting controls, considered appropriate in view of the costs associated with the benefits to be derived. In addition, the Audit Committee meets periodically with the Company's Management, the internal auditors and KPMG Peat Marwick LLP, independent auditors, to review and discuss audit activities and results, internal control procedures and other matters relative to accounting and financial reporting. Based on the results of these procedures, Management is of the opinion that the system of internal controls in effect during the year ended December 31, 1994 provided reasonable assurance that all transactions were executed in accordance with Management's authorizations, that assets were safeguarded from loss and unauthorized use and that the accounting records and financial statements properly reflect the transactions of the Company. H. Leighton Steward Richard A. Bachmann Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer _________________________________________________________________ INDEPENDENT AUDITORS' REPORT _________________________________________________________________ The Board of Directors and Stockholders The Louisiana Land and Exploration Company: We have audited the accompanying consolidated balance sheets of The Louisiana Land and Exploration Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of earnings (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Louisiana Land and Exploration Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 12 and 13 to the consolidated financial statements, in 1993 the Company adopted the methods of accounting for income taxes and postretirement benefits other than pensions prescribed by Statements of Financial Accounting Standards Nos. 109 and 106, respectively. In addition, as discussed in Note 2 to the consolidated financial statements, in 1994 the Company changed its methods of assessing the impairment of the capitalized costs of proved oil and gas properties and other long-lived assets. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP New Orleans, Louisiana February 3, 1995 _________________________________________________________________________________________ CONSOLIDATED BALANCE SHEETS The Louisiana Land and Exploration Company and Subsidiaries December 31, 1994 and 1993 (Millions of dollars) ASSETS 1994 1993 _________________________________________________________________________________________ CURRENT ASSETS: Cash, including cash equivalents (1994-$8.6; 1993-$15.5) $ 12.5 33.3 Accounts and notes receivable 126.4 109.7 Income taxes receivable 1.9 5.2 Inventories 31.8 26.8 Prepaid expenses 8.9 12.7 Deferred income taxes 2.6 2.6 _________________________________________________________________________________________ Total current assets 184.1 190.3 _________________________________________________________________________________________ Investments in affiliates 23.4 23.5 Net property, plant and equipment, at cost, under the successful efforts method of accounting for oil and gas properties 1,240.4 1,561.0 Other assets 30.2 63.9 _________________________________________________________________________________________ $ 1,478.1 1,838.7 _________________________________________________________________________________________ LIABILITIES AND STOCKHOLDERS' EQUITY _________________________________________________________________________________________ CURRENT LIABILITIES: Accounts payable and accrued expenses 187.7 170.9 Income taxes payable 2.8 3.8 _________________________________________________________________________________________ Total current liabilities 190.5 174.7 _________________________________________________________________________________________ Deferred income taxes 40.0 151.2 Long-term debt 739.5 734.5 Other liabilities 155.7 178.5 STOCKHOLDERS' EQUITY: Capital stock of $.15 par value. Authorized-100,000,000 shares; issued-38,004,537 shares 5.7 5.7 Additional paid-in capital 87.3 82.9 Retained earnings 424.2 684.4 _________________________________________________________________________________________ 517.2 773.0 Loans to ESOP (5.2) (8.8) Cost of capital stock in treasury-4,624,729 shares in 1994 and 4,831,574 shares in 1993 (159.6) (164.4) _________________________________________________________________________________________ TOTAL STOCKHOLDERS' EQUITY 352.4 599.8 _________________________________________________________________________________________ $ 1,478.1 1,838.7 _________________________________________________________________________________________ See accompanying notes to consolidated financial statements.
_________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) The Louisiana Land and Exploration Company and Subsidiaries Years ended December 31, 1994, 1993 and 1992 (Millions, except per share data)
1994 1993 1992 _________________________________________________________________________________________ REVENUES: Oil and gas $ 421.2 370.1 323.9 Refined products 361.3 400.2 441.9 Gain on sales of oil and gas properties 6.8 23.5 - Other (interest, 1994-$1.6; 1993-$3.4; 1992-$3.6) 12.2 21.6 21.6 _________________________________________________________________________________________ 801.5 815.4 787.4 _________________________________________________________________________________________ COSTS AND EXPENSES: Lease operating and facility expenses 116.1 106.8 98.5 Refinery cost of sales and operating expenses 354.5 403.4 424.3 Dry holes and exploratory charges 69.7 48.8 41.5 Depletion, depreciation and amortization 202.2 129.8 106.5 Taxes, other than on earnings 25.4 24.7 24.4 General, administrative and other expenses 44.6 49.0 42.3 Interest and debt expenses 25.6 28.3 24.6 Restructuring charges - - 52.4 Reversal of litigation accrual (10.0) - (25.0) Write-down of petroleum assets 319.0 - - _________________________________________________________________________________________ 1,147.1 790.8 789.5 _________________________________________________________________________________________ Earnings (loss) before income taxes (345.6) 24.6 (2.1) Income tax expense (benefit) (118.7) 11.9 (.9) _________________________________________________________________________________________ Earnings (loss) before extraordinary item and cumulative effect of changes in accounting principles (226.9) 12.7 (1.2) Extraordinary item: loss on early retirement of debt - (3.3) (5.6) Cumulative effect on years prior to 1993 of change in accounting principle for income taxes - 13.7 - Cumulative effect on years prior to 1993 of change in accounting principle for postretirement benefits other than pensions - (13.5) - _________________________________________________________________________________________ NET EARNINGS (LOSS) $ (226.9) 9.6 (6.8) _________________________________________________________________________________________ Primary and fully diluted earnings (loss) per share before extraordinary item and cumulative effect of changes in accounting principles (6.80) 0.43 (0.04) Extraordinary item: loss on early retirement of debt - (0.11) (0.20) Change in accounting principle for income taxes - 0.47 - Change in accounting principle for post- retirement benefits - (0.46) - _________________________________________________________________________________________ PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER SHARE $ (6.80) 0.33 (0.24) _________________________________________________________________________________________ AVERAGE SHARES 33.4 29.5 28.4 _________________________________________________________________________________________ See accompanying notes to consolidated financial statements. /TABLE ________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Louisiana Land and Exploration Company and Subsidiaries Years ended December 31, 1994, 1993 and 1992 (Millions of dollars, except per share data)
Additional Treasury stock paid-in Retained Loans to Number of capital earnings ESOP shares Cost _________________________________________________________________________________________ Balance at December 31, 1991 $41.3 $739.6 $(14.8) 9,718,025 $(325.3) Net loss - (6.8) - - - Cash dividends ($1.00 per share) - (28.3) - - - Repayment of loans to ESOP - - 3.0 - - Other .2 - - (61,858) 2.0 _________________________________________________________________________________________ Balance at December 31, 1992 41.5 704.5 (11.8) 9,656,167 (323.3) Net earnings - 9.6 - - - Sale of treasury stock 40.7 - - (4,400,000) 148.1 Cash dividends ($1.00 per share) - (29.8) - - - Repayment of loans to ESOP - - 3.0 - - Purchase of treasury stock - - - 40,247 (1.5) Other .7 .1 - (464,840) 12.3 _________________________________________________________________________________________ Balance at December 31, 1993 82.9 684.4 (8.8) 4,831,574 (164.4) Net loss - (226.9) - - - Cash dividends ($1.00 per share) - (33.3) - - - Repayment of loans to ESOP - - 3.6 - - Other 4.4 - - (206,845) 4.8 _________________________________________________________________________________________ Balance at December 31, 1994 $87.3 $424.2 $ (5.2) 4,624,729 $(159.6) _________________________________________________________________________________________ Capital stock of $.15 par value was unchanged during the three-year period ended December 31, 1994. See accompanying notes to consolidated financial statements.
_________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF CASH FLOWS The Louisiana Land and Exploration Company and Subsidiaries Years ended December 31, 1994, 1993 and 1992 (Millions of dollars)
1994 1993 1992 _________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $(226.9) 9.6 (6.8) Adjustments to reconcile to cash flows from operations: Write-down of petroleum assets 319.0 - - Changes in accounting principles, net - (.2) - Gain on sales of oil and gas properties (6.8) (23.5) - Restructuring charges - - 52.4 Extraordinary item: loss on early retirement of debt - 3.3 5.6 Depletion, depreciation and amortization 202.2 129.8 106.5 Deferred income taxes (111.2) 9.2 5.0 Dry holes and impairment charges 36.4 21.8 19.2 Other 2.2 22.2 5.8 _________________________________________________________________________________________ 214.9 172.2 187.7 Changes in operating assets and liabilities, net of acquisitions: Net (increase) decrease in receivables (9.0) 4.3 44.8 Net increase in inventories (5.0) (4.9) (1.8) Net (increase) decrease in prepaid items 3.8 (5.0) 3.4 Net increase (decrease) in payables .7 2.7 (52.0) Other 6.7 9.6 (3.4) _________________________________________________________________________________________ Net cash flows from operating activities 212.1 178.9 178.7 _________________________________________________________________________________________ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions - (547.9) - Capital expenditures (236.8) (171.7) (153.8) Proceeds from asset sales 15.6 43.7 48.5 Other (16.3) (46.4) (11.0) _________________________________________________________________________________________ Net cash flows from investing activities (237.5) (722.3) (116.3) _________________________________________________________________________________________ CASH FLOWS FROM FINANCING ACTIVITIES: Sale of treasury stock - 188.8 - Additions to long-term debt 239.7 492.0 100.0 Repayments of long-term debt (234.7) (104.6) (116.8) Dividends (33.3) (29.8) (28.3) Advances against cash surrender value 34.4 - - Repayment of loans to ESOP 3.6 3.0 3.0 Purchase of treasury stock - (1.5) - Other (5.1) (11.7) (6.5) _________________________________________________________________________________________ Net cash flows from financing activities 4.6 536.2 (48.6) _________________________________________________________________________________________ Increase (decrease) in cash and cash equivalents $ (20.8) (7.2) 13.8 _________________________________________________________________________________________ See accompanying notes to consolidated financial statements. /TABLE _________________________________________________________________ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Louisiana Land and Exploration Company and Subsidiaries December 31, 1994, 1993 and 1992 _________________________________________________________________ 1. Summary of Significant Accounting Policies a. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Investments in affiliates are accounted for under the equity method. Certain amounts have been reclassified to conform to the current period's presentation. b. Petroleum Operations The Company uses the successful efforts method of accounting for its oil and gas operations. The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Significant unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, that the cost of the property has been impaired. The costs of individually insignificant unproved leaseholds estimated to be nonproductive are amortized over estimated holding periods based on historical experience. The Company assesses the impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future net cash flows after estimated income taxes on a field-by-field basis using period-end prices. For measurement purposes, future net cash flows are determined using period-end prices adjusted for changes in prices as of the date of the auditors' report on the Company's consoli-dated financial statements. Exploratory dry holes and geological and geophysical charges are expensed. Depletion of proved leaseholds and amortization and depreciation of the costs of all development and successful exploratory drilling are provided by the unit-of-production method based upon estimates of proved and proved-developed oil and gas reserves, respectively, for each property. The estimated costs of dismantling and abandoning offshore and significant onshore facilities are provided currently using the unit-of-production method; such costs for other onshore facilities are insignificant and are expensed as incurred. The costs of refining and processing equipment and facilities are depreciated on a straight-line basis over their estimated useful lives. The Company uses the entitlement method for recording natural gas sales revenues. Under the entitlement method of accounting, revenue is recorded based on the Company's net working interest in field production. Deliveries of natural gas in excess of the Company's working interest are recorded as liabilities while under- deliveries are recorded as receivables. Such amounts are immaterial. c. Financial Instruments and Hedging Activities The Company's anticipated refinery purchases of crude oil and sales of refined petroleum products and its committed British pound currency expenditures are periodically hedged against market risks through the use of forward/futures contracts. The gains and losses on these contracts are included in the valuation of the transactions being hedged. The Company also manages the interest rate components of its debt portfolio through the use of swap agreements. Gains and losses on swap agreements are accrued to interest expense on a monthly basis over the terms of the agreements. d. Functional Currency The foreign exploration and production operations of the Company's subsidiaries and its foreign affiliate, CLAM Petroleum Company, are considered an extension of the parent company's operations. The assets, liabilities and operations of these companies are therefore measured using the United States dollar as the functional currency. As a result, foreign currency translation/transaction adjustments (which were not material) are included in net earnings. e. Income Taxes The Company and its domestic subsidiaries file a consolidated federal income tax return. In 1993, Statement of Financial Accounting Standards No. 109 (SFAS No. 109) - "Accounting for Income Taxes" was adopted effective as of January 1, 1993. The Company applied the provisions of the SFAS No. 109 without restating prior years' financial statements. For the Company, the most significant change in SFAS No. 109 is that deferred tax assets are initially recognized (i) for differences between the financial statement carrying amounts and tax bases of assets and liabilities that will result in future deductible amounts and (ii) for operating loss and tax credit carryforwards. A valuation allowance would then be established to reduce that deferred tax asset if it is more likely than not that the related tax benefits will not be realized. Previously, the recognition of deferred tax benefits was limited to benefits that would offset deferred tax liabilities and benefits that could be realized through carryback to recover taxes paid for the current year or prior years. f. Earnings (Loss) Per Share Primary earnings (loss) per share are calculated on the weighted average number of shares outstanding during each period for capital stock and, when dilutive, capital stock equivalents, which assumes exercise of stock options. Fully diluted earnings (loss) per share are calculated on the same basis, but also assumes conversion, when dilutive, of the convertible subordinated debentures for the period outstanding prior to the call for redemption on September 25, 1992, and elimination of the related interest expense, net of income taxes. 2. Write-down of Petroleum Assets In the fourth quarter of 1994, the Company changed its method of periodically assessing the impairment of capitalized costs of proved oil and gas properties. Historically, this assessment has been determined by comparing the total capitalized costs of oil and gas properties less accumulated depletion, depreciation and amortization and related deferred income taxes (net capitalized costs) to undiscounted future net cash flows of proved oil and gas reserves after estimated income taxes. Under the revised method, the Company assesses impairment by comparing net capitalized costs to undiscounted future net cash flows after estimated income taxes on a field-by-field basis using period-end prices. For measurement purposes, future net cash flows are determined using period-end prices adjusted for changes in prices as of the date of the auditors' report on the Company's consolidated financial statements. Prices utilized for measurement purposes and expected costs are held constant. As a result of the change in method, the Company reduced the capitalized costs of its oil and gas properties by a fourth quarter charge against earnings of approximately $280 million (before income tax benefits of $95 million). In addition, the Company changed its method of measuring the impairment of other long-lived assets, specifically facilities, from a measurement based upon undiscounted future net cash flows to a measurement based upon fair value for assets where it is determined that net capitalized costs exceed undiscounted future net cash flows. As a result of this change, the Company reduced the capitalized costs of its refinery assets by a fourth quarter charge against earnings of $39 million (before income tax benefits of $13.7 million). The Company believes that the changes discussed above are preferable because they better reflect, on a more current basis, the impact of changes in the financial components inherent in the calculation of the impairment of capitalized costs of proved petroleum properties and other long-lived assets. Because the above are changes in accounting estimates recognized in whole or in part by changes in accounting principles, the effects are reported as part of earnings (losses) before income taxes. 3. Property Acquisitions and Dispositions Acquisitions In September 1993, the Company completed the acquisition of all of the issued and outstanding common stock of NERCO Oil & Gas, Inc. (NERCO) for a cash purchase price of approximately $354 million plus associated expenses. The acquisition was financed initially through the credit facility discussed in Note 10. The cost of the acquisition was allocated under the purchase method of accounting based on the fair value of the assets acquired and liabilities assumed. The results of NERCO's operations were consolidated with the Company's effective October 1, 1993. Pro forma combined results of operations of the Company and NERCO, including appropriate purchase accounting adjustments for the years ending December 31, 1993 and 1992, as though the acquisition had taken place on January 1 of the respective years, are as follows:
(Millions of dollars, except per share data) 1993 1992 ________________________________________________________________________________________ Revenues $ 907.1 926.1 ________________________________________________________________________________________ Earnings (loss) before extraordinary items and cumulative effect of changes in accounting principles (.3) (11.5) ________________________________________________________________________________________ Net earnings (loss) (3.4) (17.1) ________________________________________________________________________________________ Primary and fully diluted earnings (loss) per share $ (0.09) (0.53) ________________________________________________________________________________________
In December 1993, the Company acquired an 11.26% working interest in Block 16/17 in the U.K. North Sea (T-Block) from British Gas Exploration and Production Limited for approximately $187 million in cash. The purchase was financed initially through the credit facility discussed in Note 10. Initial production from T-Block came onstream in late 1993 and had an insignificant impact on results of operations. Dispositions In 1994, the Company sold various domestic oil and gas producing properties for approximately $15 million resulting in a gain of $6.8 million (before income taxes of $2.3 million). In December 1993, the Company completed the sale of certain oil and gas producing properties, undeveloped acreage and seismic data located in southern Alberta, Canada for approximately $42.8 million resulting in a gain, net of associated expenses, of approximately $23.5 million (before income taxes of $10.3 million). The properties sold generated revenues of $12.1 million and $15.3 million and pretax earnings of $1.2 million and $1.6 million in 1993 and 1992, respectively. 4. Cash Flows All of the Company's cash investments are liquid short-term debt instruments and are considered to be cash equivalents. These cash investments are carried in the accompanying balance sheets at cost plus accrued interest, which approximates fair value. Cash flows related to hedging activities through forward/futures contracts are classified in the same categories as that from the items being hedged. In 1992, the Company acquired certain proved properties for approximately $36 million and incurred a short-term liability which was outstanding at year end, the settlement of which is included in 1993 cash flows from investing activities. 5. Restructuring and Other Nonrecurring Charges/Credits As reported in prior years, the State of Louisiana had asserted claims against the Company in its capacity as sublessor to Texaco of certain State leases, based upon Texaco's alleged royalty miscalculations. In February 1994, a settlement was agreed to by all parties. The amounts previously provided in the financial statements for this litigation exceeded the cash payment required by $10 million, which was reversed during the first quarter of 1994. In the first quarter of 1992, the Company had similarly reduced its litigation accrual for the State of Louisiana gas royalty claim by $25 million. These adjustments to the litigation accrual are included in "Net increase (decrease) in payables" in the accompanying Consolidated Statements of Cash Flows. In the first quarter of 1992, the Company recorded a charge of $52.4 million (before income tax benefits of approximately $17.8 million) against earnings to provide for the restructuring of its oil and gas operations. This charge included provisions for estimated losses on the disposition of selected domestic properties of $47.6 million (both developed and undeveloped) and costs associated with staff retirements, reductions and related transition expenses of $4.8 million. These charges were reduced by the aforementioned $25 million reduction in a litigation accrual. The Company completed the sale of substantially all of the selected properties for a purchase price of $48.1 million in the third quarter of 1992 resulting in a gain of approximately $8 million which was applied against the restructuring charges. 6. Inventories
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Refinery inventories at lower of (last-in, first-out) cost or market $30.8 24.1 Repair parts, supplies and other, at lower of average cost or market 1.0 2.7 _________________________________________________________________________________________ $31.8 26.8 _________________________________________________________________________________________
At December 31, 1993, the LIFO cost of refinery inventories exceeded their current market values which resulted in a non-cash charge to earnings of $6.5 million (before income tax benefits of $2.3 million) which is included in "Refinery cost of sales and operating expenses" in the accompanying Consolidated Statements of Earnings (Loss). 7. Investments in Affiliates
Investment % (Millions of dollars) Investee Industry Location Owned 1994 1993 _________________________________________________________________________________________ MaraLou (CLAM Petroleum Oil & Company) Gas North Sea 50% $18.9 20.8 Other Various U.S. Various 4.5 2.7 _________________________________________________________________________________________ $23.4 23.5 _________________________________________________________________________________________
The Company's equity in earnings of affiliates, which is included in "Other revenues" in the accompanying Consolidated Statements of Earnings (Loss), amounted to $4.2 million, $2.4 million and $6.9 million in 1994, 1993 and 1992, respectively. Cash dividends received from MaraLou/CLAM in 1994, 1993 and 1992 totaled $6 million, $10 million and $7.5 million, respectively. The consolidated financial position of MaraLou and its wholly owned subsidiary, CLAM, as of December 31, 1994 and 1993 and the results of their operations for each of the years in the three-year period ended December 31, 1994 are summarized below.
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Current assets $ 24.0 28.0 _________________________________________________________________________________________ Noncurrent assets 175.3 170.8 _________________________________________________________________________________________ Current liabilities 15.8 30.2 _________________________________________________________________________________________ Noncurrent liabilities 145.7 127.0 _________________________________________________________________________________________
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Gross revenues $ 68.7 61.1 82.9 _________________________________________________________________________________________ Operating profit 36.2 30.1 42.4 _________________________________________________________________________________________ Earnings before cumulative effect of change in accounting principle 8.2 10.9 13.8 _________________________________________________________________________________________ Net earnings 8.2 4.9 13.8 _________________________________________________________________________________________
MaraLou applied the provisions of SFAS No. 109 as of January 1, 1993 without restating prior years' financial statements. Upon adoption, MaraLou recorded a non-cash charge to earnings of $6 million ($3 million net to the Company's interest). The common stock of CLAM is pledged as collateral under a revolving credit agreement between MaraLou and a group of banks. The credit agreement is nonrecourse to the partners of MaraLou. 8. Property, Plant and Equipment
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Petroleum properties: Proved $2,530.3 2,507.2 Unproved 170.6 127.5 Refining and marketing 276.6 242.8 _________________________________________________________________________________________ 2,977.5 2,877.5 Other properties 72.4 69.0 _________________________________________________________________________________________ 3,049.9 2,946.5 Less accumulated depletion, depreciation and amortization 1,809.5 1,385.5 _________________________________________________________________________________________ $1,240.4 1,561.0 _________________________________________________________________________________________
9. Financial Instruments and Hedging Activities The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used solely to manage well-defined interest rate, foreign currency and commodity price risks. At December 31, 1994, the Company had $100 million of notional value interest rate swap agreements terminating in 1997; none were in place at the end of 1993 (see Note 11). These agreements allow the Company to manage fixed- and variable-rate interest exposure by converting a portion of the Company's fixed-rate exposure to variable rate. The fair value of the interest rate swap agreements at December 31, 1994 amounted to $4.7 million, which represents the Company's cost to terminate the agreements. The Company also had $11.7 million of British pound currency forward contracts maturing from 1995 through 1997. Such contracts totaled $24.6 million at December 31, 1993. These contracts lock-in the exchange rate for a portion of the British pounds needed to fund the Company's future expenditures in the North Sea. British pound currency forward contracts are valued at the net benefit or cost to the Company to unwind its forward position, which was estimated to be a benefit of $.7 million and a cost of $1 million at December 31, 1994 and 1993, respectively. The carrying amounts of cash and cash equivalents and long-term, variable-rate debt approximate fair value. The Company estimates the fair value of its long-term, fixed-rate debt as $353 million and $546 million at December 31, 1994 and 1993, respectively, based upon quoted market prices for the same or similar issues. Such debt was recorded at carrying values of $400 million and $533 million, resulting in an unrealized gain of $47 million and an unrealized loss of $13 million for the respective periods. The Company also used futures, forwards, options and swap contracts to reduce price volatility of refinery feedstock and the sale of refined products produced therefrom. Although generally settled in cash, these contracts permit settlement by delivery of commodities. At December 31, 1994, the Company had contracts maturing monthly through November 1995 covering the net purchase of 1.4 million barrels of feedstock totaling $25.5 million and the net sale of 1.4 million barrels of refined products totaling $30.1 million. Gains or losses resulting from market changes will be offset by losses or gains on the Company's hedged inventory or production. The Company processed over 17 million barrels of crude oil and sold more than 19 million barrels of refined products in 1994 and had approximately 1.9 million barrels of crude oil and petroleum products in its refinery inventories at December 31, 1994. These financial instruments are generally executed on the New York Mercantile Exchange or with major financial or commodities trading institutions which, along with cash and cash equivalents and accounts receivable, expose the Company to acceptable levels of market and credit risks and may at times be concentrated with certain counterparties or groups of counterparties. The credit worthiness of counterparties is subject to continuing review and full performance is anticipated. 10. Long-term Debt
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Revolving Credit Facility $ 64.0 160.0 7-5/8% Debentures due 2013 100.0 100.0 7.65% Debentures due 2023 200.0 200.0 Term Loan with banks - 133.5 8-1/4% Notes due 2002 100.0 100.0 Commercial paper notes 271.7 32.0 Notes payable to bank for financing of leveraged ESOP 3.5 8.8 Other issues .3 .2 _________________________________________________________________________________________ Total long-term debt $739.5 734.5 _________________________________________________________________________________________
Debt maturities for the next five years follows:
(Millions of dollars) _________________________________________________________________________________________ 1995 $ - _________________________________________________________________________________________ 1996 29.2 _________________________________________________________________________________________ 1997 80.0 _________________________________________________________________________________________ 1998 80.0 _________________________________________________________________________________________ 1999 80.0 _________________________________________________________________________________________
To finance the aforementioned NERCO and T-Block acquisitions (see Note 3), refinance certain existing indebtedness and fund general corporate activities, the Company entered into a $790 million credit facility with a syndicate of banks in September 1993. Commitments under the agreement originally consisted of (i) a $540 million revolving credit facility and (ii) a $250 million term loan facility (which was utilized and repaid and is no longer available to the Company). The revolving credit facility, which was subsequently reduced to $450 million, was renegotiated in 1994 and converted to a reducing revolving loan. The commitments will be reduced by $20 million quarterly from June 1995 through September 2000. Amounts outstanding under the revolving credit facility bear interest at fluctuating rates subject to certain options chosen in advance by the Company. Borrowings under the facility in 1994 were at an average interest rate of 4.8%. Borrowings under the revolving credit facility and the term loan facility during 1993 were at average interest rates of 5%. Fees ranging from .125% to .30%, based upon financial tests, debt ratings and subject to certain options chosen by the Company, are charged on the facility. In June 1992, the Company registered under the Securities and Exchange Commission's shelf registration rules $300 million of senior unsecured debt securities to be issued from time to time on terms to be then determined. In June 1992, the Company sold $100 million of 8-1/4% Notes due 2002. In April 1993, the Company completed its second $100 million public offering of debt securities under the existing shelf registration filed in 1992 with the issuance of 7-5/8% Debentures due 2013. In November 1993, the Company registered up to $500 million of senior unsecured debt securities under the Securities and Exchange Commission's shelf registration rules, which included the $100 million available under the shelf registration filed in 1992. In December 1993, the Company completed a $200 million public offering with the issuance of 7.65% Debentures due 2023. In 1987 and 1988, the Company borrowed $10.2 million and $14 million, respectively, from a bank (unsecured) and loaned the proceeds to the leveraged employee stock ownership plan (ESOP) to fund its purchases of 836,368 shares of Company capital stock. The loans to the ESOP are secured by the Company's capital stock owned by the ESOP. The interest rates vary with time and market conditions and are determined by the bank subject to certain options chosen in advance by the Company. The average interest rates for both loans in 1994 and 1993 were 4% and 3.1%, respectively. During 1994, the average monthly balance of commercial paper notes outstanding was $118 million; the maximum amount outstanding during that period was $301 million. Commercial paper borrowings during 1994 and 1993 were at average interest rates of 4.6% and 3.3%, respectively. The commercial paper program is supported by the unused portion of the aforementioned revolving credit facility. The Term Loan with banks, which was retired in January 1994, was unsecured and was payable in July 1994. The balance was excluded from current liabilities as the Company refinanced the balance due on a long-term basis utilizing the revolving credit facility. The early retirement, completed at a price of 102.4% of principal, and the premium, along with unamortized discount, resulted in an extraordinary loss of $3.3 million, after income tax benefits of $1.7 million. In September 1992, the Company announced the call for early retirement of the 8-1/2% Convertible Subordinated Debentures due September 2000. The redemption, completed at a price of 101.66% of principal, and the premium, along with unamortized discount, resulted in an extraordinary loss of $5.6 million, after income tax benefits of $2.8 million. 11. Interest and Debt Expenses For the years ended December 31, 1994, 1993 and 1992, interest costs incurred, which were essentially the same as interest payments, were $47.9 million, $47 million and $37.5 million, respectively, of which $22.3 million, $18.7 million and $12.9 million, respectively, were capitalized as part of the cost of property, plant and equipment. In connection with the credit facility discussed in Note 10, bank fees and other costs totaled $8.1 million of which $6.7 million was charged to interest and debt expenses in the fourth quarter of 1993. In 1992 and 1993, the Company participated in interest rate swaps (which were to terminate in 1994 and 1996, respectively) having a notional principal amount totaling $200 million. Under the agreements, the Company received an annual fixed rate and paid a variable rate based on the six-month London Interbank Offered Rate. In September 1993, the Company terminated both agreements and deferred a gain of approximately $3.6 million which will be recognized over the remaining terms of the respective agreements as reductions of interest expense. 12. Income Taxes As explained in Note 1(e), the Company adopted SFAS No. 109 effective January 1, 1993. Upon adoption, the Company recorded a non-cash credit to earnings in the first quarter of 1993 of $13.7 million which represented the recognition of deferred tax assets existing at December 31, 1992. With the enactment of the Budget Reconciliation Act of 1993, the Federal statutory corporate income tax rate was increased from 34% to 35% retroactive to January 1, 1993. As a result, the Company increased its deferred income tax liabilities as of January 1, 1993 with a non-cash charge to income tax expense of $3 million in the third quarter of 1993. The components of earnings (loss) before income taxes were taxed under the following jurisdictions:
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Domestic $(322.0) 9.7 (15.9) Foreign (23.6) 14.9 13.8 _________________________________________________________________________________________ $(345.6) 24.6 (2.1) _________________________________________________________________________________________
Components of income tax expense (benefit) are as follows:
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Current tax expense (benefit): Federal $ (3.5) (3.5) (7.3) State (.7) (.3) .1 Foreign (3.3) 6.5 1.3 _________________________________________________________________________________________ (7.5) 2.7 (5.9) _________________________________________________________________________________________ Deferred tax expense (benefit): Federal (109.2) 9.2 3.8 Foreign (2.0) - 1.2 _________________________________________________________________________________________ (111.2) 9.2 5.0 _________________________________________________________________________________________ $(118.7) 11.9 (.9) _________________________________________________________________________________________
Tax expense (benefit) differs from the amounts computed by applying the U.S. Federal tax rate (1994-93 - 35%; 1992 - 34%) to earnings (loss) before income tax. The reasons for the differences are as follows:
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Computed "expected" tax expense (benefit) $(121.0) 8.6 (.7) Increases (reductions) in taxes resulting from: Increase in Federal income tax rate - 3.0 - Equity in earnings of foreign affiliates 4.5 (7.4) (1.3) Foreign income taxes, net of Federal income tax benefit (2.0) 8.4 3.1 Employee benefit plans (1.1) (.9) (1.2) Percentage depletion (.2) (.1) (.3) Other 1.1 .3 (.5) _________________________________________________________________________________________ $(118.7) 11.9 (.9) _________________________________________________________________________________________
As a result of the prospective adoption of SFAS No. 109 effective January 1, 1993, the following additional disclosures are presented as of and for the years ended December 31, 1994 and 1993. Total income tax expense (benefit) was allocated as follows:
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Income (loss) before extraordinary item and changes in accounting principles $(118.7) 11.9 Loss on early retirement of debt - (1.7) Change in accounting principle for income taxes - (13.7) Change in accounting principle for postretirement benefits - (7.0) Stockholders' equity for compensation expense for tax purposes in excess of amount recognized for financial reporting purposes (1.0) (1.8) _________________________________________________________________________________________ $ (119.7) (12.3) _________________________________________________________________________________________
The significant components of income tax expense (benefit) attri- butable to income from continuing operations are as follows:
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Current tax expense (benefit) $ (7.5) 2.7 Deferred tax expense (benefit) (exclusive of the effects of other components listed below) (2.5) 6.2 Deferred tax benefits related to write-down of petroleum assets (108.7) - Adjustments to deferred tax assets and liabilities for increase in Federal income tax rate - 3.0 _________________________________________________________________________________________ $(118.7) 11.9 _________________________________________________________________________________________
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Deferred tax assets: Deferred foreign tax credits $ 32.3 22.8 Foreign tax credit carryforwards 11.7 10.2 Federal net operating loss carryforwards 36.4 - Alternative minimum tax credit carryforward 1.9 5.2 Employee benefits 19.0 18.7 Other 10.3 12.8 _________________________________________________________________________________________ Total gross deferred tax assets 111.6 69.7 Less valuation allowance (28.3) (17.8) _________________________________________________________________________________________ Net deferred tax assets 83.3 51.9 _________________________________________________________________________________________ Deferred tax liabilities: Property, plant and equipment, principally due to differences in depreciation and capitalized interest (90.7) (178.7) Other (30.0) (21.8) _________________________________________________________________________________________ Total gross deferred tax liabilities (120.7) (200.5) _________________________________________________________________________________________ $ (37.4) (148.6) _________________________________________________________________________________________
The net changes in the valuation allowance for the years ended December 31, 1994 and 1993 were increases of $10.5 million and $3 million, respectively. These changes were made to provide for uncertainties surrounding the realization of certain foreign tax credit carryforwards. The remaining balance of the deferred tax assets should be realized through future operating results and the reversal of taxable temporary differences. Deferred tax expense (benefit) included the following components, the disclosure of which was prescribed by the prior standard:
(Millions of dollars) 1992 _________________________________________________________________________________________ Restructuring and other special charges/credits $ (1.8) Intangible development and exploration costs 10.1 Interest 2.2 Depreciation (9.8) Depletion .7 Foreign taxes 1.2 Equity in earnings of affiliates (.4) Alternative minimum tax credit carryforward 2.2 Employee benefit plans .1 Partnerships - Other .5 _________________________________________________________________________________________ $ 5.0 _________________________________________________________________________________________
For the years ended December 31, 1994, 1993 and 1992, the Company's net cash payments (refunds) of income taxes totaled $(1.1) million, $7.1 million and $(.6) million, respectively. At December 31, 1994, the Company has foreign tax credit carryforwards for Federal income tax purposes of $11.7 million which are available through 1997 to offset future Federal income taxes, if any. The Company has Federal net operating loss carryforwards totaling $103.9 million which are available to offset future Federal taxable income through 2009. The Company also has alternative minimum tax credit carryforwards of $1.9 million which are available to reduce Federal regular income taxes, if any, over an indefinite period. 13. Retirement Benefits The Company has a noncontributory defined benefit pension plan covering all eligible employees, with benefits based on years of service and the employee's highest three-year average monthly earnings. The Company's funding policy is intended to provide for both benefits attributed to service to-date and for those expected to be earned in the future. Plan assets consist primarily of stocks, bonds and short-term cash investments, including 51,971 shares of Company capital stock as of December 31, 1994 and 1993 with market values of $1.9 million and $2.1 million, respectively. Since the spin-off of the pension plan of a discontinued subsidiary in 1985 and the contribution of excess assets remaining after purchasing annuities for affected employees, the pension plan did not require funding through the year ended December 31, 1992. Funding requirements for the years ended December 31, 1994 and 1993 amounted to $5.5 million and $4.2 million, respectively. The following tables set forth the plan's funded status and amounts recognized in the statements of financial position and results of operations at December 31:
(Millions of dollars) 1994 1993 _________________________________________________________________________________________ Accumulated benefit obligation, including vested benefits of $16.1 and $16.8 $ 16.8 17.6 _________________________________________________________________________________________ Projected benefit obligation (25.5) (27.1) Plan assets at fair market value 17.5 13.0 _________________________________________________________________________________________ Plan assets under projected benefit obligation (8.0) (14.1) Additional minimum liability - (2.8) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 9.3 13.5 Unrecognized net asset being recognized over 15 years (1.0) (1.2) _________________________________________________________________________________________ Prepaid (accrued) pension cost $ .3 (4.6) _________________________________________________________________________________________
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Service cost $ 3.4 1.8 1.6 Interest cost 2.0 1.4 1.3 Actual (gain) loss on plan assets .4 (1.3) (1.1) Net amortization and deferral (1.1) .1 (.6) _________________________________________________________________________________________ Net pension expense $ 4.7 2.0 1.2 _________________________________________________________________________________________ Discount rate 8% 7-1/4% 9% _________________________________________________________________________________________ Compensation increase 5% 5% 5% _________________________________________________________________________________________ _________________________________________________________________________________________ Return on assets 9% 9% 9% _________________________________________________________________________________________
The Company has postretirement medical and dental care plans for all eligible retirees and their dependents with eligibility based on age and years of service upon retirement. The Company also maintains a Medicare Part B reimbursement plan and life insurance coverage for a closed group of retirees of a former subsidiary for which estimated benefits of approximately $4.7 million were accrued at December 31, 1992. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS No. 106) - "Employers' Accounting for Postretirement Benefits Other than Pensions," which changed the Company's practice of accounting for postretirement benefits on a pay-as-you-go (cash) basis by requiring accrual, during the years that the employee renders the necessary service, of the expected cost of providing those benefits to an employee and the employee's beneficiaries and covered dependents. Upon adoption, the Company recorded a transition liability of approximately $20.5 million ($13.5 million after income taxes) as a one-time, non-cash charge against earnings in the first quarter of 1993. The postretirement benefit plans are unfunded and the Company continues to fund claims on a cash basis. The following tables set forth the amounts recognized in the statements of financial position and results of operations at December 31: (Millions of dollars) 1994 1993 _________________________________________________________________________________________ Accumulated postretirement benefit obligation: Retirees $ (21.3) (20.6) Employees eligible to retire (2.4) (2.7) Other employees (4.3) (5.0) _________________________________________________________________________________________ (28.0) (28.3) Unrecognized net loss 1.1 2.3 _________________________________________________________________________________________ Accrued postretirement benefit cost $ (26.9) (26.0) _________________________________________________________________________________________
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Service cost $ 1.3 .8 - Interest cost 2.1 2.1 - Pay-as-you-go cost - - .9 _________________________________________________________________________________________ Net postretirement benefit cost $ 3.4 2.9 .9 _________________________________________________________________________________________
Assumptions utilized to measure the accumulated postretirement obligation at December 31, 1994 and 1993 were: discount rates of 8% and 7.25%, respectively; a health care cost trend rate of 14% declining over 10 years to 5% and held constant thereafter. A 1% increase in the assumed trend rates would have resulted in increases in the accumulated postretirement benefit obligation at December 31, 1994 and 1993 of $1.7 million and $2.6 million, respectively; the aggregate of service cost and interest cost for the years ended December 31, 1994 and 1993 would have increased by $.5 million and $.4 million, respectively. 14. Capital Stock, Options and Rights In November 1993, the Company completed a public offering of 4.4 million shares of capital stock at a price of $44.625 per share. The capital stock was taken from the Company's treasury at an average cost of $33.125 per share. The excess of net proceeds over the cost of treasury stock issued was credited to additional paid- in capital. The net proceeds of the offering, after underwriting commissions and expenses, were approximately $188.8 million. Under the 1988 Long-term Stock Incentive Plan, the Company may grant to officers and key employees stock options, stock appreciation rights, performance shares, performance units, restricted stock or restricted stock units for up to 2.8 million shares of the Company's capital stock. Stock options are exercisable at the market price on the date of the grant, generally over a two-year period at the rate of 50% each year commencing on the first anniversary of the date of grant; all options expire ten years from the date of grant. In 1994 and 1993, options for 250,100 shares and 257,700 shares were granted, respectively. The restricted stock and performance shares awarded under the plan entitle the grantee to the rights of a shareholder, including the right to receive dividends and to vote such shares, but the shares are restricted as to sale, transfer or encumbrance. Restricted stock is released to the grantee over varying periods after a one- year waiting period has expired. In 1994 and 1993, awards were granted for 9,000 shares and 34,250 shares of restricted stock, respectively. In 1994, 12,081 shares were released to grantees; none were released in 1993. The performance cycle consists of a three-year period, beginning with the year of grant, at the end of which certain performance goals must be attained by the Company for the unrestricted performance shares to be issued to the grantee. Awards granted in 1994 and 1993 for performance shares amounted to 19,500 shares and 18,900 shares, respectively. Performance shares issued in 1994 and 1993 amounted to 10,496 shares and 15,257 shares, respectively. Restricted stock and performance share awards are "compensatory" awards and the Company accrued compensation expense of $.1 million, $.7 million and $1 million in 1994, 1993 and 1992, respectively. Under the 1990 Stock Option Plan for Non-Employee Directors, which expired in May 1994, the Company could grant stock options to non- employee directors for up to 150,000 shares of the Company's capital stock. As prescribed by the plan, the options are exercisable at the market price at the date of grant over a two- year period at the rate of 50% each year commencing on the first anniversary of the date of grant; all options expire ten years from the date of grant. Awards for 22,500 shares and 20,000 shares were granted in 1994 and 1993, respectively. At December 31, 1994, 919,372 shares of capital stock were reserved for future grants under all plans. Total grants outstanding under the plans and the changes therein for the periods indicated follows:
Number Option of shares price range __________________________________________________________________________________________ Outstanding at December 31, 1992 1,719,353 $27 1/8 - 45 1/2 Granted 330,850 44 3/8 - 45 7/16 Cancelled (6,354) 29 3/4 - 45 7/16 Exercised (453,085) 27 1/8 - 39 11/16 __________________________________________________________________________________________ Outstanding at December 31, 1993 1,590,764 27 1/8 - 45 7/16 Granted 301,100 36 - 41 1/4 Cancelled (25,627) 29 3/4 - 45 1/2 Exercised (226,952) 29 3/4 - 39 11/16 __________________________________________________________________________________________ Outstanding at December 31, 1994 1,639,285 27 1/8 - 45 1/2 __________________________________________________________________________________________ Exercisable at December 31, 1994 1,178,850 27 1/8 - 45 1/2 __________________________________________________________________________________________ Weighted average prices: Outstanding at December 31, 1994 36 3/16 Exercisable at December 31, 1994 35 1/8 __________________________________________________________________________________________
In 1986, the Company's Board of Directors declared a dividend to shareholders consisting of one Capital Stock Purchase Right on each outstanding share of capital stock. A Right will also be issued with each share of capital stock that becomes outstanding prior to the time the Rights become exercisable or expire. If a person or group acquires beneficial ownership of 20% or more, or announces a tender offer that would result in beneficial ownership of 20% or more, of the shares of outstanding capital stock, the Rights become exercisable ten days thereafter and each Right will entitle its holder to purchase one share of capital stock for $90. If the Company is acquired in a business combination transaction, each Right not owned by the 20% holder will entitle its holder to purchase, for $90, common shares of the acquiring company having a market value of $180. Alternatively, if a 20% holder were to acquire the Company by means of a reverse merger in which the Company and its capital stock survive or were to engage in certain "self-dealing" transactions, or if a person or group were to acquire 30% or more of the outstanding capital stock (other than pursuant to a cash offer for all shares), each Right not owned by the acquiring person would entitle its holder to purchase, for $90, capital stock of the Company having a market value of $180. Each Right can be redeemed by the Company for $.05, subject to the occurrence of certain events and other restrictions, and expires in 1996. These Rights may cause substantial ownership dilution to a person or group who attempts to acquire the Company without approval of the Company's Board of Directors. The Rights should not interfere with a business combination transaction that has been approved by the Board of Directors. 15. Contingencies The Company has been notified by the U.S. Environmental Protection Agency that it is one of many Potentially Responsible Parties (PRP) at three National Priorities List sites. Based on its evaluation of the potential total cleanup costs, its estimate of its potential exposure, and the viability of the other PRP's, the Company believes that any costs ultimately required to be borne by it at these sites will not have a material adverse effect on its results of operations, cash flow or financial position. The Company is subject to other legal proceedings, claims and liabilities which arise in the ordinary course of its business. In the opinion of Management, the amount of ultimate liability with respect to these actions will not have a material adverse effect on results of operations, cash flow or financial position of the Company. 16. Petroleum Segment Information*
(Millions of dollars) 1994 1993 1992 _________________________________________________________________________________________ Sales to unaffiliated customers: Domestic $ 678.1 692.9 686.2 North Sea 92.9 40.3 46.4 Other foreign 18.3 60.6 33.2 _________________________________________________________________________________________ 789.3 793.8 765.8 Interest and other income 12.2 21.6 21.6 _________________________________________________________________________________________ Total revenues $ 801.5 815.4 787.4 _________________________________________________________________________________________ Earnings (loss) before income taxes: Operating profit (loss): Domestic (265.7) 79.2 39.7 North Sea 5.5 (7.7) 13.1 Other foreign (30.7) 16.5 (2.9) _________________________________________________________________________________________ (290.9) 88.0 49.9 Other income (expense), net (54.7) (63.4) (52.0) _________________________________________________________________________________________ Earnings (loss) before income taxes $ (345.6) 24.6 (2.1) _________________________________________________________________________________________ Identifiable industry assets: Domestic 793.9 1,089.6 705.1 North Sea 518.8 523.2 280.3 Other foreign 92.6 99.5 107.6 _________________________________________________________________________________________ 1,405.3 1,712.3 1,093.0 Other assets 72.8 126.4 116.1 _________________________________________________________________________________________ Total assets $1,478.1 1,838.7 1,209.1 _________________________________________________________________________________________ Depletion, depreciation and amortization: Petroleum 196.7 123.4 101.6 Other 5.5 6.4 4.9 _________________________________________________________________________________________ $ 202.2 129.8 106.5 _________________________________________________________________________________________ Capital expenditures: Exploration: Domestic 55.3 31.2 22.7 North Sea 1.6 1.8 3.2 Other foreign 16.5 10.0 12.7 _________________________________________________________________________________________ 73.4 43.0 38.6 _________________________________________________________________________________________ Development: Domestic 75.4 58.0 47.9 North Sea 18.2 37.6 27.9 Other foreign 16.0 3.1 30.5 _________________________________________________________________________________________ 109.6 98.7 106.3 _________________________________________________________________________________________ Refining and marketing 31.1 18.4 27.6 _________________________________________________________________________________________ 214.1 160.1 172.5 Capitalized interest 22.3 18.7 12.9 Other 3.8 3.5 4.4 _________________________________________________________________________________________ $ 240.2 182.3 189.8 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as follows: 1994 - see Notes 2, 3 and 5. 1993 - see Notes 3, 6, 7, 11 and 12. 1992 - see Note 5. /TABLE UNAUDITED SUPPLEMENTAL DATA _________________________________________________________________ MANAGEMENT'S DISCUSSION AND ANALYSIS _________________________________________________________________ REVIEW OF OPERATIONS (1994 vs 1993) The Company reported a $226.9 million net loss in 1994 primarily as a result of fourth quarter nonrecurring charges totaling $319 million ($210.3 million after tax). The non-recurring charges were related to a change in the procedure for assessing impairment of the capitalized costs of the Company's assets which resulted in a $280 million ($185 million after tax) write-down of oil and gas properties and the write-down of the Company's refinery assets by $39 million ($25.3 million after tax). In 1993, the Company reported net earnings of $9.6 million, which included nonrecurring and extraordinary items as discussed below. Before inclusion of the write-down of these assets and certain nonrecurring gains, the Company's net loss totaled $27.6 million in 1994 reflecting lower gross revenues and higher costs and expenses. Gross revenues, which fell $14 million from the 1993 level, was significantly impacted by declining worldwide crude oil prices and domestic natural gas and refined product prices. Costs and expenses increased due to higher lease operating, depletion, depreciation and amortization and exploration expenses. Partially offsetting the adverse effect of these items were a $10 million pretax gain ($6.5 million after tax) on the reversal of a previously established provision for the settlement of the Texaco litigation and a $6.8 million pretax gain ($4.4 million after tax) on the sale of oil and gas properties. Oil and Gas Operations Revenues from oil and gas operations were up $51 million from 1993. Liquids revenues were up almost $26 million due to increased crude oil volumes ($38 million), and natural gas revenues were up $23 million primarily due to higher domestic deliveries ($41 million). The higher revenues from increased crude oil and natural gas production exceeded the effect of declining worldwide crude oil prices ($12 million) and lower domestic natural gas prices ($20 million). Crude oil volumes were higher in 1994 due to an 8,200 barrel per day (BPD) increase in North Sea operations and an 800 BPD increase in domestic operations. North Sea volumes were up primarily due to the late-1993 T-Block acquisition and new wells onstream at Brae Field. Domestic volumes were up primarily due to the late-1993 acquisition of NERCO and new domestic wells onstream. These production increases at domestic and North Sea properties were partially offset by natural declines at mature producing properties. Volumes from other foreign operations were down 3,000 BPD primarily due to the sale of certain Canadian properties in late 1993. Natural gas deliveries were up 57 million cubic feet per day (MMCFD) in 1994. An improvement in domestic deliveries, which accounted for 49 MMCFD of the increase, was due to the acquisition of NERCO, new wells onstream and the return to production of wells which were shut-in for repairs and maintenance during the prior year. North Sea natural gas sales volumes, which were 5 MMCFD higher due to the completion of the SAGE Pipeline System during 1994, also contributed to the increase. These increases were partially offset by the effects of natural declines at mature producing properties, the sales of a limited number of domestic properties in 1994 and certain Canadian properties in late 1993, and the voluntary curtailment of some domestic sales volumes in the second half of 1994 in response to low prices. Lease operating and facility expenses increased $9 million during the current year primarily due to additional operating expenses for properties acquired in late 1993 and higher repair and maintenance costs on older properties. These costs were partially offset by lower operating expenses and workover costs on existing properties. Depletion, depreciation and amortization (DD&A) was $72 million higher in 1994 than in the prior year due primarily to DD&A on properties and working interests acquired in late 1993 and new producing wells onstream in 1994. The increase was partially offset by the reduction in DD&A for the Canadian properties sold in 1993. Dry holes and exploratory charges were up $21 million in 1994 due to the write-off of unsuccessful wells and higher domestic seismic costs incurred and lease impairment. Interest and debt expenses were down $3 million primarily due to increased interest capitalized on qualifying projects and the inclusion in the prior year of the aforementioned $6.7 million write-off of debt-issue costs. Refining Operations Refining operations resulted in a pretax operating profit of $2 million in 1994 (before the $39 million write-down of refinery assets), compared to a $10 million pretax operating loss in the prior year. The favorable impact of lower crude oil feedstock costs ($50 million) due to lower prices ($32 million) and volumes ($12 million) and the inclusion in the prior year's costs of the $6 million inventory write-down more than offset the effect of higher operating expenses ($4 million) and revenue declines ( $36 million). Revenues were down as a result of lower sales volumes ($12 million) and product prices ($24 million). REVIEW OF OPERATIONS (1993 vs 1992) Gross revenues in 1993 were up $28 million as an increase in oil and gas revenues of $46 million and a $24 million pretax gain on the sale of certain Canadian oil and gas assets more than offset a $40 million decline in refining revenues and reduced equity in the earnings of CLAM. CLAM's reduced earnings for 1993 reflect the adverse effect of reduced gas prices, lower gas deliveries and a one-time non-cash charge of $6 million to income taxes ($3 million net to the Company) for the adoption of SFAS No. 109. Before inclusion of nonrecurring after-tax items netting to a charge of $1.3 million, an extraordinary loss on early retirement of debt of $3.3 million and the favorable effect of two accounting changes amounting to $.2 million, the Company generated earnings of $14 million in 1993. This represents a decline from the comparable 1992 earnings of $18.9 million, which was also exclusive of nonrecurring after-tax items totaling $20.1 million and an extraordinary loss of $5.6 million on the early retirement of debt in 1992. The nonrecurring items in 1993 consisted of the aforementioned $23.5 million ($13.2 million after tax) gain on the sale of certain oil and gas properties, undeveloped acreage and seismic data located in southern Alberta, Canada reduced by a $6.5 million ($4.2 million after tax) charge for the write-down of refinery inventories to market value, a $6.7 million ($4.3 million after tax) charge for the write-off of costs associated with the interim financing provided by banks for the acquisitions of NERCO and T-Block, a $3 million income tax charge to recognize the retroactive rate change enacted in the Budget Reconciliation Act of 1993 and the effect of the aforementioned non-cash charge of $6 million ($3 million net to the Company) to the earnings of CLAM. The inclusion of the nonrecurring and extraordinary items resulted in net earnings of $9.6 million in 1993, as compared to the $6.8 million net loss incurred in the prior year. Oil and Gas Operations Revenues from oil and gas operations were up $46 million from 1992. Natural gas revenues, up almost $55 million as a result of higher domestic gas prices ($29 million) and deliveries ($25 million), accounted for much of the increase. Liquids revenues, however, were down $5 million. Although crude oil volumes increased in 1993 ($22 million), this revenue gain was more than offset by declining worldwide crude oil prices ($26 million). Domestic natural gas deliveries were up almost 40 MMCFD from the prior year period. The improvement in domestic natural gas deliveries was due to the acquisition of NERCO, new domestic wells coming onstream and the return to production of wells previously shut-in for repairs and maintenance. These increases were partially offset by the effects of natural declines at mature producing properties. Crude oil volumes in 1993 were higher due to a 2,400 BPD increase in domestic operations, a 300 BPD increase in North Sea operations and an 800 BPD increase in other foreign operations. The increase in domestic operations resulted primarily from the acquisition of NERCO, the purchase of additional working interests in producing properties, new domestic wells coming onstream, and increased production from domestic wells that were shut-in for repairs and maintenance during the prior year. Volumes were up in the North Sea primarily as a result of the purchase of additional working interests in producing properties and the production from T-Block beginning in mid-December 1993. The year-end 1992 acquisition of a working interest in the KAKAP Field in Indonesia resulted in higher volumes from other foreign areas. These production increases were partially offset by natural declines at domestic and foreign properties. Lease operating and facility expenses increased $8 million during 1993 primarily due to operating expenses associated with properties and increased working interests acquired in late 1992 and in 1993 and higher operating and repair and maintenance costs on older properties. These were partially offset by lower workover charges and the inclusion in 1992 of a $3 million nonrecurring charge for the uninsured costs associated with a gas well blowout. Depletion, depreciation and amortization was $23 million higher in 1993 than in the prior year due primarily to DD&A on properties and increased working interests acquired in late 1992 and in 1993. Dry holes and exploratory charges were up over $7 million in the current year due to increases in seismic costs incurred, lease impairment and unsuccessful exploratory wells. General, administrative and other expenses increased over $6 million from the prior year primarily due to the initial accrual of current year costs associated with postretirement benefits other than pensions and increased personnel costs. Interest and debt expenses increased over $3 million due to higher interest expense associated with the increased debt level and the aforementioned write-off of debt-issue costs. These additional costs were partially offset by interest capitalized on a greater investment in qualifying projects. Refining Operations Refining operations resulted in a loss in 1993. Lower revenues from a decline in product prices ($49 million), a write-down of refinery inventories of over $6 million and higher operating expenses ($4 million) more than offset the favorable impact of higher sales volumes ($9 million) and lower feedstock prices ($30 million) resulting in a $10 million pretax operating loss. The refinery had generated a pretax operating profit of $10 million in the prior year. LIQUIDITY AND CAPITAL RESOURCES In 1994, the Company generated approximately $212 million in cash from operations which, along with advances against cash surrender value of life insurance policies ($34 million), proceeds from asset sales ($15 million) and available cash, was utilized for capital projects ($237 million) and dividends ($33 million). The only significant long-term debt due in 1994, the $133.5 million balance of the Term Loan with banks which was due in July 1994, was refinanced in January 1994 with the proceeds of a revolving credit facility drawdown. The Company expects that its 1995 capital and exploration program, presently estimated at approximately $214 million, will be financed substantially by internally generated funds, reduced dividend expenditures and the proceeds from sales of nonstrategic assets. The Company does not expect to realize any significant losses from these sales. The Company's expenditures are continually reviewed, and revised as necessary, based on perceived current and long-term economic conditions. In February 1995, the Company announced its plans to sell its remaining oil and gas assets in Canada. In 1994, these operations produced 500 barrels of liquids and 3,000 cubic feet of gas per day and generated revenues of $5.2 million and an operating loss of $4.7 million. As explained in Note 15, the Company has been notified by the U.S. Environmental Protection Agency that it is one of many Potentially Responsible Parties at three National Priorities List sites. In the opinion of Management, the ultimate liability with respect to these matters will not have a material adverse effect on the results of operations, cash flow or financial position of the Company. As explained in Note 9, the Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used solely to manage well-defined interest rate, foreign currency and commodity price risks. CAPITAL STOCK, DIVIDENDS AND OTHER MARKET DATA The Company's capital stock is listed and traded on the New York Stock Exchange, the London Stock Exchange and the Swiss Stock Exchanges (Basle, Geneva and Zurich). As of February 28, 1995, there were 7,569 holders of record. The quarterly market prices for the past two years and the cash dividends paid in each period are presented in the table on page 72. In January 1995, the Company announced that its quarterly dividend of $0.25 per share was being reduced to $0.06 per share with the savings being redirected to the capital and exploration program. In November 1993, 4.4 million of the Company's treasury shares were issued in a public offering. (See Note 14 of "Notes to Consolidated Financial Statements.") The remaining 4.6 million shares being held as treasury shares continued to afford the Company financial flexibility to respond to financing and other opportunities that might arise. In 1986, the Company's Board of Directors declared a dividend to shareholders consisting of one Capital Stock Purchase Right on each outstanding share of capital stock. These rights may cause substantial ownership dilution to a person or group who attempts to acquire the Company without approval of the Company's Board of Directors. The rights should not interfere with a business combination transaction that has been approved by the Board of Directors. (See Note 14 of "Notes to Consolidated Financial Statements.") The Company has reserved 2,558,657 shares of its capital stock for future grants and exercises of stock options. (See Note 14 of "Notes to Consolidated Financial Statements.") NOTE: The accompanying consolidated financial statements and notes thereto and the unaudited supplemental data are an integral part of this discussion and analysis and should be read in conjunction herewith. _________________________________________________________________ DATA ON OIL AND GAS ACTIVITIES (Unaudited) _________________________________________________________________ Proved Reserves and Changes Therein The tables below set forth estimates of the proved reserves attributable to the working and royalty interests of the Company (net of royalties payable to other parties) along with a summary of the changes in the quantities of proved reserves during the periods indicated. Also set forth is the Company's 50% equity interest in the proved reserves of CLAM Petroleum Company. The Company emphasizes that the volumes of reserves shown below are estimates which, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data. There have been no significant changes in the estimates of proved reserves since December 31, 1994.
Liquids (Millions of barrels) North Other Domestic Sea CLAM Foreign Total _________________________________________________________________________________________ Proved reserves at December 31, 1991 47.0 25.5 .4 11.4 84.3 Revisions of previous estimates 5.3 (.6) - - 4.7 Purchase of reserves in place 2.6 - - 5.8 8.4 Extensions, discoveries and other additions 3.0 2.8 - .6 6.4 Production (7.9) (2.5) - (2.1) (12.5) Sales of reserves in place (.6) - - - (.6) _________________________________________________________________________________________ Proved reserves at December 31, 1992 49.4 25.2 .4 15.7 90.7 Revisions of previous estimates (2.8) (.2) - 2.5 (.5) Purchase of reserves in place 11.9 17.5 - - 29.4 Extensions, discoveries and other additions 1.7 - - .8 2.5 Production (8.8) (2.5) - (2.4) (13.7) Sales of reserves in place (.2) - - (5.1) (5.3) _________________________________________________________________________________________ Proved reserves at December 31, 1993 51.2 40.0 .4 11.5 103.1 Revisions of previous estimates 2.8 (2.6) (.1) (.1) - Extensions, discoveries and other additions 8.6 2.3 - - 10.9 Production (9.1) (5.6) - (1.2) (15.9) Sales of reserves in place (1.0) - - - (1.0) _________________________________________________________________________________________ Proved reserves at December 31, 1994 52.5 34.1 .3 10.2 97.1 _________________________________________________________________________________________ Proved-developed reserves at December 31, _________________________________________________________________________________________ 1992 46.8 6.1 .3 10.4 63.6 _________________________________________________________________________________________ 1993 47.0 36.9 .3 5.7 89.9 _________________________________________________________________________________________ 1994 48.1 32.7 .2 4.4 85.4 _________________________________________________________________________________________ /TABLE
Gas (Billions of cubic feet) North Other Domestic Sea CLAM Foreign Total _________________________________________________________________________________________ Proved reserves at December 31, 1991 520.9 123.4 188.5 10.6 843.4 Revisions of previous estimates 9.7 (4.6) (6.6) (.2) (1.7) Purchase of reserves in place 3.2 - - - 3.2 Extensions, discoveries and other additions 14.7 15.8 - .6 31.1 Production (51.3) (.1) (14.8) (1.8) (68.0) Sales of reserves in place (53.1) - - - (53.1) _________________________________________________________________________________________ Proved reserves at December 31, 1992 444.1 134.5 167.1 9.2 754.9 Revisions of previous estimates 20.5 (3.2) (.6) 1.0 17.7 Purchase of reserves in place 221.6 11.5 - - 233.1 Extensions, discoveries and other additions 12.2 - - 2.6 14.8 Production (65.6) (.1) (12.6) (1.9) (80.2) Sales of reserves in place (1.2) - - (3.2) (4.4) _________________________________________________________________________________________ Proved reserves at December 31, 1993 631.6 142.7 153.9 7.7 935.9 Revisions of previous estimates 16.6 (4.5) (2.8) (1.7) 7.6 Purchase of reserves in place 3.4 - - - 3.4 Extensions, discoveries and other additions 116.4 26.0 1.0 5.2 148.6 Production (83.6) (1.8) (14.6) (1.1) (101.1) Sales of reserves in place (10.7) - - - (10.7) _________________________________________________________________________________________ Proved reserves at December 31, 1994 673.7 162.4 137.5 10.1 983.7 _________________________________________________________________________________________ Proved-developed reserves at December 31, 1992 270.9 35.3 112.7 9.2 428.1 _________________________________________________________________________________________ 1993 405.9 132.9 118.9 7.7 665.4 _________________________________________________________________________________________ 1994 493.5 146.4 116.1 10.1 766.1 _________________________________________________________________________________________
The table below sets forth estimates of the domestic sulphur reserves attributable to the Company's interests as of December 31:
Proved- (Thousands of long tons) Proved developed _________________________________________________________________________________________ 1992 608.3 242.6 _________________________________________________________________________________________ 1993 583.6 226.1 _________________________________________________________________________________________ 1994 670.3 670.3 _________________________________________________________________________________________
_________________________________________________________________ Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Gas Reserves The following supplemental data on the Company's oil and gas activities were prepared in accordance with the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards No. 69 - "Disclosures About Oil and Gas Producing Activities." Estimated future net cash flows are determined by: (1) applying the respective year-end oil and gas prices to the Company's estimates of future production of proved reserves; (2) deducting estimates of the future costs of development and production of proved reserves based on the assumed continuation of the cost levels and economic conditions existing at the respective year-end; and (3) deducting estimates of future income taxes based on the respective year-end and future statutory tax rates. Present value is determined using the FASB-prescribed discount rate of 10% per annum. Although the information presented is based on the Company's best estimates of the required data, the methods and assumptions used in preparing the data were those prescribed by the FASB. Although unrealistic, they were specified in order to achieve uniformity in assumptions and to provide for the use of reasonably objective data. It is important to note here that this information is neither fair market value nor the present value of future cash flows and it does not reflect changes in oil and gas prices experienced since the respective year-end. It is primarily a tool designed by the FASB to allow for a reasonable comparison of oil and gas reserves and changes therein through the use of a standardized method. Accordingly, the Company cautions that this data should not be used for other than its intended purpose. _________________________________________________________________________________________ STANDARDIZED MEASURE AT DECEMBER 31, 1994:
North Other (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Future cash inflows $1,898.9 1,011.5 181.4 3,091.8 Future production and development costs (889.8) (254.9) (102.5) (1,247.2) Future income tax expenses (165.2) (234.2) (18.9) (418.3) _________________________________________________________________________________________ Future net cash flows 843.9 522.4 60.0 1,426.3 10% annual discount for estimated timing of cash flows (292.6) (179.1) (26.7) (498.4) _________________________________________________________________________________________ Standardized measure of discounted future net cash flows $ 551.3 343.3 33.3 927.9 _________________________________________________________________________________________ CLAM $ - 40.7 - 40.7 _________________________________________________________________________________________ Note: If the post year-end prices utilized by the Company in the write-down of its oil and gas properties (see Note 2 of "Notes to Consolidated Financial Statements") were applied, the undiscounted and discounted Standardized Measure would have been reduced to $1,287 million and $846 million, respectively.
PRINCIPAL SOURCES OF CHANGE DURING 1994:
(Millions of dollars) _________________________________________________________________________________________ Sales and transfers, net of production costs $(274.2) Net change in prices and production costs (81.2) Extensions, discoveries and improved recovery, less related costs 164.6 Net change in future development costs (27.4) Previously estimated development costs incurred during the year 107.6 Revisions of previous reserve estimates 5.9 Purchase of reserves in place 2.0 Sales of reserves in place (12.6) Accretion of discount 113.8 Net change in income taxes 27.2 Other (21.2) _________________________________________________________________________________________ Net change $ 4.5 _________________________________________________________________________________________
_________________________________________________________________________________________ STANDARDIZED MEASURE AT DECEMBER 31, 1993:
North Other (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Future cash inflows $2,153.6 933.2 160.1 3,246.9 Future production and development costs (996.1) (287.3) (110.2) (1,393.6) Future income tax expenses (228.1) (149.8) (9.6) (387.5) _________________________________________________________________________________________ Future net cash flows 929.4 496.1 40.3 1,465.8 10% annual discount for estimated timing of cash flows (347.6) (180.9) (13.9) (542.4) _________________________________________________________________________________________ Standardized measure of discounted future net cash flows $ 581.8 315.2 26.4 923.4 _________________________________________________________________________________________ CLAM $ - 51.8 - 51.8 _________________________________________________________________________________________
PRINCIPAL SOURCES OF CHANGE DURING 1993: (Millions of dollars) _________________________________________________________________________________________ Sales and transfers, net of production costs $(225.9) Net change in prices and production costs (209.6) Extensions, discoveries and improved recovery, less related costs 25.6 Net change in future development costs (14.6) Previously estimated development costs incurred during the year 56.6 Revisions of previous reserve estimates 10.1 Purchase of reserves in place 414.7 Sales of reserves in place (24.1) Accretion of discount 101.3 Net change in income taxes 100.6 Other (12.7) _________________________________________________________________________________________ Net change $ 222.0 _________________________________________________________________________________________
_________________________________________________________________________________________ STANDARDIZED MEASURE AT DECEMBER 31, 1992:
North Other (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Future cash inflows $1,794.9 779.0 276.6 2,850.5 Future production and development costs (715.7) (261.0) (145.0) (1,121.7) Future income tax expenses (292.4) (241.4) (38.2) (572.0) _________________________________________________________________________________________ Future net cash flows 786.8 276.6 93.4 1,156.8 10% annual discount for estimated timing of cash flows (313.9) (113.6) (27.9) (455.4) _________________________________________________________________________________________ Standardized measure of discounted future net cash flows $ 472.9 163.0 65.5 701.4 _________________________________________________________________________________________ CLAM $ - 65.1 - 65.1 _________________________________________________________________________________________
PRINCIPAL SOURCES OF CHANGE DURING 1992:
(Millions of dollars) _________________________________________________________________________________________ Sales and transfers, net of production costs $(203.3) Net change in prices and production costs (9.2) Extensions, discoveries and improved recovery, less related costs 57.9 Net change in future development costs 12.3 Previously estimated development costs incurred during the year 70.5 Revisions of previous reserve estimates 47.6 Purchase of reserves in place 61.7 Sales of reserves in place (52.2) Accretion of discount 69.1 Net change in income taxes 3.3 Other (47.1) _________________________________________________________________________________________ Net change $ 10.6 _________________________________________________________________________________________
_________________________________________________________________________________________ RESULTS OF OPERATIONS FOR OIL AND GAS ACTIVITIES
Years ended December 31: North Other 19941 (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Revenues $ 316.82 92.9 18.3 428.0 Production costs (90.5) (36.9) (9.4) (136.8) Exploration expenses (44.8) (2.6) (22.3) (69.7) DD&A (142.6) (41.9) (8.9) (193.4) Write-down of oil and gas properties (265.6) (6.0) (8.4) (280.0) _________________________________________________________________________________________ (226.7) 5.5 (30.7) (251.9) Income tax (expense) benefit 79.0 (9.0) 13.6 83.6 _________________________________________________________________________________________ Earnings (loss)3 $(147.7) (3.5) (17.1) (168.3) _________________________________________________________________________________________ CLAM4 $ - 3.9 - 3.9 _________________________________________________________________________________________ 19931 (Millions of dollars) _________________________________________________________________________________________ Revenues 292.72 40.3 60.6 393.6 Production costs (83.8) (24.9) (17.8) (126.5) Exploration expenses (31.4) (3.8) (13.6) (48.8) DD&A (86.2) (19.3) (12.7) (118.2) _________________________________________________________________________________________ 91.3 (7.7) 16.5 100.1 Income tax (expense) benefit (32.0) 1.5 (6.8) (37.3) _________________________________________________________________________________________ Earnings (loss)3 $ 59.3 (6.2) 9.7 62.8 _________________________________________________________________________________________ CLAM4 $ - 2.3 - 2.3 _________________________________________________________________________________________ 19921(Millions of dollars) _________________________________________________________________________________________ Revenues 244.32 46.4 33.2 323.9 Production costs (79.5) (20.0) (18.2) (117.7) Exploration expenses (30.5) (4.1) (6.9) (41.5) DD&A and restructuring charge (104.1) (9.2) (11.0) (124.3) _________________________________________________________________________________________ 30.2 13.1 (2.9) 40.4 Income tax (expense) benefit (9.6) (8.4) .9 (17.1) _________________________________________________________________________________________ Earnings (loss)3 $ 20.6 4.7 (2.0) 23.3 _________________________________________________________________________________________ CLAM4 $ - 6.4 - 6.4 _________________________________________________________________________________________ 1 Includes nonrecurring charges/credits as explained in "Notes to Consolidated Financial Statements" as follows: 1994 - see Notes 2 and 3. 1993 - see Note 3. 1992 - see Note 5. 2 Includes intercompany transfers to the Company's refinery of $24.8, $22.4 and $20.7 in 1994, 1993 and 1992, respectively. 3 Excludes other income, general and administrative expenses, and interest and debt expenses. 4 Represents the Company's equity in CLAM's net earnings after U.S. income taxes. See Note 7 of "Notes to Consolidated Financial Statements."
_________________________________________________________________________________________ COSTS INCURRED IN OIL AND GAS ACTIVITIES
Years ended December 31: North Other 1994 (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Property acquisition: Proved $ 2.0 - - 2.0 Unproved 2.3 - 1.1 3.4 Exploration 69.5 2.5 20.0 92.0 Development 73.4 18.3 15.9 107.6 _________________________________________________________________________________________ 147.2 20.8 37.0 205.0 Capitalized interest 7.3 14.7 .3 22.3 _________________________________________________________________________________________ $ 154.5 35.5 37.3 227.3 _________________________________________________________________________________________ CLAM $ - 10.5 - 10.5 _________________________________________________________________________________________ 1993 (Millions of dollars) _________________________________________________________________________________________ Property acquisition: Proved 364.2 159.4 - 523.6 Unproved 4.5 40.8 1.2 46.5 Exploration 39.1 2.1 17.7 58.9 Development 52.2 24.2 3.1 79.5 _________________________________________________________________________________________ 460.0 226.5 22.0 708.5 Capitalized interest 3.9 14.8 - 18.7 _________________________________________________________________________________________ $ 463.9 241.3 22.0 727.2 _________________________________________________________________________________________ CLAM $ - 5.2 - 5.2 _________________________________________________________________________________________ 1992 (Millions of dollars) _________________________________________________________________________________________ Property acquisition: Proved 8.3 - 27.5 35.8 Unproved 2.5 - 8.1 10.6 Exploration 29.8 3.5 7.8 41.1 Development 39.5 27.9 3.1 70.5 _________________________________________________________________________________________ 80.1 31.4 46.5 158.0 Capitalized interest 4.0 8.9 - 12.9 _________________________________________________________________________________________ $ 84.1 40.3 46.5 170.9 _________________________________________________________________________________________ CLAM $ - 10.7 - 10.7 _________________________________________________________________________________________
_________________________________________________________________________________________ OIL AND GAS OPERATING DATA1
Years ended December 31: 1994 19932 1992 1991 1990 _________________________________________________________________________________________ CRUDE AND CONDENSATE3 Production (barrels per day): Domestic: Working interest 18,833 17,586 15,308 16,439 17,085 Royalty interest 3,678 4,161 4,070 4,070 4,041 _________________________________________________________________________________________ 22,511 21,747 19,378 20,509 21,126 North Sea (working interest) 14,769 6,529 6,258 8,352 10,283 Other foreign (working interest) 3,496 6,509 5,674 5,896 6,652 _________________________________________________________________________________________ 40,776 34,785 31,310 34,757 38,061 _________________________________________________________________________________________ Average price received (per barrel): Domestic $ 16.26 17.33 19.85 22.13 21.38 North Sea 16.01 16.20 19.11 19.96 23.13 Other foreign 12.63 14.40 14.98 14.53 18.89 Consolidated 15.86 16.57 18.82 20.32 21.42 _________________________________________________________________________________________ NATURAL GAS Production (thousands of cubic feet per day): Domestic: Working interest 203,700 155,917 119,050 124,592 126,610 Royalty interest 24,957 23,861 21,146 25,666 24,771 _________________________________________________________________________________________ 228,657 179,778 140,196 150,258 151,381 North Sea (working interest) 5,302 156 236 283 349 Other foreign (working interest) 3,018 5,316 4,871 4,388 4,918 CLAM Petroleum Company 40,003 34,608 40,485 48,772 46,330 _________________________________________________________________________________________ 276,980 219,858 185,788 203,701 202,978 _________________________________________________________________________________________ Average price received (per MCF): Domestic $ 1.95 2.19 1.75 1.53 1.74 North Sea 2.20 1.51 1.92 1.91 2.48 Other foreign 1.63 1.27 0.84 1.03 1.13 CLAM Petroleum Company 2.27 2.35 2.73 3.08 2.76 Consolidated 2.00 2.19 1.94 1.89 1.96 _________________________________________________________________________________________ PLANT PRODUCTS Production (barrels per day): Domestic (working interest) 2,475 2,377 2,294 2,145 2,197 North Sea (working interest) 552 352 461 510 612 Other foreign (working interest) 6 29 39 33 29 _________________________________________________________________________________________ 3,033 2,758 2,794 2,688 2,838 _________________________________________________________________________________________ Average price received (per barrel): Domestic $ 10.66 11.26 13.07 14.89 14.31 North Sea 11.28 12.62 14.47 16.93 15.36 Other foreign 7.84 11.97 12.68 13.12 13.70 Consolidated 10.28 11.44 13.29 15.26 14.53 _________________________________________________________________________________________ 1 Includes the Company's 50% equity interest in its unconsolidated affiliate, CLAM Petroleum Company. 2 Includes NERCO Oil & Gas, Inc. since October 1, 1993. 3 Before the elimination of intercompany transfers. /TABLE _________________________________________________________________________________________ REFINING OPERATING DATA
Years ended December 31: (Millions of dollars) 1994 1993 1992 1991 1990 _________________________________________________________________________________________ Refining operating profit (loss): Revenues: Refined products* $ 386.1 422.6 462.6 451.5 453.8 Other 2.1 1.9 .3 .2 .7 _________________________________________________________________________________________ 388.2 424.5 462.9 451.7 454.5 _________________________________________________________________________________________ Costs and expenses: Cost of sales* 340.1 390.6 413.6 401.4 396.9 Operating expenses 39.2 35.2 31.4 32.4 33.1 Depreciation 3.3 5.2 5.0 4.7 4.5 Taxes, other than income 3.5 3.5 3.3 2.7 3.4 Write-down of refinery assets 39.0 - - - - _________________________________________________________________________________________ 425.1 434.5 453.3 441.2 437.9 _________________________________________________________________________________________ (36.9) (10.0) 9.6 10.5 16.6 _________________________________________________________________________________________ *Before the elimination of intercompany transfers to the Company's refinery $ 24.8 22.4 20.7 18.7 22.3 _________________________________________________________________________________________ Sales (barrels per day): No. 2 fuel oil 11,572 11,471 12,471 11,079 13,162 Unleaded gasoline 22,571 22,747 23,640 21,675 21,618 Jet fuel 7,166 6,488 5,415 5,102 5,595 Naphtha 4,090 5,477 4,922 4,045 6,260 Other 7,505 8,347 6,880 6,987 8,272 _________________________________________________________________________________________ 52,904 54,530 53,328 48,888 54,907 _________________________________________________________________________________________ Average price received (per barrel) $ 20.00 21.24 23.70 25.30 22.65 _________________________________________________________________________________________
_________________________________________________________________________________________ OIL AND GAS PROPERTIES
December 31, 1994 Productive acreage Undeveloped acreage (Thousands of acres) Gross Net Gross Net _________________________________________________________________________________________ LEASEHOLDS AND OPTIONS Domestic: Offshore Gulf of Mexico 329.7 160.0 381.5 247.8 Louisiana 118.8 76.4 38.6 17.2 Alabama/Florida 9.2 8.0 .6 .6 Colorado/Utah/New Mexico .8 .1 146.5 92.8 Wyoming 43.9 12.5 226.6 99.1 Other 47.9 5.8 71.4 9.7 _________________________________________________________________________________________ 550.3 262.8 865.2 467.2 _________________________________________________________________________________________ North Sea: Netherlands 2.7 1.0 103.3 36.0 United Kingdom 19.1 1.2 147.2 12.0 _________________________________________________________________________________________ 21.8 2.2 250.5 48.0 _________________________________________________________________________________________ Other foreign: Algeria - - 1,552.9 1,009.4 Australia - - 1,389.0 365.8 Canada 36.2 19.5 190.0 111.2 Colombia 11.7 1.6 216.1 119.4 France - - 113.4 56.7 Indonesia 5.9 .9 489.7 66.2 Papua New Guinea - - 168.4 67.4 Tunisia - - 1,021.0 510.5 Yemen - - 1,167.9 198.5 _________________________________________________________________________________________ 53.8 22.0 6,308.4 2,505.1 _________________________________________________________________________________________ FEE LANDS 98.0 98.0 496.0 496.0 _________________________________________________________________________________________ CLAM PETROLEUM COMPANY (50%) Netherlands-North Sea 39.7 5.6 771.7 176.6 _________________________________________________________________________________________ 763.6 390.6 8,691.8 3,692.9 _________________________________________________________________________________________
_______________________________________________________________________________________ WELLS DRILLED
Years ended December 31: 1994 1993 1992 1991 1990 _______________________________________________________________________________________ GROSS WELLS DRILLED (BY LOCATION) Working interest Domestic: Offshore Gulf of Mexico 20 23 5 18 13 Louisiana 14 10 17 30 28 Oklahoma - - - 25 25 Texas - - - 3 - Wyoming 4 6 2 9 7 Other - - 1 - 1 _______________________________________________________________________________________ 38 39 25 85 74 _______________________________________________________________________________________ North Sea: Netherlands 3 4 5 10 14 United Kingdom 6 5 8 4 8 _______________________________________________________________________________________ 9 9 13 14 22 _______________________________________________________________________________________ Other foreign: Canada 14 38 33 44 44 Colombia 2 - 3 2 4 Other 3 2 1 2 2 _______________________________________________________________________________________ 19 40 37 48 50 _______________________________________________________________________________________ Total working interest 66 88 75 147 146 Royalty interest 19 35 26 28 31 _______________________________________________________________________________________ Total wells 85 123 101 175 177 _______________________________________________________________________________________
Gross (Net) Wells Drilled (by type)
Exploratory: Oil 15 (1.8) 34 (15.2) 26 (13.1) 33 (15.1) 28 (14.4) Gas 26 (10.3) 18 (3.9) 10 (2.5) 34 (12.4) 40 (15.1) Dry 22 (9.4) 31 (11.4) 28 (12.4) 74 (29.5) 77 (28.1) _______________________________________________________________________________________ 63 (21.5) 83 (30.5) 64 (28.0) 141 (57.0) 145 (57.6) _______________________________________________________________________________________ Development: Oil 7 (1.0) 17 (2.1) 22 (2.6) 23 (2.4) 14 (2.5) Gas 14 (3.3) 21 (3.4) 6 (1.4) 9 (1.5) 17 (1.7) Dry 1 (.1) 2 (.3) 9 (.7) 2 (.6) 1 (-) _______________________________________________________________________________________ 22 (4.4) 40 (5.8) 37 (4.7) 34 (4.5) 32 (4.2) _______________________________________________________________________________________ Total wells 85 (25.9) 123 (36.3) 101 (32.7) 175 (61.5) 177 (61.8) _______________________________________________________________________________________
_________________________________________________________________________________________ SELECTED FINANCIAL DATA
Years ended December 31: (Millions of dollars, except per share data) 1994* 1993* 1992* 1991 1990 _________________________________________________________________________________________ Revenues $ 801.5 815.4 787.4 825.3 874.7 Operating profit (loss) $ (290.9) 88.0 49.9 75.2 142.1 Net earnings (loss) $ (226.9) 9.6 (6.8) 20.9 54.9 Primary and fully diluted earnings (loss) per share $ (6.80) 0.33 (0.24) 0.74 1.94 Average shares (millions) 33.4 29.5 28.4 28.3 28.3 _________________________________________________________________________________________ Cash flows from operations $ 212.1 178.9 178.7 209.2 251.9 Working capital (deficit): End of year $ (6.4) 15.6 (20.2) 24.2 27.2 Current ratio .97 1.09 .88 1.15 1.17 _________________________________________________________________________________________ Total assets $ 1,478.1 1,838.7 1,209.1 1,252.8 1,226.0 Long-term debt $ 739.5 734.5 343.0 347.3 346.1 Stockholders' equity $ 352.4 599.8 416.6 446.5 448.7 Cash dividends per share $ 1.00 1.00 1.00 1.00 1.00 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as explained in "Notes to Consolidated Financial Statements" as follows: 1994 - see Notes 2, 3 and 5. 1993 - see Notes 3, 6, 7, 11 and 12. 1992 - see Note 5.
_________________________________________________________________________________________ MARKET PRICE AND DIVIDEND DATA
Quarter ended March 31 June 30 Sept. 30 Dec. 31 _________________________________________________________________________________________ 1994: Capital stock price: High $43 3/8 45 45 3/8 47 1/8 Low 35 1/8 35 7/8 40 7/8 36 3/8 Cash dividends per share 0.25 0.25 0.25 0.25 _________________________________________________________________________________________ 1993: Capital stock price: High 47 47 7/8 49 47 1/2 Low 31 40 1/2 40 7/8 37 7/8 Cash dividends per share 0.25 0.25 0.25 0.25 _________________________________________________________________________________________
_________________________________________________________________________________________ QUARTERLY DATA*
Quarter ended (Millions, except per share data) March 31 June 30 Sept. 30 Dec. 31 _________________________________________________________________________________________ 1994: Revenues $206.7 190.7 197.9 206.2 Costs and expenses 197.8 188.5 216.5 544.3 _________________________________________________________________________________________ Earnings (loss) before income taxes 8.9 2.2 (18.6) (338.1) Income tax expense (benefit) 2.7 1.6 (7.3) (115.7) _________________________________________________________________________________________ Net earnings (loss) $ 6.2 .6 (11.3) (222.4) _________________________________________________________________________________________ Earnings (loss) per share $ 0.19 0.02 (0.34) (6.64) _________________________________________________________________________________________ Average shares 33.3 33.4 33.4 33.4 _________________________________________________________________________________________ 1993: Revenues 186.9 194.7 193.5 240.3 Costs and expenses 181.9 184.7 190.9 233.3 _________________________________________________________________________________________ Earnings before income taxes 5.0 10.0 2.6 7.0 Income tax expense 2.3 4.4 4.4 .8 _________________________________________________________________________________________ Earnings (loss) before extraordinary item and accounting changes 2.7 5.6 (1.8) 6.2 Loss on early retirement of debt - - - (3.3) Changes in accounting principles .2 - - - _________________________________________________________________________________________ Net earnings (loss) $ 2.9 5.6 (1.8) 2.9 _________________________________________________________________________________________ Earnings (loss) per share before extraordinary item and accounting changes 0.09 0.20 (0.06) 0.19 Loss on early retirement of debt - - - (0.10) Changes in accounting principles 0.01 - - - _________________________________________________________________________________________ Earnings (loss) per share $ 0.10 0.20 (0.06) 0.09 _________________________________________________________________________________________ Average shares 28.5 28.8 28.9 31.7 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as explained in "Notes to Consolidated Financial Statements" as follows: 1994 - see Notes 2, 3 and 5. 1993 - see Notes 3, 6, 7, 11 and 12.
Independent Auditors' Report The Partners MaraLou Netherlands Partnership: We have audited the accompanying consolidated balance sheets of MaraLou Netherlands Partnership and subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of MaraLou Netherlands Partnership and subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in note 4 to the consolidated financial statements, the Partnership adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" in 1993. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Houston, Texas February 8, 1995 MARALOU NETHERLANDS PARTNERSHIP Consolidated Balance Sheets December 31, 1994 and 1993 (Expressed in U.S. Dollars)
ASSETS 1994 1993 Current assets: Cash and cash equivalents $ 4,120,901 $ 11,476,689 Accounts receivable 15,596,130 12,538,332 Accounts receivable - net profits 385,371 327,160 Income tax receivable 3,708,460 3,553,873 Materials and supplies 197,812 6,910 Other current assets 6,606 51,913 Total current assets 24,015,280 27,954,877 Long-term receivable 5,774,218 5,619,856 Property, plant and equipment, at cost, based on the successful efforts method of accounting for oil and gas properties 370,624,832 349,664,531 Less accumulated depletion, amortization and depreciation 201,248,670 184,677,406 Net property, plant and equipment 169,376,162 164,987,125 Deferred charges 182,991 249,523 $ 199,348,651 $ 198,811,381 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliated companies $ 63,109 $ 63,960 Accrued liabilities 11,188,175 8,912,609 Amounts due to operator of joint venture 1,315,712 3,667,149 Government royalties payable 1,387,035 1,408,245 Income taxes payable 1,893,523 16,170,883 Total current liabilities 15,847,554 30,222,846 Long-term debt 96,000,000 87,800,000 Deferred income taxes 28,725,590 18,772,886 Deferred liability - platform abandonment 21,011,173 20,432,039 Minority interest 2,263,549 2,229,013 Partners' capital: Marathon Petroleum Netherlands, Ltd. 10,748,498 12,675,404 LL&E (Netherlands), Inc. 10,748,498 12,675,404 Foreign currency translation adjustment 14,003,789 14,003,789 Total partners' capital 35,500,785 39,354,597 $ 199,348,651 $ 198,811,381 See accompanying notes to consolidated financial statements. /TABLE MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992 (Expressed in U.S. Dollars)
1994 1993 1992 Revenues: Sales $ 68,663,916 $ 61,152,082 $ 82,902,883 Interest income 1,259,380 4,465,502 2,722,500 Total revenues 69,923,296 65,617,584 85,625,383 Costs and expenses: Costs and operating expenses 11,079,073 12,349,387 17,514,115 Exploration expenses, including dry hole costs 4,344,427 3,336,263 3,981,650 Depletion, amortization and depreciation 16,571,265 14,100,833 15,424,731 General and administrative expenses 5,691,285 4,950,135 5,522,838 Royalty expense 996,651 960,585 2,419,101 Net profits interest 96,232 336,356 1,202,888 Interest expense 5,467,221 7,222,385 7,983,685 Foreign exchange loss/(gain) 543,705 (763,957) (53,951) Reimbursement of exploration costs, including interest - - 263,056 Total costs and expenses 44,789,859 42,491,987 54,258,113 Income before income taxes 25,133,437 23,125,597 31,367,270 Provision for income taxes 16,940,713 12,192,472 17,524,381 Income after income taxes 8,192,724 10,933,125 13,842,889 Minority interest 1,126,536 797,688 1,665,693 Income before cumulative effect of change in accounting principle 7,066,188 10,135,437 12,177,196 Cumulative effect of change in accounting principle for income taxes - 6,003,589 - Net income $ 7,066,188 $ 4,131,848 $ 12,177,196 See accompanying notes to consolidated financial statements.
MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Partners' Capital Years Ended December 31, 1994, 1993 and 1992 (Expressed in U.S. Dollars)
Marathon Petroleum L.L.&E. Netherlands, Inc. (Netherlands), Inc. Total Capital, January 1, 1994 $12,675,404 $12,675,404 $25,350,808 Net income 3,533,094 3,533,094 7,066,188 Distribution to Partners (5,460,000) (5,460,000) (10,920,000) Capital before adjustments $10,748,498 $10,748,498 21,496,996 Foreign currency translation adjustment 14,003,789 Capital, December 31, 1994 $35,500,785
Marathon Petroleum L.L.&E. Netherlands, Inc. (Netherlands), Inc. Total Capital, January 1, 1993 $19,709,480 $19,709,480 $39,418,960 Net income 2,065,924 2,065,924 4,131,848 Distribution to Partners (9,100,000) (9,100,000) (18,200,000) Capital before adjustments $12,675,404 $12,675,404 $25,350,808 Foreign currency translation adjustment 14,003,789 Capital, December 31, 1993 $39,354,597
(Continued) MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Partners' Capital (Continued) Years Ended December 31, 1994, 1993 and 1992 (Expressed in U.S. Dollars)
Marathon Petroleum L.L.&E. Netherlands, Inc. (Netherlands), Inc. Total Capital, January 1, 1992 $20,470,882 $20,470,882 $ 40,941,764 Net income 6,088,598 6,088,598 12,177,196 Distribution to Partners (6,850,000) (6,850,000) (13,700,000) Capital before adjustments $19,709,480 $19,709,480 39,418,960 Foreign currency translation adjustment 14,003,789 Capital, December 31, 1992 $ 53,422,749 See accompanying notes to consolidated financial statements. /TABLE MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992 (Expressed in U.S. Dollars)
1994 1993 1992 Cash flows from operating activities: Net income accruing to MaraLou partners $ 7,066,188 $ 4,131,848 $ 12,177,196 Net (loss)/income accruing to minority shareholders, net of cash distributions 34,536 (1,022,312) 295,694 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, amortization, depreciation and abandonment 16,571,265 14,100,833 16,280,290 Dry hole costs 3,860,175 1,892,456 2,523,479 Deferred income taxes 9,021,323 (7,951,542) 2,511,807 Exchange loss (gain) 374,213 (175,868) (127,738) Interest on EBN repayment 281,812 665,428 1,076,991 Cumulative effect of change in accounting principle - 6,003,589 - Decrease (increase) in accounts receivable (2,041,325) 2,175,071 943,544 Increase in accounts receivable - net profits (19,222) (326,001) - Decrease (increase) in materials and supplies (190,902) (65) 69 Decrease (increase) in other current assets 206,155 (161,390) (380,539) Decrease (increase) in deferred charges 64,096 18,201 (240,457) (Decrease) increase in accounts payable-affiliates (3,255) (6,535) 5,077 (Decrease) increase in accounts payable-net profits - (228,091) 20,517 Increase (decrease) in accrued liabilities 1,483,332 677,612 (123,115) Increase (decrease) in amounts due to operator of joint venture (2,558,160) 4,676,131 (2,462,784) (Decrease) increase in government royalties payable (131,600) (865,267) (869,050) (Decrease) increase in income taxes payable (15,179,834) 8,415,273 (3,489,638) Net cash provided by operating activities $ 18,838,797 $ 32,019,371 $ 28,141,343 Cash flows from investing activities: Capital expenditures $ (24,241,343)$ (9,973,617) $(20,034,768) Net cash used in investing activities (24,241,343) (9,973,617) (20,034,768)
(Continued) MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 1994, 1993 and 1992 (Expressed in U.S. Dollars)
1994 1993 1992 Cash flows from financing activities: Borrowing under revolving credit agreement $ 8,200,000 $ - $ - Repayments under revolving credit agreement - (10,000,000) (6,000,000) Reduction of note receivable by minority shareholders in CLAM - - 5,629,000 Cash distribution to partners (10,920,000) (18,200,000) (13,700,000) Net cash used in financing activities (2,720,000) (28,200,000) (14,071,000) Effect of exchange rate on cash 766,758 (854,829) 1,010,031 Net decrease in cash and cash equivalents (7,355,788) (7,009,075) (4,954,394) Cash and cash equivalents at beginning of year $ 11,476,689 $ 18,485,764 $ 23,440,158 Cash and cash equivalents at end of year $ 4,120,901 $ 11,476,689 $ 18,485,764 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 4,487,259 $ 5,543,844 $ 5,224,193 Foreign taxes 23,621,088 13,746,175 17,125,660 Federal taxes (518,116) (1,155,157) 2,345,247 Supplemental schedule of noncash investing and financing activities: Long-term receivable for EBN reimbursement $ 154,362 $ (321,870) $ 1,327,240 Accrued liability established for repayment to EBN (732,141) (191,527) (2,334,052) See accompanying notes to consolidated financial statements.
MARALOU NETHERLANDS PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992 1. Organization and summary of significant accounting policies Organization and ownership: MaraLou Netherlands Partnership (MaraLou), a Texas general partnership, was formed on March 27, 1985 by LL&E (Netherlands), Inc. (LL&E Netherlands) and Marathon Petroleum Netherlands, Ltd. (Marathon Netherlands) for the purpose of owning their interests in CLAM Petroleum Company (CLAM) and for the purpose of purchasing the outstanding shares of CLAM held by Netherlands-Cities Services, Inc. On March 27, 1985 both partners agreed to contribute their respective ten thousand shares of CLAM to MaraLou. These shares were transferred to MaraLou on June 21, 1985. The remaining shares held by Netherlands-Cities Services, Inc. were acquired by MaraLou for $85,381,881 on March 29, 1985. The acquisition has been accounted for using the purchase method of accounting effective January 1, 1985. On December 6, 1991 an agreement was concluded whereby LL&E Netherlands Petroleum Company, an affiliated company to LL&E Netherlands - both of which are wholly owned subsidiaries of The Louisiana Land and Exploration Company, contributed Netherlands North Sea license interests and other assets valued at $11,629,000 for five hundred newly issued shares of CLAM stock. For financial reporting purposes, the contribution made by LL&E Netherlands Petroleum Company in excess of its calculated minority interest is reflected in Partners' capital as an addition to the LL&E Netherlands capital balance. MaraLou made a cash contribution of $11,629,000 for an additional five hundred newly issued shares of CLAM stock. The contributed cash is to be used to develop the North Sea license interest contributed by LL&E Netherlands Petroleum Company. MaraLou subsequently sold all of its newly issued shares of CLAM stock to Marathon Netherlands, a partner in MaraLou, which purchased the shares with a note valued at $11,629,000, on which $6,000,000 was paid in 1991 and $6,000,000, inclusive of interest, was paid in 1992. These newly issued shares of CLAM stock have been pledged as security for MaraLou and CLAM's revolving credit agreement (see Note 6). CLAM Petroleum Company, a Delaware Corporation, was formed in October 1975 by LL&E Netherlands, Marathon Netherlands and Netherlands-Cities Service, Inc. (stockholders) for the purpose of owning their interest in certain licenses and agreements covering hydrocarbon operations in The Netherlands and for the purpose of entering into agreements with lending institutions to finance such interest. Effective May 24, 1976 the stockholders assigned their interests and obligations under the licenses and related agreements to CLAM. CLAM has no operations outside the oil and gas industry or in areas other than The Netherlands North Sea. The financial statements reflect the consolidation of CLAM Petroleum Company (the Company) with MaraLou for the period from January 1, 1985. The financial statements also reflect the interests and earnings of the minority shareholders, LL&E Netherlands Petroleum Company and Marathon Netherlands. Currently, MaraLou has no interests other than in the operation of CLAM. Cash equivalents: Cash equivalents of $-0-, $11,133,745 and $18,721,023 at December 31, 1994, 1993 and 1992, respectively, consist of Eurodollar and Euroguilder investments. For purposes of the statements of cash flows, MaraLou considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Joint venture agreements: CLAM, together with unrelated parties, has interests in certain prospecting and production licenses and related operating agreements which provide for the joint conduct of seismic, geological, exploration and development activities on the continental shelf of The Netherlands. The accompanying financial statements include CLAM's share of operations as reported to it by the operator of the joint venture. The amounts reported by the operator of the joint venture are subject to an annual audit by the non-operators. The audit for the year 1993 has been conducted with the non-operators awaiting the operator's initial response to the audit report. Petroleum exploration and development costs: CLAM follows the successful efforts method of accounting for oil and gas properties. Exploration expenses, including geological and geophysical costs, prospecting costs, carrying costs and exploratory dry hole costs are charged against income as incurred. The acquisition costs of unproved properties are capitalized with appropriate provision for impairment based upon periodic assessments of such properties. All development costs, including development dry hole costs, are capitalized. Capitalized costs are adjusted annually for cash adjustments relating to changes in CLAM's share in gas reserve estimates (see Note 7). Depletion, amortization and depreciation: Depletion is provided under the unit-of-production method based upon estimates of proved-developed reserves. Depreciation is based on estimated useful life. Reserve determinations are management's best estimates and generally are related to economic and operating conditions. Depletion and depreciation rates are adjusted for future estimated salvage values. CLAM property, plant and equipment retirements: Upon sale or retirement of property, plant and equipment, the cost and related accumulated depletion, amortization and depreciation are eliminated from the accounts and the gain or loss is reflected in income. CLAM platform abandonment amortization: Platform abandonment amortization is provided under the unit- of-production method based upon estimates of proved-developed reserves. Amortization rates are adjusted for future estimated abandonment costs. Platform abandonment amortization is charged to operating expense. 2. Related party transactions CLAM transactions with related parties consisted of charges for geological, geophysical and administrative services rendered by an affiliate under two service contracts and administrative services rendered by another affilate. Such charges were approximately $2,183,002, $2,512,536 and $2,530,608 for 1994, 1993 and 1992, respectively. Salaries and related social charges included therein amounted to $1,449,062, $1,685,046 and $1,858,876 for 1994, 1993 and 1992, respectively. MaraLou transactions with related parties consisted of charges for administrative services rendered by an affiliate amounting to $59,880, $55,800 and $58,200 in 1994, 1993 and 1992, respectively. 3. Property, plant and equipment Changes in property, plant and equipment for the years ended December 31, 1994, 1993 and 1992 are as follows (in thousands of U.S. dollars): Balance Additions Dry Hole Balance 12/31/93 (Reductions) Costs 12/31/94 Concession $ 11,678 $ (3,403) $ - $ 8,275 Wells and platforms 262,139 18,689 - 280,828 Incomplete construction 3,278 2,448 - 5,726 Uncompleted wells 17,640 (1,482) 122 16,280 Pipelines 48,439 3,431 - 51,870 Gas processing facilities 5,374 1,145 - 6,519 Furniture and fixtures 1,116 11 - 1,127 $ 349,664 $ 20,839 $ 122 $ 370,625 Depletion and amortization $ 183,645 $ 16,499 $ - $ 200,144 Depreciation-furniture and fixtures 1,032 73 - 1,105 $ 184,677 $ 16,572 $ - $ 201,249 Net property, plant and equipment $ 164,987 $ 169,376
Balance Additions Dry Hole Balance 12/31/92 (Reductions) Costs 12/31/93 Concession $ 12,231 $ (553) $ - $ 11,678 Well and platforms 246,086 16,053 - 262,139 Incomplete construction 11,985 (8,707) - 3,278 Uncompleted wells 17,245 1,720 (1,325) 17,640 Pipelines 48,403 36 - 48,439 Gas processing facilities 3,952 1,422 - 5,374 Furniture and fixtures 1,113 3 - 1,116 $ 341,015 $ 9,974 $ (1,325) $ 349,664 Depletion and amortization $ 169,631 $ 14,014 $ - $ 183,645 Depreciation-furniture and fixtures 945 87 - 1,032 $ 170,576 $ 14,101 $ - $ 184,677 Net property, plant and equipment $ 170,439 $ 164,987
Balance Additions Dry Hole Balance 12/31/91 (Reductions) Costs 12/31/92 Concession $ 12,231 $ - $ - $ 12,231 Wells and platforms 233,339 12,747 - 246,086 Incomplete construction 15,039 (3,054) - 11,985 Uncompleted wells 15,228 4,540 (2,523) 17,245 Pipelines 42,847 5,556 - 48,403 Gas processing facilities 3,751 201 - 3,952 Furniture and fixtures 1,070 43 - 1,113 $ 323,505 $ 20,033 $ (2,523) $ 341,015 Depletion and amortization $ 154,292 $ 15,339 $ - $ 169,631 Depreciation-furniture and fixtures 860 85 - 945 $ 155,152 $ 15,424 $ - $ 170,576 Net property, plant and equipment $ 168,353 $ 170,439
4. Federal and foreign income taxes MaraLou is a partnership and, therefore, does not pay income taxes. Since CLAM (wholly owned by MaraLou) is a corporation, income taxes included in the accompanying consolidated financial statements have been determined utilizing applicable domestic and foreign tax rates. The FASB has issued Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" which superseded SFAS No. 96, "Accounting for Income Taxes." SFAS 109 was adopted on January 1, 1993 and requires a change from the deferred method of accounting for income taxes to the asset and liability method. Under the new method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to those years in which the temporary differences between financial statement carrying amounts and tax bases are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change is enacted. Dutch investment incentive premiums (WIR) are credited to foreign income tax in the year in which they are claimed. CLAM incurred WIR premium expense of $301,355, $60,331 and $371,771 in 1994, 1993 and 1992, respectively. Details of federal and foreign income taxes (in thousands of U.S. dollars) are as follows:
1994 1993 1992 Current tax expense: Federal $ (860) $ (2,471) $ 1,063 Foreign 8,779 22,615 13,950 Deferred tax expense (benefit): Federal 2,673 (2,544) (2,800) Foreign 6,349 (5,408) 5,311 Total provision for income taxes $16,941 $ 12,192 $17,524
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35% for 1994 and 1993 and 34% for 1992, respectively, to income before income taxes of CLAM as a result of the following (in thousands of U.S. dollars):
1994 1993 1992 Computed "expected" tax expense $ 10,267 $ 9,440 $12,188 Increase (reduction) in income taxes resulting from: Foreign tax greater than federal income tax 4,178 (10,024) 2,668 Increase in deferred tax valuation allowance 2,852 12,152 2,328 Other (356) 624 340 Provision for income taxes $ 16,941 $ 12,192 $17,524
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and 1993 relate to the following (in thousands of U.S. dollars):
U.S. - Deferred 1994 1993 Deferred Tax Assets: Foreign tax credit carryover $ - $ 3,805 Benefit for foreign deferred taxes 13,415 6,199 Abandonment accrual 7,354 7,151 Valuation allowance (14,281) (8,860) Total deferred tax assets $ 6,488 $ 8,295 Deferred Tax Liabilities: Property, plant and equipment differences in depreciation and amortization $21,798 $ 20,932 Total deferred tax liabilities $21,798 $ 20,932 Total U.S. - deferred $15,310 $ 12,637
Foreign State Profit Share - Deferred 1994 1993 Deferred Tax Assets: Abandonment accrual $ 2,809 $ 4,769 Morgan loan currency revaluation 270 5,287 Valuation allowance (723) (3,292) Total deferred tax assets $ 2,356 $ 6,764 Deferred Tax Liabilities: Property, plant and equipment differences in depreciation and amortization $15,771 $ 12,899 Total deferred tax liabilities $15,771 $ 12,899 Total Foreign State Profit Share - deferred $13,415 $ 6,135
The Company's 1994 and 1993 current tax liability was determined on a regular tax basis. A minimum tax carryforward of $339,175 remains at December 31, 1994. 5. CLAM foreign currency translation adjustment As of January 1, 1983 CLAM adopted Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" (SFAS No. 52), under which the functional currency is deemed to be the Dutch guilder. Effective January 1, 1987 CLAM changed its functional currency from the Dutch guilder to the U.S. dollar. The change was precipitated by the significant effect on CLAM's operation of a new dollar-driven gas sales contract which was effective January 1, 1987 and the Tax Reform Act of 1986. In accordance with SFAS No 52, there is no restatement of prior years' financial statements and the translated amounts for nonmonetary assets as of December 31, 1986 have become the accounting basis for those assets in the year of the change. 6. Debt On July 25, 1985 MaraLou and CLAM entered into a revolving credit agreement, which was amended and restated as of June 19, 1992, with a syndicate of major international banks to fund the purchase by MaraLou of CLAM shares previously owned by Netherlands-Cities Service, Inc. and to provide working capital for CLAM. The banks' total commitment as of December 31, 1994 and December 31, 1993 was $110,000,000. Interest is paid, at the borrower's option, based on the prime rate, the London Interbank Offered Rate (LIBOR), or an adjusted CD rate. A contractual margin is added to LIBOR and CD based borrowings. The all-in interest rates for CLAM for December 31, 1994 and December 31, 1993 were 6.9375% and 3.9375%, respectively. During the revolving credit period, the borrowers are obligated to pay a commitment fee of 1/4% on the unused committed portion of the facility. All of the CLAM common stock held by MaraLou has been pledged as security for the facility. In addition, under certain circumstances MaraLou can exercise an option to purchase the shares held by LL&E Netherlands Petroleum Company and Marathon Petroleum Netherlands, Ltd. for a nominal amount. The option agreement has been assigned to the banks as security for the facility. The credit agreement permits CLAM and MaraLou to incur total debt up to an agreed borrowing base which at December 31, 1994 and December 31, 1993 was $132,000,000 and $145,000,000. The agreement provides that the borrowing base is reduced periodically over the term of the facilty which is currently scheduled to expire on December 31, 2000. The borrowing base and the scheduled reductions may be adjusted based on a redetermination of the net present value of the projections of certain cash flows included in an Engineering Report prepared by petroleum engineers. The outstanding balances for MaraLou and CLAM, respectively, were $-0- and $96,000,000, at December 31, 1994 of which $-0- was due within one year. The outstanding balances for MaraLou and CLAM, respectively, were $-0- and $87,800,000 at December 31, 1993. At December 31, 1994, the required reductions to the borrowing base in each of the next five years are $-0- in 1995, $-0- in 1996, $8,000,000 in 1997, $29,000,000 in 1998, $30,000,000 in 1999 and $29,000,000 in 2000. CLAM has an unsecured combined short-term loan and overdraft facility of Dfl. 80,000,000 ($46,101,539 at year-end exchange rate). On December 31, 1994 and December 31, 1993 the outstanding balances relating to this facility were $-0-. Interest rates are determined at the time borrowings are made. 7. Annual evaluation of gas reserves Under the provisions of the Joint Development Operating Agreement to which CLAM is a party, an annual estimate of gas reserves is to be made and agreed upon by the Area Management Committee. Based upon such estimate, each participant's investment in the area properties, as defined, is to be adjusted so that a participant's investment is in proportion to its interest in the remaining reserves. Adjustments to the investments are made in cash in the year following the date the reserve revision is agreed upon. In 1992, the Area Management Committee agreed to freeze each participant's interest through 1994, at the level agreed upon in 1992. However, in 1994 new entitlements were agreed upon, effective January 1, 1994. CLAM made a cash payment of $15,382,204 to equalize past investment. New entitlement estimates will be agreed upon in 1995. 8. Reserves of oil and gas (unaudited) CLAM's share of proven gas reserves at January 1, 1995 and 1994 are 261,990 MMCF and 317,737 MMCF, respectively. 9. Major customer CLAM has one major customer from which it derives 97% of its sales revenue. CLAM was required under its production license to offer its production first to this customer, which is partially owned by The Netherlands government. Production is sold to this customer under five contracts representing various partnership interests and gas qualities. 10. Net profits interest agreement CLAM entered into an agreement dated November 1, 1981 which requires CLAM to pay a portion of its net profits ("net profits interest") to an unrelated party in exchange for a 7-1/2% participation interest in certain blocks. The "net profits interest" is equal to one twenty-fourth (1/24) of CLAM's revenues from the contract area, after various deductions, as defined in the agreement. 11. Issuance of production licenses In March 1990, a production license was granted by the Minister of Economics Affairs of the Netherlands covering the L12a and L12b/L15b blocks. As a result, the Dutch Government, through Energie Beheer Nederland (EBN) (a Dutch company wholly owned by the Dutch Government) exercised its option to participate 40% in the L12a block and 50% in the L12b/L15b block. CLAM was subsequently reimbursed $10,628,572 during 1990, all of which was included in income because there were costs associated with these blocks which had been written-off in prior years. Components of the reimbursement were: Exploration well cost (previously written off as dry wells) $ 5,595,076 Exploration administrative expense 1,818,220 Interest 3,215,276 Total reimbursement $10,628,572 In 1991, it was determined that the portion of the above noted reimbursement allocable to trapping unit L12-FC, within blocks L12b/L15b, would be refunded to EBN as production on this trapping unit is not expected to commence within the 48-month requirement stipulated by the contractual agreement with EBN (the Agreement). The refundable amount, which CLAM expected to repay in 1994, was recorded as a long-term receivable of $3.6 million, interest expense of $1.5 million and an accrued liability of $5.1 million. The Agreement calls for EBN to reimburse the funds to CLAM net of interest upon first production from trapping unit L12-FC, which is expected to occur in 1997. In 1992, it was determined that the portion of the above noted reimbursement allocable to trapping units L12-FA and L12-FB, within blocks L12a and L12b/L15b, would be refunded to EBN as production on these trapping units are not expected to commence within the 48-month requirement stipulated by the Agreement. The refundable amount for L12-FA and L12-FB, which CLAM expected to repay in 1994, was recorded as a long-term receivable of $0.5 and $1.6 million, respectively, interest expense $0.2 million and $0.6 million, respectively and an accrued liability of $0.7 million and $2.2 million, respectively. The Agreement calls for EBN to reimburse the respective funds to CLAM net of interest upon first production from trapping units L12-FA and L12-FB, which is expected to occur in 2000 and 1998, respectively. In 1994, the contractual agreement with EBN (the Agreement) was renegotiated with the result being that the refundable amounts for the L12-FB and L12-FC trapping units will have to be repaid by December 31, 1999 unless production has commenced prior to this date. Additionally, it was agreed there is no repayment obligation for the L12-FA trapping unit, and resulting in a reversal of the associated long-term receivable, interest expense and accrued liability. 12. Disclosures about fair value of financial instruments Cash and Cash Equivalents, Receivables, Due from Operator of Joint Venture, Due to Affiliated Company, Accounts Payable, and Due to Operator of Joint Venture - The carrying amount approximates fair value because of the short maturity of these instruments. Long-Term Receivable - The estimated fair value of the Company's long-term receivable is as follows (in thousands of U.S. dollars): At December 31, 1994 Carrying Estimated Amount Fair Value Long-term receivable $5,774 $3,631 The fair value of the long-term receivable was based on discounted cash flows. Long-Term Debt Due to Banks - The carrying amount approximates fair value because of the variable rate of interest associated with this debt. Derivatives - MaraLou has no derivative financial instruments. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information relating to directors of the Registrant will be contained in the definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 11, 1995, which the Registrant will file pursuant to Regulation 14A not later than 120 days after December 31, 1994, and such information is incorporated herein by reference in accordance with General Instruction G(3) of Form 10-K. Information relating to executive officers of the Registrant appears at page 25 of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Information relating to the compensation of the Registrant's executive officers and directors will be contained in the definitive Proxy Statement referred to above in Item 10. - "Directors and Executive Officers of the Registrant," and such information is incorporated herein by reference in accordance with General Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to beneficial ownership of securities will be contained in the definitive Proxy Statement referred to above in Item 10. - "Directors and Executive Officers of the Registrant," and such information is incorporated herein by reference in accordance with General Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to transactions with management and others and certain business relationships regarding directors will be contained in the definitive Proxy Statement referred to above in Item 10. - "Directors and Executive Officers of the Registrant," and such information is incorporated herein by reference in accordance with General Instruction G(3) of Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMS 8-K. (a)(1) Financial Statements - the information required hereunder is included in Item 8. - "Financial Statements and Supplementary Data." (a)(2) Financial Statement Schedules - all financial statement schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (a)(3) Index to Exhibits - the information required hereunder is included herein. (b) Reports on Form 8-K - no reports on Form 8-K were filed during the quarter ended December 31, 1994. THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits The following Exhibits have been filed with the Securities and Exchange Commission: Exhibit 3(a) Certificate of Incorporation (Incorporated by reference to Exhibit 1-3(a) to the Registrant's Registration Statement No. 2-45541 on Form S-1.); Articles Supplementary pursuant to Section 3- 603(d)(4) of the Maryland General Corporation Law (Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1983 - Commission File No. 1-959.); Articles of Amendment of Charter dated May 30, 1985 (Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1985 - Commission File No. 1-959.); Articles of Amendment of Charter dated May 12, 1988 (Incorporated by reference to Exhibit 3(c) to the Registrant's Form 8 dated April 24, 1989 - Commission File No. 1-959.). Exhibit 3(b) By-Laws (Incorporated by reference to Exhibit (1) to the Registrant's Current Report on Form 8-K dated October 1, 1989 - Commission File No. 1- 959.). Exhibit 4(a) Rights Agreement dated as of May 25, 1986 among the Registrant and The Bank of New York (as Rights Agent) - (Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated May 25, 1986 - Commission File No. 1-959.). Exhibit 4(b) Indenture dated as of June 15, 1992 among the Registrant and Texas Commerce Bank National Association (as Trustee) - (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-50991 on Form S-3, as amended.). Exhibit 10(a) Form of Termination Agreement with Senior Management Personnel (Incorporated by reference to Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(b) The Louisiana Land and Exploration Company 1982 Stock Option Plan as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 26, 1982.) and the amendment thereto dated December 8, 1982 (Incorporated by reference to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). Exhibit 10(c) The Louisiana Land and Exploration Company 1988 Long-Term Stock Incentive Plan as amended (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 22, 1993.). Exhibit 10(d) Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). Exhibit 10(e) Pension Agreement dated December 27, 1994. Exhibit 10(f) The Louisiana Land and Exploration Company 1990 Stock Option Plan for Non-Employee Directors as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 26, 1990.). Exhibit 10(g) Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Incorporated by reference to Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 - Commission File No. 1-959.). Exhibit 10(h) Retirement Plan for Directors of The Louisiana Land and Exploration Company dated March 1, 1987 (Incorporated by reference to Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(i) The LL&E Special Termination Benefit Plan (Incorporated by reference to Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(j) The LL&E Supplemental Excess Plan (Incorporated by reference to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(k) Form of Compensatory Benefits Agreement (Incorporated by reference to Exhibit 10(l) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(l) Amended and Restated Credit Agreement dated as of August 19, 1994 (the Credit Agreement) among the Registrant, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents. Exhibit 10(m) Amendment No. 1 to the Credit Agreement dated as of January 23, 1995 among the Registrant, the Banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Exhibit 11 Computation of Primary and Fully Diluted Earnings (Loss) Per Share. Exhibit 21 Subsidiaries of the Registrant. Exhibit 23 Consent of Experts. Exhibit 24 Powers of Attorney. Exhibit 27 Financial Data Schedule. Certain debt instruments have not been filed. The Company agrees to furnish a copy of such agreement(s) to the Commission upon request. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE LOUISIANA LAND AND EXPLORATION COMPANY (Registrant) Date: March 9, 1995 By /s/ Frederick J. Plaeger, II __________________________________ Frederick J. Plaeger, II General Counsel and Corporate Secretary 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. Date: March 9, 1995 *H. Leighton Steward _____________________________________ H. Leighton Steward Director, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: March 9, 1995 *Leland C. Adams _____________________________________ Leland C. Adams Director Date: March 9, 1995 *Richard A. Bachmann _____________________________________ Richard A. Bachmann Director, Executive Vice President, Finance and Administration (Principal Financial Officer) Date: March 9, 1995 *John F. Greene _____________________________________ John F. Greene Director, Executive Vice President, Exploration and Production Date: March 9, 1995 *Eamon M. Kelly _____________________________________ Eamon M. Kelly Director Date: March 9, 1995 *Kenneth W. Orce _____________________________________ Kenneth W. Orce Director Date: March 9, 1995 *Victor A. Rice _____________________________________ Victor A. Rice Director Date: March 9, 1995 *Orin R. Smith _____________________________________ Orin R. Smith Director Date: March 9, 1995 *Arthur R. Taylor _____________________________________ Arthur R. Taylor Director Date: March 9, 1995 *W. R. Timken, Jr. _____________________________________ W. R. Timken, Jr. Director Date: March 9, 1995 *Carlisle A.H. Trost _____________________________________ Carlisle A.H. Trost Director Date: March 9, 1995 *E. L. Williamson _____________________________________ E. L. Williamson Director Date: March 9, 1995 *Jerry D. Carlisle _____________________________________ Jerry D. Carlisle Vice President and Controller (Principal Accounting Officer) */s/ Frederick J. Plaeger, II _________________________________________ Frederick J. Plaeger, II General Counsel and Corporate Secretary (As attorney-in-fact for each of the persons indicated) ________________________________________________________________ ________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 __________________________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 __________________________ THE LOUISIANA LAND AND EXPLORATION COMPANY (Exact name of registrant as specified in its charter) EXHIBITS ________________________________________________________________ ________________________________________________________________ THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits (Item 14(a)(3)) The following Exhibits have been filed with the Securities and Exchange Commission: Exhibit 3(a) Certificate of Incorporation (Incorporated by reference to Exhibit 1-3(a) to the Registrant's Registration Statement No. 2-45541 on Form S-1.); Articles Supplementary pursuant to Section 3- 603(d)(4) of the Maryland General Corporation Law (Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1983 - Commission File No. 1-959.); Articles of Amendment of Charter dated May 30, 1985 (Incorporated by reference to Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1985 - Commission File No. 1-959.); Articles of Amendment of Charter dated May 12, 1988 (Incorporated by reference to Exhibit 3(c) to the Registrant's Form 8 dated April 24, 1989 - Commission File No. 1-959.). Exhibit 3(b) By-Laws (Incorporated by reference to Exhibit (1) to the Registrant's Current Report on Form 8-K dated October 1, 1989 - Commission File No. 1- 959.). Exhibit 4(a) Rights Agreement dated as of May 25, 1986 among the Registrant and The Bank of New York (as Rights Agent) - (Incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated May 25, 1986 - Commission File No. 1-959.). Exhibit 4(b) Indenture dated as of June 15, 1992 among the Registrant and Texas Commerce Bank National Association (as Trustee) - (Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-50991 on Form S-3, as amended.). Exhibit 10(a) Form of Termination Agreement with Senior Management Personnel (Incorporated by reference to Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits (continued) (Item 14(a)(3)) Exhibit 10(b) The Louisiana Land and Exploration Company 1982 Stock Option Plan as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 26, 1982.) and the amendment thereto dated December 8, 1982 (Incorporated by reference to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). Exhibit 10(c) The Louisiana Land and Exploration Company 1988 Long-Term Stock Incentive Plan as amended (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 22, 1993.). Exhibit 10(d) Deferred Compensation Plan for Directors (Incorporated by reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1982 - Commission File No. 1-959.). Exhibit 10(e) Pension Agreement dated December 27, 1994. Exhibit 10(f) The Louisiana Land and Exploration Company 1990 Stock Option Plan for Non-Employee Directors as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 26, 1990.). Exhibit 10(g) Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Incorporated by reference to Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 - Commission File No. 1-959.). Exhibit 10(h) Retirement Plan for Directors of The Louisiana Land and Exploration Company dated March 1, 1987 (Incorporated by reference to Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits (continued) (Item 14(a)(3)) Exhibit 10(i) The LL&E Special Termination Benefit Plan (Incorporated by reference to Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(j) The LL&E Supplemental Excess Plan (Incorporated by reference to Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(k) Form of Compensatory Benefits Agreement (Incorporated by reference to Exhibit 10(l) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 - Commission File No. 1-959.). Exhibit 10(l) Amended and Restated Credit Agreement dated as of August 19, 1994 (the Credit Agreement) among the Registrant, the Banks listed therein, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents. Exhibit 10(m) Amendment No. 1 to the Credit Agreement dated as of January 23, 1995 among the Registrant, the Banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Exhibit 11 Computation of Primary and Fully Diluted Earnings (Loss) Per Share. Exhibit 21 Subsidiaries of the Registrant. Exhibit 23 Consent of Experts. Exhibit 24 Powers of Attorney. Exhibit 27 Financial Data Schedule. Certain debt instruments have not been filed. The Company agrees to furnish a copy of such agreement(s) to the Commission upon request. EX-10 2 EXHIBIT 10(e) Exhibit 10(e) December 27, 1994 Mr. H. Leighton Steward Chairman of the Board, President and Chief Executive Officer The Louisiana Land and Exploration Company 909 Poydras Street New Orleans, Louisiana 70112 Dear Mr. Steward: This letter will confirm our agreement relating to the payment to you of certain supplemental pension benefits to which The Louisiana Land and Exploration (the "Company") has agreed in order to induce you to remain in the employment of the Company. The terms of the agreement are as follows: 1. You shall be entitled to participate in The LL&E Pension Plan, the Compensatory Benefits Agreement, and The LL&E Supplemental Excess Plan (collectively, the "Pension Plans") to the full extent permissible under the terms of the Pension Plans. 2. If your employment with the Company terminates for any reason (including, without limitation, by reason of retirement, death or termination for any reason), you will be entitled to receive the benefits that would have been provided under the Pension Plans calculated as if you had been employed by the Company from December 3, 1962 (including, without limitation, any early retirement benefits to which you would have been entitled if your employment by the Company had commenced on December 3, 1962), less the actuarial value of any benefits which you are eligible to receive under the terms of any defined benefit pension plan of Shell Oil Company. Any amount payable to you in accordance with the foregoing shall be distributable therefrom (in the form and manner determined pursuant to the terms of the respective Pension Plans), and the balance shall be paid to you directly by the Company in the form and manner determined pursuant to Appendix A hereto. The terms of the agreement set forth herein are the result of negotiations between the Company and you and reflect the desire of both parties to fix irrevocably the form of payment of pension benefits not payable under the Pension Plans and their mutual agreement to the form of payment set forth in Appendix A. This letter supersedes the letters from us to you dated August 6, 1982 and November 10, 1988, setting forth the terms of our prior agreements to provide certain supplemental pension benefits to you in connection with your employment with the Company, and such earlier agreements are hereby revoked. This letter is being executed in duplicate. If you are in agreement with the terms hereof, please execute both copies and return one copy to the Secretary of the Company. Very truly yours, THE LOUISIANA LAND AND EXPLORATION COMPANY BY: /s/Arthur R. Taylor _______________________________ Arthur R. Taylor The undersigned hereby agrees (i) to the revocation of the prior agreements dated August 6, 1982 and November 10, 1988, and (ii) to the terms of the agreement set forth herein. BY: /s/H. Leighton Steward _______________________________ H. Leighton Steward December 27, 1994 Date APPENDIX A 1. Upon the termination of your employment for any reason other than death, the Benefit Committee of the Company (the "Committee") shall calculate a dollar amount equal to: (i) the actuarial value of the benefits that would have been provided under the Pension Plans calculated as if you had been employed by the Company from December 3, 1962 (including, without limitation, any early retirement benefits to which you would have been entitled if your employment by the Company had commenced on December 3,1962), reduced by (ii) the sum of (A) the actuarial value of any benefits which you are eligible to receive under the terms of any defined benefit pension plan of Shell Oil Company and (B) the actuarial value of the benefits actually payable to you from the Pension Plans. The foregoing actuarial values shall be determined on the basis of the Actuarial Equivalent factors specified in The LL&E Pension Plan as of the date of termination of your employment. 2. The Company shall establish on its books an account (the "Account") for you and shall credit to the Account promptly upon termination of your employment for any reason other than death the dollar amount determined pursuant to Section 1 above. Additional amounts shall be credited to or deducted from your Account as described in the following provisions of this Section 2 until your Account has been distributed in full hereunder. As of each Quarterly Valuation Date (March 31, June 30, September 30, December 31), there shall be credited to or deducted from your Account an amount equal to the earnings or losses which would have been allocated to your Account if your then Account balance had been invested in one or more of the investment funds designated at the applicable time pursuant to Section 4.1 of The LL&E Supplemental Excess Plan (the "SEP") in accordance with your election pursuant to Section 4 hereof. Distributions from your Account shall be deducted from your Account. 3. Upon termination of your employment for any reason other than death, the Committee shall calculate the benefits that would have been paid to you if your outstanding Account balance from and after the credit pursuant to the first sentence of Section 2 hereof were credited with earnings at the rate of five percent (5%) per annum compounded annually and your benefits were paid in ten equal annual installments, with the first such installment being paid in January of the calendar year following the calendar year of your termination of employment and with the succeeding installment being paid in January of each of the nine succeeding calendar years. The calculation described in the preceding sentence shall be made in such manner as to cause each such installment to be equal, taking into account such assumed earnings rate of five percent (5%) per annum. Your benefits shall be paid in the manner so determined, provided, however, that (i) in no event will any payments be made hereunder in excess of your then remaining Account balance (even if this results in your receiving less than the amounts determined under the foregoing calculation), and (ii) if any amount would otherwise remain in your Account following the payment of the tenth annual installment, such amount shall be added to and included in such tenth annual installment payment. The installments pursuant to this Section 3 shall be paid to you if you are living. If you die before Account has been distributed in full, the remaining installments shall be paid to your Beneficiary (as determined pursuant to Section 6 hereof). 4. You shall be entitled to elect that your Account be treated as invested in one or more of the investment funds designated at the applicable time pursuant to Section 4.1 of the SEP, by filing with the Committee an appropriate Investment Election Form as prescribed by the Committee specifying the percentage (in multiples of 10%) of the amounts credited and to be credited to your Account which are to be treated as invested in each of such investment funds. You may change your investment election by filing a new Investment Election Form; provided, however, that such changes shall be subject to such administrative procedures as the Committee may prescribe. 5. Notwithstanding anything herein to the contrary: (a) The Company may from time to time in its sole discretion invest any assets in the investment funds designated pursuant to Section 4.1 of the SEP, but it shall have no obligation to do so. (b) Neither you, your spouse, nor any Beneficiary shall have any right to any Company assets by reason of this agreement. (c) Any assets invested in the investment funds by the Company shall remain the assets of the Company and shall be subject to the claims of general creditors of the Company. 6. For purposes of Section 3 hereof, your "Beneficiary" shall be the person, persons, or entity designated by you on a form prescribed by the Committee to receive benefits pursuant to Section 3 hereof upon your death. If no such beneficiary has been effectively designated by you, your Beneficiary with respect to benefits payable pursuant to Section 3 hereof shall be the person, persons or entity designated by you as your beneficiary pursuant to The LL&E Savings, or if there is no effective beneficiary designation hereunder or under The LL&E Savings Plan, your Beneficiary with respect to benefits payable pursuant to Section 3 hereof shall be your estate. 7. If your employment terminates by reason of your death, your surviving spouse (if any) shall be entitled to a benefit hereunder, which benefit shall be in an amount equal to: (i) the benefits which would have been payable to your spouse under the Pension Plans calculated as if you had been employed by the Company from December 3, 1962 reduced by (ii) the sum of (A) the actuarial value of any benefits which your spouse or any other beneficiary of yours is eligible to receive under the terms of any defined benefit plan of Shell Oil Company and (B) the benefits actually payable to your spouse under the Pension Plans. Such benefit shall be paid to your spouse in the same form and commencing at the same time as the benefit is paid to your spouse under The LL&E Pension Plan. No benefits shall be payable pursuant to this Section 7 if your employment terminates by reason of your death and you are not survived by a spouse. 8. The rights of you, your spouse, and your Beneficiaries hereunder shall be solely those of an unsecured creditor of the Company. Any asset acquired or held by the Company or funds allocated by the Company in connection with the liabilities assumed by the Company pursuant to this agreement shall not be deemed to be security for the performance of the Company's obligations pursuant hereto, but shall be and remain general assets of the Company. 9. To the extent permitted by law, the right or interest of you, your spouse, and your Beneficiaries hereunder shall not be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner (but excluding devolution on account of mental incompetency and passage under will or intestacy laws in the case of death), and any such right or interest hereunder shall not be liable for or subject to any obligation or liability of you, your spouse or your Beneficiaries. EX-10 3 EXHIBIT 10(l) Exhibit 10(l) $450,000,000 AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 19, 1994 among THE LOUISIANA LAND AND EXPLORATION COMPANY, The BANKS Listed Herein, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and TEXAS COMMERCE BANK NATIONAL ASSOCIATION and NATIONSBANK OF TEXAS, N.A., as Co-Agents TABLE OF CONTENTS1 Page ARTICLE I DEFINITIONS 1.01 Definitions ..................................... 1 1.02 Accounting Terms and Determinations ............. 16 1.03 Types of Borrowings ............................. 17 1.04 Other Definitional Provisions ................... 17 ARTICLE II THE CREDITS 2.01 Commitments to Lend ............................. 17 2.02 Method of Borrowing ............................. 18 2.03 Money Market Borrowings ......................... 18 2.04 Notice to Banks; Funding of Loans ............... 22 2.05 Notes ........................................... 23 2.06 Method of Electing Interest Rates ............... 24 2.07 Interest Rates .................................. 25 2.08 Fees ............................................ 27 2.09 Termination or Reduction of Commitments ......... 28 2.10 Prepayments and Repayments ...................... 28 2.11 General Provision as to Payments ................ 30 2.12 Funding Losses .................................. 30 2.13 Computation of Interest and Fees ................ 31 2.14 Taxes ........................................... 31 ARTICLE III CONDITIONS TO BORROWING 3.01 Each Borrowing .................................. 33 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01 Corporate Existence and Power ................... 34 4.02 Corporate and Governmental Authorization; No Contravention .............................. 34 4.03 Binding Effect .................................. 35 4.04 Information ..................................... 35 4.05 No Material Adverse Change ...................... 36 1 The Table of Contents is not a part of this Agreement. Page 4.06 Litigation ...................................... 36 4.07 Compliance with ERISA ........................... 36 4.08 Taxes ........................................... 36 4.09 Compliance with Laws ............................ 37 4.10 Investment Company Act .......................... 37 4.11 Public Utility Holding Company Act .............. 37 4.12 Ownership of Property, Liens .................... 37 4.13 Current Disclosure .............................. 37 4.14 Representations in Subsidiary Guaranty Agreement True and Correct .................... 37 4.15 Use of Proceeds ................................. 38 4.16 Environmental Matters ........................... 38 ARTICLE V COVENANTS 5.01 Information ..................................... 38 5.02 Reserve Reports ................................. 40 5.03 Payment of Obligations .......................... 42 5.04 Maintenance of Property ......................... 42 5.05 Insurance........................................ 42 5.06 Compliance With Law ............................. 42 5.07 Inspection of Property, Book and Records ................................... 42 5.08 Development and Operation of Oil, Gas and Mineral Properties .................... 43 5.09 Maintenance of Existence, Rights, Etc. .................................. 43 5.10 Maintenance of Equity Securities of Significant Subsidiaries ................... 43 5.11 Limitation on Debt .............................. 43 5.12 Negative Pledge ................................. 45 5.13 Consolidations, Mergers and Asset Sales ................................... 46 5.14 Cash Flow Coverage .............................. 47 5.15 Minimum Consolidated Tangible Net Worth ......... 47 5.16 Subsidiary Debt ................................. 47 5.17 Transactions with Affiliates .................... 47 5.18 Limitation of Restrictions Affecting Subsidiaries .................................. 48 Page ARTICLE VI DEFAULTS 6.01 Defaults ........................................ 48 6.02 Notice of Default ............................... 51 ARTICLE VII THE AGENT 7.01 Appointment and Authorization ................... 51 7.02 Agent and Affiliates ............................ 51 7.03 Action by Agent ................................. 51 7.04 Consultation with Experts ....................... 51 7.05 Liability of Agent .............................. 51 7.06 Indemnification ................................. 52 7.07 Credit Decision ................................. 52 7.08 Agents' Fees .................................... 52 7.09 Successor Agent ................................. 52 7.10 Co-Agents Not Liable ............................ 53 ARTICLE VIII CHANGES IN CIRCUMSTANCES 8.01 Basis for Determining Interest Rate Inadequate or Unfair .......................... 53 8.02 Illegality ...................................... 54 8.03 Increased Cost and Reduced Return ............... 55 8.04 Domestic Loans Substituted For Affected Euro-Dollar Loans ............................. 56 8.05 Substitution of Bank ............................ 57 ARTICLE IX MISCELLANEOUS 9.01 Notices ......................................... 57 9.02 No Waiver ....................................... 57 9.03 Expenses; Indemnification ....................... 58 9.04 Sharing of Set-offs ............................. 58 9.05 Amendments and Waivers .......................... 59 9.06 Successors and Assigns .......................... 59 9.07 Collateral ...................................... 61 9.08 Governing Law; Submission to Jurisdiction ....... 61 Page 9.09 Counterparts; Integration; ...................... 62 9.10 WAIVER OF JURY TRIAL ............................ 62 9.11 Confidentiality ................................. 62 ARTICLE X EFFECTIVENESS 10.01 Conditions to Effectiveness ..................... 63 10.02 Consequences of Effectiveness Transitional Provisions ....................... 64 Schedule I -- Pricing Schedule Exhibit A -- Note Exhibit B-1 -- Opinion of Special Counsel for the Obligors Exhibit B-2 -- Opinion of General Counsel of the Borrower Exhibit C -- Opinion of Davis Polk & Wardwell Exhibit D -- Subsidiary Guaranty Agreement Exhibit E -- Form of Money Market Quote Request Exhibit F -- Form of Invitation for Money Market Quotes Exhibit G -- Form of Money Market Quote Exhibit H -- Assignment and Assumption Agreement AMENDED AND RESTATED CREDIT AGREEMENT AGREEMENT dated as of August 19, 1994 among THE LOUISIANA LAND AND EXPLORATION COMPANY, the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION and NATIONSBANK OF TEXAS, N.A., as Co-Agents. WHEREAS, the Borrower, the Banks, the Co-Agents and the Agent are parties to an Amended and Restated Revolving Credit and Term Loan Agreement (the "Original Agreement") dated as of September 22, 1993; WHEREAS, the parties hereto wish to amend the Original Agreement to make mutually satisfactory changes in the terms of the Original Agreement; and WHEREAS, when all the conditions specified in Section 10.01 have been satisfied, the Original Agreement will be automatically amended and restated to read in full as set forth herein; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Adjusted Debt" means, at any date, Consolidated Debt plus, so long as Proved Reserves of CLAM are treated as a Petroleum Property, CLAM Net Debt less Excluded Debt, each determined as of such date. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.07(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") and (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Agreement, CLAM is an Affiliate of the Borrower. Neither a director nor an officer of the Borrower, in such capacity, shall be deemed, for purposes of this Agreement, an Affiliate. "Agent" means Morgan, in its capacity as agent for the Banks under the Financing Documents, and its successors in such capacity. "Agreement" means the Original Agreement, as amended by this Amended Agreement and as the same may be further amended from time to time in accordance with the terms hereof. "Amended Agreement" means this Amended and Restated Credit Agreement dated as of August 19, 1994 among the Borrower, the Banks listed in the signature pages hereof, the Co-Agents and the Agent. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Applicable Margin" has the meaning set forth in Section 2.07(g). "Asset Sale" means any sale, lease or other disposition (including (i) any such transaction effected by way of merger or consolidation and any condemnation of property (or any transfer or disposition of property in lieu of condemnation) for which the Borrower or any of its Subsidiaries or CLAM receives a condemnation award or other compensation and (ii) a primary or secondary sale of stock of a Subsidiary) by the Borrower, any of its Subsidiaries or CLAM of any asset, but excluding (i) dispositions of oil and gas after severance, other inventory and used, surplus or worn-out equipment in the ordinary course of business, (ii) dispositions to the Borrower or a Wholly-Owned Subsidiary of the Borrower, (iii) cash payments otherwise permitted under this Agreement, (iv) dispositions by CLAM of any asset other than Proved Reserves or interests therein, and (v) mineral leases by the Borrower and its Subsidiaries entered into in the ordinary course of their respective businesses. "Assignee" has the meaning set forth in Section 9.06(c). "Assignment and Assumption" has the meaning set forth in Section 9.06(c). "Bank" means each bank or other financial institution listed on the signature pages hereof, each Assignee which becomes a "Bank" for purposes hereof pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means The Louisiana Land and Exploration Company, a Maryland corporation, and its successors. "Borrowing" has the meaning set forth in Section 1.03. "Capital Lease" means a lease that would be capitalized on a balance sheet of the lessee prepared in accordance with generally accepted accounting principles. "CLAM" means CLAM Petroleum Company, a Delaware corporation and an Affiliate of the Borrower. "CLAM Credit Agreement" means the Amended and Restated Credit Agreement dated as of July 25, 1985, among MaraLou Netherlands Partnership, CLAM, the banks parties thereto and Morgan, as agent for such banks, as amended and restated as of June 19, 1992, or any successor credit agreement entered into for the purpose of refinancing such Amended and Restated Credit Agreement, in each case, as amended, restated, extended or otherwise modified from time to time. "CLAM Net Debt" means, at any date, an amount equal to (i) 50% of the aggregate amount of Debt of CLAM and of each other Person (other than a Consolidated Subsidiary of the Borrower) through which the indirect interest of the Borrower in CLAM is held (exclusive of Debt of CLAM or any such other Person owing to CLAM, any such other Person or the Borrower or a Wholly-Owned Subsidiary of the Borrower), less (ii) an amount equal to the lesser of (x) $25,000,000 and (y) 50% of the cash and cash equivalents of CLAM, all determined as of such date. "Co-Agent" means each of Texas Commerce Bank National Association and NationsBank of Texas, N.A., in its capacity as Co- Agent hereunder. "Committed Loan" means a loan made by a Bank pursuant to Section 2.01. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09. "Consideration" means, in respect of any Asset Sale involving a Petroleum Property, the sum of (i) the net cash proceeds received in connection therewith, (ii) the face amount of any instrument requiring the purchaser to make subsequent cash payments in respect thereof and (iii) the fair market value of any other consideration received in connection therewith, as determined in good faith by the Borrower. "Consolidated Cash Flow" means, for any period, and without duplication, Operating Cash Flow for such period, plus to the extent deducted in determining Operating Cash Flow for such period, the sum of (i) Consolidated Interest Charges and (ii) income tax expense minus, to the extent included in Operating Cash Flow for such period, proceeds of Asset Sales. "Consolidated Cash Flow Ratio" means at any date the ratio of (i) Consolidated Cash Flow for the four most recent consecutive fiscal quarters of the Borrower and its Consolidated Subsidiaries as of such date to (ii) Consolidated Interest Charges for such period. "Consolidated Debt" means at any date the aggregate amount of Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Interest Charges" means, for any fiscal period, the aggregate amount of interest charges with respect to Debt, whether expensed or capitalized, incurred or accrued by the Borrower and its Consolidated Subsidiaries during such period. "Consolidated Subsidiary" means, at any date with respect to any Person, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in the consolidated financial statements of such Person as of such date. "Consolidated Tangible Net Worth" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of all goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible assets. "Constitutional Documents" in relation to any corporate Person means the Certificate of Incorporation and By-Laws or other constitutional documents of such corporate Person. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all obligations of such Person, fixed or contingent, to reimburse any other Person for amounts drawn under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person (quantified, for purposes hereof, as an amount equal to the lesser of (a) the amount of such Debt and (b) the value (determined as of the last day of the fiscal year most recently ended) of the assets securing such Debt), (vii) all Debt of others Guaranteed by such Person; provided that (x) neither trade accounts payable arising in the ordinary course of business nor obligations in respect of insurance policies or performance or surety bonds which are not themselves Guarantees of Debt (nor drafts, acceptances or similar instruments evidencing the same nor obligations in respect of letters of credit supporting the payment of the foregoing) shall constitute Debt, (y) the Morgan Gold Loan shall not at any time constitute Debt unless, at such time, for any reason whatsoever, (1) no royalty income shall have accrued under the Royalty Agreement dated as of December 5, 1984 between Copper Range Company, a Michigan Corporation, and the Borrower during the three consecutive fiscal quarters of the Borrower most recently ended prior to such time or (2) any payment required to have been made to the Borrower under such agreement prior to such time shall not have been paid on, or within 30 days after, the date such payment is due and (z) amounts borrowed by the Borrower under life insurance policies issued to the Borrower and covering employees or former employees of the Borrower not in excess of the cash surrender value of such policies shall not constitute Debt of the Borrower. "Debt Limit" means, at any date, the applicable limitation on Adjusted Debt then most recently determined pursuant to Section 5.11(b). A "Debt Limit Excession" exists at any date if and to the extent that Adjusted Debt at such date exceeds the Debt Limit at such date. "Debt Rating" means a rating of the Borrower's long-term senior debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. "Default" means any condition or event that constitutes an Event of Default or that with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions, excluding (i) crude oil, natural gas and petroleum market transactions on a spot or forward basis which contemplate physical delivery and/or receipt and (ii) purchases of foreign currency on a spot or forward basis to fund local currency requirements. "Determining Banks" means the Agent and the Co-Agents. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent. "Domestic Loan" means (i) a Committed Loan which bears interest at a rate of interest determined in accordance with Section 2.07(a) on the basis of the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or Article VIII or (ii) an overdue amount which was a Domestic Loan immediately before it became overdue. A "Downgrade Condition" exists at any date if, at such date, (i) the Borrower has Debt Ratings below the level of BBB- by S&P and below the level of Baa3 by Moody's, (ii) the Borrower has Debt Ratings from neither S&P nor Moody's or (iii) the Borrower has a Debt Rating from only one of S&P or Moody's and such Debt Rating is below the level of BBB- or Baa3, as the case may be. "Effective Date" means the date this Amended Agreement becomes effective in accordance with Section 10.01. "Environmental Laws" means any and all applicable federal, state, local and foreign statutes, laws, judicial decisions (to the extent such decisions are binding upon the Borrower or any Subsidiary of the Borrower), regulations, ordinances, rules, codes, injunctions, permits, grants, franchises and licenses relating to pollution or the protection of public health and the environment; including without limitation laws relating to Releases of Hazardous Substances or wastes into the environment including without limitation ambient air, surface water, ground water or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Substances or the clean-up or other remediation thereof to the extent such activities impact the environment. "Equity Security" means, as to any Person, any capital stock or other equity security, or any warrant or other right to purchase such an equity security, issued by such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary of the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary of the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means (i) a Committed Loan which bears interest at a rate of interest determined in accordance with Section 2.07(b) on the basis of an Adjusted London Interbank Offered Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.07(b). "Event of Acceleration" means any of the events or conditions set forth in paragraphs (g) and (h) of Section 6.01 with respect to an Obligor. "Event of Default" has the meaning set forth in Section 6.01. "Excluded Debt" means (i) up to $100,000,000 aggregate principal amount of the Borrower's 7 5/8% Debentures due 2013 and (ii) up to $200,000,000 aggregate principal amount of the Borrower's 7.65% Debentures due 2023. "FASB-95" means the Statement of Financial Accounting Standards No. 95 as published by the Financial Accounting Standards Board of the Financial Accounting Foundation. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan on such day on such transactions as determined by the Agent. "Financial Officer" means the chief financial officer, chief accounting officer or treasurer of the Borrower. "Financing Documents" means this Agreement, the Notes and the Subsidiary Guaranty Agreement. "Fixed Rate Loans" means Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Group" of Loans means at any time a group of Committed Loans consisting of (i) all Loans which are Domestic Loans at such time or (ii) all Loans which are Euro-Dollar Loans having the same Interest Period at such time; provided that, if a Loan of any particular Bank is converted to or made as a Domestic Loan pursuant to Section 8.02 or 8.04, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt 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 Debt (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) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt 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. It is understood that the obligations of the Borrower and its Subsidiaries under the arrangements entered into in connection with the CLAM Credit Agreement, as such arrangements are in effect on the date hereof, do not constitute a Guarantee of Debt of CLAM. "Guarantor" means each Subsidiary of the Borrower from time to time party to the Subsidiary Guaranty Agreement. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance or waste regulated under Environmental Laws, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics regulated under Environmental Laws. "Indemnitee" has the meaning set forth in Section 9.03(b). "Information" means, collectively, (i) the information booklet distributed to the Banks at the Borrower's June 1994 annual bank meeting, (ii) the Borrower's annual report on Form 10-K for the fiscal year ended December 31, 1993, (iii) the Borrower's quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1994 and (iv) the Borrower's Reserve Report as of December 31, 1993. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing or Notice of Interest Rate Election; provided that: (PAGE> (a) any Interest Period that would otherwise end on a day that is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period that begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; and (2) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03: provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro- Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; and (3) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 30 days) as the Borrower may elect in accordance with Section 2.03; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and provided further that, if any Interest Period includes a date on which a payment of principal of any Loan is required (as of the commencement of such Interest Period) to be made under Section 2.10 but does not end on such date, then (i) the principal amount (if any) of each Loan required to be repaid on such date shall have an Interest Period ending on such date and (ii) the remainder (if any) of each such Loan shall have an Interest Period determined as set forth above. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Investment" means with respect to any Person (the "Investor"), any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, loan, advance, purchase of Debt, Guarantee of Debt, time deposit or otherwise. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lending Value" means, with respect to any Petroleum Property, the contribution of such Petroleum Property to the Debt Limit in effect at the time, as determined by the Determining Banks in accordance with their customary oil and gas lending practices. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset (including any production payment, any obligation to deliver hydrocarbons in the future in satisfaction of an advance payment previously received or any similar arrangement which gives a creditor preferential access to minerals in place) or any other arrangement the economic effect of which is to give a creditor preferential access to such asset to satisfy its claim, whether or not filed, recorded or otherwise perfected under applicable law; provided that (i) the creation of interests in property of the character commonly referred to as a "royalty interest" or "overriding royalty interest", farmouts, joint operating or unitization agreements, or other similar transactions in the ordinary course of business and (ii) borrowings under life insurance policies as described in clause (z) of the proviso to the definition of "Debt" shall not be deemed to create a Lien. For the purpose of this Agreement, the Borrower or any Subsidiary of the Borrower shall be deemed to own subject to a Lien (i) any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement or other title retention agreement relating to such asset or any Capital Lease or (ii) any account receivable transferred by it with recourse for collectibility (including any such transfer subject to a holdback or similar arrangement which effectively imposes the risk of collectibility upon the transferor). "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(b). "Major Casualty Event" means any loss of or damage to property of the Borrower or any of its Subsidiaries or CLAM resulting from one or more related events, but only if the aggregate amount required to repair, replace or restore such property exceeds $25,000,000. "Material Adverse Effect" means any material adverse effect on the business, condition (financial or otherwise), operations, properties or prospects of the Borrower and its Subsidiaries, taken as a whole. "Material Debt" means Debt (other than the Loans) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $10,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $10,000,000. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). "Money Market Absolute Rate Loan" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc., or any successor to such corporation's business of rating debt securities. "Morgan" means Morgan Guaranty Trust Company of New York, and its successors. "Morgan Gold Loan" means the obligations of the Borrower under the Credit Agreement dated as of December 30, 1991 between the Borrower and Morgan. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Notice of Interest Rate Election" has the meaning set forth in Section 2.06. "Obligors" means the Borrower and the Guarantors. "Operating Cash Flow" means, for any fiscal period, net cash flows from operating activities of the Borrower and its Consolidated Subsidiaries for such period, calculated in accordance with FASB-95. "Original Agreement" has the meaning set forth in the recitals to this Amended Agreement. "Other Taxes" has the meaning set forth in Section 2.14. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means the Liens permitted to exist under Section 5.12 hereof. "Petroleum Property" means any interest of the Borrower or any Subsidiary of the Borrower in Proved Reserves which is covered by a Reserve Report or other information submitted by the Borrower for use in the determination of the Debt Limit (unless (x) the Banks give zero Lending Value to such interest or (y) the Borrower elects that such interest in Proved Reserves no longer be used for such purposes pursuant to Section 5.11(b)(iv)); provided that so long as (i) no "Event of Default" as defined in the CLAM Credit Agreement shall have occurred and be continuing and (ii) the Borrower retains a 50% indirect equity interest in CLAM, the Proved Reserves of CLAM shall be treated as a Petroleum Property to the extent of the Borrower's 50% interest. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means the rate of interest publicly announced by Morgan in New York City from time to time as its Prime Rate. "Proved Developed Reserves" means "proved developed oil and gas reserves" as specified under Rule 4-10(a)(3) of Regulation S-X of the Securities and Exchange Commission. "Proved Reserves" means Proved Developed Reserves and Proved Undeveloped Reserves. "Proved Undeveloped Reserves" means "proved undeveloped oil and gas reserves" as specified under Rule 4-10(a)(4) of Regulation S-X of the Securities and Exchange Commission. "Quarterly Date" means the last Euro-Dollar Business Day of each March, June, September and December. "Reference Banks" means the principal London offices of Texas Commerce Bank National Association, NationsBank of Texas, N.A. (or an affiliate thereof with an office in London) and Morgan. "Register" has the meaning set forth in Section 9.06(f). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Release" means any release, discharge, emission, spilling, leakage, pumping, pouring, emptying, injection, escape, leaching, dumping or disposal. The term "Released" has a corresponding meaning. To "Remedy" a Debt Limit Excession means to eliminate such Debt Limit Excession through (i) a reduction in the aggregate outstanding principal amount of Adjusted Debt, (ii) an increase in the Debt Limit through the addition of one or more Petroleum Properties in accordance with Section 5.11(b)(ii)(y) or (iii) a combination of (i) and (ii). "Required Banks" means at any time Banks having at least 66 2/3% of the aggregate amount of the Commitments, or if the Commitments shall have terminated, holding Notes evidencing at least 66 2/3% of the aggregate outstanding principal amount of the Loans. "Reserve Report" means a report prepared and delivered in accordance with Section 5.02. "S&P" means Standard & Poor's Ratings Group, or any successor to its business of rating debt securities. "Significant Subsidiary" means, subject to Section 5.11(b)(iv), (i) any Material Subsidiary (as defined in the Subsidiary Guaranty Agreement), (ii) any other Subsidiary of the Borrower which owns any Petroleum Property and (iii) any other Subsidiary of the Borrower which owns any capital stock of or Debt of any other Significant Subsidiary. "Stockholder Payment" means (i) any dividend or other distribution on any Equity Securities of the Borrower and (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any Equity Securities of the Borrower or (b) any option, warrant or other right to acquire Equity Securities of the Borrower. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower (or, if such term is used with reference to any other Person, by such other Person). "Subsidiary Guaranty Agreement" means the Amended and Restated Subsidiary Guaranty Agreement among the Borrower, the Subsidiaries of the Borrower from time to time parties thereto and the Agent, substantially in the form of Exhibit D. "Taxes" has the meaning set forth in Section 2.14. "Termination Date" means September 30, 2000 (or if such date is not a Euro-Dollar Business Day, the next preceding Euro- Dollar Business Day). "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title I of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary all of the Equity Securities of which (except directors' qualifying shares and investments by foreign nationals mandated by applicable law) are at the time owned by such Person and/or one or more of its Wholly-Owned Subsidiaries. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that it wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of the same type of one or more Banks to be made to the Borrower pursuant to Article II on a single date and for a single initial Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). SECTION 1.04. Other Definitional Provisions. References in this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.01 may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Include", "includes" and "including" shall be deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import. "Writing", "written" and comparable terms refer to printing, typing and other means of reproducing words in a visible form. References to any agreement or contract are to such agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. Subject to the terms and conditions set forth in this Agreement, each Bank severally agrees to make loans to the Borrower from time to time during the period from and including the date hereof to but not including the Termination Date in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Within the limits specified in this Agreement, the Borrower may borrow pursuant to this Section 2.01, repay or prepay Committed Loans and reborrow pursuant to this Section 2.01. Each Borrowing under this Section 2.01 shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.01(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. SECTION 2.02. Method of Borrowing. The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Domestic Borrowing and (y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the proposed date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to be Domestic Loans or Euro-Dollar Loans, and (d) in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. No more than ten Groups of Euro-Dollar Loans shall be outstanding at any one time. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit E hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit F hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit G hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing, and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower on such date at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b) of this Section, or remitted by the Borrower to the Agent as provided in Section 2.11, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by separate Notes. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 10.01, the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and, in the case of a Money Market Loan, maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Method of Electing Interest Rates for Committed Loans. (a) The Committed Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article VIII), as follows: (i) if such Loans are Domestic Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Domestic Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, in each case effective on the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent at least three Euro-Dollar Business Days before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $10,000,000 or any larger multiple of $1,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration of the initial Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate Election to the Agent for any Group of Euro-Dollar Loans, such Loans shall be converted into Domestic Loans on the last day of the then current Interest Period applicable thereto. SECTION 2.07. Interest Rates. (a) Each Domestic Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date (commencing with the first such date after the date hereof) and, with respect to the principal amount of any Domestic Loan converted to a Euro-Dollar Loan, on each date that a Domestic Loan is so converted. Any overdue principal of or interest on any Domestic Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Domestic Loans for such day. (b) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (c) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Applicable Margin for such day plus the Adjusted London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the Applicable Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, the rate applicable to Domestic Loans for such day). (d) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (e) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated hereby. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. (g) The "Applicable Margin" at any date means the applicable percentage determined in accordance with the Pricing Schedule. SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments a commitment fee at the Commitment Fee Rate (determined daily in accordance with the Pricing Schedule) on the daily amount by which the aggregate amount of the Commitments exceeds the aggregate outstanding principal amount of the Loans. Such commitment fee shall accrue from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety). (b) Facility Fee. The Borrower shall pay to the Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (c) Payments. Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Date and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. Termination or Reduction of Commitments. (a) Optional Termination or Reduction. The Borrower may, upon at least three Domestic Business Days' notice to the Agent, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. (b) Scheduled Termination. The Commitments shall terminate on the Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. (c) Scheduled Amortization. On June 30, 1995 and on each Quarterly Date thereafter prior to the Termination Date, the aggregate amount of the Commitments shall be reduced by $20,000,000. (d) Application of Reductions. Each reduction of Commitments pursuant to this Section shall be applied ratably to the respective Commitments of all Banks. The amount of any reduction of the Commitments pursuant to subsection (a) shall be applied to reduce the amount of subsequent scheduled reductions of the Commitments pursuant to subsection (c) ratably by amount. SECTION 2.10. Prepayments and Repayments. (a) Optional Prepayments. The Borrower may, upon at least (i) one Domestic Business Day's notice to the Agent, in the case of Domestic Loans (or Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) and (ii) three Euro-Dollar Business Days' notice to the Agent, in the case of Euro-Dollar Loans, prepay any Group of Committed Loans (or any Borrowing comprised of Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment and, in the case of a prepayment of Euro-Dollar Loans, together with any additional amounts payable pursuant to Section 2.12. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group (or Borrowing). (b) Mandatory Prepayments and Repayments. (i) Amortization Payments. On the date of each reduction of Commitments pursuant to Section 2.09, the Borrower shall prepay or repay such principal amount of the outstanding Loans as may be necessary so that after such payment (x) the aggregate unpaid principal amount of each Bank's outstanding Committed Loans does not exceed the amount of such Bank's Commitment as then reduced and (y) the aggregate unpaid principal amount of all outstanding Loans does not exceed the aggregate amount of the Commitments as then reduced. (ii) Debt Limit Excession. If at any time a Debt Limit Excession shall exist, the Borrower shall, within 180 days of the earlier of (i) the Agent's notice to the Borrower of such Debt Limit Excession or (ii) the date the Borrower knew or in the exercise of reasonable diligence should have known of such Debt Limit Excession (the "Notice Date"), Remedy such Debt Limit Excession. The provisions of this Section 2.10(b)(ii) do not prevent or delay any Event of Default arising by reason of an incurrence of Debt which gives rise to a Debt Limit Excession in violation of Section 5.11(a). (iii) Money Market Loans. Each Money Market Loan shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period for the related Borrowing. Except as expressly provided in Section 2.10(a) or as expressly required by Section 2.10(b), no Money Market Loan may be prepaid prior to the maturity thereof. (iv) Application. Each repayment or prepayment pursuant to this subsection (b) shall be made together with accrued interest to the date of payment, and shall be applied ratably to payment of the Loans of the several Banks comprising the Group or Borrowing being repaid or prepaid. Each payment required by clause (i) or (ii) shall be made with respect to such outstanding Group(s) or Borrowing(s) as the Borrower may specify in the related Notice of Borrowing or Notice of Interest Rate Election or may otherwise specify in a manner acceptable to the Agent or, failing such designation by the Borrower, as the Agent may specify by notice to the Borrower and the Banks; provided that (x) no Fixed Rate Loans may be prepaid before the last day of a related Interest Period while any Domestic Loans remain outstanding and (y) no Money Market Loans may be prepaid while any Committed Loans remain outstanding. (c) Notice to Banks. Upon receipt of a notice of prepayment pursuant to Section 2.10(a), the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share of such prepayment and such notice of prepayment shall not thereafter be revocable by the Borrower. SECTION 2.11. General Provisions as to Payments. (a) The Obligors shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Obligors prior to the date on which any payment is due to the Banks hereunder that the Obligors will not make such payment in full, the Agent may assume that the Obligors have made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Obligors shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.12. Funding Losses. If the Obligors make any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted to a Domestic Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(c), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.10(c), the Borrower shall reimburse each Bank on demand for any resulting loss or expense incurred by such Bank (or by any existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin, for the period after any such payment or failure to borrow or prepay; provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.13. Computation of Interest and Fees. Interest based on the Prime Rate hereunder and commitment fees shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.14. Taxes. (a) Any and all payments by an Obligor to or for the account of any Bank or the Agent hereunder or under any other Financing Document shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Agent or such Bank, as the case may be, is a citizen or resident or in which such Bank has a permanent establishment (or is otherwise engaged in the active conduct of its banking business through an office or a branch) which is such Bank's Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Agent or such Bank is organized or (iii) any jurisdiction (or political subdivision thereof) in which such Bank or the Agent is doing business on the date on which it becomes a Bank which taxes (in the case of this clause (iii)) are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If an Obligor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Financing Document to any Bank or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Obligor shall make such deductions, (iii) such Obligor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) such Obligor shall use its best efforts to furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Obligors jointly and severally agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any other Financing Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Financing Document (hereinafter referred to as "Other Taxes"). (c) The Obligors jointly and severally agree to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.14) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto; provided that no such indemnification shall be payable to the extent such Taxes, Other Taxes or liabilities shall have been incurred as a consequence of gross negligence or willful misconduct by such Bank or the Agent, as the case may be. This indemnification shall be made within 15 days from the date such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on the date on which it becomes a Bank in the case of each other Bank, shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, and shall (but only so long as such Bank remains lawfully able to do so) deliver to the Borrower additional copies of such forms on or before the date that such forms expire or become obsolete or after the occurrence of an event requiring a change in the most recent form so delivered by it and such amendments thereto as may be reasonably requested by the Borrower, in each case certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or fees or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 2.14(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the form required pursuant to Section 2.14(d), if any (other than if such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 2.14(a) or 2.14(c) with respect to Taxes imposed by the United States which Taxes would not have been imposed but for such failure to provide such form; provided, however, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Obligors shall take such steps as the Bank shall reasonably request to assist the Bank to recover such Taxes. (f) If an Obligor is required to pay additional amounts to or for the account of any Bank pursuant to this Section 2.14, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the sole judgment of such Bank, is not otherwise disadvantageous to such Bank. No Bank shall be entitled to receive any greater payment under this Section 2.14 as a result of the designation by such Bank of a different Applicable Lending Office after the date hereof, unless such designation is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (g) Without prejudice to the survival of any other agreement of the Obligors hereunder, the agreements and obligations of the Obligors contained in this Section 2.14 shall survive the payment in full of principal and interest hereunder. ARTICLE III CONDITIONS TO BORROWING The obligation of each Bank to make a Loan on the occasion of each Borrowing is subject to the satisfaction of such of the following conditions as shall not have been expressly waived by the Required Banks: SECTION 3.01. Each Borrowing. In the case of each Borrowing: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; (d) the fact that each of the representations and warranties made by the Obligors in or pursuant to the Financing Documents (except, in the case of any Borrowing subsequent to the first Borrowing under this Amended Agreement, the representations and warranties set forth in Section 4.04) shall be true on and as of the date of such Borrowing; and (e) in the case of a Money Market Borrowing, the fact that Level IV Status (as defined in the Pricing Schedule) shall not exist. Each Borrowing under this Agreement shall be deemed to be a representation and warranty by the Obligors on the date of such Borrowing as to the facts specified in paragraphs (b), (c), (d) and (e) of this Section 3.01. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Agent and each Bank that: SECTION 4.01. Corporate Existence and Power. The Borrower and each of its Significant Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution and delivery by each Obligor of each of the Financing Documents to which it is a party and the performance by such Obligor of its obligations thereunder are within the corporate power of such Obligor, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Constitutional Documents of such Obligor or any of its Subsidiaries or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Obligor or any of its Subsidiaries or result in or require the imposition of any Lien on any asset of such Obligor or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each of the other Financing Documents, when executed and delivered as contemplated by this Agreement, will constitute a valid and binding obligation of each Obligor that is a party thereto, in each case enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. SECTION 4.04. Information. (a) Financial Statements. The historical consolidated financial statements of the Borrower as of and for the fiscal year ending on December 31, 1993 and as of and for the three-month period ending on March 31, 1994 included in the Information fairly present the consolidated financial position of the Borrower and its Consolidated Subsidiaries as at the dates and the consolidated results of operations and cash flows of the Borrower and its Consolidated Subsidiaries for the periods therein set forth, all in accordance with generally accepted accounting principles consistently applied (except as disclosed therein). (b) Reserve Data and Projections. The statements and conclusions as to oil and gas reserves and forecast results included in the Information are based upon the best information available to the Borrower at the time such statements were made and take into consideration all information which, in the reasonable judgment of the Borrower was believed to be material at the time (determined in accordance with standards customarily applicable to professionals in the oil and gas industry), it being understood that such statements and conclusions are necessarily based upon professional opinions, estimates and projections, and the Borrower does not warrant that such opinions, estimates and projections will ultimately prove to have been accurate. (c) Full Disclosure. Subject to subsection (b), the Information did not as of the respective dates as of which information is stated therein, and does not, as of the date of this Agreement, contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. SECTION 4.05. No Material Adverse Change. Since the respective dates as of which information is stated in the Information, no event has occurred and no condition has come into existence which has had, or could reasonably be expected to have, a Material Adverse Effect. SECTION 4.06. Litigation. Except as disclosed in the Information, there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any Subsidiary of the Borrower before any court or arbitrator or any governmental body, agency or official (i) in which an adverse decision could reasonably be expected which would have a Material Adverse Effect or (ii) which in any manner questions the validity of any Financing Document, other than any such action, suit or proceeding that the Borrower does not deem material and of which it has notified the Banks, unless the Required Banks have, in the good faith exercise of their discretion, notified the Borrower that they deem such action, suit or proceeding material. SECTION 4.07. Compliance with ERISA. Each member of the ERISA Group (x) has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and (y) is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan other than any failure to so comply that could not reasonably be expected to have a Material Adverse Effect. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns that are required to be filed by them and have paid all taxes shown as due pursuant to such returns or pursuant to any assessment received by any of them, except such taxes, if any, as are being contested in good faith and as to which reserves have been provided, as and to the extent required by generally accepted accounting principles. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are adequate. SECTION 4.09. Compliance with Laws. The Borrower and its Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations, other than such laws, rules or regulations (i) the validity or applicability of which the Borrower or such Subsidiary is contesting in good faith or (ii) failure to comply with which cannot reasonably be expected to have a Material Adverse Effect. SECTION 4.10 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. Public Utility Holding Company Act. Neither the Borrower nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.12. Ownership of Property, Liens. Except to an extent which could not reasonably be expected to have a Material Adverse Effect: the Borrower and its Subsidiaries have good and marketable title to and are in lawful possession of, or have valid leasehold interests in, all properties and other assets (real or personal, tangible, intangible or mixed) purported to be owned by the Borrower and its Subsidiaries or to be leased by the Borrower and its Subsidiaries (as the case may be), and none of such properties and assets is subject to any Liens, except Permitted Liens, all of such properties and other assets are in good working order and condition, ordinary wear and tear excepted, and the Borrower and its Subsidiaries have received all deeds, assignments, bills of sale and other documents and duly effected all recordings, filings and other actions necessary or appropriate to establish, protect and perfect its right, title and interest in and to all such properties and assets. SECTION 4.13. Current Disclosure. Except for political, economic and social matters of general knowledge within the international banking community, the Obligors have disclosed to the Banks in writing any and all facts which to the best of their knowledge could reasonably be expected to have a Material Adverse Effect. SECTION 4.14. Representations in Subsidiary Guaranty Agreement True and Correct. Each of the representations and warranties of any Obligor contained in the Subsidiary Guaranty Agreement is true and correct. SECTION 4.15. Use of Proceeds. The proceeds of the Loans will be used for the Borrower's general corporate purposes. None of such proceeds will be used, directly or indirectly, for any purpose which would violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time. SECTION 4.16. Environmental Matters. In the ordinary course of its business, the Borrower conducts periodic reviews of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs, if any, (including, without limitation, (a) any capital or operating expenditures required for clean-up or closure of properties presently or, if notice of potential liability has been received or if the Borrower is otherwise aware that such expenditures will be required, previously owned, (b) any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by Environmental Law or as a condition of any license, permit or contract, (c) any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, (d) any costs or liabilities in connection with disposal of Hazardous Substances at third-party sites, and (e) any actual or known potential liabilities under Environmental Laws to third parties, including employees). On the basis of these reviews and other relevant information, the Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. ARTICLE V COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid or any amount that is due and payable hereunder remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of earnings, stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by KPMG Peat Marwick or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a condensed consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related condensed consolidated statements of earnings and cash flows for such quarter or for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower's previous fiscal year, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the Controller of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the Treasurer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.14 to 5.16, inclusive, on the date of such financial statements, (ii) setting forth a calculation of the Applicable Ratio (as defined in the Pricing Schedule) and (iii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) forthwith upon the occurrence of any Default, a certificate of the chief financial officer or the Treasurer of the Borrower setting forth details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or current reports which the Borrower shall have filed with the Securities and Exchange Commission; (g) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code, a certificate of a Financial Officer setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (h) from time to time such additional information regarding the financial position or business of the Borrower as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Reserve Reports. (a) By May 15 of each year, commencing May 15, 1995 (or by June 15 of any year, if the related report is to be prepared by an independent petroleum engineering firm in accordance with Section 5.02(c)), the Borrower shall furnish to each of the Banks a report, in form and substance reasonably satisfactory to the Determining Banks which shall evaluate each Petroleum Property as of the preceding December 31, and which shall, together with any other information reasonably required by any Determining Bank, set forth the information necessary to determine the Debt Limit as of such date. (b) At any time subsequent to the initial determination of the Debt Limit pursuant to Section 5.11(b)(ii)(x) and (x) upon request by the Required Banks or (y) if the Borrower at its option elects to do so, the Borrower shall furnish to each of the Banks, within 45 days (or, if such report is to be prepared by an independent petroleum engineering firm in accordance with Section 5.02(c), 75 days) of delivery of the assumptions to be utilized in the preparation of such report pursuant to Section 5.02(c), a report which shall evaluate each Petroleum Property as of the date of the most recent Reserve Report or as of such other date (not later than the date of delivery of such assumptions) as the Determining Banks specify, in form and substance reasonably satisfactory to the Determining Banks, together with any other information reasonably requested by any Determining Bank. Such report shall use production and cost profiles from the most recent Reserve Report, unless otherwise requested by the Determining Banks, with such other assumptions as supplied by the Determining Banks. No more than one such report may be requested by the Required Banks during any calendar year and no more than one such report may be supplied by the Borrower at its option during any calendar year. (c) The reports contemplated by this Section shall be prepared on the basis of price and other economic assumptions specified by the Determining Banks to the Borrower in accordance with their customary oil and gas lending practices not later than (i) April 1 of each year, in the case of each report to be delivered pursuant to Section 5.02(a), (ii) the delivery of the request of the Required Banks, in the case of a report to be delivered pursuant to Section 5.02(b)(x) and (iii) ten days after receipt of notice from the Borrower of its election to furnish a report pursuant to Section 5.02(b)(y). Each such report shall separately cover Proved Developed Reserves which are currently producing to market, other Proved Developed Reserves and Proved Undeveloped Reserves, and shall identify any material gas imbalances and any Liens on any Petroleum Properties (including the amount secured thereby). Each such report shall be prepared by a petroleum engineer employed by the Borrower or a Subsidiary of the Borrower or, commencing with the report to be delivered by May 15, 1995 (or June 15, 1995, as the case may be), in the case of reports delivered pursuant to Section 5.02(a), or any report required to be delivered at the request of the Required Banks pursuant to Section 5.02(b) (and then in any such case under Section 5.02(a) or (b) only upon the specific request of the Required Banks) by an independent petroleum engineering firm satisfactory to the Determining Banks. Any such report prepared by an independent petroleum engineering firm need cover only Petroleum Properties having Lending Values aggregating not less than 80% of the Debt Limit (as reasonably estimated by the Borrower solely for purposes of this sentence), with the balance of the Petroleum Properties to be covered by a supplemental report of internal petroleum engineers. SECTION 5.03. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge, before they give rise to a Lien on any of its property or assets (or, if later, when the same shall become due and payable), (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, in any such case, if unpaid, might by law give rise to a Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the Borrower or such Subsidiary, as the case may be, shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves, if any, for the accrual of any such items. SECTION 5.04. Maintenance of Property. The Borrower will keep, and will cause each of its Subsidiaries to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. SECTION 5.05. Insurance. The Borrower will maintain, and will cause each of its Subsidiaries to maintain, insurance coverage with respect to their respective properties and business against such liabilities, casualties, risks and contingencies and in such types and amounts and with such financially sound and reputable companies, all as are generally consistent with its past practices (subject to availability of such insurance at reasonable costs) and the prudent and customary practices of the oil and gas industry. Upon the request of the Agent, the Borrower will furnish or cause to be furnished to the Banks from time to time a summary of the insurance coverage of the Borrower and its Subsidiaries in form and substance satisfactory to the Required Banks in their reasonable judgment. SECTION 5.06. Compliance With Law. The Borrower will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder). SECTION 5.07. Inspection of Property, Books and Records. The Borrower will keep, and will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles shall be made of all dealings and transactions in relation to its business and activities. The Borrower, upon reasonable request by any Bank, will permit, and will cause each of its Subsidiaries to permit, representatives of any Bank to visit and inspect any of their respective properties, to examine and make abstracts and copies from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers and employees and, in the presence of the Borrower, its independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.08. Development and Operation of Oil, Gas and Mineral Properties. The Borrower will use all reasonable efforts to cause all Petroleum Properties to be operated in a manner consistent with sound oil field practice. The Borrower will cause each Petroleum Property to be developed in such manner, and will devote such funds to such purpose, as would a reasonably prudent Person similarly situated and (subject to the foregoing) on a basis consistent with the most recent Reserve Report covering such Petroleum Property. SECTION 5.09. Maintenance of Existence, Rights, Etc. The Borrower will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries which owns any Petroleum Property to preserve, renew and keep in full force and effect, their respective corporate existences and their respective rights, privileges, licenses and franchises materially necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.09 shall prohibit (i) a merger or consolidation permitted by Section 5.13 or (ii) the termination of the corporate existence of any Subsidiary of the Borrower if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. SECTION 5.10. Maintenance of Equity Securities of Significant Subsidiaries. The Borrower will at all times maintain direct or indirect ownership of 100% of the Equity Securities of each of its Significant Subsidiaries, except for a disposition by it of its entire Investment in any Significant Subsidiary. SECTION 5.11. Limitation on Debt. (a) Neither the Borrower nor any Subsidiary of the Borrower will incur any Debt if, after giving effect thereto, a Debt Limit Excession would exist. (b) The Debt Limit will be determined and adjusted periodically as follows: (i) Prior to a determination pursuant to Section 5.11(b)(ii)(x) on the basis of the initial Reserve Report delivered pursuant to Section 5.02(a), and subject to adjustment in accordance with Section 5.11(b)(ii)(y) and 5.11(b)(iii) through (v) below, the Debt Limit shall be $620,000,000. (ii) Within 25 days of (x) delivery of each Reserve Report pursuant to Section 5.02, or (y) notice from the Borrower that the Borrower proposes to add one or more additional Petroleum Properties so as to Remedy a Debt Limit Excession, the Determining Banks shall in accordance with their customary oil and gas lending practices determine a proposed Debt Limit on the basis of such Reserve Report and/or such additional information as the Borrower furnishes at such time, and the Agent shall promptly notify the Borrower and the Banks of such proposed Debt Limit. Such proposed Debt Limit shall become the effective Debt Limit on the thirtieth day following the giving of such notice and shall be binding on all parties to this Agreement, unless on or prior to such thirtieth day (A) the Agent shall have received the written consent of the Required Banks to such proposed Debt Limit, in which case such proposed Debt Limit shall become the effective Debt Limit on the date of such receipt by the Agent or (B) Banks having more than 33 1/3% of the aggregate Overall Commitments reject such proposed Debt Limit by notice to the Agent, in which case the Banks shall consult with one another with a view to agreement on the Debt Limit to be determined, and the Debt Limit shall be determined by the Required Banks in accordance with their customary oil and gas lending practices. Any Debt Limit so determined by the Required Banks shall be promptly notified to the Borrower and the Banks by the Agent, and upon such notification shall be effective and binding on all parties. (iii) The Debt Limit shall be reduced upon consummation of Asset Sales involving Petroleum Properties, consummated or occurring subsequent to the date of the Reserve Report utilized in the most recent determination of the Debt Limit pursuant to Section 5.11(b), for aggregate Consideration exceeding $75,000,000 (or, if a Downgrade Condition exists either at the time of or subsequent to any such Asset Sale, $30,000,000), by an amount equal to the Lending Value of the related Petroleum Properties, net, in the case of any Petroleum Property exchanged for another Petroleum Property, of the Lending Value of the acquired Petroleum Property. (iv) If the Borrower shall request, by notice to the Agent, that the interests of any Subsidiary of the Borrower in Proved Reserves theretofore used in determining the Debt Limit no longer be so used, then, effective upon the date of such notice, (i) such interests in Proved Reserves shall no longer constitute Petroleum Properties and (ii) the Debt Limit shall be reduced by the Lending Value of such former Petroleum Properties; provided that the Borrower shall not be entitled to make such a request pursuant to this Section 5.11(b)(iv) if (x) after giving effect to the reduction in the Debt Limit resulting therefrom, a Debt Limit Excession would exist or (y) the aggregate Lending Value of the Petroleum Properties owned by the Subsidiary that is the subject of such request exceeds 10% of the Debt Limit. If the Borrower elects pursuant to this Section that the interest of any Subsidiary in Proved Reserves shall no longer be used for purposes of determining the Debt Limit, such Subsidiary shall no longer be a Significant Subsidiary and any Default or Event of Default that has occurred hereunder as a consequence of such Subsidiary having been a Significant Subsidiary shall thereafter be deemed not to have occurred. (v) Within 25 days of notice from the Borrower that a Major Casualty Event involving a Petroleum Property has occurred, the Determining Banks shall, in accordance with their customary oil and gas lending practices, redetermine the Debt Limit to reflect such Major Casualty Event on the basis of the most recent Reserve Report and such additional information regarding such Major Casualty Event as the Borrower furnishes at such time, and the Agent shall promptly notify the Borrower and the Banks of such redetermined Debt Limit, whereupon such redetermined Debt Limit shall become effective. (c) The Borrower shall notify each Determining Bank at the earliest practical time in advance of any transaction which entails a reasonable likelihood of an adjustment to the Debt Limit pursuant to Section 5.11(b)(ii), (iii), (iv) or (v) above, and shall furnish each Determining Bank with such information with respect thereto as any Determining Bank may reasonably request. SECTION 5.12. Negative Pledge. The Borrower will not, and will not permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $10,000,000; (b) any Lien existing on any asset prior to the acquisition thereof by the Borrower or such Subsidiary and not created in contemplation of such acquisition; (c) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary of the Borrower and not created in contemplation of such event; (d) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, improving or constructing such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition or completion of construction thereof or improvement thereto; (e) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that the principal amount of such Debt is not increased (except by the amount of costs reasonably incurred in connection with the issuance thereof) and such Debt is not secured by any additional assets; (f) Liens which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in respect of which the lesser of (A) the amount of such obligation and (B) the value (determined as of the last day of the fiscal year most recently ended) of the collateral securing such obligation exceeds $50,000,000 and (iii) do not in the aggregate materially detract from the value of the assets of the Borrower and its Subsidiaries, taken as a whole, or materially impair the use thereof in the operation of its business; and (g) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $35,000,000. SECTION 5.13. Consolidations, Mergers and Asset Sales. The Borrower will not, and will not permit any of its Subsidiaries to, consolidate or merge with or into, or sell, lease or otherwise dispose of all or substantially all of its assets to, any other Person, except that (i) the Borrower may merge with any Person if the Borrower is the surviving corporation and if, immediately after such merger (and giving effect thereto) but subject to clause (iii) below, no Default shall have occurred and be continuing, (ii) any Subsidiary of the Borrower may merge or consolidate with or into, or transfer all or substantially all of its assets to, any Person if either (A) the surviving corporation or transferee is the Borrower or a Wholly-Owned Subsidiary of the Borrower or (B) such merger, consolidation or transfer of all or substantially all assets is in conjunction with a disposition by the Borrower of its entire Investment in such Subsidiary otherwise permitted hereunder and, if, in either such case, immediately after such transaction (and giving effect thereto) no Default shall have occurred and be continuing and (iii) any Wholly-Owned Subsidiary of the Borrower may consolidate or merge with or into, or sell, lease or otherwise dispose of all or substantially all of its assets to (A) any other Wholly-Owned Subsidiary of the Borrower or (B) the Borrower. SECTION 5.14. Cash Flow Coverage. As of the last day of each fiscal quarter of the Borrower, the Consolidated Cash Flow Ratio will not be less than 300%. SECTION 5.15. Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net Worth will at no time be less than the sum of (i) $420,000,000 plus (ii) an amount equal to 75% of the cumulative additions to Consolidated Tangible Net Worth resulting from issuances of Equity Securities made by the Borrower from and after the date hereof and prior to such time. SECTION 5.16. Subsidiary Debt. The aggregate outstanding principal amount of Debt of all Significant Subsidiaries of the Borrower (exclusive, in each case, of Debt owing to the Borrower or a Wholly-Owned Subsidiary and Debt under the Subsidiary Guaranty Agreement) shall at no time exceed $50,000,000. SECTION 5.17. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay any funds to or for the account of, make any Investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; provided, however, that the foregoing provisions of this Section shall not prohibit (a) the Borrower or any of its Subsidiaries from declaring or paying any lawful dividend or other Stockholder Payment so long as, after giving effect thereto, no Default shall have occurred and be continuing (as determined at the time the Borrower or such Subsidiary declares such dividend or otherwise becomes legally committed to make such Stockholder Payment), (b) the Borrower or any of its Subsidiaries from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Borrower or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate, (c) the Borrower or any of its Subsidiaries from making payments of principal, interest and premium on any Debt of the Borrower or such Subsidiary held by an Affiliate if the terms of such Debt are substantially as favorable to the Borrower or such Subsidiary as the terms which could have been obtained at the time of the creation of such Debt from a lender which was not an Affiliate or (d) the Borrower or any of its Subsidiaries from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Borrower or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates. SECTION 5.18. Limitation on Restrictions Affecting Subsidiaries. Neither the Borrower nor any of its Significant Subsidiaries will enter into, or suffer to exist, any agreement with any Person, other than this Agreement, which prohibits or limits in any material respect the ability of any Significant Subsidiary to (a) pay dividends or make other distributions or pay any Debt owed to the Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any Subsidiary of the Borrower, (c) transfer properties or assets to the Borrower or any Subsidiary of the Borrower or (d) create, incur, assume or suffer to exist any Lien upon its property, assets or revenues, whether now owned or hereafter acquired, except (i) customary provisions incident to Liens which the Subsidiaries are permitted to incur pursuant to this Agreement, (ii) customary restrictions on assignability in leases and other contracts entered into in the ordinary course of business, (iii) the restrictions disclosed on Schedule I to the Original Agreement and (iv) restrictions no more restrictive than those so disclosed in agreements relating to Debt that is incurred to refinance the Debt to which the restrictions so disclosed relate; provided that the principal amount of such Debt is not increased (except by the amount of costs reasonably incurred in connection with the issuance thereof). ARTICLE VI DEFAULTS SECTION 6.01. Defaults. If one or more of the following events (each, an "Event of Default") shall have occurred and be continuing: (a) any principal of or any interest on any Loan or any fees or any other amount payable hereunder shall not be paid within two Domestic Business Days of the date when due; or (b) any Borrower shall fail to observe or perform any covenant contained in Sections 5.09 through 5.18, inclusive; or (c) any Obligor shall fail to observe or perform any of its covenants or agreements contained in the Financing Documents (other than those covered by paragraph (a) or (b) above) and such failure shall continue for ten Domestic Business Days after such Obligor knew or in the exercise of reasonable diligence should have known of such failure; or (d) any representation, warranty, certification or statement made by any Obligor in any Financing Document or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made (or deemed made); or (e) (i) the Borrower or any of its Subsidiaries shall fail to make any payment in respect of Material Debt when due or within any applicable grace period or (ii) the Borrower or any of its Subsidiaries shall fail to make a payment in excess of $10,000,000 in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, when due or within any applicable grace period; (f) any event or condition shall occur that results in the acceleration of the maturity of Material Debt or enables the holder or holders of Material Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof; or (g) the Borrower or any Significant Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now 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 shall consent 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 shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Significant Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now 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, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the Federal bankruptcy laws as now or hereafter in effect; or (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $20,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $20,000,000; or (j) a judgment or order for the payment of money in excess of $10,000,000 shall be rendered against the Borrower or any Significant Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals who were directors of the Borrower on the first day of such period, together with directors whose election or appointment as directors was effected or recommended by a majority of such directors, shall cease to constitute a majority of the board of directors of the Borrower; or (l) any authorization, approval, consent, license or exemption necessary for any Obligor to comply with its obligations under any Financing Document or the enforceability of any Financing Document expires or is revoked, withheld or modified in a manner unacceptable to the Required Banks or fails to be granted or to remain in full force and effect and the effect of any of the foregoing is not, or is not able to be, remedied within 30 days; then, and in every such event, the Agent shall (i) if requested by the Required Banks, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by the Required Banks, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Obligor; provided that in the case of an Event of Acceleration, without any notice to any Obligor or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Obligor. SECTION 6.02. Notice of Default. The Agent shall give notice to an Obligor of a Default promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints the Agent to act as its agent in connection herewith and authorizes the Agent to take such action as agent on such Bank's behalf and to exercise such powers under the Financing Documents as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agent and Affiliates. Morgan shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with any Obligor or any Subsidiary or Affiliate of any Obligor as if it were not the Agent. SECTION 7.03. Action by Agent. The obligations of the Agent under the Financing Documents are only those expressly set forth therein with respect to it. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for an Obligor), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable to any Bank for any action taken or not taken by it in connection with the Financing Documents (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with any Financing Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any Obligor under any Financing Document; (iii) the satisfaction of any condition specified in Article III or X, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of any Financing Document or any other instrument or writing furnished in connection therewith. The Agent shall incur no liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile copy or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. The Banks shall, ratably in accordance with their respective Commitments, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by any Obligor) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Financing Documents or any action taken or omitted by such indemnitees thereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the 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 credit decisions in taking or not taking any action under the Financing Documents. SECTION 7.08. Agents' Fees. The Borrower shall pay arrangement and agency fees to the Agent and each Co-Agent in the amounts and on the dates agreed to prior to the date hereof by the Borrower and the Agent or such Co-Agent, as the case may be. SECTION 7.09. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right, with the consent of the Borrower (which shall not be unreasonably withheld), to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a Bank or a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $200,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.10. Co-Agents Not Liable. Except as contemplated by the definition of "Determining Banks", nothing in the Financing Documents shall impose upon either Co-Agent, in such capacity, any duties or responsibilities whatsoever. In its capacity as a Determining Bank, each Co-Agent shall be entitled to the benefits of the foregoing provisions of this Article VII to the same extent as the Agent. ARTICLE VIII CHANGES IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If prior to the first day of any Interest Period for any Euro-Dollar Borrowing or Money Market LIBOR Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the London interbank market for such Interest Period, or (b) in the case of a Euro-Dollar Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Dollar Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make Euro-Dollar Loans or to convert outstanding Domestic Loans into Euro-Dollar Loans shall be suspended and each outstanding Euro-Dollar Loan shall be converted into a Domestic Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Euro-Dollar Borrowing, such Borrowing shall instead be made as a Domestic Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans or to convert outstanding Domestic Loans into Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro- Dollar Loan of such Bank then outstanding shall be converted to a Domestic Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro- Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Euro-Dollar Loan or any obligation to make Euro-Dollar Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve, special deposit, insurance assessment or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans, and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining its Fixed Rate Loans, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction; provided that no Bank shall be entitled to compensation under this Section 8.03 for any such increased cost or reduction that is the result of the withholding or payment of any Taxes or Other Taxes. (b) If any Bank shall have determined that, on or after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Domestic Loans Substituted for Affected Euro-Dollar Loans. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 2.14 or 8.03(a) with respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) Euro-Dollar Loans shall instead be Domestic Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Domestic Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Domestic Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Banks. SECTION 8.05. Substitution of Bank. If any Bank (i) has demanded or is entitled to receive compensation for increased costs pursuant to Section 2.14 or 8.03 or (ii) has determined that the making or continuation of any Euro-Dollar Rate Loan has become unlawful or impossible pursuant to Section 8.02 and similar compensation has not been demanded by, or a similar determination has not been made by, all of the Banks, the Borrower shall have the right to designate an Assignee which is not an Affiliate of the Borrower to purchase for cash the outstanding Loans and Commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid commitment and facility fees in respect of that Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.12 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment and such Bank shall effect the sale of such Loans and Commitment to the designated Assignee on such terms. ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices. Unless otherwise specified herein, all notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile copy or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Co-Agent or Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or telex or facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective when received or when delivery thereof is refused. SECTION 9.02. No Waiver. No failure or delay by the Agent or any Bank in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in the Financing Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay on demand (i) all reasonable out-of-pocket expenses of the Agent and the Co-Agents (including, without limitation, fees and disbursements of Davis Polk & Wardwell, special counsel for the Agent and the Co-Agents, and such local counsel as may be retained by the Agent on behalf of the Banks and the Agent) in connection with the preparation and administration of the Financing Documents, any waiver, consent or amendment of any provision thereof, or any Default or alleged Default thereunder, and (ii) if any Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent or any Bank, including fees and disbursements of counsel, in connection with such Event of Default and collection and other enforcement proceedings resulting therefrom. (b) The Borrower shall indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind (including, without limitation, the reasonable fees and disbursements of counsel for any Indemnitee in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitee shall be designated a party thereto) which may be incurred by any Indemnitee relating to or arising out of the Financing Documents or any actual or proposed use of the proceeds of the Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction; provided further that no Indemnitee shall have the right to be indemnified hereunder in connection with any proceedings between it and another Indemnitee which does not relate to the Borrower. The Borrower shall not be liable to any Indemnitee for the cost of any settlement entered into without the consent of the Borrower, such consent not to be unreasonably withheld. SECTION 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to its Loans which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to the Loans of such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Loans of the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans of the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower or a Guarantor other than indebtedness under the Financing Documents. The Borrower and each Guarantor agree, to the fullest extent they may effectively do so under applicable law, that any holder of a participation in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower or such Guarantor, as the case may be, in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent or either Co-Agent are affected thereby, by it); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, (iv) amend Section 2.09(c) or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Obligors and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Obligors and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Obligors agree that each Participant shall, to the extent provided in its participation agreement and subject to subsection (e) below, be entitled to the benefits of Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a ratable portion (equivalent to an initial Commitment of not less than $10,000,000 in the case of any assignment to an Assignee that is not an affiliate of the transferor Bank) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit H (an "Assignment and Assumption"), executed by such Assignee and such transferor Bank (and, in the case of an Assignee which is not then a Bank or an affiliate of a Bank, with the subscribed consent of the Borrower and the Agent, which shall not be unreasonably withheld) and delivered to the Agent for its acceptance and recording in the Register; provided that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon such execution, delivery, acceptance and recordation, from and after the effective date determined pursuant to such Assignment and Assumption, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such Assignment and Assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.14. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights (which for purposes of this Section 9.06(e) shall include any new Applicable Lending Office designated by such Bank after the date hereof) shall be entitled to receive any greater payment under Section 8.03 or 2.14 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) The Agent (acting as agent of the Borrower for this purpose only) shall maintain at its address referred to in Section 9.01 a copy of each Assignment and Assumption delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time. The Register shall be available for inspection and copying by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. Upon its receipt of an Assignment and Assumption executed by a transferor Bank and an Assignee (and, in the case of an Assignee that is not then a Bank or an affiliate of a Bank, by the Borrower and the Agent) together with payment by such transferor Bank to the Agent of a registration and processing fee of $3,000, the Agent shall (i) promptly accept such Assignment and Assumption and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation of the transferor Bank, its Assignee and the Borrower. SECTION 9.07. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Obligors hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Obligors irrevocably waive, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.09. Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. Should any part of this Agreement for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part, parts, or portion which may, for any reason, be hereafter declared invalid. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10. SECTION 9.11. Confidentiality. Each Bank agrees to keep any information delivered or made available by the Obligors to it confidential from anyone other than persons employed or retained by such Bank who are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from disclosing such information (a) to any other Bank or to the Agent, (b) to any other person if reasonably incidental to the administration of the Loans or required by applicable law or regulation, (c) upon the subpoena or order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority, (e) which had been publicly disclosed other than as a result of a disclosure by the Agent or any Bank prohibited by this Agreement, (f) in connection with any litigation to which the Agent, any Bank or its subsidiaries or Parent may be a party, (g) to the extent necessary in connection with the exercise of any remedy hereunder, (h) to such Bank's or Agent's legal counsel and independent auditors and (i) subject to a confidentiality agreement containing provisions substantially similar to those contained in this Section made for the benefit of the Borrower by any actual or proposed Participant or Assignee, to such actual or proposed Participant or Assignee. ARTICLE X EFFECTIVENESS SECTION 10.01. Conditions to Effectiveness. This Amended Agreement will become effective upon the satisfaction of the following conditions: (a) receipt by the Agent of duly executed counterparts of this Amended Agreement signed by all of the parties hereto (or, in the case of any party as to which the executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart of this Amended Agreement by such party); (b) arrangements satisfactory to the Agent shall have been made to repay the Loans made by the Banks under the Original Agreement with the proceeds of the Loans to be made on the Effective Date by the Banks under this Amended Agreement pursuant to Section 10.02(b); (c) receipt by the Agent for the account of each Bank of a duly executed Note, each dated the Effective Date, complying with the provisions of Section 2.05; (d) receipt by the Agent of an opinion of (i) Cahill Gordon & Reindel, special counsel for the Obligors, substantially to the effect set forth in Exhibit B-1 hereto, and (ii) the General Counsel of the Borrower, substantially to the effect set forth in Exhibit B-2 hereto; (e) receipt by the Agent of an opinion of Davis Polk & Wardwell special counsel for the Agent and the Co-Agents, substantially to the effect set forth in Exhibit C hereto; (f) receipt by the Agent of a certificate signed by a Financial Officer of the Borrower to the effect set forth in clauses (c) and (d) of Section 3.01; (g) receipt by the Agent of duly executed counterparts of the Subsidiary Guaranty Agreement signed by all of the parties listed on the signature pages thereof (or, in the case of any party as to which the executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart of the Subsidiary Guaranty Agreement by such party); and (h) receipt by the Agent of all documents it may reasonably request relating to the existence of each Obligor, the corporate authority for and validity of the Financing Documents and any other matters relevant hereto, all in form and substance satisfactory to the Agent. The documents and opinions referred to in this Section 10.01 shall be delivered to the Agent no later than the Effective Date. The certificate and opinions referred to in subsection (d), (e) and (f) above shall be dated the Effective Date. SECTION 10.02. Consequences of Effectiveness; Transitional Provisions. (a) On the Effective Date, the Original Agreement will be automatically amended and restated in its entirety to read as set forth herein. On and after the Effective Date, the rights and obligations of the parties hereto shall be governed by this Amended Agreement; provided that rights and obligations of the parties to the Original Agreement with respect to the period prior to the Effective Date shall continue to be governed by the provisions of the Original Agreement. The Agent will promptly notify each of the other parties hereto of the effectiveness of this Amended Agreement. (b) Concurrently with the effectiveness of this Amended Agreement, the Borrower shall prepay the Loans made by the Banks under the Original Agreement in full (including accrued and unpaid interest thereon to, but excluding, the Effective Date) with the proceeds of Loans made by the Banks under this Amended Agreement. Each Bank that was a party to the Original Agreement will return to the Agent the Note issued to such Bank under the Original Agreement marked "cancelled" upon the repayment in full of the Loans made by such Bank under the Original Agreement, whereupon the Agent shall return such cancelled Notes to the Borrower. (c) On the Effective Date any Bank that was a party to the Original Agreement whose Commitment set forth on the signature pages of this Amended Agreement is zero shall cease to be a Bank party to this Agreement, and the Borrower shall on the Effective Date pay to the Agent for the account of each such Bank all accrued commitment fees under the Original Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amended Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE LOUISIANA LAND AND EXPLORATION COMPANY By /s/ Louis A. Raspino Title: Treasurer 909 Poydras Street New Orleans, LA 70112 Attention: Louis Raspino Facsimile number: 504-566-6584 Commitments $35,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Philip W. McNeal Title: Vice President $30,000,000 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Robert Mertensotto Title: Senior Vice President $30,000,000 NATIONSBANK OF TEXAS, N.A. By /s/ Marion B. Leman Title: Assistant Vice President Commitments -0- J.P. MORGAN DELAWARE By /s/ Philip S. Detjens Title: Vice President $15,250,000 ABN AMRO BANK, N.V. By /s/ L. David Wright Title: Vice President By /s/ Charles Randall Title: Group Vice President $15,250,000 BANK OF MONTREAL By /s/ Robert L. Roberts Title: Director, U.S. Corporate Banking $15,250,000 THE BANK OF NEW YORK By /s/ Raymond J. Palmer Title: Vice President $15,250,000 THE BANK OF NOVA SCOTIA By /s/ A.S. Norsworthy Title: Assistant Agent Commitments $15,250,000 BANQUE PARIBAS HOUSTON AGENCY By /s/ Brian Malone Title: Vice President By /s/ Patrick J. Milon Title: SVP - Deputy General Manager $15,250,000 BARCLAYS BANK PLC By /s/ Richard B. Williams Title: Director $15,250,000 CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Xavier Ratouis Title: Authorized Signature $15,250,000 THE FIRST NATIONAL BANK OF BOSTON By /s/ Michael Kane Title: Managing Director $15,250,000 THE FIRST NATIONAL BANK OF CHICAGO By /s/ Susan Hodge Title: Vice President Commitments $15,250,000 FIRST NATIONAL BANK OF COMMERCE By /s/ Cory B. Armand Title: Assistant Vice President $15,250,000 HIBERNIA NATIONAL BANK By /s/ Lindsay Job Title: Vice President $15,250,000 THE INDUSTRIAL BANK OF JAPAN LIMITED NEW YORK BRANCH By /s/ Robert W. Ramage, Jr. Title: Senior Vice President $15,250,000 MEESPIERSON N.V. By /s/ K. Louman Title: Vice President $15,250,000 MELLON BANK, N.A. By /s/ A.J. Sabatelle Title: Vice President $15,250,000 MIDLAND BANK PLC NEW YORK BRANCH By /s/ Gregory B. Jansen Title: Director Commitments $15,250,000 NBD BANK, N.A. By /s/ Douglas R. Liftman Title: Vice President $15,250,000 ROYAL BANK OF CANADA By /s/ Gil J. Benard Title: Senior Manager $15,250,000 SOCIETE GENERALE, SOUTHWEST AGENCY By /s/ James R. Shelton Title: Vice President $15,250,000 TORONTO-DOMINION (TEXAS), INC. By /s/ Warren Finlay Title: Vice President $25,000,000 UNION BANK OF SWITZERLAND, HOUSTON AGENCY By /s/ Dan O. Boyle Title: Vice President By /s/ Evans Swann Title: Vice President Commitments $25,000,000 WACHOVIA BANK OF GEORGIA, N.A. By /s/ Terry R. Akins Title: Senior Vice President $15,250,000 WHITNEY NATIONAL BANK By /s/ Robert L. Browning Title: Senior Vice President _________________ Total Commitments $450,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Philip W. McNeal Title: Vice President 60 Wall Street New York, NY 10260-0060 Attention: Nancy Dunbar Telex number: 177615 Facsimile number: 212-648-5023 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Co-Agent By /s/ Robert Mertensotto Title: Senior Vice President NATIONSBANK OF TEXAS, N.A., as Co-Agent By /s/ Marion B. Leman Title: Assistant Vice President SCHEDULE I PRICING SCHEDULE The "Applicable Margin", "Commitment Fee Rate" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Level Level Level Level Status I II III IV Applicable Margin If the Applicable Ratio is less than 25% 0.325% 0.50% 0.55% 0.60% If the Applicable Ratio equals or exceeds 25% 0.325% 0.40% 0.45% 0.60% Commitment Fee Rate If the Applicable Ratio is less than 25% 0.05% 0.10% 0.10% 0.05% If the Applicable Ratio equals or exceeds 25% 0.05% 0.05% 0.05% 0.05% Facility Fee Rate 0.125% 0.15% 0.20% 0.25% For purposes of this Schedule, the following terms have the following meanings: "Applicable Ratio" means, with respect to each day during any Quarter, the ratio of (i) Consolidated Cash Flow for the period of four consecutive Quarters most recently ended prior to such date (or, if such period of four consecutive Quarters begins prior to January 1, 1994, Consolidated Cash Flow for such number of consecutive Quarters as shall have commenced on or after January 1, 1994 and ended prior to such date, annualized on a simple arithmetic basis) to (ii) Consolidated Debt as at the last day of the Quarter most recently ended prior to such date. Upon consummation by the Borrower of any material acquisition, the Banks shall give good faith consideration to a request to determine the Applicable Ratio on a pro forma basis and, if the Required Banks at the time so agree, the Applicable Ratio shall be so determined. "Level I Status" exists at any date if, at such date, the Borrower's long-term debt is rated BBB+ or higher by S&P and Baa1 or higher by Moody's. "Level II Status" exists at any date if, at such date, (i) the Borrower's long-term debt is rated (x) BBB or higher by S&P and Baa3 or higher by Moody's or (y) Baa2 or higher by Moody's and BBB- or higher by S&P and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, the Borrower's long-term debt is rated BBB- by S&P and Baa3 by Moody's. "Level IV Status" exists at any date if, at such date, no other Status exists. "Quarter" means each period of three consecutive calendar months consisting of (i) January, February and March; (ii) April, May and June; (iii) July, August and September and (iv) October, November and December. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status or Level IV Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. The Applicable Ratio for each day during each Quarter shall be determined initially on the basis of an estimate which shall be furnished by the Borrower to the Agent not later than the earlier of (i) the sixtieth day of such Quarter and (ii) the tenth day prior to the first day (if any) during such Quarter on which interest is payable in respect of any Euro-Dollar Loan. If when finally determined the actual Applicable Ratio differs from the estimate, appropriate adjustments shall be made as determined by the Agent. Any estimate furnished by the Borrower pursuant to this paragraph is solely for administrative convenience and the Borrower shall incur no liability for any inaccurate estimate submitted in good faith. EXHIBIT A NOTE New York, New York , 19 For value received, The Louisiana Land and Exploration Company, a Maryland corporation (the "Borrower"), promises to pay to (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and, in the case of Money Market Loans, maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Amended and Restated Credit Agreement dated as of August 19, 1994 among the Borrower, the banks listed on the signature pages thereof, Morgan Guaranty Trust Company of New York, as Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co- Agents (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. THE LOUISIANA LAND AND EXPLORATION COMPANY By________________________ Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL __________________________________________________________________ Amount of Amount of Type of Maturity Principal Notation Date Loan Loan of Loan Repaid Made By __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ EXHIBIT B-1 August 19, 1994 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, NY 10260 Dear Sirs: We have acted as counsel for the Louisiana Land and Exploration Company (the "Borrower") in connection with the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of August 19, 1994 among the Borrower, the banks listed on the signature pages thereof, Morgan Guaranty Trust Company of New York, as Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of our client pursuant to the Credit Agreement. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. We have assumed for purposes of our opinions set forth below that the execution and delivery of the Credit Agreement by the Agent and each of the Banks has been duly authorized by the Agent and the Banks. As to questions of fact relating to the Borrower material to such opinions, we have relied upon representations of appropriate officers of the Borrower. Upon the basis of the foregoing, we are of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Maryland, and has all corporate powers required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Credit Agreement, the Notes and the Subsidiary Guaranty Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, do not contravene, or constitute a default under, the articles of incorporation or by-laws of the Borrower, and require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or, to our knowledge, of any agreement or instrument evidencing or governing Debt of the Borrower or any Subsidiary or any other material agreement, judgment, injunction, order, decree or other instrument known to us and binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 3. Each of the Credit Agreement and the Subsidiary Guaranty Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms, in each case except (i) as limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by general equitable principles. 4. Each of LL&E (U.K.) Inc., LL&E Netherlands, Inc. and Inexco Oil Company (collectively, the "Guarantors") is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers required to carry on its business as now conducted. 5. The execution, delivery and performance by each Guarantor of the Subsidiary Guaranty Agreement are within such Guarantors' corporate powers and have been duly authorized by all necessary corporate action of such Guarantor. 6. The Subsidiary Guaranty Agreement constitutes a valid and binding agreement of each of the Guarantors enforceable in accordance with its terms, except (i) as limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by general equitable principles. We are qualified to practice in the State of New York and do not purport to be experts on any laws other than the laws of the United States, the State of New York, the Corporations and Associations Law of the State of Maryland, and the General Corporation Law of the State of Delaware. We have made no independent investigation of the laws of any other jurisdiction and, accordingly, this opinion is rendered only with respect to the laws of such jurisdictions. In giving this opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. The opinions expressed herein are solely for the benefit of the Banks and the Agent and may not be relied upon by any other persons. Very truly yours, EXHIBIT B-2 August 19, 1994 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, NY 10260 Re: Opinion of General Counsel of the Borrower Dear Sirs: I am General Counsel of The Louisiana Land and Exploration Company (the "Borrower") and have acted as such in connection with the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of August 19, 1994, among the Borrower, the banks listed on the signature pages thereof, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co- Agents. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of the Borrower pursuant to Section 10.01(d) of the Credit Agreement. I, or attorneys acting under my supervision, have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I have assumed for purposes of our opinions set forth below that the execution and delivery of the Credit Agreement by the Agent and each of the Banks has been duly authorized by the Agent and the Banks. As to questions of fact relating to the Borrower material to such opinions, we have relied upon representations of appropriate officers of the Borrower. Upon the Basis of the foregoing, I am of the opinion that: 1. The Borrower has all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. Except as set forth in the Borrower's Annual Report on Form 10-K for the year ended December 31, 1993, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which an adverse decision could reasonably be expected which could have a Material Adverse Effect or which, to my knowledge, in any manner draws into question of the validity of the Credit Agreement, the Subsidiary Guaranty Agreement or the Notes. 3. The execution, delivery and performance by each of LL&E (U.K.) Inc., LL&E Netherlands, Inc. and Inexco Oil Company (collectively, the "Guarantors") of the Subsidiary Guaranty Agreement do not contravene or constitute a default under the certificate of incorporation or by-laws of such Guarantors, and require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under any provision of applicable law or regulation or of any material agreement, judgment, injunction, order, decree or other instrument known to me and binding upon such Guarantor or result in the creation or imposition of any Lien on any asset of such Guarantor. I am qualified to practice in the State of Louisiana and do not purport to be an expert on any laws other than the laws of the United States and the State of Louisiana, and this opinion is rendered only with respect to such laws. I have made no independent investigation of the laws of any other jurisdiction. The opinions expressed herein are solely for the benefits of the Banks and the Agent and may not be relied upon by any other persons. Very truly yours, EXHIBIT C OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the Amended and Restated Credit Agreement (the "Credit Agreement") dated as of August 19, 1994 among The Louisiana Land and Exploration Company, a Maryland corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks"), Morgan Guaranty Trust Company of New York, as Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents (the "Co- Agents"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 10.01(e) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, and assuming the due authorization, execution and delivery of the Credit Agreement, the Subsidiary Guaranty Agreement and each of the Notes by or on behalf of the Borrower, we are of the opinion that each of the Credit Agreement and the Subsidiary Guaranty Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, EXHIBIT D AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT dated as of August 19, 1994 among The Louisiana Land and Exploration Company The Guarantors Referred to Herein and Morgan Guaranty Trust Company of New York, as Agent TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1.01 Definitions ..................................... 2 ARTICLE II GUARANTIES 2.01 The Guaranties ................................. 3 2.02 Guaranties Unconditional ....................... 3 2.03 Limit of Liability ............................. 4 2.04 Discharge; Reinstatement in Certain Circumstances ........................ 4 2.05 Waiver ......................................... 5 2.06 Subrogation .................................... 5 2.07 Stay of Acceleration ........................... 5 ARTICLE III COVENANT OF THE BORROWER 3.01 Additional Guarantors .......................... 5 ARTICLE IV MISCELLANEOUS 4.01 Notices ........................................ 6 4.02 No Waiver ...................................... 6 4.03 Amendments and Waivers ......................... 6 4.04 Governing Law; Submission to Jurisdiction; Waiver of a Jury Trial ................................... 6 4.05 Successors and Assigns ......................... 7 4.06 Counterparts; Effectiveness .................... 7 * The Table of Contents is not a part of this Agreement. AMENDED AND RESTATED SUBSIDIARY GUARANTY AGREEMENT AGREEMENT dated as of August 19, 1994 among The Louisiana Land and Exploration Company, a Maryland corporation (the "Borrower"), each of the Guarantors listed on the signature pages hereof under the caption "Guarantors" and each Person that shall, at any time after the date hereof, become a "Guarantor" hereunder (collectively, the "Guarantors") and Morgan Guaranty Trust Company of New York, as Agent. WHEREAS, the Borrower has entered into an Amended and Restated Credit Agreement (the "Original Credit Agreement") dated as of September 22, 1993 among the Borrower, the banks listed on the signature pages thereof, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents, pursuant to which the Borrower was entitled, subject to certain conditions, to borrow up to $790,000,000; WHEREAS, in conjunction with the transactions contemplated by the Credit Agreement and in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the Guarantors, and in order to induce the Banks and the Agent to enter into the Credit Agreement and to make Loans thereunder, the Guarantors, the Borrower and the Agent entered into a Subsidiary Guaranty Agreement (the "Original Subsidiary Guaranty") dated as of September 22, 1993; WHEREAS, the parties thereto desire to amend and restate the Original Credit Agreement to make certain changes that are mutually satisfactory to the parties thereto (as so amended and restated, the "Amended and Restated Credit Agreement" and as so amended and restated and as further amended from time to time, the "Credit Agreement") and, concurrently with such amendment and restatement the parties hereto desire to amend the Original Subsidiary Guaranty as herein provided; and WHEREAS, upon satisfaction of the conditions set forth in Section 4.06 hereof, the Original Subsidiary Guaranty will be automatically amended and restated to read in full as set forth herein; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. In addition the following terms, as used herein, have the following meanings: "Agreement" means the Original Subsidiary Guaranty, as amended by this Amended Agreement and as the same may be further amended from time to time in accordance with the terms hereof. "Amended Agreement" means this Amended and Restated Subsidiary Guaranty Agreement dated as of August 19, 1994 among the Borrower, the Guarantors listed in the signature pages hereof and the Agent. "Guarantied Obligations" means (i) all obligations of the Borrower in respect of principal of and interest on the Loans and the Notes, (ii) all other amounts payable by the Borrower under the Credit Agreement or the Notes and (iii) all renewals or extensions of the foregoing, in each case whether now outstanding or hereafter arising. The Guarantied Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any one or more than one of the Borrower and the Guarantors, and any such interest, costs, fees and expenses that would have accrued thereon or with respect thereto but for the commencement of such case, proceeding or other action. "Material Subsidiary" means (i) each of LL&E (U.K.) Inc., LL&E Netherlands, Inc. and Inexco Oil Company, (ii) each Subsidiary of the Borrower the assets of which include Petroleum Properties having aggregate Lending Values in excess of 3% of the Debt Limit that the Required Banks have by notice to the Borrower designated as a "Material Subsidiary" for purposes hereof and (iii) all direct or indirect successors in interest to any of the entities described in clauses (i) and (ii) of this definition (including, without limitation, by way of merger or consolidation with, or acquisition of all or a substantial part of the assets of, any such entity); provided that, if and for so long as Petroleum Properties owned by the Borrower and the Guarantors have an aggregate Lending Value in excess of 90% of the Debt Limit, no Subsidiary that is organized under the laws of any jurisdiction other than the United States or any State thereof (a "Foreign Subsidiary") shall be considered a "Material Subsidiary" for purposes hereof pursuant to clause (iii) of this definition, nor will the Required Banks be entitled to designate a Foreign Subsidiary as a Material Subsidiary as contemplated by clause (ii) of this definition; provided, further, that notwithstanding the foregoing, any Subsidiary having an interest in Proved Reserves purchased as part of the T-Block Acquisition (as defined in the Original Credit Agreement) shall be a Material Subsidiary. "Original Subsidiary Guaranty" has the meaning set forth in the recitals to this Amended Agreement. ARTICLE II GUARANTIES SECTION 2.01. The Guaranties. Subject to Section 2.03, the Guarantors hereby jointly, severally, unconditionally and irrevocably guaranty to the Banks and the Agent and to each of them, the due and punctual payment of all Guarantied Obligations as and when the same shall become due and payable, whether at maturity, by declaration or otherwise, according to the terms thereof. In case of failure by the Borrower punctually to pay the indebtedness guarantied hereby, the Guarantors, subject to Section 2.03, hereby jointly, severally and unconditionally agree to cause such payment to be made punctually as and when the same shall become due and payable, whether at maturity or by declaration or otherwise, and as if such payment were made by the Borrower. SECTION 2.02. Guaranties Unconditional. The obligations of each Guarantor under this Article II shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Obligor under any Financing Document, by operation of law or otherwise; (b) any modification or amendment of or supplement to any Financing Document; (c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guaranty or other liability of any third party, for any obligation of any other Obligor under any Financing Document; (d) any change in the corporate existence, structure or ownership of any other Obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other Obligor or its assets or any resulting release or discharge of any obligation of any other Obligor contained in any Financing Document; (e) the existence of any claim, set-off or other rights which any Guarantor may have at any time against any other Obligor, the Agent, any Bank or any other Person, whether or not arising in connection with the Financing Documents; provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (f) any invalidity or unenforceability relating to or against any other Obligor for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by any other Obligor of the principal of or interest on any Note or any other amount payable by any other Obligor under any Financing Document; or (g) any other act or omission to act or delay of any kind by any other Obligor, the Agent, any Bank or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of any Guarantor under this Article II. SECTION 2.03. Limit of Liability. Each Guarantor shall be liable under this Agreement only for amounts aggregating up to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law. SECTION 2.04. Discharge; Reinstatement in Certain Cir- cumstances. Each Guarantor's obligations under this Article II shall remain in full force and effect until the Commitments are terminated and the principal of and interest on the Notes and all other amounts payable by the Borrower under the Financing Documents shall have been paid in full; provided that, if the Borrower disposes of its entire Investment in any Guarantor as permitted by the Credit Agreement, the obligations of such Guarantor hereunder shall automatically be discharged and terminated without any action by any party hereto. Except as provided in the preceding sentence, the obligations of any Guarantor under this Article II may only be terminated with the consent of all of the Banks. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Borrower under any Financing Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any other Obligor or otherwise, each Guarantor's obligations under this Article II with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. SECTION 2.05. Waiver. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any other Obligor or any other Person. SECTION 2.06. Subrogation. Each Guarantor irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against the Borrower with respect to such payment or otherwise to be reimbursed, indemnified or exonerated by any other Obligor in respect thereof. SECTION 2.07. Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Borrower under the Financing Documents is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Financing Documents shall nonetheless be payable by each Guarantor hereunder forthwith on demand by the Agent made at the request of the Required Banks. ARTICLE III COVENANT OF THE BORROWER SECTION 3.01. Additional Guarantors. The Borrower represents and warrants that, as of the date of this Agreement, the Guarantors set forth on the signature pages hereof constitute all Material Subsidiaries. The Borrower agrees, within ten days after any Person hereafter becomes a Material Subsidiary, to cause such Person to become a Guarantor hereunder, and in connection therewith to deliver such opinions of counsel and other documents relating to such Guarantor and its obligations hereunder as the Agent may reasonably request. ARTICLE IV MISCELLANEOUS SECTION 4.01. Notices. Unless otherwise specified herein, all notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given to such party at its address or facsimile number set forth on the signature pages hereof (or, in the case of any Guarantor as to which no such address or facsimile number is so set forth, to it at the address or facsimile number of the Borrower set forth on the signature pages hereof) or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Agent. Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when such facsimile is transmitted to the facsimile transmission number specified in or pursuant to this Section 4.01 (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section 4.01. SECTION 4.02. No Waiver. No failure or delay by the Agent or any Bank in exercising any right, power or privilege under this Agreement or any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 4.03. Amendments and Waivers. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed by the Borrower, each Guarantor and the Agent with the prior written consent of the Required Banks under the Credit Agreement; provided that the second sentence of Section 2.04 of this Agreement may only be amended with the consent of all of the Banks. SECTION 4.04. Governing Law; Submission to Jurisdiction; Waiver of a Jury Trial. This Agreement shall be construed in accordance with and governed by the law of the State of New York. Each of the Guarantors hereby agrees to be bound by each provision of the Credit Agreement which purports to bind it, including without limitation Sections 2.14, 9.04, 9.08 and 9.10, to the same extent as if it were a signatory party thereto. SECTION 4.05. Successors and Assigns. This Agreement is for the benefit of the Banks and the Agent and their respective successors and assigns and in the event of an assignment of the Loans, the Notes or other amounts payable under the Financing Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. All the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 4.06. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, and all of which taken together shall constitute a single instrument, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amended Agreement shall become effective when the Agent shall have received a counterpart hereof signed by the Borrower, and one or more of the Guarantors and when the Amended and Restated Credit Agreement shall become effective in accordance with its terms. Thereafter, upon execution and delivery of a counterpart of this Agreement on behalf of any other Guarantor, this Agreement shall become effective with respect to such Guarantor as of the date of such delivery. IN WITNESS WHEREOF, the parties hereto have caused this Amended Agreement to be duly executed by their respective authorized officers as of the date first above written. THE LOUISIANA LAND AND EXPLORATION COMPANY By /s/ Louis A. Raspino Title: Treasurer GUARANTORS LL&E (U.K.) INC. By /s/ John F. Greene Title: Chairman of the Board LL&E NETHERLANDS, INC. By /s/ Richard A. Bachmann Title: Vice President Chief Financial Officer INEXCO OIL COMPANY By /s/ Richard A. Bachmann Title: Vice President Chief Financial Officer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Philip W. McNeal Title: Vice President EXHIBIT E Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: The Louisiana Land and Exploration Company Re: Amended and Restated Credit Agreement (the "Credit Agreement") dated as of August 19, 1994 among the Borrower, the Banks listed on the signature pages thereof and the Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount** Interest Period*** $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] **Amount must be $10,000,000 or a larger multiple of $1,000,000. ***Not less than one month (LIBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. THE LOUISIANA LAND AND EXPLORATION COMPANY By________________________ Title: EXHIBIT F Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to The Louisiana Land and Exploration Company (the "Borrower") Pursuant to Section 2.03 of the Amended and Restated Credit Agreement dated as of August 19, 1994 among the Borrower, the Banks parties thereto and the undersigned, as Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By______________________ Authorized Officer EXHIBIT G Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to The Louisiana Land and Exploration Company (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _____________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Amended and Restated Credit Agreement dated as of August 19, 1994 among the Borrower, the Banks listed on the signature pages thereof and yourselves, as Agent and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co- Agents, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer *** Not less than one month or not less than 30 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), THE LOUISIANA LAND AND EXPLORATION COMPANY (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Amended and Restated Credit Agreement dated as of August 19, 1994 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the effective date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Borrower and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the effective date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the effective date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the effective date hereof in Federal funds the amount heretofore agreed between them. It is understood that commitment and/or facility fees in respect of the Assigned Amount accrued to the effective date hereof are for the account of the Assignor and such fees accruing from and including the effective date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee.] SECTION 5. Effectiveness. The effective date of this Agreement shall be __________, 199_. Following the execution of this Agreement, it will be delivered to the Agent for acceptance by it and recording by the Agent pursuant to Section 9.06(f) of the Credit Agreement effective as of the date specified above (which shall not, unless otherwise agreed to by the Agent, be earlier than five Domestic Business Days after the date of such acceptance and recording by the Agent). SECTION 6. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By_________________________ Title: [ASSIGNEE] By__________________________ Title: THE LOUISIANA LAND AND EXPLORATION COMPANY By__________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By__________________________ Title: EX-10 4 EXHIBIT 10(m) AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT dated as of January 23, 1995 among THE LOUISIANA LAND AND EXPLORATION COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into an Amended and Restated Credit Agreement dated as of August 19, 1994 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement as provided below. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. Amendment to Section 5.15. Section 5.15 of the Agreement is amended by the addition of the following language at the end thereof: "minus (iii) an amount equal to the lesser of (x) the net after tax amount of non-cash write downs of long term assets by the Borrower for the year ended December 31, 1994 and (y) $225,000,000". SECTION 3 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by the Borrower and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE LOUISIANA LAND AND EXPLORATION COMPANY By /s/ Louis Raspino Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ John Kowalczuk Title: Vice President TEXAS COMMERCE BANK NATIONAL ASSOCIATION By /s/ Scott Richardson Title: Vice President NATIONSBANK OF TEXAS, N.A. By /s/ Paul A. Squires Title: Senior Vice President ABN AMRO BANK, N.V. By /s/ David Wright Title: Vice President By /s/ C. Randall Title: Group Vice President BANK OF MONTREAL By /s/ Shana L. Sloan Title: Director THE BANK OF NEW YORK By /s/ Dennis M. Pidherny Title: Vice President THE BANK OF NOVA SCOTIA By /s/ F.C.H. Ashby Title: Senior Manager Loan Operations BANQUE PARIBAS HOUSTON AGENCY By /s/ Bart Schouest Title: Group Vice President By /s/ Patrick J. Milon Title: Svp.-Deputy General Manager BARCLAYS BANK PLC By /s/ John G. Sullivan Title: Associate Director CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Xavier Ratouis Title: Authorized Signature THE FIRST NATIONAL BANK OF BOSTON By /s/ Michael Kane Title: Managing Director THE FIRST NATIONAL BANK OF CHICAGO By /s/ Susan Hodge Title: Vice President FIRST NATIONAL BANK OF COMMERCE By /s/ Cory B. Armand Title: Assistant Vice President HIBERNIA NATIONAL BANK By /s/ Colleen S. Smith Title: Vice President THE INDUSTRIAL BANK OF JAPAN LIMITED NEW YORK BRANCH By /s/ Makoto Fukuda Title: Joint General Manager MEESPIERSON N.V. By /s/ T.J. Meulemeester Title: Senior Vice President By /s/ Ir. D. van der Klaauw Title: Senior Account Manager MELLON BANK, N.A. By /s/ Jacquelyn S. Peters Title: Vice President MIDLAND BANK PLC NEW YORK BRANCH By /s/ G. B. Jansen Title: Director NBD BANK, N.A. By /s/ George R. Schanz Title: Vice President ROYAL BANK OF CANADA By /s/ Gil J. Bernard Title: Senior Manager SOCIETE GENERALE, SOUTHWEST AGENCY By /s/ James R. Shelton Title: Vice President TORONTO-DOMINION (TEXAS), INC. By /s/ Diane Bailey Title: Vice President UNION BANK OF SWITZERLAND, HOUSTON AGENCY By /s/ Dan Boyle Title: Vice President By /s/ Evans Swann Title: Managing Director WACHOVIA BANK OF GEORGIA, N.A. By /s/ Linda M. Harris Title: Senior Vice President WHITNEY NATIONAL BANK By /s/ Robert Browning Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ John Kowalczuk Title: Vice President EX-11 5 EXHIBIT 11 Exhibit 11 THE LOUISIANA LAND AND EXPLORATION COMPANY Computation of Primary and Fully Diluted Earnings (Loss) Per Share Years Ended December 31, 1994, 1993 and 1992
(Millions, except per share data) 1994 1993 1992 ________________________________________________________________________________________ PRIMARY EARNINGS (LOSS) PER SHARE: Earnings (loss) before extraordinary item and cumulative effect of changes in accounting principles $(226.9) 12.7 (1.2) Loss on early retirement of debt - (3.3) (5.6) Changes in accounting principles - .2 - ________________________________________________________________________________________ Net earnings (loss) $(226.9) 9.6 (6.8) ________________________________________________________________________________________ Weighted average shares outstanding 33.3 29.4 28.3 Incremental shares attributable to outstanding stock options .1 .1 .1 ________________________________________________________________________________________ Weighted average shares, as adjusted 33.4 29.5 28.4 ________________________________________________________________________________________ Primary earnings (loss) per share before extraordinary item and cumulative effect of changes in accounting principles $ (6.80) 0.43 (0.04) Loss on early retirement of debt - (0.11) (0.20) Changes in accounting principle - 0.01 - ________________________________________________________________________________________ PRIMARY EARNINGS (LOSS) PER SHARE $ (6.80) 0.33 (0.24) ________________________________________________________________________________________ ________________________________________________________________________________________ FULLY DILUTED EARNINGS (LOSS) PER SHARE: Earnings (loss) before extraordinary item N/A N/A $ (1.2) Add back interest expense applicable to convertible subordinated debentures, net of income taxes 1.8 ________________________________________________________________________________________ .6 Loss on early retirement of debt (5.6) ________________________________________________________________________________________ Net earnings (loss) , as adjusted N/A N/A $ (5.0) ________________________________________________________________________________________ Weighted average shares outstanding 28.3 Incremental shares attributable to outstanding stock options - Shares attributable to assumed conversion of convertible subordinated debentures .3 ________________________________________________________________________________________ Weighted average shares, as adjusted N/A N/A 28.6 ________________________________________________________________________________________ Fully diluted earnings (loss) per share before extraordinary item N/A N/A $ 0.02 Loss on early retirement of debt (0.19) ________________________________________________________________________________________ FULLY DILUTED EARNINGS (LOSS) PER SHARE N/A N/A $(0.17)* ________________________________________________________________________________________ * This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to APB Opinion No. 15 because it produces an anti-dilutive result.
EX-21 6 EXHIBIT 21 Exhibit 21 THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant December 31, 1993
% Ownership Jurisdiction by Immediate of Parent Incorporation _______________________________________________________________________________________ The Louisiana Land and Exploration Company - Maryland LL&E Algeria, Ltd. 100 Bermuda LL&E Australia (Offshore) Pty., Ltd. 100 Australia LL&E (Australia) Pty., Ltd. 100 Australia LL&E Canada Holdings, Inc. 100 Delaware LL&E Canada, Ltd. 100 Canada LL&E Colombia, Inc. 100 Delaware LL&E Egypt, Inc. 100 Delaware LL&E Erave Pty., Ltd. 100 Papua New Guinea LL&E Espana, Inc. 100 Delaware LL&E (Europe-Africa-Middle East) Inc. 100 Delaware LL&E France, S.A. 100 France LL&E Gas Marketing, Inc. 100 Delaware LL&E Gippsland Pty., Ltd. 100 Australia LL&E Holland, Ltd. 100 Canada LL&E, Inc. 100 Delaware LL&E Indonesia, Ltd. 100 British Virgin Islands LL&E International, Inc. 100 Delaware LL&E Mining, Inc. 100 Delaware LL&E (Netherlands) Inc. 100 Delaware MaraLou Netherlands Partnership* 50 Texas CLAM Petroleum Company 100 Delaware LL&E Netherlands North Sea, Ltd. 100 Canada LL&E Netherlands Petroleum Company 100 Delaware LL&E North Canada Resources, Ltd. 100 Canada LL&E Overseas Petroleum, Ltd. 100 Delaware LL&E Peru (Maranon), Ltd. 100 Bermuda LL&E Petroleum Marketing, Inc. 100 Delaware LL&E Petroleum Terminals, Inc. 100 Delaware LL&E Petroleum Resources International, Inc. 100 Delaware LL&E Pipeline Corporation 100 Delaware LL&E PNG Pty., Ltd. 100 Papua New Guinea LL&E Properties, Inc. 100 Texas Westport Utilities Systems Co., Inc. 100 Louisiana LL&E Sepik Pty., Ltd. 100 Papua New Guinea LL&E Suez, Inc. 100 Delaware LL&E Timor Sea Pty., Ltd. 100 Australia LL&E Tunisia, Inc. 100 Delaware LL&E Tunisia, Ltd. 100 Bermuda LL&E (U.K.) Inc. 100 Delaware LL&E Yemen, Ltd. 100 Bermuda
Exhibit 21 (Continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant December 31, 1993
% Ownership Jurisdiction by Immediate of Parent Incorporation _______________________________________________________________________________________ LLOXY Holdings, Inc. 100 Maryland LLOXY Production Financing Company, Inc. 100 Delaware White Pine Leasing, Inc. 100 Delaware Inexco Oil Company 100 Delaware Wilson Brothers Drilling Company 100 Delaware Evangeline Gas Corp. 45 Delaware * Unconsolidated affiliate accounted for under the equity method.
EX-23 7 EXHIBIT 23 Exhibit 23 The Board of Directors The Louisiana Land and Exploration Company: We consent to incorporation by reference in Registration Statements No. 2-79097, No. 2-98948, No. 33-22108, No. 33-22338, No. 33-37814, No. 33-56209 and No. 33-56211 on Form S-8, No. 33-48339 and No. 33-50991 on Form S-3 and No. 33-6593 on Form S-4 of The Louisiana Land and Exploration Company of our reports dated February 3, 1995, relating to the consolidated balance sheets of The Louisiana Land and Exploration Company and subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of earnings (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994 which reports appear in the December 31, 1994 annual report on Form 10-K of The Louisiana Land and Exploration Company. Our reports refer to the adoption in 1993 of the methods of accounting for income taxes and postretirement benefits other than pensions prescribed by Statement of Financial Accounting Standards Nos. 109 and 106, respectively, and to the change in 1994 of the methods of assessing the impairment of the capitalized costs of proved oil and gas properties and other long-lived assets. We also consent to incorporation by reference in the previously referred to Registration Statements of our report dated February 8, 1995, relating to the consolidated balance sheets of MaraLou Netherlands Partnership and subsidiary as of December 31, 1994 and 1993 and the related consolidated statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1994 which report appears in the December 31, 1994 annual report on Form 10-K of The Louisiana Land and Exploration Company. Our report refers to the adoption of the method of accounting for income taxes prescribed by Statement of Financial Accounting Standard No. 109. /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP New Orleans, Louisiana March 20, 1995 EX-24 8 EXHIBIT 24 THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director and the principal executive officer of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director and the principal executive officer of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ H. Leighton Steward _____________________________ H. Leighton Steward THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Leland C. Adams _____________________________ Leland C. Adams THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director and the principal financial officer of The Louisiana Land and Exploration Company hereby appoints Frederick J. Plaeger, II and Jerry D. Carlisle his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director and the principal financial officer of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Richard A. Bachmann _____________________________ Richard A. Bachmann THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ John F. Greene _____________________________ John F. Greene THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Eamon M. Kelly _____________________________ Eamon M. Kelly THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Kenneth W. Orce _____________________________ Kenneth W. Orce THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Victor A. Rice _____________________________ Victor A. Rice THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Orin R. Smith _____________________________ Orin R. Smith THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Arthur R. Taylor _____________________________ Arthur R. Taylor THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ W. R. Timken, Jr. _____________________________ W. R. Timken, Jr. THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Carlisle A.H. Trost _____________________________ Carlisle A.H. Trost THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as a director of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann, Frederick J. Plaeger, II and Jerry D. Carlisle and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as a director of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ E. L. Williamson _____________________________ E. L. Williamson THE LOUISIANA LAND AND EXPLORATION COMPANY POWER OF ATTORNEY WHEREAS, The Louisiana Land and Exploration Company intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K; NOW, THEREFORE, the undersigned in his capacity as the principal accounting officer of The Louisiana Land and Exploration Company hereby appoints Richard A. Bachmann and Frederick J. Plaeger, II and each of them severally, his true and lawful attorneys or attorney with power to act with or without the other and with full power of substitution and resubstitution, to execute in his name, place, and stead, in his capacity as the principal accounting officer of The Louisiana Land and Exploration Company, said Annual Report on Form 10-K and any and all amendments thereto and all instruments necessary or incidental in connection therewith, and to file or cause to be filed the same with the Securities and Exchange Commission. Each of said attorneys shall have full power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act whatsoever necessary or desirable to be done in the premises, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned has executed this instrument this 9th day of March, 1995. /s/ Jerry D. Carlisle _____________________________ Jerry D. Carlisle EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS (LOSS) OF THE LOUISIANA LAND AND EXPLORATION COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 DEC-31-1994 12,500 0 128,300 0 31,800 184,100 3,049,900 1,809,500 1,478,100 190,500 739,500 5,700 0 0 346,700 1,478,100 789,300 801,500 0 1,086,900 34,600 0 25,600 (345,600) (118,700) (226,900) 0 0 0 (226,900) (6.80) (6.80)