-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JNk/gigh0k67kjgcE1J/fpJNZTHgvm4A8lDEnQcWKq+HLq+6FfY5kK/JOh5Zpy+a w5bCpUPkz6V214hpDDSUDQ== 0000060512-97-000003.txt : 19970326 0000060512-97-000003.hdr.sgml : 19970326 ACCESSION NUMBER: 0000060512-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOUISIANA LAND & EXPLORATION CO CENTRAL INDEX KEY: 0000060512 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 720244700 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00959 FILM NUMBER: 97562061 BUSINESS ADDRESS: STREET 1: 909 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045666500 MAIL ADDRESS: STREET 1: P O BOX 60350 CITY: NEW ORLEANS STATE: LA ZIP: 70160 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, 1996 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. 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, 1997 Capital Stock, $.15 par value $1,635,094,000 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, 1997 Capital Stock, $.15 par value 34,242,802 shares DOCUMENTS INCORPORATED BY REFERENCE Part III: The Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on May 8, 1997 INDEX _________________________________________________________________ PART I Items 1 and 2. Business and Properties. The Company Contributions of Principal Products Petroleum Operations General Sales Oil and Gas Properties Oil and Gas Reserves Exploration Activities Development Activities Drilling Activities at December 31, 1996 Oil and Gas Wells Crude and Condensate, Plant Products and Natural Gas Production and Prices Realized Regulation Federal Energy Regulatory Commission Environmental Matters Item 3. Legal Proceedings. Item 4. Submission of Matters to a Vote of Security Holders. Executive Officers of the Registrant PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. Financial Statements and Supplementary Data. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Financial Statements and Supplementary Data (a)(2) Financial Statement Schedules (a)(3) Index to Exhibits (b) Reports on Form 8-K Signatures SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements, other than historical facts, contained in this Annual Report on Form 10-K, including statements of estimated oil and gas production and reserves, drilling plans, future cash flows, anticipated capital expenditures and Management's strategies, plans and objectives, are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that its forward looking statements are based on reasonable assumptions, it cautions that such statements are subject to a wide range of risks and uncertainties incident to the exploration for, acquisition, development and marketing of oil and gas, and it can give no assurance that its estimates and expectations will be realized. Important factors that could cause actual results to differ materially from the forward looking statements include, but are not limited to, changes in production volumes, worldwide demand, and commodity prices for petroleum natural resources; the timing and extent of the Company's success in discovering, acquiring, developing and producing oil and gas reserves; risks incident to the drilling and operation of oil and gas wells; future production and development costs; the effect of existing and future laws, governmental regulations and the political and economic climate of the United States and foreign countries in which the Company operates; the effect of hedging activities; and conditions in the capital markets. Other risk factors are discussed elsewhere in this Form 10-K, including those risk factors described under the headings "General", "Sales" and "Environmental Matters." 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, Colombia and Indonesia. At December 31, 1996, LL&E had 581 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 15 of "Notes to Consolidated Financial Statements" for additional information on LL&E's operations.
Years ended December 31, (Millions of dollars) 19961 1995 1994 _______________________________________________________________________________________ Crude and condensate $ 292.3 272.8 235.8 Natural gas 283.7 172.5 169.9 Refined products2 263.5 355.2 361.4 Other petroleum products 21.0 19.4 15.4 _______________________________________________________________________________________ Total $ 860.5 819.9 782.5 _______________________________________________________________________________________ 1 Includes refined products revenues for seven months. On July 31, 1996, the Company completed the sale of its crude oil refinery and terminal near Mobile, Alabama. See Note 3 of "Notes to Consolidated Financial Statements." 2 After elimination of intercompany transfers to the Company's refinery. In 1996, 1995 and 1994, such transfers were valued at $16.9 million, $28 million and $24.8 million, 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, 1996 were in the Gulf of Mexico and in Louisiana and Wyoming. Outside the United States, LL&E's principal exploration activities were in the North Sea, Algeria, Australia, Tunisia and Venezuela. 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 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 1996, working interest revenues accounted for 89% 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. 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 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 natural gas processing, are generally available through multiple sources and acquired through specialized independent contractors. The gas processing operations' principal raw material is natural gas. 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 1996, 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. Prior to the sale of its refinery in July, LL&E charged transfers of proprietary production to its refinery at appropriate market prices. The 1996 sales period experienced dramatic price fluctuations with crude oil prices ranging between $17.45 per barrel and $26.57 per barrel. Overall, crude oil prices averaged $22 per barrel at Cushing, Oklahoma for West Texas Intermediate. This price was approximately $3.60 per barrel above the price averaged in 1995. 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, virtually eliminated the Company's reliance on pipelines to purchase natural gas and given the Company greater flexibility and control of its natural gas reserves. Less than 1% of LL&E's domestic natural gas production is being sold to interstate pipeline companies. The remainder of the Company's domestic 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. 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, 1996, LL&E had working interests in approximately 580 thousand gross (262 thousand net) productive acres and approximately 5.9 million gross (2.7 million net) undeveloped acres. The total unamortized cost to LL&E of such undeveloped acreage at December 31, 1996 was $47 million. Through its affiliate, CLAM Petroleum Company, LL&E had working interests in approximately 42 thousand gross (6 thousand net) productive acres and approximately 577 thousand gross (133 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, 1996, LL&E owned approximately 594 thousand acres in fee lands in south Louisiana of which approximately 112 thousand acres were leased to various other companies for oil and gas exploration, development and production and an additional 81 thousand acres were subject to geophysical option agreements. Of those leased to others, approximately 89 thousand acres are productive and yield a weighted average royalty to LL&E of 25%. In addition, LL&E holds State of Louisiana leases covering approximately 55 thousand productive 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 401 thousand fee acres not leased to others and not subject to geophysical options, 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 $157 million in 1996: $21 million was spent on seismic data, over $21 million was expended for unproved leases in the United States, and $115 million was expended for participation in 36 wells. Of this total, 18 wells were successful completions: 8 oil and 10 gas. South Louisiana/Gulf Coast During 1996, the Company acquired substantial 3-D seismic data over its fee land and leasehold acreage in south Louisiana. Over 900 square miles of data were added to the Company's existing inventory of 1,000 square miles. At year-end 1996, the Company owned about 20% of all 3-D seismic acquired by the industry in south Louisiana. One of the areas in which the Company is actively acquiring data is the "Transition Zone." The Transition Zone encompasses five miles on each side of the Louisiana coast line and extends from the Texas border to Terrebonne Bay. This area has historically had poor quality seismic data coverage and limited drilling activity. The Company intends to acquire 500 square miles of data over this area, of which 300 is already completed and under evaluation. The Transition Zone is targeted for at least one exploratory well during 1997. During 1996, the Company successfully employed 3-D seismic technology to generate new exploratory prospects in the area as well as identify development opportunities in mature producing fields. At the Leleux Field in Vermilion Parish, the L.C. Landry No. 1 was successfully drilled and tested 13.5 million cubic feet of gas per day and 110 barrels of condensate per day. The Company's working interest in this discovery is 45%. The moderate potential, lower risk drilling program continued to produce solid results. For example, the West Paradis LL&E Fee #1 well, which is located on the Company's fee lands, was drilled to 12,567 feet and tested four million cubic feet of gas and 74 barrels of condensate per day. This prospect was generated from the 92 square-mile 1994 Des Allemands 3-D seismic survey. As a result of this success, the Company will drill at least one additional well adjacent to this discovery. Additional prospects generated from this survey are currently under evaluation for future drilling. The Company's working interest in these prospects is 33%; its net revenue interest is 43% as a result of its fee land ownership. One of the Company's largest 3-D seismic surveys in the state, the 380 square-mile Terrebonne Bay survey, is nearing completion. This survey covers the Company's fee lands at Caillou Island Field, the second largest field ever discovered in the state of Louisiana, as well as a number of adjacent producing fields and leases. This survey has generated a number of attractive prospects. Three such prospects were successfully drilled in late 1996 which in total tested a net 800 barrels of oil per day and 9.4 million cubic feet of gas per day. Since the beginning of 1997, two additional successful wells have been drilled which tested a net total of 1.7 million cubic feet of gas per day and 345 barrels of oil per day. At least two additional wells are currently scheduled for drilling in 1997. The Company is a 50% working interest owner in all of these wells. At the same time, Texaco is pursuing an aggressive drilling program at Caillou Island over the Company's fee lands and state leases that were previously leased to Texaco. The first of six wells planned for 1997 was recently successfully completed. The Company benefits from a 12 1/2% to 25% royalty interest on these properties with no associated drilling or development costs. Exploitation of the Bastian Bay Field in Plaquemines Parish continued in 1996. Production volumes grew 66% as a result of workovers and recompletions of additional pay sands that were encountered during the successful 1995 3-D drilling program. Four exploratory wells are planned for this field in 1997. Several new 3-D surveys are currently planned for 1997 which will add at least 500 additional square miles of data. By year-end 1997, the Company expects to have covered 90% of its fee lands with 3-D data. At present, the Company has 35 different 3-D surveys in varying stages of acquisition, processing, or interpretation. The Company's growing inventory of 3-D seismic data has yielded 20-25 drilling locations for 1997. Of these, approximately one quarter would be considered high potential opportunities. This sizeable database is expected to produce a constant flow of new exploratory prospects over the next several years. Gulf of Mexico The Company continues to be active in the Gulf of Mexico. During 1996, a discovery was drilled at Green Canyon 45/89, an infield wildcat program was expanded, two new production platforms were installed and substantial new exploratory acreage was added to inventory in both the offshore shelf and deep water areas. The discovery at Green Canyon 45/89 was in an area known as the Flex Trend. Referred to as the Cinnamon Prospect, the well is located in 690 feet of water. The well encountered high quality reservoirs and pay between 9,500 and 10,255 feet. A delineation well is planned for the first quarter of 1997 which will further evaluate this discovery and test an additional prospect at a deeper horizon. Development plans will be finalized following drilling of this well. One component of the Company's overall Gulf of Mexico strategy is to fully exploit areas around existing fields using 3-D seismic technology. The Company expanded its infield wildcat exploitation program on several properties in the Gulf during 1996. This strategy yields beneficial results because the cost to drill these lower risk wells from existing platforms is attractive, and existing infrastructure can be used to immediately produce the hydrocarbons discovered. In late 1995, the Company recognized that the South Timbalier 148 Field had significant upside potential after acquiring 3-D seismic data over the area that identified several amplitude related targets. The Company acquired an additional 15% working interest in the block prior to drilling the first new well, the A-7, which was completed in 1996 and is producing in excess of 25 MMCFD and 1,600 BCPD. A second exploratory well was recently successfully completed and the third well is currently drilling. Prior to the drilling of these wells, the platform was producing approximately seven million cubic feet of gas per day and 80 barrels of condensate per day. Since the initiation of this new drilling program, production levels have increased greatly and further significant growth in production is likely with additional drilling planned for later this year. The Company's working interest in this block is 40.4% Elsewhere in the Gulf, eight additional successful exploitation wells added new reserves in other fields. Three subsalt wells were drilled in the Gulf with disappointing results. While the Company still believes in the long-term viability of the subsalt play, additional drilling will not be aggressively pursued at this time. The Company continues to own a significant number of offshore blocks with salt-related features, many of which are held by production. The Company was a very active participant in both 1996 federal offshore lease sales. The Company acquired a total of 20 blocks in the shallow water on the shelf to add to its existing inventory of low to moderate risk and potential prospects in the Gulf. The Company also acquired interests in 12 blocks in water depths ranging between 2,000 and 8,000 feet. In the March 1997 lease sale, the Company has further expanded its deep water holdings with apparent winning bids on 42 additional blocks. The Company believes the deep water of the Gulf will provide significant upside reserve exposure but with less drilling risk than in the subsalt play. The deep water blocks expose the Company to high-potential prospects and complement the lower risk, low- to medium-potential opportunities being pursued on the shelf. The Company has formed a joint venture team for deep water exploration with partners who have extensive deep water drilling experience in the Gulf and internationally. In 1997, seismic data will be acquired over a portion of the deep water blocks and initial drilling is planned for 1998. As of year-end 1996, the Company owned a total of 172 offshore leases covering 154,100 net developed and 195,600 undeveloped acres. The Company's participation in the recent 1997 lease sale has added an additional 114,000 net acres if the bids are approved by the Minerals Management Service. Drilling plans for the Gulf of Mexico for 1997 include 20-25 wells of which 85% will be exploratory opportunities and 20% of these are expected to be higher potential, higher risk prospects. Rocky Mountains Using the expertise developed in the Madden Field, the Company has recently entered into an exploration license agreement on the Wind River Indian Reservation. The agreement covers approximately 500,000 gross acres in this area and is situated 20 miles west of the Madden Field. The license agreement covers a highly prospective, under explored area of the Wind River Basin which is on trend with recent discoveries at Cave Gulch and also has exploration potential in similar horizons, though at shallower depths, as at the Madden Field. The Company will begin shooting 3-D and 2-D seismic over this area during 1997 and anticipates drilling the first well in 1998. The Company owns a 40% working interest in this area. Algeria The Company owns a 65% working interest in Blocks 405 and 215 and is the operator. Block 405, located in the eastern sector of Algeria, comprises nearly 713,000 acres. Block 215, located 65 miles west of Block 405 and 71 miles south of the giant Hassi Messaoud Field, comprises 840,000 acres. During 1996, the Company drilled three successful exploratory wells on Block 405. The MLN- 1, completed in July, encountered 85 feet of net oil pay and flowed 15,850 barrels of oil per day and 61 million cubic feet of gas per day. The MLN-2 delineation well to this accumulation was success- fully completed in December. The well tested 3,400 barrels of oil per day and achieved its objective of defining the western limits of the field. A third well, the MLN-3, was spudded early in 1997 to delineate the eastern limits of the field, with results expected in late spring. A fourth well is planned for later this year. Results from these wells will be used to finalize the plan of development for this new field. Sonatrach, the national oil and gas enterprise of Algeria, has the option to participate in the development and production of commercial discoveries. The Company is entitled to recover exploration costs out of production during the exploitation phase. During the third quarter, the Company drilled the MLNE-1 well in the northeast sector of the block about 16 miles northeast of the MLN Field to determine if recent discoveries on adjacent blocks extended onto Block 405. The well encountered 167 feet of hydrocarbon column and flowed 750 barrels of oil per day and 225 thousand cubic feet of gas per day, thus indicating that a portion of the adjacent fields crossed onto Block 405. The Company recently signed a unitization agreement outlining participation in the development of this field, now referred to as the Quoubba Field. As the next step, the Company will drill the MLNE-2, a water injection well, during the second quarter of 1997. A plan of development for the Quoubba Field is scheduled to be submitted to the Algerian government prior to mid-1997. Several additional exploratory prospects have been identified for drilling on Block 405. At least one of these could be drilled later this year. The Company's first exploratory well at Block 215, the ONE-1, is planned for the second quarter of 1997. The Company will also complete acquisition of at least 530 miles of seismic on Block 405. Venezuela In July 1996, the Company signed a concession agreement for exploration rights in eastern Venezuela on the Delta Centro Block. Under the terms of its work commitment, the Company will acquire and process 3-D and 2-D seismic data over the area and drill three exploratory wells over a five-year primary term with the option to extend the exploratory period for an additional four years. This highly prospective block, which has had nominal seismic coverage and has not been drilled, consists of 526,000 acres in the Orinoco River Delta. The area is on geologic trend with several recent oil discoveries on blocks adjacent to Delta Centro. The Company's many years of experience operating in the marshlands of south Louisiana have already proven valuable in initiating exploration activity over the area. The Company has recently begun acquisition of 350 square miles of 3-D seismic data over the southwestern portion of the block and plans to acquire an additional 100 miles of 2-D data elsewhere on the license. The first exploratory well should begin drilling by early 1998. The Company owns a 35% working interest in the block and is the operator. Tunisia Additional seismic data has been acquired over a prospective portion of the Company's one million acre Ramla Block in the Gulf of Gabes, offshore Tunisia. Encouraged that an initial well drilled on the block in 1995 confirmed the existence of an active hydrocarbon system in the area, at least one exploratory well is scheduled to be drilled in the area this year. The Company owns a 50% working interest in the block. Other Areas The Company's net production from the KAKAP Field, offshore Indonesia, averaged 2,300 barrels of oil per day in 1996 and additional development drilling is planned in 1997. A 3-D seismic survey conducted over the area has yielded four additional exploratory prospects that will also be drilled during 1997. Costs to develop and produce additional reserves should be minimized by utilizing the existing infrastructure in the complex. An exploration well, the Susana #1, will be drilled in Colombia on the Bambuco Association Contract in the second quarter of 1997. The Company will operate the well and owns a 50% working interest. The Company is currently seeking additional prospective acreage in Colombia for future exploratory drilling. In Papua New Guinea, the Company farmed out its interest in Block PPL 155. The Company will not incur any additional seismic costs or the costs of drilling the first well but will retain a 13% working interest in the concession. During the years 1994 through 1996, 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 1996 1995 1994 1996 1995 1994 1996 1995 1994 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic: Gulf of Mexico .6 - - 3.0 2.2 3.3 1.7 2.8 1.8 Louisiana 1.7 .9 1.2 1.7 3.3 1.7 4.3 .7 2.9 North Sea: United Kingdom - - .1 - - - .1 - - Other foreign: Algeria 2.0 - - - - - - - - Australia - - - - - - .3 - .3 Canada - .3 .5 - 1.3 5.3 - - 2.9 Colombia - - - - - - - - 1.0 Indonesia - .3 - - - - - - - Tunisia - - - - - - - .5 - Yemen - - - - - - .2 - .3 _______________________________________________________________________________________ Total 4.3 1.5 1.8 4.7 6.8 10.3 6.6 4.0 9.2 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - - - - - - .2 .2 _______________________________________________________________________________________ /TABLE Royalty Interest During 1996, 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 - 1 - Louisiana 2 8 3 Netherlands - North Sea - - 1 _______________________________________________________________________________________ Total 2 9 4 _______________________________________________________________________________________
DEVELOPMENT ACTIVITIES Working Interest Development of the Company's oil and gas properties in 1996 resulted in the expenditure of $72 million for participation in 29 wells and the installation of platforms and facilities in the United States and overseas. Successful development drilling resulted in 21 oil wells and 8 gas wells. In addition, almost $5 million was spent in the acquisition of additional working interests in proved properties in the United States. Gulf of Mexico Two offshore production platforms were installed during 1996. The South Pass 34/47 platform was installed in May of 1996 and placed on production with peak field rates of 48 million cubic feet of gas per day and 150 barrels of condensate per day. The Company owns a 45% working interest in this field. The South Timbalier 229 platform was also set and production from this platform commenced in July with rates of 40 million cubic feet of gas per day and 1,600 barrels of condensate per day. The Company has a 100% interest in this field. Rocky Mountains In Wyoming, the Big Horn 4-36, the third deep well to the Madison Formation below 24,000 feet, has recently completed drilling. Two wells to this formation are currently producing a total of over 50 million cubic feet of gas per day into the Lost Cabin Gas Plant. After the removal of hydrogen sulfide and carbon dioxide, residual gas sales average nearly 35 million cubic feet of gas per day. Successful completion and testing of the Big Horn 4-36 will add significant proved reserves and lead to expansion of the gas plant. The Company owns a 38% working interest in this well. In the shallower horizons of the Madden Field where production does not require gas plant processing, the Company has implemented a new initiative which utilizes 3-D seismic and shear wave technology to identify higher productivity locations for infill drilling. The Company has successfully drilled two such wells and an additional six wells are planned for drilling this year. Jay Field At the Jay Field in Florida, the Company has played a key role in maintaining strong production rates, reducing operating costs and adding recoverable reserves. The Company increased its ownership in this large, long-lived field during 1996 and currently owns a 48.5% working interest. North Sea At T-Block in the North Sea, production was initiated from the Thelma Fields in late 1996. The first three of five development wells have been placed on production. Thelma production currently totals 15,000 barrels of oil per day and is expected to rise to 25,000 barrels of oil per day after the remaining wells are placed on production later this year. Production from Thelma will mitigate the impact of natural declines from the existing T-Block fields, Tiffany and Toni. The Company owns a 11.26% working interest in the T-Block fields. At the Brae complex, where the Company owns an average 6% working interest, the Plan of Development for the West Brae Field was approved by the U.K. government. This sixth Brae field development will consist of subsea completions tied-back to the South Brae platform. Three horizontal production wells and one water injection well are planned to be drilled. Initial production is expected in late 1997 and is expected to grow to 25,000 barrels of oil per day in 1998. Additional volumes from West Brae will mitigate the impact of natural declines at the existing Brae fields. In the Dutch sector of the North Sea, the Company participates in natural gas exploration and production through its 50%-owned affiliate, CLAM Petroleum Company. Due to a successful year of drilling, CLAM added almost 38 billion cubic feet of reserves. Production from CLAM rose 6% over last year's volumes. Further development drilling is expected during 1997. Other Areas The Company's net production from the Casanare Association Contract Area in Colombia averaged 1,300 barrels of oil per day in 1996. Continued development drilling is planned for the area in 1997. During the years 1994 through 1996, 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 1996 1995 1994 1996 1995 1994 1996 1995 1994 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic: Gulf of Mexico - .6 .8 2.5 1.5 2.3 - - - Louisiana - - - .5 .9 - - - - Wyoming .2 .2 - - - .7 - - - North Sea: Netherlands - .6 - - - .1 - - - United Kingdom .6 .6 .2 - - - - - .1 Other foreign: Colombia .4 .1 - - - .1 - - - Indonesia 1.2 1.1 - - - - - - - _______________________________________________________________________________________ Total 2.4 3.2 1.0 3.0 2.4 3.2 - - .1 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - - .2 .2 .1 - - - _______________________________________________________________________________________
Royalty Interest During 1996, the following development wells were drilled by others on LL&E's fee and leasehold acreage.
Gross wells Oil Gas Dry _______________________________________________________________________________________ Domestic: Gulf of Mexico - 1 - Louisiana 2 - - _______________________________________________________________________________________ Total 2 1 - _______________________________________________________________________________________
DRILLING ACTIVITIES AT DECEMBER 31, 1996 Working Interest The table below sets forth the working interest wells in the process of drilling at December 31, 1996 by LL&E and by CLAM.
Wells drilling Gross Net _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic 19 7.0 North Sea 4 .4 Other foreign 2 .8 _______________________________________________________________________________________ Total 25 8.2 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea 1 .1 _______________________________________________________________________________________
Royalty Interest Four domestic wells were being drilled by others at December 31, 1996 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, 1996.
Oil wells Gas wells Gross Net Gross Net _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic 1,377 132.2 300 104.0 North Sea 69 8.0 - - Other foreign 55 8.0 - - _______________________________________________________________________________________ Total 1,501 148.2 300 104.0 _______________________________________________________________________________________ CLAM (50%) Netherlands-North Sea - - 57 3.7 _______________________________________________________________________________________
Oil wells include 28 dual completions and gas wells include 28 dual completions. 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, 1996.
Gross wells Oil Gas _______________________________________________________________________________________ Domestic 564 277 _______________________________________________________________________________________
Oil wells include 21 dual completions and gas wells include 15 dual completions. CRUDE AND CONDENSATE, PLANT PRODUCTS AND NATURAL GAS PRODUCTION AND PRICES REALIZED The production and average price information for the years 1994 through 1996 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.
1996 1995 1994 _______________________________________________________________________________________ LL&E and Subsidiaries: Domestic $3.64 3.95 3.97 North Sea 4.53 4.65 5.89 Other foreign 4.09 3.51 5.59 _______________________________________________________________________________________ CLAM Netherlands-North Sea $4.50 4.39 2.36 _______________________________________________________________________________________
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. 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 larger production facilities. 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 National Priorities List sites located in certain areas where the Company has historically operated. With the exception of the PAB Oil and Chemical Superfund site, the Company is considered a de minimis party to each of the listed sites. At the PAB Oil and Chemical site, the Company's participation allocation exceeds the de minimis threshold. However, based on the Company's evaluation of the potential total cleanup cost, 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 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 14 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 (62) Chairman of the Board, President and Chief Executive Officer since November 1996. Chairman of the Board and Chief Executive Officer since September 1995. Chairman of the Board, President and Chief Executive Officer from 1989 to 1995. Louis A. Raspino, Jr. (44) Senior Vice President-Chief Financial Officer since September 1995. Treasurer from 1992 to 1995. John A. Williams (52) Senior Vice President-Exploration and Production since September 1995. Vice President from 1988 to 1995. Suzanne V. Baer (49) Vice President and Treasurer since September 1995. Director- Investor and Shareholder Relations from 1988 to 1995. Jerry D. Carlisle (51) Vice President and Controller since 1984. Robert J. Chebul (49) Vice President-Algeria since January 1997. Vice President-New Orleans Division from 1992 to 1997. Vice President-Oklahoma City Division from 1991 to 1992. William N. Hahne (45) Vice President-Worldwide Asset Management since November 1996. Vice President-Houston Division from 1994 to 1996. General Manager-Production from 1993 to 1994. Vice President to NERCO Oil & Gas, Inc. from 1991 to 1993. C. Scott Kirk (47) Vice President-Production Marketing since September 1995. General Manager-Natural Gas Marketing from 1989 to 1995. John O. Lyles (51) Vice President-Strategic Planning since September 1995. Vice President-Operational Support Team from 1992 to 1995. Vice President and Treasurer from 1984 to 1992. Kevin J. McMichael (41) Vice President-Domestic Exploration since November 1996. Held various managerial positions in domestic exploration from 1988 to 1996. James E. Orth (44) Vice President-Acquisitions since January 1997. Vice President- Production from 1995 to 1996. General Manager-Denver District from 1991 to 1995. Frederick J. Plaeger, II (43) Vice President, General Counsel and Corporate Secretary since September 1995. General Counsel and Corporate Secretary from 1992 to 1995. James N. Wood, Jr. (48) Vice President-Administration since November 1996. General Manager-Information Technology from 1992 to 1996. C. A. Zackary (52) Vice President-Human Resources since September 1995. Director- Human Resources from 1987 to 1995. 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: Financial Statements: Report of Management Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Earnings (Loss) Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Unaudited Supplemental Data: Management's Discussion and Analysis Data on Oil and Gas Activities Oil and Gas Operating Data Oil and Gas Properties Wells Drilled Selected Financial Data Quarterly Data Market Price and Dividend Data The following financial statements of 50% or less owned persons required by Regulation S-X, Rule 3-09, are included herein: MaraLou Netherlands Partnership and its wholly owned consolidated subsidiary, CLAM Petroleum Company: Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Partners' Capital Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements _________________________________________________________________ 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 present- ation 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, 1996 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 Louis A. Raspino, Jr. Chairman, President and Senior Vice President - 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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 7, 1997 _________________________________________________________________________________________ CONSOLIDATED BALANCE SHEETS The Louisiana Land and Exploration Company and Subsidiaries December 31, 1996 and 1995 (Millions of dollars) ASSETS 1996 1995 _________________________________________________________________________________________ CURRENT ASSETS: Cash, including cash equivalents (1996-$1.2; 1995-$1.0) $ 9.0 10.3 Accounts and notes receivable 150.7 143.8 Refinery inventories - 38.7 Prepaid expenses 10.7 12.9 Deferred income taxes .7 .9 _________________________________________________________________________________________ Total current assets 171.1 206.6 _________________________________________________________________________________________ Investments in affiliates 8.1 19.9 Net property, plant and equipment, at cost, under the successful efforts method of accounting for oil and gas properties 1,159.7 1,207.6 Other assets 25.9 33.6 _________________________________________________________________________________________ $ 1,364.8 1,467.7 _________________________________________________________________________________________ LIABILITIES AND STOCKHOLDERS' EQUITY _________________________________________________________________________________________ CURRENT LIABILITIES: Accounts payable and accrued expenses 138.9 199.8 Income taxes payable 9.4 .8 _________________________________________________________________________________________ Total current liabilities 148.3 200.6 _________________________________________________________________________________________ Deferred income taxes 78.4 49.6 Long-term debt 505.7 691.6 Other liabilities 157.8 155.2 STOCKHOLDERS' EQUITY: Capital stock of $.15 par value. Authorized-100,000,000 shares; issued and outstanding: 1996-34,231,404 shares; 1995-33,490,180 shares 5.1 5.0 Additional paid-in capital 44.6 14.8 Retained earnings 424.9 352.8 _________________________________________________________________________________________ 474.6 372.6 Loans to ESOP - (1.9) _________________________________________________________________________________________ TOTAL STOCKHOLDERS' EQUITY 474.6 370.7 _________________________________________________________________________________________ $ 1,364.8 1,467.7 _________________________________________________________________________________________ See accompanying notes to consolidated financial statements.
_________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) The Louisiana Land and Exploration Company and Subsidiaries Years ended December 31, 1996, 1995 and 1994 (Millions, except per share data)
1996 1995 1994 _________________________________________________________________________________________ REVENUES: Oil and gas $ 597.0 464.7 421.2 Refined products 263.5 355.2 361.3 Gain on sales of petroleum assets 2.0 2.3 6.8 _________________________________________________________________________________________ 862.5 822.2 789.3 _________________________________________________________________________________________ COSTS AND EXPENSES: Lease operating and facility expenses 116.2 116.5 116.1 Refinery cost of sales and operating expenses 254.4 347.9 354.5 Dry holes and exploratory charges 106.1 68.3 69.7 Depletion, depreciation and amortization 178.0 161.8 202.2 Taxes, other than on earnings 23.6 23.6 25.4 Write-down of petroleum assets - - 319.0 General and administrative expenses 40.2 45.0 44.6 _________________________________________________________________________________________ 718.5 763.1 1,131.5 _________________________________________________________________________________________ 144.0 59.1 (342.2) OTHER INCOME (EXPENSE): Interest and debt expenses (34.5) (38.6) (25.6) Reversal of litigation accrual - - 10.0 Other income (expense), net 10.2 8.3 12.2 _________________________________________________________________________________________ Earnings (loss) before income taxes 119.7 28.8 (345.6) Income tax expense (benefit) 39.5 10.0 (118.7) _________________________________________________________________________________________ NET EARNINGS (LOSS) $ 80.2 18.8 (226.9) _________________________________________________________________________________________ EARNINGS (LOSS) PER SHARE $ 2.35 0.56 (6.80) _________________________________________________________________________________________ AVERAGE SHARES 34.2 33.5 33.4 _________________________________________________________________________________________ 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, 1996, 1995 and 1994 (Millions of dollars, except per share data)
Capital Stock Additional Shares Par paid-in Retained Loans to Outstanding Value capital earnings ESOP Total _________________________________________________________________________________________ Balance at 12/31/93 as reported 38,004,537 $ 5.7 $ 82.9 $ 684.4 $ (8.8) $ 599.8 Reclass of treasury stock (4,831,574) (0.7) (81.5) (82.2) - - _________________________________________________________________________________________ Balance at December 31, 1993 33,172,963 5.0 1.4 602.2 (8.8) 599.8 Net loss - - - (226.9) - (226.9) Cash dividends ($1.00 per share) - - - (33.3) - (33.3) Repayment of loans to ESOP - - - - 3.6 3.6 Other 206,845 - 9.2 - - 9.2 _________________________________________________________________________________________ Balance at December 31, 1994 33,379,808 5.0 10.6 342.0 (5.2) 352.4 Net earnings - - - 18.8 - 18.8 Cash dividends ($0.24 per share) - - - (8.0) - (8.0) Repayment of loans to ESOP - - - - 3.3 3.3 Other 110,372 - 4.2 - - 4.2 _________________________________________________________________________________________ Balance at December 31, 1995 33,490,180 5.0 14.8 352.8 (1.9) 370.7 Net earnings - - - 80.2 - 80.2 Cash dividends ($0.24 per share) - - - (8.1) - (8.1) Repayment of loans to ESOP - - - - 1.9 1.9 Other 741,224 .1 29.8 - - 29.9 _________________________________________________________________________________________ Balance at December 31, 1996 34,231,404 $ 5.1 $ 44.6 $ 424.9 $ - $ 474.6 _________________________________________________________________________________________ NOTE: Maryland law provides that repurchased stock of a corporation constitutes authorized but unissued stock rather than treasury stock. Accordingly, effective January 1, 1994, the par value of treasury stock ($.7 million) has been reclassed as a reduction of capital stock issued. The cost of treasury stock in excess of par value has been charged to additional paid-in capital ($81.5 million), to the extent available, and the balance ($82.2 million) has been charged to retained earnings. All capital stock transactions subsequent to January 1, 1994 are reflected as either issuances or retirements of capital stock. This change in the law had no effect on total stockholders' equity. See accompanying notes to consolidated financial statements. /TABLE _________________________________________________________________________________________ CONSOLIDATED STATEMENTS OF CASH FLOWS The Louisiana Land and Exploration Company and Subsidiaries Years ended December 31, 1996, 1995 and 1994 (Millions of dollars)
1996 1995 1994 _________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 80.2 18.8 (226.9) Adjustments to reconcile to cash flows from operations: Write-down of petroleum assets - - 319.0 Gain on sales of petroleum assets (2.0) (2.3) (6.8) Depletion, depreciation and amortization 178.0 161.8 202.2 Deferred income taxes 29.0 11.3 (111.2) Dry holes and impairment charges 69.5 41.2 36.4 Other 12.6 6.3 2.2 _________________________________________________________________________________________ 367.3 237.1 214.9 Changes in operating assets and liabilities, net of dispositions: Net increase in receivables (42.5) (19.7) (9.0) Net increase in refinery inventories (4.1) (6.9) (5.0) Net (increase) decrease in prepaid items .2 (4.0) 3.8 Net increase in payables 3.3 11.8 .7 Other (5.8) 2.2 6.7 _________________________________________________________________________________________ Net cash flows from operating activities 318.4 220.5 212.1 _________________________________________________________________________________________ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (224.1) (191.0) (236.8) Proceeds from asset sales 71.6 21.3 15.6 Other (10.4) (4.3) (16.3) _________________________________________________________________________________________ Net cash flows from investing activities (162.9) (174.0) (237.5) _________________________________________________________________________________________ CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term debt - 28.0 239.7 Repayments of long-term debt (185.9) (75.9) (234.7) Dividends (8.1) (8.0) (33.3) Advances against cash surrender value 20.0 9.0 34.4 Repayment of loans to ESOP 1.9 3.3 3.6 Other 15.3 (5.1) (5.1) _________________________________________________________________________________________ Net cash flows from financing activities (156.8) (48.7) 4.6 _________________________________________________________________________________________ Decrease in cash and cash equivalents $ (1.3) (2.2) (20.8) _________________________________________________________________________________________ See accompanying notes to consolidated financial statements. /TABLE _________________________________________________________________ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Louisiana Land and Exploration Company and Subsidiaries December 31, 1996, 1995 and 1994 _________________________________________________________________ 1. Summary of Significant Accounting Policies 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. 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. Effective in the fourth quarter of 1995, the Company began assessing the impairment of capitalized costs of proved oil and gas properties and other long- lived assets in accordance with Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Under this method, the Company generally assesses its oil and gas properties on a field-by-field basis utilizing its current estimate of future revenues and operating expenses. In the event net undiscounted cash flow is less than the carrying value, an impairment loss is recorded based on estimated fair value, which would consider discounted future net cash flows. The Company's methods of assessing impairment in prior years is described in Note 2. Exploratory dry holes and geological and geophysical charges on exploratory projects 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. Significant changes in the various estimates discussed above could affect the financial position and results of operations of the Company. 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. Financial Instruments and Hedging Activities The Company's anticipated hydrocarbon transactions are periodically hedged against market risks through the use of various derivative financial instruments. To qualify as a hedge, these instruments must correlate to anticipated future production such that the Company's exposure to the effects of commodity price changes is reduced. The gains and losses on these instruments are included in the valuation of the transactions being hedged upon completion of the transactions. The Company also manages the interest rate components of its debt portfolio through the use of swap agreements. Gains and losses on swap agreements on existing debt obligations are accrued to interest expense on a monthly basis over the terms of the agreements. Gains and losses on closed swap agreements are deferred and amortized over the original terms of the agreements. 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. Income Taxes The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company initially recognizes deferred tax assets and liabilities for (i) differences between the financial statement carrying amounts and tax bases of assets and liabilities that will result in future deductible or taxable amounts and (ii) for operating loss carryforwards. A valuation allowance is established to reduce the deferred tax asset if it is more likely than not that the related tax benefits will not be realized. Stock-based Compensation The Company uses the intrinsic value based method of accounting for stock-based compensation as prescribed by the Accounting Principles Board's Opinion No. 25, "Accounting for Stock Issued to Employees." Earnings (Loss) Per Share 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. 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 had 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 assessed 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 were 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 were 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 was 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 changed methods referred to above were not identical to those later prescribed by SFAS No. 121 as described in Note 1. The Company adopted the provisions of SFAS No. 121 in the fourth quarter of 1995 and no further impairment was indicated. 3. Asset Dispositions On July 31, 1996, the Company completed the sale of its crude oil refinery and terminal near Mobile, Alabama, including crude oil and refined product inventories, for approximately $70 million resulting in a gain of approximately $2 million. The net book value of refinery property, plant and equipment at that date totaled approximately $33 million. The following table sets forth the refinery operating profit (loss) for the periods indicated.
Seven months Years ended ended July 31, December 31, (Millions of dollars) 1996 1995 1994 ________________________________________________________________________________________ Revenues: Refined products* $ 280.4 383.2 386.1 Other .3 .3 2.1 ________________________________________________________________________________________ 280.7 383.5 388.2 ________________________________________________________________________________________ Costs and expenses: Cost of sales* 244.7 337.8 340.1 Operating expenses 26.6 38.1 39.2 Depreciation 1.1 1.8 3.3 Taxes, other than income .9 3.2 3.5 Write-down of refinery assets - - 39.0 ________________________________________________________________________________________ 273.3 380.9 425.1 ________________________________________________________________________________________ $ 7.4 2.6 (36.9) ________________________________________________________________________________________ * Before elimination of intercompany transfers $ 16.9 28.0 24.8 ________________________________________________________________________________________
In 1995, the Company sold various oil and gas properties for approximately $16.1 million resulting in a gain of $2.3 million (before income taxes of $.8 million). 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). 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 consolidated balance sheets at cost plus accrued interest, which approximates fair value. Cash flows related to hedging activities are classified in the same categories as that from the items being hedged. 5. Nonrecurring Credit 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. This adjustment to the litigation accrual is included in "Net increase in payables" in the accompanying Consolidated Statements of Cash Flows. 6. Investments in Affiliates
Investment % (Millions of dollars) Investee Industry Location Owned 1996 1995 _________________________________________________________________________________________ MaraLou (CLAM Petroleum Oil & Company) Gas North Sea 50% $ 4.0 14.7 Other Various U.S. Various 4.1 5.2 _________________________________________________________________________________________ $ 8.1 19.9 _________________________________________________________________________________________
The Company's equity in earnings of affiliates, which is included in "Other income (expense), net" in the accompanying Consolidated Statements of Earnings (Loss), amounted to $9.3 million, $5.8 million and $4.2 million in 1996, 1995 and 1994, respectively. Cash dividends received from MaraLou/CLAM in 1996, 1995 and 1994 totaled $20 million, $10 million and $6 million, respectively. The consolidated financial position of MaraLou and its wholly owned subsidiary, CLAM, as of December 31, 1996 and 1995 and the results of their operations for each of the years in the three-year period ended December 31, 1996 are summarized below.
(Millions of dollars) 1996 1995 _________________________________________________________________________________________ Current assets $ 35.4 28.6 _________________________________________________________________________________________ Noncurrent assets 140.3 167.5 _________________________________________________________________________________________ Current liabilities 24.6 18.4 _________________________________________________________________________________________ Noncurrent liabilities 143.3 148.3 _________________________________________________________________________________________
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Gross revenues $ 97.0 85.8 68.7 _________________________________________________________________________________________ Operating profit 49.7 31.1 36.2 _________________________________________________________________________________________ Net earnings 18.5 11.6 8.2 _________________________________________________________________________________________
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. 7. Property, Plant and Equipment
(Millions of dollars) 1996 1995 _________________________________________________________________________________________ Petroleum properties: Proved $2,781.8 2,693.3 Unproved 136.6 82.7 Refining and marketing 113.3 278.2 _________________________________________________________________________________________ 3,031.7 3,054.2 Other properties 68.9 66.7 _________________________________________________________________________________________ 3,100.6 3,120.9 Less accumulated depletion, depreciation and amortization 1,940.9 1,913.3 _________________________________________________________________________________________ $1,159.7 1,207.6 _________________________________________________________________________________________
8. Financial Instruments and Hedging Activities The Company uses derivative financial instruments to manage well- defined interest rate and commodity price risks and does not use them for speculative purposes. 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 $412 million and $423 million at December 31, 1996 and 1995, respectively, based upon quoted market prices for the same or similar issues. Such debt was recorded at carrying amounts of $400 million at December 31, 1996 and 1995, resulting in an unrealized loss of $12 million and an unrealized loss of $23 million for the respective periods. The Company's commodity price hedging program is designed to minimize the price risks associated with future natural gas and crude oil production. This program utilizes futures, forwards, options and swap contracts in series of transactions designed to set a floor price for future production and at the same time allow the Company to participate in market price increases above a set level over the floor price and outside of specific ranges. At December 31, 1996, approximately 93 trillion BTU of domestic natural gas production for 1997 were covered by a series of transactions designed to set an average floor price of $1.84 per million BTU with the Company's nonparticipation in market price increases above the floor price limited to $0.18 per million BTU. For 1998, approximately 50 trillion BTU of domestic natural gas were similarly hedged at an average floor price of $1.76 per million BTU with the Company's nonparticipation in market price increases above the floor price limited to $0.20 per million BTU. While these transactions have nominal carrying values, their fair value, represented by the estimated amount that would be required to terminate the contracts, were a net benefit of $3.2 million for the 1997 hedges and a net benefit of $2.7 million for the 1998 hedges. (The Company estimates that its domestic natural gas production averages approximately 1.07 million BTU for each thousand cubic feet.) In addition, approximately 1.8 million barrels of the Company's worldwide crude oil production for 1997 were similarly hedged at an average floor price of $20.01 per barrel with the Company's nonparticipation in market price increases above the floor price limited to $2.32 per barrel. These transactions also have nominal carrying values, but their fair value at December 31, 1996 amounted to a net cost of $0.3 million. 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 or 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. 9. Long-term Debt
(Millions of dollars) 1996 1995 _________________________________________________________________________________________ Revolving Credit Facility $ - 92.0 7-5/8% Debentures due 2013 100.0 100.0 7.65% Debentures due 2023 200.0 200.0 8-1/4% Notes due 2002 100.0 100.0 Commercial paper notes 104.8 198.6 Other issues .9 1.0 _________________________________________________________________________________________ Total long-term debt $505.7 691.6 _________________________________________________________________________________________
Debt maturities for the years 1997 through 2000 are less than $.1 million each year with maturities of $104.9 million in the year 2001. The Company entered into a $790 million credit facility with a syndicate of banks in September 1993. The revolving credit facility, which was subsequently reduced to $450 million, was renegotiated in 1994 and converted to a reducing revolving loan. In June 1995, the reducing revolving loan was replaced by a $450 million revolving credit facility due June 30, 2000. Amounts outstanding under the revolving credit facility bear interest at fluctuating rates subject to certain options chosen in advance by the Company. In June 1996, the Company amended the reducing revolving loan to reduce the banks' commitments to $350 million, extend the maturity one year to June 30, 2001, reduce interest rates and fees and improve other terms and conditions favorable to the Company. Borrowings under the facilities in 1996 and 1995 were at average interest rates of 6.2% and 6.5%, respectively. Fees ranging from .10% to .25% based upon debt ratings 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 November, 1996, the Company registered up to $500 million of securities under the Securities and Exchange Commission's shelf registration rules, which included the $300 million available under the shelf registration filed in 1993. During 1996, the average monthly balance of commercial paper notes outstanding was $189 million; the maximum amount outstanding during that period was $296 million. Commercial paper borrowings during 1996 and 1995 were at average interest rates of 5.5% and 6.1%, respectively. The commercial paper program is supported by the unused portion of the aforementioned revolving credit facility. 10. Interest and Debt Expenses For the years ended December 31, 1996, 1995 and 1994, interest costs incurred, which were essentially the same as interest payments, were $45.6 million, $54.3 million and $47.9 million, respectively, of which $11.1 million, $15.7 million and $22.3 million, respectively, were capitalized as part of the cost of property, plant and equipment. 11. Income Taxes The components of earnings (loss) before income taxes were taxed under the following jurisdictions:
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Domestic $ 93.1 (16.7) (322.0) Foreign 26.6 45.5 (23.6) _________________________________________________________________________________________ $ 119.7 28.8 (345.6) _________________________________________________________________________________________
Components of income tax expense (benefit) are as follows:
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Current tax expense (benefit): Federal $ 5.2 1.1 (3.5) State 5.0 .2 (.7) Foreign (4.0) (2.6) (3.3) _________________________________________________________________________________________ 6.2 (1.3) (7.5) _________________________________________________________________________________________ Deferred tax expense (benefit): Federal 28.6 10.2 (109.2) Foreign 4.7 1.1 (2.0) _________________________________________________________________________________________ 33.3 11.3 (111.2) _________________________________________________________________________________________ $ 39.5 10.0 (118.7) _________________________________________________________________________________________
Tax expense (benefit) differs from the amounts computed by applying the U.S. Federal tax rate of 35% to earnings (loss) before income tax. The reasons for the differences are as follows:
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Computed "expected" tax expense (benefit) $ 41.9 10.1 (121.0) Increases (reductions) in taxes resulting from: Equity in earnings of foreign affiliates (6.3) (4.3) 4.5 Foreign income taxes, net of Federal income tax benefit .1 4.5 (2.0) Employee benefit plans (1.8) (1.8) (1.1) Percentage depletion (.2) (.2) (.2) Other 5.8 1.7 1.1 _________________________________________________________________________________________ $ 39.5 10.0 (118.7) _________________________________________________________________________________________
Total income tax expense (benefit) was allocated as follows:
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Income (loss) before extraordinary item and changes in accounting principles $ 39.5 10.0 (118.7) Stockholders' equity for compensation expense for tax purposes in excess of amount recognized for financial reporting purposes (4.4) (.2) (1.0) _________________________________________________________________________________________ $ 35.1 9.8 (119.7) _________________________________________________________________________________________
The significant components of income tax expense (benefit) attri- butable to income from continuing operations are as follows:
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Current tax expense (benefit) $ 6.2 (1.3) (7.5) Deferred tax expense (benefit) (exclusive of the effects of other components listed below) 33.3 11.3 (2.5) Deferred tax benefits related to write-down of petroleum assets - - (108.7) _________________________________________________________________________________________ $ 39.5 10.0 (118.7) _________________________________________________________________________________________
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) 1996 1995 1994 _________________________________________________________________________________________ Deferred tax assets: Deferred foreign tax credits $ 60.6 42.5 32.3 Foreign tax credit carryforwards 4.1 6.5 11.7 Federal net operating loss carryforwards 13.5 44.0 36.4 Alternative minimum tax credit carryforwards 8.2 2.1 1.9 Employee benefits 16.9 16.0 19.0 Other 11.6 10.9 10.3 _________________________________________________________________________________________ Total gross deferred tax assets 114.9 122.0 111.6 Less valuation allowance (34.3) (31.9) (28.3) _________________________________________________________________________________________ Net deferred tax assets 80.6 90.1 83.3 _________________________________________________________________________________________ (continued)
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Deferred tax liabilities: Property, plant and equipment, principally due to differences in depreciation and capitalized interest (141.3) (114.4) (90.7) Other (17.0) (24.4) (30.0) _________________________________________________________________________________________ Total gross deferred tax liabilities (158.3) (138.8) (120.7) _________________________________________________________________________________________ $ (77.7) (48.7) (37.4) _________________________________________________________________________________________
The net changes in the valuation allowance for the years ended December 31, 1996, 1995 and 1994 were increases of $2.4 million, $3.6 million and $10.5 million, respectively. These changes were made to provide for uncertainties surrounding the realization of certain foreign tax credits and carryforwards. The remaining balance of the deferred tax assets should be realized through future operating results and the reversal of taxable temporary differences. For the years ended December 31, 1996, 1995 and 1994, the Company's net cash payments (refunds) of income taxes totaled $4.4 million, $.7 million and $(1.1) million, respectively. At December 31, 1996, the Company has foreign tax credit carryforwards for Federal income tax purposes of $4.1 million which are available through 1998 to offset future Federal income taxes, if any. The Company has Federal net operating loss carryforwards totaling $38.7 million which are available to offset future Federal taxable income through 2012. The Company also has alternative minimum tax credit carryforwards of $8.2 million which are available to reduce Federal regular income taxes, if any, over an indefinite period. 12. 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. Funding requirements for the years ended December 31, 1996 and 1995 amounted to $5.1 million and $5.6 million, respectively. As a result of the sale of the Company's refinery, the eligible employees there retired resulting in a distribution from plan assets amounting to $6.4 million and the deferral of an actuarial gain of $1.0 million. The settlement of the obligations resulted in the recognition of the previously unrecognized losses/assets resulting in a net loss of $1.6 million which was included in the calculation of the gain on the sale of the refinery. 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) 1996 1995 _________________________________________________________________________________________ Accumulated benefit obligation, including vested benefits of $22.3 and $24.3 $ 22.8 24.9 _________________________________________________________________________________________ Projected benefit obligation (32.3) (37.2) Plan assets at fair market value 25.1 23.8 _________________________________________________________________________________________ Plan assets under projected benefit obligation (7.2) (13.4) Additional minimum liability - (1.1) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 7.7 13.4 Unrecognized net asset being recognized over 15 years (.4) (.8) _________________________________________________________________________________________ Prepaid (accrued) pension cost $ .1 (1.9) _________________________________________________________________________________________
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Service cost $ 3.6 2.5 3.4 Interest cost 2.3 2.0 2.0 Actual (gain) loss on plan assets (4.3) (5.0) .4 Net amortization and deferral 2.7 3.7 (1.1) _________________________________________________________________________________________ Net pension expense $ 4.3 3.2 4.7 _________________________________________________________________________________________ Discount rate 7-1/2% 7-1/4% 8% _________________________________________________________________________________________ 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. As a result of the aforementioned refinery sale, the curtailment of the benefits of eligible employees resulted in an actuarial gain of $1.4 million which was applied against the previously unrecognized net loss. The postretirement benefit plans are unfunded and the Company funds 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) 1996 1995 _________________________________________________________________________________________ Accumulated postretirement benefit obligation: Retirees $ (22.2) (21.8) Employees eligible to retire (3.8) (3.4) Other employees (5.1) (5.6) _________________________________________________________________________________________ (31.1) (30.8) Unrecognized net loss 2.3 3.1 _________________________________________________________________________________________ Accrued postretirement benefit cost $ (28.8) (27.7) _________________________________________________________________________________________
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Service cost $ 1.3 1.1 1.3 Interest cost 2.3 2.2 2.1 _________________________________________________________________________________________ Net postretirement benefit cost $ 3.6 3.3 3.4 _________________________________________________________________________________________
Assumptions utilized to measure the accumulated postretirement obligation at December 31, 1996 and 1995 were: discount rates of 7-1/2% and 7-1/4%, respectively; health care cost trend rates of: 1996 - 8% declining to 4% in the year 2002; 1995 - 9% declining to 5% in the year 2003 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, 1996 and 1995 of $2.7 million and $2.7 million, respectively; the aggregate of service cost and interest cost for the years ended December 31, 1996 and 1995 would have increased by $.5 million and $.5 million, respectively. 13. Capital Stock, Options and Rights Under the 1988 Long Term Stock Incentive Plan (the Employee 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. Under the 1990 and 1995 Stock Option Plans for Non-Employee Directors (the Non-Employee Plans), the Company may grant stock options to non-employee directors for up to 247,500 shares of the Company's capital stock. As prescribed by the plans, the stock options are exercisable at the market price of the Company's capital stock on the date of grant and vest 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. A summary of the status of stock options granted under the Employee Plan and the Non-Employee Plans is presented below for the periods indicated.
1996 1995 1994 Number Weighted Number Weighted Number Weighted of average of average of average shares price shares price shares price __________________________________________________________________________________________ Outstanding at beginning of year 1,921,567 $ 36.18 1,545,517 $ 36.17 1,493,892 $ 35.46 Granted 305,300 45.05 467,700 35.65 272,600 36.55 Exercised (819,406) 36.08 (79,750) 32.69 (204,375) 31.04 Cancelled (24,900) 39.36 (11,900) 38.84 (16,600) 41.06 __________________________________________________________________________________________ Outstanding at end of year 1,382,561 $ 38.12 1,921,567 $ 36.18 1,545,517 $ 36.17 __________________________________________________________________________________________ Exercisable at end of year 875,186 $ 36.25 1,362,317 $ 36.32 1,152,967 $ 35.12 __________________________________________________________________________________________ Available for future grants 284,379 - 587,686 - 919,372 - __________________________________________________________________________________________
A summary of information about stock options outstanding at December 31, 1996 is presented below:
Options Outstanding Options Exercisable Range of Remaining Weighted Weighted exercise contrac- average average prices Shares tual life price Shares price __________________________________________________________________________________________ $29 - 38 764,661 6.2 years $ 33.63 559,986 $ 32.88 $39 - 47 518,400 6.7 years $ 42.14 315,200 $ 42.39 $48 - 53 99,500 9.4 years $ 51.86 - - __________________________________________________________________________________________
The restricted stock and performance shares awarded under the Employee 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 1996, 1995 and 1994, awards were granted for 10,700 shares, 11,000 shares and 9,000 shares, respectively. During those same years, 16,414 shares, 16,088 shares and 12,081 shares, respectively, were re- leased to grantees. In order for unrestricted performance shares to be released to the grantee, the Company must attain certain performance goals by the end of a three-year performance cycle which begins with the year of the award. Awards granted in 1996, 1995 and 1994 amounted to 19,000 shares, 29,700 shares and 19,500 shares, respectively. During those same years, performance shares released to grantees amounted to 11,273 shares, 16,228 shares and 10,496 shares, respectively. The weighted average grant date fair value of restricted stock and performance share awards in 1996, 1995 and 1994, based on the market value of the Company's capital stock on the date of the awards, were $42.47, $35.56 and $37.32, respectively. The Company accounts for its stock-based compensation plans under the principles prescribed by the Accounting Principles Board's Opinion No. 25, "Accounting for Stock Issued to Employees" (Opinion No. 25). Accordingly, stock options awarded under the Employee Plan and the Non-Employee Plans are considered to be "non- compensatory" and do not result in the recognition of compensation expense. However, the restricted stock and performance shares awarded under the Employee Plan are considered to be "compensatory" and the Company recognized compensation expense in 1996, 1995 and 1994 of $1.3 million, $1.2 million and $1 million, respectively. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123), which encouraged the use of a fair value based method of accounting for compensation expense associated with stock option and similar plans. However, SFAS No. 123 permits the continued use of the intrinsic value based method prescribed by Opinion No. 25 but requires additional disclosures, including pro forma calculations of net earnings and earnings per share as if the fair value method of accounting prescribed by SFAS No. 123 had been applied in 1996 and 1995. The pro forma data presented below is not representative of the effects on reported amounts for future years because SFAS No. 123 does not apply to awards prior to 1995 and additional awards are expected in the future.
As Reported Pro Forma 1996 1995 1996 1995 _________________________________________________________________________________________ Net earnings $ 80.2 18.8 78.2 17.7 _________________________________________________________________________________________ Earnings per share $ 2.35 0.56 2.29 0.53 _________________________________________________________________________________________ Average shares outstanding 34.2 33.5 34.2 33.5 _________________________________________________________________________________________ Average fair value of grants during the year $ 14.00 10.37 _________________________________________________________________________________________ Black-Scholes option pricing model assumptions: Risk-free interest rate 5.9-6.1% 5.6-5.9% Expected life (years) 3 - 4 3 - 4 Volatility 22.2% 22.3% Dividend yield .52% .64% _________________________________________________________________________________________
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 which was intended to cause substantial ownership dilution to a person or group attempting to acquire the Company without approval of the Company's Board of Directors. A right would also be issued with each share of capital stock that became outstanding prior to the time the rights become exercisable or expired. Prior to the expiration of the rights in June 1996, the Company's Board of Directors extended the term of the rights to June 2006 and approved amendments to and restated the rights. Under the amendments, 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, each right becomes exercisable ten days thereafter and entitles its holder to purchase one share of capital stock for $175. If the Company is acquired in a business combination transaction, each right not owned by the 20% holder entitles its holder to purchase for $175 common shares of the acquiring company having a market value of $350. Alternatively, if a 20% holder were to acquire the Company through a reverse merger in which the Company and its capital stock survive or were to engage in certain "self-dealing" transactions, each right not owned by the acquiring person would entitle its holder to purchase for $175 capital stock of the Company having a market value of $350. Each right can be redeemed by the Company for $.01, subject to the occurrence of certain events and other restrictions. The rights should not interfere with a business combination transaction that has been approved by the Board of Directors. 14. Contingencies The Company has been notified by the U.S. Environmental Protection Agency that it is one of many Potentially Responsible Parties (PRP) with respect to certain 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. 15. Petroleum Segment Information*
(Millions of dollars) 1996 1995 1994 _________________________________________________________________________________________ Sales to unaffiliated customers: Domestic $ 697.3 662.0 678.1 North Sea 141.6 133.9 92.9 Other foreign 23.6 26.3 18.3 _________________________________________________________________________________________ Total revenues $ 862.5 822.2 789.3 _________________________________________________________________________________________ Earnings (loss) before income taxes: Operating profit (loss): Domestic 160.0 95.5 (262.3) North Sea 47.6 33.8 5.5 Other foreign (13.5) (15.9) (30.7) _________________________________________________________________________________________ 194.1 113.4 (287.5) Other income (expense), net (74.4) (84.6) (58.1) _________________________________________________________________________________________ Earnings (loss) before income taxes $ 119.7 28.8 (345.6) _________________________________________________________________________________________ Identifiable industry assets: Domestic 756.0 824.0 793.9 North Sea 468.3 495.6 518.8 Other foreign 85.7 78.5 92.6 _________________________________________________________________________________________ 1,310.0 1,398.1 1,405.3 Other assets 56.1 69.6 72.8 _________________________________________________________________________________________ Total assets $1,366.1 1,467.7 1,478.1 _________________________________________________________________________________________ Depletion, depreciation and amortization: Petroleum 171.6 156.1 196.7 Other 6.4 5.7 5.5 _________________________________________________________________________________________ $ 178.0 161.8 202.2 _________________________________________________________________________________________ Capital expenditures: Exploration: Domestic 114.8 51.8 55.3 North Sea 1.4 .4 1.6 Other foreign 20.2 14.1 16.5 _________________________________________________________________________________________ 136.4 66.3 73.4 _________________________________________________________________________________________ Development: Domestic 53.8 69.5 75.4 North Sea 14.2 16.9 18.2 Other foreign 9.0 11.2 16.0 _________________________________________________________________________________________ 77.0 97.6 109.6 _________________________________________________________________________________________ Refining and marketing 2.5 3.5 31.1 _________________________________________________________________________________________ 215.9 167.4 214.1 Capitalized interest 11.1 15.7 22.3 Other 2.9 4.2 3.8 _________________________________________________________________________________________ $ 229.9 187.3 240.2 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as follows: 1996 - see Note 3. 1995 - see Note 3. 1994 - see Notes 2, 3 and 5. /TABLE _________________________________________________________________ MANAGEMENT'S DISCUSSION AND ANALYSIS _________________________________________________________________ SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements, other than historical facts, contained in this Annual Report on Form 10-K, including statements of estimated oil and gas production and reserves, drilling plans, future cash flows, anticipated capital expenditures and Management's strategies, plans and objectives, are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that its forward looking statements are based on reasonable assumptions, it cautions that such statements are subject to a wide range of risks and uncertainties incident to the exploration for, acquisition, development and marketing of oil and gas, and it can give no assurance that its estimates and expectations will be realized. Important factors that could cause actual results to differ materially from the forward looking statements include, but are not limited to, changes in production volumes, worldwide demand, and commodity prices for petroleum natural resources; the timing and extent of the Company's success in discovering, acquiring, developing and producing oil and gas reserves; risks incident to the drilling and operation of oil and gas wells; future production and development costs; the effect of existing and future laws, governmental regulations and the political and economic climate of the United States and foreign countries in which the Company operates; the effect of hedging activities; and conditions in the capital markets. Other risk factors are discussed elsewhere in this Form 10-K, including those risk factors described under the headings "General", "Sales" and "Environmental Matters." REVIEW OF OPERATIONS (1996 vs 1995) The Company reported net earnings of $80.2 million in 1996, a significant improvement over net earnings of $18.8 million reported in 1995. This increase in net earnings was primarily attributable to higher oil and gas revenues, improved refining operating profits for the seven months prior to its sale and continued cost controls. Oil and Gas Operations Revenues from oil and gas operations were up $132 million from 1995. Natural gas revenues were up $111 million due to increased domestic and North Sea deliveries ($30 million) and the effect of higher prices ($81 million). Liquids revenues were up over $19 million due to higher crude oil prices ($36 million) which was partially offset by the impact of lower volumes ($17 million). Natural gas deliveries were up 47 million cubic feet per day (MMCFD) in 1996. Domestic deliveries contributed almost 42 MMCFD due to new wells onstream in south Louisiana and the Gulf of Mexico and increased production from the Madden Field in Wyoming. North Sea volumes were also up 4 MMCFD as a result of increased deliveries through the SAGE Pipeline System. All of these increases were net of natural declines at mature producing properties. Crude oil production declined almost 3,000 barrels per day (BPD) in 1996 due primarily to natural declines at mature producing properties. Domestic production was up almost 400 BPD as volumes from new wells coming onstream more than offset the effects of natural declines. However, North Sea volumes fell almost 2,000 BPD due to natural declines at older fields combined with a late-summer shutdown of the Tiffany and Toni fields at T-Block during the tie- in of the Thelma Field. Volumes from other foreign operations declined almost 1,400 BPD primarily as the result of natural declines at the KAKAP Concession, offshore Indonesia. Lease operating and facilities expenses were unchanged for the second year in a row as cost-control efforts resulted in reduced operating costs on new and existing properties which more than offset higher workover, maintenance and facilities expenses. Higher depletion, depreciation and amortization in 1996 was mainly due to new wells coming onstream. Dry holes and exploratory charges increased significantly due primarily to the Company's expanded exploration program in 1996. The Company's cost-control efforts in 1996 are also reflected in the decline in general, administrative and other expenses. Lower interest and debt expenses in 1996 reflect the sizable reduction in long-term debt, although partially offset by the decline in interest capitalizable to qualifying projects. Refining Operations Prior to the sale in July, the refinery generated pretax profits of $7.4 million as compared to the $2.6 million generated for all of 1995. The seven-month sales period of 1996 was very favorable as daily sales volumes averaged over 10,000 barrels higher and at 10% higher profit margins than that realized in 1995. REVIEW OF OPERATIONS (1995 vs 1994) The Company reported net income of $18.8 million in 1995. This was a significant improvement over the 1994 net loss of $27.6 million (before inclusion of the 1994 write-down of the Company's oil and gas properties and refining assets and certain nonrecurring gains discussed below). The improvement was primarily a result of higher oil and gas revenues and lower depletion, depreciation and amortization expenses. Oil and Gas Operations Revenues from oil and gas operations were up $44 million from 1994. Liquids revenues were up almost $43 million due to higher crude oil prices ($27 million) and volumes ($11 million). Natural gas revenues were up almost $3 million due to higher domestic and North Sea deliveries ($24 million). The effect of lower natural gas prices ($21 million) partially offset the higher revenues. Crude oil volumes were higher in 1995 due to a 2,500 barrel per day (BPD) increase in North Sea operations and a 1,400 BPD increase in other foreign operations. North Sea volumes were up primarily due to higher volumes from new wells onstream at the Brae and T-Block Complexes. Volumes from other foreign operations were up in 1995 primarily due to the initiation of oil production from the KG Field and entitlement adjustments in the KAKAP concession, offshore Indonesia. These production increases at North Sea and other foreign properties were partially offset by natural declines at mature producing properties. Domestic volumes were down 1,800 BPD primarily due to natural declines at mature producing properties and production interruptions resulting from weather, maintenance, and drilling activities. The reduction in domestic volumes was partially offset by production from new south Louisiana wells onstream. Natural gas deliveries were up 35 million cubic feet per day (MMCFD) in 1995. Volumes from the North Sea rose 22 MMCFD in 1995 primarily due to the late-1994 initiation of North Sea gas sales through the SAGE Pipeline System and a full year's gas sales from the Brae and T-Block Complexes. An improvement in domestic deliveries, which accounted for 11 MMCFD of the increase, was due to new wells onstream. These domestic and North Sea increases were partially offset by the effects of natural declines at mature producing properties, the voluntary curtailment of some domestic sales volumes in response to low prices, domestic wells shut-in for weather, maintenance and drilling activities, and the sale of certain oil and gas properties. Also, contributing to the increase, were higher volumes from the Company's 50%-owned affiliate, CLAM Petroleum Company, due in part to successful development drilling. Lease operating and facility expenses were unchanged during the current year as higher operating and facilities expenses associated with new producing wells were almost offset by lower repair and maintenance costs. Depletion, depreciation and amortization (DD&A) was $40 million lower in 1995 primarily due to the impact of the 1994 write-down of petroleum assets ($49 million) and natural production declines on mature producing properties ($32 million). These reductions were partially offset by DD&A associated with new wells onstream in 1995 ($18 million) and higher production at the Brae and T-Block Complexes ($20 million). Dry holes and exploratory charges were down $1 million in 1995 due to lower costs incurred for seismic and the write-off of unsuccessful wells. Higher lease impairment partially offset the reduction in dry holes and exploratory charges. Interest and debt expenses were up $13 million due to a reduction in the amount of interest capitalized and higher average interest rates. Refining Operations Refining operations resulted in a pretax operating profit of $2.6 million, compared to the $2.1 million operating profit (before the $39 million write-down of refinery assets) reported in 1994. The favorable impact of lower crude oil feedstock costs ($2 million) and operating expenses ($3 million) more than offset the effect of revenue declines ($3 million). Revenues were down as a result of lower sales volumes ($20 million), despite an increase in product prices ($17 million). LIQUIDITY AND CAPITAL RESOURCES In 1996, the Company generated approximately $318 million in cash from operations which, along with proceeds from asset sales ($72 million), advances against cash surrender values of life insurance policies ($20 million) and available cash, was utilized for capital projects ($224 million), repayment of long-term debt ($186 million) and dividends ($8 million). As discussed in Note 3, in July the Company completed the sale of its crude oil refinery, including crude oil and refined product inventories, for approximately $70 million resulting in a gain of approximately $2 million. The Company expects that its 1997 capital and exploration program, presently estimated at approximately $240 million, will be financed substantially by internally generated funds. The Company's expenditures are continually reviewed, and revised as necessary, based on perceived current and long-term economic conditions. As discussed in Note 9, in June the Company amended its reducing revolving loan with a group of banks to reduce the banks' commitments to $350 million, extend the maturity one year to June 30, 2001 and improve other terms and conditions favorable to the Company. In addition, in November the Company registered up to $500 million of securities under the Securities and Exchange Commission's shelf registration rules. As explained in Note 14, the Company has been notified by the U.S. Environmental Protection Agency that it is one of many Potentially Responsible Parties with respect to certain 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 8, the Company uses derivative financial instruments to manage commodity price risks but does not use them for speculative purposes. In 1995, the Company implemented a risk management program to reduce exposure to commodity price volatility below strategic price levels desired for the Company to aggressively pursue its capital and exploration programs. In contrast to a common industry risk management practice of reducing commodity price volatility through the use of fixed price forward sales contracts, the Company's risk management strategy has been to establish floor prices and allow the Company to fully participate in commodity prices above a modest non-participation range. As a result, the Company participated in the highest natural gas prices since the inception of trading of natural gas futures on the New York Mercantile Exchange and the highest crude oil prices since the Persian Gulf War. Although revenues would have been higher in 1996 (natural gas-$15.7 million or $0.12 per MCF and crude oil-$14.5 million or $0.99 per barrel) without the non-participation range, the Company believes the alternative would have involved the use of fixed price forward sales contracts. The use of such contracts could, and likely would, have resulted in locking-in prices lower than actual realized prices, and, thus, would have negatively affected revenues by more than the aforementioned amounts. In 1995, the Company's risk management strategy resulted in higher natural gas revenues ($5.1 million or $0.04 per MCF). 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, 1997, there were 6,099 holders of record. The quarterly market prices for the past two years and the cash dividends paid in each period are presented herein under the heading "Market Price and Dividend Data." As discussed in Note 13, 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. As discussed in Note 13, the Company has reserved 1,666,940 shares of its capital stock for future grants and exercises of stock options. In February 1997, the Company's Board of Directors authorized the repurchase of up to two million shares of the Company's capital stock. 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, 1996.
Liquids (Millions of barrels) North Other Domestic Sea CLAM Foreign Total _________________________________________________________________________________________ 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 Revisions of previous estimates 4.8 (4.3) - .5 1.0 Purchase of reserves in place .2 - - - .2 Extensions, discoveries and other additions 12.8 4.8 - .5 18.1 Production (8.7) (6.6) - (1.8) (17.1) Sales of reserves in place (.9) - - (1.6) (2.5) _________________________________________________________________________________________ Proved reserves at December 31, 1995 60.7 28.0 .3 7.8 96.8 Revisions of previous estimates 11.1 (.1) - (.3) 10.7 Purchase of reserves in place 2.0 - - - 2.0 Extensions, discoveries and other additions 6.2 2.2 - .1 8.5 Production (8.6) (5.9) - (1.3) (15.8) _________________________________________________________________________________________ Proved reserves at December 31, 1996 71.4 24.2 .3 6.3 102.2 _________________________________________________________________________________________ Proved-developed reserves at December 31, 1994 48.1 32.7 .2 4.4 85.4 _________________________________________________________________________________________ 1995 56.7 23.7 .2 6.4 87.0 _________________________________________________________________________________________ 1996 67.8 20.0 .2 5.2 93.2 _________________________________________________________________________________________ /TABLE
Gas (Billions of cubic feet) North Other Domestic Sea CLAM Foreign Total _________________________________________________________________________________________ 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 Revisions of previous estimates 43.8 3.0 2.8 1.9 51.5 Purchase of reserves in place 16.3 - - - 16.3 Extensions, discoveries and other additions 48.6 9.0 - 6.5 64.1 Production (87.6) (9.8) (15.9) (.5) (113.8) Sales of reserves in place (5.2) - - (17.5) (22.7) _________________________________________________________________________________________ Proved reserves at December 31, 1995 689.6 164.6 124.4 .5 979.1 Revisions of previous estimates 43.1 24.5 4.0 - 71.6 Purchase of reserves in place 5.7 - - - 5.7 Extensions, discoveries and other additions 58.0 .3 33.7 - 92.0 Production (103.1) (11.4) (16.8) - (131.3) Sales of reserves in place (.2) - - - (.2) _________________________________________________________________________________________ Proved reserves at December 31, 1996 693.1 178.0 145.3 .5 1,016.9 _________________________________________________________________________________________ Proved-developed reserves at December 31, 1994 493.5 146.4 116.1 10.1 766.1 _________________________________________________________________________________________ 1995 520.7 159.7 111.1 .5 792.0 _________________________________________________________________________________________ 1996 557.0 174.3 90.2 .5 822.0 _________________________________________________________________________________________
The table below sets forth estimates of the domestic sulfur reserves attributable to the Company's interests as of December 31:
Proved- (Thousands of long tons) Proved developed _________________________________________________________________________________________ 1994 670.3 670.3 _________________________________________________________________________________________ 1995 974.7 974.7 _________________________________________________________________________________________ 1996 1,094.0 1,094.0 _________________________________________________________________________________________
_________________________________________________________________ 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 yearend 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 yearend; and (3) deducting estimates of future income taxes based on the respective yearend 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 yearend. 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, 1996:
North Other (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Future cash inflows $4,272.8 1,113.3 124.0 5,510.1 Future production and development costs (1,360.3) (240.2) (49.8) (1,650.3) Future income tax expenses (853.9) (302.4) (16.1) (1,172.4) _________________________________________________________________________________________ Future net cash flows 2,058.6 570.7 58.1 2,687.4 10% annual discount for estimated timing of cash flows (789.1) (198.1) (13.4) (1,000.6) _________________________________________________________________________________________ Standardized measure of discounted future net cash flows $1,269.5 372.6 44.7 1,686.8 _________________________________________________________________________________________ CLAM $ - 23.4 - 23.4 _________________________________________________________________________________________
PRINCIPAL SOURCES OF CHANGE DURING 1996: (Millions of dollars) _________________________________________________________________________________________ Sales and transfers, net of production costs $(457.6) Net change in prices and production costs 655.0 Extensions, discoveries and improved recovery, less related costs 203.9 Net change in future development costs (18.7) Previously estimated development costs incurred during the year 72.4 Revisions of previous reserve estimates 157.9 Purchase of reserves in place 29.0 Sales of reserves in place (.5) Accretion of discount 153.0 Net change in income taxes (319.3) Other 32.0 _________________________________________________________________________________________ Net change $ 507.1 _________________________________________________________________________________________
_________________________________________________________________________________________ STANDARDIZED MEASURE AT DECEMBER 31, 1995:
North Other (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Future cash inflows $2,680.4 903.7 140.8 3,724.9 Future production and development costs (1,047.2) (266.1) (75.4) (1,388.7) Future income tax expenses (367.2) (192.5) (21.3) (581.0) _________________________________________________________________________________________ Future net cash flows 1,266.0 445.1 44.1 1,755.2 10% annual discount for estimated timing of cash flows (416.3) (149.1) (10.1) (575.5) _________________________________________________________________________________________ Standardized measure of discounted future net cash flows $ 849.7 296.0 34.0 1,179.7 _________________________________________________________________________________________ CLAM $ - 28.8 - 28.8 _________________________________________________________________________________________
PRINCIPAL SOURCES OF CHANGE DURING 1995:
(Millions of dollars) _________________________________________________________________________________________ Sales and transfers, net of production costs $(330.5) Net change in prices and production costs 316.5 Extensions, discoveries and improved recovery, less related costs 211.3 Net change in future development costs (13.9) Previously estimated development costs incurred during the year 80.2 Revisions of previous reserve estimates 37.9 Purchase of reserves in place 20.5 Sales of reserves in place (38.1) Accretion of discount 113.3 Net change in income taxes (139.3) Other (6.1) _________________________________________________________________________________________ Net change $ 251.8 _________________________________________________________________________________________
_________________________________________________________________________________________ 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 yearend 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 _________________________________________________________________________________________
_________________________________________________________________________________________ RESULTS OF OPERATIONS FOR OIL AND GAS ACTIVITIES
Years ended December 31: North Other 19961 (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Revenues $ 433.82 141.6 23.6 599.0 Production costs (90.9) (38.8) (5.7) (135.4) Exploration expenses (91.9) (1.3) (12.9) (106.1) DD&A (98.1) (53.9) (18.5) (170.5) _________________________________________________________________________________________ 152.9 47.6 (13.5) 187.0 Income tax (expense) benefit (65.4) (13.1) 4.7 (73.8) _________________________________________________________________________________________ Earnings (loss)3 $ 87.5 34.5 (8.8) 113.2 _________________________________________________________________________________________ CLAM4 $ - 8.6 - 8.6 _________________________________________________________________________________________ 19951(Millions of dollars) _________________________________________________________________________________________ Revenues 306.82 133.9 26.3 467.0 Production costs (84.6) (39.9) (8.8) (133.3) Exploration expenses (45.9) (2.6) (19.8) (68.3) DD&A (83.1) (57.6) (13.6) (154.3) _________________________________________________________________________________________ 93.2 33.8 (15.9) 111.1 Income tax (expense) benefit (34.3) (15.9) 7.2 (43.0) _________________________________________________________________________________________ Earnings (loss)3 $ 58.9 17.9 (8.7) 68.1 _________________________________________________________________________________________ CLAM4 $ - 5.4 - 5.4 _________________________________________________________________________________________ 19941 (Millions of dollars) _________________________________________________________________________________________ Revenues 316.82 92.9 18.3 428.0 Production costs (87.1) (36.9) (9.4) (133.4) 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) _________________________________________________________________________________________ (223.3) 5.5 (30.7) (248.5) Income tax (expense) benefit 77.8 (9.0) 13.6 82.4 _________________________________________________________________________________________ Earnings (loss)3 $(145.5) (3.5) (17.1) (166.1) _________________________________________________________________________________________ CLAM4 $ - 3.9 - 3.9 _________________________________________________________________________________________ 1 Includes nonrecurring charges/credits as explained in "Notes to Consolidated Financial Statements" as follows: 1996 - see Note 3. 1995 - see Note 3. 1994 - see Notes 2 and 3. 2 Includes intercompany transfers to the Company's refinery of $16.9, $28.0 and $24.8 in 1996, 1995 and 1994, 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 6 of "Notes to Consolidated Financial Statements."
_________________________________________________________________________________________ COSTS INCURRED IN OIL AND GAS ACTIVITIES
Years ended December 31: North Other 1996 (Millions of dollars) Domestic Sea Foreign Total _________________________________________________________________________________________ Property acquisition: Proved $ 4.6 - - 4.6 Unproved 21.2 - - 21.2 Exploration 109.7 1.7 26.9 138.3 Development 48.4 15.0 9.0 72.4 _________________________________________________________________________________________ 183.9 16.7 35.9 236.5 Capitalized interest 2.0 8.4 .7 11.1 _________________________________________________________________________________________ $ 185.9 25.1 36.6 247.6 _________________________________________________________________________________________ CLAM $ - (2.1) - (2.1) _________________________________________________________________________________________ 1995 (Millions of dollars) _________________________________________________________________________________________ Property acquisition: Proved 9.2 .3 - 9.5 Unproved 4.3 - - 4.3 Exploration 55.7 .8 18.8 75.3 Development 60.3 16.6 11.2 88.1 _________________________________________________________________________________________ 129.5 17.7 30.0 177.2 Capitalized interest 4.4 10.3 1.0 15.7 _________________________________________________________________________________________ $ 133.9 28.0 31.0 192.9 _________________________________________________________________________________________ CLAM $ - 9.3 - 9.3 _________________________________________________________________________________________ 1994 (Millions of dollars) _________________________________________________________________________________________ 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 _________________________________________________________________________________________
_________________________________________________________________________________________ OIL AND GAS OPERATING DATA1
Years ended December 31: 1996 1995 1994 19932 1992 _________________________________________________________________________________________ CRUDE AND CONDENSATE3 Production (barrels per day): Domestic: Working interest 16,720 16,808 18,833 17,586 15,308 Royalty interest 4,398 3,945 3,678 4,161 4,070 _________________________________________________________________________________________ 21,118 20,753 22,511 21,747 19,378 North Sea (working interest) 15,296 17,250 14,769 6,529 6,258 Other foreign (working interest) 3,561 4,936 3,496 6,509 5,674 _________________________________________________________________________________________ 39,975 42,939 40,776 34,785 31,310 _________________________________________________________________________________________ Average price received (per barrel): Domestic $ 20.54 18.11 16.26 17.33 19.85 North Sea 19.77 17.29 16.01 16.20 19.11 Other foreign 18.09 15.12 12.63 14.40 14.98 Consolidated 20.03 17.44 15.86 16.57 18.82 _________________________________________________________________________________________ NATURAL GAS Production (thousands of cubic feet per day): Domestic: Working interest 250,857 209,876 203,700 155,917 119,050 Royalty interest 30,799 30,052 24,957 23,861 21,146 _________________________________________________________________________________________ 281,656 239,928 228,657 179,778 140,196 North Sea (working interest) 31,063 26,864 5,302 156 236 Other foreign (working interest) - 1,379 3,018 5,316 4,871 CLAM Petroleum Company 45,967 43,550 40,003 34,608 40,485 _________________________________________________________________________________________ 358,686 311,721 276,980 219,858 185,788 _________________________________________________________________________________________ Average price received (per MCF): Domestic $ 2.50 1.73 1.95 2.19 1.75 North Sea 2.29 2.09 2.20 1.51 1.92 Other foreign - 0.68 1.63 1.27 0.84 CLAM Petroleum Company 2.81 2.59 2.27 2.35 2.73 Consolidated 2.52 1.88 2.00 2.19 1.94 _________________________________________________________________________________________ PLANT PRODUCTS Production (barrels per day): Domestic (working interest) 2,301 2,936 2,475 2,377 2,294 North Sea (working interest) 887 1,015 552 352 461 Other foreign (working interest) - 19 6 29 39 _________________________________________________________________________________________ 3,188 3,970 3,033 2,758 2,794 _________________________________________________________________________________________ Average price received (per barrel): Domestic $ 13.61 11.20 10.06 11.26 13.07 North Sea 17.02 13.49 11.28 12.62 14.47 Other foreign - 10.67 7.84 11.97 12.68 Consolidated 14.55 11.78 10.28 11.44 13.29 _________________________________________________________________________________________ 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 _________________________________________________________________________________________ OIL AND GAS PROPERTIES
December 31, 1996 Productive acreage Undeveloped acreage (Thousands of acres) Gross Net Gross Net _________________________________________________________________________________________ LEASEHOLDS AND OPTIONS Domestic: Offshore Gulf of Mexico 313.3 154.1 368.6 195.6 Louisiana 126.5 78.2 74.7 34.6 Alabama/Florida 10.7 9.1 - - Colorado/Utah .8 - 95.9 48.0 Wyoming 39.8 11.4 183.1 104.4 Other 43.0 4.0 66.9 10.3 _________________________________________________________________________________________ 534.1 256.8 789.2 392.9 _________________________________________________________________________________________ North Sea: Netherlands 2.7 1.0 103.3 36.0 United Kingdom 19.8 1.3 130.2 10.9 _________________________________________________________________________________________ 22.5 2.3 233.5 46.9 _________________________________________________________________________________________ Other foreign: Algeria - - 1,552.9 1,009.4 Australia - - 139.1 46.3 Colombia 12.6 1.7 950.6 398.1 Indonesia 10.7 1.6 485.0 72.7 Papua New Guinea - - 168.4 73.8 Tunisia - - 1,021.0 510.5 Venezuela - - 525.1 183.7 _________________________________________________________________________________________ 23.3 3.3 4,842.1 2,294.5 _________________________________________________________________________________________ FEE LANDS 90.0 90.0 504.0 504.0 _________________________________________________________________________________________ CLAM PETROLEUM COMPANY (50%) Netherlands-North Sea 42.0 5.7 577.0 133.0 _________________________________________________________________________________________ 711.9 358.1 6,945.8 3,371.3 _________________________________________________________________________________________
_______________________________________________________________________________________ WELLS DRILLED
Years ended December 31: 1996 1995 1994 1993 1992 _______________________________________________________________________________________ GROSS WELLS DRILLED (by location) Working interest Domestic: Offshore Gulf of Mexico 21 15 20 23 5 Louisiana 17 13 14 10 17 Wyoming 1 1 4 6 2 Other - - - - 1 _______________________________________________________________________________________ 39 29 38 39 25 _______________________________________________________________________________________ North Sea: Netherlands 4 7 3 4 5 United Kingdom 10 8 6 5 8 _______________________________________________________________________________________ 14 15 9 9 13 _______________________________________________________________________________________ Other foreign: Algeria 3 - - - - Australia 1 - 1 2 - Canada - 5 14 38 33 Colombia 3 1 2 - 3 Indonesia 8 9 - - - Other 1 1 2 - 1 _______________________________________________________________________________________ 16 16 19 40 37 _______________________________________________________________________________________ Total working interest 69 60 66 88 75 Royalty interest 18 24 19 35 26 _______________________________________________________________________________________ Total wells 87 84 85 123 101 _______________________________________________________________________________________
GROSS (NET) WELLS DRILLED (by type)
Exploratory: Oil 10 (4.3) 14 (1.5) 15 (1.8) 34 (15.2) 26 (13.1) Gas 19 (4.7) 22 (6.8) 26 (10.3) 18 (3.9) 10 (2.5) Dry 22 (6.6) 17 (4.2) 22 (9.4) 31 (11.4) 28 (12.4) _______________________________________________________________________________________ 51 (15.6) 53 (12.5) 63 (21.5) 83 (30.5) 64 (28.0) _______________________________________________________________________________________ Development: Oil 23 (2.4) 22 (3.2) 7 (1.0) 17 (2.1) 22 (2.6) Gas 13 (3.2) 9 (2.6) 14 (3.3) 21 (3.4) 6 (1.4) Dry - - - - 1 (.1) 2 (.3) 9 (.7) _______________________________________________________________________________________ 36 (5.6) 31 (5.8) 22 (4.4) 40 (5.8) 37 (4.7) _______________________________________________________________________________________ Total wells 87 (21.2) 84 (18.3) 85 (25.9) 123 (36.3) 101 (32.7) _______________________________________________________________________________________
_________________________________________________________________________________________ SELECTED FINANCIAL DATA*
Years ended December 31: (Millions of dollars, except per share data) 1996 1995 1994 1993 1992 _________________________________________________________________________________________ Revenues $ 862.5 822.2 789.3 793.8 765.8 Operating profit (loss) $ 194.1 113.4 (287.5) 90.7 52.5 Net earnings (loss) $ 80.2 18.8 (226.9) 9.6 (6.8) Earnings (loss) per share $ 2.35 0.56 (6.80) 0.33 (0.24) Average shares (millions) 34.2 33.5 33.4 29.5 28.4 _________________________________________________________________________________________ Net cash flows from: Operating activities $ 318.4 220.5 212.1 178.9 178.7 Investing activities $ (162.9) (174.0) (237.5) (722.3) (116.3) Financing activities $ (156.8) (48.7) 4.6 536.2 (48.6) Working capital (deficit): End of year $ 22.8 6.0 (6.4) 15.6 (20.2) Current ratio 1.15 1.03 .97 1.09 .88 _________________________________________________________________________________________ Total assets $ 1,364.8 1,467.7 1,478.1 1,838.7 1,209.1 Long-term debt $ 505.7 691.6 739.5 734.5 343.0 Stockholders' equity $ 474.6 370.7 352.4 599.8 416.6 Cash dividends per share $ 0.24 0.24 1.00 1.00 1.00 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as explained in "Notes to Consolidated Financial Statements" as follows: 1996 - see Note 3. 1995 - see Note 3. 1994 - see Notes 2, 3 and 5. 1993 - Effective January 1, 1993, the Company changed its method of accounting for income taxes and recorded a $13.7 million credit to earnings. At the same time, the Company's 50%-owned affiliate, MaraLou, also changed its method of accounting for income taxes and recorded a charge to earnings of $6 million ($3 million net to the Company's interest). Also, with the enactment of the Budget Reconciliation Act of 1993, the Federal statutory corporate income tax rate was increased from 34% to 35% and the Company recorded a $3 million charge to earnings. In connection with the negotiation of a credit facility, bank fees and other costs of $6.7 million were charged to earnings. In December the Company completed the sale of certain assets in Canada for approximately $42.8 million resulting in a gain of $23.5 million (before income taxes of $10.3 million). At the end of 1993, the refinery inventories exceeded their current market values resulting in a charge to earnings of $6.5 million (before income tax benefits of $2.3 million). 1992 - In the first quarter of 1992, the Company recorded a charge of $54.2 million (before income tax benefits of $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 a $25 million (before income taxes of $8.5 million) reduction in the Company's litigation accrual for a State of Louisiana gas royalty claim. 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 also applied against the restructuring charges.
_________________________________________________________________________________________ MARKET PRICE AND DIVIDEND DATA
Quarter Ended March 31 June 30 Sept. 30 Dec. 31 _________________________________________________________________________________________ 1996: Capital stock price: High $48 7/8 57 7/8 63 5/8 62 1/2 Low 39 3/8 46 7/8 50 3/8 51 1/2 Cash dividends per share 0.06 0.06 0.06 0.06 _________________________________________________________________________________________ 1995: Capital stock price: High $38 1/2 41 1/8 40 1/8 43 Low 31 1/4 35 3/8 35 35 1/8 Cash dividends per share 0.06 0.06 0.06 0.06 _________________________________________________________________________________________
_________________________________________________________________________________________ QUARTERLY DATA*
Quarter Ended (Millions of dollars, except per share data) March 31 June 30 Sept. 30 Dec. 31 _________________________________________________________________________________________ 1996: Revenues $262.5 246.3 176.9 176.8 Costs and expenses 225.2 212.0 152.4 128.9 _________________________________________________________________________________________ 37.3 34.3 24.5 47.9 Other income (expense), net (5.5) (7.8) (6.0) (5.0) _________________________________________________________________________________________ Earnings before income taxes 31.8 26.5 18.5 42.9 Income tax expense 11.2 9.3 4.8 14.2 _________________________________________________________________________________________ Net earnings $ 20.6 17.2 13.7 28.7 _________________________________________________________________________________________ Earnings per share $ 0.61 0.50 0.40 0.83 _________________________________________________________________________________________ Average shares 33.7 34.2 34.4 34.4 _________________________________________________________________________________________ 1995: Revenues 191.3 210.7 212.4 207.8 Costs and expenses 178.3 193.7 199.3 191.8 _________________________________________________________________________________________ 13.0 17.0 13.1 16.0 Other income (expense), net (7.6) (7.2) (10.3) (5.2) _________________________________________________________________________________________ Earnings before income taxes 5.4 9.8 2.8 10.8 Income tax expense 1.9 3.4 1.0 3.7 _________________________________________________________________________________________ Net earnings $ 3.5 6.4 1.8 7.1 _________________________________________________________________________________________ Earnings per share $ 0.11 0.19 0.05 0.21 _________________________________________________________________________________________ Average shares 33.5 33.5 33.6 33.6 _________________________________________________________________________________________ * Includes nonrecurring charges/credits as explained in Note 3 of "Notes to Consolidated Financial Statements."
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Houston, Texas January 28, 1997 MARALOU NETHERLANDS PARTNERSHIP Consolidated Balance Sheets December 31, 1996 and 1995 (Expressed in U.S. Dollars)
ASSETS 1996 1995 Current assets: Cash and cash equivalents $ 15,512,348 8,362,890 Accounts receivable 18,995,542 18,195,607 Income taxes receivable 792,318 1,897,581 Materials and supplies 28,740 132,839 Other current assets 66,580 30,514 Total current assets 35,395,528 28,619,431 Long-term receivable 5,792,577 6,250,390 Property, plant and equipment, at cost, based on the successful efforts method of accounting for oil and gas properties 373,618,645 381,561,020 Less accumulated depletion, amortization and depreciation 239,161,370 220,545,368 Net property, plant and equipment 134,457,275 161,015,652 Deferred charges 84,787 158,462 $ 175,730,167 196,043,935 LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliated companies 227,429 209,655 Accounts payable - net profits interest 687,905 89,443 Accrued liabilities 10,165,793 12,199,361 Amounts due to operators of joint ventures 4,864,922 3,429,466 Government royalties payable 1,800,956 1,658,735 Income taxes payable 6,836,182 772,540 Total current liabilities 24,583,187 18,359,200 Long-term debt 96,000,000 96,000,000 Deferred income taxes 23,715,648 30,265,085 Deferred liability - platform abandonment 23,627,970 22,027,271 Minority interest 378,809 1,980,114 Partners' capital (deficit): Marathon Petroleum Netherlands, Ltd. (3,289,618) 6,704,238 LL&E (Netherlands), Inc. (3,289,618) 6,704,238 Foreign currency translation adjustment 14,003,789 14,003,789 Total partners' capital 7,424,553 27,412,265 $ 175,730,167 196,043,935 See accompanying notes to consolidated financial statements. /TABLE MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Income Years Ended December 31, 1996, 1995 and 1994 (Expressed in U.S. Dollars)
1996 1995 1994 Revenues: Sales $ 96,952,823 85,789,643 68,663,916 Interest income 1,219,495 1,167,368 1,259,380 Total revenues 98,172,318 86,957,011 69,923,296 Costs and expenses: Costs and operating expenses 22,713,955 22,258,728 11,079,073 Exploration expenses, including dry hole costs 6,879,661 7,506,437 4,344,427 Depletion, amortization and depreciation 18,616,002 20,060,105 16,571,265 General and administrative expenses 5,045,413 6,611,751 5,691,285 Royalty expense 2,195,978 1,751,800 996,651 Net profits interest 2,308,468 585,859 96,232 Interest expense 6,957,291 6,765,432 5,467,221 Foreign exchange loss/(gain) 1,763,404 (232,567) 543,705 Total costs and expenses 66,480,172 65,307,545 44,789,859 Income before income taxes 31,692,146 21,649,466 25,133,437 Provision for income taxes 13,241,163 10,001,420 16,940,713 Income after income taxes 18,450,983 11,648,046 8,192,724 Minority interest 2,038,695 1,536,566 1,126,536 Net income $ 16,412,288 10,111,480 7,066,188 See accompanying notes to consolidated financial statements.
MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Partners' Capital Years Ended December 31, 1996, 1995 and 1994 (Expressed in U.S. Dollars)
Marathon Petroleum LL&E Netherlands, Inc. (Netherlands), Inc. Total Capital, January 1, 1996 $ 6,704,238 6,704,238 13,408,476 Net income 8,206,144 8,206,144 16,412,288 Distribution to Partners (18,200,000) (18,200,000) (36,400,000) Capital before adjustments (3,289,618) (3,289,618) (6,579,236) Foreign currency translation adjustment - - 14,003,789 Capital, December 31, 1996 $(3,289,618) (3,289,618) 7,424,553
Marathon Petroleum LL&E Netherlands, Inc. (Netherlands), Inc. Total Capital, January 1, 1995 10,748,498 10,748,498 21,496,996 Net income 5,055,740 5,055,740 10,111,480 Distribution to Partners (9,100,000) (9,100,000) (18,200,000) Capital before adjustments 6,704,238 6,704,238 13,408,476 Foreign currency translation adjustment - - 14,003,789 Capital, December 31, 1995 $ 6,704,238 6,704,238 27,412,265
(Continued) MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Partners' Capital (Continued) Years Ended December 31, 1996, 1995 and 1994 (Expressed in U.S. Dollars)
Marathon Petroleum LL&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 $10,748,498 10,748,498 35,500,785 See accompanying notes to consolidated financial statements.
MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1995 and 1994 (Expressed in U.S. Dollars)
1996 1995 1994 Cash flows from operating activities: Net income accruing to MaraLou partners $ 16,412,288 10,111,480 7,066,188 Net (loss)/income accruing to minority shareholders, net of cash distributions (1,601,305) (283,434) 34,536 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, amortization, depreciation and abandonment 18,616,002 20,060,105 16,571,265 Dry hole costs 6,416,582 7,704,402 3,860,175 Deferred income taxes (6,633,681) 431,900 9,021,323 Exchange loss (gain) 1,780,977 (193,026) 374,213 Interest on EBN repayment 740,135 118,451 281,812 Increase in accounts receivable (2,177,922) (1,116,282) (2,041,325) Decrease (increase) in accounts receivable - net profits interest - 385,371 (19,222) Decrease (increase) in materials and supplies 104,099 64,973 (190,902) Decrease (increase) in other current assets 92,958 (19,958) 206,155 Decrease in deferred charges 72,799 25,291 64,096 (Decrease) increase in accounts payable-affiliates 39,846 148,198 (3,255) Increase in accounts payable-net profits 653,906 203,856 - Increase (decrease) in accrued liabilities (1,975,499) 169,047 1,483,332 Increase (decrease) in amounts due to operator of joint venture 1,671,521 1,885,328 (2,558,160) (Decrease) increase in government royalties payable 249,941 49,040 (131,600) (Decrease) increase in income taxes payable/receivable 7,422,123 445,126 (15,179,834) Net cash provided by operating activities 41,884,770 40,189,868 18,838,797 Cash flows from investing activities: Net proceeds/payments for sale/ purchase of equipment 3,130,647 (18,387,901) (24,241,343) Net cash (used in) provided by investing activities 3,130,647 (18,387,901) (24,241,343)
(Continued) MARALOU NETHERLANDS PARTNERSHIP Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 1996, 1995 and 1994 (Expressed in U.S. Dollars)
1996 1995 1994 Cash flows from financing activities: Borrowing under revolving credit agreement $ - - 8,200,000 Cash distribution to partners (36,400,000) (18,200,000) (10,920,000) Net cash used in financing activities (36,400,000) (18,200,000) (2,720,000) Effect of exchange rate on cash (1,465,959) 640,022 766,758 Net increase (decrease) in cash and cash equivalents 7,149,458 4,241,989 (7,355,788) Cash and cash equivalents at beginning of year 8,362,890 4,120,901 11,476,689 Cash and cash equivalents at end of year $ 15,512,348 8,362,890 4,120,901 Supplemental disclosure of cash flow information: Cash paid (received) during the year for: Interest $ 6,041,259 7,166,142 4,487,259 Foreign taxes 8,406,952 11,682,068 23,621,088 Federal taxes 4,300,000 (1,591,489) (518,116) Supplemental schedule of noncash investing and financing activities: Long-term receivable for EBN reimbursement $ (457,813) 476,172 154,362 Accrued liability established for repayment to EBN (5,885) 844,590 732,141 See accompanying notes to consolidated financial statements.
MARALOU NETHERLANDS PARTNERSHIP Notes to Consolidated Financial Statements December 31, 1996, 1995 and 1994 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 Service, 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 Service, 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. 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 six operators of the joint ventures. The amounts reported by the operators of the joint ventures are subject to annual audits by the non-operators. A deter- mination is made annually as to the requirement for an audit based on the materiality of each operator's expenditures. Audits for the year 1995 have been conducted for two of the more significant joint ventures with no material items discovered. The remaining operators' 1995 expenditures were not material enough to require an audit. 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). The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in March 1995. Effective December 31, 1995, CLAM adopted SFAS No. 121. The adoption of SFAS No. 121 resulted in no write-down of long-lived assets. Under SFAS No. 121, the Company performed its impairment review of proved gas and condensate properties on a depletable unit basis. For each depletable unit deter- mined to be impaired, an impairment loss equal to the dif- ference between the carrying value and the fair value of the depletable unit would be recognized. Fair value, on a depletable unit basis, was estimated to be the present value of expected future cash flows computed by applying estimated future gas and condensate prices, as determined by Management, to estimated future production of gas and condensate reserves over the economic lives of the reserves. Depletion, amortization and depreciation: Depletion is provided under the unit-of-production method based upon estimates of proved-developed reserves. Depreci- ation is based on estimated useful life of the assets. 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 de- preciation 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 esti- mated abandonment costs. Platform abandonment amortization is charged to operating expense. Geographic concentration: All concessions in which CLAM has interests are located in the Netherlands. Use of estimates: Management of CLAM and MaraLou have made a number of estimates and assumptions relating to the reporting of assets and lia- bilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 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 affiliate. Such charges were approximately $3,032,408, $2,803,322 and $2,183,002 for 1996, 1995 and 1994, respectively. Salaries and related social charges included therein amounted to $154,603, $2,007,984 and $1,449,062 for 1996, 1995 and 1994, respectively. MaraLou transactions with related parties consisted of charges for administrative services rendered by an affiliate amounting to $63,252, $60,900 and $59,880 in 1996, 1995 and 1994, respectively. 3. Property, plant and equipment Changes in property, plant and equipment for the years ended December 31, 1996, 1995 and 1994 are as follows (in thousands of U.S. dollars): Balance Additions Dry Hole Balance 12/31/95 (Reductions) Costs 12/31/96 Concession $ 5,988 (2,437) - 3,551 Wells and platforms 311,059 (7,457) - 303,602 Incomplete construction - 886 - 886 Uncompleted wells 5,610 782 (2,374) 4,018 Pipelines 51,897 (323) - 51,574 Gas processing facilities 6,645 2,921 - 9,566 Furniture and fixtures 362 59 - 421 381,561 (5,569) (2,374) 373,618 Depletion and amortization 220,189 18,600 - 238,789 Depreciation-furniture and fixtures 356 16 - 372 220,545 18,616 - 239,161 Net property, plant and equipment $ 161,016 134,457
Balance Additions Dry Hole Balance 12/31/94 (Reductions) Costs 12/31/95 Concession $ 8,275 (2,287) - 5,988 Wells and platforms 280,828 30,231 - 311,059 Incomplete construction 5,726 (5,726) - - Uncompleted wells 16,280 (5,667) (5,003) 5,610 Pipelines 51,870 27 - 51,897 Gas processing facilities 6,519 126 - 6,645 Furniture and fixtures 1,127 (765) - 362 370,625 15,939 (5,003) 381,561 Depletion and amortization 200,144 20,045 - 220,189 Depreciation-furniture and fixtures 1,105 (749) - 356 201,249 19,296 - 220,545 Net property, plant and equipment $ 169,376 161,016
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
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. 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. Details of federal and foreign income taxes (benefits) - (in thousands of U.S. dollars) are as follows:
1996 1995 1994 Current tax expense (benefit): Federal $ 6,670 25 (860) Foreign 13,116 9,543 8,779 Deferred tax expense (benefit): Federal (5,198) 1,463 2,673 Foreign (1,347) (1,030) 6,349 Total provision for income taxes $13,241 10,001 16,941
Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes of CLAM as a result of the following (in thousands of U.S. dollars):
1996 1995 1994 Computed "expected" tax expense $ 12,483 9,416 10,267 Increase (decrease) in income taxes resulting from: Foreign tax greater than federal income tax - - 4,178 Increase in deferred tax valuation allowance 1,040 1,225 2,852 Other (282) (640) (356) Provision for income taxes $ 13,241 10,001 16,941
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, 1996, 1995 and 1994 relate to the following (in thousands of U.S. dollars):
U.S. - Deferred 1996 1995 1994 Deferred Tax Assets: Foreign tax credit carryover $ - 701 - Benefit for foreign deferred taxes 4,249 3,810 3,733 Abandonment accrual 8,271 7,708 7,354 Valuation allowance (6,864) (5,824) (4,599) Total deferred tax assets $ 5,656 6,395 6,488 Deferred Tax Liabilities: Property, plant and equipment differences in depreciation and amortization $17,231 23,168 21,798 Total deferred tax liabilities $17,231 23,168 21,798 Total U.S. - deferred $11,575 16,773 15,310 /TABLE
Foreign State Profit Share - Deferred 1996 1995 1994 Deferred Tax Assets: Abandonment accrual $ 2,512 2,915 2,809 Morgan loan currency revaluation - - 270 Valuation allowance (368) (261) (723) Total deferred tax assets $ 2,144 2,654 2,356 Deferred Tax Liabilities: Property, plant and equipment differences in depreciation and amortization $ 14,285 16,146 15,771 Total deferred tax liabilities $ 14,285 16,146 15,771 Total Foreign State Profit Share - deferred $ 12,141 13,492 13,415
The Company provides a valuation allowance against deferred tax assets to reflect the amount of deferred tax asset, net of valuation allowance, that more likely than not will be utilized to offset future taxes. The valuation allowance increased from December 31, 1995 to December 31, 1996 due to changes in the Company's estimate of the amount and timing of the reversal of its abandonment accrual. The Company's current tax liability was determined on a regular tax basis. 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, 1996 and December 31, 1995 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, 1996 and December 31, 1995 were 6.250% and 6.1875%, 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, 1996 and December 31, 1995 was $125,000,000 and $132,000,000, respectively. The agreement provides that the borrowing base is reduced periodically over the term of the facility which is currently scheduled to expire on September 30, 2002. 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, 1996 of which $-0- was due within one year. The outstanding balances for MaraLou and CLAM, respectively, were $-0- and $96,000,000 at December 31, 1995. At December 31, 1996, the required reductions to the borrowing base in each of the next five years are $-0- in 1997, $9,600,000 in 1998, $28,000,000 in 1999, $22,400,000 in 2000, $22,000,000 in 2001 and $14,000,000 thereafter. CLAM has an unsecured combined short-term loan and overdraft facility of Dfl. 80,000,000 ($46,248,121 at year-end exchange rates). On December 31, 1996 and December 31, 1995 the out- standing 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 and effective. 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. Effective January 1, 1995, new entitlements were agreed upon and CLAM made a cash payment of $3,439,966 to equalize past investment. Effective January 1, 1996, new entitlements were agreed upon and CLAM made a cash payment of $7,881,509 to equalize past investment. 8. Reserves of oil and gas (unaudited) CLAM's share, including net profits interest, of proven gas reserves at January 1, 1997 and 1996 are 270,148 MMCF and 245,107 MMCF, respectively. 9. Major customer CLAM has one major customer from which it derives 96% of its sales revenue. CLAM is 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 1999. 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 of $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 1999, 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 $5,792,577 long-term receivable, based on discounted cash flows, is approximately $4,545,000. 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 8, 1997, which the Registrant will file pursuant to Regulation 14A not later than 120 days after December 31, 1996, 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 herein under the heading "Executive Officers of the Registrant" in Part I 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 FORM 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, 1996. 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 Regis- trant'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 - Commis- sion 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 (as amended and restated on May 9, 1996) among the Registrant and First Chicago Trust Company (as Rights Agent) - (Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated May 10, 1996 - 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)(i) Form of Termination Agreement with Certain Senior Management Personnel (as amended) (Incorporated by reference to the Exhibit 10(a)(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(a)(ii) Form of Termination Agreement with Certain Senior Management Personnel (Incorporated by reference to the Exhibit 10(a)(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). Exhibit 10(b) The Louisiana Land and Exploration Company 1982 Stock Option Plan as adopted (Incor- porated 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 re- ference 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 (Incorporated by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 - Commission File No. 1-959.). Exhibit 10(f) The Louisiana Land and Exploration Company 1995 Stock Option Plan for Non-Employee Directors as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 28, 1995.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(g) Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Incorporated by re- ference 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.). Exhibit 10(i) Form of The LL&E Change in Control Severance Plan for Key Executives (Incorporated by reference to the Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). Exhibit 10(j) The LL&E Supplemental Excess Plan (Incorpo- rated 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) Credit Agreement dated as of June 8, 1995 among the Registrant, the Banks listed there- in, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents (Incorporated by reference to Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(l)(i) Amendment No. 1 to Credit Agreement dated as of June 8, 1995 (Incorporated by reference to Exhibit 10(l)(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 - Commission File No. 1-959.). Exhibit 10(m) Agreement and General Release. Exhibit 21 Subsidiaries of the Registrant. Exhibit 23 Consent of Experts. Exhibit 24 Powers of Attorney. Exhibit 27 Financial Data Schedules: Year Ended December 31, 1996 Year Ended December 31, 1995 (Restated) Year Ended December 31, 1994 (Restated) 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 14, 1997 By /s/ Frederick J. Plaeger, II __________________________________ Frederick J. Plaeger, II Vice President, 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 14, 1997 *H. Leighton Steward _____________________________________ H. Leighton Steward Director, Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: March 14, 1997 *Robert E. Howson _____________________________________ Robert E. Howson Director Date: March 14, 1997 *Eamon M. Kelly _____________________________________ Eamon M. Kelly Director Date: March 14, 1997 *Kenneth W. Orce _____________________________________ Kenneth W. Orce Director Date: March 14, 1997 *Victor A. Rice _____________________________________ Victor A. Rice Director Date: March 14, 1997 *John F. Schwarz _____________________________________ John F. Schwarz Director Date: March 14, 1997 *Orin R. Smith _____________________________________ Orin R. Smith Director Date: March 14, 1997 *Carroll W. Suggs _____________________________________ Carroll W. Suggs Director Date: March 14, 1997 *Arthur R. Taylor _____________________________________ Arthur R. Taylor Director Date: March 14, 1997 *W. R. Timken, Jr. _____________________________________ W. R. Timken, Jr. Director Date: March 14, 1997 *Carlisle A. H. Trost _____________________________________ Carlisle A. H. Trost Director Date: March 14, 1997 *Louis A. Raspino, Jr. _____________________________________ Louis A. Raspino, Jr. Senior Vice President-Chief Financial Officer (Principal Financial Officer) Date: March 14, 1997 *Jerry D. Carlisle _____________________________________ Jerry D. Carlisle Vice President and Controller (Principal Accounting Officer) */s/ Frederick J. Plaeger, II _________________________________________ Frederick J. Plaeger, II Vice President, 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, 1996 __________________________ 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 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 Regis- trant'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 - Commis- sion 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 (as amended and restated on May 9, 1996) among the Registrant and First Chicago Trust Company (as Rights Agent) - (Incorporated by reference to Exhibit 4 to the Registrant's Current Report on Form 8-K dated May 10, 1996 - 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)(i) Form of Termination Agreement with Certain Senior Management Personnel (as amended) (Incorporated by reference to the Exhibit 10(a)(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(a)(ii) Form of Termination Agreement with Certain Senior Management Personnel (Incorporated by reference to the Exhibit 10(a)(ii) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). Exhibit 10(b) The Louisiana Land and Exploration Company 1982 Stock Option Plan as adopted (Incor- porated 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 re- ference 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 (Incorporated by reference to Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 - Commission File No. 1-959.). Exhibit 10(f) The Louisiana Land and Exploration Company 1995 Stock Option Plan for Non-Employee Directors as adopted (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement dated March 28, 1995.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(g) Form of The Louisiana Land and Exploration Company Deferred Compensation Arrangement for Selected Key Employees (Incorporated by re- ference 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.). Exhibit 10(i) Form of The LL&E Change in Control Severance Plan for Key Executives (Incorporated by reference to the Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 - Commission File No. 1-959.). Exhibit 10(j) The LL&E Supplemental Excess Plan (Incorpo- rated 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) Credit Agreement dated as of June 8, 1995 among the Registrant, the Banks listed there- in, Morgan Guaranty Trust Company of New York, as Agent, and Texas Commerce Bank National Association and NationsBank of Texas, N.A., as Co-Agents (Incorporated by reference to Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 - Commission File No. 1-959.). (continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Index to Exhibits Exhibit 10(l)(i) Amendment No. 1 to Credit Agreement dated as of June 8, 1995 (Incorporated by reference to Exhibit 10(l)(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 - Commission File No. 1-959.). Exhibit 10(m) Agreement and General Release. Exhibit 21 Subsidiaries of the Registrant. Exhibit 23 Consent of Experts. Exhibit 24 Powers of Attorney. Exhibit 27 Financial Data Schedules: Year Ended December 31, 1996 Year Ended December 31, 1995 (Restated) Year Ended December 31, 1994 (Restated) 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(m) AGREEMENT AND GENERAL RELEASE Exhibit 10(m) AGREEMENT AND GENERAL RELEASE THIS AGREEMENT is made and entered into as of this 5th day of December, 1996 by and between RICHARD A. BACHMANN (the "Executive") and THE LOUISIANA LAND AND EXPLORATION COMPANY, a Maryland corporation (the "Company"). W I T N E S S E T H : WHEREAS, the Executive has been employed by the Company; and WHEREAS, the Executive has resigned all officer positions with the Company and its subsidiaries, and resigned his membership on the Boards of Directors and all Committees of the Company and its subsidiaries and will terminate his status as an employee and retire from the Company as an early retiree effective January 1, 1997; and WHEREAS, the Executive and the Company desire to settle fully and finally all matters between them to date, including, but in no way limited to, any issues that might arise out of the Executive's employment or the termination of his employment; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Effective upon his early retirement on January 1, 1997, the Executive shall become entitled to all of the benefits provided to retirees under the terms of the Company's employee benefit plans, including without limitation full vesting in all outstanding restricted stock and all outstanding stock options becoming fully exercisable until their respective expiration dates in accordance with their terms and subject to the conditions set forth in such options. The Executive's benefits under the Compensatory Benefits Agreement and under The LL&E Compensatory Benefits and Supplemental Excess Plan shall be distributed in ten annual installments commencing in January 2000 (with the amount of each annual installment to be determined by dividing the amount then credited to the Executive's accounts by the number of installments remaining to be paid). 2. The Company will provide the Executive with a furnished office and part-time secretarial support in the United States city of his choosing for such reasonable period of time as the Chief Executive Officer of the Company may determine, it being understood that such period shall in no event be less than one year. 3. The Company shall pay to the Executive, at such times and otherwise in accordance with the Company's standard payroll practices, periodic amounts at an annual rate equal to the Executive's annual base salary in effect on the date hereof, until June 30, 1999. 4. The Executive shall receive a cash bonus pursuant to the Company's Incentive Bonus Program for each of 1996 and 1997, in each case only if such cash bonus is earned in accordance with the terms of the Incentive Bonus Program for such year (deeming, for this purpose only, that the Executive had continued as an executive officer of the Company through the end of such year). Each such bonus shall be paid at the time Incentive Bonuses are scheduled to be paid with respect to the applicable year. If there is a change in control of the Company as that term is defined with Company's Pension Plan and the Executive continues to be in compliance with the terms of this Agreement, the Incentive Bonus payable with respect to 1997 shall not be less than the target level bonus applicable to the 1996 Incentive Bonus Program. The Company shall provide the Executive with information available to all Program participants relative to the achievement of Program goals at the end of each Program. 5. With respect to any performance shares granted by the Company to the Executive and for which the Performance Cycle has not expired on the date hereof, the Executive shall remain entitled to receive the percentage of performance shares earned in accordance with the terms of such grant (determined without regard to any reduction that would otherwise occur solely by reason of the termination of Executive's employment). Any outstanding performance share award agreements with the Executive are deemed amended to the extent necessary to conform with this Section 5. The Company shall provide Executive with information available to all holders of performance shares with respect to the achievement of performance goals relative to each applicable Performance Cycle at the end of each Cycle. 6. Any payments and benefits provided for under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law and any debts or other obligations owed to the Company by the Executive. 7. The Executive understands and agrees that the consideration described in Sections 3, 4 and 5 of this Agreement is more than the Executive would otherwise be entitled to under the Company's existing plans and policies and that such excess constitutes consideration to the Executive for his undertaking and performing the obligations specified in this Agreement. Except as otherwise expressly provided in this Agreement, the Executive after January 1, 1997 shall be entitled to none of the benefits or other perquisites of employment extended to employees of the Company, and the Executive shall have no right to any benefits under any plan, program, policy or arrangement of the Company which otherwise might be available if his employment had continued after January 1, 1997. 8. The Executive, to the best of his knowledge, has returned or will as soon as practicable (but in any event no later than 30 days after his resignation as an executive officer of the Company) return to the Company all Company Information and related reports, files, memoranda, and records; credit cards, cardkey passes; door and file keys; computer access codes; software; and other physical or personal property which the Executive received or prepared or helped prepare in connection with his employment and which are in his actual possession or control on or after the date of his resignation as an executive officer of the Company. The Executive has not, to the best of his knowledge, retained and will not intentionally retain any copies, duplicates, reproductions, or excerpts thereof. The term "Company Information" as used in this Agreement means all information relating to the Company or any of its subsidiaries which is not already in the public domain and which is regarded by the Company as confidential, proprietary or private in nature, including, without limitation, information received from third parties under confidential conditions, technical, business, or financial information, and other information concerning the business, contemplated future business prospects, and other affairs of the Company. 9. The Executive agrees that in the course of his employment with the Company, he has acquired Company Information as defined in Section 8. The Executive understands and agrees that such Company Information has been disclosed to the Executive in confidence and for Company use only. The Executive understands and agrees that he (i) will keep Company Information confidential at all times following his resignation as an executive officer of the Company, (ii) will not disclose or communicate Company Information to any third party, and (iii) will not make use of Company Information on the Executive's own behalf, or on behalf of any third party. In view of the nature of the Executive's employment and the nature of Company Information which the Executive has received during the course of his employment, the Executive agrees that any unauthorized disclosure to third parties of Company Information or other violation, or threatened violation, of this Agreement would cause irreparable damage to the trade secret status of Company Information and to the Company, and that, therefore, the Company shall be entitled to an injunction prohibiting the Executive from any such disclosure, attempted disclosure, violation, or threatened violation. When Company Information becomes generally available to the public other than by the Executive's acts or omissions, it is no longer subject to these restrictions. The undertakings set forth in this Section 9 shall survive the termination of this Agreement or other arrangements contained in this Agreement without limitation. 10. The Executive agrees and promises that, unless legally required, he will not make any oral or written statements or reveal any information to any person, company, or agency which may be construed to be negative, disparaging or damaging to the reputation or business of the Company, its subsidiaries, directors, officers or affiliates, which would interfere in any way with the business relations between the Company or any of its subsidiaries or affiliates and any of their customers, suppliers or joint venture partners or potential customers, suppliers or joint venture partners or which would adversely affect or conflict with the interests of the Company. 11. In consideration of the payments and benefits to the Executive under this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Executive, the Executive shall not, during the Noncompetition Period (as hereinafter defined), directly or indirectly, (a) act as a director, officer, employee, manager, trustee, agent, partner, advisor, joint venturer, or consultant of, with or to, or otherwise engage in, any business or businesses that engage in direct competition with those businesses in which the Company and its subsidiaries engaged or proposed to be engaged on January 1, 1997 without the prior written consent of the Company, it being understood that an activity or circumstance shall be deemed to constitute direct competition for purposes of this Section 11(a) only if such activity or circumstance involves or relates to any of the prospects, plays or asset developments contemplated in the Company's 1997 Budget Summaries, or (b) solicit for employment any of the current employees of the Company. For purposes of this Section 11, the "Noncompetition Period" shall mean the period beginning November 24, 1996 and ending on December 31, 1998. 12. For a period of ten years from the date of this Agreement (the "Restricted Period"), except as specifically requested in writing by the Company, the Executive, singly or with any other person or directly or indirectly, shall not propose, enter into, or agree to enter into, or encourage any other person to propose, enter into, or agree to enter into (a) any form of business combination, acquisition or other transaction relating to the Company, (b) any form of restructuring, recapitalization or similar transaction with respect to the Company, or (c) any demand, request or proposal to amend, waive or terminate any provision of this Section 12 of this Agreement. Furthermore, during the Restricted Period, except as specifically requested in writing by the Company, the Executive shall not, singly or with any other person or directly or indirectly, (1) acquire, or offer, propose or agree to acquire, by tender offer, purchase or otherwise, any voting securities of the Company except through the exercise of options, (2) make, or in any way participate in, encourage, advise or otherwise facilitate any solicitation of proxies or written consents with respect to voting securities of the Company (it being understood that the mere execution by the Executive of a proxy or written consent shall not be treated as constituting participation in such a solicitation), (3) become a participant in any election contest with respect to the Company, (4) seek to influence any person with respect to the voting or disposition of any voting securities of the Company, (5) demand a copy of the Company's list of stockholders or its other books and records, (6) participate in, encourage, advise with regard to, or otherwise facilitate the formation of any partnership, syndicate or other group that owns or seeks or offers to acquire beneficial ownership of any voting securities of the Company or that seeks to affect control of the Company or for the purpose of circumventing any provision of this Agreement or (7) otherwise act to seek or to offer to control or influence, in any manner, the management, Board of Directors or policies of the Company. 13. In consideration of the payments and benefits to the Executive under this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Executive, the Executive knowingly, voluntarily and unconditionally hereby forever waives, releases and discharges, and covenants never to sue on, any and all claims, liabilities, causes of actions, judgments, orders, assessments, penalties, fines, expenses and costs (including without limitation attorneys' fees) and/or suits of any kind arising out of any actions, events or circumstances before the date of execution of this Agreement ("Claims") which the Executive has, ever had or may have, including, without limitation, any Claims arising in whole or in part from the Executive's employment or the termination of the Executive's employment with the Company or the manner of said termination; provided, however, that this Section 13 shall not apply to any of the obligations of the Company specifically provided for in this Agreement. This Agreement is intended as a full and final settlement and compromise of each, every and all Claims of every kind and nature, whether known or unknown, which have been or could be asserted against the Company and/or any of its subsidiaries, shareholders, officers, directors, agents, and employees, past or present, and their respective heirs, successors and assigns (collectively, the "Releasees"), including, without limitation -- (1) any Claims arising out of any employment agreement or other contract, side-letter, resolution, promise or understanding of any kind, whether written or oral or express or implied; (2) any Claims arising under the Age Discrimination in Employment Act ("ADEA"), as amended, 29 U.S.C. Section 621 et seq.; and (3) any Claims arising under any federal, state, or local civil rights, human rights, anti-discrimination, labor, employment, contract or tort law, rule, regulation, order or decision, including, without limitation, the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq., and Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e et seq., and as each of these laws have been or will be amended, except to the extent that any governmental authority or other third party, i.e., other than one of the Releasees, files a charge or institutes an investigation, lawsuit or any proceeding against the Executive based on any event, occurrence or omission during the period of the Executive's employment with the Company, in which case the Executive will be permitted to implead or bring a court action against the Company and/or any of the Releasees for indemnification of any liability or other appropriate remedy, provided such impleader or court action would be available but for this Agreement. Notwithstanding anything to the contrary in this Section 13, the Executive does not release (i) any claim he may have under any employee benefit plan in which he was a participant during his employment with the Company for the payment of a benefit thereunder to which he would be entitled upon his termination of employment on January 1, 1997 in accordance with the terms of such plan or (ii) any claim that he may have under this Agreement. 14. The Executive understands that this Agreement affects significant rights and represents and agrees that he has carefully read and fully understands all of the provisions of this Agreement, that he is voluntarily entering into this Agreement, and that he has been advised to consult with and has in fact consulted with legal counsel before entering into this Agreement. In particular, the Executive acknowledges that he has been given twenty-one (21) days to carefully consider and voluntarily approve the terms of this Agreement. The Executive understands that, pursuant to the provisions of the ADEA, he shall have a period of seven (7) days from the date of execution of this Agreement during which he may revoke this Agreement via hand delivery of a notice of revocation to the Company's offices to the attention of Frederick J. Plaeger, II, General Counsel. This Agreement shall not become effective or enforceable until the revocation period has expired. 15. In the event of any breach by the Executive of this Agreement, the Executive shall relinquish and forfeit (to the fullest extent permitted by law) all payments and benefits hereunder (including, without limitation, payments and benefits already received) to the extent in excess of the payments and benefits he would have received following termination of his employment on January 1, 1997 in the absence of this Agreement, such excess constituting consideration paid and promised to be paid to the Executive for his performing his obligations under this Agreement. To the extent that any payments or benefits have already been received, the Executive shall promptly pay all such relinquished and forfeited payments and benefits to the Company. In addition, the parties acknowledge that money damages will not be an adequate remedy in respect of a breach by the Executive of his obligations under this Agreement and, accordingly, the Executive agrees that the Company shall be entitled to equitable relief to enforce the provisions of this Agreement. 16. This Agreement constitutes the entire understanding and agreement between the Company and the Executive with regard to all matters herein and supersedes all prior oral and written agreements and understandings of the parties with respect to such matters, whether express or implied. There are no other agreements, conditions, or representations, oral or written, express or implied, with regard thereto. This Agreement may be amended only in a writing of even or subsequent date, signed by all parties hereto. 17. If any term or provision of this Agreement, or the application thereof to any person or circumstances, will to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such terms to persons or circumstances other than those as to which it is invalid or unenforceable, will not be affected thereby, and each term of this Agreement will be valid and enforceable to the fullest extent permitted by law. 18. This Agreement shall be construed and enforced in accordance with the laws of the State of Maryland without reference to its choice of law provisions and shall be binding upon the parties and their respective heirs, executors, successors and assigns. The parties hereto (a) agree that any litigation with respect to this Agreement will be brought only in the Federal District Court in New Orleans or in any court of competent jurisdiction in the State of Maryland, and (b) consent to the personal jurisdiction of such courts. 19. This Agreement does not constitute any admission of wrongdoing, or evidence thereof, on the part of any parties hereto or the Releases. Except as required by court order, or to enforce the terms of this Agreement, this Agreement may not be used in any court or administrative proceeding. 20. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Executive have caused this Agreement to be executed as of the date first above written. THE LOUISIANA LAND AND EXPLORATION COMPANY By:______________________________ /s/ H. Leighton Steward Chairman and Chief Executive Officer WITNESS: _____________________________ ______________________________ /s/ Kenneth W. Orce /s/ Richard A. Bachmann EX-21 3 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant December 31, 1996
% 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 New South Wales LL&E (Australia) Pty., Ltd. 100 New South Wales LL&E Canada Holdings, Inc. 100 Delaware LL&E Colombia, Inc. 100 Delaware LL&E Erave Pty., Ltd. 100 Papua New Guinea LL&E (Europe-Africa-Middle East) Inc. 100 Delaware LL&E Gas Marketing, Inc. 100 Delaware LL&E Gippsland Pty., Ltd. 100 New South Wales 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 Mining, L.L.C. 100 Louisiana 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 Overseas Petroleum, Ltd. 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 Timor Sea Pty., Ltd. 100 New South Wales LL&E Tunisia, Ltd. 100 Bermuda LL&E (U.K.) Inc. 100 Delaware LL&E Venezuela, Ltd. 100 Bermuda Administradora General Delta Centro, S.A. 22.75 Venezuela LL&E Yemen, Ltd. 100 Bermuda
Exhibit 21 (Continued) THE LOUISIANA LAND AND EXPLORATION COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant December 31, 1996
% Ownership Jurisdiction by Immediate of Parent Incorporation _______________________________________________________________________________________ Delta Centro Operating Company, Ltd. 100 Bermuda Evangeline Gas Corp. 45 Delaware Inexco Oil Company 100 Delaware Wilson Brothers Drilling Company 100 Delaware LL&E Petroleum Resources Marketing, L.P. 100 Louisiana LLOXY Holdings, Inc. 100 Maryland Westland Royalty Company 100 Colorado White Pine Leasing, Inc. 100 Delaware * Unconsolidated affiliate accounted for under the equity method.
EX-23 4 EXHIBIT 23 CONSENT OF EXPERTS 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, No. 33-62923 and No. 33-56211 on Form S-8, No. 33-48339, No. 33-50991 and No. 333-16191 on Form S-3 and No. 33-6593 on Form S-4 of The Louisiana Land and Exploration Company of our reports dated February 7, 1997, relating to the consolidated balance sheets of The Louisiana Land and Exploration Company and subsidiaries as of December 31, 1996 and 1995 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, 1996 which reports appear in the December 31, 1996 annual report on Form 10-K of The Louisiana Land and Exploration Company. Our reports refer 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 January 28, 1997, relating to the consolidated balance sheets of MaraLou Netherlands Partnership and subsidiary as of December 31, 1996 and 1995 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, 1996 which report appears in the December 31, 1996 annual report on Form 10-K of The Louisiana Land and Exploration Company. /s/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP New Orleans, Louisiana March 19, 1997 EX-24 5 EXHIBIT 24 POWERS OF ATTORNEY 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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /s/ Robert E. Howson _____________________________ Robert E. Howson 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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /s/ John F. Schwarz _____________________________ John F. Schwarz 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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 her capacity as a director of The Louisiana Land and Exploration Company hereby appoints Louis A. Raspino, Jr. and Frederick J. Plaeger, II and each of them severally, her 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 her name, place, and stead, in her 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 14th day of March, 1997. /s/ Carroll W. Suggs _____________________________ Carroll W. Suggs 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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 Louis A. Raspino, Jr. 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 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 14th day of March, 1997. /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 the principal financial officer of The Louisiana Land and Exploration Company hereby appoints Frederick J. Plaeger, II and James N. Wood, Jr. 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 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 14th day of March, 1997. /s/ Louis A. Raspino, Jr. _____________________________ Louis A. Raspino, 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 the principal accounting officer of The Louisiana Land and Exploration Company hereby appoints Louis A. Raspino, Jr. 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 14th day of March, 1997. /s/ Jerry D. Carlisle _____________________________ Jerry D. Carlisle EX-27 6
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-31-1996 DEC-31-1996 9,000 0 150,700 0 0 171,100 3,100,600 1,940,900 1,364,800 148,300 505,700 5,100 0 0 469,500 1,364,800 862,500 862,500 0 678,300 30,000 0 34,500 119,700 39,500 80,200 0 0 0 80,200 2.35 2.35 EX-27 7
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. THIS SCHEDULE HAS BEEN RESTATED TO CONFORM TO FINANCIAL STATEMENT CLASSIFICATIONS ADOPTED IN 1996. 1,000 YEAR DEC-31-1995 DEC-31-1995 10,300 0 143,800 0 38,700 206,600 3,120,900 1,913,300 1,467,700 200,600 691,600 5,000 0 0 365,700 1,467,700 822,200 822,200 0 718,100 36,700 0 38,600 28,800 10,000 18,800 0 0 0 18,800 0.56 0.56 EX-27 8
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. THIS SCHEDULE HAS BEEN RESTATED TO CONFORM TO FINANCIAL STATEMENT CLASSIFICATIONS ADOPTED IN 1996. 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 5,000 0 0 347,400 1,478,100 789,300 789,300 0 1,086,900 22,400 0 25,600 (345,600) (118,700) (226,900) 0 0 0 (226,900) (6.80) (6.80) -----END PRIVACY-ENHANCED MESSAGE-----