-----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, QqAnkMxI84JHTVj1kXtDM2umPUx/yFnc6nOZYkQ+iX4vlYpEm1nAVU35rUVhAD35 1ZBYztJ20k9J4FDPEfnMfQ== 0000930661-96-000944.txt : 19960809 0000930661-96-000944.hdr.sgml : 19960809 ACCESSION NUMBER: 0000930661-96-000944 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960808 SROS: NASD SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXUS ENERGY CORP /DE/ CENTRAL INDEX KEY: 0000724176 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 751891531 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08567 FILM NUMBER: 96606124 BUSINESS ADDRESS: STREET 1: 717 N HARWOOD ST- RM 3147 CITY: DALLAS STATE: TX ZIP: 75201-6594 BUSINESS PHONE: 2149532000 FORMER COMPANY: FORMER CONFORMED NAME: DIAMOND SHAMROCK CORP /DE/ DATE OF NAME CHANGE: 19870518 FORMER COMPANY: FORMER CONFORMED NAME: NEW DIAMOND CORP DATE OF NAME CHANGE: 19830908 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ending June 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-8567-2 MAXUS ENERGY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-1891531 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 717 NORTH HARWOOD STREET, DALLAS, TEXAS 75201-6594 (Address of principal executive offices) (Zip Code) (214) 953-2000 (Registrant's telephone number, including area code) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO THE FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_] Shares of Common Stock outstanding at August 7, 1996: 135,609,772 PART 1. FINANCIAL INFORMATION In the opinion of the management of Maxus Energy Corporation (together with its subsidiaries, "Maxus" or the "Company"), all adjustments (consisting only of normal accruals) necessary for a fair presentation of the consolidated results of operations, consolidated balance sheet and consolidated cash flows at the date and for the periods indicated have been included in the accompanying consolidated financial statements. Effective April 1, 1995, the Company used the purchase method of accounting to record the acquisition of the Company by YPF Sociedad Anonima, an Argentine sociedad anonima ("YPF"), as discussed in Note Two to the financial statements. Periods prior to April 1, 1995 are presented; however, financial statements for these periods are on a pre-Merger basis and, therefore, not comparative. 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have reviewed the accompanying consolidated balance sheet of Maxus Energy Corporation (a Delaware corporation) as of June 30, 1996 and 1995, and the related consolidated statements of operations and cash flows for the six- month period ended June 30, 1996 and the three-month period ended June 30, 1995, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to the financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Maxus Energy Corporation as of December 31, 1995, and the consolidated statements of operations and cash flows for the three months ended March 31, 1995, and, in our report dated February 2, 1996, we expressed an unqualified opinion on those statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1995, and the accompanying consolidated statements of operations and cash flows for the three months ended March 31, 1995, is fairly stated, in all material respects, in relation to the financial statements from which it has been derived. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Dallas, Texas July 24, 1996 3 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in millions, except per share)
1996 1995 ------------------------------ ------------------------------ THREE MONTHS SIX MONTHS THREE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, MARCH 31, ------------- ------------ ------------- ------------ (Unaudited) (Unaudited) (Unaudited) REVENUES Sales and operating revenues $172.1 $346.1 $150.7 $142.5 Other revenues, net 5.4 11.6 6.2 9.6 ----------- ----------- ----------- ----------- 177.5 357.7 156.9 152.1 COSTS AND EXPENSES Operating expenses 51.6 102.4 58.0 64.6 Gas purchase costs 18.5 36.5 13.2 12.7 Exploration, including exploratory 6.1 14.0 16.8 8.9 dry holes Depreciation, depletion and 43.4 84.1 45.2 29.9 amortization General and administrative expenses 2.5 5.3 4.4 4.2 Taxes other than income taxes 3.2 6.6 2.8 3.1 Interest and debt expenses 34.0 68.1 34.7 24.1 Pre-merger costs - - - 42.4 ----------- ----------- ----------- ----------- 159.3 317.0 175.1 189.9 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 18.2 40.7 (18.2) (37.8) INCOME TAXES 20.9 43.9 4.8 19.1 ----------- ----------- ----------- ----------- NET LOSS $ (2.7) $ (3.2) $(23.0) (56.9) =========== =========== =========== DIVIDEND REQUIREMENT ON PREFERRED STOCK (9.6) ----------- NET LOSS APPLICABLE TO COMMON SHARES $(66.5) =========== NET LOSS PER COMMON SHARE $(0.49) =========== AVERAGE COMMON SHARES OUTSTANDING 135.5
See Notes to Consolidated Financial Statements. 4 MAXUS ENERGY CORPORATION CONSOLIDATED BALANCE SHEET (in millions, except shares)
JUNE 30, DECEMBER 31, 1996 1995 ------------- ------------ ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 45.0 $ 38.3 Receivables, less doubtful receivables 134.4 141.8 Inventories 29.6 40.8 Restricted cash - 19.0 Prepaids and other current assets 23.1 26.5 Net assets held for sale 265.2 - ------------- ------------ TOTAL CURRENT ASSETS 497.3 266.4 Properties and Equipment, less accumulated depreciation, depletion and amortization 2,041.4 2,363.6 Investments and Long-Term Receivables 8.4 7.1 Restricted Cash 53.5 61.4 Deferred Charges 19.1 18.3 ------------- ------------ $ 2,619.7 $ 2,716.8 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Long-term debt $ 51.6 $ 34.3 Accounts payable 45.9 59.0 Taxes payable 37.8 39.7 Accrued liabilities 137.8 173.4 ------------- ------------ TOTAL CURRENT LIABILITIES 273.1 306.4 Long-Term Debt 1,211.4 1,261.2 Cash Advance from Parent Against Purchase Price 101.0 - Deferred Income Taxes 472.0 551.2 Other Liabilities and Deferred Credits 214.1 233.0 $9.75 Redeemable Preferred Stock, $1.00 par value Authorized and issued shares--625,000 and 1,250,000 62.5 125.0 Stockholders' Equity $2.50 Preferred Stock, $1.00 par value Authorized shares--5,000,000 Issued shares--3,500,000 62.2 66.5 $4.00 Preferred Stock, $1.00 par value Authorized shares--5,915,017 Issued shares--4,356,658 4.4 11.7 Common Stock, $1.00 par value Authorized shares--300,000,000 Issued Shares--135,609,772 135.6 135.6 Capital Contributions from Parent 64.0 - Paid-in capital 100.2 105.8 Accumulated deficit (76.9) (73.7) Minimum pension liability (3.9) (5.9) ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 285.6 240.0 ------------- ------------ $ 2,619.7 $ 2,716.8 ============= ============
See Commitments and Contingencies. See Notes to Consolidated Financial Statements. The Company uses the successful efforts method to account for its oil and gas producing activities. 5 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
----------------- ----------------- ----------------- SIX MONTHS THREE MONTHS THREE MONTHS ENDED JUNE 30, ENDED JUNE 30, ENDED MARCH 31, 1996 1995 1995 ----------------- ----------------- ----------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3.2) $(23.0) $(56.9) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 84.1 45.2 29.9 Dry hole costs 1.1 6.8 1.0 Deferred income taxes (6.2) (15.2) 0.4 Net gain on sale of assets and sale/maturity of investments - (0.3) (1.7) Postretirement benefits 1.7 1.0 1.4 Pre-merger costs - - 42.4 Accretion of discount 4.3 1.7 - Other (2.0) - 1.3 Changes in components of working capital: Receivables (8.9) 6.7 23.8 Inventories, prepaids and other current assets 0.9 (6.7) (1.4) Accounts payable (9.4) (7.4) (15.1) Accrued liabilities (17.7) (37.7) 26.3 Taxes payable/receivable (2.1) 24.4 10.1 ----------------- ----------------- ----------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 42.6 (4.5) 61.5 ----------------- ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for properties and equipment--including dry hole costs (91.5) (39.3) (53.6) Cash advance from parent against purchase price 101.0 - - Proceeds from sale of assets 0.2 0.6 2.1 Proceeds from sale/maturity of short-term investments - 55.9 63.4 Purchases of short-term investments - - (24.6) Restricted cash 26.9 10.6 12.2 Other (16.7) (10.8) 9.8 ----------------- ----------------- ----------------- NET CASH PROVIDED BY INVESTING ACTIVITIES 19.9 17.0 9.3 ----------------- ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Interest rate swap - 4.5 3.4 Proceeds from issuance of short-term debt 17.2 - Repayment of short-term debt (34.4) (17.7) - Net proceeds from issuance of long-term debt - 833.9 - Repayment of long-term debt - (425.1) - Cash advance from parent - 1.9 - Repayment of loan from parent (2.5) - - Acquisition of common stock (3.2) (726.1) - Capital contribution from parent 64.0 250.5 - Stock rights redemption - - (13.6) Redemption of Preferred Stock (62.5) - - Dividends paid (17.2) (9.6) (9.6) ----------------- ----------------- ----------------- NET CASH USED IN FINANCING ACTIVITIES (55.8) (70.5) (19.8) ----------------- ----------------- ----------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6.7 (58.0) 51.0 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 38.3 91.6 40.6 ----------------- ----------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 45.0 $ 33.6 $ 91.6 ================= ================= =================
See Notes to Consolidated Financial Statements. 6 1. SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles, the most significant of which are described below. Effective April 1, 1995, the Company used the purchase method of accounting to record the acquisition of the Company by YPF as discussed in Note Two. Financial statements presented for periods after April 1, 1995 reflect the effects of the Merger-related transactions. Periods prior to April 1, 1995 are presented; however, financial statements for these periods are on a pre-Merger basis and, therefore, not comparative. Consolidation Accounting The Consolidated Financial Statements include the accounts of the Company and all domestic and foreign subsidiaries. All significant intercompany accounts and transactions have been eliminated. Management's Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates. Statement of Cash Flows Investments with original maturities of three months or less at the time of original purchase are considered cash equivalents for purposes of the accompanying Consolidated Statement of Cash Flows. Short-term investments include investments with maturities over three months but less than one year. Inventory Valuation Inventories are valued at the lower of historical cost or market value and are primarily comprised of well equipment and supplies. Historical cost is determined primarily by using the weighted average cost method. Properties and Equipment Properties and equipment are carried at cost. Major additions are capitalized; expenditures for repairs and maintenance are charged against earnings. The Company follows the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires a review of long-lived assets for impairment whenever events or changes in circumstance indicate that the carrying amount of the asset may not be recoverable. Under SFAS 121, if the expected future cash flow of a long-lived asset is less than the carrying amount of the asset, an impairment loss shall be recognized to value the asset at its fair value. The Company uses the successful efforts method to account for costs incurred in the acquisition, exploration, development and production of oil and gas reserves. Under this method, all geological and geophysical costs are expensed; all development costs, whether or not successful, are capitalized as costs of proved properties; exploratory drilling costs are initially 7 capitalized, but if the effort is determined to be unsuccessful, the costs are then charged against earnings; depletion is computed based on an aggregation of properties with common geologic structural features or stratigraphic conditions, such as reservoirs or fields. For investment in unproved properties in the United States, a valuation allowance (included as an element of depletion) is provided by a charge against earnings to reflect the impairment of unproven acreage. Investment in international non-producing leasehold costs are reviewed periodically by management to insure the carrying value is recoverable based upon the geological and engineering estimates prepared by independent petroleum engineers of total possible and probable reserves expected to be added over the remaining life of each concession. Based upon increases to proved reserves determined by reserve reports, a portion of the investment in international non-producing leasehold costs will be periodically transferred to investment in proved properties. Depreciation and depletion related to the costs of all development drilling, successful exploratory drilling and related production equipment is calculated using the unit of production ("UOP") method based upon estimated proved developed reserves. Leasehold costs are amortized using the UOP method based on estimated proved reserves. Other properties and equipment are depreciated generally on the straight-line method over their estimated useful lives. Estimated future dismantlement, restoration and abandonment costs for major facilities, net of salvage value, are taken into account in determining depreciation, depletion and amortization. The Company capitalizes the interest cost associated with major property additions and mineral development projects while in progress. Such amounts are amortized applying the same depreciation method over the same useful lives as that used for the related assets. When complete units of depreciable property are retired or sold, the asset cost and related accumulated depreciation are eliminated with any gain or loss reflected in other revenues, net. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage or sales value is charged or credited to accumulated depreciation and depletion. Deferred Charges Deferred charges are primarily comprised of debt issuance costs and are amortized over the terms of the related debt agreements. Revenue Recognition Oil and gas sales are recorded on the entitlements method. Differences between the Company's actual production and entitlements result in a receivable when underproduction occurs and a payable when overproduction occurs. These underproduced or overproduced volumes are valued based on the weighted average sales price for each respective property. Pensions The Company has a number of trusteed noncontributory pension plans covering substantially all full-time employees. The Company's funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements under governmental regulations, plus such additional amounts as management may determine to be appropriate. The benefits related to the plans are based on years of service and compensation earned during years of employment. The Company also has a noncontributory supplemental retirement plan for executive officers and selected key employees. 8 Other Postretirement and Postemployment Benefits The Company provides certain health care and life insurance benefits for retired employees and certain insurance and other postemployment benefits for individuals whose employment is terminated by the Company prior to their normal retirement. The Company accrues the estimated cost of retiree benefit payments, other than pensions, during employees' active service periods. Employees become eligible for these benefits if they meet minimum age and service requirements. The Company accounts for benefits provided after employment but before retirement by accruing the estimated cost of postemployment benefits when the minimum service period is met, payment of the benefit is probable and the amount of the benefit can be reasonably estimated. The Company's policy is to fund other postretirement and postemployment benefits as claims are incurred. Environmental Expenditures Environmental liabilities are recorded when environmental assessments and/or remediation are probable and material and such costs to the Company can be reasonably estimated. The Company's estimate of environmental assessment and/or remediation costs to be incurred are based on either 1) detailed feasibility studies of remediation approach and cost for individual sites or 2) the Company's estimate of costs to be incurred based on historical experience and publicly available information based on the stage of assessment and/or remediation of each site. As additional information becomes available regarding each site or as environmental remediation standards change, the Company revises its estimate of costs to be incurred in environmental assessment and/or remediation. Litigation Contingencies The Company records liabilities for litigation when such amounts are probable, material and can be reasonably estimated. Income Taxes The Company reports income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires the use of an asset and liability approach to measure deferred tax assets and liabilities resulting from all expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Earnings per Share Earnings per share are presented for pre-Merger periods only as subsequent to the Merger such amounts are not meaningful. Primary earnings per share were based on the weighted average number of shares of common stock and common stock equivalents outstanding, unless the inclusion of common stock equivalents had an antidilutive effect on earnings per share. Fully diluted earnings per share were not presented due to the antidilutive effect of including all potentially dilutive common stock equivalents. Financial Instruments with Off-Balance-Sheet Risk and Concentrations of Credit Risk The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, short-term investments, restricted cash and trade receivables. 9 The Company's cash equivalents and short-term investments and restricted cash represent high-quality securities placed with various high investment grade institutions. This investment practice limits the Company's exposure to concentrations of credit risk. The Company's trade receivables are dispersed among a broad domestic and international customer base; therefore, concentrations of credit risk are limited. The Company carefully assesses the financial strength of its customers. Letters of credit are the primary security obtained to support lines of credit. The Company has minimal exposure to credit losses in the event of nonperformance by the counterparties to natural gas price swap agreements and nonderivative financial assets. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but restricts such arrangements to investment-grade counterparties. Investments in Marketable Securities Investments in debt and equity securities are reported at fair value except for those investments in debt securities which management has the intent and the ability to hold to maturity. Investments in debt securities which are held-for-sale are classified based on the stated maturity and management's intent to sell the securities. Unrealized gains and losses on investments in marketable securities, except for debt securities classified as "held-to-maturity", are reported as a separate component of stockholders' equity. Derivatives The Company periodically hedges the effects of fluctuations in the price of crude oil and natural gas through price swap agreements and futures contracts. Gains and losses on these hedges are deferred until the related sales are recognized and are recorded as a component of sales and operating revenues. The Company periodically enters into interest rate swap agreements to hedge interest on long-term debt. The gain or loss on interest rate swaps is recognized monthly as an increase or decrease to interest expense. Take-or-Pay Obligations The Company records payments received for take-or-pay obligations for unpurchased contract volumes as deferred revenue, which is included in Other Liabilities in the consolidated balance sheet. The deferred revenue is recognized in the income statement as quantities are delivered which fulfill the take-or-pay obligation. At June 30, 1996, the Company had $12.5 million in deferred revenue as a result of a take-or-pay payment received related to its Indonesian operations. 2. MERGER On June 8, 1995, a special meeting of the stockholders of the Company was held to approve the Agreement of Merger ("Merger Agreement") dated February 28, 1995, between the Company, YPF Acquisition Corp. (the "Purchaser") and YPF. The holders of the Company's common stock, $1.00 par value per share (the "Shares" or "Common Stock"), and $4.00 Cumulative Convertible Preferred Stock (the "$4.00 Preferred Stock" and, together with the Shares, the "Voting Shares"), approved the Merger Agreement, and the Purchaser was merged into the Company (the "Merger") on June 8, 1995 (the "Merger Date"). The Merger was the consummation of transactions contemplated by a tender offer (the "Offer") which was commenced on March 6, 1995 by the Purchaser for all the outstanding Shares at 10 $5.50 per Share. Pursuant to the Offer, in April 1995 the Purchaser acquired 120,000,613 Shares representing approximately 88.5% of the then- outstanding Shares of the Company. As a result of the Merger, each outstanding Share (other than Shares held by the Purchaser, YPF or any of their subsidiaries or in the treasury of the Company, all of which were canceled in the second quarter of 1995, and Shares of holders who perfected their appraisal rights under Section 262 of the Delaware General Corporation Law) was converted into the right to receive $5.50 in cash, and YPF became the sole holder of all outstanding Shares. The Company's preferred stock, currently consisting of the $4.00 Preferred Stock, $2.50 Cumulative Convertible Preferred Stock (the "$2.50 Preferred Stock") and $9.75 Cumulative Preferred Stock (the "$9.75 Preferred Stock"), remains outstanding. YPF currently owns approximately 96.9% of the outstanding Voting Shares; however, the Company has called for the August 13, 1996 redemption of all of its outstanding shares of $4.00 Preferred Stock and following such redemption, if none of such shares are converted into shares of Common Stock prior to the redemption, YPF will own all of the Company's voting stock. The total amount of funds required by the Purchaser to acquire the entire common equity interest in the Company, including the purchase of Shares pursuant to the Offer and the payment for Shares converted into the right to receive cash pursuant to the Merger, was approximately $762 million. In addition, the Purchaser assumed all outstanding obligations of the Company. On April 5, 1995, the Purchaser entered into a credit agreement (the "Credit Agreement") with lenders for which The Chase Manhattan Bank (National Association) ("Chase") acted as agent, pursuant to which the lenders extended to the Purchaser a credit facility for up to $550 million (the "Purchaser Facility"). On April 5, 1995, the Purchaser borrowed $442 million under the Purchaser Facility and received a capital contribution of $250 million from YPF. The Purchaser used borrowings under the Purchaser Facility and the funds contributed to it by YPF to purchase 120,000,613 Shares pursuant to the Offer. Subsequent to the Merger, these Shares and all other outstanding Shares vested in YPF. Effective April 1, 1995, the Company used the purchase method to record the acquisition of the Company by YPF. In a purchase method combination, the purchase price is allocated to the acquired assets and assumed liabilities based on their fair values at the date of acquisition. As a result, the assets and liabilities of the Company were revalued to reflect the approximate $762 million cash purchase price paid by YPF to acquire the Company. The Company's oil and gas properties were assigned carrying amounts based on their relative fair market values. Following the Merger, Chase provided two additional credit facilities aggregating $425 million: (i) a credit facility of $250 million (the "Midgard Facility") extended to Midgard Energy Company, a wholly owned subsidiary of the Company, and (ii) a credit facility of $175 million (the "Holdings Facility") extended to Maxus Indonesia, Inc., a wholly owned subsidiary of the Company. The proceeds of the loans made pursuant to these facilities were used to repay, in part, the Purchaser Facility, which was assumed by the Company pursuant to the Merger. In addition, the Company applied $8 million of its available cash to repay the Purchaser Facility and used approximately $86 million of its available cash to pay holders of Shares converted into the right to receive cash in the Merger. 3. KEEPWELL COVENANT Pursuant to the Merger Agreement, in the event the Company is unable to meet its obligations as they come due, whether at maturity or otherwise, including, solely for the purposes of this undertaking, dividend and redemption payments with respect to the $9.75 Preferred Stock, the $2.50 Preferred Stock and the $4.00 Preferred Stock, YPF has agreed to capitalize the Company in an amount necessary to permit the Company to meet such obligations; provided that YPF's aggregate obligation will be (i) limited to the amount of debt service obligations under the Purchaser Facility, the Midgard Facility and the Holdings Facility and (ii) reduced by the amount, if any, of capital contributions by YPF to the Company after the Merger Date and by the amount of 11 the net proceeds of any sale by the Company of common stock or nonredeemable preferred stock after the Merger Date. The foregoing obligations of YPF (the "Keepwell Covenant") will survive until June 8, 2004. During the first six months of 1996, YPF made capital contributions to the Company in the aggregate amount of $64 million pursuant to the terms of the Keepwell Covenant. This amount represents the cumulative contribution received by Maxus from YPF pursuant to the terms of the Keepwell Covenant. 4. ASSET ACQUISITION In January 1996, the Company and its partners were successful in acquiring the highly prospective Guarapiche block in Venezuela's first auction awards for equity production in over 20 years. Guarapiche is located on the same trend as the five billion barrel El Furrial field in northeastern Venezuela. In July 1996, the Company, together with its partners, paid $109 million ($27 million net to Maxus) to the Venezuelan government for rights to explore the Guarapiche block. BP Exploration Orinoco Limited is the operator with a 37.5% working interest, while Amoco Production Company and the Company hold the remaining 37.5% and 25%, respectively. 5. ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS Details regarding the significant accounts included in the accompanying financial statements are as follows:
Consolidated Balance Sheet Accounts June 30, (in millions) 1996 ------------- ASSETS A) RECEIVABLES: Trade accounts receivables $102.3 Notes and other receivables 32.6 Allowance for doubtful trade receivables (0.5) -------------- $134.4 ============== B) PROPERTIES AND EQUIPMENT: Proved properties $1,588.8 Unproved properties 480.7 Other 174.6 -------------- Total Oil and Gas 2,244.1 Corporate 12.2 -------------- 2,256.3 Less--Accumulated depreciation, depletion and amortization (214.9) -------------- $2,041.4 ============== C) INVENTORIES: Warehouse/field yard inventory $ 29.6 ==============
12 D) DEFERRED CHARGES: Unamortized debt issuance costs $14.5 Other 4.6 -------------- $19.1 ==============
LIABILITIES E) ACCRUED LIABILITIES: Environmental remediation $ 27.1 Accrued interest 21.9 Overlift liability 12.2 Merger accrual 15.4 Misc. accrued liabilities for international operations 32.3 Other 28.9 -------------- $137.8 ==============
Interest F) LONG-TERM DEBT: -------- Rates (%) Maturity Current Noncurrent --------- -------- ------- ---------- 8.5% Debentures 8.50 1997-2008 $ 76.9 9.375% Notes 9.37 2003 226.9 9.5% Notes 9.50 2003 87.9 9.875% Notes 9.87 2002 222.4 11.25% Debentures 11.25 2013 14.4 11.5% Debentures 11.50 2001-2015 94.8 Medium-term notes 7.57-11.08 1996-2004 $14.1 96.4 Holdings Facility 8.3125 1997-2002 17.5 157.5 Midgard Facility 7.8125 1997-2003 20.0 230.0 Advances from parent 4.1 Other 0.1 ----------- ------------- $51.6 $1,211.4 =========== ============= G) OTHER LIABILITIES AND DEFERRED CREDITS: Environmental remediation $ 82.2 Long-term employee benefit costs 59.1 Litigation contingencies 12.6 Reserve for insurance losses 18.8 Take-or-pay payment 12.5 Other 28.9 ------------ $214.1 ============
13 6. TAXES The Company reports income taxes in accordance with SFAS 109. The Company's provision for income taxes was comprised of the following:
Six Months Ended June 30, 1996 (in millions) ----------------------------- Current Foreign................................................................. $50.1 State and local......................................................... -- ----- 50.1 Deferred Federal................................................................. (7.1) Foreign................................................................. .9 ----- (6.2) ----- Provision for income taxes............................................... $43.9 =====
7. RESTRICTED CASH At June 30, 1996, the Company had $53.5 million in restricted cash of which $10.3 million represented collateral for outstanding letters of credit. Assets held in trust as required by certain insurance policies totaled $43.2 million. 8. PREFERRED STOCK The Company has the authority to issue 100,000,000 shares of preferred stock, $1.00 par value. The rights and preferences of shares of authorized but unissued preferred stock are established by the Company's Board of Directors at the time of issuance. A) $9.75 CUMULATIVE CONVERTIBLE PREFERRED STOCK In 1987, the Company sold 3,000,000 shares of the $9.75 Preferred Stock. Since such time, the Company has entered into various agreements, most recently on June 8, 1995, with the sole holder of the $9.75 Preferred Stock pursuant to which, among other things, the Company has repurchased 500,000 shares and the parties have waived or amended various covenants, agreements and restrictions relating to such stock. At June 30, 1996, 625,000 shares of $9.75 Preferred Stock are outstanding, each receiving an annual cash dividend of $9.75. In addition, 187,500 of such shares (the "Conversion Waiver Shares") each receive an additional quarterly cash payment of $.25 ($.50 in certain circumstances). For the 12-month period commencing February 1, 1996, each share of the $9.75 Preferred Stock has a liquidation value of $100 ($62.5 million in the aggregate at June 30, 1996) plus accrued dividends. Since February 1, 1994, the stock has been subject to mandatory redemption at the rate of 625,000 shares per year. Effective February 1, 1996, the Company redeemed 625,000 shares as required for $62.5 million. The $9.75 Preferred Stock currently is neither convertible by the holder nor redeemable at the Company's option and has no associated registration rights. The $9.75 Preferred Stock entitles the holder to vote only on certain matters separately affecting such holder. In addition, pursuant to the June 8, 1995 agreement, the holder of the $9.75 Preferred Stock waived previously granted rights to approve certain "self-dealing" transactions and certain financial covenants pertaining to the Company, and the Company waived its right of first offer with respect to the transfer of the $9.75 Preferred Stock and certain transfer restrictions on such stock. 14 B) $4.00 CUMULATIVE CONVERTIBLE PREFERRED STOCK As part of the Company's proposed reorganization (see Note Ten), the Company has called for redemption and will redeem on August 13, 1996, all of its outstanding shares of $4.00 Preferred Stock at a price of $50 per share plus accrued and unpaid dividends (approximately $220.6 million in the aggregate). At any time prior to the redemption date, each outstanding share of $4.00 Preferred Stock is convertible into shares of the Company's Common Stock (2.29751 shares at June 30, 1996). C) $2.50 CUMULATIVE PREFERRED STOCK Each outstanding share of the $2.50 Preferred Stock is entitled to receive annual cash dividends of $2.50 per share, is redeemable after December 1, 1998 at and has a liquidation value of $25.00 per share ($87.5 million in the aggregate at June 30, 1996), plus accrued but unpaid dividends, if any. The holders of the $2.50 Preferred Stock are entitled to limited voting rights under certain conditions. In the event the Company is in arrears in the payment of six quarterly dividends, the holders of the $2.50 Preferred Stock have the right to elect two members to the Board of Directors until such time as the dividends in arrears are current and a provision is made for the current dividends due. 9. COMMITMENTS AND CONTINGENCIES Federal, state and local laws and regulations relating to health and environmental quality in the United States, as well as environmental laws and regulations of other countries in which the Company operates, affect nearly all of the operations of the Company. These laws and regulations set various standards regulating certain aspects of health and environmental quality, provide for penalties and other liabilities for the violation of such standards and establish in certain circumstances remedial obligations. In addition, especially stringent measures and special provisions may be appropriate or required in environmentally sensitive foreign areas of operation, such as those in Ecuador. Many of the Company's United States operations are subject to requirements of the Safe Drinking Water Act, the Clean Water Act, the Clean Air Act (as amended in 1990), the Occupational Safety and Health Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and other federal, as well as state, laws. Such laws address, among other things, limits on the discharge of wastes associated with oil and gas operations, investigation and clean-up of hazardous substances, and workplace safety and health. In addition, these laws typically require compliance with associated regulations and permits and provide for the imposition of penalties for noncompliance. The Clean Air Act Amendments of 1990 may benefit the Company's business by increasing the demand for natural gas as a clean fuel. CERCLA imposes retroactive liability upon certain parties for the response costs associated with cleaning up old hazardous substance sites. CERCLA liability to the government is joint and several. CERCLA allows authorized trustees to seek recovery of natural resource damages from potentially responsible parties. CERCLA also grants the government the authority to require potentially responsible parties to implement interim remedies to abate an imminent and substantial endangerment to the environment. The Company believes that its policies and procedures in the area of pollution control, product safety and occupational health are adequate to prevent unreasonable risk of environmental and other damage, and of resulting financial liability, in connection with its business. Some risk of 15 environmental and other damage is, however, inherent in particular operations of the Company and, as discussed below, the Company has certain potential liabilities associated with former operations. The Company cannot predict what environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or enforced. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could in the future require material expenditures by the Company for the installation and operation of systems and equipment for remedial measures and in certain other respects. Such potential expenditures cannot be reasonably estimated. In connection with the sale of the Company's former chemical subsidiary, Diamond Shamrock Chemicals Company ("Chemicals"), to Occidental Petroleum Corporation ("Occidental") in 1986, the Company agreed to indemnify Chemicals and Occidental from and against certain liabilities relating to the business or activities of Chemicals prior to the September 4, 1986 closing date (the "Closing Date"), including certain environmental liabilities relating to certain chemical plants and waste disposal sites used by Chemicals prior to the Closing Date. In addition, the Company agreed to indemnify Chemicals and Occidental for 50% of certain environmental costs incurred by Chemicals for which notice is given to the Company within 10 years after the Closing Date on projects involving remedial activities relating to chemical plant sites or other property used in the conduct of the business of Chemicals as of the Closing Date and for any period of time following the Closing Date, with the Company's aggregate exposure for this cost sharing being limited to $75 million. The total expended by the Company under this cost sharing arrangement was about $40 million as of June 30, 1996. Occidental Chemical Corporation ("OxyChem"), a subsidiary of Occidental, and Henkel Corporation ("Henkel"), an assignee of certain of Occidental's rights and obligations, have filed a declaratory judgment action in Texas state court with respect to the Company's agreement in this regard (see "Legal Proceedings" below). In connection with the spin-off of Diamond Shamrock R&M, Inc., now known as Diamond Shamrock, Inc. ("DSI"), in 1987, the Company and DSI agreed to share the costs of losses (other than product liability) relating to businesses disposed of prior to the spin-off, including Chemicals. Pursuant to this cost-sharing agreement, the Company bore the first $75 million of such costs and DSI bore the next $37.5 million. Under the arrangement, such ongoing costs are now borne one-third by DSI and two- thirds by the Company. This arrangement will continue until DSI has borne an additional $47.5 million, following which such costs will be borne solely by the Company. As of June 30, 1996, DSI's remaining responsibility is approximately $4 million and is included in accounts receivable in the accompanying balance sheet. For the six months ended June 30, 1996, the Company's total expenditures for environmental compliance for disposed of businesses, including Chemicals, were approximately $9 million, $4 million of which was recovered from DSI under the above described cost-sharing agreement. Those expenditures are projected to be approximately $23 million for the full year 1996 after recovery from DSI under such agreement. At June 30, 1996, reserves for the environmental contingencies discussed herein totaled $109 million. Management believes it has adequately reserved for all environmental contingencies which are probable and can be reasonably estimated; however, changes in circumstances could result in changes, including additions, to such reserves in the future. The Company has announced its intention to transfer certain liabilities related to environmental matters to its subsidiary, Chemical Land Holdings, Inc. ("CLH"), and to transfer CLH to a subsidiary of YPF (see Note Ten). In connection with these transfers, which are expected to be effective as of August 1, 1996, CLH will assume (the "Assumption") the liabilities so transferred and YPF is expected to commit to contribute capital to CLH up to an amount that 16 will enable CLH to satisfy its obligations under the Assumption based on the Company's reserves established in respect of the assumed liabilities as of July 31, 1996. YPF will not be obligated to, but may in its sole discretion, commit to contribute additional capital to CLH, and YPF is expected to contribute capital to CLH to enable CLH to meet its operating expenses. However, there is no assurance that YPF will commit to contribute any additional capital to CLH. The Company will be responsible for any obligations assumed by CLH in the event CLH does not perform or fulfill such obligations. Further, these transfers, the Assumption and YPF's agreement to contribute capital to CLH are subject to the satisfaction of certain conditions, and thus, there can be no assurance that such transactions will be effectuated. Assuming the transactions are effectuated, CLH will assume responsibility for, among other things, the environmental contingencies discussed herein and said declaratory judgment action filed by OxyChem and Henkel, and the Company intends to transfer to CLH its remaining rights to recover costs under said arrangement with DSI. The Assumption will be reflected on the Company's financial statements as a long- term account receivable due from YPF in the amount of the liabilities assumed by CLH with a corresponding increase to paid-in capital in such amount. The insurance companies that wrote Chemicals' and the Company's primary and excess insurance during the relevant periods have to date refused to provide coverage for most of Chemicals' or the Company's cost of the personal injury and property damage claims related to environmental claims, including remedial activities at chemical plant sites and disposal sites. In two actions filed in New Jersey state court, the Company has been conducting litigation against all of these insurers for declaratory judgments that it is entitled to coverage for certain of these claims. In 1989, the trial judge in one of the New Jersey actions ruled that there is no insurance coverage with respect to the claims related to the Newark plant (discussed below). The trial court's decision was upheld on appeal and that action is now ended. The other suit, which is pending, covers disputes with respect to insurance coverage related to certain other environmental matters. The Company has entered into settlement agreements with certain of the insurers in this second suit, the terms of which are required to be held confidential. The Company also is engaged in settlement discussions with other defendant insurers; however, there can be no assurance that such discussions will result in settlements with such other insurers. Newark, New Jersey. A consent decree, previously agreed upon by the U.S. Environmental Protection Agency (the "EPA"), the New Jersey Department of Environmental Protection and Energy (the "DEP") and Occidental, as successor to Chemicals, was entered in 1990 by the United States District Court of New Jersey and requires implementation of a remedial action plan at Chemicals' former Newark, New Jersey agricultural chemicals plant. Engineering for such plan, which will include an engineering estimate of the cost of construction, is progressing. Construction is expected to begin in 1997, cost approximately $22 million and take three to four years to complete. The work is being supervised and paid for by the Company pursuant to its above described indemnification obligation to Occidental. The Company has fully reserved the estimated costs of performing the remedial action plan and required ongoing maintenance costs. Studies have indicated that sediments of the Newark Bay watershed, including the Passaic River adjacent to the plant, are contaminated with hazardous chemicals from many sources. These studies suggest that the older and more contaminated sediments located adjacent to the Newark plant are buried under several feet of more recent sediment deposits. The Company, on behalf of Occidental, negotiated an agreement with the EPA under which the Company is conducting further testing and studies to characterize contaminated sediment in a six-mile portion of the Passaic River near the plant site. The stability of the sediments in the entire six-mile portion of the Passaic River study area is also being examined as a part of the Company's studies. The Company currently expects its testing and studies to be completed in 1999 and cost from $4 million to $6 million after December 31, 1995. The Company has reserved its estimate of the remaining costs to be incurred in performing these studies. The Company has been conducting similar studies under its own auspices for several years. Until these studies are completed and evaluated, the Company cannot 17 reasonably forecast what regulatory program, if any, will be proposed for the Passaic River or the Newark Bay watershed and therefore cannot estimate what additional costs, if any, will be required to be incurred. However, it is possible that additional work, including interim remedial measures, may be ordered with respect to the Passaic River. Hudson County, New Jersey. Until 1972, Chemicals operated a chromium ore processing plant at Kearny, New Jersey. According to the DEP, wastes from these ore processing operations were used as fill material at a number of sites in Hudson County. As a result of negotiations between the Company (on behalf of Occidental) and the DEP, Occidental signed an administrative consent order with the DEP in 1990 for investigation and remediation work at certain chromite ore residue sites in Kearny and Secaucus, New Jersey. The work is being performed by the Company on behalf of Occidental, and the Company is funding Occidental's share of the cost of investigation and remediation of these sites and is currently providing financial assurance for performance of the work in the form of a self- guarantee in the amount of $20 million subject to the Company's continuing ability to satisfy certain financial tests specified by the State. This financial assurance may be reduced with the approval of the DEP following any annual cost review. While the Company has participated in the cost of studies and is implementing interim remedial actions and conducting remedial investigations and feasibility studies, the ultimate cost of remediation is uncertain. The Company anticipates submitting its investigation and feasibility reports to the DEP in late 1996 or 1997. The results of the DEP's review of these reports could impact the cost of any further remediation that may be required. The Company has reserved its best estimate of the remaining cost to perform the investigations and remedial work as being $50 million. In addition, the DEP has indicated that it expects Occidental and the Company to participate with the other chromium manufacturers in the funding of certain remedial activities with respect to a number of so-called "orphan" chrome sites located in Hudson County, New Jersey. Occidental and the Company have declined participation as to those sites for which there is no evidence of the presence of residue generated by Chemicals. The Governor of New Jersey issued an Executive Order requiring state agencies to provide specific justification for any state requirements more stringent than federal requirements. The DEP has indicated that it may be revising its soil action level upwards towards the higher soil screening levels proposed by the EPA in 1994. Painesville, Ohio. From about 1912 through 1976, Chemicals operated manufacturing facilities in Painesville, Ohio. The operations over the years involved several discrete but contiguous plant sites over an area of about 1,300 acres. The primary area of concern historically has been Chemicals' former chromite ore processing plant (the "Chrome Plant"). For many years, the site of the Chrome Plant has been under the administrative control of the EPA pursuant to an administrative consent order under which Chemicals is required to maintain a clay cap over the site and to conduct certain ground water and surface water monitoring. Many other sites have previously been clay-capped and one specific site, which was a waste disposal site from the mid-1960s until the 1970s, has been encapsulated and is being controlled and monitored. In September 1995, the Ohio Environmental Protection Agency (the "OEPA") issued its Directors' Final Findings and Order (the "Director's Order") by consent ordering that a remedial investigation and feasibility study (the "RIFS") be conducted at the former Painesville plant area. The Company has agreed to participate in the RIFS as required by the Director's Order. It is estimated that the total cost of performing the RIFS will be $3 million to $5 million over the next three years. In spite of the many remedial, maintenance and monitoring activities performed, the former Painesville plant site has been proposed for listing on the National Priority List under CERCLA; however, the EPA has stated that the site will not be listed so long as it is satisfactorily addressed pursuant to the Director's Order and OEPA's programs. The Company has accrued the estimate of its share of the cost to perform the RIFS. The scope and nature of any further investigation or remediation that may be required cannot be determined at this time; however, as the RIFS progresses, the Company 18 will continuously assess the condition of the Painesville plant site and make any changes, including additions, to its reserve as may be required. Other Former Plant Sites. Environmental remediation programs are in place at all other former plant sites where material remediation is required in the opinion of the Company. Former plant sites where remediation has been completed are being maintained and monitored to insure continued compliance with applicable laws and regulatory programs. The Company has reserved for its estimated costs related to these sites, none of which are individually material. Third Party Sites. Chemicals has also been designated as a potentially responsible party ("PRP") by the EPA under CERCLA with respect to a number of third party sites, primarily off of Chemicals' properties, where hazardous substances from Chemicals' plant operations allegedly were disposed of or have come to be located. Numerous PRPs have been named at substantially all of these sites. At several of these, Chemicals has no known exposure. Although PRPs are almost always jointly and severally liable for the cost of investigations, cleanups and other response costs, each has the right of contribution from other PRPs and, as a practical matter, cost sharing by PRPs is usually effected by agreement among them. Accordingly, the ultimate cost of these sites and Chemicals' share of the costs thereof cannot be estimated at this time, but are not expected to be material except possibly as a result of the matters described below. 1. Fields Brook; Ashtabula, Ohio. At the time that Chemicals was sold to Occidental, Chemicals operated a chemical plant at Ashtabula, Ohio which is adjacent to Fields Brook. Occidental has continued to operate the Ashtabula plant. In 1986, Chemicals was formally notified by the EPA that it was a PRP for the Fields Brook site. The site is defined as Fields Brook, its tributaries and surrounding areas within the Fields Brook watershed. At least 15 other parties are presently considered to be financially responsible PRPs. In 1986, the EPA estimated the cost of sediment remediation at the site would be $48 million. The PRPs, including Occidental, have developed an allocation agreement for sharing the costs of the work in Fields Brook ordered by the EPA. Under the allocation, the Occidental share for Chemicals' ownership of the Ashtabula plant would be about five percent of the total, assuming all viable PRPs were to participate. In 1990, the OEPA, as state trustee for natural resources under CERCLA, advised previously identified PRPs, including Chemicals, that the OEPA intended to conduct a Natural Resource Damage Assessment of the Fields Brook site to calculate a monetary value for injury to surface water, groundwater, air, and biological and geological resources at the site. Also, although Fields Brook empties into the Ashtabula River which flows into Lake Erie, it is not known to what extent, if any, the EPA will propose remedial action beyond Fields Brook for which the Fields Brook PRPs might be asked to bear some share of the costs. Until all preliminary studies and necessary governmental actions have been completed and negotiated or judicial allocations have been made, it is not possible for the Company to estimate what the response costs, response activities or natural resource damages, if any, may be for Fields Brook or related areas, the parties responsible therefore or their respective shares. It is the Company's position that costs attributable to the Ashtabula plant fall under the Company's above-described cost sharing arrangement with Occidental under which the Company bears one-half of certain costs up to an aggregate dollar cap. Occidental, however, has contended that it is entitled to full indemnification from the Company for such costs, and the outcome of this dispute cannot be predicted. The Company has reserved its estimate of its share of potential cleanup costs based on the assumption that this site falls under the Occidental cost sharing arrangement. 2. French Limited Disposal Site; Crosby, Texas. The PRPs, including Chemicals (represented by the Company), entered into a consent decree and a related trust agreement with the EPA with respect to this disposal site. The consent decree was entered by the federal court as a settlement of 19 the EPA's claim for remedial action. Chemical's share of the cost to complete remediation at this site is expected to be approximately $500,000 and such amount is fully accrued. 3. SCP/Carlstadt Site; Carlstadt, New Jersey. Chemicals' share of remediation costs at this CERCLA site would be approximately one percent, based on relative volume of waste shipped to the site. An interim remedy has now been implemented at the site by the PRPs but no estimate can be made at this time of ultimate costs of remediation which may extend to certain off-site locations. 4. Chemical Control Site; Elizabeth, New Jersey. The DEP has demanded of PRPs (including Chemicals) reimbursement of the DEP's alleged $34 million (including interest through December 31, 1995) in past costs for its partial cleanup of this site. The PRPs and the EPA have settled the federal claims for cost recovery and site remediation, and remediation is now complete. Based on the previous allocation formula, it is expected that Chemicals' share of any money paid to the DEP for its claim would be approximately two percent. The Company has fully reserved its estimated liability for this site. Legal Proceedings. In November 1995, OxyChem filed suit in Texas state court seeking a declaration of certain of the parties' rights and obligations under the sales agreement pursuant to which the Company sold Chemicals to Occidental. Henkel joined in said lawsuit as a plaintiff in January 1996. Specifically, OxyChem and Henkel are seeking a declaration that the Company is required to indemnify them for 50% of certain environmental costs incurred on projects involving remedial activities relating to chemical plant sites or other property used in connection with the business of Chemicals on the Closing Date which relate to, result from or arise out of conditions, events or circumstances discovered by OxyChem or Henkel and as to which the Company is provided written notice by OxyChem or Henkel prior to the expiration of ten years following the Closing Date, irrespective of when OxyChem or Henkel incurs and gives notice of such costs, subject to an aggregate $75 million cap. The court denied the Company's motion for summary judgment and granted OxyChem's and Henkel's joint motion for summary judgment, thereby granting OxyChem and Henkel the declaration they sought. The Company believes the court's orders are erroneous and has appealed. The Company has established reserves based on its 50% share of remaining costs expected to be paid or incurred by OxyChem and Henkel prior to September 4, 1996, the tenth anniversary of the Closing Date. As of June 30, 1996, the Company had paid OxyChem and Henkel a total of approximately $40 million against the $75 million cap and, based on OxyChem's and Henkel's historical annual expenditures, had approximately $5 million reserved. The Company cannot predict with any certainty what portion of the approximately $30 million unreserved portion of the $35 million amount remaining at June 30, 1996, OxyChem and Henkel may incur; however, OxyChem and Henkel have asserted in court that the entire amount will be spent. In the event that the Company does not prevail in its appeal, it could be required to pay up to approximately $30 million in additional costs which have not been reserved related to this indemnification. The Company has established reserves for legal contingencies in situations where a loss is probable and can be reasonably estimated. In Ecuador, pipeline capacity available to the Company is sufficient to transport only about 80% of the oil the Company expects to be able to produce daily, and none of the various projects to increase transportation capacity that have been considered has been approved by the government of Ecuador. In addition, the Company is involved in a number of contract, auditing and certification disputes with various government entities. Together, the lack of pipeline capacity and the various disputes with government entities are retarding the Company's ability to proceed with the economic development of Block 16. Although the Company can give no assurances concerning the outcome of these discussions, progress has recently been made on several important issues. 20 However, the Company intends to reduce program spending in Ecuador in 1996 to approximately $20 million from $32 million in 1995. The Company has entered into various operating agreements and capital commitments associated with the exploration and development of its oil and gas properties. Such contractual, financial and/or performance commitments are not material. The Company's foreign petroleum exploration, development and production activities are subject to political and economic uncertainties, expropriation of property and cancellation or modification of contract rights, foreign exchange restrictions and other risks arising out of foreign governmental sovereignty over the areas in which the Company's operations are conducted, as well as risks of loss in some countries due to civil strife, acts of war, guerrilla activities and insurrection. Areas in which the Company has significant operations include the United States, Indonesia and Ecuador. 10. SUBSEQUENT EVENTS - GENERAL REORGANIZATION On June 18, 1996, the Company announced a reorganization which includes the sale of three Maxus subsidiaries holding certain Bolivian and Venezuelan assets to YPF, the redemption of the outstanding shares of $4.00 Preferred Stock and the transfer to a YPF subsidiary of a Maxus subsidiary that will assume certain liabilities related to environmental matters. On July 1, 1996, Maxus International Energy Company ("Seller"), a wholly owned subsidiary of Maxus, sold all of the issued and outstanding shares of capital stock of its wholly owned subsidiary, YPF International Ltd. ("International"), a Cayman Islands corporation, to YPF ("Purchaser"), the owner of all the issued and outstanding shares of Common Stock of Maxus, pursuant to a Stock Purchase and Sale Agreement by and between Purchaser and Seller dated as of July 1, 1996. The sole assets of International are all of the issued and outstanding shares of capital stock of Maxus Bolivia, Inc. ("Maxus Bolivia"), Maxus Venezuela (C.I.) Ltd. ("Venezuela C.I.") and Maxus Venezuela S.A. ("Venezuela S.A."). The assets of Maxus Bolivia consist of all of the former assets and operations of Maxus in Bolivia, including the interests of Maxus in the Surubi Field and Secure and Caipipendi Blocks. The assets of Venezuela C.I. and Venezuela S.A. consist of all of the former assets and operations of Maxus in Venezuela, except those held through Maxus Guarapiche Ltd. ("Maxus Guarapiche"), including the interests of Maxus in the Quiriquire Unit. The net assets sold effective July 1, 1996 are included in net assets held for sale in Maxus' consolidated balance sheet as of June 30, 1996. The purchase price for the outstanding shares of capital stock of International was approximately $266.2 million which represents the carrying amount of International on the financial reporting books of Seller as of June 30, 1996. In the second quarter of 1996, Maxus had received a $101 million advance (the "Advance") against the purchase price from Purchaser. At closing, the remainder of the estimated purchase price, in the form of a promissory note payable by Purchaser to Seller in the principal amount of $165.2 million, which together with the Advance equalled Seller's estimate of such carrying amount, was delivered to Seller. Maxus intends to use the proceeds from this transaction for general corporate purposes, including the redemption of its $4.00 Preferred Stock. While not a part of the above-described sale transaction, Maxus has authorized Seller to transfer to Purchaser, or a designated subsidiary of Purchaser, all of the capital stock of Maxus Guarapiche for the higher of the fair market value thereof or the carrying value thereof on the consolidated books and accounts of Maxus. Maxus Guarapiche has a 25% interest in the Guarapiche Block, an exploration block, in Venezuela. It is expected that such transfer of Maxus Guarapiche will occur in the third quarter of 1996. 21 Also as part of the general reorganization, on August 13, 1996 Maxus will redeem all of its outstanding shares of $4.00 Preferred Stock at a price of $50 per share plus accrued and unpaid dividends (approximately $220.6 million in the aggregate). The excess of the redemption price over the carrying value of the $4.00 Preferred Stock will result in an increase in the Company's accumulated deficit. As a further part of the reorganization, the Company will transfer certain liabilities related to environmental matters to its subsidiary, Chemical Land Holdings, Inc. ("CLH"), and will transfer CLH to a subsidiary of YPF. In connection with these transfers, which are expected to be effective as of August 1, 1996, CLH will assume (the "Assumption") the liabilities so transferred and YPF is expected to commit to contribute capital to CLH up to an amount that will enable CLH to satisfy its obligations under the Assumption based on the Company's reserves established in respect of the assumed liabilities as of July 31, 1996. YPF will not be obligated to, but may in its sole discretion, commit to contribute additional capital to CLH, and YPF is expected to contribute capital to CLH to enable CLH to meet its operating expenses. However, there is no assurance that YPF will commit to contribute any additional capital to CLH. The Company will be responsible for any obligations assumed by CLH in the event CLH does not perform or fulfill such obligations. Further, these transfers, the Assumption and YPF's agreement to contribute capital to CLH are subject to the satisfaction of certain conditions, and thus, there can be no assurance that such transactions will be effectuated. Assuming the transactions are effectuated, CLH will assume responsibility for, among other things, the environmental contingencies discussed in Note Nine and said declaratory judgment action filed by OxyChem and Henkel, and the Company intends to transfer to CLH its remaining rights to recover costs under said arrangement with DSI. The Assumption will be reflected on the Company's financial statements as a long-term account receivable due from YPF in the amount of the liabilities assumed by CLH with a corresponding increase to paid-in capital in such amount. 22 MAXUS ENERGY CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 1996 MERGER On June 8, 1995, YPF Sociedad Anonima ("YPF"), an Argentine sociedad anonima, completed its acquisition of all of the shares of common stock ("Common Stock") of Maxus Energy Corporation (the "Company" or "Maxus") through a merger (the "Merger") of Maxus with a YPF subsidiary. The Merger was the consummation of transactions contemplated by a tender offer which was commenced by YPF on March 6, 1995 for all outstanding shares of Common Stock of the Company at $5.50 per share. As of the date hereof, the Company's preferred stock, consisting of the $4.00 Cumulative Convertible Preferred Stock (the "$4.00 Preferred Stock"), $2.50 Cumulative Preferred Stock and $9.75 Cumulative Convertible Preferred Stock, remains outstanding. YPF, owner of all of the Common Stock, currently owns approximately 96.9% of the Company's voting stock; however, the Company has called for the August 13, 1996 redemption of all of its outstanding shares of $4.00 Preferred Stock and following such redemption, if none of such shares are converted into shares of Common Share prior to the redemption, YPF will own all of the Company's voting stock. Effective April 1, 1995, the Company used the purchase method of accounting to record the acquisition of the Company by YPF. In a purchase method combination, the purchase price is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. As a result, the assets and liabilities of the Company were revalued to reflect the approximate $762 million cash purchase price paid by YPF to acquire the Company. The Company's oil and gas properties were assigned carrying amounts based on their relative fair market values. Because of these purchase adjustments, the financial statements for periods subsequent to April 1, 1995 reflect the effects of Merger-related transactions. Periods prior to April 1, 1995 are on a pre-Merger basis and, therefore, not comparative. RESULTS OF OPERATIONS - SECOND QUARTER 1996 VS. SECOND QUARTER 1995 The Company reported a second quarter 1996 net loss of $3 million. This compares to a second quarter 1995 net loss of $23 million. Sales and Operating Revenues. Sales and operating revenues of $172 million in the second quarter of 1996 increased $21 million from such period in 1995. U.S. (Midgard) sales and operating revenues were $15 million higher in the second quarter of 1996 as compared to the second quarter of 1995 due primarily to higher natural gas and natural gas liquids sales volumes and prices. In Ecuador, second quarter 1996 sales and operating revenues were $7 million higher than the same period a year ago due to the sale of crude oil production from the southern Amo field. Crude oil sales from the southern Amo field were initially recorded in the fourth quarter of 1995. Second quarter 1996 sales and operating revenues in Bolivia were $5 million. Bolivia's sole crude oil sale in 1995 occurred in the fourth quarter. In Northwest Java, higher natural gas sales volumes in connection with new natural gas sales contracts favorably impacted sales $3 million in the second quarter of 1996 as compared to the same period in 1995. In Southeast Sumatra, second quarter 1996 sales and operating revenues declined $8 million from second quarter 1995 due to lower crude oil sales volumes partially offset by higher crude oil sales prices. Net worldwide crude oil sales volumes of 60 thousand barrels per day ("mbpd") in the second quarter of 1996 were relatively flat compared to the same period last year. Crude oil sales volumes in Southeast Sumatra were down 7 mbpd from the second quarter of 1995 due to lower crude oil entitlements primarily as a result of lower crude oil equity barrels caused by lower gross crude oil liftings and lower cost recovery. Offsetting this decline, crude oil sales volumes in Ecuador were 4 mbpd higher in the second quarter of 1996 as compared to the second quarter of 1995 due to the production from the southern Amo field. Bolivia's crude oil sales volumes were 4 mbpd in the second quarter of 1996. Bolivia's 1995 sole crude oil lifting was recorded in the fourth quarter. Maxus' worldwide average crude oil sales price rose from $17.35 per barrel in the second quarter of 1995 to $18.29 per barrel in the second quarter of 1996. 23 U.S. natural gas sales volumes of 184 million cubic feet per day ("mmcfpd") in the second quarter of 1996 were 14 mmcfpd higher than the second quarter of 1995 due to higher natural gas production. The average natural gas sales price increased from $1.43 per thousand cubic feet ("mcf") in the second quarter of 1995 to $1.91 per mcf in the second quarter of 1996. Northwest Java natural gas sales volumes of 72 mmcfpd were 15 mmcfpd higher than second quarter 1995, primarily due to higher natural gas production in connection with new natural gas sales contracts. Natural gas prices rose slightly, from $2.59 per mcf in the second quarter of 1995 to $2.64 per mcf in the second quarter of 1996. Natural gas liquids sales volumes in the United States were slightly higher in the second quarter of 1996 as compared to the second quarter of 1995. The average sales price for U.S. natural gas liquids in the second quarter of 1996 was $12.31 per barrel, an increase of $1.70 per barrel from the second quarter of 1995. Costs and Expenses. Operating expenses of $52 million were $6 million lower in the second quarter of 1996 as compared to such period in 1995 primarily as a result of lower overall production and operating expenses. Gas purchase costs rose from $13 million in the second quarter of 1995 to $19 million in the second quarter of 1996 due primarily to higher natural gas prices; however, this cost increase was recovered through higher sales volumes and prices. Exploration expenses (including exploratory dry holes) of $6 million in the second quarter of 1996 were $11 million lower than in the same quarter a year ago. Second quarter 1996 geological and geophysical expenses and dry hole costs were $6 million lower in various exploratory areas as compared to the same period last year. Additionally, second quarter 1996 dry hole costs were $3 million lower in Southeast Sumatra as compared to the second quarter of 1995. Income tax expense of $21 million in the second quarter of 1996 was $16 million higher as compared to such period in 1995. The second quarter of 1995 included a deferred tax benefit of $15 million due primarily to the higher depreciation, depletion and amortization associated with the increase in book value of the Company's oil and gas properties and equipment as a result of the purchase price allocation. GENERAL REORGANIZATION On June 18, 1996, the Company announced a reorganization which includes the sale of three Maxus subsidiaries holding certain Bolivian and Venezuelan assets to YPF, the redemption of the outstanding shares of $4.00 Preferred Stock and the transfer to a YPF subsidiary of a Maxus subsidiary that will assume certain liabilities related to environmental matters. On July 1, 1996, Maxus International Energy Company ("Seller"), a wholly owned subsidiary of Maxus, sold all of the issued and outstanding shares of capital stock of its wholly owned subsidiary, YPF International Ltd. ("International"), a Cayman Islands corporation, to YPF ("Purchaser"), the owner of all the issued and outstanding shares of Common Stock of Maxus, pursuant to a Stock Purchase and Sale Agreement by and between Purchaser and Seller dated as of July 1, 1996. The sole assets of International are all of the issued and outstanding shares of capital stock of Maxus Bolivia, Inc. ("Maxus Bolivia"), Maxus Venezuela (C.I.) Ltd. ("Venezuela C.I.") and Maxus Venezuela S.A. ("Venezuela S.A."). The assets of Maxus Bolivia consist of all of the former assets and operations of Maxus in Bolivia, including the interests of Maxus in the Surubi Field and Secure and Caipipendi Blocks. The assets of Venezuela C.I. and Venezuela S.A. consist of all of the former assets and operations of Maxus in Venezuela, except those held through Maxus Guarapiche Ltd. ("Maxus Guarapiche"), including the interests of Maxus in the Quiriquire Unit. The net assets sold effective July 1, 1996 are included in net assets held for sale in Maxus' consolidated balance sheet as of June 30, 1996. The purchase price for the outstanding shares of capital stock of International was approximately $266.2 million which represents the carrying amount of International on the financial reporting books of Seller as of June 30, 1996. In the second quarter of 1996, Maxus had received a $101 million advance (the "Advance") 24 against the purchase price from Purchaser. At closing, the remainder of the estimated purchase price, in the form of a promissory note payable by Purchaser to Seller in the principal amount of $165.2 million, which together with the Advance equalled Seller's estimate of such carrying amount, was delivered to Seller. Maxus intends to use the proceeds from this transaction for general corporate purposes, including the redemption of its $4.00 Preferred Stock. Also as part of the general reorganization, on August 13, 1996 Maxus will redeem all of its outstanding shares of $4.00 Preferred Stock at a price of $50 per share plus accrued and unpaid dividends (approximately $220.6 million in the aggregate). The excess of the redemption price over the carrying value of the $4.00 Preferred Stock will result in an increase in the Company's accumulated deficit. As a further part of the reorganization, the Company will transfer certain liabilities related to environmental matters to its subsidiary, Chemical Land Holdings, Inc. ("CLH"), and will transfer CLH to a subsidiary of YPF. In connection with these transfers, which are expected to be effective as of August 1, 1996, CLH will assume (the "Assumption") the liabilities so transferred and YPF is expected to commit to contribute capital to CLH up to an amount that will enable CLH to satisfy its obligations under the Assumption based on the Company's reserves established in respect of the assumed liabilities as of July 31, 1996. YPF will not be obligated to, but may in its sole discretion, commit to contribute additional capital to CLH, and YPF is expected to contribute capital to CLH to enable CLH to meet its operating expenses. However, there is no assurance that YPF will commit to contribute any additional capital to CLH. The Company will be responsible for any obligations assumed by CLH in the event CLH does not perform or fulfill such obligations. Further, these transfers, the Assumption and YPF's agreement to contribute capital to CLH are subject to the satisfaction of certain conditions, and thus, there can be no assurance that such transactions will be effectuated. Assuming the transactions are effectuated, CLH will assume responsibility for, among other things, the environmental contingencies discussed in Note Nine to the financial statements and said declaratory judgment action filed by OxyChem and Henkel (see "Legal Proceedings"), and the Company intends to transfer to CLH its remaining rights to recover costs under a cost-sharing agreement with Diamond Shamrock, Inc., formerly known as Diamond Shamrock R&M, Inc. ("DSRM"), in connection with the spin-off of DSRM in 1987. The Assumption will be reflected on the Company's financial statements as a long-term account receivable due from YPF in the amount of the liabilities assumed by CLH with a corresponding increase to paid- in capital in such amount. FINANCIAL CONDITION The Company's net cash provided by operating activities was $43 million in the first half of 1996. Net cash provided by operating activities of $80 million before working capital changes was reduced by working capital requirements of $37 million. Additional working capital was required due to higher crude oil and natural gas trade receivables primarily as a result of higher oil and gas prices, lower accounts payable in Bolivia and Venezuela and lower accrued liabilities in Southeast Sumatra and Ecuador. The Company began the year with $38 million of cash and cash equivalents. During the first six months of 1996, Maxus received an aggregate $64 million capital contribution from YPF pursuant to the terms of the Keepwell Covenant (as that term is defined in Note Three to the financial statements), released $27 million of restricted cash backing trade letters of credit as well as six months of interest on outstanding borrowings as required by a certain credit facility and generated $43 million from operating activities. Additionally, Maxus received a $101 million advance from YPF against the purchase price for the outstanding shares of capital stock of International, the sole assets of which are all of the issued and outstanding shares of capital stock of Maxus Bolivia, Venezuela C.I. and Venezuela S.A. The Company used $92 million of cash to fund capital expenditures, $5 million to pay environmental compliance for disposed of businesses, $4 million to fund contributions to certain pension plans, $17 million to pay preferred dividends and $3 million to make payments in respect of shares of Common Stock converted into the right to receive $5.50 per share upon the Merger. In addition, Maxus used $34 million to repay short-term debt and $63 million to fund the mandatory redemption of 625,000 shares of $9.75 Preferred Stock in February 1996. At June 30, 1996, Company's cash and cash equivalents balance was $45 million. 25 In management's opinion, cash on hand at June 30, 1996 and cash provided by operations during the remainder of the year will be inadequate to fund the remaining 1996 program spending budget, service debt and pay preferred stock dividends and trade obligations. In connection with the sale of all outstanding shares of capital stock of International to YPF, in the second quarter of 1996 Maxus received a $101.0 million advance from YPF against the purchase price of approximately $266.2 million (see "General Reorganization" above). Maxus intends to use the proceeds from this transaction for general corporate purposes, including the redemption of all of its outstanding shares of $4.00 Preferred Stock; however, it is anticipated that YPF could be required to make additional cash advances to Maxus in the second half of 1996 totaling approximately $20 million to $50 million to fund the Company's obligations. The Company's exposure to foreign currency fluctuations is minimal as substantially all of the Company's material foreign contracts are denominated in U.S. dollars. The Company's only derivative financial instruments are crude oil and natural gas price swap agreements and futures contracts, which are not used for trading purposes. See Note Nine to the Financial Statements for information regarding certain environmental commitments and contingencies. LEGAL PROCEEDINGS In November 1995, Occidental Chemical Corporation ("OxyChem"), a subsidiary of Occidental Petroleum Corporation ("Occidental"), filed suit in Texas state court seeking a declaration of certain of the parties' rights and obligations under a sales agreement pursuant to which the Company sold Diamond Shamrock Chemicals Company ("Chemicals") to Occidental on September 4, 1986 (the "Closing Date"). Henkel Corporation ("Henkel"), an assignee of certain of Occidental's rights and obligations, joined in said lawsuit as a plaintiff in January 1996. Specifically, OxyChem and Henkel are seeking a declaration that the Company is required to indemnify them for 50% of certain environmental costs incurred on projects involving remedial activities relating to chemical plant sites or other property used in connection with the business of Chemicals on the Closing Date which relate to, result from or arise out of conditions, events or circumstances discovered by OxyChem or Henkel and as to which the Company is provided written notice by OxyChem or Henkel prior to the expiration of ten years following the Closing Date, irrespective of when OxyChem or Henkel incurs and gives notice of such costs, subject to an aggregate $75 million cap. The court denied the Company's motion for summary judgment and granted OxyChem's and Henkel's joint motion for summary judgment, thereby granting OxyChem and Henkel the declaration they sought. The Company believes the court's orders are erroneous and has appealed. The Company has established reserves based on its 50% share of remaining costs expected to be paid or incurred by OxyChem and Henkel prior to September 4, 1996, the tenth anniversary of the Closing Date. As of June 30, 1996, the Company had paid OxyChem and Henkel a total of approximately $40 million against the $75 million cap and, based on OxyChem's and Henkel's historical annual expenditures, had approximately $5 million reserved. The Company cannot predict with any certainty what portion of the approximately $30 million unreserved portion of the $35 million amount remaining at June 30, 1996, OxyChem and Henkel may incur; however, OxyChem and Henkel have asserted in court that the entire amount will be spent. In the event that the Company does not prevail in an appeal, it could be required to pay up to approximately $30 million in additional costs which have not been reserved related to this indemnification. The Company has established reserves for legal contingencies in situations where a loss is probable and can be reasonably estimated. FUTURE OUTLOOK In January 1996, the Company and its partners were successful in acquiring the highly prospective Guarapiche block in Venezuela's first auction awards for equity production in over 20 years. Guarapiche is located on the same trend as the five billion barrel El Furrial field in northeastern Venezuela. In July 26 1996, the Company, together with its partners, paid $109 million (approximately $27 million net to the Company) to the Venezuelan government for rights to explore the Guarapiche block. BP Exploration Orinoco Limited is the operator with a 37.5% working interest while Amoco Production Company and the Company hold 37.5% and 25% working interests, respectively. While not part of the general reorganization discussed above, Maxus has authorized one of its subsidiaries to transfer to YPF, or a designated subsidiary of YPF, all of the capital stock of Maxus Guarapiche Ltd. ("Maxus Guarapiche") for the higher of the fair market value thereof or the carrying value thereof on the consolidated books and accounts of Maxus. It is expected that such transfer of Maxus Guarapiche will occur in the third quarter of 1996. Maxus currently projects total program spending (capital expenditures plus exploration expenses) for 1996 to be approximately $228 million, compared to $231 million in 1995. This 1996 program spending projection includes actual program spending for Maxus' Bolivian and Venezuelan interests for the first half of 1996 of $2 million and $9 million, respectively. In addition, Indonesia will receive $80 million, Midgard (U.S.) $72 million, Ecuador $20 million and domestic and overseas new ventures $42 million, which includes $27 million paid to the Venezuelan government in July 1996 for Maxus' net interest in the Guarapiche Block. Funding for the 1996 spending program is expected to be provided through cash and cash equivalents on hand at the beginning of the year, cash from operations, cash proceeds received in connection with the sale of all outstanding shares of capital stock of International to YPF and cash advances from YPF as necessary. In addition to the 1996 program, Maxus has financial and/or performance commitments for exploration and development activities in 1997 and beyond, none of which are material. The Company has begun discussions with other companies concerning the establishment of a joint venture or other alliance with regard to Midgard's business and assets. The objectives of such a joint venture or alliance would be lowering unit costs, creating economies of scale and improving marketing leverage. No joint venture or other partner has been selected and no assurances can be given that the attempts to establish a joint venture or other alliance will be successful. In addition to the general reorganization discussed above, Maxus is considering a number of possible capital and business restructuring alternatives; however, no decisions have been made to take any specific action nor can there be any assurance that any specific action will be taken. The Company's foreign petroleum exploration, development and production activities are subject to political and economic uncertainties, expropriation of property and cancellation or modification of contract rights, foreign exchange restrictions and other risks arising out of foreign governmental sovereignty over the areas in which the Company's operations are conducted, as well as risks of loss in some countries due to civil strife, guerrilla activities and insurrection. Areas in which the Company has significant operations include the United States, Indonesia and Ecuador. In Ecuador, pipeline capacity available to the Company is sufficient to transport only about 80% of the oil the Company expects to be able to produce daily, and none of the various projects to increase transportation capacity that have been considered has been approved by the government of Ecuador. In addition, the Company is involved in a number of contract, auditing and certification disputes with various government entities. Together, the lack of pipeline capacity and the various disputes with government entities are retarding the Company's ability to proceed with the economic development of Block 16. Although the Company can give no assurances concerning the outcome of these discussions, progress has recently been made on several important issues. However, the Company intends to reduce program spending in Ecuador in 1996 to $20 million from $32 million in 1995. 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The information required by this Item is disclosed in Note 9. "Commitments and Contingencies" contained in the financial information provided in Part I of this report, and such information is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 15.1 -- Letter of Arthur Andersen LLP regarding unaudited interim financial statements 27.1 -- Financial Data Schedule (b) Reports on Form 8-K During the Quarter. Current Report on Form 8-K for Event of July 1, 1996 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAXUS ENERGY CORPORATION By: /s/ W. Mark Miller --------------------------------------------- W. Mark Miller, Executive Vice President, on behalf of the registrant and as its principal financial officer August 8, 1996 28 Exhibit Index
Exhibit Title Exhibit No. - -------------- ----------- Letter of Arthur Andersen LLP regarding unaudited interim financial statements 15.1 Financial Data Schedule 27.1
29 EX-15.1 2 LETTER REGARDING UNAUDITED INTERIM FIN. STATEMENTS EXHIBIT 15.1 Maxus Energy Corporation: We are aware that Maxus Energy Corporation has incorporated by reference in its Registration Statement No. 33-28353 on Form S-8 its Form 10-Q for the quarter ended June 30, 1996, which includes our report dated July 24, 1996, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statement prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Dallas, Texas August 7, 1996 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 45 0 134 1 30 497 2,041 215 2,620 273 1,211 63 67 136 83 2,620 346 358 139 244 5 0 68 41 44 (3) 0 0 0 (3) 0.00 0
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