-----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, Ef6FLFcp9tsQ/vjyejK6h3ywpC/2526U8cdpn/rFFNAT2/I0nZOG9zpx0BxyIX5M SpB9KJ2fIuQ4x9tuZKjPRg== 0000950134-96-000840.txt : 19960325 0000950134-96-000840.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950134-96-000840 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08567 FILM NUMBER: 96537188 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-K 1 FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 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 75201-6594 DALLAS, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including area code: (214) 953-2000 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------------------------------------ ------------------------ Common Stock, $1.00 Par Value..................................... None $2.50 Cumulative Preferred Stock, $1.00 Par Value................. New York Stock Exchange 8 1/2% Sinking Fund Debentures Due April 1, 2008.................. New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: $4.00 Cumulative Convertible Preferred Stock, $1.00 Par Value..... Nasdaq Stock Market
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 / / 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. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 1, 1996 was approximately $190,072,300. Shares of Common Stock outstanding at March 1, 1996 -- 135,609,772. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ 2 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. Maxus Energy Corporation ("Maxus" or the "Company") was incorporated in Delaware in 1983 to hold the stock of various corporations, the oldest of which was founded in 1910. The Company, together with its subsidiaries, is an oil and gas exploration and production company with ongoing international activity in Indonesia, Ecuador, Bolivia, Venezuela and certain other countries, and domestic activity primarily in the mid-continent region of the United States. Its principal executive offices are located at 717 North Harwood Street, Dallas, Texas 75201-6594, and its telephone number is (214) 953-2000. In this report, the terms "Company" and "Maxus" mean Maxus Energy Corporation, its subsidiaries and their predecessors unless the context otherwise indicates. The Company's common stock, $1.00 par value ("Common Stock"), is wholly owned by YPF Sociedad Anonima ("YPF"), an Argentine sociedad anonima. On March 6, 1995, a tender offer for the Company's Common Stock was commenced by YPF Acquisition Corp. (the "Purchaser" or "YPFA Corp."), a wholly owned subsidiary of YPF, at $5.50 per share. Pursuant to the tender offer, in April 1995, the Purchaser acquired approximately 88.5% of the then-outstanding shares of Common Stock. 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, the Purchaser and YPF. The holders of the Company's Common Stock along with the holders of the Company's $4.00 Cumulative Convertible Preferred Stock ("$4.00 Preferred Stock") approved the Merger Agreement; the Purchaser was merged into the Company (the "Merger") on June 8, 1995; and, pursuant to the terms of the Merger Agreement, shares of the Company's Common Stock outstanding on the date of the Merger were converted into the right to receive $5.50 per share. The $4.00 Preferred Stock and the Company's $2.50 Cumulative Preferred Stock ("$2.50 Preferred Stock") remain outstanding, and the powers, preferences and rights of such preferred stock, including conversion rights of the $4.00 Preferred Stock, were not affected by the Merger. 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 acquired assets and assumed liabilities based on their fair values at the date of acquisition. As a result, the Company's assets and liabilities were revalued to reflect the approximate $762 million cash purchase price paid by YPF to acquire the Company. Due to the application of purchase accounting on April 1, 1995, financial information post-merger is not comparable to prior periods. Therefore, financial information is presented separately for pre-Merger (years ending December 31, 1994 and 1993, and the three-month period ending March 31, 1995) and post-Merger periods (nine months ending December 31, 1995). The Company's sales or transfers between geographic areas were not significant in each year in the period ended December 31, 1994 and 1993 and the three months ended March 31, 1995 and the nine months ended December 31, 1995. Operating revenues from export sales to unaffiliated customers located outside the United States were less than 10% of the Company's consolidated sales and operating revenues in each year in the two-year period ended December 31, 1994 and the three months ended March 31, 1995 and the nine months ended December 31, 1995. Information concerning outside sales and operating profit by geographic area for the nine months ended December 31, 1995 and identifiable assets by geographic area as of December 31, 1995 is presented on page F-43 of this report. Information concerning outside sales and operating profit by geographic area for the three months ended March 31, 1995 and for the twelve months ended December 31, 1994 and 1993 and identifiable assets by geographic area as of March 31, 1995 and December 31, 1994 and 1993 is presented on pages F-9 and F-10 of this report. Exploration and Production -- International Indonesia The Company has interests in production sharing contracts with Pertamina, Indonesia's state oil company, for the exploration, development and production of oil and gas in two primary areas in the Java Sea--Southeast Sumatra and Northwest Java. These areas accounted for 81% of the Company's total net 2 3 production of oil during 1995. The Company's working interest in the Southeast Sumatra production sharing contract is 55.7% and in the Northwest Java production sharing contract is 24.3%. The Company is the operator of the Southeast Sumatra block, and Atlantic Richfield Company ("ARCO") is the operator of the Northwest Java block. The Indonesian production sharing contracts allow the Company to recover, subject to available production, tangible and intangible costs of exploration, intangible costs of production and operating costs on a current basis and tangible costs of production generally over a seven-year period. After recovery of those costs and fulfillment of a domestic market obligation for oil, the contractors currently receive 34% of the oil produced and 79.5% of the gas produced before Indonesian taxes, the statutory rate for which is 56%. The Southeast Sumatra and Northwest Java production sharing contracts extend to 2018 and 2017, respectively. The Company has gas projects in both the Northwest Java and Southeast Sumatra contract areas. In 1992, ARCO began developing gas reserves in Northwest Java. Production from this project, which began delivery to Jakarta in 1993, averaged 255 million cubic feet per day ("mmcfpd") (gross) during 1995. In Southeast Sumatra, where the Company has certified (but not included in its proved reserves because of an absence of a contract of sale) 300 billion cubic feet ("bcf") of gross gas reserves, the Company is negotiating with Pertamina for a gas sales contract to supply Jakarta or other markets. Although the Company cannot give any assurance that a contract will ultimately be signed, management currently believes that these negotiations will eventually lead to a satisfactory gas sales contract and a profitable market for the Company's Southeast Sumatra natural gas. During 1995, six exploration and 18 development wells were drilled in the Northwest Java contract area, which added 28 million barrels (gross) of oil and 237 bcf (gross) of gas to proved reserves. During 1995, the Company drilled 14 exploration and 20 development wells in the Southeast Sumatra contract area which added 19.4 million barrels (gross) of proved oil reserves. Exploration activities replaced 43% of net production of oil and gas for the Southeast Sumatra and Northwest Java blocks in 1995. The Company plans to drill fewer exploration wells (ten) in the Southeast Sumatra block in 1996 than it did in 1995 (14), and will shift its emphasis and spending toward drilling in-fill wells, increasing workovers, reducing lifting costs and securing conditions to commercialize small oil fields discovered in previous years that were considered uneconomic under then-prevailing operating cost and sales price assumptions. Ecuador The Company is the operator of and has a 35% working interest in the Block 16 project in eastern Ecuador from which production began in 1994. During 1995, the main access road to the northern and southern fields, the oil pipeline to the southern fields and water disposal lines were completed, along with the construction of wellpads for the following southern fields, as well as Water Disposal Pad #1: Amo B, Iro A and Ginta B. This allowed continued development drilling in these fields in the southern area which averaged 6,038 gross barrels of oil production per day during 1995. Production from the Amo field was recorded in November 1995, and production from the Iro and Ginta fields is projected to be recorded in the first half of 1996. Production from the northern fields averaged approximately 22,800 gross barrels of oil per day ("bpd") in 1995. Pipeline capacity available to the Company is sufficient to transport only about 60% of the daily oil the Company expects to be able to produce in Ecuador, 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 the discussions, progress has recently been made on several important issues. The Company intends to reduce program spending in Ecuador in 1996 to $19 million from $32 million in 1995. 3 4 Bolivia In Bolivia, total daily oil production averaged approximately 6,400 gross bpd during 1995 from ten wells located in the Surubi Field of the Mamore I Block, a 1.6 million acre concession of which the Company is the operator and owns a 50% interest. Production in the Mamore I Block increased to 9,500 gross bpd at year-end 1995, as compared to 4,200 gross bpd at the end of 1994. The Mamore I Block is currently the source of approximately 30% of Bolivia's liquid hydrocarbon production; the majority of Bolivian fields produce primarily natural gas and condensate. Proven Surubi area gross reserves were estimated at 28 million barrels of oil at January 1, 1996 by Gaffney, Cline & Associates ("Gaffney, Cline"), independent reserve engineers. In addition, the Company has a 12.5% non-operating interest in the Secure Block which is adjacent to and west of Mamore I. In 1995, the Company conducted a seismic program covering approximately 450 kilometers of the Secure Block and plans to continue this program in 1996. During 1995, the Company signed a contract to acquire a 25% interest in the Caipipendi Block operated by Chevron Corporation. Venezuela Discovered in 1928, the Quiriquire field in Venezuela was produced through 1985. In 1993, it was offered as a reactivation field as part of the Venezuelan second round of bids, at which time Maxus (95%) and Otepi Consultores, S.A., predecessor to Corporacion Energetica S.21, C.A., (5%) signed a contract for the unit with Lagoven, an affiliate of Petroleos de Venezuela, S.A. In 1994, the Company conveyed a 45% interest in the Quiriquire Unit to BP Exploracion de Venezuela S.A., reducing its previous 95% interest in the unit to 50%. The contract with Lagoven requires a $36 million investment in drilling and seismic programs by mid-year 1997, the Company's share of which is $18 million. To date, the Company has completed the performance of a three-dimensional seismic program on the Quiriquire Unit. In addition, it has commenced the drilling of one of two commitment exploratory wells and has begun a reactivation program, including the drilling of one delineation well. The Quiriquire Unit currently produces approximately 2,000 gross bpd of crude oil. In January 1996, the Company acquired an interest in a second block, Guarapiche, adjacent to the Quiriquire Unit. The Guarapiche block is operated by BP Exploration Orinoco Limited. Other Foreign Countries The Company is also undertaking exploration and production activities in three other foreign areas. In the East China Sea, the Company operates two blocks, one in which it has a 60% working interest and one in which it has a 100% working interest. Two and three dimensional seismic surveys on the blocks have been completed. During 1995, a dry hole was drilled, and in the first quarter of 1996 a second dry hole was drilled. The Company's exploration commitment in the East China Sea is fulfilled and management does not intend to continue activities in that area. In Tunisia, during 1995, the Company relinquished its interest in the 1.1 million acre Djebel Oust Block. The Company converted its seismic option on the Zembra permit, Tunisia, to an exploration license during 1995. In Bulgaria, during 1995, the Company drilled its second dry hole on a one million acre block which was subsequently relinquished. During December 1995, the Company sold its overriding royalty interest in the Recetor Block, Colombia, to British Petroleum for $25 million. 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. Exploration and Production--Domestic Through its wholly owned subsidiary, Midgard Energy Company ("Midgard"), the Company currently focuses its domestic exploration and production efforts in the Texas Panhandle and western Oklahoma where it has substantial investments in natural gas gathering systems that are used to aggregate gas produced and purchased by the Company for processing and resale. The Company owns and operates two gas processing 4 5 plants in the area: its Sunray plant in Moore County, Texas and a plant in Roger Mills County, Oklahoma. The Sunray plant, which was completed in 1993, incorporates state-of-the-art technology, including a cold box for extraction of helium. It can process approximately 200 mmcfpd at peak operation and, as of February 1, 1996, was processing approximately 175 mmcfpd. In 1995, Midgard completed 75 net wells, as compared to 26 net wells completed in 1994. The predominant portion of the wells drilled during 1995 were completed during the second half of the year. At December 1995, net production was 138 mmcfpd, an increase of 11% from the average for the first half of 1995 of 125 net mmcpd. Proved reserves of 70.4 bcf equivalent (net) were added during 1995, a significant increase from the 23 bcf equivalent (net) added in 1994. Midgard acquired 26 bcf equivalent (net) of reserves through producing property acquisitions in 1995. Twenty-two net wells were recompleted in 1995, an increase of 14 (net) over 1994's recompletions. Proved reserves as of January 1, 1996 were 594 bcf equivalent (net), an increase of 16% over proved reserves of 513 bcf equivalent (net) as of January 1, 1995. The Company replaced 268% of its production in 1995. In 1996, Midgard's development plans include the continuation of its in-fill drilling program at a level comparable to 1995 and efforts to maximize processed volumes through gathering systems upgrades. Additionally, Midgard expects to pursue strategic acquisition opportunities in the gathering, processing and producing properties sectors, while drilling a portfolio of higher risk exploration wells to complement its lower risk in-fill drilling program. 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 objective 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 attempts to establish a joint venture or other alliance will be successful. Oil and Gas Operations Average sales prices and production costs of crude oil and natural gas produced by geographic area for each year in the two-year period ended December 31, 1994, the three months ended March 31, 1995 and the nine months ended December 31, 1995 were as follows:
NINE MONTHS YEAR ENDED ENDED THREE MONTHS DECEMBER 31, DECEMBER 31, ENDED MARCH ----------------- 1995 31, 1995 1994 1993 ------------ ------------ ------ ------ United States Average Sales Price Crude Oil (per barrel)....................... $16.29 $16.07 $13.89 $16.99 Natural Gas Liquids (per barrel)............. $10.42 $10.27 $10.02 $11.08 Natural Gas Sold (per mcf)(a)................ $ 1.54 $ 1.42 $ 1.89 $ 2.13 Natural Gas Produced (per mcf)(b)............ $ 1.97 $ 1.89 $ 2.10 $ 2.26 Average Production Cost (per barrel)(c)...... $ 3.39 $ 3.74 $ 3.37 $ 3.61 Indonesia Average Sales Price Crude Oil (per barrel)....................... $17.01 $17.54 $15.61 $17.31 Natural Gas Liquids (per barrel)............. $14.33 $19.19 $ 9.42 $10.57 Natural Gas Sold (per mcf)(a)................ $ 2.62 $ 2.65 $ 2.24 $ 1.30 Natural Gas Produced (per mcf)(b)............ $ 2.64 $ 2.73 $ 2.53 $ 2.35 Average Production Cost (per barrel)(c)...... $ 6.44 $ 7.42 $ 6.18 $ 6.67 South America Average Sales Price Crude Oil (per barrel)....................... $12.79 $12.58 $12.58 NA Average Production Cost (per barrel)(c)...... $ 6.30 $ 8.99 $ 9.36 NA
5 6 - --------------- (a) The average natural gas price for sales volumes is calculated by dividing the total net sales value for all natural gas sold by the Company, including residue gas remaining after the removal of natural gas liquids, by the annual natural gas sales volume. (b) The average natural gas price for produced volumes is calculated by dividing the total net value received from the sale of natural gas and natural gas liquids produced by the Company by the annual natural gas production volume. (c) Production or lifting cost is exclusive of depreciation and depletion applicable to capitalized lease acquisition, exploration and development expenditures. Average production costs are calculated by dividing total operating costs by the sum of crude oil and equivalent barrels of oil for natural gas production. Gas volumes produced were converted to equivalent barrels of crude oil by dividing the mcf volume by six. Six mcf of gas have approximately the heating value of one barrel of crude oil. The Company periodically hedges against the effects of fluctuations in the prices of crude oil and natural gas through price swap agreements and futures contracts. A hedging program covered an average of 25% of the Company's United States natural gas production during 1995 and covered up to 90% of such production during the first quarter of 1996. Currently, the only remaining 1996 United States natural gas production which is hedged is approximately 30% of April and June 1996 production; however, management intends to hedge up to 90% of the remaining production for the year in the event that gas prices reach certain targeted levels. Information regarding the Company's oil and gas producing activities for the periods indicated is set forth on pages F-30 through F-34 and F-64 through F-68 of this report. The Company's estimates of its net interests in proved reserves at December 31, 1995 are based upon records regularly prepared and maintained by its engineers. In 1995, the Company filed estimates of certain of its proved reserves of crude oil and natural gas in the United States at December 31, 1994 with the United States Department of Energy. The total reserve estimates included therein do not differ by more than 5% from the total reserve estimates for the comparable period for the same reserves included in the Company's filings with the Securities and Exchange Commission. The following table shows the Company's average daily sales and net production (after deducting royalty and operating interests of others) by geographic area for the periods presented.
NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ------------ 1995 1995 1994 1993 ------------ ------------ ---- ---- United States Average Daily Production Crude Oil (m barrels)............................. 1.1 1.0 2.4 4.9 Natural Gas (mmcf)(a)............................. 130 125 156 208 Average Daily Sales Natural Gas Liquids (m barrels)................... 8.7 8.8 8.2 7.6 Natural Gas (mmcf)(b)............................. 104 98 131 181 Indonesia Average Daily Production Crude Oil (m barrels)............................. 53.0 52.0 59.3 62.4 Average Daily Sales Natural Gas Liquids (m barrels)................... 1.7 0.9 2.1 1.5 Natural Gas (mmcf)(b)............................. 61 45 44 13 South America Average Daily Production Crude Oil (m barrels)............................. 12.4 8.5 4.6 NA Average Daily Sales Crude Oil (m barrels)............................. 10.4 6.9 5.2 NA
6 7 - --------------- (a) Reflects the average amount of daily wellhead production. (b) Average daily sales volumes for natural gas production, reduced, in those cases where the gas is processed for extraction of natural gas liquids, by the shrinkage resulting therefrom. In addition to gathering and processing a substantial part of the natural gas produced by the Company, the Company purchases natural gas in the Texas Panhandle and western Oklahoma for resale. The majority of this natural gas is processed through the Company's processing facilities. The table below reflects the average daily sales and average sales prices received for such purchased natural gas and the natural gas liquids extracted in processing for the periods presented.
NINE MONTHS THREE MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ---------------- 1995 1995 1994 1993 ------------ ------------ ------ ------ Average Sales Price Natural Gas Liquids (per barrel).............. $10.57 $10.48 $10.12 $11.19 Natural Gas (per mcf)......................... $ 1.42 $ 1.49 $ 1.90 $ 1.99 Average Daily Sales Natural Gas Liquids (m barrels)............... 8.9 9.6 9.7 9.8 Natural Gas (mmcf)............................ 68 69 144 184
The following tables set forth information regarding the Company's wells and leasehold acres. "Gross" wells or acres are the total number of wells or acres in which the Company owns any interest. "Net" wells or acres are the sum of the fractional working interests the Company owns in gross wells or acres. "Productive" wells are either producing wells or wells capable of commercial production although currently shut-in. One or more completions ("multiple completions") in the same bore hole are counted as one well. At December 31, 1995, total gross and net productive oil and gas wells, including multiple completions, by geographic area were as follows:
WELLS --------------------------------- OIL GAS -------------- --------------- GROSS NET GROSS NET ----- ----- ----- ------ Oil and Gas Wells United States............................................. 363 238.4 1467 1126.4 Indonesia................................................. 708 269.8 12 2.9 South America............................................. 38 15.4 0 0.0 Total................................................ 1109 523.6 1479 1129.3 Multiple Completions United States............................................. 0 0.0 35 18.2 Indonesia................................................. 84 20.4 0 0 Total................................................ 84 20.4 35 18.2
At December 31, 1995, total gross and net developed and undeveloped acreage by geographic area was as follows:
UNITED SOUTH OTHER STATES INDONESIA AMERICA FOREIGN ------- --------- -------- -------- Gross Acres Developed Acres........................... 551,141 143,330 8,405 -0- Undeveloped Acres......................... 315,605 7,712,042 8,553,752 2,157,677 ------- --------- --------- --------- Total................................ 866,746 7,855,372 8,562,157 2,157,677 Net Acres Developed Acres........................... 465,982 54,024 3,501 -0- Undeveloped Acres......................... 179,620 2,709,540 2,289,955 1,799,876 ------- --------- --------- --------- Total................................ 645,602 2,763,564 2,293,456 1,799,876
7 8 Exploration and Development Activities Drilling activities of the Company for each year in the three-year period ended December 31, 1995 are summarized by geographic area in the following table:
FOR THE YEAR ENDED DECEMBER 31, -------------------------- 1995 1994 1993 ---- ---- ---- Gross wells drilled(a) United States Exploratory Oil......................................................... 0 0 0 Gas......................................................... 0 1 2 Dry......................................................... 2 6 2 --- --- --- Total.................................................... 2 7 4 Development Oil......................................................... 3 2 10 Gas......................................................... 73 44 29 Dry......................................................... 5 4 4 --- --- --- Total.................................................... 81 50 43 Indonesia Exploratory Oil......................................................... 0 3 0 Gas......................................................... 0 0 0 Dry......................................................... 12 7 0 --- --- --- Total.................................................... 12 10 0 Development Oil......................................................... 35 38 46 Gas......................................................... 0 1 14 Dry......................................................... 2 2 25 --- --- --- Total.................................................... 37 41 85 South America Exploratory Oil......................................................... 1 1 2 Gas......................................................... 0 0 0 Dry......................................................... 1 0 3 --- --- --- Total.................................................... 2 1 5 Development Oil......................................................... 17 13 2 Gas......................................................... 0 0 0 Dry......................................................... 0 0 0 --- --- --- Total.................................................... 17 13 2 Other Foreign Exploratory Oil......................................................... 0 0 0 Gas......................................................... 0 0 0 Dry......................................................... 3 0 0 --- --- --- Total.................................................... 3 0 0
8 9
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 --- --- --- Development Oil......................................................... 0 0 0 Gas......................................................... 0 0 0 Dry......................................................... 0 0 0 --- --- --- Total.................................................... 0 0 0 Net Wells Drilled (a) United States Exploratory Oil......................................................... 0.0 0.0 0.0 Gas......................................................... 0.0 1.0 1.7 Dry......................................................... 1.5 3.5 1.9 --- --- --- Total.................................................... 1.5 4.5 3.6 Development Oil......................................................... 3.0 0.2 1.7 Gas......................................................... 65.7 22.1 18.5 Dry......................................................... 5.0 1.6 2.1 --- --- --- Total.................................................... 73.7 23.9 22.3 Indonesia Exploratory Oil......................................................... 0.0 0.7 0.0 Gas......................................................... 0.0 0.0 0.0 Dry......................................................... 6.4 3.3 0.0 --- --- --- Total.................................................... 6.4 4.0 0.0 Development Oil......................................................... 14.5 17.1 17.5 Gas......................................................... 0.0 0.2 3.4 Dry......................................................... 1.1 0.5 9.1 --- --- --- Total.................................................... 15.6 17.8 30.0 South America Exploratory Oil......................................................... .4 0.4 2.0 Gas......................................................... 0.0 0.0 0.0 Dry......................................................... .6 0.0 2.1 --- --- --- Total.................................................... 1.0 0.4 4.1 Development Oil......................................................... 7.2 4.6 2.0 Gas......................................................... 0.0 0.0 0.0 Dry......................................................... 0.0 0.0 0.0 --- --- --- Total.................................................... 7.2 4.6 2.0 Other Foreign Exploratory Oil......................................................... 0.0 0.0 0.0 Gas......................................................... 0.0 0.0 0.0 Dry......................................................... 2.6 0.0 0.0 --- --- --- Total.................................................... 2.6 0.0 0.0
9 10
FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 --- --- --- Development Oil......................................................... 0.0 0.0 0.0 Gas......................................................... 0.0 0.0 0.0 Dry......................................................... 0.0 0.0 0.0 --- --- --- Total.................................................... 0.0 0.0 0.0
- --------------- (a) "Gross" wells means all wells in which the Company has an interest. "Net" wells means gross wells after deducting interests of others. At December 31, 1995, the Company was participating in the drilling of 7 gross and 6.3 net wells in the United States, 4 gross and 1.6 net wells in Indonesia and 2 gross and .8 net wells in areas outside the United States other than Indonesia. Competition and Markets The primary markets for the Company's Indonesian oil production are the Pacific Rim countries, including Japan, China and Indonesia. The increasing environmental consciousness of this region has resulted in premium prices for low sulfur oil such as that produced from the Southeast Sumatra and Northwest Java areas. The Company has ongoing business relationships with government oil companies, utilities, refiners and trading companies which are expected to continue to facilitate sales in this area. The Company believes that the long-term potential for growth in natural gas demand in North America remains high due to environmental advantages of natural gas relative to other sources of energy; however, market prices remain extremely volatile, with weather and regional supply and demand imbalances causing the potential for large monthly price swings. The Company has concentrated its domestic natural gas production in its mid-continent division (Midgard), which encompasses the Texas Panhandle and western Oklahoma. The Company's Sunray gas plant is located near the intersection of three major interstate pipelines, giving the Company a choice of markets for its gas sales, thereby enabling it to maximize prices. Approximately 25% of the Company's natural gas sales in 1995 were made directly to local gas distribution companies and industrial and agricultural users through term contracts, and the remaining 75% was sold on the spot market. The Company sells crude oil, natural gas and natural gas liquids to a wide number of customers, including refineries, industrial consumers and utilities. Oil and gas are essentially commodities, and the Company's production represents only a small fraction of the total world markets for these products. As a result, the prices the Company receives depend primarily on the relative balance between supply and demand in these markets. The world oil market continues to be subject to uncertainty. Iraq has not yet legally resumed oil sales due to its failure to agree to United Nations imposed conditions on such sales, but the possibility of renewed Iraqi production continues to overhang the market. Oil prices showed some positive gains in 1995, but continue to be subject to volatile price swings due to the maintenance of lower inventories by refining centers and increased competition for the limited growth in demand in developed countries from additional availabilities from non-OPEC countries and excessive OPEC production. Health, Safety and Environmental Controls 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. 10 11 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. 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 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. 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 sharing arrangement was about $39 million as of December 31, 1995. 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 "Item 3. Legal Proceedings.") 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 December 31, 1995, DSI's remaining responsibility is approximately $8 million. In 1995, the Company spent $6 million in environmental related expenditures in its oil and gas operations. Expenditures in 1996 are expected to be approximately $8 million. The Company's total expenditures for environmental compliance for disposed of businesses, including Chemicals, were approximately $38 million in 1995, $12 million of which was recovered from DSI under the above described cost-sharing agreement. Those expenditures are projected to be approximately $23 million in 1996 after recovery from DSI under such agreement. 11 12 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. 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. 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. Studies performed by the Company and others suggest that contaminants historically discharged by the Newark plant are buried under several feet of more recent sediment deposits and are not moving. 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 Company currently expects such testing and studies to be completed in 1999 and cost from $4 million to $6 million after December 31, 1995. The Company has been conducting similar studies under its own auspices for several years. Until these studies are completed and evaluated, the Company cannot reasonably forecast what regulatory program, if any, will be proposed for the Passaic River or the Newark Bay watershed. 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. 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. 12 13 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 sites have 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 scope and nature of any further investigation or remediation that may be required cannot be determined at this time. 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. 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 therefor or their respective shares. 13 14 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. 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 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. 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. Employees As of December 31, 1995, the Company had approximately 2,275 employees. ITEM 3. LEGAL PROCEEDINGS. In connection with the tender offer by YPFA Corp. and Merger, a number of holders of Common Stock sued in the Chancery Court of the State of Delaware. In the various complaints, the plaintiffs purported to sue individually and on behalf of classes comprised of the holders of shares of Common Stock, stockholders of the Company or all holders of the Company's securities. The complaints named as defendants the Company, the directors and certain of the officers of the Company, a former director of the Company and, with respect to some of the complaints, YPF, and alleged, among other things, that the defendant directors and officers of the Company breached their fiduciary duties in approving the Offer and the Merger and that YPF aided and abetted the alleged breach of duties. The plaintiffs purported to seek orders enjoining the consummation of the Offer and the Merger (or the rescission of those transactions) or, in the alternative, an accounting for any damages to the alleged classes, together with their attorneys' fees and other relief. These lawsuits were consolidated into one action and, in September 1995, were settled with no payment to the class members. However, as a part of the settlement, the Company was ordered to pay $800,000 in attorneys' fees to the plaintiffs' class counsel. 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 Company believes that this lawsuit is without merit and intends to defend same vigorously. 14 15 As of December 31, 1995, the Company had paid OxyChem and Henkel a total of approximately $39 million against said $75 million cap. The Company cannot predict what portion of the approximately $36 million remaining as of that date Occidental and Henkel may actually pay or incur prior to September 4, 1996, the tenth anniversary of the Closing Date, if they accelerate spending with respect to such environmental costs. See also the heading "Health, Safety and Environmental Controls" under "Items 1 and 2. Business and Properties" of this report for a description of certain other legal proceedings, which description is incorporated herein by reference. The Company is involved in various other legal proceedings incidental to its business, the outcome of any of which should not have a material adverse effect on its financial position. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. Inapplicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no established public trading market for the Common Stock. At March 1, 1996, YPF was the sole holder of record of the Common Stock. Midgard and Maxus Indonesia, Inc., subsidiaries of the Company, are parties to separate credit agreements which places certain restrictions on the ability of these subsidiaries to make or declare certain payments, advances and loans specified therein, including dividends to the Company. (For a further description of these credit agreements, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Significant Events 1995"). While these restrictions could impact the ability of the Company to pay dividends on its Common Stock, the Company has paid no such dividends since 1987, and cash flows are currently being dedicated to exploration and development projects rather than to such payment. The Company intends to continue paying regular quarterly dividends on its $4.00 Preferred Stock, $9.75 Cumulative Convertible Preferred Stock ("$9.75 Preferred Stock") and $2.50 Preferred Stock. 15 16 ITEM 6. SELECTED FINANCIAL DATA. FIVE-YEAR FINANCIAL SUMMARY (DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
NINE MONTHS THREE MONTHS ENDED ENDED DECEMBER 31, MARCH 31, 1995 1995 1994 1993 1992 1991 ------------ ------------ ------- ------- ------- ------- OPERATIONS Sales and operating revenues...... $ 463.8 $ 142.5 $ 682.1 $ 786.7 $ 718.4 $ 790.8 Net income (loss) before extraordinary item and cumulative effect of change in accounting principle............ (73.7) (56.9) (22.7) (37.9) 74.2 (11.2) Extraordinary item................ (7.1) Cumulative effect of change in accounting principle............ (4.4) -------- -------- -------- -------- -------- Net income (loss)................. $ (73.7) $ (56.9) $ (22.7) $ (49.4) $ 74.2 $ (11.2) FINANCIAL POSITION Current assets.................... $ 266.4 $ 394.6 $ 441.9 $ 404.7 $ 391.2 $ 205.7 Current liabilities............... 306.4 224.3 171.0 263.4 327.9 249.3 Properties and equipment, less accumulated depreciation, depletion and amortization...... 2,363.6 1,110.7 1,088.4 1,305.6 1,138.3 1,075.2 Total assets...................... 2,716.8 1,692.1 1,706.7 1,987.4 1,811.6 1,451.5 Long-term debt, including current portion......................... 1,295.5 975.6 975.6 1,055.1 829.4 788.9 Deferred income taxes............. 551.2 199.7 199.3 198.3 152.9 142.9 Redeemable preferred stock........ 125.0 125.0 125.0 250.0 250.0 250.0 Stockholders' equity (deficit).... 240.0 13.5 91.1 147.9 171.6 (55.9) OTHER DATA Expenditures for properties and equipment--including dry hole costs...................... $ 137.4 $ 53.6 $ 166.2 $ 340.0 $ 261.1 $ 272.3 Total exploration and development expenditures (whether capitalized or expensed)........ 165.5 60.6 197.2 376.8 256.7 303.0 Preferred dividends paid.......... 28.8 9.6 43.6 41.7 41.7 41.7 Depreciation, depletion and amortization.................... 142.1 29.9 140.2 153.6 174.4 203.6 PER COMMON SHARE Net income (loss) before extraordinary item and cumulative effect of change in accounting principle............ $ (.76) $ (.49) $ (.49) $ (.60) $ .27 $ (.52) Extraordinary item................ (.05) Cumulative effect of change in accounting principle............ (.03) -------- -------- -------- -------- -------- Net income (loss)................. $ (.76) $ (.49) $ (.49) $ (.68) $ .27 $ (.52)
16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Significant Events 1995 On June 8, 1995, a special meeting of the stockholders of Maxus Energy Corporation (the "Company" or "Maxus") was held to approve the Agreement of Merger ("Merger Agreement") dated February 28, 1995, between the Company, YPF Acquisition Corp. (the "Purchaser" or "YPFA Corp.") and YPF Sociedad Anonima ("YPF"). The holders of the Company's common stock, $1.00 par value per share (the "Shares"), 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"). Pursuant to the Merger Agreement, a tender offer (the "Offer") was commenced on March 6, 1995 by the Purchaser for all the outstanding Shares at $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 cancelled 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, consisting of the $4.00 Preferred Stock, $2.50 Cumulative Preferred Stock (the "$2.50 Preferred Stock") and $9.75 Cumulative Convertible Preferred Stock (the "9.75 Preferred Stock"), remain outstanding. YPF currently owns approximately 96.9% of the outstanding Voting Shares. 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. 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. Following the Merger, Chase provided two additional credit facilities aggregating $425 million: (i) a credit facility of $250 million extended to Midgard Energy Company ("Midgard"), a wholly owned subsidiary of the Company, and (ii) a credit facility of $175 million extended to Maxus Indonesia, Inc. ("Holdings"), 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 repayment of 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. 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 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. The Company's pre-Merger Consolidated Balance Sheet as of March 31, 1995, together with the purchase method accounting adjustments, became the Company's opening post-Merger Consolidated Balance Sheet on April 1, 1995. Because of these purchase adjustments, which were effected April 1, 1995, the Company's financial statements for the nine-month period ended December 31, 1995, are not comparable to such statements for prior periods. Accordingly, separate financial statements for periods prior to April 1, 1995 and for the nine-month period ended December 31, 1995 are presented. 17 18 Significant Events 1994 Maxus responded to many financial and operational challenges in 1994 which culminated with the Company's agreement to merge with YPF in 1995. Financially, significant natural gas and crude oil price declines in 1994 contributed to Maxus' decision to streamline operations by decreasing overhead and operating expenses, lowering program spending and redeeming certain preferred stock. During the second quarter of 1994, the Company also sold its interest in Diamond Shamrock Offshore Partners Limited Partnership ("Offshore Partners") and certain producing oil and gas properties in Maxus' U.S. Southern Division for $325 million net ("the Divested Properties"). Additionally, the Company sold its geothermal subsidiary, Thermal Power Company, for approximately $58 million net in cash and a note for $6.5 million. A portion of the proceeds from these sales was used to reduce debt and redeem 625,000 shares of the $9.75 Preferred Stock for $63 million. Operationally, the Company initiated production from all three of Maxus' South American operations--Ecuador, Bolivia and Venezuela. The Sunray gas plant experienced its first full year of operation and achieved the operating efficiencies and cost savings (approximately $14 million annually) that had been anticipated. Additionally, net production from the Northwest Java gas project averaged approximately 44 million cubic feet per day ("mmcfpd") during 1994, resulting in $30 million of additional revenues. Results for the Nine Months Ended December 31, 1995 For the nine months ended December 31, 1995, Maxus reported a net loss of $74 million. Comparative information for the nine months ended December 31, 1994, is not presented due to the Merger with YPF which was effective April 1, 1995. Sales and Operating Revenues. Sales and operating revenues for the nine months ended December 31, 1995, were $464 million composed of $298 million from Maxus' Indonesian operations, $129 million from U.S. operations and $37 million from South American operations. Maxus' net worldwide crude oil sales volumes were 64 thousand barrels per day ("mbpd") during the nine-month period ended December 31, 1995, which were comprised of 53 mbpd from Maxus' Indonesian operations, 10 mbpd from South American operations and one mbpd from U.S. operations. Maxus' net worldwide crude oil sales volumes increased from 60 mbpd in the third quarter of 1995 to 73 mbpd in the fourth quarter of 1995 due primarily to the recognition of cumulative year-to-date production from the Southern Amo Field in Ecuador in the fourth quarter of 1995, as this production had not previously been approved by the Ecuadorian government, and the sole crude oil sale in Bolivia in October 1995. Despite natural declines in gross crude oil production in Indonesia over the nine months ended December 31, 1995, Indonesian crude oil sales volumes increased slightly due primarily to higher cost recovery. During the nine months ended December 31, 1995, Maxus' average worldwide crude oil price was $16.31 per barrel. During the nine-month period ended December 31, 1995, U.S. natural gas sales volumes were 172 mmcfpd and U.S. natural gas prices averaged $1.49 per thousand cubic feet ("mcf"). Although U.S. natural gas sales volumes remained relatively flat over the nine months ended December 31, 1995, the success of the 1995 Midgard infill drilling program offset the natural declines from the area. In the future, Maxus expects its Midgard infill drilling program to continue to offset any natural declines. U.S. natural gas prices rose from $1.40 per mcf in the third quarter of 1995 to $1.64 per mcf in the fourth quarter of 1995 which favorably impacted revenues $4 million. During the nine-month period ended December 31, 1995, Northwest Java natural gas sales volumes were 61 mmcfpd and Northwest Java natural gas prices averaged $2.62 per mcf. Natural gas liquids sales volumes in the U.S. were 18 mbpd and U.S. natural gas liquids prices averaged $10.49 per barrel. Costs and Expenses. Costs and expenses were $536 million during the nine months ended December 31, 1995. Costs and expenses during this period included operating expenses of $174 million; gas purchase costs of 18 19 $41 million; exploration expenses of $51 million; depreciation, depletion and amortization ("DD&A") of $142 million; interest and debt expenses of $105 million and other costs and expenses totaling $23 million. DD&A of $142 million during the nine-month period ended December 31, 1995, included $43 million of additional DD&A reflecting the impact of the purchase price allocation which increased the book value of the Company's oil and gas properties and equipment. The book value of oil and gas properties and equipment increased approximately $1.3 billion as a result of the purchase price allocation. In the nine-month period ended December 31, 1995, interest and debt expenses of $105 million included $27 million of interest expense associated with the Purchaser Facility and, Midgard and Holdings credit facilities. Also included in interest and debt expenses during this period was $6 million of interest associated with the accretion of discount on the Company's long-term debt which was outstanding prior to the Merger. These borrowings were recorded at their fair market value in the purchase method of accounting which resulted in a reduction in their carrying value of $115 million. This reduction in carrying value will be amortized to interest expense over the remaining term of the borrowings. Other Revenues, Net. During the nine months ended December 31, 1995, other revenues, net were $7 million which included $10 million of interest income, a $2 million gain which represented the final settlement of the Company's sole interest rate swap agreement prior to its termination and a $2 million gain recognized on the sale of U.S. Treasury notes partially offset by a $3 million production bonus payment stemming from the Company's Indonesian operations and $5 million of accrued expenses. In the future, the Company anticipates recognizing less interest income as a result of maintaining only minimal balances of cash, cash equivalents and short-term investments to cover working capital fluctuations. Capital contributions from YPF are expected to cover any additional funding needs. Income Taxes. Income tax expense of $9 million for the nine-month period ended December 31, 1995, included $63 million of current foreign income tax expense primarily from Indonesian operations partially offset by a $49 million deferred tax benefit due primarily to the higher DD&A 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. In addition, the Company received $5 million of interest income on U.S. federal income tax refunds. This interest income was not previously accrued in prior periods. In the future, the Company expects to realize additional deferred tax benefits as a result of the higher DD&A. Comparison of Results Three Months Ended March 31, 1995 vs. Three Months Ended March 31, 1994 Maxus reported a net loss of $57 million for the first quarter of 1995 compared to a net loss of $11 million for the first quarter of 1994. The first quarter 1995 results reflect $42 million of pre-Merger costs incurred by the Company prior to the Merger. Such costs included expenses associated with financial consulting and legal services, severance payments pursuant to change of control agreements and payments for surrender of stock options and restricted stock. Sales and Operating Revenues. Sales and operating revenues for the first quarter of 1995 were $143 million, compared to $187 million for the same 1994 period. The loss of production from the Divested Properties which were sold in the second quarter of 1994 and lower volumes of purchased gas accounted for $45 million of the revenue decline. Additionally, U.S. natural gas prices fell, which also unfavorably impacted revenues $12 million for the three months ended March 31, 1995. These declines were partially offset by first quarter 1995 revenue of $8 million from South America. Initial sales from the Company's South American operations were recorded in the third quarter 1994. Net worldwide crude oil production was 60 mbpd in the first quarter 1995, compared to 69 mbpd in the same quarter a year ago. Domestic crude oil volumes declined four mbpd during the period due to the loss of production from the Divested Properties resulting in lower revenues of $5 million. Crude oil sales from the Company's Indonesian operations were also down 12 mbpd during the period primarily as a result of lower entitlements due to higher crude oil sales prices and lower production. Offsetting these declines, production from South America of seven mbpd provided an additional $8 million of revenues in 1995. 19 20 U. S. natural gas sales for the first quarter of 1995 were 167 mmcfpd, a decrease of 208 mmcfpd as compared to the first quarter 1994 resulting in lower revenues of $42 million. The decline was driven by the loss of production from the Divested Properties and lower volumes of gas purchased for resale. The average gas price received in the U. S. was $1.45 per mcf in the first quarter 1995 as compared to $2.24 per mcf in the same 1994 period. Northwest Java natural gas volumes of 40 mmcfpd in the first quarter 1995 were eight mmcfpd higher than the first quarter 1994. Natural gas sales prices improved to an average of $2.65 per mcf during the first quarter 1995 from $1.81 per mcf during the same period last year due to the change in contract terms which increased the price received for "old" gas production from $0.20 per mcf to $2.65 per mcf effective January 1, 1995. The higher Northwest Java natural gas volumes coupled with the higher average natural gas price resulted in increased revenues of $4 million in the first quarter of 1995. Natural gas liquids sales in the U. S. for the first quarter 1995 were 18 mbpd, a slight decrease over first quarter last year. The average sales price for U.S. natural gas liquids in the first quarter of 1995 was $10.38 per barrel, an increase of $1.15 per barrel from 1994. Costs and Expenses. Costs and expenses for the first quarter of 1995 were $190 million which were relatively flat compared to the first quarter of 1994. Costs and expenses for the first quarter of 1995 included Maxus pre-Merger costs of $42 million which were partially offset by lower gas purchase costs of $31 million when compared to the first quarter of 1994. Gas purchase costs were $31 million lower in the first quarter of 1995 as compared to first quarter 1994 due to the lower volumes of gas purchased to aggregate with the production from the Divested Properties, the reduction in volumes of gas purchased for resale and lower natural gas prices. DD&A of $30 million for the first quarter 1995 was $8 million lower than the same period of the prior year. Approximately $11 million of this decline represents DD&A from the Divested Properties included in the first quarter of 1994. Partially offsetting this decline was $4 million of DD&A in the first quarter of 1995 associated with South American operations which did not go into production until late 1994. Income Taxes. Income tax expense was $19 million and $16 million in the first quarters of 1995 and 1994, respectively. The increase in income tax expense was primarily due to higher Indonesian taxes as a result of increased taxable income from the Company's Indonesian operations. Comparison of Results Twelve Months Ended December 31, 1994 vs. Twelve Months Ended December 31, 1993 Maxus reported a net loss of $23 million in 1994 compared to a net loss of $49 million in 1993. Sales and Operating Revenues. Sales and operating revenues dropped 13%, or $105 million, during 1994 when compared to 1993. The loss of production from the Divested Properties and lower volumes of purchased gas which were aggregated and sold with the production from the Divested Properties accounted for $86 million of the revenue decline. Additionally, worldwide oil and gas prices fell, which further compounded the loss of revenues. However, initial production from South America and new gas production from Northwest Java added $54 million to revenues during 1994, partially offsetting the overall negative revenue variances. The Company's total net crude oil production was 67 mbpd in 1994, essentially flat compared to 1993. Production from South American operations added five mbpd during 1994 and favorably impacted revenues by $24 million. Crude oil volumes in the United States declined three mbpd, resulting in a $15 million negative volume variance, primarily from the loss of production from the Divested Properties. Crude oil sales from the Company's Indonesian operations were also down approximately three mbpd ($20 million negative volume variance), primarily in Northwest Java. A portion of the 1994 decline was the result of temporary production problems, which were corrected. Also, the 1993 volumes in Northwest Java reflected additional barrels received through cost recovery due to the substantial capital outlay for the gas project, which was completed in late 1993. Maxus' 1994 average worldwide crude price hit a five-year low of $15.31 per barrel, negatively impacting income by $39 million. 20 21 United States natural gas sales volumes fell from 365 mmcfpd to 275 mmcfpd in 1994 with the decline attributable to the loss of production from the Divested Properties and the decrease in purchased gas volumes which were aggregated and sold with the production from the Divested Properties. The decline was partially offset by increased sales volumes of nine mmcfpd from Midgard. United States natural gas revenues declined approximately $83 million during 1994, with $68 million occurring as a result of the Divested Properties and $14 million attributable to declining prices. Maxus' United States natural gas prices averaged $1.95 per mcf in 1994 and $2.08 per mcf in 1993. Northwest Java gas volumes increased from 13 mmcfpd in 1993 to 44 mmcfpd during 1994. The Company realized an additional $30 million of revenues during 1994 from the Northwest Java gas project, which came on stream in fourth quarter 1993. Natural gas liquids sales in the United States increased slightly from 17.4 mbpd to 17.9 mbpd in 1994 but average prices received declined from $11.14 per barrel in 1993 to $10.07 per barrel. Overall, liquids revenues were down $5 million compared to 1993 due to the price declines. Costs and Expenses. Costs and expenses, excluding restructuring, were $728 million in 1994 compared to $781 million in 1993. The decline was primarily due to the elimination of expenses related to the Divested Properties. Overall, operating expenses were down $21 million, of which approximately $15 million related to the Divested Properties. Operating expenses declined in Indonesia as well as in the United States, but were partially offset by the additional operating expenses incurred in South America due to the start-up of production in Ecuador, Bolivia and Venezuela. Gas purchase costs were $39 million lower than 1993 primarily as a result of lower purchased gas prices and the reduction in volumes of purchased gas which were previously aggregated and sold with the production from the Divested Properties. Exploration expenses were $24 million lower than 1993 due to management's decision to curtail exploratory spending in new frontiers during 1994. The Company had previously announced its decision to concentrate spending in its core areas of the United States and Indonesia and its emerging areas in South America. DD&A declined $13 million in 1994. The Divested Properties created a $32 million favorable variance. Partially offsetting this favorable variance was a $7 million increase in DD&A in South America due to the start-up of production in Ecuador, Bolivia and Venezuela. DD&A in Indonesia was also up $13 million as a result of higher DD&A rates and additional depreciation from the Northwest Java gas project, which came on-stream in fourth quarter 1993. The Company increased its reserve for environmental liabilities in 1994 by $60 million, primarily in response to the EPA's recently proposed chromium clean-up standards and for additional costs expected to be incurred at the Company's former Newark, New Jersey plant site. The 1993 environmental accrual of $18 million related to expected costs of engineering studies for the Passaic River in New Jersey and the Newark plant site. Restructuring. The 1994 results reflect a $101 million pre-tax net benefit from the Company's restructuring activities, which included a pre-tax gain of $202 million from the Divested Properties. This gain was partially offset by restructuring costs, including a non-cash, pre-tax $70 million write-off associated with the Company's undeveloped Alaska coal leases. The restructuring also included costs associated with staff reductions and the write-off of non-producing assets outside the Company's core areas. Other Revenues, Net. Other revenues, net were approximately $31 million lower in 1994 compared to 1993. This decline was due primarily to a loss of $13 million stemming from the sale of the Company's geothermal subsidiary in the third quarter of 1994 and to gains recorded on the sale of investments in U.S. Treasury notes and other securities of $12 million during 1993. 21 22 Income Taxes. The Company's provision for income taxes in 1994 was comprised primarily of Indonesian income tax. The 1994 Indonesian tax was $12 million less than that of 1993 as a result of lower operating profit. United States federal and state taxes increased $9 million in 1994 compared to 1993. This increase was the result of tax on asset sales, which was offset by tax benefit from the write-off of undeveloped Alaska coal leases and the favorable resolution of a federal tax refund suit. Change in Accounting Principle. In 1993, Maxus adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which requires an accrual method of recognizing postemployment benefits. The Company recognized a one-time charge of $4 million to recognize the cumulative effect of the change in accounting for postemployment benefits. Extraordinary Item. During 1993, the Company recorded an extraordinary loss of $7 million after tax, representing call premium and unamortized issuance costs for the early retirement of debt. Approximately $115 million of outstanding 11 1/4% sinking fund debentures were redeemed at 105.329% of the principal amount. Liquidity and Capital Resources Liquidity refers to the ability of an enterprise to generate adequate amounts of cash to satisfy its financial needs. Maxus' primary needs for cash are to fund its exploration and development program, service debt, pay existing trade obligations, meet redemption obligations on redeemable preferred stock and pay dividends to preferred stockholders. The Company's primary sources of liquidity have been from operating activities, asset sales, debt financing and equity issuances. Pursuant to the Merger Agreement, in the event that 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 $4.00 Preferred Stock and the $2.50 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 credit facility and the Holdings credit 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 the net proceeds of any sale by the Company of common stock or non-redeemable preferred stock after the Merger Date. The foregoing obligations of YPF (the "Keepwell Covenant") will survive until June 8, 2004. In addition, YPF has guaranteed the Company's outstanding debt as of the Merger Date, the principal amount of which was approximately $976 million. The debt covered by the YPF guarantee includes the Company's outstanding 11 1/4%, 11 1/2% and 8 1/2% Sinking Fund Debentures, its outstanding 9 7/8%, 9 1/2% and 9 3/8% Notes, and its outstanding medium-term notes. YPF has also guaranteed the payment and performance of the Company's obligations to the holders of its $9.75 Preferred Stock. Each of the Midgard facility and the Holdings facility contains restrictive covenants including limitations upon the sale of assets, mergers and consolidations, the creation of liens and additional indebtedness, investments, dividends, the purchase or repayment of subordinated indebtedness, transactions with affiliates and modifications to certain material contracts. The obligors under the Midgard facility and the Holdings facility may not permit (a) consolidated tangible net worth to be less than $200 million, in the case of the Midgard facility, or $350 million, in the case of the Holdings facility, plus (or minus), in the case of Midgard, the amount of any adjustment in the book value of assets or, in the case of Holdings, 70% of the amount of any adjustment to net worth, resulting from the merger of YPFA Corp. into the Company, (b) the ratio of consolidated cash flow to consolidated debt service to be less than 1.1 to 1.0 at the end of any fiscal quarter and (c) the ratio of consolidated cash flow to consolidated interest expense to be less than 1.25 to 1.0 at the end of any fiscal quarter. In addition, mandatory prepayments of the loans under the Midgard facility and the Holdings facility may be required in connection with certain asset sales and casualty losses, upon the issuance of subordinated indebtedness and in 1996 and in each year thereafter if, after semi-annual review, the agent and the lenders determine that a borrowing base deficiency exists. No borrowing base deficiencies existed at December 31, 1995. 22 23 Maxus has guaranteed the obligation under the Midgard facility (the "Midgard Guaranty") and under the Holdings facility (the "Subsidiaries Guaranty"). The Midgard Guaranty and the Subsidiaries Guaranty contain restrictions upon mergers and consolidations, the creation of liens and the business activities in which Maxus and its subsidiaries may engage. In addition, Midgard, in the case of the Midgard Guaranty, and Holdings and its subsidiaries, in the case of the Subsidiaries Guaranty, are required to be wholly owned subsidiaries of Maxus, except to the extent YPF or a subsidiary of YPF (other than Maxus or a subsidiary of Maxus) makes capital contributions to Midgard or Holdings or one of Holdings subsidiaries, as the case may be. In management's opinion, cash on hand and cash from operations will be inadequate to fund the 1996 program spending budget, service debt, meet redemption obligations on redeemable preferred stock and pay preferred stock dividends and trade obligations. During 1996 through the date of this report, YPF has made capital contributions to the Company in the aggregate amount of $64 million pursuant to the terms of the Keepwell Covenant. It is anticipated that YPF could be required to make capital contributions in 1996 totaling approximately $200 million to $250 million to fund the Company's obligations. Actual capital contributions made by YPF could vary significantly depending on, among other circumstances, oil and gas prices and program spending commitments. Such capital contributions will be credited to YPF's obligations under the Keepwell Covenant and will entitle YPF to shares of Common Stock. Operating Activities. During the nine months ended December 31, 1995, net cash provided by operating activities was $57 million. Excluding the change in working capital requirements, net cash from operating activities was $44 million during this period. Working capital requirements provided an additional $13 million primarily as a result of U.S. federal income tax refunds of approximately $60 million. These tax refunds were partially offset by lower accrued liabilities of $32 million due primarily to payment of Maxus pre-Merger costs coupled with higher inventories of $13 million. Net cash provided by operating activities during the three months ended March 31, 1995, was $62 million of which $18 million was provided by operating activities and $44 million was from working capital. Working capital was favorably impacted by higher accrued liabilities of $26 million of which $11 million was due to higher accrued interest, lower oil and gas receivables of $24 million and a U.S. federal income tax refund of $9 million partially offset by lower accounts payable of $15 million. Net cash provided by operating activities totaled $70 million and $137 million in 1994 and 1993, respectively. Excluding the change in working capital requirements, net cash from operating activities was $58 million lower in 1994 than in 1993. Cash flow from operations was negatively impacted by lower crude oil and natural gas prices, the loss of production from the Divested Properties and costs associated with staff reductions, but was partially offset by additional gas volumes from Northwest Java ($30 million). Net working capital requirements of $42 million for 1994 were $9 million higher than 1993 due to lower accounts payable primarily as a result of timing of expenditures in Ecuador. Investing Activities. During 1995, the Company continued to concentrate its capital spending in core areas of the United States, Indonesia and Ecuador plus development of the emerging areas: the Mamore Block in Bolivia and the Quiriquire Block in Venezuela. Spending in 1995 increased modestly compared to 1994, with the largest increase occurring in the U.S. due to the implementation of an aggressive program of infill drilling designed to increase production and cash flow. Only Ecuador experienced lower capital spending in 1995 as spending for major infrastructure and facilities was completed in 1994. Approximately 45% of the 1994 capital spending was for development of oil reserves in South America. Initial production began in the third quarter of 1994 in Ecuador, Bolivia and Venezuela. Spending in Ecuador in 1994 was $31 million below 1993 as spending for major infrastructure and facilities was being completed. In 1993, the development of gas reserves in Northwest Java and development of Block 16 in Ecuador alone accounted for $167 million of spending. The Northwest Java gas project was completed on time and within budget in the fourth quarter of 1993. Additionally, construction of the Sunray gas plant in the Texas Panhandle, which was started in mid-1991, was completed during the first quarter of 1993. In December 1995, the Company sold its overriding royalty interest in the Recetor Block in Colombia for $25 million. There was no gain or loss recognized on this transaction. 23 24 On April 25, 1994, Offshore Partners sold its interests in Main Pass Blocks 72, 73 and 74. On April 26, 1994, Maxus and its subsidiaries sold all of their partnership interests in Offshore Partners. In the second quarter of 1994, Maxus also sold the McFarlan Field and Grand Isle Block 25, both producing oil and gas properties. In total, the Company received $325 million of proceeds and recorded a pre-tax gain of $202 million from these transactions. A portion of the proceeds from these sales was used to reduce senior debt by $70 million net and to redeem $63 million of the $9.75 Preferred Stock due in February 1995. During the second quarter of 1994, Maxus Bolivia, Inc., a subsidiary of Maxus, signed an agreement to take BHP Petroleum as a partner in its Bolivian oil development project. The Company received $10 million from BHP in exchange for a 50% interest in the project. Also during the second quarter of 1994, Maxus Venezuela (C.I.) Ltd. ("Maxus Venezuela"), a subsidiary of Maxus, signed an agreement with BP Exploracion de Venezuela S.A., granting BP a 45% interest in the Quiriquire Unit in eastern Venezuela. Maxus Venezuela remains the operator with a 50% interest and Corporacion Energetica S. 21, C.A., a Venezuelan company, holds the remaining 5%. The Company sold its geothermal subsidiary, Thermal Power Company, in September 1994. The sale was for $58 million net in cash and a $7 million promissory note due from the purchaser in 1997. The Company recorded a loss of $13 million on the transaction. In 1993, the Company purchased $52 million of U.S. Treasury notes. To partially fund the 1993 capital program budget and cover working capital fluctuations, the Company subsequently sold $142 million of U.S. Treasury notes realizing a gain of $8 million. Additionally, during 1993, Maxus received stock and other securities from The LTV Corporation ("LTV") in settlement of its bankruptcy claims against LTV. The Company sold these securities for approximately $22 million, realizing a $2 million gain. During 1994, the Company purchased an additional $112 million of short-term investments with the proceeds from the sales of assets. To partially fund the capital program budget and pay Merger-related costs in 1995, the Company liquidated all its short-term investments. Additionally, the Company sold its remaining long-term investment in U.S. Treasury notes for $31 million realizing a gain on the sale of $2 million. In the future, the Company anticipates maintaining only minimal balances of cash, cash equivalents and short-term investments to cover working capital fluctuations. During 1995, the Company was able to release a significant portion of its restricted cash, of which $48 million supporting letters of credit were released and $17 million of assets held in trust as required by certain insurance policies were released due to YPF's guarantees. Additionally, in 1995, the Company restricted $8 million as required by the Holdings credit agreement. During 1993, the Company restricted $36 million backing its spending commitment in Venezuela. The $36 million in restricted cash backing the letters of credit in Venezuela were released in 1994 when the Company took on a partner and reduced its interest to 50%. Financing Activities. During 1995, most of Maxus' financing activity was impacted by the Merger. The Company received $851 million from the issuance of debt under the Purchaser Facility and the Midgard and Holdings credit facilities and a $250 million capital infusion from YPF to partially fund the Merger. In connection with the Merger, the Company also paid $14 million to redeem rights attached to Shares, repaid the Purchaser Facility, and, pursuant to the Merger, either assumed or paid $746 million of purchase consideration for the Shares outstanding plus transaction costs. Of the approximate $762 million purchase price paid by YPF to acquire the Company, as of December 31, 1995, $16 million remained to be paid in respect of Shares and Merger costs. This liability was recorded in accrued liabilities. At December 31, 1995, the Company had $7 million of advances outstanding from YPF. The Company and YPF intend to enter into a loan agreement during 1996 to facilitate short-term loans by YPF to the Company and short-term loans by the Company to YPF of excess cash balances. It is expected that loans will be made by the parties under the loan agreement during 1996; however, the number and amounts thereof are not presently known. The Company's only derivative financial instruments are an interest rate swap agreement, natural gas price swap agreements and natural gas and crude oil futures contracts, which are not used for trading purposes. During the third quarter of 1995 the Company recorded a $2 million gain which represented the final 24 25 settlement of the Company's sole interest rate swap agreement prior to its termination. This gain was recorded in other revenues, net. The Company also received a $5 million termination payment, which has been deferred. Over the two-year period from January 1, 1993, to December 31, 1994, Maxus took steps to restructure its debt and equity position. The overall intent was to provide immediate funding for its major development and construction projects (the Sunray gas plant, the Northwest Java gas project and the development of Block 16 in Ecuador) and to match the repayment schedules of the debt with the future cash flow expected from these projects while maintaining necessary working capital balances required for flexibility. The Company was able to take advantage of lower interest rates and, at the same time, to extend the average debt maturities. Debt rose significantly in 1993 due to the completion of two of the Company's major projects and the near completion of the initial phase of the Ecuador project. These projects contributed to substantial capital spending in 1993. To cover the shortfall between cash from operations and the cash used in investing activities, incremental new debt was issued. Of the $412 million proceeds received in 1993 from the issuance of long-term debt, $204 million was used to refinance currently maturing debt and to fund the early retirement of a portion of the Company's 11 1/4% sinking fund debentures, with the remainder partially funding the 1993 capital spending program. During 1994, the Company issued $101 million of additional long-term debt. Debt issuances, along with a portion of the proceeds from asset sales, were used to repay approximately $170 million of debt obligations due 1994 and beyond and to prepay $63 million of $9.75 Preferred Stock due in February 1995. In 1993, Maxus issued a new class of preferred stock, the $2.50 Preferred Stock. Of the $85 million in net proceeds received from the offering, $63 million was used to redeem 625,000 shares of $9.75 Preferred Stock as required in February 1994. Accounting Standards 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. In connection with the purchase price allocation, the Company adopted 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. Maxus revalued its assets and liabilities to fair value in the purchase price allocation effective April 1, 1995. There was no impact on the Company's results of operations resulting from the adoption of SFAS 121 during the nine months ended December 31, 1995. Environmental Matters 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, 25 26 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. 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 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 $39 million as of December 31, 1995. 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"). 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 December 31, 1995, DSI's remaining responsibility is approximately $8 million and is included in accounts receivable in the accompanying balance sheet. For the year ended December 31, 1995, the Company spent $6 million in environmental related expenditures in its oil and gas operations. Expenditures in 1996 are expected to be approximately $8 million. The Company's total expenditures for environmental compliance for disposed of businesses, including Chemicals, were approximately $38 million in 1995, $12 million of which were recovered from DSI under the above described cost-sharing agreement. Those expenditures are projected to be approximately $23 million in 1996 after recovery from DSI under such agreement. At December 31, 1995, reserves for the environmental contingencies discussed herein totaled $119 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 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 26 27 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. 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. Studies performed by the Company and others suggest that contaminants historically discharged by the Newark plant are buried under several feet of more recent sediment deposits and are not moving. 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 Company currently expects such 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 as of December 31, 1995. The Company has been conducting similar studies under its own auspices for several years. Until these studies are completed and evaluated, the Company cannot 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. 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 at December 31, 1995. 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 27 28 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 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 $6 million at December 31, 1995, 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 28 29 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 the EPA's claim for remedial action. Chemical's share of the cost to complete remediation at this site at December 31, 1995 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 Company believes that this lawsuit is without merit and intends to defend same vigorously. The Company has established reserves based on its 50% share of costs expected to be paid or incurred by OxyChem and Henkel prior to September 1996. As of December 31, 1995, the Company had paid OxyChem and Henkel a total of approximately $39 million against said $75 million cap. The Company cannot predict what portion of the approximately $36 million remaining as of that date Occidental and Henkel may actually pay or incur prior to September 4, 1996, the tenth anniversary of the Closing Date if they accelerate spending with regard to such environmental costs; however, the Company has approximately $7 million reserved at December 31, 1995, based on 50% of OxyChem's and Henkel's historical annual expenditures. In the event OxyChem and Henkel prevail in this lawsuit, the Company could be required to provide up to approximately $29 million in additional reserves related to this indemnification. 29 30 The Company has established reserves for legal contingencies in situations where a loss is probable and can be reasonably estimated. Future Outlook In addition to maintaining and developing its core and emerging areas, it is expected that, beginning in 1996, the Company will acquire or assume responsibility for certain YPF exploration interests in South America (outside Argentina) and the United States Gulf of Mexico. The Company will continue to focus on maximizing the value of its core producing assets and seek new investment opportunities in associated ventures. Maxus currently projects total program spending (capital expenditures plus exploration expenses) for 1996 to be approximately $249 million, compared to $231 million in 1995. Indonesia will receive nearly $79 million, Midgard (U.S.) $72 million, South America $62 million and exploration interests outside Argentina acquired or assumed from YPF $25 million. The remaining $11 million will be allocated to domestic and overseas new ventures. Funding for the 1996 spending program is expected to be provided through cash and cash equivalents on hand at the beginning of the year, expected cash from operations and capital contributions 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 except for the recently acquired Guarapiche block in Venezuela discussed below. 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. 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. The Company's net exploration commitment is anticipated to total approximately $15 million over the next five years. 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, 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. By the end of 1995, management had streamlined the Maxus organizational structure, reduced Maxus' overhead costs and improved communications and decision making. In addition, a "management by objectives" program was introduced to make each business unit and staff group directly responsible for their accomplishments. These actions are expected to result in significant cost savings. 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, Ecuador, Bolivia and Venezuela. In Ecuador, pipeline capacity available to the Company is sufficient to transport only about 60% of the oil the Company expected 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 30 31 give no assurances concerning the outcome of these discussions, progress has recently been made on several important issues. The Company intends to reduce program spending in Ecuador in 1996 to $19 million from $32 million in 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item appears on pages F-1 to F-69 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Inapplicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Executive Officers of the Company The following table sets forth certain information as of March 1, 1996 concerning the executive officers of the Company.
SERVED AS AN OFFICER NAME POSITION WITH THE COMPANY AGE SINCE - ------------------------------ -------------------------------------- --- ------- Roberto Monti................. President and Chief Executive Officer 57 1995 W. Mark Miller................ Executive Vice President and Treasurer 42 1995 Michael C. Forrest............ Senior Vice President 62 1992 David A. Wadsworth............ Vice President, Legal 46 1995 Linda R. Engelbrecht.......... Controller 40 1995
Officers are elected annually by the Board of Directors (sometimes referred to as the "Board") and may be removed at any time by the Board. There are no family relationships among the executive officers listed and there are no arrangements or understandings with third parties pursuant to which any of them were elected as officers, except that Mr. Monti received $120,000 from YPF in respect of the period from August 21, 1995, when he was elected President, Chief Executive Officer and a director of the Company, until October 9, 1995, when he became an employee of the Company. Certain information regarding the principal occupations and employment of each of the officers named above during the prior five years is set forth below. Mr. Monti was elected President and Chief Executive Officer and a director of the Company effective August 21, 1995 and became an employee of the Company on October 9, 1995. Prior to joining Maxus, Mr. Monti served as the President of Dowell, a division of Schlumberger Limited. Since joining the oilfield services company in 1963, Mr. Monti has held various positions with Schlumberger, including president and vice president of various divisions or subsidiaries. Mr. Miller was elected Executive Vice President and Treasurer of the Company in November 1995. Mr. Miller joined a former subsidiary of Maxus in 1981 as Manager, Taxes and has held various positions with the Company since such time, including Director, Exploration and Production Taxes; Director, Operations Auditing; General Manager, Indonesia; and Vice President of the Company. Mr. Forrest joined the Company in 1992 as special assistant to the Chairman and later that year was elected Vice Chairman and Chief Operating Officer. Prior to 1992, he was with Shell U.S.A. for more than five years, last serving as President of its subsidiary, Pecten International Company. Mr. Forrest was named Senior Vice President, Business Development of the Company in 1994. Mr. Forrest has been a Senior Vice President of the Company since 1994. Mr. Wadsworth was elected Vice President, Legal of the Company in June 1995. Mr. Wadsworth joined Natomas Company, a former subsidiary of Maxus, in 1979. He has served in various positions with the Company, including Associate General Counsel and Corporate Secretary, since such time. 31 32 Mrs. Engelbrecht was elected Controller of the Company in November 1995. She joined a former subsidiary of the Company in 1978 as a financial associate and has held various positions with the Company, including Director of Financial Reporting and Assistant Controller, since such time. Directors of the Company Certain information regarding each director, including his age, is set forth below. Each director is elected at the annual meeting of stockholders for a term of one year. CHARLES L. BLACKBURN: 68, a director of the Company since 1986. For more than five years prior to his retirement in April 1995, he was also the Chairman, President and Chief Executive Officer of Maxus. He is currently an international consultant for the Company. Mr. Blackburn also serves as a director of Lone Star Technologies, Inc. and Landmark Graphics Corporation. CEDRIC BRIDGER: 60, a director of the Company since April 1995. Mr. Bridger has been Vice President, Finance and Corporate Development of YPF since 1992. From 1989 to 1992, he was employed by CBV Industrias Mecanicas in Brazil, last serving as Marketing Manager. Previously, he was associated with Hughes Tool Company from 1964 to 1989. GEORGE L. JACKSON: 67, a director of the Company since 1987. Mr. Jackson has been an oil field service consultant for more than five years. NELLS LEON: 69, a director of the Company since June 1995. Mr. Leon has been a director of YPF since 1991, and was elected President of YPF in May 1995. Mr. Leon held various positions with YPF from 1956 to 1977 and from 1983 to 1987. Since 1990, he has served as Executive Vice President. He was Vice President of Operations of Sol Petroleo S.A. from 1987 to 1990. JAMES R. LESCH: 74, a director of the Company since April 1995. Mr. Lesch has been a director of YPF since 1993. He is currently retired, having retired from Hughes Tool Company in 1986. He was Chief Executive Officer (1979-1986) and Chairman of the Board (1981-1986) of Hughes Tool Company and also served as Commissioner, State of Texas Department of Commerce (1988-1992). Previously, he served as Director of the American Petroleum Institute. Mr. Lesch also serves as a director of TransTexas Gas Corporation. ROBERTO MONTI: 57, a director, President and Chief Executive Officer of the Company since August 1995. Prior to such time, Mr. Monti had been employed since 1963 by Schlumberger Limited, an oil field services company, in various capacities. He most recently served as President of Dowell, a division of Schlumberger Limited. P. DEXTER PEACOCK: 54, a director of the Company since April 1995. Mr. Peacock has been a partner of the law firm of Andrews & Kurth L.L.P. since 1975. He is a member of the firm's Management Committee. He currently serves as a director of Texas Commerce Bank National Association and as an alternate director of YPF. R. A. WALKER: 39, a director of the Company since 1994. He is a Managing Director of Prudential Capital Group and a Vice President of The Prudential Insurance Company of America ("Prudential"). Mr. Walker has held similar positions with Prudential Capital Group for the past five years. He was elected to the Board of Directors of Maxus by Prudential pursuant to the terms of the $9.75 Preferred Stock. ITEM 11. EXECUTIVE COMPENSATION. DIRECTOR COMPENSATION The Company pays each director who is not an employee of the Company or YPF (other than Mr. Blackburn) an annual retainer of $20,000 and a fee of $1,000 for each meeting of the Board attended and for each committee meeting attended. For so long as Mr. Blackburn is an international consultant to the Company, he will not be entitled to such compensation paid to other non-employee Directors. See--"Employment Contracts and Termination of Employment and Change in Control Agreements." 32 33 EXECUTIVE OFFICER COMPENSATION The following tables set forth compensation awarded to, earned by or paid to the executive officers named below in 1993, 1994 and 1995. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ------------ ANNUAL COMPENSATION SECURITIES ------------------- UNDERLYING ALL OTHER NAME AND SALARY BONUS OPTIONS/SARS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) (#) ($) - ------------------------------------------ ---- ------- ------- ------------ ------------ Roberto Monti............................. 1995 302,052(1) 30,000(2) 0 10,923(3) President and Chief Executive Officer 1994 N/A N/A N/A N/A 1993 N/A N/A N/A N/A W. Mark Miller............................ 1995 174,900 60,000 0 87,086(4) Executive Vice President and Treasurer 1994 N/A N/A N/A N/A 1993 N/A N/A N/A N/A Michael C. Forrest........................ 1995 261,016 60,000 0 1,291,032(5) Senior Vice President 1994 304,020 100,000 65,000 18,241(3) 1993 298,020 75,000 0 17,881(3) David A. Wadsworth........................ 1995 155,640 52,000 0 9,338(3) Vice President, Legal 1994 N/A N/A N/A N/A 1993 N/A N/A N/A N/A Linda R. Engelbrecht...................... 1995 119,910 36,000 0 7,195(3) Controller 1994 N/A N/A N/A N/A 1993 N/A N/A N/A N/A Charles L. Blackburn...................... 1995 209,331 0 0 4,996,344(6) Chairman, President and Chief 1994 519,996 200,000 185,000 31,200(3) Executive Officer 1993 512,496 100,000 0 30,750(3) (executive officer through April 21, 1995) Peter Gaffney............................. 1995 300,000(7) 0 0 0 President and Chief Executive Officer 1994 N/A N/A N/A N/A (executive officer from April 21, 1995 1993 N/A N/A N/A N/A through August 21, 1995) G. W. Pasley.............................. 1995 167,703 0 0 1,007,245(8) Senior Vice President 1994 208,440 100,000 65,000 12,506(3) (executive officer through 1993 198,840 45,000 0 11,930(3) August 31, 1995) Glen R. Brown............................. 1995 189,582 0 0 942,434(9) Vice President and Controller 1994 174,420 55,000 28,000 10,465(3) (executive officer through 1993 165,375 25,000 0 9,923(3) December 15, 1995)
33 34 - --------------- (1) Mr. Monti became a consultant, officer and director of the Company on August 21, 1995, and an employee of the Company on October 9, 1995. He received $120,000 of this amount from YPF in respect of his serving as President and Chief Executive Officer of the Company prior to the date on which he became an employee. (2) Mr. Monti was paid this amount as a signing bonus upon commencement of his employment with the Company. (3) These payments represent the Company's matching contributions to this individual's qualified and non-qualified savings plans' accounts. (4) $76,592 of this amount represents a payment made in accordance with Mr. Miller's employment agreement (see--"Employment Contracts, Termination of Employment and Change in Control Agreements"), and $10,494 of such amount represents the Company's matching contributions to Mr. Miller's qualified and non-qualified savings plan accounts. (5) $1,075,383 of this amount represents a payment made in accordance with Mr. Forrest's change in control agreement (see--"Employment Contracts, Termination of Employment and Change in Control Agreements"); $199,988 represents payment in respect of the surrender pursuant to the terms of the Merger Agreement of options and stock appreciation rights ("SARs") held by Mr. Forrest (see table below entitled "Aggregated Option/SAR Exercises in the Last Fiscal Year and FY-End Option/SAR Values"); and $15,661 of such amount represents the Company's matching contributions to Mr. Forrest's qualified and non-qualified savings plan accounts. (6) $120,000 of this amount represents payments in connection with Mr. Blackburn's consulting agreement with the Company (see--"Employment Contracts and Termination of Employment and Change in Control Agreements"), $2,662,070 of such amount represents a severance payment made in accordance with Mr. Blackburn's change in control agreement (see "-- Employment Contracts, Termination of Employment and Change in Control Agreements"); $1,943,632 of such amount represents a lump sum payment to Mr. Blackburn in respect of the Company's retirement plans, including the Supplemental Executive Retirement Plan; $298,396 represents a distribution from Mr. Blackburn's savings plan accounts; $104,588 represents payment in respect of restricted shares of Common Stock, the restrictions on which lapsed on May 1, 1995 in accordance with their terms; and $10,400 of such amount represents the Company's matching contributions to Mr. Blackburn's qualified and non-qualified savings plan accounts. (7) Mr. Gaffney became a consultant and an officer of the Company on April 21, 1995 and an employee of the Company on June 6, 1995. Pursuant to an agreement between Mr. Gaffney and the Company, he received a total of $300,000, $195,721 of which was paid with respect of the period during which he was an employee of the Company. (8) $835,893 of this amount represents a severance payment made in accordance with Mr. Pasley's change in control agreement (see--"Employment Contracts, Termination of Employment and Change in Control Agreements"); $162,774 represents a distribution or rights to a distribution from Mr. Pasley's savings plan accounts; and $8,578 of such amount represents the Company's matching contributions to Mr. Pasley's qualified and non-qualified savings plan accounts. (9) $619,877 of this amount represents a severance payment made in accordance with Mr. Brown's change in control agreement (see--"Employment Contracts, Termination of Employment and Change in Control Agreements"); $84,999 represents payment in respect of the surrender pursuant to the terms of the Merger Agreement of options and SARs held by Mr. Brown (see table below entitled "Aggregated Option/SAR Exercises in the Last Fiscal Year and FY-End Option/SAR Values"); $13,772 represents payment in respect of restricted shares of Common Stock, the restrictions on which lapsed on May 1, 1995 in accordance with their terms; $213,560 represents a distribution or rights to a distribution from Mr. Brown's savings plan accounts; and $10,226 represents the Company's matching contributions to Mr. Brown's qualified and non-qualified savings plan accounts. AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED SHARES UNEXERCISED IN-THE-MONEY ACQUIRED OPTIONS/SARS AT OPTIONS/SARS ON VALUE FY-END(#) AT FY-END ($) EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE ----------------------------------------- -------- -------- --------------- ------------- Roberto Monti............................ 0 0 0 0/0 W. Mark Miller........................... 0 138,532 0 0/0 Michael C. Forrest....................... 0 199,998(2) 0 0/0 David A. Wadsworth....................... 0 10,930 0 0/0 Linda R. Engelbrecht..................... 0 740 0 0/0 Charles L. Blackburn..................... 0 0(2) 0 0/0 Peter Gaffney............................ 0 0 0 0/0 G. W. Pasley............................. 0 25,000(2) 0 0/0 Glen R. Brown............................ 0 84,999(2) 0 0/0
34 35 - --------------- (1) These payments were made in respect of the surrender of options and any SARs held by the named executive officers as contemplated by the terms of the Merger Agreement. No shares of stock were acquired in these transactions. (2) Although each of these named executive officers surrendered all of his options and SARs in 1995, payment was not made in 1995 by the Company in respect of a certain number of such options and SARs due to then pending tax and other questions. Such questions have been resolved and these named officers received the following amounts in 1996 for their surrendered options and SARs: Mr. Monti--0; Mr. Miller--0; Mr. Forrest--$182,102; Mr. Wadsworth--0; Mrs. Engelbrecht--0; Mr. Blackburn--$939,256; Mr. Gaffney--0; Mr. Pasley--$307,173; and Mr. Brown--$87,502. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS Employment Contracts. On April 5, 1995, the Company entered into an agreement with Mr. Gaffney, a director and the President and Chief Executive Officer of the Company from April 21, 1995 to August 21, 1995, whereby Mr. Gaffney served in the capacity of chief executive officer of the Company in consideration of payment of $50,000 a month from the date of such agreement through September 30, 1995. A total of $300,000 was paid to Mr. Gaffney under this agreement, $195,721 during the period he was an employee. In addition, Gaffney, Cline, an oil and gas technical and management consulting firm of which Mr. Gaffney is a Senior Partner, entered into an agreement with the Company obligating the Company to pay Gaffney, Cline $500,000 in consideration of Gaffney, Cline granting Mr. Gaffney a leave of absence to enable him to serve as the Company's chief executive officer. The Company entered into an agreement effective July 1, 1995 in replacement of a change in control agreement dated November 1, 1991 with Mr. Miller, Executive Vice President and Treasurer of the Company, under which Mr. Miller is to be employed for a term of four years at not less than his then current salary, plus an annual bonus not less than the amount of the largest bonus paid to Mr. Miller in respect of the years 1992, 1993 or 1994, and a "sign-on" bonus in the amount of $76,592. In addition, a "stay on" bonus in the amount of $76,592 is payable under this agreement on each of July 1, 1996, 1997 and 1998 provided, as to each such "stay on" bonus, that Mr. Miller continues to be an employee of the Company on the respective payment date. Under the agreement, in the event that Mr. Miller's employment is terminated under certain circumstances, severance compensation will be paid to Mr. Miller as specified therein. On December 27, 1995, the Company entered an agreement with Mr. Monti, a director and the President and Chief Executive Officer of the Company, pursuant to which his Foreign Service Pay, as defined in such agreement, payable with respect to services rendered from and after January 1, 1996 will be credited by the Company to a deferral account which will bear interest at a specified rate and the balance of which will be paid to Mr. Monti under certain circumstances, including termination of his employment with the Company. Mr. Blackburn, a director and formerly the Chairman, President and Chief Executive Officer of the Company, became an international consultant during 1995 to YPF pursuant to a consulting agreement which was subsequently assigned to Maxus. Under the two-year contract, Mr. Blackburn will be available to render consulting services for a minimum of 60 days per year and be paid a retainer of $180,000 per year. Mr. Blackburn will be paid $3,000 per day for each day of consulting provided in excess of 60 days per year. Office space is made available to him in Dallas and Buenos Aires. During 1995, Mr. Blackburn was paid a total of $120,000 under the terms of this contract. Termination of Employment Agreements. On August 3, 1995, the Company entered into an agreement with Mr. Monti under which he will receive a severance payment from the Company in the amount of $3 million in the event that his employment with the Company is terminated (i) by Mr. Monti or the Company for reason of death or disability; (ii) by the Company other than for cause; (iii) by Mr. Monti for any reason within six months following a take-over (other than to accept employment with YPF); and (iv) by Mr. Monti for any reason after reaching age 65. Separation Pay Plan. Under the Separation Pay Plan, most employees (other than non-resident aliens), excluding Mr. Monti (who has waived any rights thereunder) but including the other named executive 35 36 officers, are eligible for separation pay if their employment is terminated for any reason other than death, voluntary termination of employment, voluntary retirement or discharge for reasons of criminal activity, willful misconduct, gross negligence in the performance of duties or violation of Company policy. The payment to be received under the plan by a particular employee depends on his job classification and length of service and whether termination occurs after the elimination of the employee's position or a change in control of the Company (as defined in the plan). In the case of the named executive officers, the plan provides in most cases for separation pay in an amount equal to two-weeks' base pay for each year of service with the Company, plus three months' base pay, not to exceed a maximum of 12 months' base pay; and, in the case of a change in control of the Company, separation pay in an amount equal to one month's base pay for each year of service with the Company, but not less than 12 months' base pay nor more than 24 months' base pay. The plan requires that employees sign releases as a condition of receiving separation pay. Executive officers are not entitled to separation pay under the plan to the extent they receive severance payments under the change in control agreements discussed below or employment contracts discussed above. The acquisition of the Company by YPF constitutes a change in control under the Separation Pay Plan, thereby triggering the post-change in control separation formula until April 5, 1997. Change in Control Agreements. In 1987 or thereafter, the Company entered into agreements with certain executives including Messrs. Blackburn, Forrest, Brown, Pasley and Miller which were binding upon execution but were to become operative on a change of control of the Company. Pursuant to the terms of said agreements, they became operative when YPF acquired control of the Company. Under these agreements, the executive officer is entitled to continue in the employ of the Company until the earlier of the expiration of the third anniversary of the occurrence of a "change in control" or the executive's death at an annual base salary of not less than the rate in effect upon the occurrence of a change in control plus an incentive award of not less than the highest such award received by the executive for any year in the three calendar years immediately preceding the change in control. Under the agreements, a "change of control" includes the following: (i) the merger, consolidation or reorganization of the Company after which a majority of voting power of the Company is held by persons other than the holders thereof prior to such event; (ii) the sale of all or substantially all of the assets of the Company to an entity, the majority of the voting power of which is not held by holders of the voting power of the Company before such sale; (iii) a report is filed on Schedule 13D or Schedule 14D-1 showing that a person is the beneficial owner of 25% or more of the voting power of the Company; (iv) the Company files a Form 8-K or proxy statement disclosing that a change in control has or may occur; or (v) a change in the composition of the majority of the Board under certain circumstances occurs during any period of two consecutive years. In the event the Company terminates the executive's employment during such term without cause, the executive will be entitled to receive as severance compensation a lump-sum payment equal to the present value of the cash compensation payable under the agreement in the absence of such termination, not to exceed 299% of his "base amount" as defined in the Internal Revenue Code of 1986, as amended (the "Code"), without any reduction for subsequent earnings. Under these agreements, continuation of benefits under employee benefit plans of the Company is provided after termination during the remainder of the original term of employment. The agreements include provisions which limit the amounts payable under them in certain circumstances in which the net after-tax amount received by the officer would be reduced as a result of the applicability of the 20% excise tax imposed in respect of certain change in control payments under the Code. The Company has assumed the obligation to pay certain fees and expenses of counsel incurred by the executive officers if legal action is required to enforce their rights under the agreements and has secured such obligation by obtaining a letter of credit issued by a commercial bank. On April 7, 1995, all of the Company's then executive officers, including Messrs. Blackburn, Forrest, Pasley and Brown, gave notice of their intent to resign under circumstances in which they had the right to receive severance payments under the change in control agreements. In order to facilitate the transition following the acquisition by YPF, the Company and the eight executive officers who were parties to such agreements (Messrs. Blackburn, Forrest, Pasley, Brown, S. G. Crowell, M. J. Barron, M. J. Gentry and M. Middlebrook) agreed that such executive officers would continue to work for the Company in their then present positions at their then current levels of compensation until June 30, 1995 or such date as otherwise 36 37 mutually agreed. The Company also agreed to pay such executive officers' said severance payments no later than April 15, 1995. Mr. Blackburn resigned as Chairman, Chief Executive Officer and President of the Company on April 21, 1995 and retired as an employee of the Company on April 30, 1995. Messrs. Brown and Pasley resigned effective December 15, 1995 and August 31, 1995, respectively. All of such other executive officers resigned on June 30, 1995, except Mr. Forrest who agreed to continue in the employment of the Company at a reduced salary and as an "at will" employee. Pursuant to said agreements and the change in control agreements, the named executive officers and all of the executive officers as a group (including said former executive officers) received "severance" payments in the following amounts: Mr. Monti--$0; Mr. Miller--$0; Mr. Forrest--$1.0 million; Mr. Wadsworth--$0; Mrs. Engelbrecht--$0; Mr. Blackburn--$2.7 million; Mr. Gaffney--$0; Mr. Pasley--$0.9 million; and Mr. Brown--$0.6 million and the executive officers (including said former executive officers) as a group, $7.9 million. RETIREMENT PROGRAM Effective February 1, 1987, the Company adopted a new retirement income plan (the "New Retirement Income Plan") applicable to most of its employees to replace the Company's former retirement income plans under which such employees ceased to accrue benefits on January 31, 1987. Under the New Retirement Income Plan, a covered employee acquires a right upon retirement to a yearly amount equal to 2% of the employee's earnings during each year from February 1, 1987 forward (rather than on final compensation or average final compensation) without offset for social security benefits. Benefits under the New Retirement Income Plan become vested after five years of service. Benefits may be paid in equal monthly installments, starting on the date of retirement and continuing until death, or employees may select one of a number of optional forms of payment having equal actuarial value as provided in the plan. The benefits payable under the New Retirement Income Plan are subject to maximum limitations under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code. In the case of the named executives, if benefits at the time of retirement exceed the then permissible limits of such statutes, the excess would be paid by the Company from the "SERP" described below. The Company has an unfunded Supplemental Executive Retirement Plan that provides additional benefits to the Company's highest ranking officer, the other named executives and to certain executive employees designated by the highest ranking officer. Under the SERP, a participant acquires the right to a lump sum amount upon retirement which is the actuarial equivalent of a straight life or, if married, a 50% joint and survivor annuity payable monthly in an amount equal to (a) the sum of (i) 1.6% of the participant's average monthly compensation in 1986 times the years of service through January 31, 1987, plus (ii) 2% of the participant's average monthly compensation after January 31, 1987 times the years of service after January 31, 1987 plus an additional five years less (b) the amount of the benefits calculated for such participant under the Company's other retirement plans. The maximum benefit payable is 60% of the participant's high three-year average pay. The amounts calculated under the SERP are not subject to any reduction for Social Security and are not determined primarily by final compensation or average final compensation and years of service. If a participant dies while still employed by the Company and is survived by an eligible spouse, the surviving spouse will receive a lump-sum payment equal to the present value of one-half of the benefit which would have been payable to the participant at his normal retirement age under the SERP assuming the participant had terminated employment with the Company at the time of death with a vested interest under the SERP and that the participant survived to the normal retirement age. In the case of retirement after age 55 but before age 60, the supplemental retirement benefits generally will be reduced by 5% for each year that the employee's actual retirement date precedes age 60. The benefits provided under the plan will vest upon completion of five years of service or attainment of age 55. The estimated annual benefits payable upon retirement at normal retirement age (or January 1, 1996 in those cases where the participant's age on that date was greater than normal retirement age) under the Company's retirement plans as supplemented by the SERP based on service and compensation through December 31, 1995 for the executive officers named in the compensation table are as follows: Mr. Monti-- $82,668, Mr. Miller--$46,751, Mr. Forrest--$64,502, Mr. Wadsworth--$52,900, Mrs. Engelbrecht--$33,863 and Mr. Gaffney--$0. The annual benefits payable under the Company's retirement plans as supplemented by 37 38 the SERP to Mr. Blackburn who retired on April 30, 1995 (and received a lump sum distribution of his retirement benefits) were $193,006. The annual benefits payable at normal retirement age to Mr. Brown who resigned from the Company effective December 15, 1995 are $61,207 and to Mr. Pasley who resigned from the Company effective August 31, 1995 are $58,002. Whether any amounts actually become payable in whole or in part depends on the contingencies and conditions governing the applicable retirement plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION From January 1, 1995 to April 21, 1995, the Compensation Committee of the Board of Directors consisted of J. David Barnes, B. Clark Burchfiel, Charles W. Hall, George L. Jackson and Richard W. Murphy. From April 21, 1995 to June 7, 1995, the Compensation Committee consisted of Jose Estenssoro, Cedric Bridger and James R. Lesch. On June 7, 1995, Nells Leon replaced Mr. Estenssoro. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Except as provided in the next succeeding sentence, the following table sets forth the beneficial ownership (as defined in the rules of the Securities and Exchange Commission) as of February 1, 1996 of the equity securities of the Company and YPF by the directors, the named executive officers and all directors and executive officers as a group. At such date, none of the directors or executive officers beneficially owned any $4.00 Preferred Stock, $9.75 Preferred Stock or $2.50 Preferred Stock.
AMOUNT AND NATURE OF SECURITIES BENEFICIALLY NAME OF BENEFICIAL OWNER TITLE OF SECURITY OWNED - --------------------------------------- ----------------------------------- ----------------- C. L. Blackburn........................ Common Stock....................... -0- YPF Class "D"...................... -0- Cedric Bridger......................... Common Stock....................... -0-(1) YPF Class "D"...................... 3,942 Glen R. Brown.......................... Common Stock....................... -0- YPF Class "D"...................... -0- Linda Engelbrecht...................... Common Stock....................... -0- YPF Class "D"...................... -0- Michael C. Forrest..................... Common Stock....................... -0- YPF Class "D"...................... 3,000 Peter Gaffney.......................... Common Stock....................... -0- YPF Class "D"...................... -0- George L. Jackson...................... Common Stock....................... -0- YPF Class "D"...................... -0- Nells Leon............................. Common Stock....................... -0-(1)(2) YPF Class "D"...................... -0- James R. Lesch......................... Common Stock....................... -0-(1) YPF Class "D"...................... 2,000 W. Mark Miller......................... Common Stock....................... -0- YPF Class "D"...................... -0- Roberto Monti.......................... Common Stock....................... -0- YPF Class "D"...................... -0- George W. Pasley....................... Common Stock....................... -0- YPF Class "D"...................... -0- P. Dexter Peacock...................... Common Stock....................... -0-(1) YPF Class "D"...................... 3,000 David A. Wadsworth..................... Common Stock....................... -0- YPF Class "D"...................... -0-
38 39
AMOUNT AND NATURE OF SECURITIES BENEFICIALLY NAME OF BENEFICIAL OWNER TITLE OF SECURITY OWNED - --------------------------------------- ----------------------------------- ----------------- R. A. Walker........................... Common Stock....................... -0-(3) YPF Class "D"...................... -0- Directors and Executive Officers....... Common Stock....................... -0-(1)(3) as a group........................... YPF Class "D"...................... 11,942(2)(4)
- --------------- (1) Does not include Common Stock owned by YPF, as to which each of Messrs. Bridger, Leon, Lesch and Peacock disclaim any beneficial ownership. (2) Does not include 347 YPF Class "D" shares owned by Mr. Leon's wife, as to which Mr. Leon disclaims any beneficial ownership. (3) Does not include equity securities owned by Prudential, as to which Mr. Walker disclaims beneficial ownership. (4) Directors and executive officers individually and as a group did not own more than 1% of the Common Stock or YPF Class D shares. To the knowledge of the Company, as of February 1, 1996, no person beneficially owned more than 5% of any class of the Company's voting securities except as set forth below:
AMOUNT AND NATURE OF SHARES BENEFICIALLY PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNED OF CLASS - --------------------------------------------------- -------------- ----------- -------- YPF Sociedad Anonima............................... Common Stock 135,609,772 100% Avenida Pte. Roque Saenz Pena 777 1364 Buenos Aires Argentina The Prudential Insurance Company of America........ Common Stock 7,910,000(1) 5.6% $9.75 Prudential Plaza Preferred 1,250,000(2) 100.0% Newark, New Jersey 07102-3777 Stock Kidder, Peabody Group Inc.......................... Common Stock 8,000,000(3) 5.6% 10 Hanover Square New York, New York 10005
- --------------- (1) Prudential reported on Amendment No. 7 to Schedule 13G, dated February 12, 1996, in connection with beneficial ownership at December 31, 1995, that it had sole voting and dispositive power with respect to all 7,910,000 shares of Common Stock indicated above as beneficially owned by it. The information herein regarding such shares assumes that Prudential's ownership had not changed as of February 1, 1996 and is included in reliance on such Amendment No. 7, except that the percent of class is based upon the Company's calculations made in reliance upon the information regarding such shares contained in such Amendment No. 7. (2) On February 28, 1995, the Company and Prudential entered into an agreement pursuant to which Prudential waived certain rights, including conversion rights and registration rights. See "Item 13. Certain Relationships and Related Transactions." (3) Kidder, Peabody Group Inc. ("Kidder") reported on Schedule 13D, dated October 10, 1992, that it owns 8,000,000 warrants, each representing the right to purchase from the Company at any time prior to 5:00 p.m. on October 10, 1997 one share of Common Stock at a price of $13.00 per share. The 8,000,000 shares of Common Stock reported as beneficially owned by Kidder result from the assumed exercise of all 8,000,000 of such warrants. According to said Schedule 13D, General Electric Company is the indirect parent of Kidder. The information herein regarding such shares assumes that Kidder's beneficial ownership thereof had not changed as of February 1, 1996 and is included herein in reliance on such filing, except that the percent of class is based upon the Company's calculations made in reliance upon the information regarding such shares contained in such filing. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has business transactions and relationships in the ordinary course of business with unaffiliated corporations and institutions with which certain of its directors, executive officers and substantial stockholders are affiliated, including the transactions discussed below. All such transactions are conducted on an arm's-length basis. 39 40 Gaffney, Cline, an oil and gas technical and management consulting firm of which Mr. Gaffney, the President and Chief Executive Officer and a director of the Company from April 21, 1995 to August 21, 1995, is a Senior Partner, has provided oil and gas technical and management consulting services to the Company for which the Company paid Gaffney, Cline approximately $490,000 during 1995. The Company and Gaffney, Cline have agreed that Gaffney, Cline will continue to provide such services in 1996 and it is anticipated that the fees for such services will be lower. During 1996 through the date of this report, YPF has made capital contributions to the Company in the aggregate amount of $64 million pursuant to the terms of the Keepwell Covenant (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources"). It is anticipated that YPF could be required to make capital contributions in 1996 totaling approximately $200 million to $250 million to fund the Company's obligations. Actual capital contributions made by YPF could vary significantly depending on, among other circumstances, oil and gas prices and program spending commitments. Such capital contributions will be credited to YPF's obligations under the Keepwell Covenant and will entitle YPF to shares of Common Stock. During 1995, YPF made an advance to the Company in the amount of $7 million. The Company and YPF intend to enter into a loan agreement during 1996 to facilitate short-term loans by YPF to the Company and short-term loans by the Company to YPF of excess cash balances. It is expected that loans will be made by the parties under the loan agreement during 1996, and while the number and amounts thereof are not presently known, it is expected that they will aggregate in excess of $60,000. Mr. Peacock, a director of the Company, is a partner in the law firm of Andrews & Kurth L.L.P. Andrews & Kurth provided certain legal services to the Company (including services rendered to YPFA Corp. in connection with the Merger), the fees for which the Company paid Andrews & Kurth approximately $3,180,000 in 1995. It is anticipated that Andrews & Kurth will continue to provide legal services to the Company during 1996 and that the fees for such services will be significantly lower. The Company and YPF intend to enter into a services agreement whereby the Company would render or arrange for services to be rendered to or for the benefit of YPF and YPF would render or arrange for services to be rendered to or for the benefit of the Company, and each party would be compensated on the basis of the cost to them of such services. It is not presently known what the cost of these services will be to either party but it is expected that it will exceed $60,000. During 1995, Prudential was the record or beneficial owner of more than 5% of one or more of the classes of the Company's voting securities. Mr. Walker, an officer of Prudential, was elected as a director of the Company by Prudential as holder of all of the $9.75 Preferred Stock and pursuant to the terms thereof. The Company offers its employees the opportunity to participate in medical programs administered by Prudential. In addition, Prudential provides services and coverages relating to pension and life insurance programs for retired employees of Gateway Coal Company, a partnership owned by the Company. During 1995, the Company paid Prudential approximately $238,000 for these services. The Company and Prudential have agreed that Prudential will continue to perform such services during 1996 and anticipate that the fees for the year will be somewhat higher. Also during 1995, Prudential and the Company entered into an agreement to induce Prudential, as the holder of the $9.75 Preferred Stock, to consent to the Merger as required by the terms of the Company's Restated Certificate of Incorporation. Under the agreement, the Company and Prudential agreed to waive certain rights and covenants with respect to the $9.75 Preferred Stock and the Company paid Prudential a restructuring fee of $250,000. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 During 1995, a former director of the Company, Raymond A. Hay, filed a Form 4 reporting a sale of Common Stock in the month following the date upon which such filing was due. 40 41 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of this report: (1) Financial Statements--The following financial statements appear on pages F-1 through F-26 and F-30 through F-69 of this report. Consolidated Statement of Operations for the years ended December 31, 1994 and 1993, the three months ended March 31, 1995 and nine months ended December 31, 1995. Consolidated Balance Sheet at December 31, 1995 and 1994. Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1993, the three months ended March 31, 1995 and nine months ended December 31, 1995. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. Supplementary Financial Information (unaudited). Quarterly Data (unaudited). (2) Financial Statement Schedules. None Condensed parent company financial information has been omitted, since the amount of restricted net assets of consolidated subsidiaries does not exceed 25% of total consolidated net assets. Also, footnote disclosure regarding restrictions on the ability of both consolidated and unconsolidated subsidiaries to transfer funds to the parent company has been omitted since the amount of such restrictions does not exceed 25% of total consolidated net assets. (3) Exhibits. Each document marked by an asterisk is incorporated herein by reference to the designated document previously filed with the Securities and Exchange Commission (the "Commission"). Each of Exhibits Nos. 10.1 through 10.10 and 10.15 through 10.25 is a management contract or compensatory plan, contract or arrangement required to be filed as an exhibit hereto by Item 14(c) of Form 10-K. 3(i) --Restated Certificate of Incorporation of the Company (Exhibit 3(i).2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).* 3(ii) --By-Laws of the Company (Exhibit 3(ii).2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).* 4.1 --Indenture dated as of April 1, 1978 between Diamond Shamrock Corporation ("Diamond") and Mellon Bank, N.A. relating to Diamond's $150,000,000 8 1/2% Sinking Fund Debentures due April 1, 2008 (Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 [the "1992 Form 10-K"]).* 4.2 --First Supplemental Indenture dated as of January 26, 1984 among the Company, Diamond Shamrock Chemicals Company ("Chemicals") and Mellon Bank, N.A. supplementing the Indenture described in Exhibit 4.1 above (Exhibit 4.2 to the 1992 Form 10-K).*
41 42 4.3 --Tri Party Agreement dated January 24, 1993 appointing Chemical Bank as successor trustee under the Indenture described in Exhibit 4.1 above (Exhibit 4.3 to the Company's Current Report on Form 8-K dated January 12, 1994 [the "January 12 Form 8-K"]).* 4.4 --Indenture dated as of May 1, 1983 between Diamond and The Bank of New York, successor in interest to NationsBank of Texas, N.A., successor trustee to Mellon Bank, N.A. relating to unspecified Debt Securities of Diamond (Exhibit 4.4 to the 1992 Form 10-K).* 4.5 --Resolutions of the Board of Directors of Diamond supplementing the Indenture described in Exhibit 4.4 above and establishing terms and conditions of Diamond's $150,000,000 11 1/4% Sinking Fund Debentures due May 1, 2013 (Exhibit 4.5 to the 1992 Form 10-K).* 4.6 --First Supplemental Indenture dated as of January 26, 1984 among the Company, Chemicals and Mellon Bank, N.A. supplementing the Indenture and the resolutions described in Exhibits 4.4 and 4.5, respectively, above (Exhibit 4.6 to the 1992 Form 10-K).* 4.7 --Tri Party Agreement dated January 12, 1994 appointing NationsBank of Texas, N.A. as successor trustee under the Indenture described in Exhibit 4.4 above (Exhibit 4.1 to the January 12 Form 8-K).* 4.8 --Indenture dated as of November 1, 1985 between the Company and The Bank of New York, successor in interest to NationsBank of Texas, N.A., successor trustee to Mellon Bank, N.A. relating to unspecified Debt Securities of the Company (Exhibit 4.8 to the 1992 Form 10-K).* 4.9 --Resolutions of an ad hoc committee of the Board of Directors of the Company supplementing the Indenture described in Exhibit 4.8 above and establishing terms and conditions of the Company's $150,000,000 11 1/2% Sinking Fund Debentures due November 15, 2015 (Exhibit 4.9 to the 1992 Form 10-K).* 4.10 --Tri Party Agreement dated January 12, 1994 appointing NationsBank of Texas, N.A. as successor trustee under the Indenture described in Exhibit 4.8 above (Exhibit 4.2 to the January 12 Form 8-K).* 4.11 --Indenture dated as of April 1, 1988 between the Company and Chemical Bank relating to unspecified debt securities of the Company (Exhibit 4.11 to the 1992 Form 10-K).* 4.12 --Officers' Certificate dated June 1, 1988 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series A) to be issued under the Indenture described in Exhibit 4.11 above (Exhibit 4.12 to the 1992 Form 10-K).* 4.13 --Indenture dated as of November 1, 1990 between the Company and Chemical Bank relating to unspecified debt securities of the Company (Exhibit 4.13 to the 1992 Form 10-K).* 4.14 --Officers' Certificate dated February 13, 1991 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series B) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.14 to the 1992 Form 10-K).* 4.15 --Officers' Certificate dated September 28, 1992 establishing a series of debt securities ($250,000,000 9 7/8% Notes Due 2002) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.15 to the 1992 Form 10-K).* 4.16 --Officers' Certificate dated January 26, 1993 establishing a series of debt securities ($100,000,000 9 1/2% Notes Due 2003) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.16 to the 1992 Form 10-K).*
42 43 4.17 --Officer's Certificate dated June 30, 1993 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series C) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4 to the Company's Current Report on Form 8-K dated June 21, 1993).* 4.18 --Officer's Certificate dated October 27, 1993 establishing a series of debt securities ($200,000,000 9 3/8% Notes due 2003) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4 to the Company's Current Report on Form 8-K dated October 20, 1993).* 4.19 --Officer's Certificate dated January 18, 1994 establishing a series of debt securities ($60,000,000 9 3/8% Notes due 2003) to be issued under the Indenture described in Exhibit 4.13 (Exhibit 4 to the Company's Current Report on Form 8-K dated January 10, 1994).* 4.20 --Preferred Stock Purchase Agreement dated February 1, 1987 (the "Preferred Stock Purchase Agreement") between the Company and The Prudential Insurance Company of America ("Prudential") (Exhibit 4.17 to the 1992 Form 10-K).* 4.21 --Amendment dated February 8, 1987 to the Preferred Stock Purchase Agreement (Exhibit 4.18 to the 1992 Form 10-K).* 4.22 --Registration Rights Agreement dated as of February 1, 1987 between the Company and Prudential (Exhibit 4.19 to the 1992 Form 10-K).* 4.23 --Agreement dated April 12, 1990 amending the Preferred Stock Purchase Agreement (Exhibit 4.20 to the 1992 Form 10-K).* 4.24 --Waiver of Certain Rights Relating to $9.75 Preferred Stock dated June 5, 1990 between the Company and Prudential (Exhibit 4.21 to the 1992 Form 10-K).* 4.25 --Waiver of Certain Equity Offering Rights dated April 12, 1990 between the Company and Prudential amending the Preferred Stock Purchase Agreement (Exhibit 4.22 to the 1992 Form 10-K).* 4.26 --Agreement dated February 28, 1995 between Prudential and the Company (Exhibit 2 to the Company's Schedule 14D-9 dated March 3, 1995 [the "Schedule 14D-9"]).* 4.27 --Waiver of Certain Rights Relating to $9.75 Preferred Stock dated June 8, 1995 between Prudential and the Company, filed herewith. 4.28 --Warrant Certificate No. 1 dated October 10, 1992 issued to Kidder, Peabody Group Inc. for 8,000,000 warrants each representing the right to purchase from the Company on or prior to October 10, 1997 one share of common stock, $1.00 par value, of the Company at a price of $13.00 per share (Exhibit 4.23 to the 1992 Form 10-K).* 4.29 --Registration Rights Agreement dated as of October 10, 1992 between Kidder, Peabody Group Inc. and the Company (Exhibit 4.24 to the 1992 Form 10-K).* 4.30 --Agreement of Merger, dated February 28, 1995, among the Company, YPF Sociedad Anonima ("YPF") and YPF Acquisition Corp. ("YPFA") (Exhibit 3 to the Schedule 14D-9).* 4.31 --Credit Agreement dated as of June 8, 1995, between Midgard Energy Company, the lenders signatory thereto and The Chase Manhattan Bank (National Association) ("Chase"), as agent (Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 8, 1995 [the "June 8, 1995 Form 8-K"]).* 4.32 --Credit Agreement dated as of June 16, 1995, between Maxus Indonesia, Inc., Maxus Northwest Java Inc., Maxus Southeast Sumatra, Inc., the lenders signatory thereto and Chase, as agent (Exhibit 4.2 to the June 8, 1995 Form 8-K).*
43 44 10.1 --Performance Incentive Plan of the Company, as amended effective January 1, 1986 (Exhibit 10.6 to the 1992 Form 10-K).* 10.2 --Specimen copy of Change of Control Agreement between the Company and certain of its former its executive officers (Exhibit 10.7 to the 1992 Form 10-K).* 10.3 --Specimen copy of letter agreement between the Company and certain of its former executive officers relating to the Agreements referred to in Exhibit 10.2 above (Exhibit 10.8 to the 1992 Form 10-K).* 10.4 --Specimen copy of disability benefit arrangement between the Company and its executive officers (Exhibit 10.10 to the 1992 Form 10-K).* 10.5 --Supplemental Executive Retirement Plan of the Company, effective May 1, 1987 (Exhibit 10.11 to the 1992 Form 10-K).* 10.6 --Supplemental Executive Retirement Plan of the Company, effective March 1, 1990 (Exhibit 10.12 to the 1992 Form 10-K).* 10.7 --Specimen copy of supplemental death benefit arrangement between the Company and its executive officers (Exhibit 10.13 to the 1992 Form 10-K).* 10.8 --Maxus Energy Corporation Supplemental Savings Plan (as amended and restated effective June 8, 1995), filed herewith. 10.9 --Trust Agreement dated December 18, 1986 between the Company and AmeriTrust Company National Association (Exhibit 10.15 to the 1992 Form 10-K).* 10.10 --Deferred Compensation Plan for Executives of the Company, effective September 28, 1993 (Exhibit 10.17 to the 1993 Form 10-K).* 10.11 --Distribution Agreement dated as of April 22, 1987 between the Company and Diamond Shamrock R&M, Inc. (Exhibit 10.23 to the 1992 Form 10-K).* 10.12 --Rights Agreement dated as of September 2, 1988 between the Company and AmeriTrust Company National Association (Exhibit 10.24 to the 1992 Form 10-K).* 10.13 --Stock Purchase Agreement by and among the Company and Occidental Petroleum Corporation, et. al. dated September 4, 1986 (Exhibit 10.25 to the 1992 Form 10-K).* 10.14 --Agreement of Merger dated as of February 28, 1995 among YPF, YPFA Corp. and the Company (Exhibit 3 to the Schedule 14D-9).* 10.15 --International Consulting Agreement, dated May 1, 1995 between C. L. Blackburn and YPF, filed herewith. 10.16 --Assignment of International Consulting Agreement, dated November 2, 1995 between C. L. Blackburn, YPF, and the Company, filed herewith. 10.17 --Maxus Severance Agreement dated August 3, 1995 between the Company and Roberto Luis Monti, filed herewith. 10.18 --Compensation Agreement dated December 27, 1995 between the Company and Roberto L. Monti, filed herewith. 10.19 --Services Agreement dated April 5, 1995 between the Company and Peter D. Gaffney, filed herewith. 10.20 --Secondment Agreement dated April 5, 1995 between the Company, YPF and Gaffney, Cline & Associates, Inc., filed herewith. 10.21 --Amendment to Change in Control Agreement dated May 11, 1995 between the Company and W. Mark Miller, filed herewith. 10.22 --Employment Agreement effective as of July 1, 1995 between the Company and W. Mark Miller, filed herewith.
44 45 10.23 --Specimen copy of a letter agreement regarding Change in Control Agreement dated April 7, 1995 between the Company and certain of its executive officers, filed herewith. 10.24 --Letter Agreement regarding Change in Control Agreement dated April 13, 1995 between the Company and Michael C. Forrest, filed herewith. 10.25 --Specimen copy of a letter agreement regarding Change in Control Agreement dated ------------, 1995 between the Company and certain of its executive officers, filed herewith. 21.1 --List of Subsidiaries of the Company, filed herewith. 23.1 --Consent of Independent Accountants, filed herewith. 23.2 --Consent of Independent Accountants, filed herewith. 24.1 --Powers of Attorney of directors and officers of the Company, filed herewith. 24.2 --Power of Attorney of the Company, filed herewith. 27.1 --Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K. None. 45 46 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. MAXUS ENERGY CORPORATION By ROBERTO MONTI* Roberto Monti President and Chief Executive Officer March 21, 1996 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 date indicated.
SIGNATURE TITLE - --------------------------------------------- -------------------------------------------- President and Chief Executive Officer and ROBERTO MONTI* Director Roberto Monti Executive Vice President and Treasurer W. MARK MILLER* (principal financial officer) W. Mark Miller LINDA R. ENGELBRECHT* Controller Linda R. Engelbrecht (principal accounting officer) CHARLES L. BLACKBURN* Director Charles L. Blackburn CEDRIC BRIDGER* Director Cedric Bridger GEORGE L. JACKSON* Director George L. Jackson NELLS LEON* Director Nells Leon JAMES R. LESCH* Director James R. Lesch P. DEXTER PEACOCK Director P. Dexter Peacock R. A. WALKER* Director R. A. Walker
Lynne P. Ciuba, by signing her name hereto, does hereby sign this report on Form 10-K on behalf of each of the above-named officers and directors of the registrant pursuant to a power of attorney executed by each of such officers and directors. *By LYNNE P. CIUBA March 21, 1996 Lynne P. Ciuba Attorney-in-fact
46 47 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ---------------- 1995 1994 1993 ------------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE) Revenues Sales and operating revenues................................. $142.5 $682.1 $786.7 Other revenues, net.......................................... 9.6 9.0 40.4 ------ ------ ------ 152.1 691.1 827.1 Costs and Expenses Operating expenses........................................... 64.6 242.8 263.9 Gas purchase costs........................................... 12.7 116.9 155.6 Exploration, including exploratory dry holes................. 8.9 35.5 59.8 Depreciation, depletion and amortization..................... 29.9 140.2 153.6 General and administrative expenses.......................... 4.2 22.4 25.7 Taxes other than income taxes................................ 3.1 12.9 15.9 Interest and debt expenses................................... 24.1 96.7 88.4 Pre-merger costs............................................. 42.4 Environmental studies and remediation........................ 60.5 17.9 Restructuring: Gain on sale of assets.................................. (201.9) Restructuring costs..................................... 100.9 ------ ------ ------ 189.9 626.9 780.8 ------ ------ ------ Income (Loss) Before Income Taxes, Extraordinary Item and Cumulative Effect of Change in Accounting Principle............. (37.8) 64.2 46.3 Income Taxes................................................. 19.1 86.9 84.2 ------ ------ ------ Net Loss Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle............. (56.9) (22.7) (37.9) Extraordinary item, net of tax benefit of $.1................ (7.1) Cumulative effect of change in accounting principle.......... (4.4) ------ ------ ------ Net Loss.......................................................... (56.9) (22.7) (49.4) Dividend requirement on Preferred Stock...................... (9.6) (43.6) (41.7) ------ ------ ------ Net Loss Applicable to Common Shares.............................. $(66.5) $(66.3) $(91.1) ====== ====== ====== Net Loss Per Common Share Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle............. $ (.49) $ (.49) $ (.60) Extraordinary item........................................... (.05) Cumulative effect of change in accounting principle.......... (.03) ------ ------ ------ Net Loss Per Common Share......................................... $ (.49) $ (.49) $ (.68) ====== ====== ====== Average Common Shares Outstanding................................. 135.5 134.7 133.9
See Notes to Consolidated Financial Statements. F-1 48 MAXUS ENERGY CORPORATION CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31, ASSETS 1995 1994 ---------- --------- ------------- (IN MILLIONS, EXCEPT SHARES) Current Assets Cash and cash equivalents....................................... $ 91.6 $ 40.6 Short-term investments.......................................... 65.0 103.8 Receivables, less allowance for doubtful accounts............... 127.8 152.4 Taxes receivable................................................ 13.7 23.8 Inventories..................................................... 28.6 27.9 Restricted cash................................................. 48.5 46.4 Prepaids and other current assets............................... 19.4 18.7 --------- ---------- Total Current Assets....................................... 394.6 413.6 Properties and Equipment, less accumulated depreciation, depletion and amortization................................................... 1,110.7 1,088.4 Investments and Long-Term Receivables................................ 41.5 40.2 Restricted Cash...................................................... 79.9 94.2 Intangible Assets, less accumulated amortization..................... 35.5 35.8 Deferred Income Taxes................................................ 9.4 9.4 Deferred Charges..................................................... 20.5 25.1 --------- ---------- $ 1,692.1 $ 1,706.7 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY --------------------------------------------------------------- Current Liabilities Long-term debt.................................................. $ 4.7 $ 4.7 Accounts payable................................................ 49.8 65.1 Accrued liabilities............................................. 169.8 101.2 --------- ---------- Total Current Liabilities.................................. 224.3 171.0 Long-Term Debt....................................................... 970.9 970.9 Deferred Income Taxes................................................ 199.7 199.3 Other Liabilities and Deferred Credits............................... 158.7 149.4 $9.75 Redeemable Preferred Stock, $1.00 par value Authorized and issued shares--1,250,000............................ 125.0 125.0 Stockholders' Equity $2.50 Preferred Stock, $1.00 par value Authorized shares--5,000,000 Issued shares--3,500,000...................................... 3.5 3.5 $4.00 Preferred Stock, $1.00 par value Authorized shares--5,915,017 Issued shares--4,356,958 and 4,358,658........................ 4.4 4.4 Common Stock, $1.00 par value Authorized shares--300,000,000 Issued shares--135,897,899 and 135,694,722.................... 135.9 135.7 Paid-in capital................................................. 966.2 988.1 Accumulated deficit............................................. (1,073.3) (1,016.4) Minimum pension liability....................................... (18.3) (18.3) Unrealized loss on marketable securities........................ (1.3) (2.4) Common Treasury Stock, at cost--310,535 and 295,995............. (3.6) (3.5) --------- ---------- Total Stockholders' Equity................................. 13.5 91.1 --------- ---------- $ 1,692.1 $ 1,706.7 ========= ==========
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. F-2 49 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
TWELVE MONTHS THREE MONTHS ENDED DECEMBER ENDED 31, MARCH 31, ----------------- 1995 1994 1993 ------------- ------- ------- (IN MILLIONS) Cash Flows From Operating Activities: Net loss................................................... $ (56.9) $ (22.7) $ (49.4) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary item.................................... 7.1 Cumulative effect of change in accounting principle... 4.4 Depreciation, depletion and amortization.............. 29.9 140.2 153.6 Dry hole costs........................................ 1.0 2.8 5.7 Deferred income taxes................................. 0.4 (9.3) 22.3 Net gain on sale of assets and investments............ (1.7) (166.7) (13.8) Postretirement benefits............................... 1.4 6.2 6.6 Pre-merger costs...................................... 42.4 Restructuring costs................................... 91.0 Environmental studies and remediation................. 60.5 17.9 Other................................................. 1.3 9.2 15.1 Changes in components of working capital: Receivables...................................... 23.8 (1.8) (21.5) Inventories, prepaids and other current assets... (1.4) (2.3) (6.4) Accounts payable................................. (15.1) (22.3) 9.0 Accrued liabilities.............................. 26.3 (12.5) (5.2) Taxes payable/receivable......................... 10.1 (2.8) (8.8) ------- ------- ------- Net Cash Provided by Operating Activities... 61.5 69.5 136.6 ------- ------- ------- Cash Flows From Investing Activities: Expenditures for properties and equipment--including dry hole costs............................................... (53.6) (166.2) (340.0) Expenditures for investments............................... (20.1) (20.4) Proceeds from sales of assets.............................. 2.1 377.0 20.4 Proceeds from sale/maturity of short-term investments...... 63.4 10.9 171.3 Purchases of short-term investments........................ (24.6) (111.8) (53.1) Restricted cash............................................ 12.2 19.6 (35.5) Other...................................................... 9.8 (10.8) (20.4) ------- ------- ------- Net Cash Provided by (Used in) Investing Activities................................ 9.3 98.6 (277.7) ------- ------- ------- Cash Flows From Financing Activities: Net borrowings from joint venture partners................. (4.4) 4.4 Interest rate swap......................................... 3.4 (7.9) 5.8 Proceeds from issuance of short-term debt.................. 30.0 32.7 Repayment of short-term debt............................... (69.1) (32.7) Proceeds from issuance of long-term debt................... 101.3 412.5 Repayment of long-term debt................................ (137.5) (203.7) Stock rights redemption.................................... (13.6) Proceeds from issuance of Preferred Stock.................. 85.7 Redemption of Preferred Stock.............................. (125.0) Dividends paid on Preferred Stock.......................... (9.6) (43.6) (41.7) ------- ------- ------- Net Cash Provided by (Used in) Financing Activities................................ (19.8) (256.2) 263.0 ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents............ 51.0 (88.1) 121.9 Cash and Cash Equivalents at Beginning of Year.................. 40.6 128.7 6.8 ------- ------- ------- Cash and Cash Equivalents at End of Year........................ $ 91.6 $ 40.6 $ 128.7 ======= ======= =======
See Notes to Consolidated Financial Statements. F-3 50 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION On June 8, 1995, a special meeting of the stockholders of Maxus Energy Corporation (together with its foreign and domestic subsidiaries, the "Company" or "Maxus") was held to approve the Agreement of Merger ("Merger Agreement") dated February 28, 1995, between the Company, YPF Acquisition Corp. (the "Purchaser") and YPF Sociedad Anonima ("YPF"). The holders of the Company's common stock, $1.00 par value per share, and $4.00 Cumulative Convertible Preferred Stock approved the Merger Agreement, and the Purchaser was merged into the Company (the "Merger") on June 8, 1995. 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 acquired assets and assumed liabilities based on their fair values at the date of acquisition. As a result, the Company's assets and liabilities were revalued to reflect the approximate $762 million cash purchase price paid by YPF to acquire the Company. The Company's pre-Merger Consolidated Balance Sheet as of March 31, 1995, together with the purchase method accounting adjustments became the Company's opening post-Merger Consolidated Balance Sheet on April 1, 1995. The following pre-Merger data is for the three months ended March 31, 1995, and the years ended December 31, 1994 and 1993 and dollar amounts in tables are in millions, except per share amounts. The financial statements for the three-month period ended March 31, 1995, and the years ended December 31, 1994 and 1993 are presented separately as pre-Merger and post-Merger financial information are not comparable. Certain data for 1994 and 1993 has been reclassified to conform with the 1995 presentation. NOTE ONE--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. Consolidation and Equity Accounting The Consolidated Financial Statements include the accounts of Maxus Energy Corporation and all domestic and foreign subsidiaries. The Company used the equity method to account for its less than majority owned investments in affiliates and joint ventures ("Associated Companies"). Under the equity method, the Company recognizes its proportionate share of the net income or loss of Associated Companies currently, rather than when realized through dividends or disposal. The Company used the proportionate consolidation method to account for its investment in Diamond Shamrock Offshore Partners Limited Partnership ("Offshore Partners"). The Company sold its investment in Offshore Partners in the second quarter of 1994 (See Note Four). All significant intercompany accounts and transactions have been eliminated. 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. F-4 51 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net cash provided by operating activities reflects cash receipts for interest income and cash payments for interest expense and income taxes as follows:
TWELVE MONTHS THREE MONTHS ENDED DECEMBER ENDED 31, MARCH 31, -------------- 1995 1994 1993 ------------ ----- ----- Interest receipts................................... $ 7.0 $12.4 $13.5 Interest payments................................... 12.2 98.7 82.0 Income tax payments................................. 18.6 98.1 73.4
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 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 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 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 total proved reserves. Other properties and equipment are depreciated generally on the straight-line method over their estimated useful lives. Intangible assets are amortized on the straight-line method over their legal or estimated useful lives, not to exceed 40 years. 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 being amortized over the useful lives, and applying the same depreciation method, 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. F-5 52 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. The Company's gross underproduced and overproduced values at March 31, 1995, are not material. 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. 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 period. 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. 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. Additionally, SFAS 109 requires that annual taxes are to be allocated to interim periods on the basis of the requirements of F-6 53 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Accounting Principles Board Opinion No. 28 ("APB 28"), Interim Financial Reporting. The reporting requirements of APB 28 are based on the view that each interim period is an integral part of the related annual period. Because the tax year of the Company did not close in any relevant jurisdiction on March 31, 1995, taxes were not measured on deferred tax liabilities and assets at that time. In accordance with APB 28 and SFAS 109, taxes were allocated to the period based on the estimated annual effective tax rate for the period ended December 31, 1995. Earnings per Share Primary earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding, unless the inclusion of common stock equivalents has an antidilutive effect on earnings per share. Fully diluted earnings per share are 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. The Company's cash equivalents, 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 its interest rate swap agreement, 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 Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, ("SFAS 115") "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 requires that investments in debt and equity securities be 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. The cumulative effect of adopting SFAS 115 of $2.4 million was recorded as a valuation reserve in shareholders' equity. The Company's gross unrealized loss on its involvement in marketable securities which are included in long-term investments at March 31, 1995, was $1.3 million which was entirely comprised of unrealized losses on the Company's investment in U. S. Treasury Notes. Prior to the adoption of SFAS 115, the Company accounted for its investments in debt securities at amortized cost and classified such investments according to the stated maturity of the underlying securities. F-7 54 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. The Company historically has hedged no more than 50% of its U. S. gas production. 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 a decrease or increase 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 March 31, 1995, the Company had $13.6 million in deferred revenue as a result of a take-or-pay payment received related to its Indonesian operations. NOTE TWO--MASTER LIMITED PARTNERSHIP In 1994, the Company sold its interests in Offshore Partners, a master limited partnership, which explored for and produced natural gas and crude oil on federal offshore leases in the Gulf of Mexico (See Note Four). Maxus Offshore Exploration Company, a wholly owned subsidiary of the Company, and the Company had a combined 1% general partner's interest in Offshore Partners and were the managing general partner and special general partner, respectively. The Company had an aggregate interest in Offshore Partners of approximately 87.1% at December 31, 1993. NOTE THREE--PRE-MERGER COSTS In March 1995, the Company recorded $42.4 million of pre-merger costs associated with the Merger. Such costs, which included expenses associated with financial consulting and legal services, severance payments pursuant to change of control agreements and payments for surrender of stock options and restricted stock, were recorded in accrued liabilities in the consolidated balance sheet. NOTE FOUR--RESTRUCTURING Asset Sales On April 25, 1994, Offshore Partners sold its interests in Main Pass Blocks 72, 73 and 74. On April 26, 1994, Maxus and its subsidiaries sold all of their partnership interests in Offshore Partners. On June 22, 1994, Maxus also sold the McFarlan Field and Grand Isle Block 25, both producing oil and gas properties. In total, the Company received $324.6 million of proceeds and recorded a net gain of $201.9 million from these transactions. Restructuring Costs In June 1994, the Company recorded a $100.9 million restructuring charge. The charge included a $69.8 million write-off associated with undeveloped Alaska coal leases, the development of which does not fit within the Company's strategy to commit funds only to oil and gas exploration and production. The charge also included costs associated with staff reductions and the write-off of non-producing assets outside the Company's core areas. F-8 55 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE FIVE--ASSET ACQUISITIONS AND DIVESTITURES In September of 1994, the Company sold its geothermal subsidiary, Thermal Power Company, for approximately $58 million net in cash and a $6.5 million promissory note due from the purchaser in 1997. A $12.6 million loss on the sale of these assets was recognized. In November of 1993, the Company transferred its working interest in the Recetor Block in Colombia to its partner for partial recoupment of its investment. Maxus received $10 million and retained an overriding royalty interest ("ORI"). There was no gain or loss recognized on this transaction. In December 1995, the Company sold its ORI to the same party for $25 million. In October 1993, the Company and its Venezuelan partner, Otepi Consultores, S.A., were awarded an operating service agreement to reactivate Venezuelan oil fields with Lagoven, S.A., an affiliate of the national oil company, Petroleos de Venezuela, S.A. Under the terms of the operating service agreement, Maxus will be a contractor for Lagoven and will be responsible for overall operations of the Quiriquire Unit, including all necessary investments to reactivate the fields comprising the unit. Maxus will receive a fixed fee in U.S. dollars for each barrel of crude oil produced based on an average international crude oil price. Maxus is reimbursed in U.S. dollars for its capital expenditures, provided that such fee and expense reimbursement cannot exceed the maximum dollar amount per barrel set forth in the agreement. The Venezuelan government will retain full ownership of all hydrocarbons in the field. During the second quarter of 1994, Maxus Venezuela (C.I.) Ltd., a subsidiary of Maxus, signed an agreement with BP Exploracion de Venezuela S.A., granting BP a 45% interest in the Quiriquire Unit in eastern Venezuela. Maxus Venezuela remained the operator with a 50% interest and Otepi Consultores, a Venezuelan company, holds the remaining 5%. Also, during the second quarter of 1994, Maxus Bolivia, Inc., a subsidiary of Maxus, signed an agreement to take BHP Petroleum as a partner in its Bolivian oil development project. The Company received $10 million from BHP in exchange for a 50% interest in the project. NOTE SIX--GEOGRAPHIC DATA The Company is engaged primarily in the exploration for and the production and sale of crude oil and natural gas. Sales, operating profit and identifiable assets by geographic area were as follows:
SALES AND OPERATING REVENUES ---------------------------------- THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------- 1995 1994 1993 ------------ ------ ------ United States.................................. $ 41.6 $276.9 $380.7 Indonesia...................................... 93.1 381.2 406.0 South America.................................. 7.8 24.0 ------ ------ ------ $142.5 $682.1 $786.7 ====== ====== ======
F-9 56 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPERATING PROFIT (LOSS) ---------------------------------- THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------- 1995 1994 1993 ------------ ------ ------ United States.................................. $ 2.9 $ 35.0 $ 26.3 Indonesia...................................... 36.8 138.5 169.1 South America.................................. (3.7) (2.6) (13.0) Other foreign.................................. (1.7) (11.6) (20.4) ------ ------ ------ 34.3 159.3 162.0 Equity earnings................................ 5.2 10.2 General corporate expenses..................... (5.6) (104.6) (37.5) Interest and debt expenses..................... (24.1) (96.7) (88.4) Pre-merger costs............................... (42.4) Restructuring costs............................ 101.0 ------ ------ ------ $(37.8) $ 64.2 $ 46.3 ====== ====== ======
IDENTIFIABLE ASSETS ----------------------------------- DECEMBER 31, MARCH 31, --------------------- 1995 1994 1993 --------- -------- -------- United States............................... $ 295.7 $ 327.0 $ 521.1 Indonesia................................... 639.0 647.5 665.5 South America............................... 317.2 304.2 218.9 Other foreign............................... 15.3 11.4 3.9 -------- -------- -------- 1,267.2 1,290.1 1,409.4 Corporate assets............................ 424.9 416.6 489.7 Investments in Associated Companies......... 88.3 -------- -------- -------- $ 1,692.1 $1,706.7 $1,987.4 ======== ======== ========
Net foreign assets were $685.5 million at March 31, 1995, $701.4 million at December 31, 1994 and $673.5 million at December 31, 1993. Income from foreign operations, after applicable local income taxes, was $16.7 million for the three months ended March 31, 1995 and $63.9 million and $77.8 million for the years ended December 31, 1994 and 1993, respectively. Sales to three customers for the three months ended March 31, 1995 and the year ended December 31, 1994 and 1993 each represented 10% or more of consolidated sales:
THREE MONTHS TWELVE MONTHS ENDED ENDED DECEMBER 31, MARCH 31, ------------------------ 1995 1994 1993 ------------ ------ ------------- Phillips Petroleum Company................ $ 14.3 $ 56.4 $ 41.1 Mitsubishi Corporation.................... 23.4 66.5 83.3 Indonesian Government..................... 36.4 145.8 148.0
The Company does not believe that the loss of Mitsubishi Corporation and Phillips Petroleum Company as customers would adversely affect the Company's ability to market its oil and gas production. Sales to the Company's largest customer, the Indonesian Government, are made primarily pursuant to long-term F-10 57 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) production sharing contracts between the Company's Indonesian operations and the Indonesian Government. The Indonesian Government is required to purchase a specified amount of the Company's oil and gas production throughout the life of its operations in Indonesia based on these contracts. NOTE SEVEN--TAXES The Company reports income taxes in accordance with SFAS 109 (See Note One). The standard was adopted in January 1993. Adoption, which was made prospectively, had no impact on 1993 earnings or cash flow; however, $21.0 million of deferred tax liabilities which were considered current under SFAS 96 were reclassified as noncurrent and $4.1 million of deferred tax assets were reclassified as current assets. Income before income taxes, extraordinary item and cumulative effect of change in accounting principle was comprised of income (loss) from:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ----------------- 1995 1994 1993 ------------ ------ ------ United States.................................. $(69.2) $(60.1) $(89.4) Foreign........................................ 31.4 124.3 135.7 ------ ------ ------ $(37.8) $ 64.2 $ 46.3 ====== ====== ======
The Company's provision for income taxes was comprised of the following:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ---------------- 1995 1994 1993 ------------ ------ ----- Current Federal.................................... $(20.1) $ .4 Foreign.................................... $ 18.7 73.7 60.9 State and local............................ 5.5 .6 ----- ------ ----- 18.7 59.1 61.9 Deferred Federal.................................... 24.7 Foreign.................................... .4 3.1 22.3 ----- ------ ----- .4 27.8 22.3 ----- ------ ----- Provision for income taxes...................... $ 19.1 $ 86.9 $84.2 ===== ====== =====
F-11 58 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The principal reasons for the difference between tax expense at the statutory federal income tax rate of 35% and the Company's provision for income taxes were:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ---------------- 1995 1994 1993 ------------ ------ ------ Tax expense at statutory federal rate............. $(13.2) $ 22.5 $ 16.2 Increase (reduction) resulting from: Taxes on foreign income...................... 12.4 49.5 53.7 Excess statutory depletion................... (.7) (1.0) Asset sales.................................. 20.5 Alternative minimum tax...................... (.3) .3 Settlement of claims relating to Natomas acquisition................................ (.3) (2.4) Nondeductible pre-Merger costs............... 4.4 Valuation allowance.......................... 13.9 24.9 30.0 Items not related to current year earnings... 1.5 (33.4) (13.7) Other, net................................... .1 4.2 1.1 ------ ------ ------ Provision for income taxes................... $ 19.1 $ 86.9 $ 84.2 ====== ====== ======
"Items not related to current year earnings" in 1994 includes tax benefit from the favorable resolution of a federal tax refund suit. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for the three months ended March 31, 1995, December 31, 1994 and 1993 were as follows:
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ U. S. deferred tax liabilities Properties and equipment.......................... $ 5.1 $ 5.0 Other............................................. .2 ------- ------- Deferred U. S. tax liabilities............... 5.3 5.0 ------- ------- U. S. deferred tax assets Foreign deferred taxes............................ (69.9) (69.7) Book accruals..................................... (34.4) (35.1) Loss carryforwards................................ (50.8) (36.3) Credit carryforwards.............................. (23.2) (23.2) Other............................................. (.6) (.4) ------- ------- Gross deferred U. S. tax assets.............. (178.9) (164.7) ------- ------- Valuation allowance.................................... 163.9 150.0 ------- ------- Net deferred U. S. tax assets.......................... (15.0) (14.7) ------- ------- Net deferred U. S. taxes............................... (9.7) (9.7) ------- ------- Foreign deferred tax liabilities Properties and equipment.......................... 199.7 199.4 ------- ------- Net deferred foreign taxes................... 199.7 199.4 ------- ------- Net deferred taxes..................................... $ 190.0 $ 189.7 ======= =======
F-12 59 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The valuation allowance was $92.6 million upon adoption of SFAS 109. The valuation allowance was increased $23.4 million during 1994 and $13.9 million during the first three months of 1995, primarily due to the increase in loss carryforwards. Because the tax year of the Company did not close on March 31, 1995, tax carryovers are not measured at that date. At December 31, 1994, the Company had $13.1 million of general business credit carryforwards that expire between 1996 and 2002; $103.8 million of U.S. net operating loss carryforwards that expire in 2003, 2005 and 2008; and $10.1 million of minimum tax credit that can be carried forward indefinitely. As a result of the Merger, effective April 1, 1995, the Company's ability to utilize its existing net operating loss carryforwards will be limited by statute to approximately $92.0 million each year until exhausted. To the extent certain gains are recognized in the future, the annual limitation may be increased to the extent that the gains are built-in gains within the meaning of the U.S. Internal Revenue Code. There are accumulated undistributed earnings after applicable local taxes of foreign subsidiaries of $6.4 million at March 31, 1995 for which no provision was necessary for foreign withholding or other income taxes because that amount had been reinvested in properties and equipment and working capital in the foreign jurisdictions. Taxes other than income taxes were comprised of the following:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, -------------- 1995 1994 1993 ------------ ----- ----- Gross production.................................... $1.2 $ 6.5 $ 8.0 Real and personal property.......................... 1.8 5.5 7.4 Other............................................... .1 .9 .5 ---- ----- ----- $3.1 $12.9 $15.9 ==== ===== =====
NOTE EIGHT--POSTEMPLOYMENT BENEFITS Pensions The components of net periodic pension expense are as follows:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, --------------- 1995 1994 1993 ------------ ----- ------ Service cost for benefits earned during the period........................................... $ .5 $ 2.9 $ 2.1 Interest cost on projected benefit obligation...... 2.2 8.7 9.3 Actual return on plan assets....................... (4.5) (2.5) (10.4) Net amortization and deferrals..................... 2.5 (5.4) .6 ----- ----- ------ $ .7 $ 3.7 $ 1.6 ===== ===== ======
Due to an early retirement program offered to former employees, the Company recognized a settlement loss of $1.7 million on one of its plans in 1994. F-13 60 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Plan assets are primarily invested in short-term investments and stocks and bonds. The principal assumptions used to estimate the benefit obligations of the plans on the measurement date, October 1, 1994 were as follows: Discount rate.......................................................... 8.5% Expected long-term rate of return on plan assets....................... 9.0% Rate of increase in compensation levels................................ 5.5%
The funded status of the plans at March 31, 1995 and December 31, 1994 were as follows:
PLANS WITH -------------------------------------------------------- ACCUMULATED ASSETS ACCUMULATED ASSETS BENEFITS EXCEEDING BENEFITS EXCEEDING EXCEEDING ACCUMULATED EXCEEDING ACCUMULATED ASSETS BENEFITS ASSETS BENEFITS 3/31/95 3/31/95 12/31/94 12/31/94 ----------- ----------- ----------- ----------- Actuarial present value of: Vested benefit obligation......... $ 86.3 $ 9.8 $ 87.6 $ 9.4 ------- ----- ------ ----- Accumulated benefit obligation.... $ 90.6 $11.9 $ 91.9 $11.5 ------- ----- ------ ----- Projected benefit obligation...... $ 91.4 $15.0 $ 92.7 $14.6 Plan assets at fair value.............. 76.2 14.5 78.0 14.2 ------- ----- ------ ----- Plan assets less than projected benefit obligation........................... $ (15.2) $ (.5) $ (14.7) (.4) Unrecognized net loss.................. 24.1 1.0 24.1 1.0 Unrecognized net transition obligation (asset).............................. (3.8) .1 (3.8) .1 Unrecognized prior service cost........ (.3) (.9) (.3) (.9) Adjustment required to recognize minimum liability.................... (18.3) (18.3) ------- ----- ------ ----- Prepaid (accrued) pension cost......... $ (13.5) $ (.3) $ (13.0) $ (.2) ======= ===== ====== =====
At March 31, 1995 and December 31, 1994, the Company's accumulated postretirement benefit obligation ("APBO") exceeded the plan assets. In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded a minimum pension liability of $19.2 million and a charge to equity of $18.3 million at March 31, 1995 and December 31, 1994. In addition to the defined benefit plans, the Company has a defined contribution plan which covers Indonesian nationals. Employee contributions of 2% of each covered employee's compensation are matched by the Company with a contribution of 6% of compensation by the Company. Contributions to the plan were $.1 million in the first quarter of 1995 and $.4 million in 1994. Other Postretirement Benefits Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its retiree health and welfare benefits plan. Under SFAS 106, the Company is required to accrue the estimated cost of retiree benefit payments, other than pensions, during employees' active service period. The Company previously expensed the cost of these benefits, which are principally medical benefits, as claims were incurred. The Company currently administers several unfunded postretirement medical and life insurance plans covering primarily U. S. employees which are, depending on the type of plan, either contributory or noncontributory. Employees become eligible for these benefits if they meet minimum age and service F-14 61 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) requirements. At January 1, 1993, the estimated APBO was $46.1 million, which the Company elected to amortize over a 20-year period. During 1994, the Company's postretirement medical and life insurance plans experienced a partial curtailment due to the Company's decision to reduce staff. The effect of the curtailment was a $6.6 million charge to earnings in 1994, which was included as a component of the restructuring costs (See Note Four), primarily due to accelerated recognition of the transition obligation. The components of net periodic postretirement benefit expense for the three months ended March 31, 1995 and for the years ended December 31, 1994 and 1993 are as follows:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, ------------- 1995 1994 1993 ------------ ---- ---- Service cost for benefits earned during the period........................................... $ .1 $ .5 $ .4 Interest cost on accumulated postretirement benefit obligation............................... .9 3.4 3.9 Amortization of transition obligation.............. .5 2.3 2.3 ---- ---- ---- $1.5 $6.2 $6.6 ==== ==== ====
The APBO as of March 31, 1995 was $44.4 million. The amount recognized in the Company's statement of financial position at March 31, 1995 and December 31, 1994 is as follows:
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Retirees.............................................. $ 39.0 $ 39.0 Fully eligible active employees....................... 1.8 1.8 Other active employees................................ 3.6 3.6 ------ ----- Total................................................. 44.4 44.4 Unrecognized transition obligation.................... (33.7) (34.2) Unrecognized net gain................................. 2.1 2.0 ------ ----- $ 12.8 $ 12.2 ======= ======
A discount rate of 8.5% was used in determining the APBO for the three months ended March 31, 1995 and the year ended December 31, 1994. The APBO was based on a 10.4% increase in the medical cost trend rate, with the rate trending downward .6% per year to 5% in 2003 and remaining at 5% thereafter. This assumption has a significant effect on annual expense, as it is estimated that a 1% increase in the medical trend rate would increase the APBO by $4.2 million and increase the net periodic postretirement benefit cost by $.4 million per year. Other Postemployment Benefits In 1993 the Company adopted, Statement of Financial Accounting Standards No. 112 ("SFAS 112"), "Employers' Accounting for Postemployment Benefits," to account for benefits provided after employment but before retirement. SFAS 112 requires an accrual method of recognizing the cost of providing postemployment benefits. Prior to 1993, postemployment benefit expenses were recognized as paid. The Company recognized the cumulative effect of the change in accounting for postemployment benefits in 1993, which resulted in a charge of $4.4 million. This liability primarily represents medical benefits for long-term disability recipients. Future annual costs are expected to be immaterial. Net periodic postemployment benefit expense F-15 62 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) was insignificant for the three months ended March 31, 1995 and for the years ended December 31, 1994 and 1993. NOTE NINE--FINANCIAL INSTRUMENTS The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Unless otherwise disclosed, the fair value of financial instruments approximates their recorded values. Restricted Cash The fair value of the Company's restricted cash, which is invested primarily in U. S. Treasury notes, marketable securities and trust accounts is based on the quoted market prices for the same or similar securities at the reporting date. Long-Term Investments The fair value of the Company's long-term investments, which are primarily U. S. Treasury notes and long-term notes receivable, is based on the quoted market prices for the same or similar investments at the reporting date. Long-Term Debt The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair value of the Company's financial instruments are as follows:
MARCH 31, 1995 ------------------- CARRYING FAIR AMOUNT VALUE -------- ------ Assets Restricted cash, including current and long-term portion............................................. $128.4 $125.6 Long-term investments................................. 41.5 36.7 Liabilities Long-term debt, including current portion............. 975.6 862.4
DECEMBER 31, 1994 ------------------- CARRYING FAIR AMOUNT VALUE -------- ------ Liabilities Long-term debt, including current portion............. $975.6 $857.8
For information on the Company's derivative financial instruments, see Note Seventeen. NOTE TEN--RECEIVABLES
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Trade receivables..................................... $ 97.0 $110.8 Notes and other receivables........................... 32.0 42.3 Less--Allowance for doubtful receivables.............. 1.2 .7 --------- ------------ $ 127.8 $152.4 ======= ==========
F-16 63 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE ELEVEN--PROPERTIES AND EQUIPMENT
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Proved properties..................................... $2,445.5 $2,397.7 Unproved properties................................... 31.7 29.1 Gas plants and other.................................. 220.0 219.1 -------- -------- Total Oil and Gas........................... 2,697.2 2,645.9 Corporate............................................. 51.5 53.5 -------- -------- 2,748.7 2,699.4 Less--Accumulated depreciation, depletion and amortization........................................ 1,638.0 1,611.0 -------- -------- $1,110.7 $1,088.4 ======== ========
The charge against earnings for depreciation, depletion and amortization of property and equipment was $29.9 million for the three months ended March 31, 1995, and $138.9 million and $152.3 million for the years ended December 31, 1994 and 1993, respectively. The charge against earnings for maintenance and repairs was $7.4 million for the three months ended March 31, 1995, and $38.9 million and $35.0 million for the years ended December 31, 1994 and 1993, respectively. NOTE TWELVE--INVESTMENTS AND LONG-TERM RECEIVABLES
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Investments, at cost, and long-term receivables........ $12.0 $ 11.9 U. S. Treasury notes................................... 29.5 28.3 ----- ------ $41.5 $ 40.2 ===== ======
In September 1994, the Company sold its geothermal subsidiary, Thermal Power Company, which owned Union-Magma-Thermal Tax Partnership ("UMT") (See Note Five). The investment in UMT was carried on the equity method prior to the sale of Thermal Power Company. The following schedule presents certain summarized financial information of UMT:
DECEMBER 31, DECEMBER 31, 1994 1993 ------------ ------------ Summarized Statement of Income: Sales........................................... $ 50.0 $ 93.1 Gross profit.................................... 24.8 50.3 Net income...................................... 24.8 50.3
The Company's equity earnings are principally from UMT and were $5.2 million in 1994 and $10.2 million in 1993. NOTE THIRTEEN--RESTRICTED CASH At March 31, 1995 and December 31, 1994, the Company had $128.4 million and $140.6 million, respectively, in restricted cash, of which $64.0 million in 1995 and $78.5 million in 1994 represented collateral for outstanding letters of credit. Assets held in trust as required by certain insurance policies were $64.4 million in 1995 and $62.1 million in 1994. Approximately $48.5 million and $46.4 million of collateral for outstanding letters of credit at March 31, 1995 and December 31, 1994, respectively, was classified as a current asset. F-17 64 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE FOURTEEN--INTANGIBLE ASSETS Intangibles, primarily the excess of cost over fair market value of net assets acquired, were $50.0 million at March 31, 1995 and December 31, 1994. Accumulated amortization at March 31, 1995 and December 31, 1994 was $14.5 million and $14.2 million, respectively. The charge against earnings for amortization of intangible assets was $0.3 million for the three months ended March 31, 1995 and $1.3 million for the years ended December 31, 1994 and 1993. NOTE FIFTEEN--ACCRUED LIABILITIES
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Accrued interest payable............................... $ 34.8 $ 23.3 Joint interest billings for international operations... 32.3 25.9 Merger reserve......................................... 41.0 Environmental reserve.................................. 14.9 14.9 Overlift payable....................................... 12.2 9.1 Postretirement and postemployment benefits............. 4.5 4.5 Accrued compensation, benefits and withholdings........ 5.0 6.4 Other.................................................. 25.1 17.1 ------ ------ $ 169.8 $101.2 ====== ======
NOTE SIXTEEN--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
MARCH 31, DECEMBER 31, 1995 1994 --------- ------------ Senior Indebtedness Sinking Fund Debentures 11 1/4% due 2013............................. $ 16.9 $ 16.9 11 1/2% due 2001-2015........................ 109.0 109.0 8 1/2% due 1998-2008......................... 93.4 93.4 Notes 9 7/8% due 2002................................... 247.3 247.3 9 1/2% due 2003................................... 99.5 99.5 9 3/8% due 2003................................... 260.0 260.0 Medium-term notes...................................... 149.3 149.3 Bank and other loans................................... .2 .2 ------ ------ Total senior indebtedness......................... 975.6 975.6 Less--current portion.................................. 4.7 4.7 ------ ------ $ 970.9 $970.9 ====== ======
The aggregate maturities of long-term debt outstanding at March 31, 1995, for the next five years will be as follows: April 1, 1995--March 31, 1996........................................ $ 4.7 April 1, 1996--March 31, 1997........................................ 34.3 April 1, 1997--March 31, 1998........................................ 14.2 April 1, 1998--March 31, 1999........................................ 20.5 April 1, 1999--March 31, 2000........................................ 8.5
F-18 65 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At March 31, 1995 and December 31, 1994, the Company had $149.3 million of medium-term notes outstanding, which were issued in prior years, with maturities from 1995 to 2004 and annual interest rates ranging from 7.57% to 11.08%. The Company maintains a $25.0 million uncommitted credit facility (the "credit facility") which is used for the issuance of documentary or standby letters of credit and/or the payment of shipping documents. The credit facility can be secured by cash or the accounts receivable which are financed through the letters of credit. At March 31, 1995, there were $24.5 million of cash collateralized letters of credit outstanding under this credit facility. Total interest and debt expenses incurred, including capitalized interest, were as follows:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, -------------- 1995 1994 1993 ------------ ----- ----- Interest and debt expenses.......................... $ 24.1 $96.7 $88.4 Capitalized interest................................ .1 3.2 7.5 ----- ----- ----- $ 24.2 $99.9 $95.9 ===== ===== =====
NOTE SEVENTEEN--DERIVATIVE FINANCIAL INSTRUMENTS The Company's only derivative financial instruments are an interest rate swap agreement with an investment broker, natural gas price swap agreements and crude oil and natural gas futures contracts, which are not used for trading purposes. Interest Rate Swap Agreement Effective January 27, 1993, the Company entered into an interest rate swap agreement under which it pays the counterparty interest at a variable rate based on the London Interbank Offering Rate (LIBOR) and the counterparty pays the Company interest at 6.73% on the notional principal of $100.0 million. This agreement is effective through January 27, 2003. The Company is not required to collateralize its obligation under this agreement unless it is in an unfavorable position. At December 31, 1993, the Company had borrowings of $5.8 million against its then favorable position in this interest rate swap agreement. Due to higher interest rates in 1994, the Company's position in the interest rate swap became unfavorable. As a result, the Company was required to collateralize $7.9 million, which was recorded in deferred charges at December 31, 1994. As interest rates declined during the first three months of 1995, the Company reduced its collateralized position by $3.4 million, leaving a balance of $4.5 million recorded in deferred charges at March 31, 1995. Natural Gas Price Swap Agreements Under the price swap agreements used to hedge fluctuations in the price of natural gas, the Company receives or makes payments based on the differential between the Company's specified price and the counterparty's specified price of natural gas. Depending on the agreement, the Company pays a fixed or variable price per million British Thermal Units ("Mmbtu") and receives a fixed or variable price per Mmbtu. During the three months ended March 31, 1995, the Company had swap agreements with other companies to exchange payments on 0.8 million Mmbtu of gas. Under these swap agreements, the Company paid fixed or variable prices averaging $1.61 per Mmbtu and received fixed or variable prices averaging $1.58 per Mmbtu. Gross gains and gross losses realized on these swap agreements were immaterial. F-19 66 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Natural Gas and Crude Oil Futures Contracts Under the natural gas futures contracts used to hedge fluctuations in the price of natural gas, the Company receives or makes payments based on the differential between the selling price and the settlement price per Mmbtu. During the three months ended March 31, 1995, the Company settled futures contracts with other companies on 1.2 million Mmbtu of gas. Under these futures contracts, the Company received selling prices averaging $1.65 per Mmbtu and paid settlement prices averaging $1.46 per Mmbtu. Realized gross gains on these futures contracts were $0.2 million. Under the crude oil futures contracts used to hedge fluctuations in the price of crude oil, the Company receives or makes payments based on the differential between the selling price and the settlement price per barrel. During the three-month period ended March 31, 1995, crude oil volumes hedged under these futures contracts were insignificant as were gross unrealized gains and losses. NOTE EIGHTEEN--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. $9.75 Cumulative Convertible Preferred Stock In 1987, the Company sold 3,000,000 shares of $9.75 Cumulative Convertible Preferred Stock (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. Currently, 1,250,000 shares of $9.75 Preferred Stock are outstanding, each receiving an annual cash dividend of $9.75. In addition, 375,000 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, 1995, each share of the $9.75 Preferred Stock has a liquidation value of $101.0836 ($126.4 million in the aggregate) which reduces to $100 at February 1, 1996, in each case plus accrued dividends. Since February 1, 1994, the stock has been subject to mandatory redemption at the rate of 625,000 shares per year. 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, and the $9.75 Preferred Stock other than the Conversion Waiver Shares entitles the holder to elect one individual to the Board of Directors of the Company. 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. $4.00 Cumulative Convertible Preferred Stock Each outstanding share of $4.00 Cumulative Convertible Preferred Stock (the "$4.00 Preferred Stock") is entitled to one vote, is convertible at any time into shares of the Company's Common Stock (2.29751 shares at March 31, 1995), is entitled to receive annual cash dividends of $4.00 per share, is callable at and has a liquidation value of $50.00 per share ($217.8 million in the aggregate at March 31, 1995) plus accrued but unpaid dividends, if any. F-20 67 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $2.50 Cumulative Preferred Stock Each outstanding share of the $2.50 Preferred is entitled to shall receive annual cash dividends of $2.50 per share, is callable after December 1, 1998 at and has a liquidation value of $25.00 per share ($87.5 million in the aggregate at March 31, 1995) plus accrued but unpaid dividends, if any. The holders of the shares 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. NOTE NINETEEN--COMMON STOCK
SHARES AMOUNT ----------- ------ January 1, 1993......................................... 133,567,300 $133.6 Employee Shareholding and Investment Plan.......... 475,852 .5 Restricted stock................................... 312,690 .3 Exercise of stock options.......................... 17,683 Fractional shares exchanged for cash............... (2) ----------- ------ January 1, 1994......................................... 134,373,523 134.4 Employee Shareholding and Investment Plan.......... 830,798 .8 Restricted stock................................... 490,430 .5 Exercise of stock options.......................... Fractional shares exchanged for cash............... (29) ----------- ------ January 1, 1995......................................... 135,694,722 135.7 Employee Shareholding and Investment Plan.......... 199,274 .2 Conversion of $4.00 Preferred Stock................ 5,588 Fractional shares exchanged for cash............... (1,685) ----------- ------ March 31, 1995.......................................... 135,897,899 $135.9 ========== ======
On July 30, 1991, the Company's Dividend Reinvestment and Stock Purchase Plan (the "Plan") became effective. The Plan allowed holders of Common Stock to purchase additional shares at a 3% discount from the current market prices without paying brokerage commissions or other charges. In addition, if the Company paid a dividend on its Common Stock in the future, common stockholders could reinvest the amount of those dividends in additional shares also at a 3% discount from the current market prices. In November 1992, the Company effectively suspended the Plan by raising the threshold price. At March 31, 1995 and December 31, 1994, respectively, there were 32.4 million and 35.8 million shares of Common Stock reserved for issuance upon conversion of Preferred Stock, exercises of stock options or issuance under certain employee benefit plans. In 1992, Kidder, Peabody & Co. Incorporated purchased eight million warrants from the Company. Each warrant represents the right to purchase one share of the Company's Common Stock at $13.00 per share at any time prior to the expiration of the warrants on October 10, 1997. The Company has an Employee Shareholding and Investment Plan ("ESIP") which allows eligible participating employees to contribute a certain percentage of their salaries (1%-10%) to a trust for investment in any of six funds, one of which consists of the Company's Common Stock. The Company matches the participating employee's contribution to the ESIP (up to 6% of base pay); such matching contribution is charged against earnings and invested in the ESIP fund which consists of the Company's Common Stock. The charge against earnings for the Company's contribution to the ESIP was $0.6 million, $2.8 million and F-21 68 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $2.6 million at March 31, 1995, December 31, 1994, and December 31, 1993, respectively. Subsequent to the Merger, contributions can no longer be invested in the Company's Common Stock. In 1988, the Company adopted a Preferred Share Purchase Rights Plan. The plan issued one right for each share of Common Stock and 7.92 rights for each share of $9.75 Cumulative Convertible Preferred Stock outstanding as of the close of business on September 12, 1988. The rights, which entitle the holder to purchase from the Company one one-hundredth of a share of a new series of junior preferred stock at $23.00 per share, become exercisable if a person becomes the beneficial owner of 20% or more of the Company's Common Stock or of an amount that the Board of Directors determines is intended to cause the Company to take certain actions not in the best long-term interests of the Company and its stockholders. The rights also become exercisable if a person makes a tender offer or exchange offer for 30% or more of the Company's outstanding Common Stock. The rights may be redeemed at $.10 per right under certain circumstances. In the Merger Agreement, the Company agreed to redeem the rights. On February 28, 1995, the Board of Directors of the Company took action to redeem the rights, effective as of March 22, 1995. Holders of Common Stock on the close of business on that date received the redemption price of $0.10 per right. Under a separate agreement with the sole holder of the $9.75 Preferred Stock, such holder waived its right to receive the redemption price with respect to the rights associated with the $9.75 Preferred Stock, subject to consummation of the Merger. NOTE TWENTY--PAID-IN CAPITAL AND ACCUMULATED DEFICIT
PAID-IN ACCUMULATED CAPITAL DEFICIT -------- ----------- January 1, 1993......................................... $ 980.1 $ (944.3) Net loss........................................... (49.4) Dividends on Preferred Stock....................... (41.7) Issuance of $4.00 Preferred Stock.................. 1.1 Issuance of $2.50 Preferred Stock.................. 81.1 Employee Shareholding and Investment Plan.......... 3.1 Restricted stock................................... 2.5 -------- --------- January 1, 1994......................................... 1,026.2 (993.7) Net loss........................................... (22.7) Dividends on Preferred Stock....................... (43.6) Employee Shareholding and Investment Plan.......... 3.1 Restricted stock................................... 2.4 -------- --------- January 1, 1995......................................... 988.1 (1,016.4) Net loss........................................... (56.9) Dividends on Preferred Stock....................... (9.6) Stock rights redemption............................ (13.6) Restricted stock................................... .6 Employee Shareholding and Investment Plan.......... .7 -------- --------- March 31, 1995.......................................... $ 966.2 $(1,073.3) ======== =========
F-22 69 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE TWENTY-ONE--UNREALIZED LOSS ON INVESTMENT IN MARKETABLE SECURITIES The amortized cost and estimated fair value of marketable securities at March 31, 1995 are as follows:
MARCH 31, 1995 ----------------------------------- GROSS AMORTIZED UNREALIZED MARKET COST LOSS VALUE --------- ---------- ------ Held-to-maturity: Corporate and other debt securities....... $ 280.0 $2.8 $277.2 Held-for-sale: Corporate and other debt securities....... 30.7 1.3 29.4
At March 31, 1995, securities categorized as held-to-maturity are included in cash equivalents, short-term investments and short- and long-term restricted cash. The securities held-for-sale consist of U. S. Treasury notes which mature in August, 2002 and are classified as long-term investments (See Note Twelve). The amortized cost and estimated fair value of marketable securities at December 31, 1994 are as follows:
DECEMBER 31, 1994 ----------------------------------- GROSS AMORTIZED UNREALIZED MARKET COST LOSS VALUE --------- ---------- ------ Held-to-maturity: Corporate and other debt securities....... $ 139.4 $139.4 Held-for-sale: Corporate and other debt securities....... 30.7 $2.4 28.3
At December 31, 1994, securities categorized as held-to-maturity with maturities of 90 days or less are classified as cash equivalents and those with maturities greater than ninety days are classified as short-term investments. The securities held-for-sale consist of U. S. Treasury notes which mature in August, 2002 and are classified as long-term investments (See Note Twelve). NOTE TWENTY-TWO--COMMON TREASURY STOCK
SHARES AMOUNT -------- ------ January 1, 1993........................................... (135,751) $(2.1) Restricted Stock..................................... (38,212) (.4) -------- ----- January 1, 1994........................................... (173,963) (2.5) Restricted Stock..................................... (122,032) (1.0) -------- ----- January 1, 1995........................................... (295,995) (3.5) Restricted Stock..................................... (14,540) (.1) -------- ----- March 31, 1995............................................ (310,535) $(3.6) ======== =====
NOTE TWENTY-THREE--STOCK OPTIONS Two plans, a Long-Term Incentive Plan and a Director Stock Option Plan, were approved by the stockholders in 1992. The Company's 1986 and 1992 Long-Term Incentive Plans (the "Incentive Plans"), administered by the Compensation Committee of the Board of Directors, permit the grant to officers and certain key employees of stock options, stock appreciation rights ("SARs"), performance units and awards of Common Stock or other securities of the Company on terms and conditions determined by the Compensation Committee of the Board of Directors. F-23 70 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Director Stock Option Plan became effective on September 1, 1992. Under this plan, non-employee directors received options to purchase shares of Common Stock on the effective date of the plan. Thereafter, upon initial election or re-election of a non-employee director at an annual meeting, the non-employee directors automatically receive options to purchase shares of Common Stock. The plan terminated on June 7, 1995. The grant or exercise of an option does not result in a charge against the Company's earnings because all options have been granted at exercise prices approximating the market value of the stock at the date of grant. However, any excess of Common Stock market price over the option price of options, which includes SARs, does result in a charge against the Company's earnings; a subsequent decline in market price results in a credit to earnings, but only to a maximum of the earnings charges incurred in prior years on SARs. Stock option activity was as follows:
DECEMBER 31, MARCH 31, ------------------------------ 1995 1994 1993 --------- ------------ ------------- Outstanding at January 1............ 2,268,068 1,694,445 1,855,695 Granted........................ 758,000 20,000 Exercised...................... (17,683) Cancelled...................... (77,495) (184,377) (163,567) --------- ------------ ------------- Outstanding at end of period........ 2,190,573 2,268,068 1,694,445 Grant price.................... $5.00-$8.625 $8.625 Exercise price................. $6.625-$8.506 Available for future grants at end of period......................... 2,496,936 2,419,441 3,492,787 Restricted stock held for vesting at end of period......................... 936,066 951,410 874,602 Performance units held for vesting at end of period..................... 653,355 653,355 653,355
Exercise prices of stock options outstanding at March 31, 1995 ranged from $5.00 to $13.75 per share. There was a credit to earnings for SARs in 1993 of $.1 million. There was no earnings activity related to SARs in 1994 or for the period ended March 31, 1995. Effective upon the Merger, all stock options and restricted stock outstanding under Company-sponsored incentive plans were surrendered to the Company. Under the 1986 Long-Term Incentive Plan, the Company granted Restricted Stock. The amount of the grant price is amortized over the vesting period of the grant as a charge against earnings. The charge against earnings was $0.5 million for the period ended March 31, 1995, $1.4 million in 1994 and $2.4 million in 1993. In 1993, the Company issued performance units under the Long-Term Incentive Plan. The performance unit entitles the grantee to the value of a share of Common Stock contingent upon the performance of the Company compared to a selected group of peer companies. The value of the performance unit is amortized over the vesting period based on a weighted probability of expected payout levels. The charge against earnings was $0.6 million in 1993. There was no earnings activity related to performance units in 1994. For the period ended March 31, 1995, there was a credit to earnings of $0.6 million. Effective upon the Merger, all stock options and restricted stock outstanding under Company-sponsored incentive plans were surrendered to the Company. In March 1995, the Company recorded a $9.9 million charge to earnings to record the estimated cost to redeem all outstanding options and restricted stock. This charge was included in pre-Merger costs in the Company's consolidated statement of operations (See Note Three). F-24 71 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE TWENTY-FOUR--LEASES The Company leases certain machinery and equipment, facilities and office space under cancelable and noncancelable operating leases, most of which expire within 20 years and may be renewed. Minimum annual rentals for non-cancelable operating leases at March 31, 1995, were as follows: March 31, 1996....................................................... $ 34.4 March 31, 1997....................................................... 19.4 March 31, 1998....................................................... 15.7 March 31, 1999....................................................... 9.0 March 31, 2000....................................................... 8.2 March 31, 2001 and thereafter........................................ 34.0 ------ $120.7 ======
Minimum annual rentals have not been reduced by minimum sublease rentals of $38.7 million due in the future under noncancelable subleases. Rental expense for operating leases was as follows:
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, --------------- 1995 1994 1993 ------------ ----- ----- Total rentals.................................... $ 14.0 $60.1 $67.7 Less--Sublease rental income..................... .9 2.9 3.4 ------ ----- ----- Rental expense................................... $ 13.1 $57.2 $64.3 ====== ===== =====
NOTE TWENTY-FIVE--COMMITMENTS AND CONTINGENCIES Like other energy companies, Maxus' operations are subject to various laws related to the handling and disposal of hazardous substances which require the cleanup of deposits and spills. Compliance with the laws and protection of the environment worldwide is of the highest priority to Maxus management. In the first quarter of 1995, the Company spent $1.4 million in environmental related expenditures for its oil and gas operations. In addition, the Company is implementing certain environmental projects related to its former chemicals business ("Chemicals") sold to an affiliate of Occidental Petroleum Corporation (collectively, "Occidental") in 1986 and certain other disposed of businesses. The environmental projects discussed below relating to Chemicals' business are being conducted on behalf of Occidental pursuant to the sale agreement. The Company has agreed to remediate the site of the former agricultural chemical plant in Newark, New Jersey as required by a consent decree entered into in 1990 by Occidental, the United States Environmental Protection Agency (the "EPA") and the New Jersey Department of Environmental Protection and Energy (the "DEP"). Pursuant to an agreement with the EPA, the Company is conducting further testing and studies to characterize contaminated sediment in a portion of the Passaic River near the plant site. The Company has been conducting similar studies under its own auspices for several years. Under an Administrative Consent Order issued by the DEP in 1990, covering sites primarily in Kearny and Secaucus, New Jersey, the Company will continue to implement interim remedial measures and to perform remedial investigations and feasibility studies and, if necessary, will implement additional remedial actions at various locations where chromite ore residue, allegedly from the former Kearny plant, was utilized, as well as at the plant site. F-25 72 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Until 1976, Chemicals operated manufacturing facilities in Painesville, Ohio. The Company has heretofore conducted many remedial, maintenance and monitoring activities at this site. The former Painesville plant area has been proposed for listing on the national priority list of Superfund sites. The scope and nature of further investigation or remediation which may be required cannot be determined at this time. The Company also has responsibility for Chemicals' share of the remediation cost for a number of other non-plant sites where wastes from plant operations by Chemicals were allegedly disposed of or have come to be located, including several commercial waste disposal sites. At the time of the spin-off by the Company of Diamond Shamrock, Inc. ("DSI") in 1987, the Company executed a cost-sharing agreement for the partial reimbursement by DSI of environmental expenses related to the Company's disposed of businesses, including Chemicals. DSI is expected to reach its total reimbursement obligation in 1996. The Company's total expenditures for environmental compliance for disposed of businesses, including Chemicals, were $7.9 million in the first quarter of 1995, $2.6 million of which was recovered from DSI under the cost-sharing agreement. Reserves have been established for environmental liabilities where they are material and probable and can be reasonably estimated. At March 31, 1995 and December 31, 1994, reserves for the above environmental contingencies totaled $84.7 million and $87.1 million, respectively. During 1994, the Company increased its reserve for future environmental liabilities by $60.5 million, primarily in response to the EPA's proposal of chromium clean-up standards and for additional costs expected to be incurred at Chemicals' former Newark, New Jersey plant site. The Company enters 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, guerrilla activities and insurrection. Areas in which the Company has significant operations include the United States, Indonesia, Ecuador, Bolivia and Venezuela. The Company has begun discussions with various government entities in Ecuador regarding a number of issues related to Block 16 and the Tivacuno area, including the Company's cost recovery claims, the approval of budgets, contract terms and other operating matters. The Company believes these matters will be satisfactorily resolved. F-26 73 REPORT OF MANAGEMENT To the Stockholders of Maxus Energy Corporation The Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles and have been audited by Arthur Andersen LLP, independent accountants, for the three months ended March 31, 1995 and the nine months ended December 31, 1995 and have been audited by Price Waterhouse LLP, independent accountants, for the two years in the period ended December 31, 1994. In meeting its responsibility for the reliability of the Consolidated Financial Statements, the Company depends on its accounting and control systems. These systems are designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use and that transactions are executed in accordance with the Company's authorizations and are recorded properly. The Company believes that its accounting and control systems provide reasonable assurance that errors or irregularities that could be material to the Consolidated Financial Statements are prevented or would be detected within a timely period. The Company also requires that all officers and other employees adhere to a written business conduct policy. The independent accountants provide an objective review as to the Company's reported operating results and financial position. The Company also has an active operations auditing program which monitors the functioning of the Company's accounting and control systems and provides additional assurance that the Company's operations are conducted in a manner which is consistent with applicable laws. The Board of Directors pursues its oversight role for the Consolidated Financial Statements through the Audit Review Committee which is composed solely of directors who are not employees of the Company. The Audit Review Committee meets with the Company's financial management and operations auditors periodically to review the work of each and to monitor the discharge of their responsibilities. The Audit Review Committee also meets periodically with the Company's independent accountants without representatives of the Company present, to discuss accounting, control, auditing and financial reporting matters. /s/ W. MARK MILLER W. Mark Miller Executive Vice President and Treasurer (Principal Financial Officer) /s/ LINDA R. ENGELBRECHT Linda R. Engelbrecht Controller (Principal Accounting Officer) Dallas, Texas February 2, 1996 F-27 74 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Maxus Energy Corporation We have audited the accompanying consolidated balance sheets of Maxus Energy Corporation (a Delaware corporation) and subsidiaries as of March 31, 1995 and December 31, 1995, and the related consolidated statements of operations and cash flows for the three months ended March 31, 1995 and the nine months ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxus Energy Corporation and its subsidiaries as of March 31, 1995 and December 31, 1995, and the results of its operations and its cash flows for the three months ended March 31, 1995 and the nine months ended December 31,1995, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP Dallas, Texas February 2, 1996 F-28 75 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Maxus Energy Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and of cash flows present fairly, in all material respects, the financial position of Maxus Energy Corporation and its subsidiaries at December 31, 1994 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 1, 7 and 8 to the Consolidated Financial Statements, the Company changed its methods of accounting for income taxes, postretirement benefits and postemployment benefits in 1993. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP Dallas, Texas February 28, 1995 F-29 76 FINANCIAL SUPPLEMENTARY INFORMATION (Unaudited) (DATA IS AS OF DECEMBER 31 FOR THE YEARS ENDED 1993 AND 1994 AND AS OF MARCH 31 FOR THE FIRST QUARTER THEN ENDED 1995. THE DOLLAR AMOUNTS IN TABLES ARE IN MILLIONS, EXCEPT PER SHARE) OIL AND GAS PRODUCING ACTIVITIES The following are disclosures about the oil and gas producing activities of the Company as required by Statement of Financial Accounting Standards No. 69 ("SFAS 69"). Results of Operations Results of operations from all oil and gas producing activities are shown below. These results exclude revenues and expenses related to the purchase of natural gas and the subsequent processing and resale of such natural gas plus the sale of natural gas liquids extracted therefrom.
UNITED STATES INDONESIA ------------------------------- ------------------------------ MARCH 31, MARCH 31, 1995 1994(B) 1993(B) 1995 1994 1993 --------- ------- ------- --------- ------ ------ Sales.................. $22.7 $ 132.3 $202.0 $93.1 $381.2 $405.9 ----- ------- ------ ----- ------ ------ Production costs....... 7.4 35.0 52.1 39.7 151.5 157.5 Exploration costs...... 3.7 12.2 17.6 2.7 13.8 16.5 Depreciation, depletion and amortization..... 7.0 45.3 77.9 16.9 75.6 63.0 (Gain) loss on sale of assets............... (.1) (201.8) 3.0 Other.................. 2.9(a) 10.8(a) 19.0 (a) (3.0) 1.8 (.2) ----- ------- ------ ----- ------ ------ 20.9 (98.5) 169.6 56.3 242.7 236.8 ----- ------- ------ ----- ------ ------ Income (loss) before tax provision........ 1.8 230.8 32.4 36.8 138.5 169.1 Provision (benefit) for income taxes......... 4.6 .6 18.7 74.4 86.7 ----- ------- ------ ----- ------ ------ Results of operations........... $ 1.8 $226.2 $ 31.8 $18.1 $ 64.1 $ 82.4 ===== ====== ====== ===== ====== ======
SOUTH AMERICA OTHER FOREIGN WORLDWIDE ----------------------------- ------------------------------- ------------------------------- MARCH 31, MARCH 31, MARCH 31, 1995 1994 1993 1995 1994 1993 1995 1994(B) 1993(B) -------- ------- ------- --------- ------- ------- --------- ------- ------- Sales.................. $ 7.8 $24.0 $ 123.6 $ 537.5 $ 607.9 --------- ----- ------- -------- ------- ------- --------- ------- ------- Production costs....... 6.8 17.8 1.7 53.9 204.3 211.3 Exploration costs...... .4 2.4 10.5 $ 2.2 $ 7.2 $ 15.2 9.0 35.6 59.8 Depreciation, depletion and amortization..... 3.9 7.5 .6 .4 2.7 1.7 28.2 131.1 143.2 (Gain) loss on sale of assets............... .2 (1.1) (1.2) (201.6) 3.0 Other.................. .4 (1.4) .2 (.3) (.1) .3 10.9 18.9 -------- ------ ------- -------- ------- ------- --------- ------- ------- 11.5 26.5 13.0 1.5 9.6 16.8 90.2 180.3 436.2 -------- ------ ------- -------- ------- ------- --------- ------- ------- Income (loss) before tax provision........ (3.7) (2.5) (13.0) (1.5) (9.6) (16.8) 33.4 357.2 171.7 Provision (benefit) for income taxes......... .5 5.2 (.3) (.2) (.3) 19.2 84.0 86.7 -------- ------ ------- -------- ------- ------- --------- ------- ------- Results of operations........... $(4.2) $ (7.7) $(12.7) $ (1.5) $ (9.4) $(16.5) $ 14.2 $ 273.2 $ 85.0 ======== ====== ======= ======== ======= ======= ========= ======= =======
- --------------- (a) Includes United States gathering and processing costs related to sales. Such costs were $3.1 million, $11.8 million and $15.1 million for March 31, 1995, December 31, 1994 and 1993, respectively. (b) Production costs, Exploration costs and Other have been restated for the years ended December 31, 1994 and 1993 to be consistent with current period presentation. F-30 77 Capitalized Costs Included in properties and equipment are capitalized amounts applicable to the Company's oil and gas producing activities. Such capitalized amounts include the cost of mineral interests in properties, completed and incomplete wells and related support equipment as follows:
UNITED STATES INDONESIA ------------------------------ ------------------------------- MARCH 31, MARCH 31, 1995 1994 1993 1995 1994 1993 --------- ------ ------- --------- ------- ------- Proved properties....... 605.4 584.0 1,214.6 1,588.1 1,572.9 1,514.3 Unproved properties..... 10.7 7.8 51.2 .7 .7 .8 ------ ------ -------- -------- -------- -------- 616.1 591.8 1,265.8 1,588.8 1,573.6 1,515.1 ------ ------ -------- -------- -------- -------- Less-Accumulated depreciation, depletion and amortization.......... 422.6 416.8 931.9 1,060.6 1,043.7 968.1 ------ ------ -------- -------- -------- -------- $ 193.5 $175.0 $ 333.9 $ 528.2 $ 529.9 $ 547.0 ====== ====== ======== ======== ======== ========
SOUTH AMERICA OTHER FOREIGN WORLDWIDE ------------------------------ ------------------------------- ------------------------------- MARCH 31, MARCH 31, MARCH 31, 1995 1994 1993 1995 1994 1993 1995 1994 1993 --------- ------ ------- --------- ------- ------- --------- ------- ------- Proved properties....... $ 252.1 $240.8 $ 173.2 $2,445.6 $2,397.7 $2,902.1 Unproved properties..... 15.2 15.2 14.9 $ 5.0 $ 5.4 $ 5.4 31.6 29.1 72.3 ------ ------ -------- -------- -------- -------- -------- -------- -------- 267.3 256.0 188.1 5.0 5.4 5.4 2,477.2 2,426.8 2,974.4 ------ ------ -------- -------- -------- -------- -------- -------- -------- Less-Accumulated depreciation, depletion and amortization.......... 12.3 8.5 1.0 4.2 4.0 2.6 1,499.7 1,473.0 1,903.6 ------ ------ -------- -------- -------- -------- -------- -------- -------- $ 255.0 $247.5 $ 187.1 $ .8 $ 1.4 $ 2.8 $ 977.5 $ 953.8 $1,070.8 ====== ====== ======== ======== ======== ======== ======== ======== ========
Costs Incurred Costs incurred by the Company in its oil and gas producing activities (whether capitalized or charged against earnings) were as follows:
UNITED STATES INDONESIA ------------------------------- ------------------------------- MARCH 31, MARCH 31, 1995 1994(A) 1993(A) 1995 1994 1993 --------- ------- ------- --------- ------- ------- Property acquisition costs................ $13.6 $ 2.4 $ 13.5 Exploration costs...... 7.0 12.8 25.6 $ 7.0 $13.8 $ 16.4 Development costs...... 8.2 20.9 35.6 10.9 58.7 120.8 ----- ----- ------ ----- ----- ------ $28.8 $36.1 $ 74.7 $17.9 $72.5 $137.2 ===== ===== ====== ===== ===== ======
SOUTH AMERICA OTHER FOREIGN WORLDWIDE ------------------------------- ------------------------------- ------------------------------- MARCH 31, MARCH 31, MARCH 31, 1995 1994 1993 1995 1994 1993 1995 1994(A) 1993(A) --------- ------- ------- --------- ------- ------- --------- ------- ------- Property acquisition costs................ $ .5 $13.6 $ 2.4 $ 14.0 Exploration costs...... $ .4 $ 3.4 $ 25.3 $ 2.2 $ 7.4 15.5 16.6 37.4 82.8 Development costs...... 11.3 77.7 123.6 30.4 157.3 280.0 ----- ----- ------ ----- ----- ------ ----- ------ ------ $11.7 $81.1 $148.9 $ 2.2 $ 7.4 $ 16.0 $60.6 $197.1 $376.8 ===== ===== ====== ===== ===== ====== ===== ====== ======
- --------------- (a) Exploration costs have been restated for the years ended December 31, 1994 and 1993 to be consistent with current period presentation. F-31 78 Oil and Gas Reserves The following table represents the Company's net interest in estimated quantities of developed and undeveloped reserves of crude oil, condensate, natural gas liquids and natural gas and changes in such quantities at quarter-end March 31, 1995 and at year-end 1994 and 1993. Net proved reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserve volumes that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserve volumes that are expected to be recovered from new wells on undrilled acreage or from existing wells where a significant expenditure is required for recompletion. Estimates of reserves were prepared by the Company using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The choice of method or combination of methods employed in the analysis of each reservoir was determined by experience in the area, stage of development, quality and completeness of basic data, and production history. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers often vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of crude oil and natural gas that are ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumption upon which they were based. The reserve estimates were subjected to economic tests to determine economic limits. The estimates may change as a result of numerous factors including, but not limited to, additional development activity, evolving production history, and continued reassessment of the viability of production under varying economic conditions.
MARCH 31, 1995(D) 1994 1993 ------------------------------------ ------------------------------------- ------ UNITED SOUTH UNITED SOUTH UNITED CRUDE OIL STATES INDONESIA AMERICA TOTAL STATES INDONESIA AMERICA TOTAL STATES - ---------------------------------------------------- --------- ------- ----- ------ --------- ------- ----- ------ (MILLIONS OF BARRELS) Net Proved Developed and Undeveloped Reserves Beginning of period........................... 3.5 158.8 67.1 229.4 12.3 180.1 71.6 264.0 12.2 Revisions of previous estimates............ .2 (3.2)(a) 5.1 2.1 .4 Purchase of reserves in place.............. .3 .3 .2 Extensions, discoveries and other additions................................ .1 3.5(a) 3.6 1.3 Production................................. (.1) (4.7) (.8) (5.6) (.9) (21.6) (1.8)(c) (24.3) (1.8) Sales of reserves in place................. (8.2) (7.8) (16.0) --- ----- ------- ----- ----- ------ ---- ----- ----- End of period................................. 3.7 154.1 66.3 224.1 3.5 158.8 67.1 229.4 12.3 --- ----- ------- ----- ----- ------ ---- ----- ----- Net Proved Developed Reserves Beginning of period........................ 2.9 141.5 14.8 159.2 11.0 161.1 14.1 186.2 11.3 End of period.............................. 2.8 136.8 14.0 153.6 2.9 141.5 14.8 159.2 11.0 SOUTH CRUDE OIL INDONESIA AMERICA TOTAL - ---------------------------------------------- --------- ------- ----- Net Proved Developed and Undeveloped Reserves Beginning of period........................... 155.2 53.1 220.5 Revisions of previous estimates............ 39.6(a) 1.2 41.2 Purchase of reserves in place.............. .2 Extensions, discoveries and other additions................................ 8.1(a) 17.3 26.7 Production................................. (22.8) (24.6) Sales of reserves in place................. ----- ---- ----- End of period................................. 180.1 71.6 264.0 ----- ---- ----- Net Proved Developed Reserves Beginning of period........................ 128.9 140.2 End of period.............................. 161.1 14.1 186.2
F-32 79
MARCH 31, 1995(D) 1994 1993 -------------------------- --------------------------- -------------------------- UNITED UNITED UNITED NATURAL GAS(B) STATES INDONESIA TOTAL STATES INDONESIA TOTAL STATES INDONESIA TOTAL - -------------------------------------------------- --------- ----- ------ --------- ----- ------ --------- ----- (BILLIONS OF CUBIC FEET) Net Proved Developed and Undeveloped Reserves Beginning of period......................... 492 304 796 679 262 941 584 245 829 Revisions of previous estimates......... 21 1 22 3 (23) (20 ) Purchase of reserves in place........... 24 24 17 17 Extensions, discoveries and other additions............................. 13 58 71 152 45 197 Production.............................. (11) (4) (15) (57) (17) (74) (76) (5) (81) Sales of reserves in place.............. (164) (164) (1) (1) ---- --- ---- ---- ---- ---- ---- ---- ---- End of period............................... 505 300 805 492 304 796 679 262 941 ---- --- ---- ---- ---- ---- ---- ---- ---- Net Proved Developed Reserves Beginning of period..................... 384 107 491 507 85 592 515 22 537 End of period........................... 373 103 476 384 107 491 507 85 592
MARCH 31, 1995(D) 1994 1993 -------------------------- --------------------------- -------------------------- UNITED UNITED UNITED NATURAL GAS LIQUIDS STATES INDONESIA TOTAL STATES INDONESIA TOTAL STATES INDONESIA TOTAL - -------------------------------------------------- --------- ----- ------ --------- ----- ------ --------- ----- (MILLIONS OF BARRELS) Net Proved Developed and Undeveloped Reserves Beginning of period......................... 36.5 9.4 45.9 37.1 10.2 47.3 30.8 9.3 40.1 Revisions of previous estimates......... 2.0 (.7) 1.3 1.9 (.3) 1.6 Purchase of reserves in place........... .4 .4 Extensions, discoveries and other additions............................. .4 .7 1.1 7.2 1.7 8.9 Production.............................. (.8) (.1) (.9) (3.0) (.8) (3.8) (2.8) (.5) (3.3) ---- --- ---- ---- ---- ---- ---- ---- ---- End of period............................... 36.1 9.3 45.4 36.5 9.4 45.9 37.1 10.2 47.3 ---- --- ---- ---- ---- ---- ---- ---- ---- Net Proved Developed Reserves Beginning of period..................... 29.7 3.2 32.9 29.5 3.3 32.8 27.0 5.1 32.1 End of period........................... 28.9 3.1 32.0 29.7 3.2 32.9 29.5 3.3 32.8
- --------------- (a) The changes reflect the impact of the change in the price of crude oil on the barrels to which the Company is entitled under the terms of the Indonesian production sharing contracts. The Indonesian production sharing contracts allow the Company to recover tangible production and exploration costs, as well as operating costs. As the price of crude oil fluctuates, the Company is entitled to more or less barrels of cost recovery oil. Increasing prices at the end of 1994 resulted in a decrease of 11.7 million barrels. Decreasing prices resulted in an increase of 24.3 million barrels in 1993. (b) Natural gas is reported on the basis of actual or calculated volumes which remain after removal, by lease or field separation facilities, of liquefiable hydrocarbons and of non-hydrocarbons where they occur in sufficient quantities to render the gas unmarketable. Natural gas reserve volumes include liquefiable hydrocarbons approximating 11% of total gas reserves in the United States and 5% in Indonesia which are recoverable at natural gas processing plants downstream from the lease or field separation facilities. Such recoverable liquids also have been included in natural gas liquids reserve volumes. (c) Reserves in Venezuela attributable to an operating service agreement under which all hydrocarbons are owned by the Venezuelan government have not been included. Production reported in Oil and Gas reserves does not include Venezuela production but it is included in net oil sales reported in Exploration and Production Statistics. The SFAS 69 Results of Operations, Capitalized Costs and Costs Incurred disclosures include costs related to Venezuela. (d) Reserves are estimated at year end only. Reserves at March 31, 1995 are December 31, 1994 reserves adjusted only for the production for the first quarter of 1995 and purchase of properties in the United States. Future Net Cash Flows The standardized measure of discounted future net cash flows relating to the Company's proved oil and gas reserves is calculated and presented in accordance with Statement of Financial Accounting Standards F-33 80 No. 69. Accordingly, future cash inflows were determined by applying year-end oil and gas prices (adjusted for future fixed and determinable price changes) to the Company's estimated share of future production from proved oil and gas reserves. Future income taxes were derived by applying year-end statutory tax rates to the estimated net future cash flows. A prescribed 10% discount factor was applied to the future net cash flows. In the Company's opinion, this standardized measure is not a representative measure of fair market value, and the standardized measure presented for the Company's proved oil and gas reserves is not representative of the reserve value. The standardized measure is intended only to assist financial statement users in making comparisons between companies. Future net cash flows and changes in the standardized measure are only prepared at year-end, therefore, no data is presented as of March 31, 1995. Information as of December 31, 1995 is included in the Post-merger section.
UNITED STATES INDONESIA SOUTH AMERICA WORLDWIDE ------------------ --------------------- ----------------- --------------------- 1994 1993 1994 1993 1994 1993 1994 1993 ------- -------- --------- --------- ------- ------- --------- --------- Future cash flows....................... $ 967.3 $1,781.2 $ 3,389.0 $ 3,269.8 $ 831.9 $ 700.9 $ 5,188.2 $ 5,751.9 Future production and development costs................................. (324.7) (521.6) (2,246.8) (2,258.1) (371.8) (500.9) (2,943.3) (3,280.6) Future income tax expenses.............. (92.8) (152.4) (503.1) (438.5) (53.6) (81.9) (649.5) (672.8) ------- -------- --------- --------- ------- ------- --------- --------- Future net cash flows................... 549.8 1,107.2 639.1 573.2 406.5 118.1 1,595.4 1,798.5 Annual discount at 10% rate............. (241.1) (414.0) (261.7) (238.2) (162.8) (85.0) (665.6) (737.2) ------- -------- --------- --------- ------- ------- --------- --------- Standardized measure of discounted future net cash flows................. $ 308.7 $ 693.2 $ 377.4 $ 335.0 $ 243.7 $ 33.1 $ 929.8 $ 1,061.3 ======= ======== ========= ========= ======= ======= ========= =========
The following are the principal sources for change in the standardized measure:
1994 1993 -------- -------- Beginning of year....................................................... $1,061.3 $1,169.6 Sales and transfers of oil and gas produced, net of production costs............................................................. (333.2) (396.6) Net changes in prices and production costs......................... 103.4 (443.6) Extensions, discoveries and improved recovery, less related costs............................................................. 68.0 229.9 Development costs incurred during the year that reduced future development costs................................................. 123.2 217.4 Revisions of previous quantity estimates........................... 56.6 13.6 Purchase of reserves in place...................................... .4 18.8 Sale of reserves in place.......................................... (275.7) (.9) Net change in income taxes......................................... (22.6) 170.5 Accretion of discount.............................................. 132.4 172.3 Other.............................................................. 16.0 (89.7) -------- -------- End of year............................................................. $ 929.8 $1,061.3 ======== ========
F-34 81 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1995 ----------------- (IN MILLIONS, EXCEPT PER SHARE) Revenues Sales and operating revenues............................................. $ 463.8 Other revenues, net...................................................... 7.1 ------- 470.9 Costs and Expenses Operating expenses....................................................... 173.5 Gas purchase costs....................................................... 41.4 Exploration, including exploratory dry holes............................. 51.2 Depreciation, depletion and amortization................................. 142.1 General and administrative expenses...................................... 12.7 Taxes other than income taxes............................................ 9.7 Interest and debt expenses............................................... 104.9 ------- 535.5 ------- Loss Before Income Taxes...................................................... (64.6) Income Taxes............................................................. 9.1 ------- Net Loss...................................................................... (73.7) Dividend requirement on Preferred Stock.................................. (28.8) ------- Net Loss Applicable to Common Shares.......................................... $(102.5) ======= Net Loss Per Common Share..................................................... $ (.76) ======= Average Common Shares Outstanding............................................. 135.6
See Notes to Consolidated Financial Statements. F-35 82 MAXUS ENERGY CORPORATION CONSOLIDATED BALANCE SHEET
DECEMBER 31, APRIL 1, ASSETS 1995 1995 ------------ ----------- (UNAUDITED) (IN MILLIONS, EXCEPT SHARES) Current Assets Cash and cash equivalents....................................... $ 38.3 $ 92.1 Short-term investments.......................................... 65.0 Receivables, less allowance for doubtful accounts............... 141.8 127.8 Taxes receivable................................................ 13.7 Inventories..................................................... 40.8 28.6 Restricted cash................................................. 19.0 48.5 Prepaids and other current assets............................... 26.5 26.5 -------- -------- Total Current Assets..................................... 266.4 402.2 Properties and Equipment, less accumulated depreciation, depletion and amortization................................................... 2,363.6 2,404.7 Investments and Long-Term Receivables................................ 7.1 36.7 Restricted Cash...................................................... 61.4 77.1 Deferred Charges..................................................... 18.3 15.5 -------- -------- $2,716.8 $ 2,936.2 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Long-term debt.................................................. $ 34.3 $ 12.7 Accounts payable................................................ 59.0 49.8 Taxes payable................................................... 39.7 Accrued liabilities............................................. 173.4 263.2 -------- -------- Total Current Liabilities................................ 306.4 325.7 Long-Term Debt....................................................... 1,261.2 1,282.7 Deferred Income Taxes................................................ 551.2 593.5 Other Liabilities and Deferred Credits............................... 233.0 260.9 $9.75 Redeemable Preferred Stock, $1.00 par value Authorized and issued shares--1,250,000........................................... 125.0 125.0 Stockholders' Equity $2.50 Preferred Stock, $1.00 par value Authorized shares--5,000,000 Issued shares--3,500,000...................................... 66.5 73.1 $4.00 Preferred Stock, $1.00 par value Authorized shares--5,915,017 Issued shares--4,356,958...................................... 11.7 24.8 Common Stock, $1.00 par value Authorized shares--300,000,000 Issued shares--135,609,772 and 135,897,899.................... 135.6 135.9 Paid-in capital................................................. 105.8 118.2 Accumulated deficit............................................. (73.7) Minimum pension liability....................................... (5.9) Common Treasury Stock, at cost--0 and 310,535................... (3.6) Total Stockholders' Equity............................... 240.0 348.4 -------- -------- $2,716.8 $ 2,936.2 ======== ========
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. The Consolidated Balance Sheet at April 1, 1995 which represents the opening post-merger consolidated balance sheet is unaudited. F-36 83 MAXUS ENERGY CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1995 ------------ (IN MILLIONS) Cash Flows From Operating Activities: Net loss..................................................................... $ (73.7) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization................................ 142.1 Dry hole costs.......................................................... 18.8 Deferred income taxes................................................... (49.2) Net gain on sale of assets and investments.............................. (5.9) Postretirement benefits................................................. 3.1 Accretion of discount on long-term debt................................. 7.3 Other................................................................... 1.4 Changes in components of working capital: Receivables........................................................ (5.4) Inventories, prepaids and other current assets..................... (12.8) Accounts payable................................................... 9.2 Accrued liabilities................................................ (31.5) Taxes payable/receivable........................................... 53.4 -------- Net Cash Provided by Operating Activities..................... 56.8 -------- Cash Flows From Investing Activities: Expenditures for properties and equipment--including dry hole costs.......... (137.4) Proceeds from sales of assets................................................ 27.4 Proceeds from sale/maturity of short- and long-term investments.............. 96.3 Restricted cash.............................................................. 45.3 Other........................................................................ (34.3) -------- Net Cash Used in Investing Activities......................... (2.7) -------- Cash Flows From Financing Activities: Interest rate swap........................................................... 6.9 Proceeds from issuance of short-term debt.................................... 17.2 Repayment of short-term debt................................................. (21.8) Net proceeds from issuance of long-term debt................................. 839.8 Repayment of long-term debt.................................................. (425.1) Acquisition of common stock, including payment of merger costs............... (746.6) Capital contribution from parent............................................. 250.5 Dividends paid on Preferred Stock............................................ (28.8) -------- Net Cash Used in Financing Activities......................... (107.9) -------- Net Decrease in Cash and Cash Equivalents......................................... (53.8) Cash and Cash Equivalents at Beginning of Period.................................. 92.1 -------- Cash and Cash Equivalents at End of Period........................................ $ 38.3 ========
See Notes to Consolidated Financial Statements. F-37 84 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION On June 8, 1995, a special meeting of the stockholders of Maxus Energy Corporation (together with its foreign and domestic subsidiaries, the "Company" or "Maxus") was held to approve the Agreement of Merger ("Merger Agreement") dated February 28, 1995, between the Company, YPF Acquisition Corp. (the "Purchaser") and YPF Sociedad Anonima ("YPF"). The holders of the Company's common stock, $1.00 par value per share, and $4.00 Cumulative Convertible Preferred Stock approved the Merger Agreement, and the Purchaser was merged into the Company (the "Merger") on June 8, 1995. 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 acquired assets and assumed liabilities based on their fair values at the date of acquisition. As a result, the Company's assets and liabilities were revalued to reflect the approximate $762 million cash purchase price paid by YPF to acquire the Company. The Company's pre-Merger Consolidated Balance Sheet as of March 31, 1995, together with the purchase method accounting adjustments, became the Company's opening unaudited post-Merger Consolidated Balance Sheet on April 1, 1995, which is included in the accompanying balance sheet. The following post-Merger data is for the nine months ended December 31, 1995 and dollar amounts in tables are in millions, except per share amounts. Post-Merger financial information is not comparable to prior periods due to the application of purchase accounting effective April 1, 1995. NOTE ONE--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. Consolidation Accounting The Consolidated Financial Statements include the accounts of Maxus Energy Corporation and all domestic and foreign subsidiaries. All significant intercompany accounts and transactions have been eliminated. 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. Net cash provided by operating activities reflects cash receipts for interest income and cash payments for interest expense and income taxes as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ------------ Interest receipts............................................... $ 11.8 Interest payments............................................... 107.9 Income tax payments............................................. 64.7
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. F-38 85 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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 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 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 total 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 being amortized over the useful lives, and applying the same depreciation method, 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. The Company's gross underproduced and overproduced volumes at December 31, 1995, are not material. 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 F-39 86 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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 period. 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. 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. Additionally, SFAS 109 requires that annual taxes are to be allocated to interim periods on the basis of the requirements of Accounting Principles Board Opinion No. 28 ("APB 28"), Interim Financial Reporting. The reporting requirements of APB 28 are based on the view that each interim period is an integral part of the annual period. Because the tax year of the Company did not close in any relevant jurisdiction on March 31, 1995, taxes were not measured on deferred tax liabilities and assets at that time. Thus, taxes were allocated to the nine month period ended December 31, 1995 based on an allocation of taxes for the annual period ended December 31, 1995, in accordance with APB 28 and SFAS 109. Deferred tax assets and liabilities were measured at December 31, 1995. Earnings per Share Primary earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding, unless the inclusion of common stock equivalents has an antidilutive effect on earnings per share. Fully diluted earnings per share are not presented due to the antidilutive effect of including all potentially dilutive common stock equivalents. F-40 87 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 and trade receivables. The Company's cash equivalents, 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 its interest rate swap agreement, 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. The Company historically has hedged no more than 50% of its U. S. gas production although the Company anticipates it may hedge up to 90% of its U. S. gas production during 1996. 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 a decrease or increase 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 December 31, 1995, the Company had $12.4 million in deferred revenue as a result of a take-or-pay payment received related to its Indonesian operations. NOTE TWO--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 Sociedad Anonima ("YPF"). The holders of the Company's common stock, $1.00 par value per share (the "Shares"), 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"). F-41 88 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Merger was the consummation of all transactions contemplated by the Merger Agreement. Pursuant to the Merger Agreement, a tender offer (the "Offer") was commenced on March 6, 1995 by the Purchaser for all the outstanding Shares at $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 cancelled 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, consisting of the $4.00 Preferred Stock, $2.50 Cumulative Preferred Stock ("$2.50 Preferred Stock") and $9.75 Cumulative Convertible Preferred Stock (the "$9.75 Preferred Stock") remain outstanding. YPF currently owns approximately 96.9% of the outstanding Voting Shares. 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. 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. During the second quarter of 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 plus all liabilities assumed to acquire the Company. The Company's oil and gas properties were assigned carrying amounts based on their relative fair market values. In connection with the purchase price allocation, the Company adopted 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. Maxus revalued its assets and liabilities on April 1, 1995 following the provisions of SFAS 121. There was no impact on the Company's results of operations due to the adoption of SFAS 121 during the nine months ended December 31, 1995. Following the Merger, Chase provided two additional credit facilities aggregating $425 million: (i) a credit facility of $250 million extended to Midgard Energy Company ("Midgard"), a wholly owned subsidiary of the Company, and (ii) a credit facility of $175 million extended to Maxus Indonesia, Inc. ("Holdings"), 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. F-42 89 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE THREE--ASSET DIVESTITURES In December 1995, the Company sold its overriding royalty interest in the Recetor Block in Colombia for $25 million. There was no gain or loss recognized on this transaction as the sales price approximated the carrying value of the investment in the Recetor Block. NOTE FOUR--GEOGRAPHIC DATA The Company is engaged primarily in the exploration for and the production and sale of crude oil and natural gas. Sales, operating profit and identifiable assets by geographic area were as follows:
SALES AND OPERATING REVENUES ----------- NINE MONTHS ENDED DECEMBER 31, 1995 ---------- United States................................................... $ 128.9 Indonesia....................................................... 298.3 South America................................................... 36.6 -------- $ 463.8 =========
OPERATING LOSS ----------- NINE MONTHS ENDED DECEMBER 31, 1995 --------- United States................................................... $ (15.1) Indonesia....................................................... 88.7 South America................................................... (11.5) Other Foreign................................................... (15.9) ---------- 46.2 General corporate expenses...................................... (5.9) Interest and debt expenses...................................... (104.9) ---------- $ (64.6) =========
IDENTIFIABLE ASSETS ----------- DECEMBER 31, 1995 ----------- United States................................................... $ 715.9 Indonesia....................................................... 1,157.1 South America................................................... 666.6 Other Foreign................................................... 24.3 --------- 2,563.9 Corporate assets................................................ 152.9 --------- $ 2,716.8 =========
Net foreign assets were $1,296.7 million at December 31, 1995. Income from foreign operations, after applicable local taxes, was $6.9 million for the nine months ended December 31, 1995. F-43 90 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Sales to two customers for the nine months ended December 31, 1995 each represented 10% or more of consolidated sales:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Mitsubishi Corporation............................................. $ 49.6 Indonesian Government.............................................. 102.4
The Company does not believe that the loss of Mitsubishi Corporation as a customer would adversely affect the Company's ability to market its oil and gas production. Sales to the Company's largest customer, the Indonesian Government, are made primarily pursuant to long-term production sharing contracts between the Company's Indonesian operations and the Indonesian Government. The Indonesian Government is required to purchase a specified amount of the Company's oil and gas production throughout the life of its operations in Indonesia based on these contracts. NOTE FIVE--TAXES Income before income taxes was comprised of income (loss) from:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- United States...................................................... $(125.9) Foreign............................................................ 61.3 ------- $ (64.6) =======
The Company's provision for income taxes was comprised of the following:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Current Federal....................................................... $ (7.9) Foreign....................................................... 64.9 State and local............................................... 1.3 ------- 58.3 Deferred Federal....................................................... (15.2) Foreign....................................................... (34.0) ------- (49.2) ------- Provision for income taxes......................................... $ 9.1 =======
F-44 91 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The principal reasons for the difference between tax expense at the statutory federal income tax rate of 35% and the Company's provision for income taxes were:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Tax expense (benefit) at statutory federal rate.................... $ (22.6) Increase (reduction) resulting from: Taxes on foreign income....................................... 19.8 Asset sales................................................... 1.5 Non-deductible depreciation and amortization of net purchase price adjustments............................................ 4.4 Valuation allowance........................................... 11.7 Audit settlements and other changes in tax position........... (5.0) Other, net.................................................... (.7) ------- Provision for income taxes.................................... $ 9.1 =======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of and for the nine months ended December 31, 1995 were as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- U. S. deferred tax liabilities Properties and equipment...................................... $ 269.1 Other......................................................... 18.6 ------- Deferred U. S. tax liabilities........................... 287.7 ------- U. S. deferred tax assets Foreign deferred taxes........................................ (139.8) Book accruals................................................. (28.0) Interest limitation carryforwards............................. (16.4) Loss carryforwards............................................ (72.7) Credit carryforwards.......................................... (19.9) Other......................................................... (.2) ------- Gross deferred U. S. tax assets.......................... (277.0) ------- Valuation allowance........................................... 87.1 ------- Net deferred U. S. tax assets............................ (189.9) ------- Net deferred U. S. taxes................................. 97.8 ------- Foreign deferred tax liabilities Properties and equipment...................................... 446.5 ------- Net deferred foreign taxes............................... 446.5 ------- Net deferred taxes................................................. $ 544.3 =======
As a result of an increase in U. S. net operating loss carryforwards, the valuation allowance was increased $11.7 million during the nine months ended December 31, 1995. F-45 92 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1995, the Company had $14.4 million of general business credit carryforwards that expire between 1996 and 2002; $207.7 million of U.S. net operating loss carryforwards that expire from 2003 to 2010; and $5.5 million of minimum tax credit that can be carried forward indefinitely. As a result of the Merger, effective April 1, 1995, the Company's ability to utilize its existing net operating loss carryforwards will be limited by statute to approximately $92.0 million each year until exhausted. To the extent certain gains are recognized in the future, the annual limitation may be increased to the extent that the gains are built-in gains within the meaning of the U.S. Internal Revenue Code. There are accumulated undistributed earnings after applicable local taxes of foreign subsidiaries of $5.7 million at December 31, 1995 for which no provision was necessary for foreign withholding or other income taxes because that amount had been reinvested in properties and equipment and working capital in the foreign jurisdictions. Taxes other than income taxes were comprised of the following:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Gross production................................................... $ 4.1 Real and personal property......................................... 5.2 Other.............................................................. .4 ------ $ 9.7 ======
NOTE SIX--POSTEMPLOYMENT BENEFITS Pensions The components of net periodic pension expense are as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Service cost for benefits earned during the period................. $ 1.4 Interest cost on projected benefit obligation...................... 6.5 Actual return on plan assets....................................... (13.4) Net amortization and deferrals..................................... 7.4 -------- $ 1.9 ========
Plan assets are primarily invested in short-term investments, stocks and bonds. The principal assumptions used to estimate the benefit obligations of the plans on the measurement date, October 1, 1995, were as follows: Discount rate......................................................... 7.5% Expected long-term rate of return on assets........................... 9.0% Rate of increase in compensation levels............................... 4.5%
F-46 93 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The funded status of the plans at December 31, 1995 were as follows:
PLANS WITH --------------------------- ACCUMULATED ASSETS BENEFITS EXCEEDING EXCEEDING ACCUMULATED ASSETS BENEFITS ----------- ----------- Actuarial present value of: Vested benefit obligation...................... $ 111.7 $ 1.1 ------- ----- Accumulated benefit obligation................. $ 117.6 $ 1.1 ------- ----- Projected benefit obligation................... $ 122.6 $ 1.1 Plan assets at fair value........................... 102.8 1.3 ------- ----- Plan assets (less)more than projected benefit obligation........................................ $ (19.8) $ .2 Unrecognized net loss............................... 10.1 Adjustment required to recognize minimum liability......................................... (5.9) ------- ----- Prepaid (accrued) pension cost...................... $ (15.6) $ .2 ======= =====
As a result of the Merger, the Company was required to fully accrue its obligation for pension benefits in purchase accounting (See Note Two). Therefore, effective April 1, 1995, the Company increased its balance sheet liability to reflect any previously unrecognized gains and losses, transition obligations and prior service costs. Additionally, several of the Company's pension plans experienced a partial curtailment due to workforce reductions following the Merger. The impact of the partial curtailment, which had no impact on the Company's net periodic pension expense, reduced the Company's projected benefit obligation by $1.1 million. At December 31, 1995, the Company's accumulated postretirement benefit obligation ("APBO") exceeded the plan assets. In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded a minimum pension liability of $5.9 million and a charge to equity of $5.9 million. In addition to the defined benefit plans, the Company has a defined contribution plan which covers the Indonesian nationals. Employee contributions of 2% of each covered employee's compensation are matched by the Company with a contribution of 6% of compensation. Contributions to the plan were $.4 million for the nine months ended December 31, 1995. Other Postretirement Benefits As a result of the Merger, the Company was required to fully accrue its obligation for postretirement benefits other than pensions in purchase accounting (See Note Two). Therefore, effective April 1, 1995, the Company increased its balance sheet liability by $31.7 million to reflect any previously unrecognized gains and unrecognized transition obligation at March 31, 1995. The components of net periodic postretirement benefit expense for the nine months ended December 31, 1995 are as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Service cost for benefits earned during the period.............. $ .3 Interest cost on accumulated postretirement benefit obligation.................................................... 2.6 ----- $ 2.9 =====
F-47 94 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The APBO as of December 31, 1995 was $46.6 million. The amount recognized in the Company's statement of financial position at December 31, 1995 is as follows:
DECEMBER 31, 1995 ------------ Retirees.......................................................... $ 39.9 Fully eligible active employees................................... 2.3 Other active employees............................................ 4.4 ------ Total............................................................. 46.6 Unrecognized net loss............................................. (1.6) ------ $ 45.0 ======
A discount rate of 7.5% was used in determining the APBO at December 31 1995. The APBO was based on a 9% increase in the medical cost trend rate, with the rate trending downward .5% per year to 5% in 2003 and remaining at 5% thereafter. This assumption has a significant effect on annual expense, as it is estimated that a 1% increase in the medical trend rate would increase the APBO at December 31, 1995 by $4.6 million and increase the net periodic postretirement benefit cost by $.4 million per year. NOTE SEVEN--FINANCIAL INSTRUMENTS The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. Unless otherwise disclosed, the fair value of financial instruments approximates their recorded values. Restricted Cash The fair value of the Company's restricted cash, which is invested primarily in U. S. Treasury notes, marketable securities and trust accounts, is based on the quoted market prices for the same or similar securities at the reporting date. The Company's gross unrealized gain on its restricted cash was $2.3 million at December 31, 1995. Long-Term Debt The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair value of the Company's financial instruments are as follows:
DECEMBER 31, 1995 --------------------- CARRYING FAIR AMOUNT VALUE -------- -------- Assets Restricted cash, including current and long-term portion.......................................... $ 80.4 $ 82.7 Liabilities Long-term debt, including current portion.......... 1,295.5 1,408.7 $9.75 Preferred Stock.............................. 125.0 125.8
For information on the Company's derivative financial instruments, see Note Thirteen. F-48 95 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE EIGHT--RECEIVABLES
DECEMBER 31, 1995 ------------ Trade receivables................................................. $ 101.4 Notes and other receivables....................................... 41.3 Less--Allowance for doubtful receivables.......................... .9 ------- $ 141.8 =======
NOTE NINE--PROPERTIES AND EQUIPMENT
DECEMBER 31, 1995 ------------ Proved properties................................................. $ 1,597.1 Unproved properties............................................... 763.1 Gas plants and other.............................................. 130.0 --------- Total Oil and Gas....................................... 2,490.2 Corporate......................................................... 13.3 --------- 2,503.5 Less--Accumulated depreciation, depletion and amortization........ 139.9 -------- $2,363.6 ========
The charge against earnings for depreciation, depletion and amortization of property and equipment was $142.1 million for the nine months ended December 31, 1995 and the charge against earnings for maintenance and repairs, which is included in operating expenses, was $25 million. NOTE TEN--RESTRICTED CASH At December 31, 1995 the Company had $80.4 million in restricted cash, of which $30.7 million represented collateral for outstanding letters of credit and $7.4 million represented six months of interest on outstanding borrowings as required by the Holdings credit agreement. Assets held in trust as required by certain insurance policies were $42.3 million. Approximately $19.0 million of collateral for outstanding letters of credit at December 31, 1995, was classified as a current asset as these amounts are expected to be released during 1996. NOTE ELEVEN--ACCRUED LIABILITIES
DECEMBER 31, 1995 ------------ Accrued interest payable.......................................... $ 24.2 Joint interest billings for international operations.............. 41.7 Merger reserve.................................................... 31.4 Environmental reserve............................................. 28.5 Overlift payable.................................................. 6.6 Postretirement and postemployment benefits........................ 4.5 Accrued compensation, benefits and withholdings................... 8.1 Other............................................................. 28.4 ------- $ 173.4 =======
F-49 96 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE TWELVE--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
DECEMBER 31, 1995 --------------------------------- FACE UNAMORTIZED CARRYING VALUE DISCOUNT VALUE -------- ----------- -------- Senior Indebtedness Sinking Fund Debentures 11 1/4% due 2013, effective rate 13.45%............................. $ 16.9 $ 2.5 $ 14.4 11 1/2% due 2001-2015, effective rate 13.82%............................. 109.6 15.0 94.6 8 1/2% due 1998-2008, effective rate 12.60%............................. 93.8 17.7 76.1 Notes 9 7/8% due 2002, effective rate 12.26%.... 247.8 26.7 221.1 9 1/2% due 2003, effective rate 12.22%.... 100.0 12.7 87.3 9 3/8% due 2003, effective rate 12.03%.... 260.0 34.5 225.5 Medium-term notes.............................. 144.9 .1 144.8 Bank and other loans........................... .1 .1 Midgard Credit Facility........................ 250.0 250.0 Holdings Credit Facility....................... 175.0 175.0 Advances from parent........................... 6.6 6.6 -------- ------- -------- Total senior indebtedness............. 1,404.7 109.2 1,295.5 Less--current portion.......................... 34.3 34.3 -------- ------- -------- $1,370.4 $ 109.2 $1,261.2 ======== ======= ========
As a result of the Merger, the Company was required to revalue its outstanding debt to market value. Consequently, the Company reduced the carrying amount of its debt by recording $115.1 million of unamortized discount on April 1, 1995. Total debt outstanding at April 1, 1995 of $1,295.4 million, as included in the accompanying unaudited balance sheet, reflected the unamortized discount. For the nine months ended December 31, 1995 $5.9 million of discount amortization was included as a component of interest expense. The aggregate maturities of long-term debt outstanding at December 31, 1995, for the next five years will be as follows: 1996................................................................. $34.3 1997................................................................. 89.1 1998................................................................. 95.5 1999................................................................. 76.5 2000................................................................. 74.0
At December 31, 1995, the Company had $144.8 million of medium-term notes outstanding, which were issued in prior years, with maturities from 1996 to 2004 and annual interest rates ranging from 7.57% to 11.08%. The Company maintains a $25.0 million uncommitted credit facility (the "credit facility"), which is used for the issuance of documentary or standby letters of credit and/or the payment of shipping documents. The credit facility can be secured by cash or the accounts receivable which are financed through the letters of credit. At December 31, 1995, there were $13.8 million of cash collateralized letters of credit outstanding under this credit facility. F-50 97 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total interest and debt expenses incurred, including capitalized interest, were as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Interest and debt expenses......................................... $ 104.9 Capitalized interest............................................... 1.4 ------ $ 106.3 =======
CREDIT FACILITIES On April 5, 1995, the Company borrowed $442 million under the Purchaser Facility (See Note Two) 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. Pursuant to a commitment letter from Chase, Chase provided two additional credit facilities aggregating $425 million: (i) a credit facility of $250 million extended to Midgard Energy Company ("Midgard"), a wholly owned subsidiary of the Company and (ii) a credit facility of $175 million extended to Maxus Indonesia, Inc. ("Holdings"), a wholly owned subsidiary of the Company. The proceeds of these loans were used to repay in part, the Purchaser Facility, which was assumed by the Company. In addition, the Company applied $8 million of its available cash to repayment of the Purchaser Facility. The Company capitalized $16.8 million of debt issue costs during 1995 in connection with the Midgard and Holdings credit facilities. These costs are recorded as deferred charges and amortized over the terms of the related borrowings. For the nine months ended December 31, 1995 $1.2 million of debt issue costs amortization was included as a component of interest expense. Midgard Facility. Approximately $250 million of the loans under the Purchaser Facility were repaid on June 8, 1995 with funds provided to the Company by Midgard. Midgard provided these funds from the proceeds of a $250 million loan (the "Midgard Loan") extended to it pursuant to a credit agreement (the "Midgard Facility") entered into on such date. In addition, approximately $8 million of the loans outstanding under the Purchaser Facility, including accrued interest on the Purchaser Facility loans, were repaid on June 8, 1995 utilizing cash held by the Company. The Midgard Loan, which was made in a single drawing, will mature on December 31, 2003 and will be repaid in up to 28 consecutive equal quarterly installments commencing on March 31, 1997, subject to semi-annual borrowing base redeterminations. At December 31, 1995, the borrowing base for the Midgard Facility was $250 million. The borrowing base is subject to redetermination on April 1, 1996. At Midgard's option, the interest rate applicable to the Midgard Loan will be, until March 31, 1997, either (i) the one-, two- or three-month London Interbank Offered Rate ("LIBOR") plus a margin of 1 3/4% or (ii) the Base Rate (as defined in the Midgard Facility) plus a margin of 3/4% and, thereafter, either (iii) the one-, two- or three-month LIBOR plus a margin of 2 1/4% or (iv) the Base Rate plus a margin of 1 1/4%. At December 31, 1995, the interest rate on the Midgard Facility based on the one-month LIBOR plus 1 3/4% was 7.6875%. The Midgard Loan is not secured but is guaranteed by YPF and the Company. The agreement evidencing the Midgard Loan contains, among other things, a negative pledge on all assets of Midgard, subject to customary exceptions. It is anticipated that the Midgard Loan will be repaid with funds generated by Midgard's business operations. Holdings Facility. Approximately $175 million of the Purchaser Facility was repaid with funds provided on June 16, 1995 to the Company by Holdings. Holdings provided these funds from the proceeds of a $175 million loan (the "Subsidiaries Loan") extended to it pursuant to a credit agreement (the "Holdings Facility") entered into on such date. F-51 98 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Subsidiaries Loan, which was made in a single drawing on June 16, 1995, will mature on December 31, 2002 and will be repaid in up to 24 consecutive equal quarterly installments commencing on March 31, 1997, subject to semi-annual borrowing base redeterminations. At December 31, 1995, the borrowing base for the Holdings Facility was $175 million. The borrowing base is subject to redetermination on April 1, 1996. At the option of Holdings, the interest rates applicable to the Subsidiaries Loan will be, until March 31, 1997, either (i) the one-, two- or three-month LIBOR plus a margin of 2 1/4% or (ii) the Base Rate (as defined in the Holdings Facility) plus a margin of 1 1/4% and, thereafter, either (iii) the one-, two- or three-month LIBOR plus a margin of 2 3/4% or (iv) the Base Rate plus a margin of 1 3/4%. At December 31, 1995, the interest rate on the Holdings Facility based on the one-month LIBOR plus 2 1/4% was 8.125%. The Subsidiaries Loan to Holdings is secured by the stock of Maxus Northwest Java, Inc. ("Java") and Maxus Southeast Sumatra, Inc. ("Sumatra") (collectively, the "Holdings Subsidiaries") and by the interest of Holdings, Java and Sumatra in certain accounts maintained at Chase into which the proceeds of sales of hydrocarbons are to be deposited, and is guaranteed by Java, Sumatra, YPF and the Company. The agreement evidencing the Subsidiaries Loan contains a negative pledge on all of the other assets of Holdings, subject to customary exceptions. It is anticipated that the Subsidiaries Loan will be repaid with funds generated by the Holdings Subsidiaries' business operations. Each of the Midgard Facility and the Holdings Facility contains restrictive covenants including limitations upon the sale of assets, mergers and consolidations, the creation of liens and additional indebtedness, investments, dividends, the purchase or repayment of subordinated indebtedness, transactions with affiliates and modifications to certain material contracts. The obligors under the Midgard Facility and the Holdings Facility may not permit (a) consolidated tangible net worth to be less than $200 million, in the case of the Midgard Facility, or $350 million, in the case of the Holdings Facility, plus (or minus), in the case of Midgard, the amount of any adjustment in the book value of assets or, in the case of Holdings, 70% of the amount of any adjustment to net worth, resulting from the merger of YPF Acquisition Corp. into the Company, (b) the ratio of consolidated cash flow to consolidated debt service to be less than 1.1 to 1.0 at the end of any fiscal quarter and (c) the ratio of consolidated cash flow to consolidated interest expense to be less than 1.25 to 1.0 at the end of any fiscal quarter. In addition, mandatory prepayments of the loans under the Midgard Facility and the Holdings Facility may be required in connection with certain asset sales and casualty losses, upon the issuance of subordinated indebtedness and in 1996 and in each year thereafter if, after semi-annual review, the agent and the lenders determine that a borrowing base deficiency exists. No borrowing base deficiencies existed at December 31, 1995. The guaranty by Maxus of the obligation under the Midgard Facility (the "Midgard Guaranty") and under the Holdings Facility (the "Subsidiaries Guaranty") contains restrictions upon mergers and consolidations, the creation of liens and the business activities in which Maxus and its subsidiaries may engage. In addition, Midgard, in the case of the Midgard Guaranty, and Holdings and its subsidiaries, in the case of the Subsidiaries Guaranty, are required to be wholly owned subsidiaries of Maxus, except to the extent YPF or a subsidiary of YPF (other than Maxus or a subsidiary of Maxus) makes capital contributions to Midgard or Holdings or one of Holdings subsidiaries, as the case may be. Keepwell Covenant Pursuant to the Merger Agreement, in the event that 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 the net proceeds of any sale by the Company of common stock or F-52 99 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) nonredeemable preferred stock after the Merger Date. The foregoing obligations of YPF (the "Keepwell Covenant") will survive until June 8, 2004. YPF has made no capital contributions under the Keepwell Covenant as of December 31, 1995. In addition, YPF has guaranteed the Company's outstanding debt as of the Merger Date, the principal amount of which was approximately $976 million. The debt covered by the YPF guarantee includes the Company's outstanding 11 1/4%, 11 1/2% and 8 1/2% Sinking Fund Debentures, its outstanding 9 7/8%, 9 1/2% and 9 3/8% Notes, and its outstanding medium-term notes. YPF has also guaranteed the payment and performance of the Company's obligations to the holders of its $9.75 Preferred Stock. Advances from Parent Based on 1996 projections, the Company anticipates that YPF will make capital contributions of approximately $200 million to $250 million under the Keepwell Covenant during 1996. At December 31, 1995, the Company had $6.6 million outstanding of advances from its parent, YPF, which is included in long- term debt. The Company and YPF intend to enter into a loan agreement during 1996 to facilitate short-term loans by YPF to the Company and short-term loans by the Company to YPF of excess cash balances. It is expected that loans will be made by the parties under the loan agreement during 1996; however, the number and amounts thereof are not presently known. NOTE THIRTEEN--DERIVATIVE FINANCIAL INSTRUMENTS The Company's only derivative financial instruments are natural gas price swap agreements and crude oil and natural gas futures contracts, which are not used for trading purposes. During the nine-month period ended December 31, 1995, the Company unwound its sole interest rate swap agreement and recorded a $2.4 million final settlement gain in other revenues. The Company also received a $4.5 million termination payment, which has been deferred. Natural Gas Price Swap Agreements Under the price swap agreements used to hedge fluctuations in the price of natural gas, the Company receives or makes payments based on the differential between the Company's specified price and the counterparty's specified price of natural gas. Depending on the agreement, the Company pays a fixed or variable price per million British Thermal Units ("Mmbtu") and receives a fixed or variable price per Mmbtu. During the nine months ended December 31, 1995, the Company had swap agreements with other companies to exchange payments on 10.7 million Mmbtu of gas. Under these swap agreements, the Company paid fixed or variable prices averaging $1.68 per Mmbtu and received fixed or variable prices averaging $1.53 per Mmbtu. Gross losses realized on these swap agreements of $2.1 million were partially offset by gross gains of $0.5 million resulting in a net loss of $1.6 million during the nine months ended December 31, 1995. As of December 31, 1995, the Company has outstanding price swap agreements with other companies to exchange payments on 5.5 million Mmbtu of gas during the first quarter of 1996. Under these swap agreements, the Company will pay variable prices averaging $2.00 per Mmbtu and receive fixed prices averaging $1.74 per Mmbtu resulting in gross unrealized losses of $1.4 million based on gas sales prices at period end. Actual gains and losses realized upon settlement of these price swap agreements will depend upon the variable prices received at the time of settlement. Natural Gas and Crude Oil Futures Contracts Under the natural gas futures contracts used to hedge fluctuations in the price of natural gas, the Company receives or makes payments based on the differential between the selling price and the settlement price per Mmbtu. During the nine months ended December 31, 1995, the Company settled futures contracts F-53 100 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) with other companies on 4.9 million Mmbtu of gas. Under these futures contracts, the Company received selling prices averaging $1.71 per Mmbtu and paid settlement prices averaging $1.70 per Mmbtu. Realized gross gains and losses on these futures contracts were immaterial. As of December 31, 1995, the Company had outstanding futures contracts with other companies to sell 3.6 million Mmbtu of gas. Under these futures contracts, the Company will receive selling prices averaging $2.01 per Mmbtu and pay settlement prices averaging $2.76 per Mmbtu resulting in gross unrealized losses of $2.7 million based on gas prices at period end. Actual gains and losses realized upon expiration of these futures contracts will depend upon the settlement prices. Under the crude oil futures contracts used to hedge fluctuations in the price of crude oil, the Company receives or makes payments based on the differential between the selling price and the settlement price per barrel. During the nine-month period ended December 31, 1995, crude oil volumes hedged under these futures contracts were insignificant as were gross unrealized gains and losses. The Company had no open crude oil futures contracts at December 31, 1995. NOTE FOURTEEN--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. $9.75 Cumulative Convertible Preferred Stock In 1987, the Company sold 3,000,000 shares of $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. Currently, 1,250,000 shares of $9.75 Preferred Stock are outstanding, each receiving an annual cash dividend of $9.75. In addition, 375,000 of such shares (the "Conversion Waiver Shares") each receive an additional quarterly cash payment of $.25 ($.50 in certain circumstances). For the twelve month period commencing February 1, 1996, each share of the $9.75 Preferred Stock has a liquidation value of $100.00 ($125.0 million in the aggregate) plus accrued dividends. Since February 1, 1994, the stock has been subject to mandatory redemption at the rate of 625,000 shares per year. 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, and the $9.75 Preferred Stock other than the Conversion Waiver Shares entitles the holder to elect one individual to the Board of Directors of the Company. 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. $4.00 Cumulative Convertible Preferred Stock Each outstanding share of $4.00 Preferred Stock is entitled to one vote, is convertible at any time into shares of the Company's Common Stock (2.29751 shares at December 31, 1995), is entitled to receive annual cash dividends of $4.00 per share, is callable at and has a liquidation value of $50.00 per share ($217.8 million in the aggregate at December 31, 1995) plus accrued but unpaid dividends, if any. F-54 101 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $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 callable after December 1, 1998 at and has a liquidation value of $25.00 per share ($87.5 million in the aggregate at December 31, 1995) plus accrued but unpaid dividends, if any. The holders of the shares 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. NOTE FIFTEEN--COMMON STOCK
SHARES AMOUNT ---------- ------ April 1, 1995.................................................. 135,897,899 $135.9 Employee Shareholding and Investment Plan................. 18,182 Cancellation of treasury shares........................... (306,307) (.3) Fractional shares exchanged for cash...................... (2) ----------- ------ December 31, 1995.............................................. 135,609,772 $135.6 =========== ======
Pursuant to the offer in April 1995, YPF acquired 120,000,613 shares of Maxus Common Stock at $5.50 per Share representing 88.5% of the then-outstanding Shares of the Company. As a result of the Merger, each outstanding Share (other than Shares held by YPF or any of their subsidiaries or in the treasury of the Company, all of which were cancelled 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, and accordingly, the Company's common stock ceased to be publicly traded. (See Note Two). At December 31, 1995, there were 10.0 million shares of Common Stock reserved for issuance upon conversion of Preferred Stock. However, since the Company's Common Stock is not publicly traded, there would be no market for the common shares. In 1992, Kidder, Peabody & Co. Incorporated purchased eight million warrants from the Company. Each warrant represents the right to purchase one share of the Company's Common Stock at $13.00 per share at any time prior to the expiration of the warrants on October 10, 1997. The Company has an Employee Shareholding and Investment Plan ("ESIP") which allows eligible participating employees to contribute a certain percentage of their salaries (1%-10%) to a trust for investment in any of five funds. Prior to the Merger employees could also invest in a fund consisting of the Company's Common Stock. However, the Maxus Energy Stock Fund was eliminated from the ESIP plan effective April 19, 1995. The Company matches the participating employees contributions to the ESIP (up to 6% of base pay). Such matching contribution is charged against earnings and prior to April 19, 1995, was invested in the ESIP fund which consisted of the Company's Common Stock. Subsequent to April 19, 1995, the Company's matching contribution is invested in any of five funds as directed by the employee. For the nine months ended December 31, 1995, the charge against earnings for the Company's contribution was $1.7 million. F-55 102 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE SIXTEEN--PAID-IN CAPITAL AND ACCUMULATED DEFICIT
PAID-IN ACCUMULATED CAPITAL DEFICIT ------- ----------- April 1, 1995........................................... $ 118.2 Net loss........................................... $ (73.7) Dividends on Preferred Stock....................... (9.2) Cancellation of treasury shares.................... (3.2) Employee Shareholding and Investment Plan.......... .1 Restricted stock................................... (.1) ------- ------- December 1, 1995........................................ $ 105.8 $ (73.7) ======= =======
NOTE SEVENTEEN--UNREALIZED GAIN ON INVESTMENT IN MARKETABLE SECURITIES The amortized cost and estimated fair value of marketable securities at December 31, 1995 are as follows:
GROSS AMORTIZED UNREALIZED MARKET COST GAINS VALUE --------- ---------- ------ Held-to-maturity: Corporate and other debt securities.......... $ 108.4 $2.3 $110.7
At December 31, 1995, securities categorized as held-to-maturity are included in cash equivalents, short-term investments and short- and long-term restricted cash. NOTE EIGHTEEN--COMMON TREASURY STOCK
SHARES AMOUNT -------- ------ April 1, 1995............................................. (310,535) $(3.6) Restricted Stock..................................... (5,660) Director Stock Compensation Plan..................... 9,888 .1 Cancellation of Treasury Shares...................... 306,307 3.5 -------- ----- December 31, 1995......................................... -- -- ======== =====
See Note Two. NOTE NINETEEN--STOCK OPTIONS Two plans, a Long-Term Incentive Plan and a Director Stock Option Plan, were approved by the stockholders in 1992. The Company's 1986 and 1992 Long-Term Incentive Plans (the "Incentive Plans"), administered by the Compensation Committee of the Board of Directors, permit the grant to officers and certain key employees of stock options, stock appreciation rights ("SARs"), performance units and awards of Common Stock or other securities of the Company on terms and conditions determined by the Compensation Committee of the Board of Directors. The Director Stock Option Plan became effective on September 1, 1992. Under this plan, non-employee directors received options to purchase shares of Common Stock on the effective date of the plan. Thereafter, upon initial election or re-election of a non-employee director at an annual meeting, the non-employee directors automatically received options to purchase shares of Common Stock. The plan terminated on June 7, 1995. F-56 103 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The grant or exercise of an option does not result in a charge against the Company's earnings because all options have been granted at exercise prices approximating the market value of the stock at the date of grant. However, any excess of Common Stock market price over the option price of options, which includes SARs, does result in a charge against the Company's earnings; a subsequent decline in market price results in a credit to earnings, but only to a maximum of the earnings charges incurred in prior years on SARs. Stock option activity was as follows:
DECEMBER 31, 1995 ------------ Outstanding at April 1.......................................... 2,190,573 Cancelled.................................................. (16,133) Surrendered................................................ (2,174,440) ---------- Outstanding at December 31...................................... -- ---------- Available for future grants at December 31...................... 3,789,124 ---------- Performance units held for vesting at December 31............... 27,640 ----------
There will be no further grants of stock options, restricted stock or performance units subsequent to April 1, 1995 under the Company's Long-Term Incentive Plans. Effective upon the Merger, all stock options and restricted stock outstanding under Company-sponsored incentive plans were surrendered to the Company. The Company anticipates replacing the Long-Term Incentive Plans in 1996. In 1993, the Company issued performance units under the 1992 Long-Term Incentive Plan. The performance unit entitles the grantee to the value of a share of Common Stock contingent upon the performance of the Company compared to a selected group of peer companies. The value of the performance unit is amortized over the vesting period based on a weighted probability of expected payout levels. There was no earnings activity related to performance units for the nine months period ended December 31, 1995 as outstanding performance units had no value. NOTE TWENTY--LEASES The Company leases certain machinery and equipment, facilities and office space under cancelable and noncancelable operating leases, most of which expire within 20 years and may be renewed. Minimum annual rentals for non-cancelable operating leases at December 31, 1995, were as follows: 1996................................................................ $ 39.9 1997................................................................ 27.9 1998................................................................ 18.9 1999................................................................ 15.7 2000................................................................ 11.3 December 31, 2001 and thereafter.................................... 63.2 ------ $176.9 ======
Minimum annual rentals have not been reduced by minimum sublease rentals of $36.9 million due in the future under noncancelable subleases. F-57 104 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Rental expense for operating leases was as follows:
NINE MONTHS ENDED DECEMBER 31, 1995 ----------- Total rentals...................................................... $44.1 Less--Sublease rental income....................................... 2.1 ----- Rental expense..................................................... $42.0 =====
NOTE TWENTY-ONE--RELATED PARTY TRANSACTIONS A director of the Company, who is also a member of the Audit Committee of the Board of Directors, is a partner in a law firm which provides legal services to the Company. Fees for such services amounted to $3.2 million during 1995. Additionally, the Company has $6.6 million outstanding in advances from its parent, YPF. NOTE TWENTY-TWO--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. 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 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"), F-58 105 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 $39 million as of December 31, 1995. 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"). 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 onethird 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 December 31, 1995, DSI's remaining responsibility is approximately $8 million and is included in accounts receivable in the accompanying balance sheet. During the nine months ended December 31, 1995, the Company spent $5 million in environmental related expenditures in its oil and gas operations. Expenditures for the full year 1996 are expected to be approximately $8 million. For the nine months ended December 31, 1995, the Company's total expenditures for environmental compliance for disposed of businesses, including Chemicals, were approximately $30 million, $9 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 December 31, 1995, reserves for the environmental contingencies discussed herein totaled $119 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 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. 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 F-59 106 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. Studies performed by the Company and others suggest that contaminants historically discharged by the Newark plant are buried under several feet of more recent sediment deposits and are not moving. 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 Company currently expects such 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 as of December 31, 1995. The Company has been conducting similar studies under its own auspices for several years. Until these studies are completed and evaluated, the Company cannot 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. 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 at December 31, 1995. 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. F-60 107 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 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 $6 million at December 31, 1995, 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 F-61 108 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 the EPA's claim for remedial action. Chemical's share of the cost to complete remediation at this site at December 31, 1995, 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 Company believes that this lawsuit is without merit and intends to defend same vigorously. The Company has established reserves based on its 50% share of costs expected to be paid or incurred by OxyChem and Henkel prior to September 1996. As of December 31, 1995, the Company had paid OxyChem and Henkel a total of approximately $39 million against said $75 million cap. The Company cannot predict what portion of the approximately $36 million remaining as of that date Occidental and Henkel may actually pay or incur prior to September 4, 1996, the tenth anniversary of the Closing Date if they accelerate spending with regard to such environmental costs; however, the Company has approximately $7 million reserved at December 31, 1995, based on 50% of OxyChem's and Henkel's historical annual expenditures. In the event OxyChem and Henkel prevail in this lawsuit, the Company could be required to provide up to approximately $29 million in additional reserves 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 60% 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 F-62 109 MAXUS ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. The Company intends to reduce program spending in Ecuador in 1996 to $19 million from $32 million in 1995. NOTE TWENTY-THREE--SUBSEQUENT EVENTS 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. 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. The Company's net exploration commitment for this block is anticipated to total approximately $15 million over the next five years. F-63 110 FINANCIAL SUPPLEMENTARY INFORMATION (Unaudited) DATA IS FOR THE NINE MONTHS ENDED DECEMBER 31, 1995. THE DOLLAR AMOUNTS IN TABLES ARE IN MILLIONS, EXCEPT PER SHARE) OIL AND GAS PRODUCING ACTIVITIES The following are disclosures about the oil and gas producing activities of the Company as required by Statement of Financial Accounting Standards No. 69 ("SFAS 69"). Results of Operations Results of operations for the nine months ended December 31, 1995 from all oil and gas producing activities are shown below. These results exclude revenues and expenses related to the purchase of natural gas and the subsequent processing and resale of such natural gas plus the sale of natural gas liquids extracted therefrom.
UNITED SOUTH OTHER STATES INDONESIA AMERICA FOREIGN WORLDWIDE ------ --------- ------- ------- --------- Sales............................... $ 75.4 $ 298.3 $ 36.5 $ 410.2 ------ ------ ------ ------- ------- Production costs.................... 21.2 114.5 21.5 157.2 Exploration costs................... 10.8 18.0 6.9 $ 15.5 51.2 Depreciation, depletion and amortization...................... 48.8 67.7 20.8 .2 137.5 Gain on sale of assets.............. (.1) (.1) Other............................... 8.5(a) 9.4 (1.2) (.1) 16.6 ------ ------ ------ ------- ------- 89.2 209.6 48.0 15.6 362.4 ------ ------ ------ ------- ------- Income (loss) before tax provision......................... (13.8) 88.7 (11.5) (15.6) 47.8 Provision (benefit) for income taxes............................. 43.5 (12.7) 30.8 ------ ------ ------ ------- ------- Results of operations............... $(13.8) $ 45.2 $ 1.2 $ (15.6) $ 17.0 ====== ====== ====== ======= =======
- --------------- (a) Includes United States gathering and processing costs related to sales. Such costs were $9.1 million for the nine months ended December 31, 1995. F-64 111 CAPITALIZED COSTS Included in properties and equipment are capitalized amounts applicable to the Company's oil and gas producing activities. Such capitalized amounts include the cost of mineral interests in properties, completed and incomplete wells and related support equipment. In addition, the Company's gas plants that process not only the Company's gas but also third party gas, has been included in capitalized costs. Approximately 52% of the volumes processed through the Company's gas plants is the Company's gas. Only the revenue and cost related to the Company's produced gas is included in results of operations and costs incurred. Capitalized costs at December 31, 1995 were:
UNITED SOUTH OTHER STATES INDONESIA AMERICA FOREIGN WORLDWIDE ------ --------- ------- ------- --------- Proved properties: Wells and related equipment and facilities........... $501.6 $ 704.0 $307.0 $1,512.6 Support equipment and facilities............... 128.7 128.7 Uncompleted well, equipment and facilities........... 11.0 18.6 50.5 80.1 Unproved properties............. 79.9 435.3 252.3 $ 1.3 768.8 ------ ------- ------ ----- -------- 721.2 1,157.9 609.8 1.3 2,490.2 ------ ------- ------ ----- -------- Less-Accumulated depreciation, depletion and amortization.... 50.4 67.7 20.9 .2 139.2 ------ ------- ------ ----- -------- $670.8 $1,090.2 $588.9 $ 1.1 $2,351.0 ====== ======= ====== ===== ========
COSTS INCURRED Costs incurred by the Company in its oil and gas producing activities for the nine months ended December 31, 1995 (whether capitalized or charged against earnings) were as follows:
UNITED SOUTH OTHER STATES INDONESIA AMERICA FOREIGN WORLDWIDE ------ --------- ------- ------- --------- Property acquisition costs...... $ 2.1 $ 2.1 Exploration costs............... 10.1 $ 19.8 $ 7.6 $15.7 53.2 Development costs............... 37.5 44.2 28.2 .3 110.2 ------ -------- ------ ----- ------- $ 49.7 $ 64.0 $ 35.8 $16.0 $ 165.5 ====== ======== ====== ===== =======
Oil and Gas Reserves The following table represents the Company's net interest in estimated quantities of developed and undeveloped reserves of crude oil, condensate, natural gas liquids and natural gas and changes in such quantities for the nine months ended December 31, 1995. Net proved reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserve volumes that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserve volumes that are expected to be recovered from new wells on undrilled acreage or from existing wells where a significant expenditure is required for recompletion. Estimates of reserves for December 31, 1995 were prepared by Gaffney, Cline & Associates, petroleum engineers, using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). The choice of method or combination of methods employed in the analysis of each reservoir was determined by experience in the area, stage of development, quality and completeness of basic data, and production history. F-65 112 There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers often vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of crude oil and natural gas that are ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumption upon which they were based. The reserve estimates were subjected to economic tests to determine economic limits. The estimates may change as a result of numerous factors including, but not limited to, additional development activity, evolving production history, and continued reassessment of the viability of production under varying economic conditions.
DECEMBER 31, 1995 ------------------------------------------ UNITED SOUTH CRUDE OIL STATES INDONESIA AMERICA TOTAL ----------------------------------------- ------ --------- ------- ----- (MILLIONS OF BARRELS) Net Proved Developed and Undeveloped Reserves Beginning of period, March 31, 1995...... 3.7 154.1 66.3 224.1 Revisions of previous estimates..... .2 (2.6)(a) (4.5) (6.9) Purchase of reserves in place....... Extensions, discoveries and other additions......................... .5 7.1(a) 2.7 10.3 Production.......................... (.3) (14.5) (3.4)(c) (18.2) Sales of reserves in place.......... ------ --------- ------- ----- End of period............................ 4.1 144.1 61.1 209.3 ------ --------- ------- ----- Net Proved Developed Reserves Beginning of period...................... 2.8 136.8 14.0 153.6 End of period............................ 3.6 128.1 32.8 164.5
DECEMBER 31, 1995 ------------------------------ UNITED NATURAL GAS(B) STATES INDONESIA TOTAL ------------------------------------------------------------ ------ --------- ----- (BILLIONS OF CUBIC FEET) Net Proved Developed and Undeveloped Reserves Beginning of period, March 31, 1995......................... 505 300 805 Revisions of previous estimates........................ 7 18 25 Purchase of reserves in place.......................... Extensions, discoveries and other additions............ 94 14 108 Production............................................. (36) (19) (55) Sales of reserves in place............................. ---- --- ---- End of period............................................... 570 313 883 ---- --- ---- Net Proved Developed Reserves Beginning of period......................................... 373 103 476 End of period............................................... 449 138 587
F-66 113
DECEMBER 31, 1995 ------------------------------ UNITED NATURAL GAS LIQUIDS STATES INDONESIA TOTAL ------------------------------------------------------------ ------ --------- ----- (MILLIONS OF BARRELS) Net Proved Developed and Undeveloped Reserves Beginning of period, March 31, 1995......................... 36.1 9.3 45.4 Revisions of previous estimates........................ 1.5 .1 1.6 Purchase of reserves in place.......................... Extensions, discoveries and other additions............ 7.4 7.4 Production............................................. (2.4) (.4) (2.8) ---- ---- End of period............................................... 42.6 9.0 51.6 ---- ---- Net Proved Developed Reserves Beginning of period........... 28.9 3.1 32.0 End of period............................................... 33.4 4.3 37.7
- --------------- (a) The changes reflect the impact of the change in the price of crude oil on the barrels to which the Company is entitled under the terms of the Indonesian production sharing contracts. The Indonesian production sharing contracts allow the Company to recover tangible production and exploration costs, as well as operating costs. As the price of crude oil fluctuates, the Company is entitled to more or less barrels of cost recovery oil. Increasing prices resulted in a decrease of 9.9 million barrels in 1995. (b) Natural gas is reported on the basis of actual or calculated volumes which remain after removal, by lease or field separation facilities, of liquefiable hydrocarbons and of non-hydrocarbons where they occur in sufficient quantities to render the gas unmarketable. Natural gas reserve volumes include liquefiable hydrocarbons approximating 11% of total gas reserves in the United States and 4% in Indonesia which are recoverable at natural gas processing plants downstream from the lease or field separation facilities. Such recoverable liquids also have been included in natural gas liquids reserve volumes. (c) Reserves in Venezuela are attributable to an operating service agreement under which all hydrocarbons are owned by the Venezuelan government, however, the Company receives payment for production and development services performed based on production. Future Net Cash Flows The standardized measure of discounted future net cash flows relating to the Company's proved oil and gas reserves as of December 31, 1995 is calculated and presented in accordance with Statement of Financial Accounting Standards No. 69. Accordingly, future cash inflows were determined by applying year-end oil and gas prices (adjusted for future fixed and determinable price changes) to the Company's estimated share of future production from proved oil and gas reserves. Future income taxes were derived by applying year-end statutory tax rates to the estimated net future cash flows. A prescribed 10% discount factor was applied to the future net cash flows. F-67 114 In the Company's opinion, this standardized measure is not a representative measure of fair market value, and the standardized measure presented for the Company's proved oil and gas reserves is not representative of the reserve value. The standardized measure is intended only to assist financial statement users in making comparisons between companies.
UNITED SOUTH STATES INDONESIA AMERICA WORLDWIDE ------- --------- ------- --------- Future cash flows............... $1,161.0 $ 3,461.9 $ 822.5 $ 5,445.4 Future production costs......... (331.2) (2,004.7) (221.3) (2,557.2) Future development costs........ (70.6) (288.2) (122.3) (481.1) -------- --------- ------- --------- Future net cash flows, before income taxes.................. 759.2 1,169.0 478.9 2,407.1 Discount for estimated timing of future cash flows............. (342.9) (459.4) (200.0) (1,002.3) -------- --------- ------- --------- Present value of future net cash flows, before income taxes.... 416.3 709.6 278.9 1,404.8 Future income taxes, discounted at 10% (a).................... (67.8) (321.7) (34.3) (423.8) -------- --------- ------- --------- Standardized measure of discounted future net cash flows......................... $ 348.5 $ 387.9 $ 244.6 $ 981.0 ======== ========= ======= =========
- --------------- (a) Future income taxes undiscounted are $161.6 for the United States, $508.2 for Indonesia and $57.1 for South America at December 31, 1995. The following are the principal sources for change in the standardized measure:
1995 ------- January 1, 1995..................................................... $ 929.8 Sales and transfers of oil and gas produced, net of production costs......................................................... (322.7) Net changes in prices and production costs, net of future production and development costs.............................. 99.6 Extensions, discoveries and improved recovery, less related costs......................................................... 79.5 Development costs incurred during the year that reduced future development costs............................................. 140.6 Revisions of previous quantity estimates....................... 51.5 Purchase of reserves in place.................................. 16.3 Sale of reserves in place...................................... (.1) Net change in income taxes..................................... (42.8) Accretion of discount.......................................... 131.1 Changes in production rates (timing) and other................. (101.8) ------- December 31, 1995................................................... $ 981.0 =======
The principle sources for change in the standardized measure are presented for the year-ended December 31, 1995, rather than the nine months period ended December 31, 1995, as reserve reports from which this information is derived are only prepared on an annual basis. F-68 115 Quarterly Data
1995 --------------------------------------------------------------------- NINE MONTHS ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------- -------- ------------- ------------ ------------ Sales and operating revenues......... $ 142.5 $150.7 $ 141.8 $171.3 $463.8 Gross profit(a)...................... 35.2 34.3 24.5 48.0 106.8 Net loss............................. (56.9) (23.0) (28.1) (22.6) (73.7) Per Common Share Net loss........................ (.49) (.24) (.28) (.24) (.76) Market price per share: Common High....................... 529/32 5 1/2 Low........................ 3 5 3/8 $4.00 Preferred High....................... 38 1/4 41 40 1/2 44 3/4 44 3/4 Low........................ 30 32 1/2 38 38 32 1/2 $2.50 Preferred High....................... 21 3/4 24 1/4 25 5/8 26 1/8 26 1/8 Low........................ 1745/64 19 1/8 23 5/8 17 5/8 17 5/8
1994 --------------------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, FOR THE YEAR --------- -------- ------------- ------------ ------------ Sales and operating revenues......... $ 187.1 $167.5 $ 170.2 $157.3 $682.1 Gross profit(a)(b)................... 41.2 42.0 54.7 44.3 182.2 Net income (loss).................... (11.2) 30.1 (16.0) (25.6)(c) (22.7) Per Common Share Net income (loss)............... (.17) .13 (.19) (.26) (.49) Market price per share: Common High....................... 5 7/8 5 1/4 5 7/8 4 3/4 5 7/8 Low........................ 4 1/8 4 1/8 4 1/2 3 1/4 3 1/4 $4.00 Preferred High....................... 45 3/4 41 1/8 40 1/2 37 3/4 45 3/4 Low........................ 39 33 5/8 37 30 1/8 30 1/8 $2.50 Preferred High....................... 25 3/4 23 1/4 23 3/8 22 3/4 25 3/4 Low........................ 21 1/4 20 21 3/4 17 1/2 17 1/2
- --------------- (a) Gross profit is sales and operating revenues less purchases and operating expenses, gas purchase costs and depreciation, depletion and amortization. (b) Gross profit has been restated to conform to the 1995 presentation. (c) In the fourth quarter of 1994, the Company increased its reserve for future environmental liabilities by $49.0 million. F-69 116 EXPLORATION AND PRODUCTION STATISTICS (historic)
NINE MONTHS THREE MONTHS ENDED ENDED DECEMBER 31, MARCH 31, 1995 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------- NET PROVED OIL RESERVES (millions of barrels) United States 4.1 3.7 3.4 12.3 12.2 14.6 Indonesia 144.1 154.1 158.9 180.1 155.2 162.8 South America 61.1 66.3 67.0 71.6 53.1 27.5 - ------------------------------------------------------------------------------------------------------------------------- Worldwide Total 209.3 224.1 229.3 264.0 220.5 204.9 NET PROVED NATURAL GAS RESERVES (billions of cubic feet) United States 570 505 492 679 584 635 Indonesia 313 300 303 262 245 37 - ------------------------------------------------------------------------------------------------------------------------- Worldwide Total 883 805 795 941 829 672 NET OIL SALES (mbpd) United States 1.1 1.0 2.4 4.9 5.7 9.9 Indonesia 53.0 52.0 59.3 62.4 61.9 67.3 South America 10.4 6.9 5.2 - ------------------------------------------------------------------------------------------------------------------------- Worldwide Total 64.5 59.9 66.9 67.3 67.6 77.2 AVERAGE OIL SALES PRICE (per bbl) United States $16.29 $16.07 $13.89 $16.99 $18.28 $19.49 Indonesia 17.01 17.54 15.61 17.31 18.40 19.59 South America 12.79 12.58 12.58 Worldwide Average 16.31 16.94 15.31 17.28 18.39 19.58 NET NATURAL GAS SALES (mmcfpd) United States produced 104 98 131 181 200 207 United States purchased for processing 68 69 77 86 51 48 United States purchased for resale 67 98 29 13 Indonesia 61 40 44 13 8 7 - ------------------------------------------------------------------------------------------------------------------------- Worldwide Total 233 207 319 378 288 275 AVERAGE NATURAL GAS SALES PRICE (per mcf) United States produced $ 1.54 $ 1.42 $ 1.89 $ 2.13 $ 1.80 $ 1.66 United States purchased for processing 1.42 1.49 1.81 1.91 1.62 1.49 United States purchased for resale 2.00 2.06 1.84 1.57 Indonesia 2.62 2.65 2.24 1.30 .20 .20 Worldwide Average 1.79 1.68 1.99 2.03 1.73 1.59 UNITED STATES NGL SALES (mbpd) Produced 8.7 8.8 8.2 7.6 8.9 8.8 Purchased 8.9 9.6 9.7 9.8 9.0 7.9 - ------------------------------------------------------------------------------------------------------------------------- United States Total 17.6 18.4 17.9 17.4 17.9 16.7 UNITED STATES AVERAGE NGL SALES PRICE (per bbl) Produced $10.42 $10.27 $10.02 $11.08 $11.51 $12.16 Purchased 10.57 10.48 10.12 11.19 11.13 12.04 United States Average 10.49 10.38 10.07 11.14 11.32 12.11 INDONESIAN NGL SALES (mbpd) 1.7 .9 2.1 1.5 1.6 1.4 INDONESIAN AVERAGE NGL SALES PRICE (per bbl) $14.33 $19.19 $ 9.42 $10.57 $11.93 $10.36 NET NATURAL GAS PRODUCTION (mmcfpd) United States 130 125 156 208 227 238 Indonesia 70 45 47 13 13 11 - ------------------------------------------------------------------------------------------------------------------------- Worldwide Total 200 170 203 221 240 249 GROSS CRUDE OIL PRODUCTION (mbpd) Indonesia 232 250 259 270 294 324 South America 40 32 16
F-70 117 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ---------- ------------------------------------------------------------------------ ------------ 3(i) --Restated Certificate of Incorporation of the Company (Exhibit 3(i).2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).* 3(ii) --By-Laws of the Company (Exhibit 3(ii).2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).* 4.1 --Indenture dated as of April 1, 1978 between Diamond Shamrock Corporation ("Diamond") and Mellon Bank, N.A. relating to Diamond's $150,000,000 8 1/2% Sinking Fund Debentures due April 1, 2008 (Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 [the "1992 Form 10-K"]).* 4.2 --First Supplemental Indenture dated as of January 26, 1984 among the Company, Diamond Shamrock Chemicals Company ("Chemicals") and Mellon Bank, N.A. supplementing the Indenture described in Exhibit 4.1 above (Exhibit 4.2 to the 1992 Form 10-K).* 4.3 --Tri Party Agreement dated January 24, 1993 appointing Chemical Bank as successor trustee under the Indenture described in Exhibit 4.1 above (Exhibit 4.3 to the Company's Current Report on Form 8-K dated January 12, 1994 [the "January 12 Form 8-K"]).* 4.4 --Indenture dated as of May 1, 1983 between Diamond and The Bank of New York, successor in interest to NationsBank of Texas, N.A., successor trustee to Mellon Bank, N.A. relating to unspecified Debt Securities of Diamond (Exhibit 4.4 to the 1992 Form 10-K).* 4.5 --Resolutions of the Board of Directors of Diamond supplementing the Indenture described in Exhibit 4.4 above and establishing terms and conditions of Diamond's $150,000,000 11 1/4% Sinking Fund Debentures due May 1, 2013 (Exhibit 4.5 to the 1992 Form 10-K).* 4.6 --First Supplemental Indenture dated as of January 26, 1984 among the Company, Chemicals and Mellon Bank, N.A. supplementing the Indenture and the resolutions described in Exhibits 4.4 and 4.5, respectively, above (Exhibit 4.6 to the 1992 Form 10-K).* 4.7 --Tri Party Agreement dated January 12, 1994 appointing NationsBank of Texas, N.A. as successor trustee under the Indenture described in Exhibit 4.4 above (Exhibit 4.1 to the January 12 Form 8-K).* 4.8 --Indenture dated as of November 1, 1985 between the Company and The Bank of New York, successor in interest to NationsBank of Texas, N.A., successor trustee to Mellon Bank, N.A. relating to unspecified Debt Securities of the Company (Exhibit 4.8 to the 1992 Form 10-K).* 4.9 --Resolutions of an ad hoc committee of the Board of Directors of the Company supplementing the Indenture described in Exhibit 4.8 above and establishing terms and conditions of the Company's $150,000,000 11 1/2% Sinking Fund Debentures due November 15, 2015 (Exhibit 4.9 to the 1992 Form 10-K).* 4.10 --Tri Party Agreement dated January 12, 1994 appointing NationsBank of Texas, N.A. as successor trustee under the Indenture described in Exhibit 4.8 above (Exhibit 4.2 to the January 12 Form 8-K).*
118
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ---------- ------------------------------------------------------------------------ ------------ 4.11 --Indenture dated as of April 1, 1988 between the Company and Chemical Bank relating to unspecified debt securities of the Company (Exhibit 4.11 to the 1992 Form 10-K).* 4.12 --Officers' Certificate dated June 1, 1988 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series A) to be issued under the Indenture described in Exhibit 4.11 above (Exhibit 4.12 to the 1992 Form 10-K).* 4.13 --Indenture dated as of November 1, 1990 between the Company and Chemical Bank relating to unspecified debt securities of the Company (Exhibit 4.13 to the 1992 Form 10-K).* 4.14 --Officers' Certificate dated February 13, 1991 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series B) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.14 to the 1992 Form 10-K).* 4.15 --Officers' Certificate dated September 28, 1992 establishing a series of debt securities ($250,000,000 9 7/8% Notes Due 2002) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.15 to the 1992 Form 10-K).* 4.16 --Officers' Certificate dated January 26, 1993 establishing a series of debt securities ($100,000,000 9 1/2% Notes Due 2003) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4.16 to the 1992 Form 10-K).* 4.17 --Officer's Certificate dated June 30, 1993 establishing a series of debt securities ($150,000,000 Medium-Term Notes, Series C) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4 to the Company's Current Report on Form 8-K dated June 21, 1993).* 4.18 --Officer's Certificate dated October 27, 1993 establishing a series of debt securities ($200,000,000 9 3/8% Notes due 2003) to be issued under the Indenture described in Exhibit 4.13 above (Exhibit 4 to the Company's Current Report on Form 8-K dated October 20, 1993).* 4.19 --Officer's Certificate dated January 18, 1994 establishing a series of debt securities ($60,000,000 9 3/8% Notes due 2003) to be issued under the Indenture described in Exhibit 4.13 (Exhibit 4 to the Company's Current Report on Form 8-K dated January 10, 1994).* 4.20 --Preferred Stock Purchase Agreement dated February 1, 1987 (the "Preferred Stock Purchase Agreement") between the Company and The Prudential Insurance Company of America ("Prudential") (Exhibit 4.17 to the 1992 Form 10-K).* 4.21 --Amendment dated February 8, 1987 to the Preferred Stock Purchase Agreement (Exhibit 4.18 to the 1992 Form 10-K).* 4.22 --Registration Rights Agreement dated as of February 1, 1987 between the Company and Prudential (Exhibit 4.19 to the 1992 Form 10-K).* 4.23 --Agreement dated April 12, 1990 amending the Preferred Stock Purchase Agreement (Exhibit 4.20 to the 1992 Form 10-K).* 4.24 --Waiver of Certain Rights Relating to $9.75 Preferred Stock dated June 5, 1990 between the Company and Prudential (Exhibit 4.21 to the 1992 Form 10-K).* 4.25 --Waiver of Certain Equity Offering Rights dated April 12, 1990 between the Company and Prudential amending the Preferred Stock Purchase Agreement (Exhibit 4.22 to the 1992 Form 10-K).*
119
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ---------- ------------------------------------------------------------------------ ------------ 4.26 --Agreement dated February 28, 1995 between Prudential and the Company (Exhibit 2 to the Company's Schedule 14D-9 dated March 3, 1995 [the "Schedule 14D-9"]).* 4.27 --Waiver of Certain Rights Relating to $9.75 Preferred Stock dated June 8, 1995 between Prudential and the Company, filed herewith. 4.28 --Warrant Certificate No. 1 dated October 10, 1992 issued to Kidder, Peabody Group Inc. for 8,000,000 warrants each representing the right to purchase from the Company on or prior to October 10, 1997 one share of common stock, $1.00 par value, of the Company at a price of $13.00 per share (Exhibit 4.23 to the 1992 Form 10-K).* 4.29 --Registration Rights Agreement dated as of October 10, 1992 between Kidder, Peabody Group Inc. and the Company (Exhibit 4.24 to the 1992 Form 10-K).* 4.30 --Agreement of Merger, dated February 28, 1995, among the Company, YPF Sociedad Anonima ("YPF") and YPF Acquisition Corp. ("YPFA") (Exhibit 3 to the Schedule 14D-9).* 4.31 --Credit Agreement dated as of June 8, 1995, between Midgard Energy Company, the lenders signatory thereto and The Chase Manhattan Bank (National Association) ("Chase"), as agent (Exhibit 4.1 to the Company's Current Report on Form 8-K dated June 8, 1995 [the "June 8, 1995 Form 8-K"]).* 4.32 --Credit Agreement dated as of June 16, 1995, between Maxus Indonesia, Inc., Maxus Northwest Java Inc., Maxus Southeast Sumatra, Inc., the lenders signatory thereto and Chase, as agent (Exhibit 4.2 to the June 8, 1995 Form 8-K).* 10.1 --Performance Incentive Plan of the Company, as amended effective January 1, 1986 (Exhibit 10.6 to the 1992 Form 10-K).* 10.2 --Specimen copy of Change of Control Agreement between the Company and certain of its former its executive officers (Exhibit 10.7 to the 1992 Form 10-K).* 10.3 --Specimen copy of letter agreement between the Company and certain of its former executive officers relating to the Agreements referred to in Exhibit 10.2 above (Exhibit 10.8 to the 1992 Form 10-K).* 10.4 --Specimen copy of disability benefit arrangement between the Company and its executive officers (Exhibit 10.10 to the 1992 Form 10-K).* 10.5 --Supplemental Executive Retirement Plan of the Company, effective May 1, 1987 (Exhibit 10.11 to the 1992 Form 10-K).* 10.6 --Supplemental Executive Retirement Plan of the Company, effective March 1, 1990 (Exhibit 10.12 to the 1992 Form 10-K).* 10.7 --Specimen copy of supplemental death benefit arrangement between the Company and its executive officers (Exhibit 10.13 to the 1992 Form 10-K).* 10.8 --Maxus Energy Corporation Supplemental Savings Plan (as amended and restated effective June 8, 1995), filed herewith. 10.9 --Trust Agreement dated December 18, 1986 between the Company and AmeriTrust Company National Association (Exhibit 10.15 to the 1992 Form 10-K).* 10.10 --Deferred Compensation Plan for Executives of the Company, effective September 28, 1993 (Exhibit 10.17 to the 1993 Form 10-K).* 10.11 --Distribution Agreement dated as of April 22, 1987 between the Company and Diamond Shamrock R&M, Inc. (Exhibit 10.23 to the 1992 Form 10-K).*
120
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ---------- ------------------------------------------------------------------------ ------------ 10.12 --Rights Agreement dated as of September 2, 1988 between the Company and AmeriTrust Company National Association (Exhibit 10.24 to the 1992 Form 10-K).* 10.13 --Stock Purchase Agreement by and among the Company and Occidental Petroleum Corporation, et. al. dated September 4, 1986 (Exhibit 10.25 to the 1992 Form 10-K).* 10.14 --Agreement of Merger dated as of February 28, 1995 among YPF, YPFA Corp. and the Company (Exhibit 3 to the Schedule 14D-9).* 10.15 --International Consulting Agreement, dated May 1, 1995 between C. L. Blackburn and YPF, filed herewith. 10.16 --Assignment of International Consulting Agreement, dated November 2, 1995 between C. L. Blackburn, YPF, and the Company, filed herewith. 10.17 --Maxus Severance Agreement dated August 3, 1995 between the Company and Roberto Luis Monti, filed herewith. 10.18 --Compensation Agreement dated December 27, 1995 between the Company and Roberto L. Monti, filed herewith. 10.19 --Services Agreement dated April 5, 1995 between the Company and Peter D. Gaffney, filed herewith. 10.20 --Secondment Agreement dated April 5, 1995 between the Company, YPF and Gaffney, Cline & Associates, Inc., filed herewith. 10.21 --Amendment to Change in Control Agreement dated May 11, 1995 between the Company and W. Mark Miller, filed herewith. 10.22 --Employment Agreement effective as of July 1, 1995 between the Company and W. Mark Miller, filed herewith. 10.23 --Specimen copy of a letter agreement regarding Change in Control Agreement dated April 7, 1995 between the Company and certain of its executive officers, filed herewith. 10.24 --Letter Agreement regarding Change in Control Agreement dated April 13, 1995 between the Company and Michael C. Forrest, filed herewith. 10.25 --Specimen copy of a letter agreement regarding Change in Control Agreement dated ------------, 1995 between the Company and certain of its executive officers, filed herewith. 21.1 --List of Subsidiaries of the Company, filed herewith. 23.1 --Consent of Independent Accountants, filed herewith. 23.2 --Consent of Independent Accountants, filed herewith. 24.1 --Powers of Attorney of directors and officers of the Company, filed herewith. 24.2 --Power of Attorney of the Company, filed herewith. 27.1 --Financial Data Schedule, filed herewith.
EX-4.27 2 WAIVER OF CERTAIN RIGHTS 1 EXHIBIT 4.27 WAIVER OF CERTAIN RIGHTS RELATING TO $9.75 PREFERRED STOCK THIS WAIVER OF CERTAIN RIGHTS RELATING TO $9.75 PREFERRED STOCK (the "Waiver") is executed by The Prudential Insurance Company of America, a New Jersey corporation ("Prudential"), and Maxus Energy Corporation, a Delaware corporation (the "Company"), dated as of this 8th day of June, 1995. RECITALS A. Prudential and Maxus entered into a Preferred Stock Purchase Agreement dated February 1, 1987, providing for the issuance to Prudential of 3,000,000 shares (the "Shares") of $9.75 Cumulative Convertible Preferred Stock, par value $1.00 per share (the "$9.75 Preferred Stock"), of the Company having the rights set forth in the Certificate of Designations for the $9.75 Preferred Stock (the "Certificate of Designations"); B. The Preferred Stock Purchase Agreement was subsequently amended by agreements between Prudential and the Company dated February 8, 1987 and April 12, 1990; pursuant to the April 12, 1990 agreement (the "Second Stock Purchase Agreement") (1) the Company reacquired from Prudential 500,000 of the Shares, and (2) Prudential executed and delivered a Waiver of Certain Equity Offering Rights dated as of April 12, 1990 and a Waiver of Certain Rights Relating to $9.75 Preferred Stock dated June 5, 1990; C. Prudential and the Company entered into a letter agreement dated February 28, 1995 (the "Letter Agreement") pursuant to which Prudential, upon the request of the Company, and the Company agreed to execute irrevocable and unconditional waivers of certain provisions of the Certificate of Designation, such waivers to be effective upon the effectiveness of a guaranty (the "YPF Guaranty") by YPF Sociedad Anonima, a sociedad anonima organized under the laws of the Republic of Argentina ("YPF"); D. The YPF Guaranty has become effective; and E. Simultaneously with such effectiveness Prudential and the Company are executing and delivering this Waiver pursuant to the Letter Agreement. NOW, THEREFORE, in consideration of the premises and the covenants contained herein, and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Prudential Waiver of Certain Rights. Prudential hereby unconditionally, irrevocably and permanently waives any and all rights of the holders of the Shares under Section 2(b), Section 3(b), Section 8 and Section 9 of the Certificate of Designations. 2 2. Company Waiver of Certain Rights. The Company hereby unconditionally, irrevocably and permanently waives any and all rights the Company may have under Section 5(a) and Section 5(c) of the Certificate of Designations. 3. Transfers; Legends. Prudential hereby agrees that if it shall at any time or from time to time sell, transfer or otherwise dispose of any Shares, any transferee, as a condition of the transfer shall, by written agreement satisfactory to the Company and its counsel delivered to the Company at least five business days prior to the proposed effective date of such transfer, expressly assume all of Prudential's obligations, waivers, duties and covenants under the Stock Purchase Agreement, the Second Stock Purchase Agreement, the Letter Agreement and this Waiver (as each may have been amended or modified, or any provisions thereof waived, and shall at such time be in effect), including without limitation Prudential's obligations under this paragraph 3 as to the Shares to be so transferred, and shall agree to so bind its subsequent transferees. As soon as practicable following the execution and delivery hereof, the certificates currently evidencing the Shares are being surrendered against delivery to Prudential of one or more certificates evidencing a like aggregate number of Shares which, in addition to any other legend placed upon such certificate(s), shall bear a legend to the following effect: "The securities represented by this certificate are subject to certain provisions of an agreement, dated April 12, 1990, and the provisions of an agreement, dated February 28, 1995, each between the Corporation and The Prudential Insurance Company of America, the terms of which require the holder hereof to execute certain unconditional and irrevocable waivers of certain rights of the holder, including without limitation the right to convert these securities into Common Stock of the Corporation, to receive increased dividends in certain circumstances and to vote in respect of certain matters, and, under certain circumstances, to consent to amendments of, or, at the request of the Company, waivers with respect to, the Certificate of Designations and amendments of certain agreements to which the Corporation is a party. Pursuant to said Agreement dated February 28, 1995 the Corporation and The Prudential Insurance Company of America have entered into a further agreement dated June 8, 1995 effecting certain unconditional and irrevocable waivers with respect to the Certificate of Designations. Copies of such agreements are on file at the principal executive offices of the Corporation." 4. Representations and Warranties. Each of Prudential and the Company hereby represents and warrants that this Waiver has been duly authorized, executed and 2 3 delivered by it and is its valid and binding obligation. This Waiver shall be binding upon and inure to the benefit of the Company and Prudential and their successors and assigns. IN WITNESS WHEREOF Prudential and the Company have caused this Waiver to be duly executed as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ R.G. GWIN Print Name: R.G. Gwin Title: Vice President MAXUS ENERGY CORPORATION By: /s/ DAVID WADSWORTH Print Name: David Wadsworth Title: Vice President 3 EX-10.8 3 SUPPLEMENTAL SAVINGS PLAN 1 EXHIBIT 10.8 MAXUS ENERGY CORPORATION SUPPLEMENTAL SAVINGS PLAN (AS AMENDED AND RESTATED EFFECTIVE JUNE 8, 1995) - -------------------------------------------------------------------------------- The Maxus Energy Corporation Supplemental Savings Plan, formerly named the Employee Shareholding and Investment Supplemental Benefits Plan (the "Plan"), an unfunded, nonqualified deferred compensation plan originally adopted in 1976, is hereby amended and restated effective as of June 8, 1995. 1. Purpose The purpose of the Plan is to provide additional benefits for certain highly compensated employees of Maxus Energy Corporation, a Delaware corporation, and its subsidiaries (the "Corporation"). 2. Definitions The following definitions are used throughout the Plan. (a) "Actuarial Equivalent" means a form of benefit under which the aggregate payments expected to be received are equal in value to the aggregate payments expected to be received under a different form of benefit using the following assumptions: Mortality table: 1984 Unisex Pension Interest rate: If the Participant (or his eligible spouse) is eligible to elect the lump sum payment option under the Career Average Plan, then the interest rate shall be the same interest rate assumption which would be used in calculating a lump sum payment for such person under the Career Average Plan; otherwise, the interest rate shall be the Applicable Rate or such other rate as may -1- 2 be established by the Board. The foregoing actuarial assumptions may be changed from time to time by amendment to the Plan. The Actuarial Equivalent of a Participant's or an eligible spouse's benefit under this Plan shall be computed under the actuarial assumptions in effect on the date the payment of such benefit is made. (b) "Applicable Rate" means an annual rate of interest equal to 120% of the interest rate set by the Pension Benefit Guaranty Corporation to value immediate annuities for single employer pension plans in effect at the beginning of the Plan Year. (c) "Benefits Committee" means the committee appointed by the Chairman of the Board from time to time to administer the Corporation's retirement benefit programs. (d) "Board" means the Board of Directors of the Corporation or the Compensation Committee of such Board of Directors. (e) "Career Average Plan" means the Maxus Energy Corporation Career Average Retirement Income Plan which is sponsored by the Corporation and is intended to qualify under Section 401(a) of the Code. (f) "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time. (g) "Corporate Account" means an account into which contributions of the Corporation have been credited and which is credited with interest at the Applicable Rate, compounded daily, until the account has been fully distributed to the Participant. (h) "Earnings" means a Participant's base salary. Bonuses, -2- 3 commissions and any other remuneration of any kind paid to a Participant shall be excluded from the computation of Earnings. In the case of a Participant receiving benefits under the Corporation's salary continuation plan, Earnings shall include payments the Participant receives under such plan in lieu of salary. (i) "Participant" means an employee of the Corporation meeting the eligibility requirements of Section 3 of the Plan. The term "Participant" shall include the beneficiary or eligible spouse of a deceased Participant. (j) "Participant Account" means an account into which deferred Earnings of a Participant have been credited and which is credited with interest at the Applicable Rate, compounded daily, or such other rate as may be established by the Board until the account has been fully distributed to such Participant. (k) "Pension Benefit" has the meaning set forth in Section 5. (l) "Plan Year" means the calendar year. (m) "Reduced Savings Plan Benefit" means, for any Plan Year, the amount by which (i) six percent (6%) of the Participant's Earnings during such Plan Year, exceeds (ii) the maximum employer matching contribution permitted under the Savings Plan during such Plan Year as a result of the limitations under the Code. (n) "Savings Plan" means the Employee Savings Plan sponsored by the Corporation. 3. Eligibility An exempt employee of the Corporation or of any operating -3- 4 subsidiary of the Corporation who is eligible to participate in the Savings Plan for any plan year of the Savings Plan and who has been designated a grade 10 (or the equivalent thereof) or higher grade for the same plan year of the Savings Plan shall be eligible to participate in the Plan. Once an employee has become a Participant, he will not lose eligibility to participate in the Plan merely because he is reclassified to a lower grade level. 4. Savings Plan Supplemental Award If a Participant has a Reduced Savings Plan Benefit for any Plan Year, such Participant's Corporate Account shall be credited with an amount equal to the amount of the Reduced Savings Plan Benefit of the Participant for such Plan Year. 5. Deferred Earnings A Participant may elect, in accordance with procedures established by the Benefits Committee, to defer under this Plan a portion of his Earnings for a Plan Year. The amount of Earnings which a Participant may elect to defer during a Plan Year shall be equal to the amount by which: (a) the amount of before-tax contributions which such Participant elected to contribute to the Savings Plan during such Plan Year, exceeds (b) the maximum amount of before-tax contributions which such Participant is permitted to make to the Savings Plan during such Plan Year as a result of the limitations under Code Sections 401(a)(17), 401(k), 402(g) and 415. A Participant's deferrals of Earnings under this Plan shall be credited to his Participant Account. A Participant who is eligible to receive a benefit under the -4- 5 Career Average Plan shall be entitled to receive a supplemental pension benefit (the "Pension Benefit") under the Plan in an amount equal to the excess, if any, of (i) over (ii), where: (i) equals the aggregate amount of monthly income that would be payable to the Participant under the Career Average Plan (as computed without the maximum benefit limitations under Code Section 415 or any limitations imposed as a consequence of applying the annual compensation cap set forth in Section 401(a)(17) of the Code (adjusted for changes in the cost of living as provided in Section 401(a)(17) of the Code and 415(d) of the Code) if the Participant's deferrals of Earnings pursuant to this Section for any year were included in the Participant's compensation as reported on Internal Revenue Service Form W-2 for such year; and (ii) equals the aggregate amount of monthly income that is actually payable to the Participant under the Career Average Plan, the Maxus Energy Corporation Supplemental Executive Retirement Plan and the Maxus Energy Corporation Excess Benefits Plan. 6. Treatment of Stock Units If and to the extent a Participant was credited with "Stock Units" (as defined below) in his Corporate and/or Participant Accounts as of June 8, 1995, such Participant's Corporate and Participant Accounts, respectively, will be credited as of that date with an amount equal to the number of Stock Units credited to such Account on June 8, 1995 times $5.50. As used herein, the term "Stock Unit" shall have the meaning assigned to that term in the Plan as in effect immediately prior to this amendment and restatement. 7. Vesting Subject to the rights of general creditors as set forth in Section 11 and the right of the Corporation to discontinue the Plan as provided in Section 13(c), a Participant shall: -5- 6 (a) be vested in his Corporate Accounts to the same extent as such Participant is vested in matching contributions of the Corporation under the Savings Plan; (b) be vested in his Pension Benefit to the same extent as such Participant is vested in his accrued benefit under the Career Average Plan; and (c) at all times be fully vested and have a nonforfeitable interest in his Participant Accounts. 8. Commencement of Benefits The vested Corporate Accounts, vested Pension Benefit, and the Participant Accounts payable to a Participant under this Plan shall be paid within 30 days following the date the Participant terminates employment for any reason. A Participant may not elect to borrow or withdraw from the Plan any portion of the benefits provided under this Plan. 9. Form of Benefits (a) A Participant's Corporate Account and Participant Account shall be paid in a single lump sum cash payment. (b) A Participant's Pension Benefit shall be paid in the form of a lump sum payment which is the Actuarial Equivalent of a monthly life annuity in the amount of the Pension Benefit beginning when the Participant reaches age 62 and continuing for the remaining life expectancy of the Participant. 10. Death Benefits If a Participant who is entitled to receive a benefit under the Plan dies before terminating his employment with the Corpora- -6- 7 tion: (a) The amount of his Corporate Account and Participant Account shall be paid to the person or persons (including his estate) who are recognized as his beneficiary under the Savings Plan for purposes of the Savings Plan benefit within 30 days following the date of the Participant's death; and (b) The Participant's eligible spouse, if any, under the Career Average Plan shall be paid within 30 days following the date of the Participant's death a lump sum amount which is the Actuarial Equivalent of a monthly life annuity beginning on the earliest date at which such an annuity could begin for such eligible spouse under the Career Average Plan and continuing for the remaining life expectancy of such eligible spouse in the amount of the Participant's Pension Benefit (reduced as describe below). In calculating such lump sum, the Pension Benefit shall first be reduced by any and all factors or adjustments, if any, that would be used under the Career Average Plan to adjust the monthly single life annuity amount of the Participant to a 50% monthly life annuity for the eligible spouse that begins on the earliest date at which a life annuity could begin for such eligible spouse. 11. Funding of Benefits (a) The Plan shall be unfunded. All benefits payable under the Plan shall be paid from the Corporation's general assets, and nothing contained in the Plan shall require the Corporation to set aside or hold in trust any funds for the benefit of a Participant, who shall have the status of a general unsecured creditor with respect to the Corporation's obligation to make payments under the Plan. Any funds of the Corporation available to pay benefits under the Plan shall be subject to the claims of general creditors of the Corporation and may be used for any purpose by the Corporation. (b) Notwithstanding the provisions of subsection (a), the Corporation may, at the direction and in the absolute discretion of the Benefits Committee, transfer to the trustee of one or more -7- 8 irrevocable trusts established for the benefit of one or more Participants assets from which all or a portion of the benefits provided under the Plan will be satisfied, provided that such assets held in trust shall at all times be subject to the claims of general unsecured creditors of the Corporation, and no Participant shall at any time have a prior claim to such assets. 12. Administration of the Plan The Benefits Committee shall administer the Plan and shall keep a written record of its action and proceedings regarding the Plan and all dates, records and documents relating to its administration of the Plan. The Benefits Committee is authorized to interpret the Plan, to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan, to make all other determinations necessary or advisable for the administration of the Plan and to correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent that the Benefits Committee deems desirable to carry the Plan into effect. The powers and duties of the Benefits Committee shall include, without limitation, the following: (a) Determining the amount of benefits payable to Participants and authorizing and directing the Corporation with respect to the payment of benefits under the Plan; (b) Construing and interpreting the Plan whenever necessary to carry out its intention and purpose and making and publishing such rules for the regulations of the Plan as are not inconsistent with the terms of the Plan; and -8- 9 (c) Compiling and maintaining all records it determines to be necessary, appropriate or convenient in connection with the administration of the Plan. Any action taken or determination made by the Benefits Committee shall be conclusive on all parties. No member of the Benefits Committee shall vote on any matter relating specifically to such member. In the event that a majority of the members of the Benefits Committee will be specifically affected by any action proposed to be taken (as opposed to being affected in the same manner as each other Participant in the Plan), such action shall be taken by the Board. 13. Miscellaneous (a) Nothing in the Plan shall confer upon a Participant the right to continue in the employ of the Corporation or an affiliate of the Corporation or shall limit or restrict the right of the Corporation or any affiliate to terminate the employment of a Participant at any time with or without cause. (b) Except as otherwise provided in the Plan, no right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge such right or benefit shall be void. No such right or benefit shall in any manner be liable for or subject to the debts, liabilities or torts of a Participant. (c) The Plan may be amended at any time by the Benefits Committee provided such amendment does not have the effect of -9- 10 increasing, directly or indirectly, the benefit of any Participant. The Plan may also be amended or terminated by the Board at any time, and any amendment adopted by the Board shall supersede any prior or later amendment adopted by the Benefits Committee that is inconsistent with the action of the Board. No amendment shall have the effect of decreasing a Participant's accrued benefit. However, if the Board determines that payments under the Plan would have a material adverse effect on the Corporation's ability to carry on its business, the Board may suspend such payments for such time as in its absolute discretion it deems advisable. (d) The Plan is intended to provide benefits for "management or highly compensated" employees within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, if it is determined by a court of competent jurisdiction or by an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3 (2) of ERISA which is not so exempt, the Plan shall terminate and no further benefits shall accrue hereunder. (e) The Corporation shall have the right to deduct any taxes required by law to be withheld from all amounts paid pursuant to the Plan. (f) If any provision in the Plan is held by a court of competent jurisdiction to be invalid, void or unenforceable, the -10- 11 remaining provisions shall nevertheless continue to full force and effect without being impaired or invalidated in any way. (g) The Plan shall be construed and governed in all respects in accordance with applicable federal law and, to the extent not preempted by such federal law, in accordance with the law of the State of Texas. (h) Nothing herein is intended to nor shall be construed to reduce the amount of any Participant's benefit accrued under the Plan as of June 8, 1995. IN WITNESS WHEREOF, the Corporation has caused this amended and restated Plan to be executed in its name by its duly authorized officers effective as of the 8th day of June, 1995. MAXUS ENERGY CORPORATION By: /s/ W. Mark Miller -------------------------------- ATTEST: /s/ H. R. Smith - -------------------------------- H. R. Smith, Secretary -11- EX-10.15 4 INTERNATIONAL CONSULTING AGREEMENT 1 Exhibit 10.15 INTERNATIONAL CONSULTING AGREEMENT YPF Sociedad Anonima (hereinafter referred to as the "Company"), a sociedad anonima organized under the laws of the Republic of Argentina, with principal offices at Avenida Pte. Roque Saenz Pena 777, Buenos Aires 1364, Argentina, and C. L. Blackburn (hereinafter referred to as "Consultant"), whose address is 3705 Gillon Avenue, Dallas, Texas 75205, hereby agree as follows: 1. The Company desires to engage Consultant on the terms and for the period set forth herein as an international consultant (the "Consulting Services"). Consultant agrees to provide the Consulting Services on the terms and for the period set forth herein. In performing the Consulting Services, Consultant shall have direct access to Jose A. Estenssoro and Nells Leon, the Company's President and Chief Executive Officer and Executive Vice President and Chief Operating Officer, respectively, or their successors. 2. The term of this Agreement shall commence on May 1, 1995 and shall remain in effect for a term of two years; provided, however, that this Agreement will terminate upon Consultant's death if he should die during the term hereof. 3. As the fee for the Consulting Services, the Company shall pay Consultant a retainer of US$180,000 per year, payable in monthly installments of US$15,000 on or before the first day of 2 every month during the term hereof. Should Consultant provide more than 60 days of Consulting Services during the first or second 12-month period hereof, Company shall pay him US $3000 for each day during which Consulting Services are so provided in excess of 60 days in either 12-month period. Consultant shall invoice the Company monthly for Consulting Services performed in excess of 60 days in such a 12-month period, and Consultant's invoices shall set forth the total number of days in which Consulting Services were performed during the applicable month. Consultant is to send any such invoices to Cedric Bridger at the address given for the Company first above. Such invoices will be paid within ten (10) business days after receipt. If and to the extent Consultant serves as a director of Maxus Energy Corporation, a majority owned subsidiary of the Company (Maxus"), during the term hereof, Consultant waives the right to receive compensation in addition to that provided herein for his service as a director of Maxus unless he has previously provided Consulting Services in excess of 60 days during the relevant 12-month period. However, it is understood and agreed that time spent performing duties as a director of Maxus shall be deemed to be the performance of Consulting Services. 4. Within ten (10) business days after receipt of an invoice, the Company shall reimburse Consultant for reasonable travel, entertainment, out of town living and similar expenses incurred by him in connection with the Consulting Services rendered -2- 3 hereunder. Such invoices are to be sent to Cedric Bridger at the address given for the Company first above. 5. Subject to the other provisions hereof, during the term hereof, Consultant will make himself available to perform the Services at least 60 days during each of the first and second 12-month periods hereof. The Company specifically acknowledges and agrees that Consultant is free to serve as a director of companies or other entities not affiliated with the Company, provided that and for so long as such other companies and entities do not in any material way compete with, provide goods or services to, or otherwise generate conflicts with the Company. 6. The Company agrees to provide Consultant with mutually agreeable office space, reserved parking, supplies and support services, including secretarial support, at its headquarters' offices in Buenos Aires, Argentina and at Maxus' headquarters' offices in Dallas, Texas, U.S.A. as may be necessary or appropriate in connection with Consultant's performance of the Consulting Services at such locations. 7. Consultant is an independent contractor hereunder with the responsibility for, and control over, the details and means of performing the Consulting Services. In this connection, it is understood and agreed that the Company is interested in results and -3- 4 shall not have the right to control the details of the Services to be performed hereunder or the manner in which they are performed. 8. Confidentiality. All data and information which may be received by Consultant from the Company, directly or indirectly, or developed by him in connection with his performing the Consulting Services shall be kept confidential by him and will be utilized only for the purposes of carrying out the Consulting Services to be provided hereunder. 9. The Company represents that if any approval of this Agreement by its Board of Directors or any committee thereof is required to make this Agreement binding on the Company, such approval has been given. 10. This Agreement may not be assigned by Consultant and may be assigned by the Company only to a corporation into which the Company is merged or which acquires substantially all of the Company's assets. 11. This Agreement is entered into in Dallas, County, Texas, U.S.A. All payments provided for herein are payable in Dallas County, Texas, U.S.A. in United States dollars. -4- 5 12. This Agreement shall be construed under the laws of the State of Texas, without giving effect to its conflicts of laws principles. 13. (a) The Company consents to the non-exclusive jurisdiction of any court of the State of Texas or any United States federal court sitting in Dallas, Dallas County, Texas, U.S.A., and any appellate court from any thereof, and waives any immunity from the jurisdiction of such courts over any suit, action or proceeding that may be brought in connection with this Agreement. The Company irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action or proceeding that may be brought in connection with this Agreement in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. The Company agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon the Company and may be enforced in any court to the jurisdiction of which the Company is subject by suit upon such judgment. Notwithstanding the foregoing, any suit, action or proceeding brought in connection with this Agreement may be instituted in any competent court in Argentina. (b) The Company agrees that service of all writs, process and summonses in any suit, action or proceeding brought in connection with this Agreement against the Company in any court sitting in Dallas, Dallas County, Texas, U.S.A. may be made upon the General -5- 6 Counsel of Maxus Energy Corporation, 717 N. Harwood St., Dallas, Texas 75201, U.S.A., whom the Company irrevocably appoints as its authorized agent for service of process for purposes of this Agreement and all actions brought in connection herewith. The Company represents and warrants that Maxus' General Counsel has agreed to act as the Company's agent for service of process. The Company agrees that such appointment shall be irrevocable so long as this Agreement shall remain in effect or until the irrevocable appointment by the Company of a successor in Dallas, Texas as its authorized agent for such purpose and the acceptance of such appointment by such successor. The Company shall provide Consultant in writing the name and address of such successor agent. With respect to any such action in any court of the State of Texas or any United States federal court in Dallas, Dallas County, Texas, U.S.A. service of process upon Maxus' General Counsel, as the authorized agent of the Company for service of process, and written notice of such service to the Company, shall be deemed, in every respect, effective service of process upon the Company. (c) Nothing in this Section 14 shall affect the right of any party to serve legal process in any other manner permitted by law or affect the right of any party to bring any action or proceeding against any other party or its property in the courts of other jurisdictions. 14. Should any provision hereof be unenforceable or otherwise illegal, the remainder of this Agreement shall not be affected, and -6- 7 the provision held to be unenforceable or illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable and legal. Executed as of the 1st day of May, 1995. YPF SOCIEDAD ANONIMA By: [ILLEGIBLE] ----------------------------------- /s/ C. L. BLACKBURN ----------------------------------- C. L. Blackburn -7- EX-10.16 5 ASSIGNMENT OF INTERNATIONAL CONSULTING AGREEMENT 1 Exhibit 10.16 ASSIGNMENT OF INTERNATIONAL CONSULTING AGREEMENT This Assignment of International Consulting Agreement is entered into as of this 2nd day of November, 1995 by and among YPF Sociedad Anonima, a sociedad anonima organized under the laws of the Republic of Argentina ("YPF"), Maxus Energy Corporation, a Delaware corporation ("Maxus"), and C. L. Blackburn ("Blackburn"). WHEREAS, YPF and Blackburn have heretofore entered into an International Consulting Agreement (the "Consulting Agreement") effective as of May 1, 1995; and WHEREAS, YPF owns all of the issued and outstanding common stock of Maxus; and WHEREAS, YPF has determined that Maxus will be its principal international oil and gas exploration and production subsidiary, responsible for substantially all oil and gas exploration and production activities outside Argentina; and WHEREAS, consistent with Maxus' role as YPF's principal international oil and gas exploration and production subsidiary, YPF has transferred or intends to transfer certain rights to explore for and produce oil and gas in Bolivia, Peru, Ecuador, the United States and other countries; and WHEREAS, the parties hereto have agreed that in view of Maxus' role as YPF's principal international oil and gas exploration and production subsidiary it is appropriate and in the parties' interests for YPF to assign its rights and obligations under the Consulting Agreement to Maxus; NOW THEREFORE, for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. YPF hereby assigns, and Maxus hereby accepts and agrees to perform on the terms and conditions set forth herein, all of YPF's rights and obligations under the Consulting Agreement effective as of May 1, 1995. 2. Blackburn hereby consents to the assignment of YPF's rights and obligations under the Consulting Agreement to Maxus on the terms and conditions set forth herein and that the "Consulting Services" (as defined in the Consulting Agreement) will be performed for Maxus. 2 3. Any provision in this Agreement or the Consulting Agreement to the contrary notwithstanding, the parties hereto agree as follows: a. In lieu of the access contemplated by Section 1 of the Consulting Agreement, Blackburn shall have direct access to Nells Leon, the Chief Executive Officer of YPF and a director of Maxus, and Roberto Monti, the President and Chief Executive Officer of Maxus, or their successors. b. Blackburn shall send any invoices for or in connection with Consulting Services or expense reimbursement as contemplated by Sections 3 and 4 of the Consulting Agreement, respectively, to Maxus Energy Corporation, 717 N. Harwood Street, Suite 3300, Dallas, Texas 75201, Attn: Controller, or such other address as may be specified in writing by Maxus. c. Maxus shall provide Blackburn office space, parking, supplies and support services in Maxus' headquarters' offices in Dallas on an as needed basis if and when Blackburn determines to perform Consulting Services at such offices, and YPF shall provide Blackburn office space, parking, supplies and support services in YPF's headquarters' offices in Buenos Aires, Argentina on an as needed basis if and when Blackburn determines to perform Consulting Services at such offices. 4. Maxus and Blackburn agree that the Consulting Agreement remains in full force and effect as modified hereby. THIS Assignment of International Consulting Agreement may be signed in any number of counterparts and shall be effective when executed by all three parties identified below. YPF SOCIEDAD ANoNIMA Date: November 7, 1995 By /s/ CEDRIC BRIDGER ------------------------------------ MAXUS ENERGY CORPORATION Date: November 9, 1995 By /s/ W. MARK MILLER ------------------------------------ Date: November 2, 1995 By /s/ C. L. BLACKBURN ----------------------------------- C. L. BLACKBURN bcc w/enc: L. Englebrecht R. Clabiorne EX-10.17 6 MAXUS SEVERANCE AGREEMENT 1 Exhibit 10.17 MAXUS SEVERANCE AGREEMENT This Severance Agreement is made and entered into between Maxus Energy Corporation ("Maxus") and Roberto Luis Monti ("Executive"), effective for all purposes as of August 3, 1995. WHEREAS, as an additional inducement to Executive to accept employment with Maxus and to devote his best efforts to the business of Maxus, Maxus is desirous of offering him this severance agreement; and WHEREAS, Executive is desirous of accepting employment with Maxus and receiving this severance agreement; NOW, THEREFORE, Maxus and Executive hereby agree to the following: SECTION 1 - DEFINITIONS Whenever used herein, the following capitalized terms shall have the meanings set forth below, unless expressly provided otherwise. (a) BENEFICIARY means the beneficiary designated (and not revoked) by Executive in writing, filed with Maxus in a form acceptable to it, to receive any payment to be made on behalf of Executive after his death pursuant to this Agreement, and if no such designation exists, his surviving spouse or, if none, his estate. (b) BOARD means the Board of Directors of Maxus. (c) CAUSE means the termination of Executive's employment with Maxus due to (i) the willful and continued failure for a period of 30 days by Executive to perform substantially all of Executive's duties with Maxus, following a demand by Maxus for substantial performance of his duties, which demand specifies the manner in which Executive has not performed his duties, other than any such failure resulting from Executive's incapacity due to physical or mental illness, or (ii) the willful engaging by Executive in gross misconduct materially and demonstrably injurious to Maxus. For purposes of this definition, an act or failure to act on Executive's part shall not be considered "willful" if done or omitted to be done by Executive in good faith and with reasonable belief that Executive's action or omission was in the best interest of Maxus. (d) DISABILITY means a mental or physical disability of Executive, which, in the opinion of Executive's physician, prevents Executive 2 from performing his regular duties and is expected to be of long continued duration or to result in death. (e) EMPLOYMENT means employment with Maxus. (f) SEVERANCE PAYMENT means a payment in cash or by wire transfer of U.S. $3 million, less any other severance payment, if any, due Executive by Maxus. (g) TAKEOVER means either (i) any transfer of shares or other corporate restructuring whereby Maxus ceases to be a corporation directly or indirectly controlled by YPF S.A., a corporation organized under the laws of Argentina ("YPF"); or (ii) a "controlled acquisition"of YPF, as defined in Section 7(d) of YPF's by-laws or any successor provision thereto, or a change in the composition of the Class D directors of YPF, at any Stockholders' Meeting or over any period of time encompassing not more than two successive Stockholders' Meetings, so that a majority of the Class D directors are persons who were not proposed as candidates by the Class D directors sitting at the date or dates the new directors comprising such majority were elected. SECTION 2 - PAYMENT OF SEVERANCE If Executive's Employment is terminated (i) by either Executive or Maxus because of his Disability or death, or (ii) by Maxus other than for Cause, or (iii) by Executive within six months following a Takeover for any reason (other than to accept employment with YPF), or (iv) by Executive for any reason on or after reaching the age of 65 years, Maxus shall immediately pay to Executive the Severance Payment. If, however, Executive's Employment is terminated by Executive for any other reason, including, without limitation, to accept employment with YPF, no Severance Payment shall be due or payable to Executive under this Agreement. SECTION 3 - NO EMPLOYMENT RIGHTS Nothing contained herein shall be construed as a contract of employment between Maxus and Executive, or as granting Executive a continued right of employment or as a limitation on the right of Maxus to discharge Executive at any time, with or without Cause. SECTION 4 - NON-ALIENATION OF BENEFITS No right or payment under this Agreement shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge by Executive (or his Beneficiary), and any attempt to anticipate, alienate, sell, assign, -2- 3 pledge, encumber or charge the same will be void. Further, no right or payment hereunder shall in any manner be liable for or subject to any debts, contracts, liabilities or torts of Executive (or his Beneficiary). If Executive (or his Beneficiary) shall become bankrupt or attempt to anticipate, alienate, assign, sell, pledge, encumber or charge any right or payment hereunder, or if any creditor shall attempt to subject the same to a writ of garnishment, attachment, execution, sequestration, or any other form of process or involuntary lien or seizure, then such right or payment shall be held by Maxus for the sole benefit of Executive (or his Beneficiary, as the case may be) in such manner as the Board shall deem proper, free and clear of the claims of any other party whatsoever. SECTION 5 - WITHHOLDING OF TAXES Maxus shall deduct from any payment due Executive (or his Beneficiary) hereunder, any taxes which it determines are required by law to be withheld from such payment. SECTION 6 - ARBITRATION Any dispute under this Agreement shall be settled by arbitration. Either party by notice in writing to the other may request arbitration and shall specify the nature of the dispute. Within five days thereafter the parties may designate a single arbitrator, or absent such mutual designation, within the next five days each party shall appoint an arbitrator, who in turn shall jointly select a third arbitrator within the next five days. Absent agreement on such third arbitrator, the parties agree to seek the assistance of the American Arbitration Association in this regard. The decision of the single arbitrator or the joint decision of the three arbitrators, which shall also apportion the arbitration expense between the parties, shall be binding and enforceable on the parties in the same manner as a final decision of a court of competent jurisdiction. The provisions of the foregoing paragraph shall survive termination of this Agreement. SECTION 7 - AMENDMENT No provision of this Agreement may be modified, waived or discharged unless evidenced by written agreement executed by both parties. SECTION 8 - GOVERNING LAW The validity, construction, interpretation and effect of this Agreement and all rights of any and all persons having or claiming o have any interest in the Agreement shall be governed by the laws of the State of Texas. -3- 4 IN WITNESS WHEREOF, Maxus and Executive have executed this Agreement in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument, effective for all purposes as of the date first provided above. MAXUS ENERGY CORPORATION BY: /s/ W. MARK MILLER --------------------------------- Vice President EXECUTIVE /s/ ROBERTO LUIS MONTI --------------------------------- Roberto Luis Monti -4- EX-10.18 7 COMPENSATION AGREEMENT 1 Exhibit 10.18 COMPENSATION AGREEMENT THIS AGREEMENT is made on the 27th day of December, 1995 between Maxus Energy Corporation, a company incorporated under the laws of the State of Delaware, United States of America, whose principal office is located at 717 North Harwood Street, Dallas, Texas 75201 (the "Company") and Roberto L. Monti (the "Executive"). WHEREAS, the Executive and the Company have entered into certain understandings related to the payment of compensation, performance of services and location of duties to be performed, and WHEREAS, the Executive and the Company have agreed that to defer payment of certain compensation that may be earned by the Executive, and WHEREAS, such agreement was made prior to the Executive's performance of any duties for the Company and its affiliates in the United States or earning any compensation with respect thereto in or for periods subsequent to December 31, 1995, and WHEREAS, the Executive and the Company desire to memorialize such agreements in a written agreement, IT IS HEREBY AGREED as follows: 1. Time Covered The Executive shall be compensated by the Company under the terms of this Agreement beginning with the first day of January 1996. This Agreement may be terminated at any time by the Executive or the Company. In no event shall any payments be due under this Agreement until the date specified in paragraph 5 of this Agreement. 2 2. Services Covered The Executive shall hold office and serve the Company as President and Chief Executive Officer at the pleasure of the Board of Directors of the Company (the "Board"). In such capacity, the Executive shall perform the duties and exercise the powers consistent with such offices which may from time to time be assigned to or vested in him by the By-Laws of the Company and Board, and the Executive shall from time to time give to the Board all such information regarding such matters as it shall require and shall implement and apply the policy of the Company. From time to time, the Executive will be required to perform services on behalf of the Company or its affiliates outside of the United States. Said duties will include, but not be limited to, review of acquisition candidates, stewardship duties, management liaison and other strategic corporate functions. It is expected that such acquisition candidates will normally be located outside of the United States, and the services performed in connection with any reviews shall be performed outside of the United States. It is also expected that stewardship and management liaison services will normally require visits to and meetings at the offices of YPF Sociedad Anonima, the Company's controlling shareholder in Argentina. 3. Compensation for Services During the term of this Agreement, the Company shall pay the Executive (a) for services performed outside of the United States while a resident in the United States a monthly base salary of US$16,667 (the "Foreign Service Pay") and (b) for other services performed a monthly base salary of US $50,000. -2- 3 4. Deferral of Payment The Company and the Executive agree to defer payment of the Foreign Service Pay. It is agreed that the Company shall instead credit, on the last day of each month US$16,667 to a "deferral account." In addition, the Company shall add to the deferral account, on the first day and the 15th day of each month, beginning February 15, 1996, an amount equal to 1/24 of the prime rate multiplied by the balance in the deferral account as of the close of the preceding day (the "earnings addition"). For this purpose, the prime rate applicable to a given date shall be equal to the month end prime lending rate as reported in the Wall Street Journal for the immediately preceding month or, if the Wall Street Journal does not report such rate, the prime rate applicable to a given date will be equal to the month end prime lending rate offered by the Chase Manhattan Bank, New York, N.Y. for the immediately preceding month. At no time while resident in the United States shall the Executive have any control over payment of the amounts in the deferral account, nor shall the obligation be funded or secured, nor shall the Executive have any right against the Company or any of its affiliates with respect to any portion of the deferral account, except as a general unsecured creditor. 5. Payment of Balance in Deferral Account The Executive shall be entitled to payment of such amounts as determined in paragraph 4 thirty (30) days after the termination of the Executive's employment with the Company and the payment will be made in a lump-sum. -3- 4 The Executive shall be entitled to make a one time, irrevocable election to withdraw the balance in the deferral account within 15 days after December 31, 1998 in the event that he has not received or is otherwise not entitled to receive payment. If such election is made, an amount equal to the most recent annual "earnings addition" will be deducted from the deferral account before payment to the Executive. In addition, the Executive shall be entitled to withdraw the entire amount in the deferral account in the event that the Executive experiences a "financial hardship." The determination of the existence of a financial hardship shall be made solely by the Company, taking into consideration the severity of the hardship and other sources of funds available to the Executive, but the balance in the deferral account shall not be unreasonably withheld. No deduction of any "earnings addition" shall be made from the deferral account if withdrawal is made on account of "financial hardship." 6. Scope of Agreement Nothing in this Agreement is intended to or shall be construed to impact, enhance, impair or reduce the Executive's right to participate in or coverage, obligations or rights under (a) the Company's qualified and non-qualified benefit plans, policies and arrangements or (b) that certain Severance Agreement dated August 3, 1995 between the Executive and the Company. -4- 5 7. Governing Laws This contract shall be governed by and construed under the Laws of the State of Delaware. /s/ Roberto L. Monti - -------------------------------- Roberto L. Monti MAXUS ENERGY CORPORATION By: /s/ W. MARK MILLER ----------------------------- Executive Vice President -5- EX-10.19 8 SERVICES AGREEMENT 1 EXHIBIT 10.19 SERVICES AGREEMENT THIS SERVICES AGREEMENT (this "Agreement") is entered into as of April 5, 1995 (the "Effective Date"), by and between PETER D. GAFFNEY ("Gaffney") and MAXUS ENERGY CORPORATION, a Delaware corporation ("Maxus"). WHEREAS: YPF, S.A. ("YPF") has tendered for all of the issued and outstanding common stock of Maxus, resulting in Maxus becoming a subsidiary of YPF. Recognizing Gaffney's unique knowledge, abilities and expertise, the board of directors of Maxus (the "Maxus Board") and the management of YPF have requested that Gaffney serve as Chief Executive Officer of Maxus. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. EMPLOYMENT. Maxus hereby agrees to employ Gaffney, and Gaffney hereby agrees to be employed by Maxus, for a term commencing on the date hereof and terminating on September 30, 1995 (the "Employment Period"), subject to extension by the mutual consent of the parties or earlier termination in accordance with Section 4 hereof. 2. SERVICES. During the Employment Period, Gaffney will hold the position of Chief Executive Officer of Maxus and in this capacity shall have such responsibilities and duties as are consistent with such position, as well as such additional duties as may be designated by the Maxus Board, provided that in no event shall the scope of Gaffney's duties and the extent of Gaffney's responsibilities be substantially different from the duties and responsibilities usually associated with the position of chief executive officer of a corporation similar in size and function to Maxus. In performing his duties, Gaffney shall report, and be answerable only to, the Maxus Board, acting through its Chairman of the Board or collectively. During the Employment Period, Gaffney shall devote his best efforts and substantially all of his business time, skill and attention to the business of Maxus. Notwithstanding anything to the contrary set forth herein, Gaffney shall be entitled to participate in such business and professional activities as may be approved from time to time by the Maxus Board. In any event, Gaffney shall not be prevented from devoting reasonable periods of time during normal business hours to (a) serving the Society of Petroleum Engineers ("SPE") as President or in any other capacity and performing related functions, (b) engaging in any professional, civic or charitable activity consistent with his employment, and (c) investing and managing Gaffney's personal assets. It is expressly understood and agreed that to the extent any such activities have been conducted by Gaffney prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not be deemed to interfere with the performance of Gaffney's responsibilities to Maxus. 2 3. COMPENSATION AND BENEFITS. (a) Salary. From the Effective Date until the date of termination of this Agreement in accordance with its terms, Maxus shall pay Gaffney a salary of $50,000 per month, payable in arrears on the first business day of each month. Gaffney's salary shall not be reduced during the Employment Period. Upon the execution of this Agreement, Maxus shall pay Gaffney all salary amounts earned under this Section 3(a) since the Effective Date but not paid as of the date of execution hereof. (b) Benefits. In addition to the compensation specified above, Gaffney shall be entitled to only the following benefits: (i) participation in any health insurance, disability insurance or other welfare benefit program made generally available to the officers of Maxus, including, without limitation, full health, disability and dental coverage for Gaffney and spouse; (ii) a period of vacation with salary consistent with the current policy of Maxus, as the same may be changed from time to time; expenses incurred by Gaffney in furtherance of the interests of Maxus in accordance with the current policy of Maxus, as the same may be changed from time to time; (iv) reimbursement for reasonable expenses incurred by Gaffney and spouse in connection with attending SPE meetings and related functions and reimbursement of reasonable expenses incurred by Gaffney in connection with other professional and energy industry meetings and related functions; (v) all reasonable costs associated with Gaffney's relocation to Dallas, Texas and the performance of services under this Agreement, including, without limitations, payment or reimbursement of, rental of a suitable furnished apartment or house in Dallas, Texas, the lease of an automobile, legal costs associated with U.S. immigration compliance and other legal costs incurred by Gaffney in connection with his employment with Maxus; and (vi) payment of initiation and monthly (or other periodic) fees and dues for Gaffney to be a full member of the Dallas Petroleum Club during the Employment Period. (c) Maxus shall have the right to deduct and withhold from compensation payable to Gaffney all social security and other federal, state and local taxes and charges which are currently or which may hereafter be required by law. (d) Notwithstanding anything in this Agreement or in any compensation or employee benefit plan or program of Maxus that provides for incentive or deferred compensation or retiree benefits, including health insurance, life insurance or pension benefits (whether pursuant to a qualified or nonqualified plan), to the contrary, Gaffney hereby expressly agrees and 2 3 acknowledges that he shall not be entitled to participate in or receive any such incentive or deferred compensation or retiree benefits and, to the extent applicable, Gaffney hereby waives his automatic participation in such plans and programs. 4. TERMINATION OF EMPLOYMENT. The following provisions shall be applicable to a termination of employment under this Agreement: (a) Maxus may terminate Gaffney's employment under this Agreement at any time. If Maxus terminates Gaffney's employment, Gaffney shall be entitled to any unpaid salary (pro rated through and including the date of termination). In addition, Gaffney shall be entitled to receive an amount equal to the compensation he would have been entitled to receive under this Agreement through the end of the Employment Period. The aforesaid cash payments shall be payable in a single lump sum upon termination. (b) Gaffney shall be entitled to terminate his employment hereunder at any time. If Gaffney terminates his employment hereunder, the provisions of Section 4(a) shall apply. (c) Any termination by act of Maxus or Gaffney pursuant to Sections 4(a) or (b) above shall be communicated by a written notice of termination to the other party hereto and, further, in the event Gaffney shall terminate this Agreement such notice shall be sent to Maxus at least thirty (30) days prior to the date of termination. 5. CONFIDENTIAL INFORMATION. Gaffney shall take all reasonable steps to safeguard Confidential Information (as herein defined) and to protect such Confidential Information against disclosure, misuse, loss or theft. The term "Confidential Information" shall mean any information not generally known in the relevant trade or industry, which was obtained from Maxus or which was learned, discovered, developed, conceived, originated or prepared during or as a result of the performance of any services by Gaffney on behalf of Maxus. 6. DIRECTORSHIP. During the Employment Period and for so long thereafter as Gaffney may remain employed by Maxus, Maxus agrees to nominate Gaffney to the Maxus Board at each meeting of stockholders called for the purpose of electing directors of Maxus. Maxus further agrees that Gaffney shall be appointed to the Executive Committee (or any committee with similar functions and powers) of the Maxus Board, if any. 7. CONTINUANCE OF LEGAL PROTECTIONS. Maxus agrees that all rights to indemnification and exculpation in respect of actions taken by Gaffney during the Employment Period, which rights shall be those now existing in favor of the employees, agents, directors or officers of Maxus as provided in the certificate of incorporation or bylaws of Maxus shall survive the termination of employment and continue in full force and effect. Maxus shall cause to be maintained in effect throughout the Employment Period, and for a period of seven years from the date of termination of employment, the current policies of directors' and officers' liability insurance (or policies that have substantially the same coverages and other material terms as contained in the current policies of directors' and officers' liability insurance) with respect to all matters occurring during, or as a result of, Gaffney's employment by Maxus; provided that if any claim is asserted or made within such period, such insurance will be continued in respect of such claim until the final disposition thereof. Notwithstanding the foregoing, in the event that policies 3 4 of directors' and officers' liability insurance are not being issued by reputable carriers with coverages and other material terms substantially the same as contained in current policies maintained by Maxus, Maxus shall obtain and maintain policies of directors' and officers' liability insurance with the maximum coverages then commercially available. 8. CERTAIN PUBLIC INFORMATION. Any press release or other public information concerning Gaffney, or the position held by Gaffney at Maxus, including without limitation, any press release relating to the termination of Gaffney's employment, shall be submitted to Gaffney for prior written approval, which approval shall not be unreasonably withheld. 9. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon, and inure to the benefit of, Maxus and its affiliates and its successors and assigns, and shall be binding upon and inure to the benefit of Gaffney, and his legal representatives and assigns. 10. MODIFICATION OR WAIVER. No amendment, modification, waiver, termination or cancellation of this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification, waiver, termination or cancellation is sought. 11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE OF CONFLICTS OF LAW PRINCIPLES) AND WILL, TO THE MAXIMUM EXTENT PRACTICABLE, BE DEEMED TO CALL FOR PERFORMANCE IN DALLAS COUNTY, TEXAS. 12. SEVERABILITY. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Agreement. 13. COUNTERPARTS. This Agreement may be executed on separate counterparts each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 4 5 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. "MAXUS" By: /s/ MARK GENTRY ---------------------------------- Name: Mark Gentry ---------------------------------- Title: Vice President ---------------------------------- 5 6 "Gaffney" /s/ PETER D. GAFFNEY ---------------------------------- Peter D. Gaffney 6 EX-10.20 9 SECONDMENT AGREEMENT 1 EXHIBIT 10.20 SECONDMENT AGREEMENT THIS SECONDMENT AGREEMENT (this "Agreement") is entered into as of April 5, 1995 (the "Effective Date"), by and between Gaffney, Cline & Associates, Inc. ("GCA"), YPF, S.A. ("YPF") and Maxus Energy Corporation ("Maxus"). W H E R E A S: YPF and Maxus have requested that Peter D. Gaffney ("Gaffney") serve as Chief Executive Officer and a Director of Maxus. Gaffney is currently a principal of GCA and its affiliates. GCA and its affiliates are international energy consultants providing services to a broad base of clients, including YPF and Maxus. GCA is willing to consent to the secondment of Gaffney to Maxus on the terms and conditions described herein. NOW THEREFORE, in consideration of the premises and the mutual consents and agreements set forth herein, the parties hereto agree as follows: 1. Secondment. GCA consents to the secondment of Gaffney to Maxus for a term commencing on the date hereof and terminating September 30, 1995 (the "Initial Term"); provided that the term may be extended (each extension, an "Extension Period") by mutual consent of the parties. 2. Initial Fee; Extension Fees. Upon execution of this Agreement, Maxus shall pay GCA a fee (the "Initial Fee") of $500,000 (U.S.). In the event the parties agree to an Extension Period, Maxus shall pay an additional fee (an "Extension Fee") of $500,000 (U.S.) on or before the commencement of such Extension Period. The Initial Fee and any Extension Fee are nonrefundable notwithstanding the termination of Gaffney's employment with Maxus during the Initial Term or during any Extension Period, as the case may be. 3. Existing Arrangements. Each of the parties hereto acknowledges that YPF and Maxus have existing contractual arrangements with GCA (the "Existing Arrangements") pursuant to which GCA provides professional services to YPF, Maxus and their respective affiliates. Each of the parties hereto further acknowledges that such Existing Arrangements are anticipated to continue in effect for the foreseeable future. By executing this Agreement, YPF and Maxus each ratifies and affirms such Existing Arrangements and expressly waives any actual or potential conflict of interest now existing, or that may hereafter arise, as a result of or relating to Gaffney's secondment to Maxus and the continued performance of GCA under the Existing Arrangements during and after the Initial Term and any Extension Period. 4. Indemnification. a. Scope of Indemnity. Each of YPF and Maxus shall indemnify GCA and its affiliates and their respective officers, directors, shareholders, employees, agents and attorneys (each, a "GCA Indemnitee") against and hold GCA Indemnitee harmless from any judgments, 2 fines, losses, claims, costs (including, without limitation, court costs and costs of settlement incurred by GCA Indemnitee) and reasonable expenses (including, without limitation, reasonable attorneys' fees) sustained or incurred by GCA Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of YPF or Maxus, as the case may be), if GCA Indemnitee is or was a party or is threatened to be made a party thereto by reason of (directly or indirectly) (i) the fact that Gaffney is or was a director or officer of Maxus, (ii) the fact that Gaffney is or was serving at the request of YPF or Maxus as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, or (iii) any action or inaction (negligent or otherwise) by Gaffney while acting as a director or officer of Maxus or as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise at the request of YPF or Maxus. In the event that any claim or demand for which YPF or Maxus would be liable to GCA Indemnitee hereunder is asserted against or sought to be collected from GCA Indemnitee by a third party, YPF or Maxus, as the case may be, shall, at its sole cost and expense, assume the defense of such claim or demand; provided, however, that in the event GCA is advised by counsel that it may have defenses different from or in addition to those that may be asserted by YPF or Maxus in its own behalf, GCA Indemnitee shall have the right to retain separate legal counsel to monitor the status and disposition of any claim or demand for which YPF or Maxus would be liable to GCA Indemnitee hereunder and, further, GCA Indemnitee and GCA Indemnitee's counsel shall be entitled to participate in, jointly with the counsel of YPF or Maxus in defending such action and the costs of so doing shall be fully covered by the indemnity provided by this Agreement. b. Expenses Related to Indemnity. Expenses incurred by GCA Indemnitee in defending an action, suit or proceeding referenced in Section 4(a) hereof shall be paid by YPF or Maxus, as the case may be, in advance of the final disposition of such action, suit or proceeding at the written request of the GCA Indemnitee and upon the presentation of documents supporting the expenses for which reimbursement is sought. Prompt payment shall be made of any request for an advance pursuant to this Section 4(b) and in any event within ten (10) business days of receipt of the written request of the GCA Indemnitee. GCA Indemnitee may contest any refusal to make an advance by petitioning a court of appropriate jurisdiction to make an independent determination respecting Indemnitee's right to receive an advance, in accordance with the terms of Section 4(c) hereof. c. Enforcement of Indemnity Rights. The right to indemnification or advances as provided by this Agreement shall be enforceable by GCA Indemnitee in any court of competent jurisdiction. YPF or Maxus, as the case may be, shall have the burden of proving that indemnification or advances are not required. YPF and Maxus agree to indemnify GCA Indemnitee against and hold GCA Indemnitee harmless from any judgments, fines, losses, claims, costs (including, without limitation, costs of settlement incurred by GCA Indemnitee) and reasonable expenses (including, without limitation, reasonable attorney's fees and court costs) sustained or incurred by GCA Indemnitee in connection with an action, suit or proceeding to establish GCA Indemnitee's rights to indemnification or advances pursuant to this Agreement if such right to indemnification is established or agreed to in part or in whole. d. Survival of Indemnity Rights. The indemnity rights set forth in this Section 4 shall survive the termination of Gaffney's employment with Maxus. 2 3 5. Successors and Assigns. This Agreement will be binding upon, and inure to the benefit of Maxus, YPF and their respective affiliates, successors and assigns and shall be binding upon and inure to the benefit of GCA and its affiliates (including, without limitation, each GCA Indemnitee), successors and assigns. 6. Modification or Waiver. No amendment, modification, waiver, termination or cancellation for this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification, waiver, termination or cancellation is sought; it being understood and agreed that GCA shall be entitled to amend, modify, waive, terminate or cancel this Agreement on the behalf of any GCA Indemnitee. 7. Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCLUSIVE OF CONFLICTS OF LAW PRINCIPLES) AND WILL, TO THE MAXIMUM EXTENT PRACTICABLE, BE DEEMED TO CALL FOR PERFORMANCE IN DALLAS COUNTY, TEXAS. 8. Severability. Whenever possible, each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provisions or term or the remaining provisions or terms of this Agreement. 9. Counterparts. This Agreement may be executed on separate counterparts each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 10. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 3 4 IN WITNESS WHEREOF, the undersigned have executed this Agreement this 2nd day of May, 1995 effective as of the date first above written. MAXUS ENERGY CORPORATION By: /s/ MARK GENTRY --------------------------------------- Name: Mark Gentry --------------------------------- Title: Vice President -------------------------------- YPF, S.A. By: /s/ CEDRIC D. BRIDGER --------------------------------------- Name: Cedric D. Bridger --------------------------------- Title: Vice President -------------------------------- GAFFNEY, CLINE & ASSOCIATES, INC. By: /s/ WILLIAM B. CLINE --------------------------------------- William B. Cline, President 4 EX-10.21 10 AMENDMENT TO CHANGE IN CONTROL AGREEMENT 1 Exhibit 10.21 [MAXUS LETTERHEAD] May 11, 1995 TO: W. Mark Miller RE: AMENDMENT TO CHANGE IN CONTROL AGREEMENT Dear Mark: As you know, a "Change in Control," for purposes of the Change in Control Agreement between you and Maxus Energy Corporation ("Maxus") dated December 1, 1991 (the "Agreement"), occurred on April 5, 1995. In conjunction with the Change in Control, Maxus has agreed to request executives to agree to a post-Change in Control "standstill" period with respect to their agreements. The purpose of the "standstill" period is to help facilitate an orderly transition in the management of Maxus following the Change in Control. As consideration for your agreeing to a "standstill" period, Maxus will protect any severance benefits that could be lost under the terms of the Agreement by your continued employment during this "standstill" period. Accordingly, Maxus is hereby requesting that you agree to the following amendments to your Agreement: 1. Maxus agrees to continue your employment at your current job, at your current rate of base pay and with employee plan benefits at the levels and on the terms currently provided to you until June 30, 1995, and you agree not to terminate your employment prior to July 1, 1995. 2. If Maxus terminates your employment prior to July 1, 1995 for any reason other than for "Cause", as defined in the Agreement, it will pay you the severance compensation and benefits as set forth in the Agreement, without reduction with respect to the period of your continued employment following the date of the Change in Control. 3. If you terminate your employment prior to July 1, 1995, you will not be entitled to any payments or benefits under the Agreement. 4. The "Period of Employment", as defined in the Agreement, will be deemed for all purposes of the Agreement to commence on July 1, 1995. 2 5. If you continue your employment with Maxus after June 30, 1995, the Agreement shall remain in full force and effect as originally written, except as amended by the terms of this letter. If you agree to this letter amendment to your Agreement, please promptly sign, date and return this letter to the undersigned. The enclosed copy is for your files. Sincerely, /s/ MARK J. GENTRY Mark J. Gentry AGREED TO THIS 19th DAY OF May, 1995 /s/ W. MARK MILLER - ----------------------- W. Mark Miller EX-10.22 11 EMPLOYMENT AGREEMENT 1 Exhibit 10.22 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), effective as of July 1, 1995, by and between Maxus Energy Corporation, a Delaware corporation (the "Company") and W. Mark Miller (the Executive"). WITNESSETH: WHEREAS, the Executive is a senior executive of the Company and is expected to make major contributions to the success of the Company; and WHEREAS, the Company desires to continue receiving the services of the Executive; and WHEREAS, the Executive is willing to continue rendering services to the Company on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Term of Agreement: The period during which this Agreement shall be in effect (the "Term") shall commence as of July 1, 1995 and, subject to the further provisions hereof, shall expire as of the close of business on June 30, 1999. 2. Employment: (a) Subject to the further terms and conditions of this Agreement, during the Term the Company shall continue the Executive in its employ at a grade level that is the same as, or is equivalent to, or, in the Company's discretion is higher than, his grade level immediately prior to the commencement of the Term. The Company may change the Executive's position, title, duties and/or responsibilities with the Company -1- 2 from time to time during the Term; provided, however, the Company shall not assign the Executive to a position the base pay of which would generally be valued in a competitive market as materially less than the Executive's Base Pay (as that term is hereafter defined). For purposes of this Agreement, employment with an affiliate of the Company shall be deemed employment with the Company. Throughout the Term, the Executive shall devote substantially all of his time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company as in effect for senior executives) to the business and affairs of the Company, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business so long as such activity would not constitute Competitive Activity (as that term is hereafter defined) if conducted by the Executive after the Executive's Termination Date (as that term is hereafter defined), (ii) engaging in charitable and community activities, or (iii) managing his personal investments. (b) During the Term, the Executive shall be subject to reassignment to any of the Company's foreign or domestic locations at any time. On reassignment, the Company will attempt to take into account a number of factors, including the personal goals and desires, experience and performance of the Executive, and the needs of the Company. While an effort will be made to consider the needs and requirements of the Executive, the Company does not represent or promise that the Executive's needs will be accommodated and the Company reserves the right to select the location of the Executive's work assignment. -2- 3 3. Compensation During Term: (a) During the Term, the Executive shall (i) receive an annual salary at a rate not less than the Executive's annual base salary payable monthly or otherwise as in effect immediately prior to the commencement of the Term or such higher rate as may be determined from time to time thereafter by the Board of Directors of the Company (the "Board") or the Compensation Committee thereof (which base salary at such rate is herein referred to as "Base Pay") and (ii) participate in such incentive pay plan(s) or program(s) maintained by the Company for its senior executives at a level commensurate with similarly situated senior executives of the Company; provided, however, the sum of the Executive's Base Pay and incentive pay (the "Total Pay") for any year during the Term shall not be less than the sum of (x) the Executive's Base Pay as of the effective date of this Agreement and (y) the highest annual cash incentive amount paid to the Executive by the Company with respect to 1992, 1993 or 1994. (b) During the Term, the Executive shall be a participant in, and shall be entitled on the same basis as similarly situated senior executives to the perquisites, benefits and service credit for benefits as provided under, any and all employee retirement income and welfare benefit policies, plans, programs, or arrangements in which similarly situated senior executives of the Company participate, including, without limitation, any savings, pension, supplemental executive retirement or other retirement income or welfare benefit, deferred compensation, group and/or executive life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements, including, if and for so long as the Executive is assigned to a work location -3- 4 outside the United States, such premiums, allowances and/or other benefits and any relocation policies afforded to similarly situated senior expatriate employees at such location on the same terms and subject to the same limitations afforded to such other senior expatriate employees (collectively, "Employee Benefits"); provided, however, that the Executive's rights thereunder shall be governed by the terms thereof and shall not be enlarged hereunder or otherwise affected hereby. (c) The Executive shall receive $76,592 within five business days after signing this Agreement and delivering same to the Company. (d) If the Executive remains employed with the Company until June 30, 1996, then within five business days following that date the Company shall pay the Executive $76,592 in a lump sum as a "stay-on" bonus, regardless of whether the Executive continues his employment following June 30, 1996. (e) If the Executive remains employed with the Company until June 30, 1997, then within five business days following that date the Company shall pay the Executive $76,592 in a lump sum as an additional "stay-on" bonus, regardless of whether the Executive continues his employment following June 30, 1997. 4. Termination: (a) This Agreement may be terminated by the Company during the Term only upon the occurrence of one or more of the following events: (i) If the Executive is unable to perform the essential functions of his job (with or without reasonable accommodation) because he has become permanently disabled within the meaning of, and actually begins to receive disability benefits -4- 5 pursuant to, the long-term disability plan in effect for senior executives of the Company; or (ii) The Executive refuses to accept a reassignment to a new work location; or (iii) For "Cause", which for purposes of this Agreement shall mean that, prior to any other termination of employment, the Executive shall have committed: (A) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company; (B) intentional wrongful damage to property of the Company; (C) intentional wrongful disclosure of secret processes or confidential information of the Company; or (D) intentional wrongful engagement in any Competitive Activity; and any such foregoing act shall have been materially harmful to the Company. For purposes of this Agreement, an act, or failure to act, on the part of the Executive shall be deemed "intentional" only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board) finding that, -5- 6 in the good faith opinion of the Board, the Executive had committed an act set forth above in this Section 4(a)(iii) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (b) This Agreement may be terminated by the Executive during the Term with the right to benefits as provided in Section 5(a) hereof only upon the occurrence of one or more of the following events: (i) Any termination of the employment of the Executive by the Company for any reason other than for Cause, by reason of the Executive's disability and the actual receipt of disability benefits as described in Section 4(a)(i) hereof, or due to the Executive's refusal to accept a reassignment to a new work location; or (ii) The occurrence of any of the following events: (A) A reduction in the Executive's grade level from his grade level, or its equivalent, immediately prior to the commencement of the Term, a reduction in the Executive's Total Pay or the termination of the Executive's ability to participate in any incentive plan or Employee Benefits in which other similarly situated senior executives of the Company continue to be entitled to participate; (B) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, -6- 7 merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred shall have assumed (directly or by operation of law) all duties and obligations of the Company under this Agreement pursuant to Section 10 hereof; or (C) Any material breach of this Agreement by the Company or any successor thereto, which is not remedied within ten business days after written notice of such breach is given to the Company by the Executive. (c) This Agreement shall terminate on the date of the Executive's termination of employment for any reason not covered by Section 4(a) or (b) or Section 5(b), including, without limitation, the death of the Executive. (d) Except as provided below, a termination of the Executive's employment, whether by the Company or by the Executive, shall not affect any rights which the Executive may have pursuant to any other agreement, policy, plan, program or arrangement of the Company providing Employee Benefits, which rights shall be governed by the terms thereof. However, notwithstanding the foregoing, the Executive hereby agrees and acknowledges that, regardless of the reason for his termination of employment, the amount of separation or severance pay and/or benefits he is entitled to receive, if any, under the Maxus Energy Corporation Separation Pay Plan, the Maxus International Energy Company Separation Pay Plan For Expatriate Employees or any other severance plan or program of the Company or its affiliates, as in effect on the date of termination, shall be reduced by any severance compensation he receives or is entitled to receive under Section 5 hereof. Moreover, if the Executive is not eligible to receive separation or severance pay and/or benefits under such -7- 8 severance plans and programs, the Company agrees (without duplicaton) to pay the Executive upon termination a minimum severance payment under this Agreement in an amount, if any, equal to the amount the Executive would have been entitled to receive under such separation or severance plans or programs had he been eligible thereunder in the absence of this Agreement, less any severance compensation the Executive receives under Section 5 hereof. 5. Severance Compensation: (a) If the Company shall terminate the Executive's employment during the Term other than pursuant to Section 4(a) hereof, or if the Executive shall terminate his employment during the Term pursuant to Section 4(b) hereof, then, subject to the further provisions of this Section 5, the Company shall pay to the Executive the amount specified in Section 5(a)(i) hereof within five business days after the date the Executive's employment is terminated (the "Termination Date") and shall provide for the Continuing Employee Benefits specified in Section 5(a)(ii): (i) In lieu of any further payments of Base Pay and incentive compensation to the Executive for periods subsequent to the Termination Date, the Company shall pay the Executive a lump sum amount (the "Severance Payment") equal to his Total Pay calculated at the highest rate theretofore paid during the Term multiplied by the number of years (including fractional years) remaining in the Term, but not to exceed three years (such period being the "Continuation Period"); and (ii) For the remainder of the Continuation Period, the Company shall provide the Executive with Employee Benefits substantially similar to those which (and -8- 9 on the same terms as) the Executive was receiving or entitled to receive immediately prior to the Termination Date (the "Continuing Employee Benefits") (and if and to the extent that such benefits cannot be paid or provided under any policy, plan, program or arrangement of the Company, then the Company shall itself pay or provide for the payment to the Executive, his dependents and beneficiaries, such Continuing Employee Benefits). Without limiting the generality of the foregoing, the Continuation Period shall be considered, to the extent permitted by applicable law, service with the Company for the purpose of service credits under the Company's qualified retirement plans and supplemental executive retirement and other nonqualified benefit plans applicable to the Executive or his beneficiaries immediately prior to the Termination Date. If and to the extent any such benefits cannot be paid or provided under the applicable plan solely due to the fact the Executive is no longer an officer or employee of the Company, the Company shall itself pay or provide such benefits to the Executive or, if applicable, his dependents and beneficiaries. Further, without otherwise limiting the purposes or effect of Section 6 hereof, the Continuing Employee Benefits provided to or on behalf of the Executive pursuant to this Section 5(a)(ii) by reason of any "welfare benefit plan" of the Company (as the term "welfare benefit plan" is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) shall be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer during the Continuation Period. -9- 10 (b) If the Executive's employment with the Company is terminated prior to July 1, 1997, whether by the Company or the Executive, due to his refusal to accept a reassignment to a new work location, the Company shall pay the Executive within five business days of such Termination Date an amount equal to (x) one-twelfth of his Base Pay at the rate in effect immediately prior to the termination ("Final Base Pay") times his total years of service with the Company and its affiliates, including partial years ("Years of Service"), if the Executive's work location immediately prior to termination is in the United States, or (y) one-twelfth of his Final Base Pay times his total Years of Service times two, if the Executive's work location immediately prior to termination is outside the United States; provided, however in no event shall such applicable payment exceed two times the amount of the Executive's Final Base Pay. (c) Notwithstanding any provision of this Agreement to the contrary, in no event shall any payment made or to be made and/or any benefits provided or to be provided to or on behalf of the Executive pursuant to this Agreement that constitutes a "parachute payment", within the meaning of section 280G of the Internal Revenue Code (the "Code"), individually or collectively, or when aggregated with any other parachute payment to the Executive, whether or not made pursuant to this Agreement, results in the Executive receiving an "excess parachute payment," within the meaning of section 280G of the Code which gives rise to liability for an excise tax under Section 4999 of the Code, and to the extent it is necessary to avoid such an excess parachute payment, the applicable payment and/or benefits otherwise due hereunder shall be automatically reduced in whole or in part so that no such payment or benefit hereunder constitutes such an excess parachute -10- 11 payment. However, in the event of any such reduction, the Executive shall have the option to elect to receive, in lieu of all or a portion of the applicable payment, one or more of the Continuing Employee Benefits, provided that prior to the receipt of such payment, the Executive gives the Company notice of such election specifying the Continuing Employee Benefit(s) so elected to be received. Further, in the event the Executive inadvertently receives a payment and/or benefit hereunder that is subsequently determined to be such an excess parachute payment, the Executive shall be obligated to return such portion of the payment, with interest, and/or reimburse the Company for such Continuing Employee Benefit(s), all in a manner that results in the Executive not having received such an excess parachute payment. (d) The determination of whether any amount or benefit otherwise payable or provided under this Agreement would be such an excess parachute payment shall be made by tax counsel selected by the Company and reasonably acceptable to the Executive. The costs of obtaining such determination shall be borne by the Company. The fact that the Executive shall have his right to a payment or benefit reduced as a result of the limitations contained in this Section 5 shall not limit or otherwise affect any rights of the Executive arising other than pursuant to this Agreement; provided, however, the Company shall not be obligated to make any payment to the Executive whether under this Agreement or otherwise, that would constitute an excess parachute payment that gives rise to liability for an excise tax under Section 4999 of the Code. -11- 12 (e) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or for the benefit of the Executive provided for in this Agreement. 6. No Mitigation Obligation: The Company hereby acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following the Termination Date and that the noncompetition covenant contained in Section 7 hereof will further limit the employment opportunities for the Executive. In addition, the Company acknowledges that its severance pay plans applicable in general to its salaried employees do not provide for mitigation, offset or reduction of any severance payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in Section 5 hereof. 7. Competitive Activity: During a period ending one year following the Termination Date, if the Executive shall have received or shall be receiving benefits under Section 5 hereof, the Executive shall not, without the prior consent of the Company, which consent shall not be unreasonably withheld, engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive's -12- 13 participation in the management of any business enterprise which is principally engaged in the exploration for or production of hydrocarbons in Texas, Oklahoma, Indonesia, Argentina, Bolivia, Colombia, Ecuador, or Venezuela. "Competitive Activity" shall not include (i) the mere ownership of securities in any such enterprise and exercise of rights appurtenant thereto or (ii) participation in management of any such enterprise or business operation thereof other than in connection with the competitive operation of such enterprise. 8. Legal Fees and Expenses: (a) It is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void and unenforceable, or institutes any litigation designed to deny, or to recover from, the Executive the benefits intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the -13- 14 Executive's entering into an attorney-client relationship with such counsel (other than Andrews & Kurth L.L.P. or Jones, Day, Reavis & Pogue), and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive as a result of the Company's failure to perform this Agreement or any provision thereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision thereof as aforesaid. (b) In order to ensure the benefits intended to be provided to the Executive under Section 8(a) hereof, the Company has established an irrevocable standby Letter of Credit in favor of the Executive drawn on a bank selected by the Company (the "Letter of Credit") which provides for a credit amount of $250,000 being made available to the Executive against presentation at any time and from time to time of his clean sight drafts, accompanied by statements of his counsel for fees and expenses, in an aggregate amount not to exceed $250,000. (c) The Company's obligations under this Article 8 and specifically (without limitation) the obligation to maintain the Letter of Credit shall continue until the later of (A) the earlier of (i) June 30, 1999, or (ii) six months after the termination of this Agreement under Section 4(a), (b) or (c) or (B) if any litigation or legal action as contemplated in Section 8(a) is commenced within six months after the termination of this Agreement under Section 4(a), (b) or (c), the conclusion of such litigation or other legal action. -14- 15 9. Withholding of Taxes: The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 10. Successors and Binding Agreement: (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, or any of its affiliates of either the Company or such a successor that is or becomes the Executive's employer, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but shall not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Section 10(a) hereof. Without -15- 16 limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 10(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. (d) The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such beach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 11. Notices: For all purposes of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive offices and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. Governing Law: The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws of such State. -16- 17 13. Validity: If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 14. Miscellaneous: No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 15. Prior Agreements: This Agreement is voluntarily entered into and supersedes and takes the place of all prior change in control and employment agreements, as amended, between the parties hereto. The parties hereto expressly agree and hereby declare that any and all prior change in control and employment agreements, as amended, are hereby terminated and of no further force or effect. 16. Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. -17- 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. MAXUS ENERGY CORPORATION By: /s/ MARK J. GENTRY ----------------------------------- Vice President EXECUTIVE /s/ W. MARK MILLER --------------------------------------- W. Mark Miller -18- EX-10.23 12 SPECIMEN COPY 1 Exhibit 10.23 April 7, 1995 TO: ________________ RE: CHANGE IN CONTROL AGREEMENT DATED __________ Dear ________: This has reference to the Change in Control Agreement (the "Agreement") dated ___________ between you and Maxus Energy Corporation ("Maxus"). Notwithstanding anything in the Agreement to the contrary, you and Maxus agree that a "Change in Control," as defined in the Agreement, occurred on April 5, 1995 and a significant adverse change in the nature and scope of the authorities or duties of your position with Maxus has occurred. Consequently, you have given notice of your intention to terminate your employment with Maxus immediately pursuant to paragraph 4(b)(ii) of the Agreement. Maxus recognizes its obligation to pay and agrees to pay you severance compensation, including benefits, to the full extent provided for in paragraph 5 of the Agreement within five days after the amount payable thereunder is determined (but not later than __________) without reduction for any payments contemplated below except as provided herein. In order to facilitate the transition required by these events, you and Maxus agree as follows: (a) Maxus agrees to employ you at your current position, at your current job site, at your current rate of base pay and with employee plan benefits at the levels and on the terms currently provided to you until ___________ and (b) you agree to work for Maxus in such position and on such terms and conditions until June 30, 1995. If you terminate your employment prior to ____________ without the written consent of Maxus, an amount equal to the base salary paid to you from the date hereof through your termination date will be deducted from the amount payable to you under the Agreement and either refunded by you or deducted from any amounts Maxus may owe you. Please indicate your agreement to the foregoing by dating, signing and returning a copy of this letter to the undersigned. Sincerely, 2 AGREED TO THIS __ DAY OF APRIL, 1995 - -------------------------------- [Executive] Agreed to by YPF Sociedad Anonima and YPF Acquisition Corp., who agree that this agreement does not constitute a breach of Maxus' representations, warranties or covenants contained in the Agreement of Merger dated as of February 28, 1995. YPF Sociedad Anonima YPF Acquisition Corp. By: By: --------------------------- ---------------------------- EX-10.24 13 LETTER AGREEMENT 1 Exhibit 10.24 [MAXUS LETTERHEAD] April 13, 1995 TO: Michael C. Forrest RE: Change in Control Agreement Dear Mike: This letter has reference to the letter agreement dated April 7, 1995 between you and Maxus concerning Maxus' obligations under that certain Change in Control Agreement dated June 1, 1992. You and Maxus are engaged in discussions concerning your possible employment beyond the June 30, 1995 date specified in said letter. In order to facilitate such discussions, you and Maxus have mutually agreed to extend the date by which Maxus must pay you severance compensation as contemplated in said letter agreement until July 3, 1995. Except as modified as to the payment date by the preceding sentence, Maxus' obligations under said April 7 letter agreement remain in full force and effect. Please indicate your agreement to the foregoing by signing and returning a copy of this letter. MAXUS ENERGY CORPORATION /s/ MARK J. GENTRY Mark J. Gentry, Vice President AGREED TO APRIL 13, 1995 /s/ MICHAEL C. FORREST - ------------------------------- Michael C. Forrest EX-10.25 14 LETTER AGREEMENT 1 Exhibit 10.25 ____________, 1995 TO: _______________ RE: Change in Control Severance Payment Dear _________: This letter has two primary purposes. The first is to evidence your receipt of $_________ (the "Estimated Payment") from Maxus. The second is to set forth your and Maxus' understanding and agreement with respect to such payment. 1. The Estimated Payment represents an initial estimate of the lump sum "Severance Payment" you are due pursuant to paragraph 5(a)(i) of the Change in Control Agreement (the "Agreement") dated _____________ between you and Maxus. 2. You have not designated the "Employee Benefits" (as defined in the Agreement) you want to receive pursuant to the Agreement. However, you acknowledge and agree that to the extent the receipt of any Employee Benefits constitutes "parachute payments" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended ("Section 280G")) you will not be entitled to receive any such Employee Benefits that would cause the "present value" (as determined under Section 280G) of all parachute payments made to you by Maxus to exceed 299% of your "base amount" (as defined in Section 280G). 3. If and to the extent the Estimated Payment is (a) less than the present value of the sum of your aggregate "Base Pay" and aggregate "Incentive Pay" calculated in the manner prescribed in paragraph 5(a)(i) (the "Gross Severance Amount") and (b) the total of the Estimated Payment, the present value of any Employee Benefits you elect to receive that constitute parachute payments, and the present value of any other parachute payments you receive from Maxus also is less than 299% of your base amount, Maxus agrees to pay you the difference between the Estimated Payment and the Gross Severance Amount, but in no event will such 2 Severance Payment _________, 1995 Page 2 payment exceed an amount that when added to all other parachute payments received by you would cause you to receive parachute payments in excess of 299% of your base amount. 4. Nothing in this letter, the Agreement or any other agreement or understanding between you and Maxus is intended to and shall not be construed to obligate Maxus to pay you any parachute payment that when added to all other parachute payments received by you would cause you to receive parachute payments in excess of 299% of your base amount. In this connection, (a) all parachute payments made by Maxus to you are subject to an automatic reduction if and to the extent they would cause you to receive total parachute payments in excess of 299% of your base amount, and (b) you specifically agree to reimburse Maxus promptly if and to the extent it makes any payment to you which would cause you to receive total parachute payments in excess of 299% of your base amount. 5. Nothing in this letter is intended to and shall not be construed to alter your obligation to reimburse Maxus for a portion of the Severance Payment to which you are otherwise entitled as set forth in that certain letter agreement dated ____________ if you terminate your employment with Maxus prior to ___________ without Maxus' prior consent. Please acknowledge receipt of the Estimated Payment and your agreement to the foregoing by signing and returning one copy of this letter. MAXUS ENERGY CORPORATION -------------------------- I ACKNOWLEDGE RECEIPT OF THE ESTIMATED PAYMENT AND AGREE TO THE TERMS OF THIS LETTER - --------------------------------- [Executive] [Date] EX-21.1 15 LIST OF SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES, MAXUS ENERGY CORPORATION MAXUS ENERGY CORPORATION - Delaware Diamond Shamrock Europe Limited - England Maxus Gas Marketing Company - Delaware Maxus Indonesia, Inc. - Delaware Maxus Northwest Java. Inc. - Delaware Maxus Southeast Sumatra, Inc. - Delaware Maxus Industrial Gas Company - Delaware Maxus Offshore Exploration Company - Delaware Maxus (U.S.) Exploration Company - Delaware Natomas North America, Inc. - California Trice Properties, Inc - Delaware Wheeling Gateway Coal Company - Delaware Gateway Coal Company - Pennsylvania MAXUS INTERNATIONAL ENERGY COMPANY - Delaware Diamond Shamrock China Petroleum Limited - Bahamas Falcon Seaboard, Inc. - Delaware Maxus Angola, Inc. - Delaware Maxus Aru Inc. - Delaware Maxus Bolivia, Inc. - Delaware Maxus Bulgaria, Inc. - Delaware Maxus Chile, Inc. - Delaware Maxus China (C.I.) Ltd. - Cayman Islands Maxus Colombia, Inc. - Delaware Maxus Ecuador Inc. - Delaware Maxus Egypt, Inc. - Delaware Maxus Energy Co. (U.K.) Limited - England Maxus Energy Global B.V. - The Netherlands Maxus Energy Trading Company - Delaware Maxus Ethiopia, Inc. - Delaware Maxus Fifi Zaitun, Inc. - Delaware Maxus Gabon Inc - Delaware Maxus Guarapiche Ltd. - Cayman Islands Maxus International Services Company - Texas Maxus Madagascar, Inc. - Delaware Maxus Mahdia East, Inc. - Delaware Maxus Morocco, Inc. - Delaware Maxus New Zealand Limited - New Zealand Maxus North Sea, Inc. - Delaware Maxus Paraguay, Inc. - Delaware Maxus Slovakia, Inc - Delaware Maxus Southeast Asia New Ventures, Inc. - Delaware Maxus Spain, Inc. - Delaware 2 Maxus Tasmania, Inc. - Delaware Maxus Tunisia Inc. - Delaware Maxus Venezuela (C.I.) Ltd. - Cayman Islands Maxus Venezuela S.A. - Venezuela Natamos Overseas Finance N.V. - Netherlands Antilles Transworld Petroleum Corporation - Delaware MIDGARD ENERGY COMPANY - Delaware MAXUS CORPORATE COMPANY - Delaware Biospecific Technologies, Inc. - Delaware Boja Realty Corp. - New York Quail Hollow Properties, Inc. - Ohio Chemical Land Holdings, Inc. - Delaware Crile Road Investments, Inc. - Ohio Delaware City Plastics Corporation - Delaware Diamond Gateway Coal Company (Partner of Gateway Coal Company) - Delaware Diamond Shamrock Venezolana, S.A. - Venezuela DSC Acquisition, Inc. - Delaware DSC Holdings, Inc. - Delaware DSC Investment Management Company - Delaware DSC Receivables, Inc. - Delaware DST Corporation - Delaware Duolite International, Inc. - Delaware Emerald Mining Company - Delaware Gateway Land Company - Delaware Greenstone Assurance Ltd. - Bermuda Insulating Aggregates, Inc. - Louisiana Leon Properties, Inc. (d/b/a Riverside Farms) - Texas RMC Securities - Texas Maxus Agricultural Chemicals, Inc. - Delaware DSC Products International, Inc. - Delaware Fint Corporation - Delaware Maxus International Corporation - Delaware Maxus Realty Company - Texas OCV Corporation - Delaware QHRP Investments, Inc. - Ohio The Harbor Land Company - Ohio V.E.P. Corporation - Delaware EX-23.1 16 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement on Form S-8 (No. 33-28353), as amended. /s/ Arthur Andersen LLP ------------------------ Arthur Andersen LLP Dallas, Texas March 20, 1996 EX-23.2 17 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-28353) of Maxus Energy Corporation, of our report dated February 28, 1995 appearing on page F-29 of this Form 10-K. /s/ Price Waterhouse LLP ------------------------ Price Waterhouse LLP Dallas, Texas March 20, 1996 EX-24.1 18 POWER OF ATTORNEY OF DIRECTORS AND OFFICERS 1 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ ROBERTO MONTI ---------------------------------------- Roberto Monti 2 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ W. MARK MILLER ---------------------------------------- W. Mark Miller 3 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, her true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for her and in her name, place and stead, to sign on her behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ LINDA R. ENGELBRECHT ---------------------------------------- Linda R. Engelbrecht 4 Exhibit 24.1 THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ CHARLES L. BLACKBURN ---------------------------------------- Charles L. Blackburn 5 Exhibit 24.1 THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ CEDRIC BRIDGER ---------------------------------------- Cedric Bridger 6 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ GEORGE L. JACKSON ---------------------------------------- George L. Jackson 7 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ NELLS LEON ---------------------------------------- Nells Leon 8 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That each undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ JAMES R. LESCH ---------------------------------------- James R. Lesch 9 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ P. DEXTER PEACOCK ---------------------------------------- P. Dexter Peacock 10 Exhibit 24.1 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them, his true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, to sign on his behalf as a director or officer, or both, as the case may be, of Maxus Energy Corporation (the "Corporation"), the Corporation's Form 10-K Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. January 15, 1996 /s/ R. A. WALKER ---------------------------------------- R. A. Walker EX-24.2 19 POWER OF ATTORNEY OF THE COMPANY 1 Exhibit 24.2 POWER OF ATTORNEY THE STATE OF TEXAS KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS That the undersigned, Maxus Energy Corporation, hereby constitutes and appoints Lynne P. Ciuba, H. R. Smith and David A. Wadsworth, and each of them the true and lawful attorney or attorneys-in-fact with full power of substitution and resubstitution, to sign on the Corporation's behalf the Form 10-K Annual Report of the Corporation, pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for fiscal year ended December 31, 1995, and to sign any or all amendments to such Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney or attorneys-in-fact, and to each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney or attorneys-in-fact or any of them or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. MAXUS ENERGY CORPORATION /s/ ROBERTO MONTI ---------------------------------------- Roberto Monti President and Chief Executive Officer March 1, 1996 EX-27.1 20 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-1995 DEC-31-1995 38 0 142 1 41 266 2,364 140 2,717 306 1,261 125 78 136 26 240 464 471 215 418 13 0 105 (65) 9 (74) 0 0 0 (74) (0.76) 0
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