-----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, SzYxcwUdtc46BHvt9Jpr7v39cbS5JXMPLfw/EhIJSPW4nCsOZEBaHjWPUclbNUVA LhTDYVeWf+5BE/CS0Dws+Q== 0000950129-98-000707.txt : 19980223 0000950129-98-000707.hdr.sgml : 19980223 ACCESSION NUMBER: 0000950129-98-000707 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980220 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED MERIDIAN CORP CENTRAL INDEX KEY: 0000818885 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752160316 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12088 FILM NUMBER: 98546707 BUSINESS ADDRESS: STREET 1: 1201 LOUISIANA STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136549110 MAIL ADDRESS: STREET 1: 1201 LOUISIANA STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77002 10-K405 1 UNITED MERIDIAN CORPORATION - DATED 12/31/97 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 1-12088 UNITED MERIDIAN CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 75-2160316 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1201 LOUISIANA SUITE 1400 77002 HOUSTON, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (713) 654-9110 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ---------------------- Common Stock, $0.01 par value New York Stock Exchange 10-3/8% Senior Subordinated Notes due 2005 New York Stock Exchange Rights to Purchase Series A Junior Preferred Stock New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF FEBRUARY 13, 1998 WAS $979,638,275 BASED UPON A CLOSING PRICE OF $27 5/8 PER SHARE. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. NUMBER OF SHARES OUTSTANDING TITLE OF EACH CLASS AT FEBRUARY 13, 1998 ------------------- ---------------------------- Common Stock, $0.01 par value 35,792,891 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement pertaining to the Registrant's 1998 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. ================================================================================ 2 TABLE OF CONTENTS
Page ---- Part I. Items 1. and 2. Business and Properties (a) General..............................................................................1 (b) Business Strategy....................................................................1 (c) Oil and Gas Properties...............................................................3 (d) Reserves.............................................................................7 (e) Acreage and Productive Wells.........................................................8 (f) Production, Unit Prices and Costs....................................................9 (g) Drilling Activity...................................................................10 (h) Marketing and Contracts.............................................................10 (i) Customers...........................................................................11 (j) Competition.........................................................................11 (k) Environmental Matters...............................................................11 (l) Employees...........................................................................12 (m) Offices.............................................................................12 Item 3. Legal Proceedings..........................................................................13 Item 4. Submission of Matters to a Vote of Security Holders........................................13 Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................14 Item 6. Selected Financial Data....................................................................15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Introduction........................................................................16 (b) Overview............................................................................16 (c) Results of Operations...............................................................17 (d) Capital Resources and Liquidity.....................................................19 (e) Net Operating Loss Carryforwards and Canadian Tax Pools.............................20 (f) Foreign Currency Transactions.......................................................21 (g) Changes in Prices and Inflation.....................................................21 (h) Forward-Looking Statements..........................................................21 (i) Impact of Recently Issued Accounting Standards......................................22 Item 8. Financial Statements and Supplementary Data................................................23 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure......................................................................53 Part III. Item 10. Directors and Executive Officers of the Registrant.........................................53 Item 11. Executive Compensation.....................................................................53 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................53 Item 13. Certain Relationships and Related Transactions.............................................53 Part IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................53
i 3 PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES (a) GENERAL United Meridian Corporation (UMC or the Company) is a leading independent energy company engaged in the exploration for and development, production and acquisition of oil and natural gas in North America and certain international regions. In North America, the Company's production is concentrated in the Gulf Coast, Permian Basin, Midcontinent and Rocky Mountain regions and in Western Canada. Internationally, the Company currently operates in the West African oil and natural gas producing regions of Cote d'Ivoire and Equatorial Guinea and also has production sharing contracts (PSCs) on five blocks in Pakistan and on one block in Bangladesh. On February 6, 1998, the Company announced that it was awarded a participation in Block 19 offshore Angola. The Company has two applications pending for additional PSCs in West Africa. The Company was organized under the laws of Delaware in 1987. Between 1987 and 1989, the Company acquired three publicly held companies (Ensource Inc., MCO Resources, Inc. and General Energy Development, Ltd.) and one privately held company (General Drilling and Producing Company). During 1993, UMC made three additional corporate acquisitions, Norfolk Holdings Inc., KPX, Inc., and Sterling Energy Limited, all of which were privately held oil and gas production companies. In 1994, UMC acquired General Atlantic Resources, Inc., a publicly traded company. All of the aforementioned transactions were accounted for under the purchase method. On December 22, 1997, UMC and Ocean Energy, Inc. (OEI) entered into a merger agreement that provides for a stock-for-stock merger (Merger) of the companies pursuant to which UMC stockholders will receive 1.30 shares of the combined company for each existing outstanding share of UMC and OEI shareholders will receive 2.34 shares of the combined company for each existing outstanding share of OEI. UMC stockholders will own approximately 46% of the equity of the combined company. The Merger is expected to qualify as a tax-free transaction and is subject to each Company's stockholders' approval and certain other conditions. The transaction is expected to be treated as a pooling of interests for accounting purposes and is anticipated to close by the end of the first quarter of 1998. At December 31, 1997, the Company's proved reserves were estimated to be 162.2 MMBOE, 42% oil and 58% gas. The Company's principal executive offices are located at 1201 Louisiana, Suite 1400, Houston, TX 77002 and the Company's telephone number is (713) 654-9110. Unless the context otherwise requires, the term "Company" or "UMC" as used in this Form 10-K shall mean United Meridian Corporation and its subsidiaries. The offices of UMC Petroleum Corporation (Petroleum), the primary operating subsidiary of the Company, are also located at the above address. All operations are conducted by Petroleum and its subsidiaries. (b) BUSINESS STRATEGY UMC's business strategy is to increase reserves and production in a cost-effective manner through a drilling program that balances primarily lower risk development drilling on UMC's North American acreage with high potential exploratory drilling on international prospects, supplemented by opportunistic property and corporate acquisitions. Supporting this strategy are the Company's substantial portfolio of high return exploration opportunities, a large exploitation inventory and a successful history of acquisitions. North America. The Company is aggressively exploiting its North American properties through the integration of advanced 3-D seismic technology, horizontal drilling and geoscience studies. UMC conducts a North American exploration program focused on internally-generated prospects, primarily in the Gulf Coast region, including East Texas, and in the Permian and Williston Basins, where the Company believes high success rates and excellent reserve potential exist. The Company manages its domestic exploration risk by applying state-of-the-art technology to identify prospects, emphasizing prospects over which it will have operational control. The risks of these prospects are shared primarily with industry partners and a group of institutional investors on terms considered favorable to the Company. The Company has generated a significant number of development drilling opportunities as a result of its exploration efforts and through producing property acquisitions. UMC has in its current portfolio a large North American exploitation inventory - 1 - 4 including 137 proved undeveloped drilling sites and 327 probable and possible drilling sites. During 1997, the Company's North American drilling comprised 262 development wells, 240 of which were successfully completed, and 48 exploratory wells, 25 of which were successfully completed. Total capital expenditures for North American activities in 1997 were $182.0 million, including $62.6 million for acquisitions and $7.1 million for corporate assets. International. The Company's business strategy in the international arena is to pursue selected opportunities generally characterized by low initial costs, high reserve potential and the availability of existing technical data that may be further developed using current technology. The Company believes that it has unique management and technical expertise in identifying international opportunities and establishing favorable operating relationships with host governments. The Company generally attempts to manage major exploration commitments by negotiating directly with host governments for terms which minimize bonuses and initial work commitments. Additionally, the Company forms joint ventures under which partners provide a significant amount of the initial exploration costs. This strategy permits the Company to limit its capital exposure until commercial development is assured. The Company has identified a large number of exploration prospects on its international acreage and has two development programs in progress. International drilling in 1997 comprised 14 development wells, 13 of which were successfully completed, and 13 exploratory wells, 5 of which were successfully completed. Total capital expenditures for international activities in 1997 were $188.1 million, including $17.2 million for a Liquid Propane Gas (LPG) plant in Cote d'Ivoire. Acquisitions and asset management. The Company is continually evaluating opportunities to acquire oil and natural gas properties, primarily focusing on properties that complement its existing reserve base. This focus allows the Company to apply its engineering knowledge and expertise to maximize future development potential and minimize reserve risk. The acquisitions must meet well-defined return, payout and cash flow criteria. During 1997, the Company completed several such acquisitions of both additional interests in various properties from several of its institutional partners and interests in other North American properties. Total consideration paid for these acquisitions was $62.6 million. In addition, as part of its business strategy, the Company periodically evaluates and, from time to time, sells certain of its producing properties. Such sales enable the Company to maintain financial flexibility, reduce overhead and operating expenses and redeploy capital to activities which are expected to have higher financial returns. Consistent with this strategy, the Company realized $19.4 million in proceeds from sales of various non- strategic North American properties in 1997. Technology. Utilization of state-of-the-art technology is an important element in the Company's strategy to reduce normal exploration and development risk. Two of the most relevant tools used are 3-D and 2-D seismic technologies. Depending upon the hydrocarbon basin, one technology may provide better results than another. Where appropriate, 3-D seismic allows a better multi-dimensional geological picture to be developed than could be obtained from 2-D seismic, enhancing the Company's ability to obtain favorable drilling results. Low cost operating structure. Management strives to maintain a low cost operating structure through the implementation of the aforementioned strategies and by employing an experienced and stable workforce. Controllable cash costs, which are continuously monitored by management, include production costs and general and administrative expenses. During 1997, UMC's lifting costs, before ad valorem and production taxes, and general and administrative costs averaged $2.65 and $0.79 per BOE of production, respectively, down from $3.12 and $0.93 per BOE of production, respectively, for 1996. Sound financial structure. As part of its business strategy, the Company maintains a sound financial structure which allows it to effectively implement its operating strategy. The Company funded its 1997 capital expenditures program of $370.1 million through a combination of cash flows from operations, asset sales, residual cash proceeds from the Company's 1996 equity offering and draws under the Global Credit Facility. The Company maintained a favorable debt to total book capitalization ratio of 38% with unused capacity under bank lines exceeding $170 million at December 31, 1997. The Merger. UMC and OEI have entered into a merger agreement that will combine UMC's extensive North American onshore and international operations with OEI's rapidly growing Gulf of Mexico property base. As a result of the Merger, the combined company will become one of the top ten largest independent oil and natural gas companies in the country, based upon total market capitalization, with total proved reserves of approximately 271 MMBOE as of December 31, 1997, and combined average production of approximately 117,000 BOEPD in December of 1997. The larger scale provided by the combination will allow the combined company the financial flexibility necessary to retain a larger - 2 - 5 share of the existing high impact exploration prospects contained in each company's portfolio, and therefore a larger proportion of the related upside potential. Acceleration of several of these projects is expected given the financial strength provided by the increased size and diversification of a larger entity. OEI and UMC believe that the larger scale will facilitate the securing of scarce drilling rigs and other oilfield services critical to exploration and exploitation activities, especially in respect of the combined deepwater operations. (c) OIL AND GAS PROPERTIES The table below summarizes the Company's proved reserves and discounted present value by geographic region as of December 31, 1997.
PROVED RESERVES -------------------------------------------------------- DPV(1) Natural Before % of Oil Gas Total Income Tax Total REGION (MBO) (MMCP) (MMBOE) ($ in 000s) DPV ------ ------ ------ ------- ----------- ------ Gulf of Mexico/Gulf Coast Onshore .... 2,008 68,091 13.4 $ 98,507 14% Permian Basin ........................ 7,341 31,516 12.6 63,201 9% Midcontinent ......................... 2,370 68,765 13.8 82,599 11% Rocky Mountains ...................... 8,447 157,727 34.7 171,947 24% ------ ------- ----- -------- --- Total U.S ........................ 20,166 326,099 74.5 416,254 58% Equatorial Guinea .................... 40,014 -- 40.0 145,216 20% Cote d'Ivoire ........................ 5,257 136,290 28.0 97,739 13% Canada ............................... 3,383 97,862 19.7 64,624 9% ------ ------- ----- -------- --- Total .......................... 68,820 560,251 162.2 $723,833 100% ====== ======= ===== ======== ===
- ------------------------------------------- (1) Discounted (at 10%) present value as of December 31, 1997 (year-end prices held constant). The amounts are before income taxes and therefore are not the same as the "Standardized Measure" disclosed in Note 18 of the Notes to Consolidated Financial Statements. NORTH AMERICA The Company conducts a focused exploration program designed to find significant reserves at low costs. The Company's North American exploration efforts are predominantly in the Gulf of Mexico, East Texas and the Permian and Williston Basins. Typically, the Company seeks to operate these projects and to retain a 25-60% working interest. In 1997, the Company committed 14% of its capital expenditures to North American exploration and drilled a total of 48 exploratory wells, of which 25 were completed as productive. UMC focuses its development activities in those areas which offer the most attractive potential returns to the Company, including development opportunities resulting from exploration activities. During 1997, UMC committed 34% of its capital expenditures to North American development and participated in the drilling of 262 development wells, 240 of which were completed as productive wells. The Company has identified approximately 137 proved undeveloped and 327 probable and possible drilling opportunities within its existing North American inventory. UMC has prioritized development projects which will maximize the production potential per dollar of investment in view of the large number of North American opportunities available to the Company. - 3 - 6 The following paragraphs highlight certain of the Company's more significant North American producing oil and gas properties and exploration opportunities: Bear Paw Area, Montana. The Bear Paw area, located in Blaine, Hill and Chouteau Counties, comprises most of the Company's reserves in Montana and is the Company's largest North American field. Natural gas is produced from the Eagle Sandstone at depths of less than 2,000 feet. The Company has an average 77% working interest in the area. The Company's net production averaged approximately 38.1 MMCFD of natural gas for December 1997. The Company drilled 48 wells (65% success rate) in the Bear Paw area resulting in 12.9 BCF of new reserves for the $2.5 million investment. In August 1997, the Company acquired additional interests in the Bear Paw area for $5.8 million, with estimated proved reserves of 13.2 BCF and an initial production rate of 4.2 MMCFD. Longhorn Area, Texas. The Longhorn project area, in which the Company owns a 50% working interest in 5,125 gross (2,562 net to UMC) acres, was purchased in 1996 at the Texas university lease sale. A 37-square mile 3-D seismic survey was shot over this area in 1996 to define deep Ellenberger and Fusselman structures within the Deep Delaware Basin. The initial discovery well was drilled in 1997 and is currently being completed in the Ellenberger formation. An additional deep prospect remains to be drilled in 1998. Buffalo Area, Texas. In the Buffalo project area, the Company owns and operates a 37.5% working interest in 18,660 gross (6,997 net to UMC) acres that are controlled by seismic options. The Company recently completed a 97-square mile 3-D seismic survey to define several deep structural features in the Ellenberger and Fusselman formations. Additional acreage acquisitions and drilling will occur in 1998. East Triangle Field, Wyoming. UMC discovered the East Triangle Field in June 1997. Oil is produced from the Sussex "B" Sand at a depth of 8,300 feet. The Company drilled eight (100% success rate) wells in the field in 1997 and plans to drill 14 additional wells in 1998. UMC holds a major position in this new field, controlling 19,967 gross (18,229 net to UMC) acres. High Island A-560, Gulf of Mexico. The High Island A-560 lease, in which the Company owns a 55% working interest, was purchased in the August 1993 Outer Continental Shelf (OCS) lease sale. The discovery well was drilled in early 1994 followed by a confirmation development well. The platform was installed in mid-1995 and the first two wells were completed as dual and single gas wells. First production was in July 1995. One additional producing well was drilled and completed during December 1995. The platform is currently producing at a rate of 1.2 MBOD (0.7 MBOD net to UMC) and 5.4 MMCFD (3.0 MMCFD net to UMC). West Cameron 541, Gulf of Mexico. The West Cameron 541 lease, in which the Company owns a 55% working interest, was purchased in the March 1994 OCS lease sale. The discovery well was drilled in July 1995 followed by a confirmation development well. The platform was installed in June 1996 and two additional wells were drilled and completed off of this structure. First production was in September 1996 with a current production rate of 5.7 MMCFD (3.1 MMCFD net to UMC). High Island 98-L, Gulf of Mexico. The High Island 98-L Texas state lease, in which the Company owns a 55% working interest, was purchased in October 1995 at the Texas state lease sale. The discovery well was drilled and completed in July 1996. The production platform was installed in November 1996 and first production was in December 1996 with a current production rate of 7.8 MMCFD (4.3 MMCFD net to UMC) and 157 BOD (86.4 BOD net to UMC). Young Mendota Field, Texas. The Young Mendota field is the Company's largest field in the Midcontinent region and is located in Hemphill County. Natural gas is produced from several formations including the Granite Wash, Morrow and Douglas formations at depths ranging from 7,000 to 11,500 feet. The Company operates 45 of the 90 wells in which it has interests in this field with a current production rate of 10.9 MMCFD (4.3 MMCFD net to UMC) of natural gas for 1997. A 34-square mile 3-D seismic survey will be acquired in 1998 to define exploratory objectives in the Morrow formation. Bindloss, Alberta. The Bindloss area comprises 34% of the Company's Canadian natural gas reserves. Natural gas is produced primarily from the Viking sands at depths of less than 2,000 feet. Production averaged approximately 10.2 MMCFD (5.6 MMCFD net UMC) of natural gas for December 1997. In May 1997, the Company acquired an additional 50% working interest for $9.1 million and assumed operatorship of the area. - 4 - 7 INTERNATIONAL The Company's business strategy in the international arena is to pursue selected international opportunities generally characterized by low initial costs, high reserve potential and the availability of technical data that may be further developed by the Company. The Company attempts to manage major exploration commitments by negotiating directly with host governments for terms which minimize bonuses and initial work commitments. Additionally, the Company forms joint ventures where industry partners pay a disproportionate share of the initial exploration costs. This strategy permits the Company to limit its capital exposure until commercial development is assured. Cote d'Ivoire. During 1991, UMC initiated negotiations with the Republic of Cote d'Ivoire for a PSC covering Block CI-11, most of which is located offshore in the Atlantic Ocean. Since acquiring the initial PSC in 1992, the Company has negotiated four additional PSCs. Under the five PSCs, UMC holds contract interests ranging from 25% to 80% in five blocks totaling approximately 2.1 million gross (0.9 million net to UMC) acres. On Block CI-11, the Company, as operator and holder of a 25% contract interest, has drilled 15 oil and natural gas wells in the Lion oil and Panthere natural gas fields since late 1993. As a result of the successful discoveries and subsequent production history, UMC has proved reserves of 2.6 MMBO of oil and 52.7 BCF of natural gas on Block CI-11 at December 31, 1997. The Company's net production from the Block totaled 66.7 MBO and 472 MMCF in December 1997. In addition to its continuing development activities on Block CI-11, UMC has identified several exploration opportunities on the Block. A 3-D seismic survey is currently being evaluated which will further delineate the Company's opportunities in that area. In 1997, the Company drilled one exploratory well and three development wells on CI-11, all of which were successful. On Block CI-12, which is immediately west of Block CI-11, UMC has identified several seismic anomalies which it believes are on trend with the Lion oil sands. In late 1996, the Company spud the initial exploratory well on the Block (Leopard #1). In February 1997, this well was plugged and abandoned. The Company drilled two additional exploratory dry holes in 1997, and is reevaluating seismic before drilling any additional wells. UMC currently owns a 37.5% contract interest in Block CI-12. The Company's ultimate contract percentage interest in Block CI-12 is subject to final election by Petroci, the national petroleum company of Cote d'Ivoire. Block CI-105 is located due south of Block CI-12 with water depths ranging from 1,500 feet to 6,000 feet. In 1996, the Company executed an agreement with Shell Exploration B.V. (Shell), a unit of Royal Dutch/Shell, to sell a 55% contract interest in Block CI-105. Under the terms of the agreement, Shell paid 100% of the first $3.0 million incurred for a 1996 3-D seismic survey covering 1,100 square kilometers. In 1997, the survey was processed and is currently being evaluated and interpreted. UMC and its partner recently committed to purchase additional seismic lines covering the balance of the Block for $7.0 million ($2.7 million net to UMC). The contract participants have until July 1998 to make an election to drill on the Block. Total costs incurred to date on the Block approximate $5.9 million ($0.8 million net to UMC). UMC will be carried for up to $3.5 million (net) of any initial drilling commitment. Blocks CI-01 and CI-02, located approximately 80 miles east of Block CI-11, possess proven accumulations of oil and natural gas in reservoirs drilled by major oil companies in the 1980s. The Company recognized net proved reserves of 2.7 MMBO of oil and 83.6 BCF of natural gas at December 31, 1997 based on an 80% contract interest. Mapping of existing 3-D seismic on Block CI-01 and a new 3-D seismic survey on Block CI-02 will permit further evaluation of the reserve potential of these Blocks. In 1997, the Company drilled a discovery at Kudu on Block CI-01 that encountered 75 feet of net pay and flowed 27.7 MMCF of natural gas and 740 barrels of condensate per day in a test restricted by mechanical facilities. The Company drilled the Gazelle #2, an exploratory well on Block CI-02, that tested 32 MMCF of natural gas and 858 barrels of condensate per day. In addition, the Company drilled one exploratory and one development dry hole. Effective December 31, 1997, the Company executed agreements with Petroci and Yukong, partners in Block CI-01, whereby Yukong assigned their interest and Petroci assigned a portion of its interest in the Block to the Company. In exchange, the Company agreed to carry future exploration and appraisal expenditures until payout. As a result of these agreements, UMC owns an 80% contract interest in Block CI-01 and currently holds a 75% contract interest in Block CI-02. However, the Company's ultimate contract interest in Block CI-02 is subject to final election by Petroci. UMC has been in discussions with the governments of Ghana and Cote d'Ivoire for the export and sale of natural gas production from Block CI-01. Ghana is currently buying electricity from Cote d'Ivoire. The governments of Ghana and Cote d'Ivoire have tentatively approved the sale of natural gas from Block CI-01 to Ghana for power generation. - 5 - 8 The plan, if concluded, would call for UMC to develop Block CI-01 and export a portion of the natural gas to a power plant that has been built on the coast of Ghana. Development alternatives for export and local sales are currently being evaluated by the Company. In 1997, UMC constructed a LPG plant to extract liquids (propane, butane and natural gasoline) from the current natural gas production in the country. The first phase of this project includes a plant using the turbo-expander technology. The plant is capable of handling 75 to 95 MMCFD of natural gas flow producing up to 45,000 metric tons of LPG per year and is expected to come on stream in the first quarter of 1998. Total costs incurred through December 31, 1997 were approximately $17.2 million. A new wholly-owned subsidiary, Lion G.P.L., S.A., was incorporated in Cote d'Ivoire to own and operate the plant. During 1998, it is anticipated that 65% of the outstanding shares of this subsidiary will be sold to others. Gas processing agreements have been executed with Block CI-11 partners, currently the only natural gas producers in the country. The extracted LPG will be sold into the local market. Equatorial Guinea. UMC has negotiated four PSCs with the Republic of Equatorial Guinea for Blocks located offshore in the Atlantic Ocean. Under the PSCs, UMC holds approximately 1.8 million gross (1.2 million net to UMC) acres. Block A was evaluated during 1993 and 1994 with a 2-D seismic program and a test well, the Dorado #1, a dry hole in which UMC had a carried interest. UMC is evaluating further exploration opportunities on the Block based on new 2-D seismic. The Company currently owns a 100% contract interest in Block A. Block B was also evaluated by a 1993 seismic program, in which UMC had a carried interest. Mobil Equatorial Guinea Corporation (Mobil) carried UMC in the drilling of a test well on the Delta prospect, which was a dry hole in late 1994. Mobil, as operator, and UMC then drilled three successful oil wells on the Zafiro prospect and one successful oil well on the Opalo prospect in 1995. The Jade, Serpentina and Opalo East fields were discovered on the Block during 1997 and will be developed over the next 18 to 24 months. A total of fourteen wells were drilled in 1997, nine development and five exploratory wells. All nine of the development wells and two of the exploratory wells were successful and were tested at rates ranging from 4,000 to 10,500 BOD (gross). At December 31, 1997, six of the development wells and two of the exploratory wells were producing and the other three development wells were being completed. Total expenditures to date have been $833.0 million ($208.3 million net to UMC). The Company recognized proved reserves of 40.0 MMBO (177.8 MMBO gross) on Block B at December 31, 1997. However, the Company's current and future investment is based upon a significantly higher anticipated level of reserve recovery. The Company owns a 25% contract interest in Block B. Negotiations with the government of Equatorial Guinea are currently underway to modify certain terms of the Block B PSC. Management does not anticipate any material adverse economic impact on the Company as a result of any such modifications to the PSC. Initial oil production from Block B commenced in late August 1996 at a rate of 10,000 BOD (2,300 BOD net to UMC) and was producing at levels approaching 77,500 BOD (17,400 BOD net to UMC) at December 31, 1997. Work on the Phase III development project is expected to begin in 1998 to provide additional production capacity to develop the existing Block B field discoveries. Block C is adjacent to Block B and potentially holds extensions of the prospects developed on Block B. The discovery of high quality reservoirs and high oil flow rates on Block B increases the likelihood of successful exploration on this Block. The Company currently owns a 75% contract interest. A second seismic acquisition is currently underway. A well is expected to be drilled on the Block within the upcoming 18 months. Block D, in which the Company owns a 75% contract interest, is adjacent to Block B, which increases the prospectiveness of the Block. During 1997, the Company drilled two exploratory wells on Block D. The Tsavorita #1/1A, has been temporarily abandoned pending further evaluation. An extensive 3-D seismic shoot is currently underway to further evaluate opportunities on Block D. Additional drilling is anticipated late in 1998. Pakistan. During 1996 and 1997, UMC signed five PSCs with the government of Pakistan, covering 7.7 million gross (5.8 million net to UMC) acres. Geological and geophysical studies have begun and will be conducted during the next two years of the exploration license on the five Blocks, with possible drilling within the upcoming 18 months. Bangladesh. In February 1997, UMC signed a PSC covering Block 22, Chittagong Hills Tracts. UMC has geological - 6 - 9 and geophysical work currently underway toward possible drilling in 1998. The Block covers 3.3 million gross (1.3 million net to UMC) acres. UMC currently holds a 40% contract interest. Angola. In February 1998, the government of the Republic of Angola awarded UMC a participation in the Block 19 concession group with a 20% interest. The Block covers 1.2 million gross (0.2 million net to UMC) acres and is located in the high potential deepwater basins offshore Angola, where several major discoveries were announced in 1996 and 1997. (d) RESERVES The Company holds interests in producing properties in 15 states, Canada, Equatorial Guinea and Cote d'Ivoire, with most of its proved reserves located in five major natural gas producing areas of the United States (Gulf of Mexico/Gulf Coast Onshore, Permian Basin, Midcontinent, Rocky Mountains and Montana), in the Alberta and Saskatchewan provinces of Canada and in West Africa. At December 31, 1997, the Company had estimated proved reserves of 68.8 MMBO of oil and 560.3 BCF of natural gas, or 162.2 MMBOE, an increase of 36% from 1996 year end reserves of 119.7 MMBOE. The following table sets forth estimates of the proved oil and natural gas reserves of the Company at December 31, 1997, as evaluated by Ryder Scott Company, Netherland, Sewell & Associates, Inc. and McDaniel & Associates Consultants Ltd., the Company's independent petroleum reserve engineers:
Barrels of Oil Equivalents Oil (MBO) Natural Gas (MMCF) (MBOE) ---------------------------------- -------------------------------- -------------------------------- Developed Undeveloped Total Developed Undeveloped Total Developed Undeveloped Total ---------- ----------- ------- --------- ----------- ------- ---------- ----------- ----- Gulf Coast ........... 1,912 96 2,008 53,168 14,923 68,091 10,774 2,583 13,357 Permian Basin ........ 6,796 545 7,341 27,450 4,066 31,516 11,371 1,223 12,594 Midcontinent ......... 1,966 404 2,370 60,667 8,098 68,765 12,077 1,754 13,831 Rocky Mountains ...... 6,669 1,778 8,447 130,954 26,773 157,727 28,495 6,240 34,735 ------ ------ ------ ------- ------- ------- ------- ------ ------- Sub-Total U.S. ..... 17,343 2,823 20,166 272,239 53,860 326,099 62,717 11,800 74,517 Canada ............... 3,383 -- 3,383 97,862 -- 97,862 19,693 -- 19,693 Cote d'Ivoire ........ 1,861 3,396 5,257 40,313 95,977 136,290 8,580 19,393 27,973 Equatorial Guinea .... 11,482 28,532 40,014 -- -- -- 11,482 28,532 40,014 ------ ------ ------ ------- ------- ------- ------- ------ ------- Total Company ..... 34,069 34,751 68,820 410,414 149,837 560,251 102,472 59,725 162,197 ====== ====== ====== ======= ======= ======= ======= ====== =======
The Company has not filed any different estimates of its December 31, 1997 reserves with any federal agency. The reserve data set forth in this Form 10-K represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and adjustment. 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 estimates. Accordingly, reserve estimates often differ from the quantities of crude oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variables and assumptions, all of which may vary considerably from actual results. The reliability of such estimates is highly dependent upon the accuracy of the assumptions upon which they were based. - 7 - 10 The following table sets forth, at December 31, 1997, the discounted present value attributable to the Company's estimated proved reserves at that date as estimated primarily by Ryder Scott Company, Netherland, Sewell & Associates, Inc. and McDaniel & Associates Consultants Ltd., the Company's independent petroleum reserve engineers:
IN THOUSANDS OF U.S. DOLLARS ----------------------------------------------------------------------------------- COTE EQUATORIAL UNITED STATES CANADA D'IVOIRE GUINEA TOTAL ------------- ----------- ----------- ----------- -------------- Future cash inflows ............... $ 1,034,813 $ 178,899 $ 384,217 $ 573,360 $ 2,171,289 ----------- ----------- ----------- ----------- ----------- Future production costs ........... 319,171 58,588 85,717 111,822 575,298 Future development costs .......... 61,524 2,024 110,047 239,750 413,345 Future income taxes ............... 102,748 26,464 41,001 37,417 207,630 ----------- ----------- ----------- ----------- ----------- Total future costs ................ 483,443 87,076 236,765 388,989 1,196,273 ----------- ----------- ----------- ----------- ----------- Future net cash inflows ........... 551,370 91,823 147,452 184,371 975,016 Discount at 10% per annum ......... (159,055) (35,489) (58,883) (49,719) (303,146) ----------- ----------- ----------- ----------- ----------- Standardized measure of discounted future net cash flows ..................... $ 392,315 $ 56,334 $ 88,569 $ 134,652 $ 671,870 =========== =========== =========== =========== ===========
In computing this data, assumptions and estimates have been utilized, and no assurance can be given that such assumptions and estimates will be indicative of future economic conditions. The future net cash inflows are determined by using estimated quantities of proved reserves and the periods in which they are expected to be developed and produced based on December 31, 1997 economic conditions. The estimated future production is priced at December 31, 1997, except where fixed and determinable price escalations are provided by contract. The resulting estimated future gross revenues are reduced by estimated future costs to develop and produce the proved reserves based on December 31, 1997 cost levels, but not for debt service and general and administrative expenses. (e) ACREAGE AND PRODUCTIVE WELLS The following table sets forth the Company's developed and undeveloped acreage at December 31, 1997. In North America, the Company holds its acreage through oil and natural gas leases. The leases have a variety of primary terms and may require delay rentals to continue the primary term if not productive. The leases may be surrendered by the operator at any time by notice to the lessors, by the cessation of production, by the fulfillment of commitments, or by failure to make timely payment of delay rentals. The Company's acreage holdings in Cote d'Ivoire, Equatorial Guinea, Pakistan, Bangladesh and Angola are evidenced by PSCs or other concession agreements with the governments of those countries. Among the terms that may be in place are obligations of UMC to conduct exploration operations (including the drilling of wells) and the manner in which any oil and natural gas that may be produced will be allocated among the parties to the contract. See Oil and Gas Properties - International for further discussion of the PSCs.
DEVELOPED ACREAGE UNDEVELOPED ACREAGE TOTAL ----------------- ------------------- ------------------ GROSS NET GROSS NET GROSS NET ----- ------ ----- ------ ----- ------ (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) ----------------- ------------------- ------------------ Gulf Coast Onshore ...... 61 15 357 52 418 67 Gulf Coast Offshore ..... 149 41 253 145 402 186 Midcontinent ............ 181 64 190 42 371 106 Rocky Mountains ......... 412 253 648 238 1,060 491 Other U.S. .............. 43 8 67 8 110 16 ------ ------ ------ ------ ------ ------ Sub-Total U.S. ... 846 381 1,515 485 2,361 866 Canada .................. 498 118 445 158 943 276 Bangladesh .............. -- -- 3,309 1,323 3,309 1,323 Cote d'Ivoire ........... 13 4 2,136 851 2,149 855 Equatorial Guinea ....... 36 9 1,798 1,202 1,834 1,211 Pakistan ................ -- -- 7,689 5,843 7,689 5,843 ------ ------ ------ ------ ------ ------ Total (1) ........ 1,393 512 16,892 9,862 18,285 10,374 ====== ====== ====== ====== ====== ======
- ------------------------------ (1) Does not include 1.2 million gross acres (0.2 million net acres) in Angola where the Company was awarded a participation in the deepwater Block 19 in February 1998. - 8 - 11 At December 31, 1997, the Company had 5,948 gross productive wells (1,302 net), of which 3,994 gross wells (467 net) were oil and 1,954 gross wells (835 net) were natural gas. Productive wells consist of producing wells and wells capable of production. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported above, six had multiple completions. (f) PRODUCTION, UNIT PRICES AND COSTS The following table sets forth information with respect to the Company's production and average unit prices and costs for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------------------------- 1997 1996 1995 --------- --------- --------- Production: Oil (MBO) United States ................................ 2,214 2,022 1,826 Canada ....................................... 439 511 649 Cote d'Ivoire ................................ 1,027 894 285 Equatorial Guinea ............................ 4,453 967 -- --------- --------- --------- Total ..................................... 8,133 4,394 2,760 ========= ========= ========= Natural gas (MMCF) United States ................................ 42,238 47,719 38,878 Canada ....................................... 7,630 5,339 5,383 Cote d'Ivoire ................................ 4,939 2,387 192 --------- --------- --------- Total ..................................... 54,807 55,445 44,453 ========= ========= ========= Average net sales price, including hedging: Oil ($ per bbl) United States ................................ $ 17.96 $ 20.91 $ 16.41 Canada ....................................... $ 17.97 $ 19.43 $ 16.59 Cote d'Ivoire ................................ $ 18.35 $ 20.56 $ 15.45 Equatorial Guinea ............................ $ 17.71 $ 22.17 $ -- Average ................................... $ 17.87 $ 20.94 $ 16.35 Natural gas ($ per MCF) United States ................................ $ 2.18 $ 2.15 $ 1.58 Canada ....................................... $ 1.40 $ 1.44 $ 1.17 Cote d'Ivoire ................................ $ 1.81 $ 1.80 $ 1.72 Average ................................... $ 2.04 $ 2.07 $ 1.53 Additional disclosures ($ per BOE): Production and operating costs(1) ............... $ 2.65 $ 3.12 $ 3.50 Ad valorem and production taxes ................. $ 0.62 $ 0.64 $ 0.72 Oil and natural gas depletion and depreciation(2) $ 5.45 $ 6.00 $ 5.19
- ------------------ (1) Costs incurred to operate and maintain wells and related equipment, excluding ad valorem and production taxes. (2) Does not include impairments of proved oil and gas property. -9- 12 (g) DRILLING ACTIVITY During the periods indicated, the Company drilled or participated in the drilling of the following exploratory and development wells:
Years Ended December 31, ------------------------------------------------ 1997 1996 1995 ------------ --------------- --------------- Gross Net Gross Net Gross Net ----- --- ----- --- ----- ------ Exploratory: Productive............................................. 30 13.8 23 7.8 18 5.2 Non-Productive......................................... 31 12.9 25 8.6 15 3.2 --- ----- --- ---- --- ---- Total.............................................. 61 26.7 48 16.4 33 8.4 === ===== === ==== === ==== Development: Productive............................................. 253 69.9 113 26.8 114 19.4 Non-Productive......................................... 23 12.9 9 4.4 22 3.3 --- ----- --- ---- --- ---- Total.............................................. 276 82.8 122 31.2 136 22.7 === ===== === ==== === ==== Total: Productive............................................. 283 83.7 136 34.6 132 24.6 Non-Productive......................................... 54 25.8 34 13.0 37 6.5 --- ----- --- ---- --- ---- Total.............................................. 337 109.5 170 47.6 169 31.1 === ===== === ==== === ====
At December 31, 1997, the Company was participating in the drilling or completion of 57 gross (17.2 net) wells. All of the Company's drilling activities are conducted with independent contractors. (h) MARKETING AND CONTRACTS A substantial portion of the Company's current natural gas production is sold on the spot market or under market sensitive agreements with a variety of purchasers, including intrastate and interstate pipelines, their marketing affiliates, independent marketing companies and other purchasers who have the ability to move the gas under firm transportation or interruptible agreements. During 1997, the Company continued to market the majority of its gas from the Bear Paw area in Montana to premium-priced markets in Minnesota and Michigan. The Company's 35 MMCFD of firm capacity on TransCanada Pipeline and Great Lakes Transmission is used to transport these volumes. In addition, the Company contracted for a ten-year term, 8 MMCFD additional firm capacity on TransCanada Pipeline from Empress, Alberta to Emerson, Manitoba. Effective November 1, 1998, the Company will extend the 8 MMCFD firm capacity into Great Lakes Transmission from Emerson, Manitoba, to St. Clair, Michigan. This additional capacity is to support increased net production from the Bear Paw area which exceeded 38 MMCFD in December 1997. Prices for the Company's natural gas production throughout the remainder of the United States are subject to regional discounts or premiums tied to regional spot market prices. Deregulation in Canada has facilitated access to alternative markets for oil and natural gas, such as direct sales to end-users and export sales to United States markets. Generally, one-year renewable contracts in which price is negotiated annually have been used to access these markets. Firm transportation and gas processing capacity from major aggregators have been obtained in Canada to provide continued ability to produce under these contracts. Approximately 67% of the Company's Canadian gas is currently sold under market sensitive contracts redetermined annually. The remaining 33% is sold on the spot market. In September 1994, UMC executed a take-or-pay contract under which UMC and its partners will sell 50 MMCFD of natural gas production from Block CI-11 to the Government of Cote d'Ivoire. UMC and its partners will receive approximately $1.70 per MMBTU for the first four years, after which time the price will be benchmarked against West Texas Intermediate crude. The government is paying UMC for the natural gas with a portion of its oil production. In March 1997, UMC executed a take-or-pay contract under which UMC and its partners will sell natural gas production from Block CI-01 to the Government of Cote d'Ivoire with initial volumes of 30 MMCFD beginning January 1, 1999, increasing to a maximum of 50 MMCFD on January 1, 2001. UMC and its partners will receive approximately $1.70 per MMBTU until February 1, 2000, after which time the price will be benchmarked against West Texas Intermediate crude. - 10 - 13 In Equatorial Guinea, UMC has executed a marketing arrangement with Mobil Sales and Supply Corporation to market the Company's share of production. The crude oil is sold at market prices at discounts from Dated Brent. The marketing arrangement can be terminated by either party upon 90 days notice. (i) CUSTOMERS The Company markets its oil and gas production to numerous purchasers under a combination of short and long-term contracts. During 1997 and 1996, Mobil Sales and Supply Corporation accounted for 31% and 10%, respectively, of the Company's oil and gas revenues as the purchaser of the Company's production in Equatorial Guinea. In addition, during 1997 and 1996, H&N Gas Limited Inc. accounted for 6% and 16%, respectively, of the Company's oil and gas revenues. During 1997, 1996 and 1995, the Company had no other purchasers that accounted for greater than 10% of its oil and gas revenues. The Company believes that the loss of any single customer would not have a material adverse effect on the results of operations of the Company. (j) COMPETITION The exploration for and production of oil and natural gas is highly competitive. In seeking to obtain desirable producing properties, new leases and exploration prospects, the Company faces competition from both major and independent oil and natural gas companies, as well as from numerous individuals and drilling programs. Extensive competition also exists in the market for natural gas produced by the Company. Many of these competitors have financial and other resources substantially in excess of those available to the Company and, accordingly, may be better positioned to acquire and exploit prospects, hire personnel and market production. In addition, many of the Company's larger competitors may be better able to respond to factors such as changes in worldwide oil and natural gas prices and levels of production, the cost and availability of alternative fuels and the application of government regulations, which affect demand for the Company's oil and natural gas production and which are beyond the control of the Company. Generally, the competition factors for international and North American opportunities are fairly similar. Natural gas prices, which were once effectively determined by government regulations, are now influenced largely by the effects of competition. Competitors in this market include other producers, gas pipelines and their affiliated marketing companies, independent marketers and providers of alternate energy supplies, such as residual fuel oil. (k) ENVIRONMENTAL MATTERS United States Environmental Regulations. Operations of the Company are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, and impose substantial liabilities for pollution resulting from the Company's operations. Moreover, the recent trend toward stricter standards in environmental legislation and regulation is likely to continue. For instance, legislation has been proposed in Congress from time to time that would reclassify certain oil and gas production wastes as "hazardous wastes" which would make the reclassified exploration and production wastes subject to much more stringent handling, disposal and clean-up requirements. If such legislation were to be enacted, it could have a significant impact on the operating costs of the Company, as well as the oil and gas industry in general. State initiatives to further regulate the disposal of oil and gas wastes are also pending in certain states, and these various initiatives could have a similar impact on the Company. Management believes that the Company is in substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse impact on the Company. The U.S. Environmental Protection Agency has indicated that the Company may be potentially responsible for costs and liabilities associated with alleged releases of hazardous substances at two sites in Louisiana under the Comprehensive Environmental Response, Compensation and Liability Act. Given the extremely large number of companies that have been identified as potentially responsible for releases of hazardous substances at the sites and the small volume of hazardous substances allegedly disposed of by the companies whose properties the Company acquired, management believes that the Company's potential liability arising from these sites, if any, will not have a material adverse impact on the Company. During the three year period ended December 31, 1997, neither UMC, nor any of its subsidiaries, have been cited by -11- 14 any governmental authority with respect to environmental matters. The Company has spent less than $100,000 per year during the years 1997, 1996 and 1995 for the routine clean-up of oil, salt water or other substances in the ordinary course of business. The Company has no significant commitments for capital expenditures to comply with existing environmental requirements. The Oil Pollution Act of 1990 (OPA) and regulations thereunder impose a variety of regulations on "responsible parties" related to the prevention of oil spills and liability for damages resulting from such spills in United States waters. A "responsible party" includes the owner or operator of a facility or vessel, or the lessee or permittee of the area in which an offshore facility is located. The OPA assigns liability to each responsible party for oil removal costs and a variety of public and private damages. While liability limits apply in some circumstances, a party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply. Few defenses exist to the liability imposed by the OPA. The OPA also imposes ongoing requirements on a responsible party, including proof of financial responsibility, to cover at least some costs in a potential spill. On August 25, 1993, an advance notice of intention to adopt a rule under the OPA was published that would require owners and operators of offshore oil and gas facilities to establish $150 million in financial responsibility. Under the proposed rule, financial responsibility could be established through insurance, guarantee, indemnity, surety bond, letter of credit, qualification as a self-insurer or a combination thereof. There is substantial uncertainty as to whether insurance companies or underwriters will be willing to provide coverage under the OPA because the statute provides for direct lawsuits against insurers who provide financial responsibility coverage, and most insurers have strongly protested this requirement. On October 19, 1996, Congress adopted an amendment to OPA that lowered the financial requirement for certain offshore facilities to $35 million. That amendment, however, also authorizes the U.S. Department of the Interior to adopt rules increasing that requirement in circumstances that the agency deems appropriate. The Company cannot predict the final form of the financial responsibility rule that might be adopted. However, the impact of any such rule should not be any more adverse to the Company than it will be to other similarly situated or less capitalized owners or operators. Canadian Environmental Regulations. The oil and natural gas industry is subject to environmental regulation pursuant to local, provincial and federal legislation in Canada. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced in association with certain oil and gas industry operations. In addition, legislation requires that well and facility sites be abandoned and reclaimed to the satisfaction of provincial authorities. A breach of such legislation may result in the imposition of fines and penalties. Environmental legislation in Alberta was substantially revised in 1993 to update and consolidate the various acts applicable to environmental protection. The various acts were consolidated into the Environmental Protection and Enhancement Act, proclaimed April 22, 1993 and became effective September 1, 1993. Under the new Act, environmental standards and compliance for releases, clean-up and reporting are stricter. Also, the range of enforcement actions available and severity of penalties are significantly increased. The changes had an incremental but not material effect on the cost of conducting operations in Alberta. The full extent of the impact will not be known until the Government of Alberta releases its enforcement policy. Federal environmental regulations are generally restricted to the use and transport of certain restricted and prohibited substances and the environmental assessment of projects which require an approval from a federal authority. The Company anticipates making necessary expenditures of both a capital and expense nature as a result of the increasingly stringent laws relating to the protection of the environment. The Company believes that it is in material compliance with applicable environmental laws and regulations in Canada. (l) EMPLOYEES At January 31, 1998, the Company employed approximately 380 people in its United States, Canada, Cote d'Ivoire, Equatorial Guinea, Bangladesh, Pakistan and Angola offices and various field locations whose functions are associated with management, engineering, geology, geophysics, operations, land, legal, accounting, financial planning and administration. Of this amount, approximately 100 full-time employees are responsible for the supervision and operation of its field activities. The Company, which has no collective bargaining arrangement with employees, believes its relations with its employees are satisfactory. (m) OFFICES The Company leases its Houston headquarters under a lease covering approximately 108,000 square feet, expiring in - 12 - 15 December 2006. The monthly rent expense recognized under generally accepted accounting principles is approximately $107,000. The Company also leases additional space for two division offices, seven field operating offices and five offices outside North America. ITEM 3. LEGAL PROCEEDINGS On December 29, 1997, a class action complaint (Newman v. Carson, et. al., Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of Delaware, by a person claiming to represent the stockholders of UMC against UMC and each of its directors. On January 9, 1998, a similar class action complaint (Ross v. Brock, et. al., Civil Action No. 98-00845) was filed in the District Court of Harris County, Texas, 164th Judicial District by another person claiming to represent the stockholders of UMC against UMC and each of its directors. Among other things, the complaints seek to (i) preliminarily and permanently enjoin the Merger, (ii) require the UMC directors to maximize stockholder value by placing UMC up for auction and/or to conduct a "market-check", (iii) require the defendants to make a full and fair disclosure of all material facts to the class members before the consummation of the Merger, (iv) rescind the Merger should it be consummated prior to the resolution of the lawsuit, and/or (v) recover unspecified damages and costs from the UMC directors for the alleged breach of their fiduciary duties. Management of UMC believes that the complaints are without merit and intends to vigorously defend the actions. The Company is a named defendant in lawsuits and is a party in governmental proceedings from time to time arising in the ordinary course of business. While the outcome of such lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter of 1997. - 13 - 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since July 22, 1993, the Company's Series A Voting Common Stock, $0.01 par value (the "Common Stock"), has been traded on the New York Stock Exchange under the symbol "UMC". As of February 13, 1998, there were 35,792,891 shares of Common Stock outstanding held by approximately 184 stockholders of record. The Company has never paid dividends on its Common Stock and does not expect to pay dividends in the near future. The Company's Global Credit Facility and the 103/8% Senior Subordinated Notes (see Note 5 of the Notes to Consolidated Financial Statements) contain certain restrictions on the Company's ability to declare and pay dividends. The payment of future cash dividends, if any, will be reviewed periodically by the Board of Directors and will depend upon, among other things, the Company's financial condition, funds from operations, the level of its capital and exploration expenditures, its future business prospects and any restrictions imposed by the Company's present or future credit facilities. The following table shows the high and low sales prices of the Common Stock on the New York Stock Exchange for the last two years:
QUARTER ENDED, 1996 HIGH LOW - ------------------- ---- --- March 31................... $ 25.88 $ 15.00 June 30.................... $ 36.25 $ 23.13 September 30............... $ 48.38 $ 32.13 December 31................ $ 53.50 $ 43.88 QUARTER ENDED, 1997 - ------------------- March 31................... $ 52.38 $ 28.38 June 30.................... $ 38.25 $ 26.50 September 30............... $ 42.25 $ 29.25 December 31................ $ 40.25 $ 26.00
- 14 - 17 ITEM 6. SELECTED FINANCIAL DATA The financial data as of and for the years ended December 31, 1993 through 1997 were derived from the audited consolidated financial statements of the Company and should be read in connection with the consolidated financial statements and related notes included elsewhere herein (amounts in thousands, except per share data).
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Operating revenues: Gas sales ....................................... $ 111,663 $ 114,498 $ 68,228 $ 67,763 $ 60,457 Oil sales ....................................... 145,351 92,031 45,122 26,675 19,877 Gain on sale of assets and other (1) ........... 7,851 29,875 33,691 3,379 1,984 --------- --------- --------- --------- --------- 264,865 236,404 147,041 97,817 82,318 --------- --------- --------- --------- --------- Costs and expenses: Production costs ................................ 56,492 51,298 42,891 36,938 30,539 General and administrative ...................... 13,580 12,727 10,425 12,504 8,097 Exploration, including dry holes ................ 38,845 40,325 15,682 16,187 6,811 Depreciation, depletion and amortization ........ 96,418 84,979 53,942 50,727 35,938 Impairment of proved oil and gas properties (2) . -- -- 8,317 94,793 10,051 Interest and debt expense ....................... 21,749 22,811 17,945 9,040 6,532 Interest and other expense (income) ............. (1,681) 844 (375) 141 (2,102) --------- --------- --------- --------- --------- 225,403 212,984 148,827 220,330 95,866 --------- --------- --------- --------- --------- Income (loss) before taxes and cumulative effect of changes in accounting principles.................. 39,462 23,420 (1,786) (122,513) (13,548) Income tax benefit (provision): Current ......................................... (6,220) (785) (332) (25) (1,131) Deferred ........................................ (13,455) (5,231) 4,217 41,549 7,436 --------- --------- --------- --------- --------- Income (loss) before cumulative effect of changes in accounting principles ............................ 19,787 17,404 2,099 (80,989) (7,243) Cumulative effect of change in accounting principle, net of tax (2) ................................... -- -- -- -- (3,543) --------- --------- --------- --------- --------- Net income (loss) ................................... $ 19,787 $ 17,404 $ 2,099 $ (80,989) $ (10,786) ========= ========= ========= ========= ========= Net income (loss) applicable to common stockholders $ 19,787 $ 15,873 $ 615 $ (80,989) $ (12,284) ========= ========= ========= ========= ========= Basic earnings per share of common stock: Income (loss) before cumulative effect of changes in accounting principles ..................... $ 0.56 $ 0.53 $ 0.02 $ (3.47) $ (0.75) Cumulative effect of changes in accounting principles...... ............................. -- -- -- -- (0.31) --------- --------- --------- --------- --------- Net income (loss) per common share .............. $ 0.56 $ 0.53 $ 0.02 $ (3.47) $ (1.06) ========= ========= ========= ========= ========= Weighted average number of common shares (3) .... 35,590 30,120 27,935 23,330 11,588 Diluted earnings per share of common stock: Income (loss) before cumulative effect of changes in accounting principles .................... $ 0.54 $ 0.51 $ 0.02 $ (3.47) $ (0.75) Cumulative effect of changes in accounting principles .................................. -- -- -- -- (0.31) --------- --------- --------- --------- --------- Net income (loss) per common share .............. $ 0.54 $ 0.51 $ 0.02 $ (3.47) $ (1.06) ========= ========= ========= ========= ========= Weighted average number of common shares and common share equivalents outstanding (3) .... 36,662 31,428 29,259 23,330 11,588 Balance Sheet Data (at end of period): Property, plant and equipment - net (1) ......... $ 740,972 $ 524,189 $ 468,673 $ 424,930 $ 291,723 Total assets .................................... 885,025 718,293 578,450 511,214 343,223 Long-term debt, including current maturities .... 283,557 157,731 247,899 239,634 92,149 Stockholders' equity (4) ........................ 459,399 432,236 212,312 171,438 189,672
- ----------------------- (1) See Note 4 of the Notes to Consolidated Financial Statements for a discussion of significant acquisitions and dispositions for the applicable periods. (2) See Note 3 of the Notes to Consolidated Financial Statements regarding the company's policy for assessing the recoverability of proved oil and gas properties. In 1993, the Company adopted a policy to assess recoverability of its proved properties by individual property groups having similar geological or operating characteristics utilizing estimates of undiscounted future net revenues attributable to proved reserves based on current prices and to provide impairment reserves as conditions warrant. (3) See Note 6 of the Notes to Consolidated Financial Statements for the calculation of the weighted average number of common shares and common share equivalents outstanding. (4) The Company has never paid dividends on its common stock. - 15 - 18 The following is a condensed summary of the results of operations for the quarters of 1997 and 1996 (amounts in thousands, except per share amounts):
Quarters Ended (Unaudited) ------------------------------------------------ March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- 1997 - ---- Revenues ..................... $65,005 $55,545 $62,370 $81,945 Income from operations ....... 15,370 7,011 14,136 23,013 Net income ................... 6,199 1,820 3,303 8,465 Basic earnings per share ..... 0.18 0.05 0.09 0.24 Diluted earnings per share ... 0.17 0.05 0.09 0.23 1996 - ---- Revenues ..................... $52,168 $61,323 $54,068 $68,845 Income from operations ....... 11,745 14,400 10,927 10,003 Net income ................... 3,716 5,235 2,838 5,615 Basic earnings per share (1) . 0.10 0.16 0.09 0.17 Diluted earnings per share (1) 0.10 0.15 0.09 0.16
- --------------------- (1) The sum of the quarterly reported amounts for earnings per share do not equal full year amounts. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) INTRODUCTION The following discussion is intended to assist in understanding the Company's financial position and results of operations for each year in the three year period ended December 31, 1997. The Consolidated Financial Statements and the notes thereto should be referred to in conjunction with this discussion. On December 22, 1997, UMC and OEI entered into a merger agreement that provides for a stock-for-stock merger of the companies pursuant to which UMC stockholders will receive 1.30 shares of the combined company for each existing outstanding share of UMC and OEI shareholders will receive 2.34 shares of the combined company for each existing outstanding share of OEI. UMC stockholders will own approximately 46% of the equity of the combined company. The Merger is expected to qualify as a tax-free transaction and is subject to each Company's stockholders' approval and certain other conditions. The transaction is expected to be treated as a pooling of interests for accounting purposes and is anticipated to close by the end of the first quarter of 1998. (b) OVERVIEW The Company was organized in 1987 to pursue opportunities to acquire oil and natural gas properties. Since its inception, the Company has grown through a series of strategic corporate and property acquisitions combined with an exploration program that focuses on UMC's existing properties in North America and in certain international regions. Management's strategy is to (i) balance the risk of exploration prospects with lower risk exploitation and development of existing reserves, (ii) concentrate its activities in specific regions where the Company has expertise, while retaining geographical diversification and (iii) augment its industry and institutional relationships to access new opportunities. UMC's exploration strategy provides that essentially all prospects will be generated in-house. This approach usually means that a portion of the interest in each property is available for farmout, sale or other arrangement. A sales transaction is often used in the case of international prospects that have been acquired by UMC and subsequently enhanced by the acquisition and interpretation of seismic data, geologic and engineering analysis and possibly the drilling of wells. UMC's exploration and engineering staff have consistently shown the ability to add value to both domestic and international prospects. In recent years, UMC has developed its business strategy to include the sale of both developed and undeveloped properties. With respect to developed properties, sales may be made to (i) redeploy capital in regions where returns are greater, (ii) eliminate properties that do not fit the Company's geographic profile, (iii) dispose of marginal assets and (iv) accept offers where the buyer gives significantly greater value to a property than UMC's technical staff and outside engineers. As a result of a significant portion of the Company's growth coming through large acquisitions, the sale of developed properties selected using the above criteria is a frequent occurrence. - 16 - 19 The Company's international activities are focused in the countries of Equatorial Guinea, Cote d'Ivoire, Pakistan, Bangladesh and Angola, where it holds substantial acreage positions in highly prospective geologic regions. Management believes that these areas have the potential to significantly increase the Company's proved oil and gas reserves based upon results of drilling to date and analysis of technical data regarding additional prospects. Although the Company's reserves have historically been concentrated in natural gas, international discoveries have shifted the percentage of reserves represented by crude oil and condensate toward a more equal balance with natural gas reserves. Concurrently, the Company expects to continue the historical trend of adding to its North American reserve base. (c) RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996 Oil and gas revenues for 1997 were $257.0 million, or 24% greater than 1996 oil and gas revenues of $206.5 million. The increase in oil and gas revenues is due to increased oil volumes in West Africa resulting from a full years' production from Block B in Equatorial Guinea, offset by lower U.S. gas volumes due primarily to property sales and natural production declines. Oil revenues increased 58% to $145.4 million, the result of significantly increased worldwide production volumes offset by a drop in the average realized price received. Oil production increased 85% to 8,133 MBO in 1997 due primarily to increased oil production in Cote d'Ivoire and Equatorial Guinea. The average sales price after hedging for oil decreased 15% to $17.87 in 1997 compared to 1996. The impact of hedging on oil prices received and oil revenues for 1997 and 1996 was not significant. Natural gas revenues declined 3% to $111.7 million, the result of slight declines in natural gas prices, asset sales and the impact of certain hedging activities. The average sales price after hedging for natural gas decreased to $2.04 per MCF, or 2%, in 1997 from 1996. The impact of hedging on natural gas prices received and natural gas revenues for 1997 and 1996 was a decrease of $0.02 and $0.06 per MCF and $1.2 million and $3.7 million, respectively. The Company has consistently entered into hedging transactions for the purpose of managing the overall impact of commodity price volatility. Depending upon commodity price movement, gains or losses recognized are offset by lower or higher prices at the wellhead. Natural gas production for 1997 was 54,807 MMCF, a decrease of 1% over 1996 volumes due primarily to property sales and natural production declines, offset by acquisitions and increased production in Cote d'Ivoire and Canada. Gains on sales of assets totaled $4.9 million in 1997, as compared to $29.0 million in 1996. The 1997 gains on sales of assets primarily resulted from dispositions of various non-strategic North American properties. The largest contributors to the gains recognized in 1996 were sales of unproved international interests, including the final installment of the sale to Mobil Equatorial Guinea Corporation (Mobil) of a 10% interest in Block B in Equatorial Guinea and the sale of a 55% contract interest in Block CI-105 in Cote d'Ivoire to Shell Exploration B.V. (Shell), a unit of Royal Dutch/Shell. Production costs, excluding ad valorem and production taxes, for 1997 of $45.8 million increased 8% from $42.5 million for 1996, primarily due to production in Equatorial Guinea for the full 1997 period. However, on a BOE basis, production costs for 1997 decreased $0.47 per BOE (15%) when compared to 1996. General and administrative expense for 1997 was $13.6 million compared to $12.7 million in 1996. This increase was primarily due to outside consulting fees, a new systems implementation and an overall increase in the activity level of the Company. However, general and administrative expenses per BOE of production decreased from $0.93 in 1996 to $0.79 in 1997. Exploration, dry hole and lease impairment expenses for 1997 totaled $38.9 million as compared to $40.3 million in 1996. The components of exploration expense for 1997 reflect seismic activities worldwide, certain exploratory dry holes primarily in Equatorial Guinea, Cote d'Ivoire and Gulf of Mexico, and certain initial costs in other international areas. Depreciation, depletion and amortization (DD&A) expense for 1997 of $96.4 million increased 13% from $85.0 million for 1996. This increase is primarily attributable to increased production levels in Cote d'Ivoire and Equatorial Guinea. The rate per BOE of oil and gas DD&A decreased 9% from $6.00 per BOE in 1996 to $5.45 per BOE in 1997. This decrease is primarily due to a change in the Company's geographic production mix and proved reserve additions in 1997. -17- 20 Interest and debt expense for 1997 was $21.7 million compared to $22.8 million for 1996. The decrease in interest expense is primarily due to the reduced debt levels through the majority of 1997 resulting primarily from the paydown of the Global Credit Facility in the fourth quarter of 1996 with proceeds from the Company's 1996 equity offering. An income tax provision of $19.7 million (of which $6.2 million is a current provision and $13.5 million is a deferred provision) was recognized for 1997, compared to a provision of $6.0 million (of which $0.8 was a current provision and $5.2 was a deferred provision) for 1996. A significant portion of current taxes in 1997 is a $4.6 million non-cash provision representing current taxes incurred in Cote d'Ivoire which, under the terms of the production sharing contract, will be paid by the Ivorian government from their production proceeds. Consistent with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, the income tax provision or benefit was derived primarily from changes in deferred income tax assets and liabilities recorded on the balance sheet. The 1996 deferred tax benefit was affected by the use of $13.0 million of net operating loss (NOL) carryforwards to essentially eliminate 1996 taxable income and the deferred tax effect of exercised stock options. At December 31, 1997, the Company had $84.9 million of United States (U.S.) NOL carryforwards, $67.0 million of Equatorial Guinea NOL carryforwards and $32.2 million of Canadian federal tax pools. The Company paid cash income taxes in 1997 and 1996 of $1.8 million, and $0.4 million, respectively, to several states, Canada and the U.S. The Company reported net income of $19.8 million, or $0.56 basic earnings per share, for 1997 compared to a net income of $17.4 million, or $0.53 basic earnings per share, for 1996. Year 2000 problems do not present a material consideration for the Company's current operations. The Company is currently engaged in a comprehensive project to upgrade its computer software in its production , land and accounting systems to programs which are year 2000 compliant. The Company does not anticipate year 2000 problems will have a material adverse impact on its business. YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995 Oil and gas revenues for 1996 were $206.5 million, or 82% greater than 1995 oil and gas revenues of $113.4 million primarily due to significant improvements in oil and natural gas prices and production volumes. The average sales price after hedging for natural gas increased to $2.07 per MCF, or 35%, in 1996 from 1995. The impact of hedging on natural gas prices received and natural gas revenues for 1996 and 1995 was an increase (decrease) of ($0.06) and $0.07 per MCF and ($3.7) million and $3.5 million, respectively. Natural gas production for 1996 was 55,445 MMCF, an increase of 25% over 1995 volumes due primarily to new production from the Gulf of Mexico and a full year of gas production in Cote d'Ivoire which commenced in late 1995. Oil production increased 59%, or 1,634 MBO, in 1996 due primarily to increased oil production in Cote d'Ivoire and commencement of production in Equatorial Guinea in August 1996. The average sales price after hedging for oil increased to $20.94, or 28%, in 1996 compared to 1995. The impact of hedging on oil prices received and oil revenues for 1996 and 1995 was an increase (decrease) of ($0.04) and $0.22 per barrel and ($0.2) million and $0.6 million, respectively. The aforementioned business strategy of selling both developed and undeveloped properties generated gains on sales of assets of $29.0 million in 1996, as compared to $31.2 million in 1995. The 1996 gains on sales of assets resulted primarily from sales of unproved international interests including a $15.8 million pre-tax gain recognized as the final installment on the assignment of a portion of the Company's interest in Block B in Equatorial Guinea to Mobil in October 1995, and the sale in September 1996 of a 55% contract interest in Block CI-105 in Cote d'Ivoire to Shell from which the Company recognized a pre-tax gain of $3.3 million. Gains on sales of producing properties in North America were primarily generated by a pre-tax gain of $4.7 million recognized as a result of the sale by UMC Resources Canada Ltd., the Company's wholly-owned Canadian subsidiary, of its interest in the Rocanville area in June 1996, and a pre-tax gain of $3.6 million recognized as a result of the sale of interests in the Elk City and Arapaho fields in December 1996. The largest contributors to the gain in 1995 were the sales of partial interests to Yukong Limited of a portion of the Company's interests in Block CI-01 and CI-02 in Cote d'Ivoire and Blocks C and D in Equatorial Guinea and the first installments of the sale to Mobil of a 10% interest in Block B in Equatorial Guinea. For these international sales in 1995, a pre-tax gain of $18.3 million was recognized on proceeds of $22.1 million. During 1995, the Company recognized pre-tax gains of $12.9 million on sales of producing properties in North America. Production costs, excluding ad valorem and production taxes, for 1996 of $42.5 million increased 19% from $35.6 million for 1995, primarily due to a full year of production in Cote d'Ivoire and commencement of production in Equatorial Guinea. However, on a cost per BOE basis, production costs for 1996 decreased $0.38 per BOE, a decrease of 11%, when compared to 1995. - 18 - 21 General and administrative expenses for 1996 were $12.7 million compared to $10.4 million in 1995. This increase was primarily due to nonrecurring severance expenses of $0.9 million in 1996, $0.7 million of expenses associated with miscellaneous non-cash benefits accruals and an overall expansion of the Company's operations. However, general and administrative expenses per BOE of production decreased from $1.03 per BOE in 1995 to $0.93 per BOE in 1996. Exploration, dry hole and lease impairment expenses for 1996 totaled $40.3 million as compared to $15.7 million in 1995. This increase of $24.6 million was primarily due to increased dry hole costs experienced in the Gulf of Mexico, certain onshore areas and Equatorial Guinea Block D. In addition, the Company had increased geological and geophysical costs in 1996 reflecting a higher level of exploration activity in Cote d'Ivoire, Equatorial Guinea and North America. DD&A expense for 1996 of $85 million increased 58% from $53.9 million for 1995. This increase is primarily attributable to increased production levels in Cote d'Ivoire and Equatorial Guinea. The rate per BOE of oil and gas DD&A increased 16% from $5.19 per BOE in 1995 to $6.00 per BOE in 1996. This increase is a result of capitalized costs in Equatorial Guinea which reflect certain development expenditures in anticipation of significant future reserve extensions and additions that were not recognized as proved reserves at December 31, 1996. In addition, certain downward revisions of proved oil and gas reserves in the United States were recognized by the Company during 1996, increasing DD&A rates. Furthermore, a greater proportion of the Company's North American oil and gas volumes were produced from the Gulf of Mexico region in 1996 versus 1995, which historically has higher depletion rates. Interest and debt expense for 1996 was $22.8 million compared to $17.9 million in 1995. Non-cash amortization of debt issue costs totaled $2.1 million for 1996, as compared to $1.2 million for 1995. The $0.9 million increase is primarily due to the amortization of the original issue discount on the 103/8% Senior Subordinated Notes (Notes) due 2005 and the write-off of debt issue costs upon the purchase of the Cote d'Ivoire Project Loan in November 1996 by the Company with a portion of the proceeds from the November 1996 offering of common stock. The additional $4.0 million increase is primarily due to a higher average interest rate in 1996, resulting from the issuance of the Notes in the fourth quarter 1995, and higher average debt levels in 1996 as compared to 1995. An income tax provision of $6.0 million was recognized for 1996, compared to a benefit of $3.9 million for 1995. Consistent with SFAS No. 109, the income tax provision or benefit was derived primarily from changes in deferred income tax assets and liabilities recorded on the balance sheet. The primary items affecting the 1996 deferred tax provision were the use of $13.0 million of NOL carryforwards to eliminate 1996 taxable income and the deferred tax effect of exercised stock options. The 1995 deferred tax benefit was affected by property sales, the impairment of proved properties relating to the adoption of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, during the fourth quarter of 1995, and offset by the use of $31.0 million of NOL carryforwards. At December 31, 1996, the Company had $98.0 million of U. S. NOL carryforwards, $52.0 million of Equatorial Guinea NOL carryforwards and $17.6 million of Canadian federal tax pools. The Company paid cash income taxes in 1996 and 1995 of $0.4 million and $0.6 million, respectively, to several states, Canada and the U.S. for the Alternative Minimum Tax. The Company reported net income of $17.4 million, basic earnings per share of $0.53, for 1996 compared to a net income of $2.1 million, or basic earnings per share of $0.02, for 1995. (d) CAPITAL RESOURCES AND LIQUIDITY The Company has historically funded its operations, acquisitions, exploration and development expenditures from cash flows from operating activities, bank borrowings, sales of common and preferred stock, issuance of senior subordinated notes, sales of non-strategic oil and natural gas properties, sales of partial interests in exploration concessions and project finance borrowings. The primary sources of cash for the Company during the year ended December 31, 1997, included proceeds from funds generated from operations, cash on hand, proceeds from asset sales, exercise of stock options and borrowings under the Global Credit Facility. In the comparable period of 1996, the primary sources of cash included proceeds from the November 1996 offering of common stock, funds generated from operations, bank borrowings, proceeds from asset sales and exercise of stock options and warrants. For the year ended 1995, the primary sources of cash included the issuance of the 103/8% Senior Subordinated Notes, funds generated from operations, proceeds from sales of certain oil and gas properties, project financing borrowings and the issuance of the Series F preferred stock. Primary cash uses for the years ended December 31, 1997 and 1996 included capital expenditures (including exploration expenses) which totaled $370.1 million and $190.4 million, respectively. In the comparable period of 1995, the primary cash uses included capital expenditures (including exploration expenses) of $163.0 million. - 19 - 22 The Company has used the Global Credit Facility (see Note 5 of the Notes to Consolidated Financial Statements) to partially finance its expenditures. As of December 31, 1997, the borrowing base under the Global Credit Facility was $300 million, and the Company had outstanding loans thereunder of approximately $127 million and outstanding letters of credit of approximately $4 million. Resulting liquidity (including cash) exceeded $181 million as compared to $254 million at December 31, 1996. Effective January 18, 1994, the Company entered into five-year fixed LIBOR interest rate swap contracts that provide for fixed interest rates to be realized on notional amounts of $45.0 million in 1998. The agreements include varying annual fixed interest rates ranging from 3.66% in 1994 to 6.40% in 1998, plus interest rate margins. Equity financings have represented a significant source of funds for the Company. Since its inception, over $197 million of private equity capital and approximately $343 million of public equity capital has been raised to support its growth. The Company completed its initial public offering in July 1993, resulting in net proceeds to the Company of $68.7 million. In November 1994, the Company issued approximately $64 million in common equity as partial consideration for the General Atlantic Resources, Inc. acquisition. In June and July 1995, the Company sold an aggregate $35.0 million of Series F Preferred Stock in a private placement to institutional investors which was converted to 1.845 million common shares in accordance with its automatic conversion terms in July 1996. In November 1996, the Company issued 4.089 million common shares for $182.7 million in cash to be used to fund planned capital expenditures and for general corporate purposes. Proceeds of $20.5 million relating to exercise of stock options and warrants have been realized since the July 1993 initial public offering. As part of its on-going operations, the Company periodically sells interests in proved reserves and enhanced exploration prospects. This practice continued in 1997 and 1996, with net cash proceeds from sales of assets of $19.4 million and $50.2 million, respectively. The 1997 proceeds consisted of sales of various non-strategic North American properties. The Company's capital expenditure budget for 1998 is expected to be approximately $350 million. Primary areas of emphasis will be West Africa, East Texas, the Gulf of Mexico and other international areas. In addition, the Company will evaluate its level of capital spending throughout the year based upon drilling results, commodity prices, cash flows from operations, property acquisitions and consummation of the Merger. Actual capital spending may vary from the initial capital expenditure budget. The Company continues to maintain a sound financial structure. The Company's debt to total capitalization ratio has increased to 38% at December 31, 1997, from 27% at December 31, 1996. However, the Company's interest coverage ratio (calculated as the ratio of income from operations plus DD&A, impairment of proved oil and gas properties and exploration expense to interest plus capitalized interest less non-cash amortization of debt issue costs) was 9.7 to 1 for 1997 compared with 7.6 to 1 for 1996. This measure provides investors with a measure of the Company's ability to service debt. The high ratio in 1997 and improvement over 1996 are indicators of the Company's strong financial position and future capability to service debt and fund operations. Access to various capital markets, combined with cash flows from operating activities, provide the Company with the financial strength, leverage and liquidity that will allow it to fund its 1998 capital expenditure program, including the international exploration and development opportunities in Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh, and continue to selectively pursue strategic corporate and property acquisitions. (e) NET OPERATING LOSS CARRYFORWARDS AND CANADIAN TAX POOLS At December 31, 1997, the Company had $84.9 million of United States NOL carryforwards, $67.0 million of Equatorial Guinea NOL carryforwards and $32.2 million of Canadian federal tax pools which it expects to use in sheltering future taxable income in the United States, Equatorial Guinea and Canada, respectively, as compared to December 31, 1996 amounts of $98.0 million, $52.0 million and $17.6 million for the United States, Equatorial Guinea and Canada, respectively. The Company's United States NOL carryforward is subject to certain limitations. Under Section 382 of the Internal Revenue Code, the taxable income of UMC available for offset by pre-ownership change NOL carryforwards and certain built-in losses is subject to an annual limitation (the 382 Limitation) if an "ownership change" occurs. The Company has - 20 - 23 determined that an ownership change under Section 382 occurred in 1994. As a result of this ownership change, the total amount of UMC's NOL carryforwards will not be affected, but the annual 382 Limitation will equal the fair market value of the Company immediately before the ownership change multiplied by the long-term tax exempt interest rate, subject to adjustment for certain built-in gains of the Company. To the extent the 382 Limitation exceeds the federal taxable income of the post-merger company for a given year, the 382 Limitation for the subsequent year will be increased by such excess. The Merger is not expected to have a material impact on the Company's 382 Limitation. NOL carryforwards of the Company will be disallowed entirely if certain continuity of business enterprise requirements are not met. It is expected these requirements will be met. The effect of the 382 Limitation may be to defer the use of the Company's existing NOL carryforwards. (f) FOREIGN CURRENCY TRANSACTIONS The financial position and results of operations attributable to the Company's Canadian operations are translated into U.S. currency in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the assets and liabilities of the Canadian financial statements are translated using the currency exchange rate in effect at the balance sheet date while the revenues, expenses, gains and losses are translated using the exchange rate for the periods in which they occurred. The effect of such translations are reflected as adjustments to stockholders' equity as reflected in the Statement of Changes in Stockholders' Equity in the Company's Consolidated Financial Statements. Essentially all revenues and expenditures for the Company's international operations are settled, and all books and records are maintained, in U.S. dollars. (g) CHANGES IN PRICES AND INFLATION The Company's revenues and the value of its oil and natural gas properties have been, and will continue to be, affected by changes in oil and natural gas prices. The Company's ability to maintain current borrowing capacity and to obtain additional capital on attractive terms is also substantially dependent on oil and natural gas prices. Oil and natural gas prices are subject to significant seasonal and other market fluctuations that are beyond the Company's ability to control or predict. Although certain of the Company's costs and expenses are affected by the level of inflation, inflation did not have a significant effect on the Company's results of operations during 1997 and 1996. (h) FORWARD-LOOKING STATEMENTS Certain statements in this report, including statements of the Company's and management's expectations, intentions, plans and beliefs, including those contained in or implied by "Business and Properties," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, that are subject to certain events, risk and uncertainties that may be outside the Company's control. These forward-looking statements include statements of management's plans and objectives for the Company's future operations and statements of future economic performance; information about the Merger such as general economic conditions and possible or assumed results of operations or impacts of the Merger; information regarding drilling schedules, expected or planned production or transportation capacity, future production levels of international and domestic fields, the Company's capital budget and future capital requirements, the Company's meeting its future capital needs, the Company's realization of its deferred tax assets, the level of future expenditures for environmental costs and the outcome of regulatory and litigation matters; and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, fluctuations in the price of crude oil and natural gas, the success rate of exploration efforts, timeliness of development activities, risks incident to the drilling and completion for oil and gas wells, future production and development costs, the political and economic climate in which the Company conducts operations and the risk factors described from time to time in the Company's other documents and reports filed with the Securities and Exchange Commission. - 21 - 24 (i) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, Earnings Per Share, which establishes standards for computing and presenting earnings per share. This standard, effective for fiscal year 1997, replaces the presentation of primary earnings per share, as prescribed by Accounting Principles Board (APB) No. 15, with a presentation of basic earnings per share. In addition, this standard requires dual presentation of basic and diluted earnings per share on the Consolidated Statement of Income. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires the reporting of comprehensive income and its components to be displayed with the same prominence as other financial statements. This statement requires a company to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position. It is effective for the fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement requires a company to report financial information by operating segment. Operating segments are defined as the basis on which the chief operating decision maker disaggregates the company for making operating decisions and assessing performance. The Company adopted the provisions of SFAS No. 131, and has included segment information in Notes 17 and 18 to the Consolidated Financial Statements. - 22 - 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants........................................................................ 24 Consolidated Statement of Income, Years Ended December 31, 1997, 1996 and 1995.................................. 25 Consolidated Balance Sheet, December 31, 1997 and 1996.......................................................... 26 Consolidated Statement of Changes in Stockholders' Equity, Years Ended December 31, 1997, 1996 and 1995.......................................................................................... 28 Consolidated Statement of Cash Flows, Years Ended December 31, 1997, 1996 and 1995.............................. 29 Notes to Consolidated Financial Statements...................................................................... 30
- 23 - 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Stockholders of United Meridian Corporation: We have audited the accompanying consolidated balance sheet of United Meridian Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Meridian Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 3 to the Consolidated Financial Statements, during 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. ARTHUR ANDERSEN LLP Houston, Texas February 9, 1998 - 24 - 27 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, --------------------------------------- 1997 1996 1995 --------- --------- --------- Operating revenues: Gas sales ........................................... $ 111,663 $ 114,498 $ 68,228 Oil sales ........................................... 145,351 92,031 45,122 Contract settlements and other ...................... 3,000 854 2,507 Gain on sale of assets .............................. 4,851 29,021 31,184 --------- --------- --------- 264,865 236,404 147,041 --------- --------- --------- Costs and expenses: Production costs .................................... 56,492 51,298 42,891 General and administrative .......................... 13,580 12,727 10,425 Exploration, including dry holes and impairments .... 38,845 40,325 15,682 Depreciation, depletion and amortization ............ 96,418 84,979 53,942 Impairment of proved oil and gas properties ......... -- -- 8,317 --------- --------- --------- 205,335 189,329 131,257 --------- --------- --------- Income from operations .................................. 59,530 47,075 15,784 Other income, expenses and deductions: Interest and other income (expense) ................. 1,681 (844) 375 Interest and debt expense ........................... (21,749) (22,811) (17,945) --------- --------- --------- Income (loss) before income taxes ....................... 39,462 23,420 (1,786) Income tax benefit (provision): Current ............................................. (6,220) (785) (332) Deferred ............................................ (13,455) (5,231) 4,217 --------- --------- --------- Net income .............................................. 19,787 17,404 2,099 Preferred stock dividends ............................... -- (1,531) (1,484) --------- --------- --------- Net income available to common stockholders ............. $ 19,787 $ 15,873 $ 615 ========= ========= ========= Basic earnings per share ................................ $ 0.56 $ 0.53 $ 0.02 ========= ========= ========= Weighted average number of common shares outstanding .... 35,590 30,120 27,935 ========= ========= ========= Diluted earnings per share .............................. $ 0.54 $ 0.51 $ 0.02 ========= ========= ========= Weighted average number of common shares and common share equivalents outstanding ....................... 36,662 31,428 29,259 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -25- 28 UNITED MERIDIAN CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, ---------------------------- 1997 1996 ----------- ----------- ASSETS Current assets: Cash and cash equivalents .......................... $ 11,689 $ 54,942 Accounts receivable, net of allowance for doubtful accounts of $1,190 at December 31, 1997 and 1996: Oil and gas sales .............................. 36,565 36,238 Joint interest and other ....................... 42,463 45,447 Deferred income taxes .............................. 1,547 2,839 Inventory .......................................... 10,025 11,389 Prepaid expenses and other ......................... 5,875 5,306 ----------- ----------- 108,164 156,161 ----------- ----------- Property and equipment, at cost: Oil and gas (successful efforts method) Proved properties .............................. 1,110,877 851,818 Unproved properties ............................ 34,538 14,667 Other property and equipment ....................... 16,138 8,295 ----------- ----------- 1,161,553 874,780 Accumulated depreciation, depletion and amortization (420,581) (350,591) ----------- ----------- 740,972 524,189 ----------- ----------- Other assets: Gas imbalances receivable .......................... 6,227 5,702 Deferred income taxes .............................. 19,597 23,035 Debt issue cost .................................... 9,193 8,370 Other .............................................. 872 836 ----------- ----------- 35,889 37,943 ----------- ----------- TOTAL ASSETS ................................ $ 885,025 $ 718,293 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. -26- 29 UNITED MERIDIAN CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
DECEMBER 31, --------------------------- 1997 1996 ----------- ---------- LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ...................................... $ 88,958 $ 80,593 Advances from joint owners ............................ 8,491 5,575 Interest payable ...................................... 3,698 3,800 Accrued liabilities ................................... 4,654 7,525 Current maturities of long-term debt .................. 911 899 -------- -------- 106,712 98,392 -------- -------- Long-term debt: Global credit facility ................................ 126,496 -- 103/8% senior subordinated notes ...................... 150,000 150,000 Other ................................................. 6,150 6,832 -------- -------- 282,646 156,832 -------- -------- Deferred credits and other liabilities: Deferred income taxes ................................. 24,456 20,797 Gas imbalances payable ................................ 4,617 3,994 Other ................................................. 7,195 6,042 -------- -------- 36,268 30,833 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 32,000,000 shares authorized, no shares issued and outstanding at December 31, 1997 and 1996 ............................................... -- -- Common stock, $.01 par value, 46,000,000 shares authorized, 35,792,891 and 35,217,206 shares issued and outstanding at December 31, 1997 and 1996, respectively ............................. 358 352 Additional paid-in capital ............................ 550,613 540,661 Foreign currency translation adjustment ............... (6,839) (4,257) Retained earnings (deficit) ........................... (84,733) (104,520) -------- -------- 459,399 432,236 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $885,025 $718,293 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. - 27 - 30 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SERIES F PREFERRED STOCK COMMON STOCK --------------- ---------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ Balance, December 31, 1994 ............................ -- -- 27,721,881 $ 277 Foreign currency translation adjustment ............ Preferred stock issuance - June 30 ........................................ 833,333 $ 8 - July 24 ........................................ 333,334 4 Exercise of common stock options ................... 428,343 4 Preferred stock dividends .......................... Net income ......................................... ------------ ------- ------------ ------ Balance, December 31, 1995 ............................ 1,166,667 $ 12 28,150,224 $ 281 Foreign currency translation adjustment ............ Automatic conversion of Series F preferred stock to common stock ............................ (1,166,667) (12) 1,845,284 19 Common stock offering .............................. 4,088,942 41 Exercise of common stock options ................... 897,007 9 Exercise of warrants ............................... 235,749 2 Preferred stock dividends .......................... Net income ......................................... ------------ ------- ------------ ------ Balance, December 31, 1996 ............................ -- $ -- 35,217,206 $ 352 Foreign currency translation adjustment ............ Common shares issued in exchange for shares tendered from a prior acquisition ................ 2,662 -- Exercise of common stock options ................... 573,023 6 Net income ......................................... ------------ ------- ------------ ------ Balance, December 31, 1997 ............................ -- $ -- 35,792,891 $ 358 ============ ======= ============ ====== ADDITIONAL FOREIGN RETAINED PAID-IN CURRENCY EARNINGS CAPITAL ADJUSTMENT (DEFICIT) TOTAL ------------ ------------ ------------ ------------ Balance, December 31, 1994 ............................ $ 296,168 $ (3,999) $ (121,008) $ 171,438 Foreign currency translation adjustment ............ (58) (58) Preferred stock issuance - June 30 ........................................ 24,992 25,000 - July 24 ........................................ 9,902 9,906 Exercise of common stock options ................... 5,407 5,411 Preferred stock dividends .......................... (1,484) (1,484) Net income ......................................... 2,099 2,099 ------------ ------------ ------------ ------------ Balance, December 31, 1995 ............................ $ 336,469 $ (4,057) $ (120,393) $ 212,312 Foreign currency translation adjustment ............ (200) (200) Automatic conversion of Series F preferred stock to common stock ............................ (7) Common stock offering .............................. 182,629 182,670 Exercise of common stock options ................... 17,951 17,960 Exercise of warrants ............................... 3,619 3,621 Preferred stock dividends .......................... (1,531) (1,531) Net income ......................................... 17,404 17,404 ------------ ------------ ------------ ------------ Balance, December 31, 1996 ............................ $ 540,661 $ (4,257) $ (104,520) $ 432,236 Foreign currency translation adjustment ............ (2,582) (2,582) Common shares issued in exchange for shares tendered from a prior acquisition ................ Exercise of common stock options ................... 9,952 9,958 Net income ......................................... 19,787 19,787 ------------ ------------ ------------ ------------ Balance, December 31, 1997 ............................ $ 550,613 $ (6,839) $ (84,733) $ 459,399 ============ ============ ============ ============
These accompanying notes are an integral part of these consolidated financial statements. -28- 31 UNITED MERIDIAN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 --------- --------- ----------- Cash flows from operating activities: Net income ................................................ $ 19,787 $ 17,404 $ 2,099 Adjustments to reconcile net income to cash from operating activities: Exploration, including dry holes and impairments ........ 38,845 40,325 15,682 Depreciation, depletion and amortization ................ 96,418 84,979 53,942 Impairment of proved oil and gas properties ............. -- -- 8,317 Amortization of debt issue cost ......................... 1,576 2,127 1,173 Deferred income tax provision (benefit) ................. 13,455 5,231 (4,217) Gain on sale of assets .................................. (4,851) (29,021) (31,184) --------- --------- --------- 165,230 121,045 45,812 Changes in assets and liabilities: Increase in receivables ............................... (8,707) (22,868) (9,618) Decrease (increase) in inventory ...................... (1,364) (6,715) 1,773 Increase (decrease) in payables and accrued liabilities 7,039 (1,495) 8,150 Increase (decrease) in net gas imbalances ............. 98 (2,233) 729 Other ................................................. 3,492 (4,300) (840) --------- --------- --------- Net cash provided by operating activities .......... 165,788 83,434 46,006 --------- --------- --------- Cash flows from investing activities: Exploration ............................................... (109,282) (64,191) (32,914) Development ............................................... (179,694) (112,639) (97,934) Acquisition of properties ................................. (62,616) (6,686) (28,538) Additions to other property and equipment ................. (5,769) (2,385) (1,441) Net proceeds from the sale of assets ...................... 19,375 50,152 78,119 --------- --------- --------- Net cash used in investing activities .............. (337,986) (135,749) (82,708) --------- --------- --------- Cash flows from financing activities: Repayment of long-term debt ............................... (50,595) (274,831) (337,033) Additions to total debt ................................... 176,421 176,932 345,298 Debt issue cost ........................................... (2,447) (251) (6,089) Net proceeds from issuance of preferred stock ............. -- -- 34,906 Net proceeds from common stock offering ................... -- 182,670 -- Preferred stock dividends ................................. -- (1,531) (1,484) Proceeds from common stock options and warrants exercised ...................................... 5,566 10,682 2,865 --------- --------- --------- Net cash provided by financing activities .......... 128,945 93,671 38,463 --------- --------- --------- Net increase (decrease) in cash and cash equivalents ......... (43,253) 41,356 1,761 Cash and cash equivalents at beginning of period ............. 54,942 13,586 11,825 --------- --------- --------- Cash and cash equivalents at end of period ................... $ 11,689 $ 54,942 $ 13,586 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements 29 32 UNITED MERIDIAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ORGANIZATION The accompanying consolidated financial statements of United Meridian Corporation (UMC or the Company), a Delaware corporation, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The Company is an independent energy company engaged in the exploration, development, production and acquisition of natural gas and crude oil across North America and in the oil and natural gas producing regions of Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh. On December 22, 1997, UMC and Ocean Energy, Inc. (OEI) entered into a merger agreement that provides for a stock-for-stock merger (Merger) of the companies pursuant to which UMC stockholders will receive 1.30 shares of the combined company for each existing outstanding share of UMC and OEI shareholders will receive 2.34 shares of the combined company for each existing outstanding share of OEI. UMC stockholders will own approximately 46% of the equity of the combined company. The Merger is expected to qualify as a tax-free transaction and is subject to each Company's stockholders' approval and certain other conditions. The transaction is expected to be treated as a pooling of interests for accounting purposes and is anticipated to close by the end of the first quarter of 1998. The consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority-owned affiliates. Interests in joint ventures, limited liability companies and partnerships are accounted for under the proportional consolidation method. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of amounts previously reported have been made to conform to current year presentation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. INVENTORY UMC conducts a portion of its oil and gas activities with a small group of institutional and corporate investors. In connection therewith, the Company periodically acquires oil and gas properties with the intention of selling a portion of its interests to such investors. To the extent those properties are to be resold to investors, costs are carried as a current asset and classified as inventory. No gain or loss is recognized on inventoried properties. At December 31, 1996, costs of properties to be resold included in inventory totaled $2,270,000. The balance at December 31, 1997 was not significant. The remaining inventory consists of tubular goods and other equipment. OIL AND GAS PROPERTIES The Company and its subsidiaries follow the successful efforts method of accounting for oil and gas producing activities. Under this method, all costs to acquire mineral interests in oil and gas properties, to acquire production sharing contracts with foreign governments, to drill and equip exploratory wells which find proved reserves and to drill and equip development wells are capitalized. Geological and geophysical costs, delay rentals and technical support costs are expensed as incurred except in those circumstances where the Company has a contractual right to recover such costs from proved reserves, in which case they are capitalized. Other internal costs related to oil and gas acquisitions, exploration and development activities are generally expensed as general and administrative, exploration or production expenses. The -30- 33 costs of drilling exploratory wells which do not find proved reserves are expensed upon determination that a well does not justify commercial development. The capitalized costs of producing oil and gas properties are depreciated and depleted by the units-of-production method based upon estimated proved reserves. Unproved oil and gas properties are periodically assessed for impairment of value and a loss is recognized as appropriate. OTHER PROPERTY AND EQUIPMENT Other property consists primarily of furniture, office equipment, leasehold improvements and computers. The majority of these assets are depreciated on a straight-line basis with useful lives of three to seven years. GAS IMBALANCES The Company follows the entitlements method of accounting for production imbalances. Under this method, the Company recognizes revenues based on its interest in production from a well. Imbalance payables are recorded at historical amounts and imbalance receivables are valued at the lower of (i) the price in effect at the time of production, (ii) the current market value or (iii) the contract price net of selling expenses. Gas imbalances arise when a purchaser takes delivery of more or less gas volume from a well than UMC's actual interest in the production from that well. Such imbalances are reduced either by subsequent recoupment of over and under deliveries or by cash settlement, as required by applicable contracts. Under-deliveries are included in Other Assets and over-deliveries are included in Deferred Credits and Other Liabilities. HEDGING UMC periodically enters into contracts in order to hedge against the volatility in oil and gas prices. The Company enters into such transactions for the purpose of managing the overall impact of commodity price volatility. These transactions generally take the form of swaps or price collars, and are placed with major financial institutions. The results of such transactions are included as Oil or Gas Sales in the Consolidated Statement of Income as the related production volumes are sold. The Company enters into interest rate hedge contracts from time to time with major financial institutions. These transactions are made to protect against higher future interest costs on the Company's floating rate long-term debt. The results of interest rate hedges are included in Interest and debt expense on the Consolidated Statement of Income. FEDERAL INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, under which deferred tax assets or liabilities are estimated at the financial statement date based upon (i) temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements and (ii) net operating loss and tax credit carryforwards for tax purposes. EARNINGS PER SHARE The Company adopted SFAS No. 128, Earnings Per Share, during the fourth quarter of 1997. In accordance with this new pronouncement, basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined on the assumption that outstanding stock options have been converted using the average price for the period. Prior period amounts have been restated in accordance with the requirements of the pronouncement. STATEMENT OF CASH FLOWS Cash flows from operating activities for 1997, 1996 and 1995, include cash payments for interest of $18,013,000, $22,032,000, and $14,642,000 and income taxes of $1,815,000, $446,000 and $553,000, respectively. FOREIGN CURRENCY TRANSLATION The financial position and results of operations attributable to the Company's Canadian operations are translated into U.S. currency in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the assets and liabilities of the financial statements are translated using the currency exchange rate in effect at the balance sheet date while the -31- 34 revenues, expenses, gains and losses are translated using the exchange rate for the periods in which they occurred. The effect of such translations are reflected as adjustments to stockholders' equity as shown in the Statement of Changes in Stockholders' Equity in the Company's Consolidated Financial Statements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 CHANGES IN METHOD OF ACCOUNTING FOR ASSESSING RECOVERABILITY OF PROVED OIL AND GAS PROPERTIES During 1995, the Financial Accounting Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted the provisions of SFAS No. 121 and recorded a pre-tax impairment of $8,317,000 (after-tax effect: $5,125,000) during the fourth quarter of 1995. No such provision was required in 1996 or 1997. NOTE 4 ACQUISITIONS AND DISPOSITIONS As part of its on-going operations, the Company continually sells producing and undeveloped reserves and related assets. Significant acquisitions and dispositions for the years ending December 31, 1997, 1996 and 1995 are shown below. 1997 TRANSACTIONS In 1997, the Company acquired additional interests in various properties it operates and in which it holds an existing working interest position from several of its institutional partners. The net cost of the additional interests acquired from the Company's institutional partners was approximately $49,579,000. In addition, the Company acquired interests in other North American properties for total consideration of $13,037,000. During 1997, the Company sold various non-strategic North American properties for total proceeds of $19,375,000, resulting in pre-tax gains of $4,851,000. 1996 TRANSACTIONS In 1995, the Company agreed to assign to Yukong Limited a portion of its interests in Blocks CI-01 and CI-02 in Cote d'Ivoire and Blocks B, C and D in Equatorial Guinea. Mobil subsequently exercised its preferential right to purchase the interest in Block B in lieu of the proposed assignment to Yukong Limited. Under the agreements, the Company received $40,135,000 in cash in 1996 and 1995, resulting in pre-tax gains of $15,774,000 and $18,278,000, respectively. In June 1996, UMC Resources Canada Ltd. (Resources), the Company's wholly-owned Canadian subsidiary, sold all of its interest in the Rocanville area in the province of Saskatchewan, effective May 1, 1996. Net proceeds from the sale were $6,722,000 and a pre-tax gain of $4,679,000 was recognized. In September 1996, the Company executed an agreement with Shell to sell a 55% contract interest in Block CI-105 in Cote d'Ivoire. The sale resulted in the Company recognizing a pre-tax gain of $3,260,000 on cash proceeds of an equivalent amount. An additional $900,000 was received relating to reimbursement of exploration expense previously incurred by the Company. During 1996, the Company sold various other non-strategic North American properties, including Elk City and Arapaho fields, for total proceeds of $22,093,000, resulting in pre-tax gains of $5,308,000. 1995 TRANSACTIONS In February 1995, UMC sold all of its interest in oil and gas properties in West Virginia, effective January 1, 1995. Net proceeds from the sale were $41,200,000 and a pre-tax gain of $7,000,000 was recognized. -32- 35 In March 1995, UMC sold all of its interest in the Main Pass 108 offshore Louisiana field effective February 1, 1995. Net proceeds from the sale were $6,900,000 with a recognized pre-tax gain of $4,700,000. In October 1995, the Company and its institutional partners acquired certain oil and natural gas properties at a cost of $58,626,000 (approximately $21,300,000 net to the Company). The acquired interests relating to one of the institutional partners (in an additional amount of approximately $10,250,000) were included in inventory until January 1996, at which time the partner reimbursed UMC for its proportionate share of the acquisition, including carrying costs. A separate short-term facility was negotiated for the financing of this interest in the properties and was paid at closing in January 1996. NOTE 5 DEBT Long-term debt consisted of the following at December 31, 1997 and 1996 (in thousands):
1997 1996 ---------- --------- Global Credit Facility.......................... $ 126,496 $ -- 103/8% senior subordinated notes................ 150,000 150,000 Other........................................... 7,061 7,731 ---------- --------- 283,557 157,731 Less: current maturities....................... (911) (899) ---------- --------- Long-term debt.................................. $ 282,646 $ 156,832 ========== =========
Current maturities at December 31, 1997 include the annual amortization of the Other Long-Term Debt. The 103/8% Senior Subordinated Notes are due 2005. Maturities of long-term debt by calendar year are as follows (in thousands): 1998........................................................ $ 911 1999........................................................ 911 2000........................................................ 911 2001........................................................ 911 2002........................................................ 127,407 Thereafter.................................................. 152,506 --------- $ 283,557 =========
GLOBAL CREDIT FACILITY At the beginning of 1997, the Global Credit Facility provided a borrowing base amount of $200,000,000. During March 1997, the Company expanded the Global Credit Facility to $300,000,000 with an initial borrowing base of $275,000,000. In November 1997, the borrowing base was increased to $300,000,000. The Global Credit Facility, which is with a group of commercial banks, currently consists of two parts: (i) a credit facility among UMC, certain of its subsidiaries and certain lenders (the U.S. Lenders) pursuant to which the U.S. Lenders agree to make a portion of the Global Credit Facility (subject to Borrowing Base limitations) available to UMC (Credit Facility) and (ii) a credit facility between UMC and certain lenders (the Canadian Lenders) pursuant to which the Canadian Lenders agree to make the remaining part of the Global Credit Facility (subject to aggregate Borrowing Base limitations under the Credit Facility and a specific Canadian Borrowing Base sub-limit) available to UMC (the Canadian Credit Facility). The amount of the Borrowing Base, which governs the aggregate Global Credit Facility jointly under both the U.S. Credit Facility and the Canadian Credit Facility, and the sub-limit on the portion of the Global Credit Facility that will be made by the Canadian Lenders, are both determined on an annual basis jointly by the U.S. Lenders and the Canadian Lenders. The Global Credit Facility has a term of five years with amortization of the Borrowing Base to begin in 1999, unless extended or modified by the Company and the Lenders. At December 31, 1997, the Company had outstanding loans thereunder of approximately $126,496,000. During 1997, 1996 and 1995, the Global Credit Facility provided the Company with various interest rate options based upon prime and LIBOR rates. -33- 36 103/8% SENIOR SUBORDINATED NOTES On October 30, 1995, the Company closed a public offering of $150,000,000 of 103/8% Senior Subordinated Notes (Notes) due 2005 at an initial price of 99.5% of face value. Proceeds of $144,933,000 (after deducting underwriting discounts, commission and expenses of the offering) were used to reduce debt under the Global Credit Facility. Interest is payable semiannually on April 15 and October 15 of each year, commencing April 15, 1996. The Notes are general unsecured senior obligations of the Company and are guaranteed by UMC Petroleum Corporation (Petroleum) but are subordinate to the Global Credit Facility (see Note 19). The Notes are redeemable at the option of the Company, in whole or in part, at anytime after October 15, 2000 at certain premiums to face value. OTHER LONG-TERM DEBT Havre Pipeline Company LLC, a limited liability corporation in which the Company had a 56% interest at December 31, 1997, has previously entered into a Credit Agreement which provided a Term Loan due September 30, 2005. The Company's proportionate share outstanding at December 31, 1997 is $7,061,000, including current maturities. Principal installments are due at the end of each quarter. Additional principal payments may be required under the Credit Agreement if operating cash flows of the limited liability corporation exceed predetermined levels. OTHER DISCLOSURES During 1996 and 1995, $2,109,000 and $1,049,000, respectively, of total interest incurred was capitalized. No interest was capitalized in 1997. Effective January 18, 1994, UMC entered into five-year fixed LIBOR interest rate swap contracts that provide for fixed interest rates to be realized on notional amounts totaling $45,000,000 from 1995 through 1998. The agreement includes varying annual fixed interest rates ranging from 3.66% in 1994 to 6.40% in 1998, plus interest rate margins. In 1995 and 1996, the Company had in place a two-year LIBOR interest rate cap contract on an additional notional amount of $45,000,000 at interest rate caps of 7.60% and 8.30%, respectively, plus interest rate margins. The Company's actual average interest rate for 1997, 1996 and 1995 was 9.46%, 9.17% and 7.47%, respectively. Additionally, a facility fee of 0.25% to 0.375% per annum on the unused portion of the Global Credit Facility is payable quarterly by UMC. NOTE 6 CAPITAL STOCK COMMON STOCK The authorized shares of Series A Voting Common Stock and Series B Nonvoting Common Stock at December 31, 1997, and December 31, 1996, were 45,000,000 and 1,000,000, respectively. Of the 1,000,000 shares of Series B stock authorized, none were outstanding at December 31, 1997 and 1996. On June 11, 1993, the Company issued warrants to purchase 250,004 shares of the Company's Common Stock in connection with the acquisition of KPX, Inc. The exercise price of the warrants was $15.36 per share for a three year term ending June 11, 1996. During 1996, proceeds of $3,621,000 for the exercise of warrants were received and 235,749 shares of common stock were issued. The remaining unexercised warrants expired in June 1996. On February 14, 1996, the Company granted one shareholder's right (Rights) for each share of Series A Voting Common Stock to holders of record at the close of business on February 29, 1996. The Rights will automatically become part of and trade with existing and future shares of UMC's Series A Voting Common Stock. As amended in September 1997, the Rights will become exercisable only in the event, with certain exceptions, an acquiring party accumulates 10% or more of UMC's voting stock, or if a party announces an offer to acquire 30% or more of UMC's voting stock. No separate right certificates will be issued until after these thresholds are met. The Rights will expire on February 28, 2006. Each Right will entitle the holder, other than the acquiring party, to purchase either United Meridian Corporation stock or shares in an "acquiring entity" at a 50% discount to the then current market value. The Company generally will be entitled to redeem the Rights at $0.01 per Right at any time until the tenth day following the acquisition of a 10% position in its voting stock. -34- 37 During November 1996, the Company completed an offering of 4,088,942 shares of the Company's Series A Voting Common Stock and received $182,670,000 in proceeds after underwriting fees and offering expenses. The following table summarizes the calculation of annual weighted average common shares outstanding for purposes of the computations of earnings per share (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 1997 1996 1995 ------ ------ ------ Shares outstanding from beginning of period........................... 35,217 28,150 27,722 Exercise of stock options and warrants................................ 373 561 213 Conversion of Series F Preferred Stock ............................... -- 802 -- Common Shares issued in connection with the November 1996 offering of common stock........................................... -- 607 -- ------ ------ ------ Weighted average number of common shares outstanding.................. 35,590 30,120 27,935 Common Stock equivalents of: Series F Preferred Stock........................................... -- * * Stock options and warrants......................................... 1,072 1,308 1,324 ------ ------ ------ Weighted average number of common shares and common share equivalents outstanding............................... 36,662 31,428 29,259 ====== ====== ======
* Not included in computation for the period because it is antidilutive. SERIES F CONVERTIBLE PREFERRED STOCK In June and July 1995, the Company sold an aggregate $35,000,000 of Series F Convertible Preferred Stock in a private placement to institutional investors. The Series F Convertible Preferred Stock had an 8.75% cumulative dividend, payable quarterly commencing on September 30, 1995. A total of 1,166,667 authorized shares were sold at $30 per share. On July 25, 1996, the Company converted $35,000,000 of Series F Convertible Preferred Stock to 1,845,000 shares of common stock in accordance with the automatic conversion terms of the original private offering. The conversion eliminates the 8.75% dividend on the preferred stock. Had the conversion of the Series F Convertible Preferred Stock occurred at January 1, 1996, the reported basic and diluted earnings per share would have been $0.56 and $0.54, respectively for the year ended December 31, 1996. -35- 38 NOTE 7 INCOME TAXES Under the provisions of SFAS No. 109, the components of the net deferred income tax assets and liabilities recognized in the Company's Consolidated Balance Sheet at December 31, 1997 and 1996, were as follows (in thousands):
1997 1996 ------------------------------------------ -------------------------------------------- FEDERAL FOREIGN STATE TOTAL FEDERAL FOREIGN STATE TOTAL -------- -------- -------- -------- -------- -------- ------- --------- Deferred tax assets - Net operating loss carryforward................ $ 29,715 $ 16,774 $ 4,011 $ 50,500 $ 34,177 $ 13,115 $ 4,520 $ 51,812 Percentage depletion carryforward................ 2,508 -- 131 2,639 2,333 -- 229 2,562 Investment tax credit carryforward................ 989 -- -- 989 1,720 -- -- 1,720 Alternative minimum tax credit carryforward......... 3,964 -- -- 3,964 3,662 -- -- 3,662 Deferred foreign tax credit carryforward......... 9,209 -- -- 9,209 3,790 -- -- 3,790 Other......................... 79 -- 4 83 50 -- 4 54 Valuation allowance........... (2,971) -- (70) (3,041) (3,551) -- (151) (3,702) -------- -------- -------- -------- -------- -------- ------- -------- 43,493 16,774 4,076 64,343 42,181 13,115 4,602 59,898 -------- -------- -------- -------- -------- -------- ------- -------- Deferred tax liabilities - Excess of basis in oil and gas properties for financial reporting purposes over the tax basis....................... 21,135 41,230 4,029 66,394 15,551 33,912 4,042 53,505 Other......................... 1,186 -- 75 1,261 1,186 -- 130 1,316 -------- -------- -------- -------- -------- -------- ------- -------- 22,321 41,230 4,104 67,655 16,737 33,912 4,172 54,821 -------- -------- -------- -------- -------- -------- ------- -------- Net deferred tax asset (liability)................. 21,172 (24,456) (28) (3,312) 25,444 (20,797) 430 5,077 Current portion of deferred tax assets classified as current asset................. 1,365 -- 182 1,547 2,836 -- 3 2,839 -------- -------- -------- -------- -------- -------- ------- -------- Total non-current deferred tax asset (liability)............. $ 19,807 $(24,456) $ (210) $ (4,859) $ 22,608 $(20,797) $ 427 $ 2,238 ======== ======== ======== ======== ======== ======== ======= ========
As of December 31, 1997 and 1996, the Company and its subsidiaries had U.S. federal net operating loss (NOL) carryforwards of approximately $84,900,000 and $98,000,000, respectively, and Equatorial Guinea NOL carryforwards of approximately $67,000,000 and $52,000,000, respectively. The Company's Canadian subsidiary also had $32,200,000 and $17,600,000 in Canadian Tax Pool carryforwards as of December 31, 1997 and 1996, respectively. The Company is subject to taxation under the laws of Cote d'Ivoire and Equatorial Guinea and other foreign jurisdictions. Income taxes in these jurisdictions will be taken as a credit or deduction against the Company's United States tax liability. Management believes the Company will realize the benefit of all NOLs. Accordingly, the Company has recognized a deferred tax asset relating to these carryforwards. The U.S. federal NOLs expire as follows (in thousands): 1998................................................................ $ -- 1999................................................................ 400 2000................................................................ 23,900 2001................................................................ 16,500 2002................................................................ 6,300 2003................................................................ 1,200 2004................................................................ 19,400 2005................................................................ 3,200 Beyond 2005......................................................... 14,000 ----------- $ 84,900 ===========
-36- 39 For federal income tax purposes, certain limitations are imposed on an entity's ability to utilize its NOLs in future periods if a "change of control", as defined for federal income tax purposes, has taken place. In general terms, the limitation on utilization of NOLs and other tax attributes during any one year is determined by the value of an acquired entity at the date of the "change of control" multiplied by the then-existing long-term, tax-exempt interest rate. The manner of determining an acquired entity's "value" has not yet been addressed by the Internal Revenue Service. The Company has determined that, for federal income tax purposes, a "change of control" occurred in 1994 as a result of the stock purchases made by the Company's shareholders in 1994 and in previous years, and future utilization of NOLs will be limited in the manner described above. The use of NOLs acquired as a result of corporate acquisitions prior to 1994 were already subject to limitations computed at the time of each acquisition. While the effect of such limitations may be to defer the use of existing NOL carryforwards, the Company does not believe such limitations will impact the Company's ability to fully utilize the NOLs. As of December 31, 1997 and 1996, the Company and its subsidiaries had investment tax credit carryforwards of approximately $1,000,000 and $1,700,000, respectively. To the extent not utilized, these carryforwards will expire in the years 1998 through 2001. For purposes of computing the net deferred tax liability as of December 31, 1997 and 1996, none of these carryforwards were utilized. The components of the Income tax provision (benefit) recognized on the Consolidated Statement of Income are as follows (in thousands):
1997 1996 1995 ------- ------- -------- Current taxes - Federal ......................... $ 169 $ 455 $ 340 Foreign ......................... 4,716 98 (370) State ........................... 1,335 232 362 ------- ------- ------ 6,220 785 332 ------- ------- ------ Deferred taxes - Federal ......................... 8,664 3,136 (2,762) Foreign ......................... 4,333 3,496 (339) State ........................... 458 (1,401) (1,116) ------- ------- ------ 13,455 5,231 (4,217) ------- ------- ------ Total income tax provision (benefit) $19,675 $ 6,016 (3,885) ======= ======= =======
The following is a reconciliation of the income tax provision (benefit) computed by applying the federal statutory income tax rate to net income (loss) before income taxes to the Income tax provision (benefit) shown on the Consolidated Statement of Income (in thousands):
1997 1996 1995 -------- ------- -------- Income tax provision (benefit) computed at the federal statutory rate of 35% .............................. $13,812 $8,197 $ (625) State and local taxes (net of federal effect) .................. 1,280 (760) (490) Foreign income taxes (net of federal effect) ................... 2,977 -- -- Tax effect of: Provision (benefit) for net book deductions not available for tax due to differences in book/tax basis ................................................... 1,490 1,169 (927) Excess of taxes on foreign income over federal statutory rate .......................................... 43 291 165 Provision (benefit) resulting from adjustments from estimate to actual in estimating taxable income .... 459 (2,139) (181) Benefit of deferred foreign tax credit carryforward ........ -- -- (1,138) Alternative minimum tax credit carryforward benefit ........ (151) (193) (321) Other ...................................................... (235) (549) (368) ------- ------ ------- Income tax provision (benefit) ................................. $19,675 $6,016 $(3,885) ======= ====== =======
-37- 40 NOTE 8 EMPLOYEE BENEFIT PLANS STOCK OPTION PLANS At December 31, 1997, UMC had three non-qualified stock option plans:
AUTHORIZED AVAILABLE SHARES OUTSTANDING FOR ISSUANCE --------- ----------- ------------ 1987 Employee Plan........................................ 1,700,000 583,749 - 1994 Employee Plan........................................ 4,050,000 1,974,906 1,149,357 1994 Outside Directors Plan............................... 250,000 150,000 97,000 --------- --------- --------- 6,000,000 2,708,655 1,246,357 ========= ========= =========
The two 1994 plans were approved by the shareholders of the Company on May 17, 1994, and have been subsequently amended to increase the number of authorized shares under the plans. The plans were further amended during 1997 to allow transferability of stock options to family members and eliminate forced termination of stock options in the event of a change in control. The plans provide that directors, officers and key employees may be awarded options to purchase Common Stock of the Company at a price equal to the market value of UMC Common Stock on the award date. Options generally vest over a five-year period. The following table reflects summarized information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ------------------------------------------------- -------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Price at 12/31/97 Life (in years) Price at 12/31/97 Price -------------- ----------- --------------- --------- ----------- -------- $2.75 to $6.64 ....... 310,615 3.3 $ 4.77 310,615 $ 4.77 $9.875 to $15.50 ..... 1,235,540 5.6 12.42 766,824 11.68 $17.50 to $23.875 .... 366,000 9.2 23.62 7,500 17.88 $27.00 to $38.00 ..... 539,500 10.2 30.99 11,000 29.50 $44.125 to $47.50 .... 257,000 9.8 44.19 188,500 44.13 --------- --------- 2,708,655 1,284,439 ========= =========
-38- 41 A summary of actual options granted and exercised follows:
1997 1996 1995 --------- ----------- ---------- Option shares outstanding - Beginning of year 2,808,181 3,148,612 3,185,065 Granted 517,000 683,000 446,000 Exercised (574,261) (897,999) (428,354) Canceled (42,265) (125,432) (54,099) --------- --------- --------- End of year ........................................ 2,708,655 2,808,181 3,148,612 ========= ========= ========= Shares available for grant at end of year ................. 1,246,357 521,091 478,659 Shares exercisable at end of year ......................... 1,284,439 1,472,474 2,070,664 Average price of options exercised during the year......................................... $ 10.44 $ 7.88 $ 6.69 Average exercise price of options outstanding at end of year.............................. $ 19.77 $ 15.82 $ 10.05 Weighted average fair value of options granted during the year................................. $ 18.30 $ 16.93 $ 7.33 Weighted average exercise price for options granted during the year......................... $ 31.06 $ 31.64 $ 13.47
The Company accounts for these plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS 123, Accounting for Stock-Based Compensation, the Company's reported net income and earnings per share would have been adjusted to the following pro forma amounts (in thousands, except per share amounts):
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1997 1996 1995 -------- -------- ------ Net Income: As Reported $19,787 $17,404 $2,099 Pro Forma - Basic $17,018 $14,487 $1,769 Pro Forma - Diluted $16,960 $14,458 $1,757 Basic EPS: As Reported $ 0.56 $ 0.53 $ 0.02 Pro Forma $ 0.48 $ 0.43 $ 0.01 Diluted EPS: As Reported $ 0.54 $ 0.51 $ 0.02 Pro Forma $ 0.46 $ 0.43 $ 0.01
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, with the following assumptions used for grants in 1997 and 1996, respectively; risk-free interest rates of 6.16% to 6.83% and 5.40% to 6.76%; expected dividend yields of 0% and 0%; expected lives of 6.5 years and 6.5 years; and, expected volatility of 54.13% and 39.34% to 43.14%. SAVINGS PLAN The Company maintains a defined contribution savings plan for the benefit of its U.S. employees. Under the Plan, employees may contribute up to 16% of their base salary to a trust for investments (including UMC stock) selected by each participating employee. The Company makes a matching contribution of 75% up to a participant's contribution of 8% of total compensation paid, resulting in a maximum Company contribution of 6% of salary. During 1997, the Company made an additional discretionary contribution of 2% to plan participants subject to limitations imposed by the Internal Revenue Service. During 1997, 1996 and 1995, the Company made contributions to the Plan on behalf of all participants totaling $872,000, $780,000 and $696,000, respectively. - 39 - 42 Resources maintains a separate group savings plan for its employees. During 1997, 1996 and 1995, this subsidiary contributed $76,000, $67,000 and $63,000, respectively, to the Plan for the benefit of its employees. NOTE 9 COMMITMENTS AND CONTINGENCIES The Company has entered into operating leases for office space and equipment for which $2,222,000, $1,174,000 and $1,547,000 in rental expense has been included in the accompanying financial statements for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum rental payments required for the years ending December 31, 1998 through 2002 are $1,803,000, $1,692,000, $1,436,000, $1,351,000 and $1,279,000, respectively. Resources has an agreement with Nova Corporation, a natural gas pipeline company, to transport specified quantities of natural gas. Future minimum transportation expense payments required for years ending December 31, 1998 through 2002 are $251,000, $157,000, $55,000, $55,000 and $55,000, respectively. The Company has entered into agreements for transportation of natural gas across Canada for sales to the Great Lakes region for up to 35 MMCFD expiring at various dates through 2002 and 8 MMCFD expiring in 2007. Future minimum transportation expense payments required for years ending December 31, 1998 through 2002 are $4,972,000, $3,149,000, $3,149,000, $3,149,000 and $2,900,000, respectively. NOTE 10 OIL AND GAS PROPERTY COSTS Capitalized costs at December 31, 1997 and 1996 relating to the Company's oil and gas activities are shown below (in thousands):
EQUATORIAL GUINEA UNITED COTE AND OTHER STATES CANADA D'IVOIRE FOREIGN TOTAL ------ ------ ---------- ---------- ---------- AS OF DECEMBER 31, 1997 Proved Properties ................... $669,315 $ 109,842 $ 124,994 $ 206,726 $1,110,877 Unproved oil and gas interests ...... 31,543 48 1,072 1,875 34,538 -------- ---------- ---------- ---------- ---------- Total capitalized costs ......... 700,858 109,890 126,066 208,601 1,145,415 Less: Accumulated depreciation, depletion and amortization ........ 338,540 30,182 20,696 23,546 412,964 -------- ---------- ---------- ---------- ---------- Net capitalized costs ........... $362,318 $ 79,708 $ 105,370 $ 185,055 $ 732,451 ======== ========== ========== ========== ========== AS OF DECEMBER 31, 1996 Proved properties ................... $590,879 $ 92,545 $ 72,590 $ 95,804 $ 851,818 Unproved oil and gas interests ...... 12,656 50 1,072 889 14,667 -------- ---------- ---------- ---------- ---------- Total capitalized costs ......... 603,535 92,595 73,662 96,693 866,485 Less: Accumulated depreciation, depletion and amortization ........ 309,401 25,792 7,006 2,884 345,083 -------- ---------- ---------- ---------- ---------- Net capitalized costs ........... $294,134 $ 66,803 $ 66,656 $ 93,809 $ 521,402 ======== ========== ========== ========== ==========
-40- 43 Costs incurred during 1997, 1996 and 1995 in the Company's oil and gas activities were as follows (in thousands):
EQUATORIAL GUINEA UNITED COTE AND OTHER STATES CANADA D'IVOIRE FOREIGN TOTAL -------- --------- --------- ---------- ------- YEAR ENDED DECEMBER 31, 1997 Property acquisition costs: Proved ..................... $ 53,062 $ 9,554 $ -- $ -- $ 62,616 Unproved ................... 15,299 2,423 -- -- 17,722 Exploration costs .............. 25,825 6,263 16,240 94,326 142,654 Development costs .............. 53,163 9,308 23,462(1) 36,842 122,775 -------- -------- -------- -------- -------- Total costs incurred ....... $147,349 $ 27,548 $ 39,702(1) 131,168 $345,767 ======== ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1996 Property acquisition costs: Proved ..................... $ 6,239 $ 447 $ -- $ -- $ 6,686 Unproved ................... 4,277 865 -- 457 5,599 Exploration costs .............. 28,943 2,370 9,219 30,882 71,414 Development costs .............. 36,057 4,572 9,369 56,707 106,705 -------- -------- -------- -------- -------- Total costs incurred ....... $ 75,516 $ 8,254 $ 18,588 $ 88,046 $190,404 ======== ======== ======== ======== ======== YEAR ENDED DECEMBER 31, 1995 Property acquisition costs: Proved ..................... $ 24,819 $ 376 $ -- $ -- $ 25,195 Unproved ................... 3,032 311 -- -- 3,343 Exploration costs .............. 21,561 1,599 2,912 11,948 38,020 Development costs .............. 31,252 2,519 42,900 19,798 96,469 -------- -------- -------- -------- -------- Total costs incurred ....... $ 80,664 $ 4,805 $ 45,812 $ 31,746 $163,027 ======== ======== ======== ======== ========
- ------------------------------ (1) Amounts do not include $17,229 incurred on a LPG plant in Cote d'Ivoire. NOTE 11 RELATED PARTY TRANSACTIONS UMC currently conducts a portion of its oil and gas activities in conjunction with a group of institutional and corporate investors that participate in UMC's acquisition, development and exploration programs, and provide the Company with certain carried interests and management fees. Management fee income of $2,954,070, $1,826,000 and $1,286,000, related to the years ended December 31, 1997, 1996 and 1995, respectively, is included on the Consolidated Statement of Income. UMC and a company controlled by a former director of UMC are each 40% owners of Energy Arrow Exploration L.L.C. (Arrow). Total UMC payments to Arrow in 1997, 1996 and 1995 were $82,000, $5,309,000 and $2,477,000, respectively, most of which related to lease acquisitions, seismic and drilling costs. UMC also conducts normal joint interest operations with Brigham Oil & Gas LP (Brigham), a partnership owned in part by General Atlantic Partners LLC for which a former director of UMC acts as Executive Managing Member. Total payments to Brigham for the operation of jointly owned properties operated by Brigham during 1997, 1996 and 1995 were $782,000, $430,000 and $75,000, respectively. At December 31, 1997 and 1996, UMC's net receivable from Brigham was $275,000 and $329,000, respectively. At December 31, 1995, UMC's net receivable from Brigham was less than $100,000. In 1996, UMC executed agreements with various entities controlled by two former directors of UMC covering co- ventures in Pakistan, Bangladesh and possible other international exploration opportunities. All transactions with the aforementioned entities are under normal industry terms and conditions. NOTE 12 LITIGATION AND CLAIMS On December 29, 1997, a class action complaint (Newman v. Carson, et. al., Civil Action No. 16109-NC) was filed in the Court of Chancery of the State of Delaware, by a person claiming to represent the stockholders of UMC against UMC and each of its directors. On January 9, 1998, a similar class action complaint (Ross v. Brock. et. al., Civil Action No. 98-00845) -41- 44 was filed in the District Court of Harris County, Texas, 164th Judicial District by another person claiming to represent the stockholders of UMC against UMC and each of its directors. Among other things, the complaints seek to (i) preliminarily and permanently enjoin the Merger, (ii) require the UMC directors to maximize stockholder value by placing UMC up for auction and/or to conduct a "market-check", (iii) require the defendants to make a full and fair disclosure of all material facts to the class members before the consummation of the Merger, (iv) rescind the Merger should it be consummated prior to the resolution of the lawsuit and/or (v) recover unspecified damages and costs from the UMC directors for the alleged breach of their fiduciary duties. Management of UMC believes that the complaints are without merit and intends to vigorously defend the actions. The U.S. Environmental Protection Agency has indicated that the Company may be potentially responsible for costs and liabilities associated with alleged releases of hazardous substances at two sites in Louisiana under the Comprehensive Environmental Response, Compensation and Liability Act. Given the extremely large number of companies that have been identified as potentially responsible for releases of hazardous substances at the sites and the small volume of hazardous substances allegedly disposed of by the companies whose properties the Company acquired, management believes that the Company's potential liability arising from these sites, if any, will not have a material adverse impact on the Company. The Company is a named defendant in lawsuits and is a party in governmental proceedings from time to time arising in the ordinary course of business. While the outcome of such lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position or results of operations of the Company. NOTE 13 MAJOR CUSTOMERS The Company markets its oil and gas production to numerous purchasers under a combination of short and long-term contracts. During 1997 and 1996, Mobil Sales and Supply Corporation accounted for 31% and 10%, respectively, of the Company's oil and gas revenues as the purchaser of the Company's production in Equatorial Guinea. In addition, during 1997 and 1996, H&N Gas Limited Inc. accounted for 6% and 16%, respectively, of the Company's oil and gas revenues. During 1997, 1996 and 1995, the Company had no other purchasers that accounted for greater than 10% of its oil and gas revenues. The Company believes that the loss of any single customer would not have a material adverse effect on the results of operations of the Company. . NOTE 14 GAS CONTRACT SETTLEMENTS From time to time, the Company has had disagreements with certain purchasers of the Company's natural gas production concerning the contractual obligations of such purchasers to take specified quantities of gas at contract prices. In order to resolve such disagreements, the Company has entered into gas contract settlements, wherein, for a nonrefundable cash payment, the Company has released the purchaser from its contractual obligations and, in some cases, the contract itself. During 1997, 1996 and 1995, contract settlements of $59,000, $266,000 and $1,872,000, respectively, were included in revenues. NOTE 15 CREDIT RISK AND PRICE PROTECTION AGREEMENTS TRADE RECEIVABLES AND PAYABLES Substantially all of the Company's accounts receivable at December 31, 1997, result from oil and gas sales and joint interest billings to other companies in the oil and gas industry and institutional partners. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by industry-wide changes in economic or other conditions. Receivables from oil and gas sales are generally not collateralized. Credit losses incurred by the Company on receivables generally have not been significant in prior years. OIL AND GAS MARKET HEDGES The Company's revenues are primarily the result of sales of its oil and natural gas production. Market prices of oil and natural gas fluctuate and may adversely affect operating results. To mitigate this risk, the Company has, from time to time, entered into crude oil and natural gas price hedging contracts to reduce its exposure to price reductions on its production. -42- 45 These transactions have been entered into with major financial institutions, thereby minimizing credit risk. The Company hedged a portion of its natural gas and oil production in 1997, 1996 and 1995, the results of which were included in natural gas or oil revenues. At December 31, 1996, the Company had oil collar contracts on 200,000 barrels of oil per month for January 1997 through June 1997, with a "floor" price of $21.00 and an average "cap" price of $24.69. UMC's hedging agreements are generally settled on a monthly basis and specify the third-party index to be the New York Mercantile Exchange (NYMEX) futures contract prices for the applicable commodity, matching the appropriate basis risk. There was no deferred hedge gain or loss for crude oil at year end 1996. No contracts were in place at December 31, 1997. INTEREST RATE MARKET HEDGES UMC has interest rate hedge contracts currently outstanding. The hedge transactions have been entered into with major financial institutions, minimizing credit risk associated with these agreements. See Note 5 for further discussion of these contracts. NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and payables, long-term debt, interest rate hedging agreements and natural gas and crude oil hedging agreements. As of December 31, 1997 and 1996, the fair market values of the Company's financial instruments are shown below: CASH, TRADE RECEIVABLES AND PAYABLES: The carrying amount approximates fair market value due to the highly liquid nature of these short-term instruments. LONG-TERM DEBT: As of December 31, 1997, the carrying amount of the Notes was $150,000,000 and the fair value was $164,250,000. As of December 31, 1996, the fair value of the Notes was $163,875,000. The fair value was estimated based on the market price of the publicly traded Notes. As of December 31, 1997 and 1996, the carrying amount of UMC's Global Credit Facility approximates fair value due to the nature of the facility, whereby the interest rates offered by the member banks are floating rates which reflect market rates. INTEREST RATE HEDGING AGREEMENTS: The fair market value of the interest rate swap contracts at December 31, 1997 and 1996 was ($297,000) and ($254,000), respectively. The fair market value at December 31, 1997 and 1996 was determined by the institutional holders of the hedges. NATURAL GAS AND CRUDE OIL HEDGING AGREEMENTS: The fair market value of the natural gas and crude oil swap contracts at December 31, 1996 were approximately ($942,000), as determined by the institutional holders of the hedges. No such contracts were outstanding at December 31, 1997. -43- 46 NOTE 17 GEOGRAPHIC DATA UMC is an independent oil and gas company engaged in the exploration, development, production and acquisition of oil and natural gas properties. Information about the Company's operations by geographic area for the years ended December 31, 1997, 1996, and 1995 is as follows (in thousands):
EQUATORIAL GUINEA AND OTHER UNITED STATES CANADA COTE D'IVOIRE INTERNATIONAL TOTAL -------------- ------------ ------------- ------------- ------------- YEAR ENDED DECEMBER 31, 1997 Revenues........................ $ 138,933 $ 19,268 $ 27,803 $ 78,861 $ 264,865 Depreciation, depletion and amortization.............. $ 54,555 $ 7,251 $ 13,773 $ 20,839 $ 96,418 Operating profit ............... $ 20,412 $ 978 $ 4,025 $ 34,115 $ 59,530 Capital expenditures............ $ 154,165 $ 27,832 $ 56,931 $ 131,168 $ 370,096 Identifiable assets............. $ 749,470 $ 69,485 $ 7,965 $ 58,105 $ 885,025 YEAR ENDED DECEMBER 31, 1996 Revenues........................ $ 150,248 $ 23,011 $ 25,940 $ 37,205 $ 236,404 Depreciation, depletion and amortization.............. $ 66,832 $ 9,482 $ 5,689 $ 2,976 $ 84,979 Operating profit................ $ 14,516 $ 4,318 $ 13,243 $ 14,998 $ 47,075 Capital expenditures............ $ 75,516 $ 8,254 $ 18,588 $ 88,046 $ 190,404 Identifiable assets............. $ 586,410 $ 65,167 $ 21,279 $ 45,437 $ 718,293 YEAR ENDED DECEMBER 31, 1995 Revenues........................ $ 107,112 $ 16,922 $ 7,106 $ 15,901 $ 147,041 Depreciation, depletion and amortization.............. $ 44,265 $ 8,208 $ 1,420 $ 49 $ 53,942 Impairment of proved oil and gas properties............ $ 8,317 $ - $ - $ - $ 8,317 Operating profit (loss)......... $ 2,269 $ (125) $ 502 $ 13,138 $ 15,784 Capital expenditures............ $ 80,664 $ 4,805 $ 45,812 $ 31,746 $ 163,027 Identifiable assets............. $ 392,490 $ 80,151 $ 77,875 $ 27,934 $ 578,450
- ------------------------------- NOTE 18 DISCLOSURES OF OIL AND GAS OPERATIONS (UNAUDITED) PROVED RESERVES Substantially all reserve estimates presented herein were prepared by either Ryder Scott Company, Netherland, Sewell & Associates, Inc., or McDaniel & Associates Consultants Ltd., independent petroleum engineers. The Company cautions that there are many uncertainties inherent in estimating proved reserve quantities, in projecting future production rates and in the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate, natural gas and natural gas liquids that 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 oil and gas reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods. Information presented for the Company's international locations relates to contract interests held in multiple production sharing contracts between the Company, its joint venture partners and the governments of Cote d'Ivoire and Equatorial Guinea. The Company has no ownership interest in the oil and gas reserves but does have the right to share revenues and/or production and is entitled to recover most field and other operating costs. The reserve estimates are subject to revision as prices fluctuate due to the cost recovery feature under the production sharing contract. -44- 47 Net quantities of proved reserves and proved developed reserves of crude oil (including condensate and natural gas liquids) and natural gas, as well as the changes in proved reserves during the periods indicated, are set forth in the tables below:
UNITED COTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL ------ ------ -------- ----------- ------- NATURAL GAS (MMCF) PROVED: December 31, 1994............................................... 338,965 67,835 32,612 - 439,412 Revisions of previous estimates............................... 4,655 (1,060) 5,746 - 9,341 Extensions, discoveries and other additions................... 35,558 2,060 58,290 - 95,908 Purchases..................................................... 21,839 - - - 21,839 Sales of reserves-in-place.................................... (68,113) (1,014) (13,995) - (83,122) Production.................................................... (38,878) (5,383) (192) - (44,453) --- ----- ------- ------ ------- ------- ------- December 31, 1995............................................... 294,026 62,438 82,461 - 438,925 Revisions of previous estimates............................... 19,705 (3,764) 7,848 - 23,789 Extensions, discoveries and other additions................... 22,900 8,567 2,488 - 33,955 Purchases..................................................... 17,869 894 - - 18,763 Sales of reserves-in-place.................................... (9,249) (15) - - (9,264) Production.................................................... (47,719) (5,339) (2,387) - (55,445) --- ----- ------- ------ ------- ------- ------- December 31, 1996............................................... 297,532 62,781 90,410 - 450,723 Revisions of previous estimates............................... 26,491 533 14,174 - 41,198 Extensions, discoveries and other additions................... 14,912 21,102 3,370 - 39,384 Purchases..................................................... 41,876 21,377 33,275 - 96,528 Sales of reserves-in-place.................................... (12,474) (301) - - (12,775) Production.................................................... (42,238) (7,630) (4,939) - (54,807) ------- ------ ------- ------- ------- December 31, 1997............................................... 326,099 97,862 136,290 - 560,251 ======= ====== ======= ======= ======= PROVED DEVELOPED: December 31, 1995............................................... 245,860 62,438 21,722 - 330,020 ======= ====== ====== ======= ======= December 31, 1996............................................... 245,847 62,781 21,433 - 330,061 ======= ====== ====== ======= ======= December 31, 1997............................................... 272,239 97,862 40,313 - 410,414 ======= ====== ====== ======= =======
UNITED COTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL ------ ------ -------- ----------- ----- CRUDE OIL (MBO) PROVED: December 31, 1994 ................................ 12,478 5,563 4,626 -- 22,667 Revisions of previous estimates ................ 1,099 (201) 1,905 -- 2,803 Extensions, discoveries and other additions .... 801 151 1,440 5,258 7,650 Purchases ...................................... 4,757 -- -- -- 4,757 Sales of reserves-in-place ..................... (762) (82) (332) (1,502) (2,678) Production ..................................... (1,826) (649) (285) -- (2,760) ------- ------- ------- ------- ------- December 31, 1995 ................................ 16,547 4,782 7,354 3,756 32,439 Revisions of previous estimates ................ 2,805 (297) (2,538) 1,564 1,534 Extensions, discoveries and other additions .... 101 530 228 15,587 16,446 Purchases ...................................... 100 4 -- -- 104 Sales of reserves-in-place ..................... (590) (1,009) -- -- (1,599) Production ..................................... (2,022) (511) (894) (967) (4,394) ------- ------- ------- ------- ------- December 31, 1996 ................................ 16,941 3,499 4,150 19,940 44,530 Revisions of previous estimates ................ 30 192 854 441 1,517 Extensions, discoveries and other additions .... 2,140 181 218 24,086 26,625 Purchases ...................................... 4,436 45 1,062 -- 5,543 Sales of reserves-in-place ..................... (1,167) (95) -- -- (1,262) Production ..................................... (2,214) (439) (1,027) (4,453) (8,133) ------- ------- ------- ------- ------- December 31, 1997 ................................ 20,166 3,383 5,257 40,014 68,820 ======= ======= ======= ======= ======= PROVED DEVELOPED: December 31, 1995 ................................ 14,967 4,735 3,302 -- 23,004 ======= ======= ======= ======= ======= December 31, 1996 ................................ 14,801 3,499 1,926 4,353 24,579 ======= ======= ======= ======= ======= December 31, 1997 ................................ 17,343 3,383 1,861 11,482 34,069 ======= ======= ======= ======= =======
-45- 48 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Gas prices were escalated only where existing contracts contained fixed and determinable escalation clauses. Contractually provided gas prices in excess of estimated market clearing prices were used in computing the future cash inflows only if the Company expects to continue to receive higher prices under legally enforceable contract terms. Future prices actually received may differ from the estimates in the standardized measure. Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to the Company's proved oil and gas reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis, available net operating loss carryforwards and investment tax credit carryforwards were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10% annual rate (in thousands):
UNITED CoTE EQUATORIAL STATES CANADA D'IVOIRE GUINEA TOTAL (1) (2) ------------ ----------- ----------- ----------- ------------- AT DECEMBER 31, 1997 Future cash inflows . . . . . . . $ 1,034,813 $ 178,899 $ 384,217 $ 573,360 $ 2,171,289 ------------ ----------- ----------- ----------- ------------- Future production costs . . . . . 319,171 58,588 85,717 111,822 575,298 Future development costs . . . . . 61,524 2,024 110,047 239,750 413,345 Future income taxes . . . . . . . 102,748 26,464 41,001 37,417 207,630 ------------ ----------- ----------- ----------- ------------- Total future costs . . . . . . 483,443 87,076 236,765 388,989 1,196,273 ------------ ----------- ----------- ----------- ------------- Future net cash inflows . . . . . 551,370 91,823 147,452 184,371 975,016 Discount at 10% per annum . . . . (159,055) (35,489) (58,883) (49,719) (303,146) ------------ ----------- ----------- ----------- ------------- Standardized measure of discounted future net cash flows . . . . . $ 392,315 $ 56,334 $ 88,569 $ 134,652 $ 671,870 ============ =========== =========== =========== ============= AT DECEMBER 31, 1996 Future cash inflows . . . . . . . $ 1,445,872 $ 206,041 $ 305,988 $ 450,785 $ 2,408,686 ------------ ----------- ----------- ----------- ------------- Future production costs . . . . . 379,096 55,993 53,927 102,275 591,291 Future development costs . . . . . 53,067 4,501 74,957 152,780 285,305 Future income taxes . . . . . . . 221,053 44,263 45,833 49,782 360,931 ------------ ----------- ----------- ----------- ------------- Total future costs . . . . . . 653,216 104,757 174,717 304,837 1,237,527 ------------ ----------- ----------- ----------- ------------- Future net cash inflows . . . . . 792,656 101,284 131,271 145,948 1,171,159 Discount at 10% per annum . . . . (253,431) (42,431) (40,465) (40,810) (377,137) ------------ ----------- ----------- ----------- ------------- Standardized measure of discounted future net cash flows . . . . . $ 539,225 $ 58,853 $ 90,806 $ 105,138 $ 794,022 ============ =========== =========== =========== ============= AT DECEMBER 31, 1995 Future cash inflows . . . . . . . $ 821,122 $ 157,548 $ 317,580 $ 65,789 $ 1,362,039 ------------ ----------- ----------- ----------- ------------- Future production costs . . . . . 268,790 65,859 59,307 26,625 420,581 Future development costs . . . . . 35,782 5,337 103,538 16,250 160,907 Future income taxes . . . . . . . 50,573 19,448 37,232 7,562 114,815 ------------ ----------- ----------- ----------- ------------- Total future costs . . . . . . 355,145 90,644 200,077 50,437 696,303 ------------ ----------- ----------- ----------- ------------- Future net cash inflows . . . . . 465,977 66,904 117,503 15,352 665,736 Discount at 10% per annum . . . . (133,051) (24,011) (43,215) (1,458) (201,735) ------------ ----------- ----------- ----------- ------------- Standardized measure of discounted future net cash flows . . . . . $ 332,926 $ 42,893 $ 74,288 $ 13,894 $ 464,001 ============ =========== =========== =========== =============
(1) Total future net cash flows before income taxes are $1,182,646,000, $1,532,090,000 and $780,551,000 as of December31, 1997, 1996 and 1995, respectively. (2) Total future net cash flows before income taxes discounted at 10% per annum are $723,833,000, $966,895,000 and $505,153,000 as of December 31, 1997, 1996 and 1995, respectively. -46- 49 STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The following are the principal sources of change in the standardized measure of discounted future net cash flows (in thousands):
1997 1996 1995 ---------- ---------- ----------- Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . $ 794,022 $ 464,001 $ 303,310 ---------- ---------- ----------- Revisions to reserves proved in prior years - Net changes in prices and production costs . . . . . . . . . . (439,978) 304,349 58,564 Net changes due to revisions in quantity estimates . . . . . . 50,426 53,235 24,357 Net changes in estimated future development costs . . . . . . . 49,553 9,245 59,821 Accretion of discount . . . . . . . . . . . . . . . . . . . . . 96,350 50,495 32,247 Changes in production rates (timing) and other . . . . . . . . (93,218) (40,147) (10,462) ---------- ---------- ----------- Total revisions . . . . . . . . . . . . . . . . . . . . . . (336,867) 377,177 164,527 New field discoveries and extensions, net of future production and development costs . . . . . . . . . . . . . . . 244,509 222,271 93,643 Purchases of reserves in-place . . . . . . . . . . . . . . . . . 77,572 29,871 38,631 Sale of reserves in-place . . . . . . . . . . . . . . . . . . . . (28,976) (13,560) (46,410) Sales of oil and gas produced, net of production costs . . . . . (198,910) (155,231) (69,918) Net change in income taxes . . . . . . . . . . . . . . . . . . . 120,520 (130,507) (19,782) ---------- ---------- ----------- Net change in standardized measure of discounted future net cash flows . . . . . . . . . . . . . . . . . . . . (122,152) 330,021 160,691 ---------- ---------- ----------- Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . $ 671,870 $ 794,022 $ 464,001 ========== ========== ===========
-47- 50 SUPPLEMENTAL OIL AND GAS DISCLOSURES (in thousands) The following table sets forth revenue and direct cost, excluding interest expense, general and administrative expense and other items, information relating to the Company's oil and gas exploration and production activities. UMC has no long-term supply or purchase agreements with governments or authorities in which it acts as producer.
1997 1996 1995 ---------- ---------- ---------- UNITED STATES Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 131,755 $ 144,804 $ 91,541 ---------- ---------- ---------- Operating costs: Production cost . . . . . . . . . . . . . . . . . . . . . 39,289 36,990 34,028 Exploration, including dry holes and leasehold impairments 12,612 21,112 10,852 Depreciation, depletion and amortization . . . . . . . . 54,555 66,832 44,265 Impairment of oil and gas property . . . . . . . . . . . -- -- 8,317 Income tax provision (benefit) . . . . . . . . . . . . . 9,614 7,551 (2,250) ---------- ---------- ---------- 116,070 132,485 95,212 ---------- ---------- ---------- Results of operations . . . . . . . . . . . . . . . . . . $ 15,685 $ 12,319 $ (3,671) ========== ========== ========== CoTE D'IVOIRE Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 27,803 $ 22,680 $ 4,729 ---------- ---------- ---------- Operating costs: Production cost . . . . . . . . . . . . . . . . . . . . . 5,602 5,370 3,388 Exploration, including dry holes and leasehold impairments 4,403 1,638 900 Depreciation, depletion and amortization . . . . . . . . 13,773 5,689 1,469 Income tax provision (benefit) . . . . . . . . . . . . . 1,530 3,794 (391) ---------- ---------- ---------- 25,308 16,491 5,366 ---------- ---------- ---------- Results of operations . . . . . . . . . . . . . . . . . . $ 2,495 $ 6,189 $ (637) ========== ========== ========== EQUATORIAL GUINEA AND OTHER FOREIGN Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 78,861 $ 21,430 $ -- ---------- ---------- ---------- Operating costs: Production cost . . . . . . . . . . . . . . . . . . . . . 5,520 3,738 -- Exploration, including dry holes and leasehold impairments 18,387 15,492 2,681 Depreciation, depletion and amortization . . . . . . . . 20,839 2,976 -- Income tax provision (benefit) . . . . . . . . . . . . . 12,964 (295) (1,018) ---------- ---------- ---------- 57,710 21,911 1,663 ---------- ---------- ---------- Results of operations . . . . . . . . . . . . . . . . . . $ 21,151 $ (481) $ (1,663) ========== ========== ========== CANADA Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 18,595 $ 17,615 $ 17,080 ---------- ---------- ---------- Operating costs: Production cost . . . . . . . . . . . . . . . . . . . . . 6,081 5,200 5,475 Exploration, including dry holes and leasehold impairments 3,443 2,083 1,249 Depreciation, depletion and amortization . . . . . . . . 7,251 9,482 8,208 Income tax provision (benefit) . . . . . . . . . . . . . 692 323 816 ---------- ---------- ---------- 17,467 17,088 15,748 ---------- ---------- ---------- Results of operations . . . . . . . . . . . . . . . . . . $ 1,128 $ 527 $ 1,332 ========== ========== ========== TOTAL Oil and gas revenues . . . . . . . . . . . . . . . . . . . $ 257,014 $ 206,529 $ 113,350 ---------- ---------- ---------- Operating costs: Production cost . . . . . . . . . . . . . . . . . . . . . 56,492 51,298 42,891 Exploration, including dry holes and leasehold impairments 38,845 40,325 15,682 Depreciation, depletion and amortization . . . . . . . . 96,418 84,979 53,942 Impairment of oil and gas property . . . . . . . . . . . -- -- 8,317 Income tax provision (benefit) . . . . . . . . . . . . . 24,800 11,373 (2,843) ---------- ---------- ---------- 216,555 187,975 117,989 ---------- ---------- ---------- Results of operations . . . . . . . . . . . . . . . . . . $ 40,459 $ 18,554 $ (4,639) ========== ========== ==========
-48- 51 NOTE 19 SUPPLEMENTAL GUARANTOR INFORMATION In connection with the sale by United Meridian Corporation of the Notes, Petroleum, the Company's only direct subsidiary, has unconditionally guaranteed the full and prompt performance of the Company's obligations under the Notes and related indenture, including the payment of principal, premium (if any) and interest. Other than intercompany arrangements and transactions, the consolidated financial statements of Petroleum are equivalent in all material respects to those of the Company and therefore the separate consolidated financial statements of Petroleum are not material to investors and have not been included herein. However, in an effort to provide meaningful financial data relating to the guarantor (i.e., Petroleum on an unconsolidated basis) of the Notes, the following condensed consolidating financial information has been provided following the policies set forth below: (1) Investments in subsidiaries are accounted for by the Company on the cost basis. Earnings of subsidiaries are therefore not reflected in the related investment accounts. (2) Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. Certain intercompany notes and the related accrued interest were transferred from UMC to a newly formed non- guarantor subsidiary effective as of January 1, 1997. -49- 52 SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME For the years ended December 31, 1997, 1996 and 1995 (In thousands)
Unconsolidated -------------------------------------------- Non- Guarantor Guarantor Consolidated 1997 UMC Subsidiary Subsidiary UMC - ---- --------- ---------- ---------- ------------ Revenues ................................................... $ -- $ 137,087 $ 127,778 $ 264,865 --------- --------- --------- --------- Costs and expenses: Production costs ......................................... -- 38,766 17,726 56,492 General and administrative ............................... 120 11,850 1,610 13,580 Exploration, including dry holes and impairments ......... -- 12,612 26,233 38,845 Depreciation, depletion and amortization ................. -- 53,645 42,773 96,418 --------- --------- --------- --------- Income (loss) from operations .............................. (120) 20,214 39,436 59,530 Interest income (expense), net ........................... (16,115) (38,285) 32,651 (21,749) Other credits, net ....................................... -- 1,247 434 1,681 --------- --------- --------- --------- Income (loss) before income taxes .......................... (16,235) (16,824) 72,521 39,462 Income tax benefit (provision) ............................. 20,585 (32,578) (7,682) (19,675) --------- --------- --------- --------- Net income (loss) .......................................... $ 4,350 $ (49,402) $ 64,839 $ 19,787 ========= ========= ========= ========= 1996 - ---- Revenues ................................................... $ -- $ 149,917 $ 86,487 $ 236,404 --------- --------- --------- --------- Costs and expenses: Production costs ......................................... -- 36,932 14,366 51,298 General and administrative ............................... 180 10,554 1,993 12,727 Exploration, including dry holes and impairments ......... -- 21,107 19,218 40,325 Depreciation, depletion and amortization ................. -- 66,744 18,235 84,979 --------- --------- --------- --------- Income (loss) from operations .............................. (180) 14,580 32,675 47,075 Interest income (expense), net ........................... 18,052 (32,067) (8,796) (22,811) Other credits, net ....................................... -- (1,034) 190 (844) --------- --------- --------- --------- Income (loss) before income taxes .......................... 17,872 (18,521) 24,069 23,420 Income tax benefit (provision) ............................. (6,208) 6,707 (6,515) (6,016) --------- --------- --------- --------- Net income (loss) .......................................... $ 11,664 $ (11,814) $ 17,554 $ 17,404 ========= ========= ========= ========= 1995 - ---- Revenues ................................................... $ -- $ 107,108 $ 39,933 $ 147,041 --------- --------- --------- --------- Costs and expenses: Production costs ......................................... -- 34,028 8,863 42,891 General and administrative ............................... 415 6,966 3,044 10,425 Exploration, including dry holes and impairments ......... -- 10,852 4,830 15,682 Depreciation, depletion and amortization ................. -- 44,264 9,678 53,942 Impairment of proved oil and gas properties .............. -- 8,317 -- 8,317 --------- --------- --------- --------- Income (loss) from operations .............................. (415) 2,681 13,518 15,784 Interest income (expense), net ........................... 12,629 (25,789) (4,785) (17,945) Other credits, net ....................................... -- (28) 403 375 --------- --------- --------- --------- Income (loss) before income taxes .......................... 12,214 (23,136) 9,136 (1,786) Income tax benefit (provision) ............................. (4,275) 7,681 479 3,885 --------- --------- --------- --------- Net income (loss) .......................................... $ 7,939 $ (15,455) $ 9,615 $ 2,099 ========= ========= ========= =========
-50- 53 SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET December 31, 1997 and 1996 (In thousands)
Unconsolidated ----------------------------------------------- Guarantor Non-Guarantor Eliminating Consolidated 1997 UMC Subsidiary Subsidiaries Entries UMC - ---- ----------- ----------- -------------- ----------- ------------ ASSETS Current assets .............................. $ 2 $ 51,513 $ 56,649 $ -- $ 108,164 Intercompany investments .................... 682,885 339,673 335,024 (1,357,582) -- Property and equipment, net ................. -- 354,745 386,227 -- 740,972 Other assets ................................ 5,395 27,803 2,691 -- 35,889 ----------- ----------- ----------- ----------- ----------- Total assets .......................... $ 688,282 $ 773,734 $ 780,591 $(1,357,582) $ 885,025 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities ......................... $ 3,326 $ 66,178 $ 37,208 $ -- $ 106,712 Long-term debt .............................. 150,000 117,300 15,346 -- 282,646 Deferred credits and other liabilities ...... -- 11,222 25,046 -- 36,268 Stockholders' equity ........................ 534,956 579,034 702,991 (1,357,582) 459,399 Total liabilities & stockholders' ----------- ----------- ----------- ----------- ----------- equity ............................ $ 688,282 $ 773,734 $ 780,591 $(1,357,582) $ 885,025 =========== =========== =========== =========== =========== 1996 - ---- ASSETS Current assets .............................. $ 3 $ 93,023 $ 63,135 $ -- $ 156,161 Intercompany investments .................... 668,025 (346,861) (182,827) (138,337) -- Property and equipment, net ................. -- 282,236 241,953 -- 524,189 Other assets ................................ 5,947 36,714 (4,718) -- 37,943 ----------- ----------- ----------- ----------- ----------- Total assets .......................... $ 673,975 $ 65,112 $ 117,543 $ (138,337) $ 718,293 =========== =========== =========== =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities ......................... $ 3,327 $ 42,577 $ 52,488 $ -- $ 98,392 Long-term debt .............................. 150,000 (5,700) 12,532 -- 156,832 Deferred credits and other liabilities ...... -- 9,421 21,412 -- 30,833 Stockholders' equity ........................ 520,648 18,814 31,111 (138,337) 432,236 Total liabilities & stockholders' ----------- ----------- ----------- ----------- ----------- equity ............................ $ 673,975 $ 65,112 $ 117,543 $ (138,337) $ 718,293 =========== =========== =========== =========== ===========
-51- 54 SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the years ended December 31, 1997, 1996 and 1995 (In thousands)
Unconsolidated ------------------------------------------ Guarantor Non-Guarantor Consolidated 1997 UMC Subsidiary Subsidiaries UMC - ---- --------- ---------- ------------- ------------ Cash flows from operating activities: Net income (loss) ............................................. $ 4,350 $ (49,402) $ 64,839 $ 19,787 Adjustments to reconcile net income (loss) to cash from operating activities ..................... (20,033) 94,114 71,362 145,443 Changes in assets and liabilities ............................. (1) 20,554 (19,995) 558 --------- --------- --------- --------- Net cash provided by (used in) operating activities ........ (15,684) 65,266 116,206 165,788 Cash flows used in investing activities ......................... -- (131,293) (206,693) (337,986) Cash flows provided by financing activities ..................... 15,683 26,921 86,341 128,945 --------- --------- --------- --------- Net decrease in cash and cash equivalents ....................... (1) (39,106) (4,146) (43,253) Cash and cash equivalents at beginning of period ................ 3 41,759 13,180 54,942 --------- --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 2 $ 2,653 $ 9,034 $ 11,689 ========= ========= ========= ========= 1996 - ---- Cash flows from operating activities: Net income (loss) ............................................. $ 11,664 $ (11,814) $ 17,554 $ 17,404 Adjustments to reconcile net income (loss) to cash from operating activities ..................... 6,746 76,914 19,981 103,641 Changes in assets and liabilities ............................. 40 (25,641) (12,010) (37,611) --------- --------- --------- --------- Net cash provided by operating activities .................. 18,450 39,459 25,525 83,434 Cash flows used in investing activities ......................... -- (61,392) (74,357) (135,749) Cash flows provided by (used in) financing activities ........... (18,478) 57,061 55,088 93,671 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ............ (28) 35,128 6,256 41,356 Cash and cash equivalents at beginning of period ................ 31 6,631 6,924 13,586 --------- --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 3 $ 41,759 $ 13,180 $ 54,942 ========= ========= ========= ========= 1995 - ---- Cash flows from operating activities: Net income (loss) ............................................. $ 7,939 $ (15,455) $ 9,615 $ 2,099 Adjustments to reconcile net income (loss) to cash from operating activities ..................... 494 45,239 (2,020) 43,713 Changes in assets and liabilities ............................. 5,755 13,146 (18,707) 194 --------- --------- --------- --------- Net cash provided used by operating activities ............. 14,188 42,930 (11,112) 46,006 Cash flows used in investing activities ......................... -- (18,488) (64,220) (82,708) Cash flows provided by (used in) financing activities ........... (14,169) (21,539) 74,171 38,463 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ............ 19 2,903 (1,161) 1,761 Cash and cash equivalents at beginning of period ................ 12 3,728 8,085 11,825 --------- --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 31 $ 6,631 $ 6,924 $ 13,586 ========= ========= ========= =========
-52- 55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the information called for by Items 10, 11, 12 and 13, reference is made to the Company's definitive proxy statement for its 1998 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1997, and portions of which are incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following financial statements and the Report of Independent Public Accountants are filed as a part of this report on the pages indicated: Report of Independent Public Accountants -- page 24 Consolidated Statement of Income -- For the years ended December 31, 1997, 1996 and 1995-- page 25 Consolidated Balance Sheet -- December 31, 1997 and 1996 -- pages 26-27 Consolidated Statement of Changes in Stockholders' Equity -- For the years ended December 31, 1997, 1996 and 1995 -- page 28 Consolidated Statement of Cash Flows -- For the years ended December 31, 1997, 1996 and 1995 -- page 29 Selected Quarterly Financial Data for the years ended December 31, 1997 and 1996 -- page 16 Selected Financial Data for the five years ended December 31, 1997 -- page 15 (a) 2. FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted because they are not applicable or the information required therein is included elsewhere in the financial statements or notes thereto. -53- 56 INDEX TO EXHIBITS
Exhibit Number Exhibit ------- --------------------------------------------------------------------- 3.1 Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 3.2 By-laws of the Company, as amended, incorporated by reference to Exhibit 3.2 to UMC's Form S-8 (No. 333- 28017) filed with the Securities and Exchange Commission on May 29, 1997. 4.1 Amendment No. 1 to Registration Rights Agreement dated as of August 9, 1994 among GARI, UMC, General Atlantic Corporation, John Hancock Mutual Life Insurance Company and Fidelity Oil Holdings, Inc., incorporated by reference to Exhibit (c)(8) to UMC's Schedule 14D-1 (No. 5-44990) filed with the Securities and Exchange Commission on August 11, 1994. 4.2 Specimen of certificate representing Series A Voting Common Stock, $0.01 par value, of the Company, incorporated herein by reference to Exhibit 4.13 to the Company's Form 10-Q for the period ended September 30, 1994, filed with the Securities and Exchange Commission on August 10, 1994. 4.9 Indenture between the Company, Petroleum and Bank of Montreal Trust Company, dated October 30, 1995, incorporated by reference to Exhibit 4.20 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 4.10 Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of February 13, 1996, incorporated by reference as Exhibit 1 to Form 8-K, filed with the Securities and Exchange Commission on February 14, 1996. 4.11 Global Credit Agreement dated as of March 18, 1997, among United Meridian Corporation, UMC Petroleum Corporation, The Chase Manhattan Bank, N.A., as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents and The Lenders Now or Hereafter Signatory Hereto, incorporated by reference to Exhibit 4.11 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.12 Credit Agreement dated as of March 18, 1997 among UMC Resources Canada Ltd., as the Company, The Chase Manhattan Bank of Canada, as Agent, and the Lenders Signatory Hereto, incorporated by reference to Exhibit 4.12 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.13 Guaranty Agreement dated as of March 18, 1997, by UMC Petroleum Corporation in favor of The Chase Manhattan Bank of Canada, as Administrative Agent, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.13 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.14 Guaranty Agreement dated as of March 18, 1997, by United Meridian Corporation in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.14 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.15 Guaranty Agreement dated as of March 18, 1997 by United Meridian Corporation in favor of The Chase Manhattan Bank of Canada, as Administrative Agent, and The Lenders Now or Hereafter Signatory to the Credit Agreement,
-54- 57
Exhibit Number Exhibit ------- --------------------------------------------------------------------- incorporated by reference to Exhibit 4.15 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.16 Guaranty Agreement dated as of March 18, 1997 by Norfolk Holdings, Inc. as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.16 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.17 Guaranty Agreement dated as of March 18, 1997 by UMIC Cote d'Ivoire Corporation, as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A., and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.17 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.18 Guaranty Agreement dated as of March 18, 1997 by UMC Equatorial Guinea Corporation, as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.18 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.19 Intercreditor Agreement dated as of March 18, 1997, among United Meridian Corporation, UMC Petroleum Corporation, Norfolk Holdings Inc., UMC Resources Canada Ltd., UMIC Cote d'Ivoire Corporation, UMC Equatorial Guinea Corporation, The Chase Manhattan Bank, as Administrative Agent and Collateral Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., as Co-Agents, The Chase Manhattan Bank of Canada, as Canadian Agent, and The Lenders Now or Hereafter Signatory Hereto, incorporated by reference to Exhibit 4.19 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.20 Amendment No. 1 to the Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of September 30, 1997, incorporated by reference as Exhibit 4.1 to Form 8-K, filed with the Securities and Exchange Commission on October 3, 1997. 4.21* First Joint Amendment to Global Credit Agreement and to Credit Agreement (Canada) effective as of December 3, 1997. 10.2 The UMC Petroleum Savings Plan as amended and restated incorporated herein by reference to Exhibit 4.10 to the Company's Form S-8 (No. 33-73574) filed with the Securities and Exchange Commission on December 29, 1993. 10.3 First Amendment to the UMC Petroleum Savings Plan, as Amended and Restated as of January 1, 1993, dated April 18, 1994, incorporated by reference to Exhibit 10.3 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.4 UMC 1987 Nonqualified Stock Option Plan, as amended, incorporated herein by reference to Exhibit 10.3 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on May 28, 1993.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.5 Third Amendment to UMC 1987 Nonqualified Stock Option Plan dated November 16, 1993 incorporated herein by reference to Exhibit 10.4 to the Company's 1993 Form 10-K filed with the Securities and Exchange Commission on March 7, 1994. 10.6 Fourth Amendment to UMC 1987 Nonqualified Stock Option Plan dated April 6, 1994, incorporated by reference to Exhibit 10.6 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.7 UMC 1994 Employee Nonqualified Stock Option Plan incorporated by reference to Exhibit 4.14 to the Company's Form S-8 (No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994. 10.8 First Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 16, 1994, incorporated by reference to Exhibit 4.11.1 to the Company's Form S-8 (No. 33-86480) filed with the Securities and Exchange Commission on November 18, 1994. 10.9 Second Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 22, 1996, incorporated by reference to Exhibit 4.3.2 to the Company's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on June 6, 1996. 10.10 Third Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 13, 1996, incorporated by reference to Exhibit 4.3.3 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997. 10.11 UMC 1994 Outside Directors' Nonqualified Stock Option Plan incorporated herein by reference to Exhibit 4.15 to the Company's Form S-8 (No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994. 10.12 First Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated May 22, 1996, incorporated by reference to Exhibit 4.4.1 to the Company's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on June 6, 1996. 10.14 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the Board of Directors on March 29, 1994, incorporated by reference to Exhibit 10.10 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.15 Form of Indemnification Agreement, with Schedule of Signatories, incorporated herein by reference to Exhibit 10.4 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on May 28, 1993. 10.16 Petroleum Production Sharing Contract on Block CI-11 dated June 27, 1992 among the Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (including English translation), incorporated herein by reference to Exhibit 10.5 to Amendment No. 3 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on July 20, 1993. 10.17 Production Sharing Contract dated August 18, 1992 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area A - Offshore NE Bioco), incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on June 18, 1993. 10.18 Production Sharing Contract dated June 29, 1992 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area B - Offshore NW Bioco), incorporated herein by reference to Exhibit 10.7 to Amendment No. 1 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on June 18, 1993.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.19 Production Sharing Contract dated June 29, 1994 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area C - Offshore Bioco) incorporated by reference to Exhibit 10.15 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.20 Production Sharing Contract on Block CI-01 dated December 5, 1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation) incorporated by reference to Exhibit 10.16 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.21 Production Sharing Contract on Block CI-02 dated December 5, 1994 among The Republic of Cote d'Ivoire UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation) incorporated by reference to Exhibit 10.17 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.22 Production Sharing of Block CI-12 dated April 27, 1995 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and others (English translation), incorporated by reference to Exhibit 10.18 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 10.23 Contract for Sale and Purchase of Natural Gas for Block CI-11 among Caisse Autonome D'Amortissement, UMIC Cote d'Ivoire Corporation and others dated September 30, 1994 (French and English translation) incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q for the period ended September 30, 1994 filed with the Securities and Exchange Commission on November 14, 1994. 10.24 Production Sharing Contract dated April 5, 1995 between The Republic of Equatorial Guinea and UMIC Equatorial Guinea Corporation (Area D - Offshore Bioco) incorporated by reference to Exhibit 10.20 to the Company's Form 10-Q for the period ended September 30, 1995 filed with the Securities and Exchange Commission on August 10, 1995. 10.25 Contract for Purchase and Sale of Lion Crude Oil between UMIC Cote d'Ivoire Corporation, International Finance Corporation, G.N.R. (Cote d'Ivoire) Ltd. and Pluspetrol S.A. and Total International Limited, dated December 1, 1995, incorporated by reference to Exhibit 10.22 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1995. 10.26 Amendment to United Meridian Corporation 1994 Non-Qualified Stock Option Agreement for Former Employees of General Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf, incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q for the period ended September 30, 1996 filed with the Securities and Exchange Commission on August 8, 1996. 10.28 Employment Agreement, dated October 9, 1996, between UMC, UMC Petroleum Corporation and James L. Dunlap, incorporated by reference to Exhibit 10.1 to UMC's Form S-3, Amendment No. 2 (No. 333-12823), filed with the Securities and Exchange Commission on October 30, 1996. 10.29 Form of Indemnification Agreement with a schedule of director signatories, incorporated by reference to Exhibit 10.2 to UMC's Form S-3, Amendment No. 2 (No. 333-12823) filed with the Securities and Exchange Commission on October 30, 1996. 10.30 Fourth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 29, 1997, incorporated herein by reference to Exhibit 4.3.4 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997. 10.31 Second Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 13, 1996, incorporated herein by reference to Exhibit 4.4 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.32 Fifth Amendment to the UMC 1987 Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.7 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.33 Fifth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.8 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.34 Third Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.9 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.35 Agreement and Plan of Merger dated as of December 22, 1997, among UMC, OEI and OEI Holding Corporation, incorporated by reference to Exhibit 2.1 to UMC's Form 8-K (No. 001-12088) filed with the Securities and Exchange Commission on December 23, 1997. 10.36 Form of Severance Protection Agreement, with Schedule of Signatories dated December 20, 1997, incorporated by reference to Exhibit 10.1 to UMC's Form 8-K (No. 001-12088) filed with the Securities and Exchange Commission on December 23, 1997. 10.37* Amendment No.1 to Agreement and Plan of Merger, dated January 7, 1998, among UMC, OEI and OEI Holding Corporation. 10.38* Amendment No. 2 to Agreement and Plan of Merger, dated February 20, 1998, among UMC, OEI and OEI Holding Corporation. 21.1* Subsidiaries of United Meridian Corporation. 23.1* Consent of Arthur Andersen LLP. 23.2* Consent of Netherland, Sewell & Associates, Inc. 23.3* Consent of McDaniel & Associates Consultants Ltd. 23.4* Consent of Ryder Scott Company 27.1* Financial Data Schedule, included solely in the Form 10-K filed electronically with the Securities and Exchange Commission.
- ------------------ * Filed herewith. (b) REPORTS ON FORM 8-K A Form 8-K dated October 3, 1997, was filed announcing the revision of the Stockholder's Right Plan. A Form 8-K filed December 23, 1997, was filed announcing the execution of a merger agreement with Ocean Energy, Inc. A Form 8-K filed February 11, 1998, was filed incorporating by reference certain press releases of the Company announcing the record date for shareholders entitled to vote at the UMC special meeting, participation in the Angola deepwater Block 19 concession, proved energy reserves and earnings. -58- 61 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. REGISTRANT UNITED MERIDIAN CORPORATION February 20, 1998 /s/ JOHN B. BROCK ---------------------------------- John B. Brock Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on February 20, 1998 on behalf of the registrant and in the capacities indicated.
Name Capacities /s/ JOHN B. BROCK Chairman, Chief Executive Officer and Director ----------------------- (Principal Executive Officer) John B. Brock /s/ JAMES L. DUNLAP President, Chief Operating Officer and Director ----------------------- James L. Dunlap /s/ J. DENNIS BONNEY Director ----------------------- J. Dennis Bonney /s/ CHARLES R. CARSON Director ----------------------- Charles R. Carson /s/ ROBERT H. DEDMAN Director ----------------------- Robert H. Dedman /s/ ROBERT L. HOWARD Director ----------------------- Robert L. Howard /s/ ELVIS L. MASON Director ----------------------- Elvis L. Mason
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Name Capacities /s/ JAMES L. MURDY Director ----------------------- James L. Murdy /s/ DAVID K. NEWBIGGING Director ----------------------- David K. Newbigging /s/ MATTHEW R. SIMMONS Director ----------------------- Matthew R. Simmons /s/ DONALD D. WOLF Director ----------------------- Donald D. Wolf /s/ JONATHAN M. CLARKSON Executive Vice President and Chief Financial Officer ----------------------- Jonathan M. Clarkson /s/ CHRISTOPHER E. CRAGG Vice President, Controller and Chief Accounting ----------------------- Officer Christopher E. Cragg
-60- 63 INDEX TO EXHIBITS
Exhibit Number Exhibit ------- --------------------------------------------------------------------- 3.1 Certificate of Incorporation of the Company, as amended, incorporated by reference to Exhibit 3.1 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 3.2 By-laws of the Company, as amended, incorporated by reference to Exhibit 3.2 to UMC's Form S-8 (No. 333- 28017) filed with the Securities and Exchange Commission on May 29, 1997. 4.1 Amendment No. 1 to Registration Rights Agreement dated as of August 9, 1994 among GARI, UMC, General Atlantic Corporation, John Hancock Mutual Life Insurance Company and Fidelity Oil Holdings, Inc., incorporated by reference to Exhibit (c)(8) to UMC's Schedule 14D-1 (No. 5-44990) filed with the Securities and Exchange Commission on August 11, 1994. 4.2 Specimen of certificate representing Series A Voting Common Stock, $0.01 par value, of the Company, incorporated herein by reference to Exhibit 4.13 to the Company's Form 10-Q for the period ended September 30, 1994, filed with the Securities and Exchange Commission on August 10, 1994. 4.9 Indenture between the Company, Petroleum and Bank of Montreal Trust Company, dated October 30, 1995, incorporated by reference to Exhibit 4.20 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 4.10 Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of February 13, 1996, incorporated by reference as Exhibit 1 to Form 8-K, filed with the Securities and Exchange Commission on February 14, 1996. 4.11 Global Credit Agreement dated as of March 18, 1997, among United Meridian Corporation, UMC Petroleum Corporation, The Chase Manhattan Bank, N.A., as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents and The Lenders Now or Hereafter Signatory Hereto, incorporated by reference to Exhibit 4.11 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.12 Credit Agreement dated as of March 18, 1997 among UMC Resources Canada Ltd., as the Company, The Chase Manhattan Bank of Canada, as Agent, and the Lenders Signatory Hereto, incorporated by reference to Exhibit 4.12 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.13 Guaranty Agreement dated as of March 18, 1997, by UMC Petroleum Corporation in favor of The Chase Manhattan Bank of Canada, as Administrative Agent, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.13 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.14 Guaranty Agreement dated as of March 18, 1997, by United Meridian Corporation in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.14 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.15 Guaranty Agreement dated as of March 18, 1997 by United Meridian Corporation in favor of The Chase Manhattan Bank of Canada, as Administrative Agent, and The Lenders Now or Hereafter Signatory to the Credit Agreement,
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- incorporated by reference to Exhibit 4.15 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.16 Guaranty Agreement dated as of March 18, 1997 by Norfolk Holdings, Inc. as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.16 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.17 Guaranty Agreement dated as of March 18, 1997 by UMIC Cote d'Ivoire Corporation, as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A., and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.17 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.18 Guaranty Agreement dated as of March 18, 1997 by UMC Equatorial Guinea Corporation, as the Guarantor, in favor of The Chase Manhattan Bank, as Administrative Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., and Colorado National Bank, as Co-Agents, and The Lenders Now or Hereafter Signatory to the Credit Agreement, incorporated by reference to Exhibit 4.18 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.19 Intercreditor Agreement dated as of March 18, 1997, among United Meridian Corporation, UMC Petroleum Corporation, Norfolk Holdings Inc., UMC Resources Canada Ltd., UMIC Cote d'Ivoire Corporation, UMC Equatorial Guinea Corporation, The Chase Manhattan Bank, as Administrative Agent and Collateral Agent, Morgan Guaranty Trust Company of New York, as Syndication Agent, NationsBank of Texas, N.A. and Societe Generale, as Documentation Agents, Banque Paribas, Wells Fargo Bank, N.A., as Co-Agents, The Chase Manhattan Bank of Canada, as Canadian Agent, and The Lenders Now or Hereafter Signatory Hereto, incorporated by reference to Exhibit 4.19 to UMC's Form 10-Q for the quarterly period ended March 31, 1997, filed with the Securities and Exchange Commission on May 9, 1997. 4.20 Amendment No. 1 to the Rights Agreement by and between United Meridian Corporation and Chemical Mellon Shareholder Services, L.L.C., as Rights Agent, dated as of September 30, 1997, incorporated by reference as Exhibit 4.1 to Form 8-K, filed with the Securities and Exchange Commission on October 3, 1997. 4.21* First Joint Amendment to Global Credit Agreement and to Credit Agreement (Canada) effective as of December 3, 1997. 10.2 The UMC Petroleum Savings Plan as amended and restated incorporated herein by reference to Exhibit 4.10 to the Company's Form S-8 (No. 33-73574) filed with the Securities and Exchange Commission on December 29, 1993. 10.3 First Amendment to the UMC Petroleum Savings Plan, as Amended and Restated as of January 1, 1993, dated April 18, 1994, incorporated by reference to Exhibit 10.3 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.4 UMC 1987 Nonqualified Stock Option Plan, as amended, incorporated herein by reference to Exhibit 10.3 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on May 28, 1993.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.5 Third Amendment to UMC 1987 Nonqualified Stock Option Plan dated November 16, 1993 incorporated herein by reference to Exhibit 10.4 to the Company's 1993 Form 10-K filed with the Securities and Exchange Commission on March 7, 1994. 10.6 Fourth Amendment to UMC 1987 Nonqualified Stock Option Plan dated April 6, 1994, incorporated by reference to Exhibit 10.6 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.7 UMC 1994 Employee Nonqualified Stock Option Plan incorporated by reference to Exhibit 4.14 to the Company's Form S-8 (No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994. 10.8 First Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 16, 1994, incorporated by reference to Exhibit 4.11.1 to the Company's Form S-8 (No. 33-86480) filed with the Securities and Exchange Commission on November 18, 1994. 10.9 Second Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 22, 1996, incorporated by reference to Exhibit 4.3.2 to the Company's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on June 6, 1996. 10.10 Third Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 13, 1996, incorporated by reference to Exhibit 4.3.3 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997. 10.11 UMC 1994 Outside Directors' Nonqualified Stock Option Plan incorporated herein by reference to Exhibit 4.15 to the Company's Form S-8 (No. 33-79160) filed with the Securities and Exchange Commission on May 19, 1994. 10.12 First Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated May 22, 1996, incorporated by reference to Exhibit 4.4.1 to the Company's Form S-8 (No. 333-05401) filed with the Securities and Exchange Commission on June 6, 1996. 10.14 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the Board of Directors on March 29, 1994, incorporated by reference to Exhibit 10.10 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.15 Form of Indemnification Agreement, with Schedule of Signatories, incorporated herein by reference to Exhibit 10.4 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on May 28, 1993. 10.16 Petroleum Production Sharing Contract on Block CI-11 dated June 27, 1992 among the Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (including English translation), incorporated herein by reference to Exhibit 10.5 to Amendment No. 3 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on July 20, 1993. 10.17 Production Sharing Contract dated August 18, 1992 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area A - Offshore NE Bioco), incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on June 18, 1993. 10.18 Production Sharing Contract dated June 29, 1992 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area B - Offshore NW Bioco), incorporated herein by reference to Exhibit 10.7 to Amendment No. 1 to the Company's Form S-1 (No. 33-63532) filed with the Securities and Exchange Commission on June 18, 1993.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.19 Production Sharing Contract dated June 29, 1994 between the Republic of Equatorial Guinea and United Meridian International Corporation (Area C - Offshore Bioco) incorporated by reference to Exhibit 10.15 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.20 Production Sharing Contract on Block CI-01 dated December 5, 1994 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation) incorporated by reference to Exhibit 10.16 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.21 Production Sharing Contract on Block CI-02 dated December 5, 1994 among The Republic of Cote d'Ivoire UMIC Cote d'Ivoire Corporation and Societe Nationale d'Operations Petrolieres de la Cote d'Ivoire (English translation) incorporated by reference to Exhibit 10.17 to UMC's 1994 Form 10-K filed with the Securities and Exchange Commission on March 10, 1995. 10.22 Production Sharing of Block CI-12 dated April 27, 1995 among The Republic of Cote d'Ivoire, UMIC Cote d'Ivoire Corporation and others (English translation), incorporated by reference to Exhibit 10.18 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1996. 10.23 Contract for Sale and Purchase of Natural Gas for Block CI-11 among Caisse Autonome D'Amortissement, UMIC Cote d'Ivoire Corporation and others dated September 30, 1994 (French and English translation) incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q for the period ended September 30, 1994 filed with the Securities and Exchange Commission on November 14, 1994. 10.24 Production Sharing Contract dated April 5, 1995 between The Republic of Equatorial Guinea and UMIC Equatorial Guinea Corporation (Area D - Offshore Bioco) incorporated by reference to Exhibit 10.20 to the Company's Form 10-Q for the period ended September 30, 1995 filed with the Securities and Exchange Commission on August 10, 1995. 10.25 Contract for Purchase and Sale of Lion Crude Oil between UMIC Cote d'Ivoire Corporation, International Finance Corporation, G.N.R. (Cote d'Ivoire) Ltd. and Pluspetrol S.A. and Total International Limited, dated December 1, 1995, incorporated by reference to Exhibit 10.22 to UMC's 1995 Form 10-K filed with the Securities and Exchange Commission on March 7, 1995. 10.26 Amendment to United Meridian Corporation 1994 Non-Qualified Stock Option Agreement for Former Employees of General Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf, incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q for the period ended September 30, 1996 filed with the Securities and Exchange Commission on August 8, 1996. 10.28 Employment Agreement, dated October 9, 1996, between UMC, UMC Petroleum Corporation and James L. Dunlap, incorporated by reference to Exhibit 10.1 to UMC's Form S-3, Amendment No. 2 (No. 333-12823), filed with the Securities and Exchange Commission on October 30, 1996. 10.29 Form of Indemnification Agreement with a schedule of director signatories, incorporated by reference to Exhibit 10.2 to UMC's Form S-3, Amendment No. 2 (No. 333-12823) filed with the Securities and Exchange Commission on October 30, 1996. 10.30 Fourth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated May 29, 1997, incorporated herein by reference to Exhibit 4.3.4 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997. 10.31 Second Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 13, 1996, incorporated herein by reference to Exhibit 4.4 to the Company's Form S-8 (No. 333-28017) filed with the Securities and Exchange Commission on May 29, 1997.
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Exhibit Number Exhibit ------- --------------------------------------------------------------------- 10.32 Fifth Amendment to the UMC 1987 Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.7 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.33 Fifth Amendment to the UMC 1994 Employee Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.8 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.34 Third Amendment to the UMC 1994 Outside Directors' Nonqualified Stock Option Plan dated November 19, 1997, incorporated by reference to Exhibit 4.9 to the Company's Form S-3 (No. 333-42467) filed with the Securities and Exchange Commission on December 17, 1997. 10.35 Agreement and Plan of Merger dated as of December 22, 1997, among UMC, OEI and OEI Holding Corporation, incorporated by reference to Exhibit 2.1 to UMC's Form 8-K (No. 001-12088) filed with the Securities and Exchange Commission on December 23, 1997. 10.36 Form of Severance Protection Agreement, with Schedule of Signatories dated December 20, 1997, incorporated by reference to Exhibit 10.1 to UMC's Form 8-K (No. 001-12088) filed with the Securities and Exchange Commission on December 23, 1997. 10.37* Amendment No.1 to Agreement and Plan of Merger, dated January 7, 1998, among UMC, OEI and OE Holding Corporation. 10.38* Amendment No. 2 to Agreement and Plan of Merger, dated February 20, 1998, among UMC, OEI and OEI Holding Corporation. 21.1* Subsidiaries of United Meridian Corporation. 23.1* Consent of Arthur Andersen LLP. 23.2* Consent of Netherland, Sewell & Associates, Inc. 23.3* Consent of McDaniel & Associates Consultants Ltd. 23.4* Consent of Ryder Scott Company 27.1* Financial Data Schedule, included solely in the Form 10-K filed electronically with the Securities and Exchange Commission.
- ------------------ * Filed herewith. (b) REPORTS ON FORM 8-K A Form 8-K dated October 3, 1997, was filed announcing the revision of the Stockholder's Right Plan. A Form 8-K filed December 23, 1997, was filed announcing the execution of a merger agreement with Ocean Energy, Inc. A Form 8-K filed February 11, 1998, was filed incorporating by reference certain press releases of the Company announcing the record date for shareholders entitled to vote at the UMC special meeting, participation in the Angola deepwater Block 19 concession, proved energy reserves and earnings. -58- EX-4.21 2 FIRST JOINT ADMT. TO CREDIT AGREEMENT - 12/03/97 1 Exhibit 4.21 FIRST JOINT AMENDMENT TO GLOBAL CREDIT AGREEMENT AND TO CREDIT AGREEMENT (CANADA) AMONG UMC PETROLEUM CORPORATION, UNITED MERIDIAN CORPORATION, UMC RESOURCES CANADA LTD., NORFOLK HOLDINGS INC., UMIC COTE D'IVOIRE CORPORATION, UMC EQUATORIAL GUINEA CORPORATION, THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT, NATIONSBANK OF TEXAS, N.A. AND SOCIETE GENERALE, AS DOCUMENTATION AGENTS, BANQUE PARIBAS, WELLS FARGO BANK, N.A., AND COLORADO NATIONAL BANK, AS CO-AGENTS, THE CHASE MANHATTAN BANK OF CANADA, AS CANADIAN AGENT AND THE LENDERS AND CANADIAN LENDERS SIGNATORY HERETO Effective as of December 3, 1997 2 FIRST JOINT AMENDMENT TO GLOBAL CREDIT AGREEMENT AND TO CREDIT AGREEMENT (CANADA) This FIRST JOINT AMENDMENT TO GLOBAL CREDIT AGREEMENT AND TO CREDIT AGREEMENT (CANADA) (this "First Amendment") executed effective as of the 3rd of December, 1997 (the "Effective Date") is among: UMC PETROLEUM CORPORATION, a corporation duly organized and validly existing under the laws of the state of Delaware (the "Company"); UNITED MERIDIAN CORPORATION, a corporation duly organized and validly existing under the laws of the state of Delaware ("United Meridian"); UMC RESOURCES CANADA LTD., a company existing under the laws of the Province of British Columbia ("UMC Canada"); NORFOLK HOLDINGS INC., a corporation duly organized and validly existing under the laws of the state of Delaware ("Norfolk"); UMIC COTE D'IVOIRE CORPORATION, a corporation duly organized and validly existing under the laws of the state of Delaware ("UMC- CI-11"); UMC EQUATORIAL GUINEA CORPORATION, a corporation duly organized and validly existing under the laws of the state of Delaware ("UMC-EG-B"); each of the financial institutions that is a signatory to the Credit Agreement (hereinafter defined) (individually, a "Lender" and, collectively, the "Lenders"); each of the lenders under the Canadian Credit Agreement (hereinafter defined) (individually, a "Canadian Lender" and, collectively, the "Canadian Lenders"); THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT for the Lenders (in such capacity, the "Administrative Agent"), and AS COLLATERAL AGENT for the Lenders (in such capacity, the "Collateral Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT for the Lenders (in such capacity, the "Syndication Agent"), NATIONSBANK OF TEXAS, N.A. AND SOCIETE GENERALE, AS DOCUMENTATION AGENTS for the Lenders (in such capacity, the "Documentation Agents"), BANQUE PARIBAS, WELLS FARGO BANK, N.A., and COLORADO NATIONAL BANK, AS CO-AGENTS for the Lenders (in such capacity, the "Co- Agents"), and THE CHASE MANHATTAN BANK OF CANADA, as agent for the Canadian Lenders (in such capacity, the "Canadian Agent") (the Administrative Agent, the Collateral Agent, the Syndication Agent, the Documentation Agents, the Co- Agents, the Lenders, the Canadian Agent and the Canadian Lenders collectively being the "Lender Group"). RECITALS A. United Meridian, the Company, the Administrative Agent, the Syndication Agent, the Documentation Agents, the Co-Agents and the Lenders are parties to that certain Global Credit Agreement dated as of March 18, 1997 (as amended, restated, modified or otherwise supplemented from time to time and in effect, the "Credit Agreement") pursuant to which the Lenders have made certain credit available to and on behalf of the Company. B. UMC Canada, the Canadian Agent and the Canadian Lenders are parties to that certain Credit Agreement (Canada) dated as of March 18, 1997 (as amended, restated, modified or otherwise supplemented from time to time and in effect, the "Canadian Credit Agreement") pursuant to which the Canadian Lenders have made certain credit available to and on behalf of UMC Canada. C. United Meridian, the Company and UMC Canada have requested and the Lender Group has agreed to amend certain provisions of the Credit Agreement and the Canadian Credit Agreement. D. Now, therefore, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 3 Section 1. Defined Terms. All capitalized terms which are defined in the Credit Agreement, but which are not defined in this First Amendment, shall have the same meanings as defined in the Credit Agreement or, if the context so requires, the meanings as defined in the Canadian Credit Agreement. Unless otherwise indicated, all section references in Section 3 of this First Amendment refer to the Canadian Credit Agreement, and all other section references in this First Amendment refer to the Credit Agreement. Section 2. Amendments to Credit Agreement. 2.1 Amendments to Section 1.01. (a) The definition of "Agreement" is hereby amended to read as follows: "Agreement" shall mean this Global Credit Agreement, as amended by the First Amendment and as further amended from time to time. (b) The definition of "Applicable Margin" is hereby amended to read as follows: "Applicable Margin" shall mean, with respect to Conventional Loans, the following rate per annum as is applicable:
- -------------------------------------------------------------------------------------------------------- Borrowing Base Utilization Applicable Margin for Applicable Margin for Percentage Eurodollar Loans Base Rate Loans - -------------------------------------------------------------------------------------------------------- Less than 40% 0.250% (0.250%) - -------------------------------------------------------------------------------------------------------- Greater than or equal to 40%, 0.375% (0.125%) but less than 55% - -------------------------------------------------------------------------------------------------------- Greater than or equal to 55%, 0.500% 0.000% but less than 65% - -------------------------------------------------------------------------------------------------------- Greater than or equal to 65%, 0.875% 0.000% but less than 85% - -------------------------------------------------------------------------------------------------------- Greater than or equal to 85% 1.375% 0.375%. - --------------------------------------------------------------------------------------------------------
(c) The definition of "Facility Fee Rate" is hereby amended to read as follows: "Facility Fee Rate" shall mean the following rate per annum as is applicable:
============================================================================================ Borrowing Base Utilization Percentage Rate Per Annum - -------------------------------------------------------------------------------------------- Greater than or equal to 65% 0.375% - -------------------------------------------------------------------------------------------- Less than 65% 0.250%. ============================================================================================
-2- 4 (d) The following definitions of "First Amendment" and "First Amendment Effective Date" are hereby added where alphabetically appropriate: "First Amendment" shall mean that certain First Joint Amendment to Global Credit Agreement and to Credit Agreement (Canada) dated as of December 3, 1997 among the United Meridian, the Company, the Guarantors, UMC Canada, the Agents, the Canadian Agent, the Lenders and the Canadian Lenders. "First Amendment Effective Date" shall mean the "Effective Date" as such term is defined in the First Amendment. 2.2 Borrowing Base. The third sentence of clause (a)(i) of Section 2.09 is hereby deleted in its entirety and the following is inserted in lieu thereof: For the period from and including the First Amendment Effective Date to but not including the first Redetermination Date thereafter, the amount of the Borrowing Base shall be $300,000,000, representing a North American Component of $210,000,000 and an International Component of $90,000,000. 2.3 Allocated U.S. and Canadian Borrowing Bases. The third sentence of clause (a)(iii) of Section 2.09 is hereby deleted in its entirety and the following is inserted in lieu thereof: On the First Amendment Effective Date, the Allocated Canadian Borrowing Base shall be $3,530,000, resulting in an initial Allocated U.S. Borrowing Base of $296,470,000. 2.4 Annex I and Exhibits. Annex I and Exhibit D to the Credit Agreement are hereby deleted in their entirety, and the revised Annex I and Exhibit D, each dated as of the First Amendment Effective Date and attached hereto, are inserted in lieu thereof. Section 3. Amendments to Canadian Credit Agreement. 3.1 Amendments by Incorporation. The amendments to the Credit Agreement contained in this First Amendment shall also be made to the corresponding defined terms and provisions of the Canadian Credit Agreement as such terms are incorporated therein. 3.2 Amendments to Section 1.01. The definition of "Agreement" is hereby deleted in its entirety and the following is inserted in lieu thereof: "Agreement" shall mean this Credit Agreement, as amended by the First Amendment and as further amended from time to time. 3.3 Removal of Canadian Lender. As of the First Amendment Effective Date, but subject to the terms of Section 12.04 of the Canadian Credit Agreement and the Sections referred to therein, (i) all Indebtedness under the Canadian Credit Agreement and the Security Instruments (as defined in the Canadian Credit Agreement) owing to Societe Generale (Canada) shall be paid in full, (ii) Societe Generale (Canada) shall be removed as a "Lender" under the Canadian Credit Agreement, and (iii) Societe Generale (Canada) shall be relieved of its obligations under the Canadian Credit Agreement, the Intercreditor Agreement and the other Security Instruments in full. -3- 5 Section 4. Consents and other Matters. 4.1 Limitations on Waivers. The following waivers granted in Section 4.2 of this First Amendment are hereby granted to the extent and only to the extent necessary to permit the consummation of the transactions described therein, and such provisions shall not be waived for any other purposes. 4.2 Notices; Consent and Waiver - UMC Colorado LLC. United Meridian and the Company have informed the Lender Group that United Meridian intends to create UMC Colorado LLC, a limited liability company formed under the laws of the State of Colorado, initially having United Meridian as its sole member. United Meridian intends to capitalize UMC Colorado LLC with certain intercompany notes issued by the Company in favor of United Meridian and thereafter contribute its membership interests in UMC Colorado LLC to the Company resulting in the Company being the sole member of UMC Colorado LLC. The intercompany notes are subordinated to the Indebtedness as required under Section 9.01(g). United Meridian and the Company have advised the Lender Group that the foregoing transactions may violate Section 9.13 of the Credit Agreement and have requested that the Lender Group consent, and the Lender Group hereby consents, to the transactions contemplated in this Section 4.2. Section 5. Conditions Precedent. The effectiveness of this First Amendment is subject to the receipt by the Administrative Agent of the following documents and satisfaction or waiver of the other conditions provided in this Section 5, each of which shall be satisfactory to the Administrative Agent in form and substance: 5.1 Loan Documents. The Administrative Agent shall have received multiple counterparts as requested of this First Amendment, each executed and delivered by a duly authorized officer of each party. 5.2 Representations and Warranties. Except as affected by the transactions contemplated in the Credit Agreement and this First Amendment, each of the representations and warranties made by United Meridian, the Company, any Guarantor or UMC Canada in or pursuant to the Security Instruments shall be true and correct in all material respects as of the Effective Date, as if made on and as of such date. 5.3 No Default. No Default or Event of Default shall have occurred and be continuing as of the Effective Date. 5.4 No Change. No event shall have occurred since December 31, 1996 which could reasonably be expect to have a Material Adverse Effect. 5.5 Security Instruments. All of the Security Instruments shall be in full force and effect. 5.6 Intercompany Notes. United Meridian shall have delivered true and complete copies of the subordinated intercompany notes described in Section 4.2, which shall be in form and substance reasonably satisfactory to the Administrative Agent. Section 6. Representations and Warranties; Etc. United Meridian, the Company, each Guarantor and UMC Canada, as appropriate, each hereby affirm that as of the date of execution and delivery of this First Amendment, all of the representations and warranties contained in the Credit -4- 6 Agreement, the Canadian Credit Agreement and the other Security Instruments to which it is a party are true and correct in all material respects as though made on and as of the Effective Date and after giving effect to this First Amendment and to the transactions contemplated hereby and that no Defaults exist or will exist under the Credit Agreement, the UMC Credit Agreement or other Security Instruments to which it is a party after giving effect to the aforesaid transactions. Section 7. Miscellaneous. 7.1 Confirmation. The provisions of the Credit Agreement and the Canadian Credit Agreement (each as amended by this First Amendment) shall remain in full force and effect in accordance with their terms following the effectiveness of this First Amendment. 7.2 Ratification and Affirmation of Guarantors. Each of the Guarantors under the Credit Agreement and under the Canadian Credit Agreement hereby expressly (i) acknowledges the terms of this First Amendment, (ii) ratifies and affirms its obligations under its respective Guaranty Agreement and the other Security Instruments to which it is a party, (iii) acknowledges, renews and extends its continued liability under its respective Guaranty Agreement and the other Security Instruments to which it is a party and agrees that its respective Guaranty Agreement and the other Security Instruments to which it is a party remains in full force and effect with respect to the Indebtedness as amended hereby. 7.3 Counterparts. This First Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 7.4 No Oral Agreement. THIS WRITTEN FIRST AMENDMENT, THE CREDIT AGREEMENT, THE CANADIAN CREDIT AGREEMENT AND THE SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH AND THEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRACTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. 7.5 GOVERNING LAW. THIS FIRST AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF; PROVIDED THAT, TO THE EXTENT THIS FIRST AMENDMENT AMENDS THE CANADIAN CREDIT AGREEMENT, THIS FIRST AMENDMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ALBERTA AND THE LAWS OF CANADA APPLICABLE THEREIN, OTHER THAN THE CONFLICT OF LAWS RULES THEREOF. [SIGNATURES BEGIN NEXT PAGE] -5- 7 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed effective as of the date first written above. UMC PETROLEUM CORPORATION By: -------------------------------- Kevin McMillan Vice President and Treasurer UNITED MERIDIAN CORPORATION By: -------------------------------- Kevin McMillan Vice President and Treasurer UMC RESOURCES CANADA LTD. By: -------------------------------- Kevin McMillan Vice President and Treasurer NORFOLK HOLDINGS INC. By: -------------------------------- Name: Title: UMIC COTE D'IVOIRE CORPORATION By: -------------------------------- Kevin McMillan Vice President and Treasurer UMC EQUATORIAL GUINEA CORPORATION By: -------------------------------- Kevin McMillan Vice President and Treasurer [Signature Page to First Joint Amendment to Global Credit Agreement - Page 1] 8 BANQUE PARIBAS By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: THE CHASE MANHATTAN BANK By: -------------------------------- Mary Jo Woodford Vice President NATIONSBANK OF TEXAS, N.A. By: -------------------------------- Paul Squires Senior Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------- John Kowalczuk Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By: -------------------------------- Richard Erbert Vice President [Signature Page to First Joint Amendment to Global Credit Agreement - Page 2] 9 WELLS FARGO BANK, N.A. By: -------------------------------- John Fields Vice President COLORADO NATIONAL BANK By: -------------------------------- Name: Title: ABN/AMRO BANK, N.V. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: -------------------------------- Name: Title: [Signature Page to First Joint Amendment to Global Credit Agreement - Page 3] 10 BARCLAYS BANK PLC By: -------------------------------- Name: Title: CHRISTIANIA BANK OG KREDITKASSE, ASA By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: [Signature Page to First Joint Amendment to Global Credit Agreement - Page 4] 11 AGENTS: THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT By: -------------------------------- Mary Jo Woodford Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, AS SYNDICATION AGENT By: -------------------------------- John Kowalczuk Vice President NATIONSBANK OF TEXAS, N.A., AS DOCUMENTATION AGENT By: -------------------------------- Paul Squires Senior Vice President SOCIETE GENERALE, SOUTHWEST AGENCY, AS DOCUMENTATION AGENT By: -------------------------------- Richard Erbert Vice President [Signature Page to First Joint Amendment to Global Credit Agreement - Page 5] 12 BANQUE PARIBAS, AS CO-AGENT By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: WELLS FARGO BANK, N.A., AS CO-AGENT By: -------------------------------- John Fields Vice President COLORADO NATIONAL BANK, AS CO-AGENT By: -------------------------------- Name: Title: [Signature Page to First Joint Amendment to Global Credit Agreement - Page 6] 13 CANADIAN AGENT AND LENDER: THE CHASE MANHATTAN BANK OF CANADA By: -------------------------------- Christine Chan Vice President By: -------------------------------- Richard Jerome Vice President THE CHASE MANHATTAN BANK OF CANADA, as Canadian Agent By: -------------------------------- Christine Chan Vice President By: -------------------------------- Richard Jerome Vice President CANADIAN LENDER WITHDRAWING FROM THE CREDIT AGREEMENT. SOCIETE GENERALE (CANADA) By: -------------------------------- Bert Coish Vice President [Signature Page to First Joint Amendment to Global Credit Agreement - Page 7] 14 ANNEX I LIST OF COMMITMENTS AND CANADIAN COMMITMENTS as of December 3, 1997 U.S. Lenders and U.S. Commitments
Name of Lender Commitment Percentage Commitment Global Commitment Percentage - -------------- --------------------- ---------- ---------------------------- The Chase Manhattan Bank 10.61490201% $35,000,000.00 11.66667% Morgan Guaranty Trust Company 11.80557897% $35,000,000.00 11.66667% of New York NationsBank of Texas, N.A. 10.119067% $30,000,000.00 10.00000% Societe Generale, Southwest 10.119067% $30,000,000.00 10.00000% Agency Banque Paribas 8.43255642% $25,000,000.00 8.33333% Wells Fargo Bank, N.A. 8.43255642% $25,000,000.00 8.33333% Colorado National Bank 6.74604513% $20,000,000.00 6.66667% ABN/AMRO Bank N.V. 6.74604513% $20,000,000.00 6.66667% Bank of America NT & SA 6.74604513% $20,000,000.00 6.66667% Barclays Bank PLC 6.74604513% $20,000,000.00 6.66667% Christiania Bank og Kreditkasse 6.74604513% $20,000,000.00 6.66667% Credit Suisse First Boston 6.74604513% $20,000,000.00 6.66667% ------------- --------------- ----------- 100.00% $300,000,000.00 100.00%
Canadian Lenders and Canadian Subcommitments
Name of Lender Commitment Percentage Commitment - -------------- --------------------- ---------- The Chase Manhattan Bank of Canada 100% CDN $37,500,00
15 Affiliated Canadian Lenders
Lender Canadian Affiliate ------ ------------------ The Chase Manhattan Bank The Chase Manhattan Bank of Canada
16 EXHIBIT D SUBSIDIARIES AND GUARANTORS December 3, 1997 Unless otherwise indicated in this Exhibit D, 100% of the Capital Stock of each of the Subsidiaries listed below is legally and beneficially owned by the Company. Unless otherwise indicated in this Exhibit D, the principal place of business and chief executive office of each of the Subsidiaries listed below is located at 1201 Louisiana, Suite 1400, Houston, Texas 77002. Unless otherwise indicated in this Exhibit D, each of the Subsidiaries listed below is a Delaware corporation. UMC Pipeline Corporation United Meridian International Corporation UMIC Cote d'Ivoire Corporation Lion G.P.L. (an Ivorian company). 100% owned by UMIC Cote d'Ivoire Corporation. The principal place of business is located at BP 827, Abidjan 04, Republic of Cote d'Ivoire. UMIC (CI-01) Corporation UMIC (CI-02) Corporation UMIC (CI-12) Corporation UMIC (CI-105) Corporation UMC Angola Corporation UMC Bangladesh Corporation UMC Pakistan Corporation UMC Ghana Corporation UMC Cayman Islands Corporation (a Cayman Islands corporation) 17 Norfolk Holdings Inc., 410 17th Street, Suite 1400, Denver, Colorado 80202 (Guarantor) UMC Resources Canada Ltd. (a British Columbia company). 86.58% of the equity of this company is legally and beneficially owned by Norfolk Holdings Inc. 13.42% of the equity of this company is legally and beneficially owned by UMC Petroleum Corporation. The principal place of business and chief executive office is located at 350 Seventh Avenue S.W., Suite 1000, Calgary, Alberta T2P 3N9 UMC Equatorial Guinea Corporation Big Sky Gas Marketing Corporation Havre Pipeline Company, L.L.C. (a Texas limited liability company). 410 17th Street, Suite 1400, Denver, Colorado 80202. UMC Petroleum Corporation owns 55.89% of the units of this company. UMC Colorado LLC (a Colorado limited liability company), 410 17th Street, Suite 1400, Denver, Colorado 80202. GUARANTORS United Meridian Corporation Norfolk Holdings Inc. UMIC Cote d'Ivoire Corporation UMC Equatorial Guinea Corporation EX-10.37 3 ADMT.#1 TO AGREEMENT & PLAN OF MERGER - 1/07/98 1 EXHIBIT 10.37 AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made and entered into effective as of January 7, 1998, among OEI HOLDING CORPORATION, a Delaware corporation ("Newco"), UNITED MERIDIAN CORPORATION, a Delaware corporation ("UMC"), and OCEAN ENERGY, INC. a Delaware corporation ("OEI"). RECITALS A. Newco, UMC and OEI have entered into that certain Agreement and Plan of Merger, dated as of December 22, 1997 (the "Merger Agreement"). B. Newco, UMC and OEI desire to amend the Merger Agreement as set forth in this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained in the Merger Agreement and this Amendment, the parties hereto agree as follows: 1. Amendment to Section 1.5(b) of the Merger Agreement. Section 1.5(b) of the Merger Agreement is hereby amended and restated in its entirety as follows: "(b) Charter Documents. The Certificate of Merger for the Newco Merger shall provide that at the Newco Effective Time, the introductory paragraph to Section 4 of the certificate of incorporation of OEI shall be amended and restated in its entirety as set forth in EXHIBIT G hereto. At the Newco Effective Time, Sections 13 and 14 of Article III of the Amended and Restated Bylaws of OEI (the "OEI Bylaws") shall be amended and restated in their entirety as set forth on EXHIBIT A-1 hereto, and Articles V and VIII of the OEI Bylaws shall be amended and restated as set forth in EXHIBIT A-2 hereto. At the UMC Effective Time, the certificate of incorporation and bylaws of OEI, as in effect immediately prior to the UMC Effective Time, shall be the certificate of incorporation and bylaws, respectively, of OEI until thereafter changed or amended as provided therein or by applicable law." 2. Deletion of Exhibit A to the Merger Agreement. Exhibit A attached to the Merger Agreement is hereby deleted in its entirety. 3. Addition of Exhibits A-1, A-2 and G to the Merger Agreement. The Merger Agreement is hereby amended to add Exhibits A-1, A-2 and G thereto as set forth on EXHIBITS A-1, A-2 and G, respectively, attached hereto. 1 2 4. Amendment to Section 1.7 of the Merger Agreement. Section 1.7 of the Merger Agreement is hereby deleted in its entirety. 5. Amendment to Exhibit E of the Merger Agreement. Exhibit E to the Merger Agreement is hereby amended and restated in its entirety as set forth on EXHIBIT E attached hereto. 6. Amendment to Exhibit F of the Merger Agreement. Exhibit F to the Merger Agreement is hereby amended and restated in its entirety as set forth on EXHIBIT F attached hereto. 7. Effect of Amendment. Except as amended by the foregoing, the Merger Agreement shall remain in full force and effect. 8. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes. [The remainder of this page is intentionally left blank.] 2 3 IN WITNESS WHEREOF, the parties have executed this Amendment as of January 7, 1998. OEI HOLDING CORPORATION By: /s/ John B. Brock ------------------------------------------ Name: John B. Brock Title: Chairman of the Board UNITED MERIDIAN CORPORATION By: /s/ John B. Brock ------------------------------------------ Name: John B. Brock Title: Chairman of the Board and Chief Executive Officer OCEAN ENERGY, INC. By: /s/ James C. Flores ------------------------------------------ Name: James C. Flores Title: Chairman or the Board, President and Chief Executive Officer 3 4 EXHIBIT A-1 TO AMENDMENT NO.1 TO THE MERGER AGREEMENT EXHIBIT A-1 TO THE MERGER AGREEMENT AMENDMENTS TO ARTICLE III OF OEI BYLAWS Committees of Directors Section 13. (a) In addition to the committees set forth in Section 14(a) of this Article III, the Board of Directors may, by resolution passed by a two-thirds vote of the entire Board of Directors, designate one or more additional committees, with each such committee consisting of one or more directors of the Corporation and having such powers and authority as the Board of Directors shall designate by such resolutions. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except pursuant to a resolution relating to the issuance of capital stock pursuant to Section 151 of Title 8 of the Delaware General Corporation Law); adopting an agreement of merger or consolidation; recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets; recommending to the stockholders the dissolution of the Corporation or a revocation of a dissolution; or amending the bylaws of the Corporation and, unless the resolution, certificate of incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such members as may be determined from time to time by resolution adopted by the Board of Directors. (b) Any modification to the powers and authority of any committee shall require the adopting of a resolution by a two-thirds vote of the entire Board of Directors. (c) All acts done by any committee within the scope of its powers and authority pursuant to these Bylaws and the resolutions adopted by the Board of Directors in accordance with the terms hereof shall be deemed to be, and may be certified as being, done or conferred under authority of the Board of Directors. The Secretary or any Assistant Secretary is empowered to certify that any resolutions duly adopted by any such committee is binding upon the Corporation and to execute and deliver such certifications from time to time as may be necessary or proper to conduct of the business of the Corporation. (d) Regular meetings of committees shall be held at such times as may be determined by resolution of the Board of Directors or the committee in question and no notice shall be required for any regular meeting other than such resolution. A special meeting of any A-1-1 5 committee shall be called by resolution of the Board of Directors, or by the Secretary or an Assistant Secretary upon the request of the chairman or a majority of the members of any committee. Notice of special meetings shall be given to each member of the committee in the same manner as that provided for in Article IV, Section 1 of these Bylaws. (e) Each committee shall keep regular minutes of its meeting and report the same to the Board of Directors. Section 14. (a) The Corporation shall have four standing committees: the finance committee, the nominating committee, the audit committee and the compensation committee. (1) The finance committee shall have those powers and authority as are delegated to it from time to time pursuant to a resolution passed by a two-thirds vote of the total number of directors fixed by the Board of Directors pursuant to Article III, Section 1 of these Bylaws which the Corporation would have if there were not vacancies (the "entire Board of Directors"). (2) The nominating committee shall have the following exclusive powers and authority: (i) evaluating and recommending director candidates to the Board of Directors, (ii) recommending director compensation and benefits philosophy for the Corporation, (iii) reviewing individual director performance as issues arise and (iv) periodically reviewing the Corporation's corporate governance profile. (3) The audit committee shall have the following powers and authority: (i) employing independent public accountants to audit the books of account, accounting procedures and financial statements of the Corporation and to perform such other duties from time to time as the audit committee may prescribe, (ii) receiving the reports and comments of the Corporation's internal auditors and of the independent public accountants employed by the committee and to take such action with respect thereto as may seem appropriate, (iii) requesting the Corporation's consolidated subsidiaries and affiliated companies to employ independent public accountants to audit their respective books of account, accounting procedures and financial statements, (iv) requesting the independent public accountants to furnish to the compensation committee the certifications required under any present or future stock option, incentive compensation or employee benefit plan of the Corporation, (v) reviewing the adequacy of internal financial controls, (vi) approving the accounting principles employed in financial reporting, (vii) approving the appointment or removal of the Corporation's general auditor, and (viii) reviewing the accounting principles employed in financial reporting. None of the members of the audit committee shall be an officer or full-time employee of the Corporation or of any subsidiary or affiliate of the Corporation. (4) The compensation committee shall have the following powers and authority: (i) determining and fixing the compensation for all senior officers of the A-1-2 6 Corporation and those of its subsidiaries that the compensation committee shall from time to time consider appropriate, as well as all employees of the Corporation and its subsidiaries compensated at a rate in excess of such amount per annum as may be fixed or determined from time to time by the Board of Directors, (ii) performing the duties of the committees of the Board of Directors provided for in any present or future stock option, incentive compensation or employee benefit plan of the Corporation or, if the compensation committee shall so determine, any such plan of any subsidiary and (iii) reviewing the operations of and policies pertaining to any present or future stock option, incentive compensation or employee benefit plan of the Corporation or any subsidiary that the compensation committee shall from time to time consider appropriate. (b) The Board of Directors may elect a secretary of any such committee. If the Board of Directors does not elect such a secretary, the committee shall do so. The secretary of any committee need not be a member of the committee, but shall be selected from a member of the staff of the office of the Secretary of the Corporation, unless otherwise provided by the Board of Directors or the committee, as applicable. (c) Each member of any committee of the Board of Directors shall hold office until such member's successor is elected and has qualified, unless such member sooner dies, resigns or is removed. The number of directors which shall constitute any committee shall be determined by resolution adopted by the Board of Directors. (d) The Board of Directors may remove a director from a committee or change the chairmanship of a committee by resolution adopted by the Board of Directors, provided that a resolution to remove John Brock or James C. Flores from a committee or the chairmanship of a committee shall require a two-thirds vote of the entire Board of Directors. (e) The Board of Directors may designate one or more directors as alternate members of any committee to fill any vacancy on a committee and to fill a vacant chairmanship of a committee, occurring as a result of a member or chairman leaving the committee, whether through death, resignation, removal or otherwise. A-1-3 7 EXHIBIT A-2 TO AMENDMENT NO.1 TO THE MERGER AGREEMENT EXHIBIT A-2 TO THE MERGER AGREEMENT AMENDMENTS TO ARTICLES V AND VIII OF OEI BYLAWS ARTICLE V OFFICERS General Section 1. The officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chairman of the Board; a President and Chief Executive Officer (which shall be the same person holding both such offices); and may also consist of a Chief Operating Officer; a Chief Financial Officer; one or more vice presidents; a secretary; one or more assistant secretaries; a treasurer; one or more assistant treasurers; a controller; and such other officers as in the judgment of the Board of Directors may be necessary or desirable. Section 2. All officers chosen by the Board of Directors shall have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have powers and duties as from time to time may be conferred by the Board of Directors or any committee thereof. Section 3. Any number of officers may be held by the same person, unless otherwise prohibited by law, the certificate of incorporation or these Bylaws. The officers of the Corporation need not be stockholders or directors of the Corporation. Section 4. The salaries of all officers and agents of the Corporation shall be fixed from time to time by the Board of Directors. Election and Term of Office Section 5. Subject to Section 15 of this Article V, the elected officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Subject to Section 15 of this Article V, each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or be removed. A-2-1 8 Chairman of the Board Section 6. The Chairman of the Board shall be a member of the Board of Directors and shall be an officer of the Corporation. The Chairman of the Board, if present, shall preside at all meetings of the Board of Directors. Vice Chairman of the Board Section 7. The Vice Chairman of the Board shall be a member of the Board of Directors and shall be an officer of the Corporation. The Vice Chairman of the Board shall have such duties and powers as shall be assigned to him from time to time by the President and Chief Executive Officer of the Corporation. President and Chief Executive Officer Section 8. Subject to the penultimate sentence of this Section, the offices of President and Chief Executive Officer shall be held by a single individual who is a member of the Board of Directors and such person shall be an officer of the Corporation. The President and Chief Executive Officer shall supervise, coordinate and manage the Corporation's business and activities and supervise, coordinate and manage its operating expenses and capital allocation, shall make recommendations as to compensation and benefits to the Compensation Committee of the Board of Directors with respect to the employees of the Corporation and its subsidiaries, shall have general authority to exercise all the powers necessary for the President and Chief Executive Officer of the Corporation and shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors. In the absence or disability of the Chairman of the Board, the duties of the Chairman of the Board shall be performed and the Chairman of the Board's authority may be exercised by the President and Chief Executive Officer, and in the event the President and Chief Executive Officer is absent or disabled, such duties shall be performed and such authority may be exercised by a director designated for this purpose by the Board of Directors. Notwithstanding the foregoing, the Board of Directors may designate the Chief Operating Officer, if one is so designated by the Board of Directors, as President of the Corporation provided that the duties and authority of the Chief Executive Officer are not materially diminished. The Vice Chairman and all executive vice presidents shall report directly to the Chief Executive Officer or such other officer of the Corporation that the President and Chief Executive Officer may designate. Chief Financial Officer Section 9. The Chief Financial Officer shall have responsibility for the financial affairs of the Corporation and shall exercise supervisory responsibility for the performance of the duties of the Treasurer and the Controller. The Chief Financial Officer shall perform such other duties and have such other powers as may be prescribed by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the A-2-2 9 Board of the Directors, the Chairman and Chief Executive Officer and the President and Chief Operating Officer. The Executive Vice Presidents, Senior Vice Presidents and Vice Presidents Section 10. In the absence of the president or in the event of his inability or refusal to act, an executive vice president or, in the absence of an executive vice president, a senior vice president or a vice president (in either case in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election), shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions imposed upon the president. The executive vice presidents, senior vice presidents and vice presidents shall perform such other duties and have such other powers as the president or Board of Directors may from time to time prescribe. The Secretary and the Assistant Secretary Section 11. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation, if any such seal be adopted by resolution of the Board of Directors, and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his signature. Section 12. The assistant secretary (or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The Treasurer and Assistant Treasurer Section 13. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. A-2-3 10 Section 14. The assistant treasurer (or, if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, or, if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Certain Actions Section 15. Notwithstanding anything to the contrary contained in these Bylaws, the removal of the current Chairman of the Board and President and Chief Executive Officer as of [DATE OF THE EFFECTIVE TIME], or any material modification to either of their respective roles, duties or authority shall require a two-thirds vote of the entire Board of Directors. ARTICLE VIII AMENDMENTS Section 1. These Bylaws may be altered, amended or repealed, or new bylaws may be adopted by the affirmative vote of a majority of the entire Board of Directors at any meeting and without the consent or vote of the stockholders; provided, however, that the affirmative vote of no less than two-thirds of the entire Board of Directors is required to alter, amend or repeal the bylaws set forth in Article III, Sections 13 and 14, Article V, Section 15 and this proviso. These Bylaws may be altered, amended or repealed, or new bylaws may be adopted by the stockholders at any regular meeting of the stockholders or at any special meeting of the stockholders, if notice of such alteration, amendment, repeal or adoption of new bylaws is contained in the notice of such meeting, by the holders of at least 66-2/3% of the total voting power of all shares of stock of the Corporation entitled to vote in the election of directors, considered for purposes of this Article VIII as one class. A-2-4 11 EXHIBIT E TO AMENDMENT NO.1 TO THE MERGER AGREEMENT EXHIBIT E TO THE MERGER AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of [date of the Effective Time] (the "Effective Date") by and between Ocean Energy, Inc., a Delaware corporation ("Company"), and James C. Flores ("Employee"). WHEREAS, the Company employs Employee and desires to continue such employment relationship and Employee desires to continue such employment; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Employment. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, on the terms and conditions set forth in this Agreement. 2. Term of Employment. Subject to the provisions for earlier termination provided in the Agreement, the term of this Agreement (the "Term") shall commence on the Effective Date and shall terminate on the third anniversary of the Effective Date; provided, however, commencing on the Effective Date and on each day thereafter, the Term shall automatically be extended one additional day unless the Board of Directors of the Company (the "Board") shall give written notice to Employee that the Term shall cease to be so extended as of a specified future date, in which event the Agreement shall terminate on the third anniversary of the specified future date. Notwithstanding any provision of this Agreement to the contrary, termination of this Agreement shall not alter or impair any rights or benefits of Employee (or Employee's estate or beneficiaries) that have arisen under this Agreement on or prior to such termination. 3. Employee's Duties. During the Term, Employee shall serve as the Chief Executive Officer and President of the Company, with such customary duties and responsibilities as may from time to time be assigned to him by the Board, provided that such duties are at all times consistent with the duties of such positions. Employee shall report directly to the Board. All other employees of the Company shall report to Employee. Employee agrees to devote his full attention and time during normal business hours to the business and affairs of the Company and to use reasonable best efforts to perform faithfully and efficiently such duties and responsibilities. Notwithstanding the foregoing, during the Term Employee may engage in the following activities so long as they do not interfere in any material respect with the performance of Employee's duties and responsibilities hereunder: (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking E-1 12 engagements or teach on a part-time basis at educational institutions, and (iii) manage his personal investments; provided, however, in no event shall the conduct of any of such activities by Employee be deemed to materially interfere with Employee's duties hereunder until Employee has been notified in writing thereof by the Board and given a reasonable period in which to cure such interference. The Company agrees to use its reasonable best efforts to cause Employee to be elected or appointed, or re-elected or re-appointed, as a director of the Company at all times during the Term. 4. Base Compensation. For services rendered by Employee under this Agreement the Company shall pay to Employee a base salary ("Base Compensation") of $600,000 per annum payable in accordance with the Company's customary payroll practice for its senior executive officers. The amount of Base Compensation shall be reviewed periodically by the Board and may be increased from time to time as the Board may deem appropriate. Base Compensation, as in effect at any time, may not be decreased. 5. Annual Bonus. In addition to his Base Compensation, Employee shall be eligible to receive each year during the Term, a cash incentive payment in an amount equal to 200% of Employee's Base Compensation (the "Target Bonus"). The amount of the Target Bonus earned for any year shall be determined by the Compensation Committee of the Board based on Employee's individual performance and the performance by the Company. 6. Other Benefits. Employee shall be entitled to participate in all incentive compensation plans and to receive all fringe benefits and perquisites offered by the Company to any of its senior executive officers, including, without limitation, participation in the various employee benefit plans or programs provided to the employees of the Company in general, subject to the regular eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or prerequisites as may be approved by the Board during the Term, all on a basis at least as favorable to Employee as may be provided or offered to any other senior executive officer of the Company. In addition, and not in limitation of the foregoing, Employee shall be entitled to the following: (a) Business Expenses. The Company shall reimburse Employee for all business expenses reasonably incurred by Employee in the performance of his duties. It is understood that Employee is authorized to incur reasonable business expenses for promoting the business of the Company, including reasonable expenditures for travel, lodging, meals and client or business associate entertainment. Request for reimbursement for such expenses must be accompanied by appropriate documentation. (b) Automobile. The Company shall either provide Employee with an automobile of a make and model selected by Employee or promptly reimburse Employee in full for his cost of leasing or purchasing an automobile. In addition, the Company shall E-2 13 pay or reimburse Employee for all reasonable costs and expenses associated with the use, maintenance, insurance and repair of such automobile. (c) Clubs. The Company shall reimburse Employee for the cost and expenses (including initiation fees, assessments and annual dues) of such social clubs and business clubs as Employee determines, in his good faith opinion, to be helpful or appropriate to the performance of his duties. (d) Relocation Expenses. In conjunction with Employee's relocation of his principal residence to the greater Houston, Texas metropolitan area, the Company shall reimburse Employee for all out-of-pocket expenses involved in such move, including, without limitation, packing and transport of personal, family, and household goods and vehicles by suitable service providers, for any brokerage fees for the sale or purchase of any residences, of any loss of economic value occasioned by the timing of the sale or by Employee's inability to recover monies invested in any personal residence sold, temporary housing costs in suitable alternative housing, all utility severance and hook-up costs, and any other relocation expenses, all such sums to be grossed-up for the impact of any federal, state or local taxes levied against Employee for such portions of such reimbursement as shall be taxable and non-deductible to Employee. 7. Termination. This Agreement may be terminated prior to the end of its Term as set forth below. (a) Resignation. Employee may resign his position at any time. In the event of such resignation, except in the case of resignation for Good Reason (as defined below), Employee shall not be entitled to further compensation pursuant to this Agreement. (b) Death. If Employee's employment is terminated due to his death, this Agreement shall terminate and the Company shall have no obligations to his legal representatives with respect to this Agreement other than the payment of any compensation which had accrued hereunder at the date of Employee's death. (c) Discharge. (i) The Company may terminate this Agreement and Employee's employment for any reason deemed sufficient by the Company upon notice as provided in Section 10. However, in the event that Employee's employment is terminated during the Term by the Company for any reason other than his Misconduct or Disability (as such terms are defined below), then, subject to Section 7(h) below: (A) within five business days of the Date of Termination, the Company shall pay to Employee a lump sum amount in cash equal to three times the sum of (1) Employee's Base Compensation and (2) Employee's Target Bonus; (B) for the 36-month period after such Date of Termination the Company, at its sole expense, shall continue to provide or arrange to provide Employee (and Employee's dependents) with health insurance benefits no less favorable than the E-3 14 health plan benefits provided by the Company (or any successor) during such 36-month period to any senior executive officer of the Company; provided, further, to the extent the coverage or benefits received are taxable to Employee, the Company shall make Employee "whole" on a net after tax basis; and (C) on the Date of Termination all then outstanding Company stock-based awards of Employee, whether under this Agreement, a Company stock plan or otherwise, shall become immediately exercisable and payable in full, as the case may be, with any performance goals associated therewith being deemed to have been achieved at the maximum levels. Notwithstanding anything in this Agreement to the contrary, if any payment to Employee in respect of a Company stock-based award would give rise to a short-swing profit liability to Employee under Section 16(b) of the Securities Exchange Act of 1934, then both the payment and the entitlement to payment thereof shall automatically be deferred until the earliest date at which the payment of such benefit would not result in a short-swing profit liability to Employee. (ii) Notwithstanding the foregoing provisions of this Section 7, in the event Employee is terminated because of Misconduct, the Company shall have no obligations pursuant to this Agreement after the Date of Termination. As used herein, "Misconduct" means (a) the willful and continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, or (b) the willful engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes hereof, no act, or failure to act, on Employee's part shall be deemed "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for Misconduct unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board Employee was guilty of conduct set forth above and specifying the particulars thereof in detail. (d) Disability. (i) If Employee shall have been absent from the full-time performance of Employee's duties with the Company for six consecutive months as a result of Employee's incapacity due to physical or mental illness, as determined by Employee's physician, and within 30 days after written Notice of Termination is E-4 15 given by the Company Employee shall not have returned to the full-time performance of Employee's duties, Employee's employment may be terminated by the Company for "Disability", provided Employee is entitled to and receiving benefits under an insured long term disability plan of the Company. Thereafter, Employee shall not be entitled to further compensation pursuant to this Agreement. (ii) If Employee fails during any period during the Term to perform Employee's full-time duties with the Company as a result of incapacity due to physical or mental illness, as determined by Employee's physician, Employee shall continue to receive his Base Compensation, less any amount payable to Employee under a Company disability plan, and all other compensation and benefits during such period until this Agreement is terminated. (e) Resignation for Good Reason. Employee shall be entitled to terminate his employment for Good Reason as defined herein. If Employee terminates his employment for Good Reason, Employee shall be entitled to the compensation and benefits provided in Paragraph 7(c)(i) hereof. "Good Reason" shall mean (1) the breach of any of the Company's obligations under this Agreement without Employee's express written consent or (2) the occurrence of any of the following circumstances, as the case may be, without Employee's express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination pursuant to Subsection 7(f) given in respect thereof: (i) the assignment by the Board to Employee of any duties that, in the good faith opinion of Employee, are inconsistent with Employee's positions with the Company, or an adverse alteration (as determined in good faith by Employee) in the nature or status of Employee's office, title, responsibilities, including reporting responsibilities, or the conditions of Employee's employment from those in effect immediately prior to such alteration; (ii) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable to Employee, both in terms of the amount of benefits provided and the level of Employee's participation relative to other participants; (iii) the taking of any action by the Company which would directly or indirectly materially reduce or deprive Employee of any material fringe benefit then enjoyed by Employee; E-5 16 (iv) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 12 hereof; (v) the relocation of the Company's principal executive offices outside the greater Houston, Texas metropolitan area, or the Company's requiring Employee to relocate anywhere other than the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's past business travel obligations; or (vi) any purported termination of Employee's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (f) hereof, which purported termination shall not be effective for purposes of this Agreement. Employee's right to terminate employment pursuant to this subsection shall not be affected by Employee's incapacity due to physical or mental illness. In addition, Employee's continued employment following any event, act or omission, regardless of the length of such continued employment, shall not constitute Employee's consent to, or a waiver of Employee's rights with respect to, such event, act or omission constituting a Good Reason circumstance hereunder. (f) Notice of Termination. Any purported termination of Employee's employment by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall set forth in reasonable detail the reason for termination of Employee's employment, or in the case of resignation for Good Reason, said notice must specify in reasonable detail the basis for such resignation. No purported termination which is not effected pursuant to this Section 7(f) shall be effective. (g) Date of Termination, Etc. "Date of Termination" shall mean the date specified in the Notice of Termination. Either party may, within 15 days after any Notice of Termination is given, provide notice to the other party pursuant to Section 10 hereof that a dispute exists concerning the termination. Notwithstanding the pendency of any such dispute, the Company will continue to pay Employee his full Base Compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Compensation) and continue Employee as a participant in all compensation, benefit and insurance plans in which Employee was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 16 hereof, but in no event past the expiration date of this Agreement. Any payments and benefits provided during such period of dispute shall not reduce any other payments or benefits due Employee under this Agreement nor shall Employee be liable to repay the Company for such payments and benefits if it is finally determined the Employee is not E-6 17 entitled to payments under the other provisions of this Agreement following Employee's termination of employment. (h) Mitigation. Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Section 7 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation or benefit earned by Employee as a result of employment by another employer, self-employment earnings, by retirement benefits, by offset against any amount claimed to be owing by Employee to the Company, or otherwise, except that any cash severance amount payable to Employee pursuant to a Company maintained severance plan or policy for employees in general shall reduce the amount otherwise payable to Employee pursuant to Section 7(c)(i)(A). (i) Gross-Up of Parachute Payments. If, during the Term, any payment, including without limitation any imputed income, made or benefit provided to or on behalf of Employee, including any accelerated vesting or any deferred compensation or other award, in connection with a "change in control" of the Company, whether or not made or provided pursuant to this Agreement, results in Employee being subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (or any successor or similar provision), the Company shall pay Employee an additional amount of cash (the "Additional Amount") such that the net amount of all payments and benefits received by Employee after paying all applicable taxes thereon, including on such Additional Amount, shall be equal to the net after-tax amount of payments and benefits that Employee would have received if section 4999 were not applicable. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any stock option or other agreements with the Company or any of its affiliated companies. 9. Assignability. The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, provided that no such assignment or delegation shall relieve the Company of its duties and obligations hereunder nor affect the rights of Employee hereunder. 10. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, sent by overnight courier or by facsimile with confirmation of receipt or on the third business day after being mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address and facsimile E-7 18 number, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee's residence address and facsimile number on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective only upon receipt. 11. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of the Company ("Successor") or any corporation which becomes the ultimate parent corporation of the Company or any such Successor ("Ultimate Parent") to expressly assume and agree in writing satisfactory to the Employee to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such written agreement prior to the effectiveness of any such succession or creation of the parent corporation relationship shall be a breach of this Agreement and shall entitle Employee to compensation and benefits from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession (or creation of the parent corporation relationship) becomes effective shall be deemed the Date of Termination. As used in this Agreement, including, without limitation, in Section 3, the term "Company" shall include any Successor and Ultimate Parent which executes and delivers the Agreement as provided for in this Section 12 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 13. Indemnification. During the Term and for a period of six years thereafter, the Company shall cause Employee to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at the request of the Company. The coverage provided to Employee pursuant to this Section 8 shall be of a scope and on terms and conditions at least as favorable as the most favorable coverage provided to any other officer or director of the Company (or any successor). In addition, to the maximum extent permitted under applicable law, during the Term and for a period of six years thereafter, the Company shall indemnify Employee against and hold Employee harmless from any costs, liabilities, losses and exposures for Employee's services as an employee, officer and director of the Company (or any successor). E-8 19 14. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in 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. This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas. 15. 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 instrument. 16. Arbitration. Employee shall be permitted (but not required) to elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in the city in which Employee resides at such time in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. All legal fees and costs incurred by Employee in connection with the resolution of any dispute or controversy under or in connection with this Agreement shall be paid by the Company as bills for such services are presented by Employee to the Company. 17. Prior Employment Agreement. This Agreement supersedes and replaces in full any existing employment agreement (written or oral) between the parties. IN WITNESS WHEREOF, the parties have executed this Agreement on ___________, 1998, effective for all purposes as provided above. OCEAN ENERGY, INC. By: ------------------------------------- Name: ----------------------------------- Chairman of the Compensation Committee of the Board EMPLOYEE ---------------------------------------- James C. Flores E-9 20 EXHIBIT F TO AMENDMENT NO.1 TO THE MERGER AGREEMENT EXHIBIT F TO THE MERGER AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into effective as of [date of the Effective Time] (the "Effective Date") by and between Ocean Energy, Inc., a Delaware corporation ("Company"), and John B. Brock ("Employee"). WHEREAS, the Company employs Employee and desires to continue such employment relationship and Employee desires to continue such employment; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Employment. The Company hereby employs Employee, and Employee hereby accepts employment by the Company, on the terms and conditions set forth in this Agreement. 2. Term of Employment. Subject to the provisions for earlier termination provided in the Agreement, the term of this Agreement (the "Term") shall commence on the Effective Date and shall terminate on the third anniversary of the Effective Date; provided, however, commencing on the Effective Date and on each day thereafter, the Term shall automatically be extended one additional day unless the Board of Directors of the Company (the "Board") shall give written notice to Employee that the Term shall cease to be so extended as of a specified future date, in which event the Agreement shall terminate on the third anniversary of the specified future date. Notwithstanding any provision of this Agreement to the contrary, termination of this Agreement shall not alter or impair any rights or benefits of Employee (or Employee's estate or beneficiaries) that have arisen under this Agreement on or prior to such termination. 3. Employee's Duties. During the Term, Employee shall assume and discharge the responsibilities of the Chairman of the Board, as well as such other responsibilities as may be assigned to him by the Board; provided that such duties are at all times consistent with the duties of such positions. Employee agrees to devote his full attention and time during normal business hours to the business and affairs of the Company and to use reasonable best efforts to perform faithfully and efficiently such duties and responsibilities. Notwithstanding the foregoing, during the Term, Employee may engage in the following activities so long as they do not interfere in any material respect with the performance of Employee's duties and responsibilities hereunder: (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach on a part-time basis at educational institutions, and (iii) manage his personal F-1 21 investments; provided, however, in no event shall the conduct of any of such activities by Employee be deemed to materially interfere with Employee's duties hereunder until Employee has been notified in writing thereof by the Board and given a reasonable period in which to cure such interference. The Company agrees to use its reasonable best efforts to cause Employee to be elected or appointed, or re-elected or re-appointed, as a director of the Company at all times during the Term. 4. Base Compensation. For services rendered by Employee under this Agreement the Company shall pay to Employee a base salary ("Base Compensation") of $475,000 per annum payable in accordance with the Company's customary payroll practice for its senior executive officers. The amount of Base Compensation shall be reviewed periodically by the Board and may be increased from time to time as the Board may deem appropriate. Base Compensation, as in effect at any time, may not be decreased. 5. Annual Bonus. In addition to his Base Compensation, Employee shall be eligible to receive each year during the Term, a cash incentive payment in an amount equal to 200% of Employee's Base Compensation (the "Target Bonus"). The amount of the Target Bonus earned for any year shall be determined by the Compensation Committee of the Board based on Employee's individual performance and the performance by the Company. 6. Other Benefits. Employee shall be entitled to participate in all incentive compensation plans and to receive all fringe benefits and perquisites offered by the Company to any of its senior executive officers, including, without limitation, participation in the various employee benefit plans or programs provided to the employees of the Company in general, subject to the regular eligibility requirements with respect to each of such benefit plans or programs, and such other benefits or prerequisites as may be approved by the Board during the Term, all on a basis at least as favorable to Employee as may be provided or offered to any other senior executive officer of the Company. 7. Termination. This Agreement may be terminated prior to the end of its Term as set forth below. (a) Resignation. Employee may resign his position at any time. In the event of such resignation, except in the case of resignation for Good Reason (as defined below), Employee shall not be entitled to further compensation pursuant to this Agreement. (b) Death. If Employee's employment is terminated due to his death, this Agreement shall terminate and the Company shall have no obligations to his legal representatives with respect to this Agreement other than the payment of any compensation which had accrued hereunder at the date of Employee's death. F-2 22 (c) Discharge. (i) The Company may terminate this Agreement and Employee's employment for any reason deemed sufficient by the Company upon notice as provided in Section 10. However, in the event that Employee's employment is terminated during the Term by the Company for any reason other than his Misconduct or Disability (as such terms are defined below), then, subject to Section 7(h) below: (A) within five business days of the Date of Termination, the Company shall pay to Employee a lump sum amount in cash equal to three times the sum of (1) Employee's Base Compensation and (2) Employee's Target Bonus; (B) for the 36-month period after such Date of Termination the Company, at its sole expense, shall continue to provide or arrange to provide Employee (and Employee's dependents) with health insurance benefits no less favorable than the health plan benefits provided by the Company (or any successor) during such 36-month period to any senior executive officer of the Company; provided, further, to the extent the coverage or benefits received are taxable to Employee, the Company shall make Employee "whole" on a net after tax basis; and (C) on the Date of Termination all then outstanding Company stock-based awards of Employee, whether under this Agreement, a Company stock plan or otherwise, shall become immediately exercisable and payable in full, as the case may be, with any performance goals associated therewith being deemed to have been achieved at the maximum levels. Notwithstanding anything in this Agreement to the contrary, if any payment to Employee in respect of a Company stock-based award would give rise to a short-swing profit liability to Employee under Section 16(b) of the Securities Exchange Act of 1934, then both the payment and the entitlement to payment thereof shall automatically be deferred until the earliest date at which the payment of such benefit would not result in a short-swing profit liability to Employee. (ii) Notwithstanding the foregoing provisions of this Section 7, in the event Employee is terminated because of Misconduct, the Company shall have no obligations pursuant to this Agreement after the Date of Termination. As used herein, "Misconduct" means (a) the willful and continued failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by Employee for Good Reason), after a written demand for substantial performance is delivered to Employee by the Board, which demand specifically identifies the manner in which the Board believes that Employee has not substantially performed his duties, or (b) the willful engaging by Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes hereof, no act, or failure to act, on Employee's part shall be deemed "willful" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that Employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, Employee shall not be F-3 23 deemed to have been terminated for Misconduct unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose, finding that in the good faith opinion of the Board Employee was guilty of conduct set forth above and specifying the particulars thereof in detail. (d) Disability. (i) If Employee shall have been absent from the full-time performance of Employee's duties with the Company for six consecutive months as a result of Employee's incapacity due to physical or mental illness, as determined by Employee's physician, and within 30 days after written Notice of Termination is given by the Company Employee shall not have returned to the full-time performance of Employee's duties, Employee's employment may be terminated by the Company for "Disability", provided Employee is entitled to and receiving benefits under an insured long term disability plan of the Company. Thereafter, Employee shall not be entitled to further compensation pursuant to this Agreement. (ii) If Employee fails during any period during the Term to perform Employee's full-time duties with the Company as a result of incapacity due to physical or mental illness, as determined by Employee's physician, Employee shall continue to receive his Base Compensation, less any amount payable to Employee under a Company disability plan, and all other compensation and benefits during such period until this Agreement is terminated. (e) Resignation for Good Reason. Employee shall be entitled to terminate his employment for Good Reason as defined herein. If Employee terminates his employment for Good Reason, Employee shall be entitled to the compensation and benefits provided in Paragraph 7(c)(i) hereof. "Good Reason" shall mean (1) the breach of any of the Company's obligations under this Agreement without Employee's express written consent or (2) the occurrence of any of the following circumstances, as the case may be, without Employee's express written consent unless such breach or circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination pursuant to Subsection 7(f) given in respect thereof: (i) the assignment by the Board to Employee of any duties that, in the good faith opinion of Employee, are inconsistent with Employee's positions with the Company, or an adverse alteration (as determined in good faith by Employee) in the nature or status of Employee's office, title, responsibilities, including reporting responsibilities, or the conditions of Employee's employment from those in effect immediately prior to such alteration; F-4 24 (ii) the failure by the Company to continue in effect any compensation plan in which Employee participates that is material to Employee's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue Employee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable to Employee, both in terms of the amount of benefits provided and the level of Employee's participation relative to other participants; (iii) the taking of any action by the Company which would directly or indirectly materially reduce or deprive Employee of any material fringe benefit then enjoyed by Employee; (iv) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 12 hereof; (v) the relocation of the Company's principal executive offices outside the greater Houston, Texas metropolitan area, or the Company's requiring Employee to relocate anywhere other than the location of the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with Employee's past business travel obligations; or (vi) any purported termination of Employee's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (f) hereof, which purported termination shall not be effective for purposes of this Agreement. Employee's right to terminate employment pursuant to this subsection shall not be affected by Employee's incapacity due to physical or mental illness. In addition, Employee's continued employment following any event, act or omission, regardless of the length of such continued employment, shall not constitute Employee's consent to, or a waiver of Employee's rights with respect to, such event, act or omission constituting a Good Reason circumstance hereunder. (f) Notice of Termination. Any purported termination of Employee's employment by the Company or by Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall set forth in reasonable detail the reason for termination of Employee's employment, or in the case of resignation for Good Reason, said notice must specify in reasonable detail the basis for such resignation. No purported termination which is not effected pursuant to this Section 7(f) shall be effective. F-5 25 (g) Date of Termination, Etc. "Date of Termination" shall mean the date specified in the Notice of Termination. Either party may, within 15 days after any Notice of Termination is given, provide notice to the other party pursuant to Section 10 hereof that a dispute exists concerning the termination. Notwithstanding the pendency of any such dispute, the Company will continue to pay Employee his full Base Compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Compensation) and continue Employee as a participant in all compensation, benefit and insurance plans in which Employee was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 16 hereof, but in no event past the expiration date of this Agreement. Any payments and benefits provided during such period of dispute shall not reduce any other payments or benefits due Employee under this Agreement nor shall Employee be liable to repay the Company for such payments and benefits if it is finally determined the Employee is not entitled to payments under the other provisions of this Agreement following Employee's termination of employment. (h) Mitigation. Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Section 7 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation or benefit earned by Employee as a result of employment by another employer, self-employment earnings, by retirement benefits, by offset against any amount claimed to be owing by Employee to the Company, or otherwise, except that any cash severance amount payable to Employee pursuant to a Company maintained severance plan or policy for employees in general shall reduce the amount otherwise payable to Employee pursuant to Section 7(c)(i)(A). (i) Gross-Up of Parachute Payments. If, during the Term, any payment, including without limitation any imputed income, made or benefit provided to or on behalf of Employee, including any accelerated vesting or any deferred compensation or other award, in connection with a "change in control" of the Company, whether or not made or provided pursuant to this Agreement, results in Employee being subject to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (or any successor or similar provision), the Company shall pay Employee an additional amount of cash (the "Additional Amount") such that the net amount of all payments and benefits received by Employee after paying all applicable taxes thereon, including on such Additional Amount, shall be equal to the net after-tax amount of payments and benefits that Employee would have received if section 4999 were not applicable. 8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Employee's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which Employee may qualify, nor shall anything herein limit or otherwise adversely affect such rights as Employee may have under any stock option or other agreements with the Company or any of its affiliated companies. F-6 26 9. Assignability. The obligations of Employee hereunder are personal and may not be assigned or delegated by him or transferred in any manner whatsoever, nor are such obligations subject to involuntary alienation, assignment or transfer. The Company shall have the right to assign this Agreement and to delegate all rights, duties and obligations hereunder, either in whole or in part, to any parent, affiliate, successor or subsidiary organization or company of the Company, provided that no such assignment or delegation shall relieve the Company of its duties and obligations hereunder nor affect the rights of Employee hereunder. 10. Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, sent by overnight courier or by facsimile with confirmation of receipt or on the third business day after being mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Company at its principal office address and facsimile number, directed to the attention of the Board with a copy to the Secretary of the Company, and to Employee at Employee's residence address and facsimile number on the records of the Company or to such other address as either party may have furnished to the other in writing in accordance herewith except that notice of change of address shall be effective only upon receipt. 11. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and assets of the Company ("Successor") or any corporation which becomes the ultimate parent corporation of the Company or any such Successor ("Ultimate Parent") to expressly assume and agree in writing satisfactory to the Employee to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such written agreement prior to the effectiveness of any such succession or creation of the parent corporation relationship shall be a breach of this Agreement and shall entitle Employee to compensation and benefits from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession (or creation of the parent corporation relationship) becomes effective shall be deemed the Date of Termination. As used in this Agreement, including, without limitation, in Section 3, the term "Company" shall include any Successor and Ultimate Parent which executes and delivers the Agreement as provided for in this Section 12 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. F-7 27 13. Indemnification. During the Term and for a period of six years thereafter, the Company shall cause Employee to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Company or service in other capacities at the request of the Company. The coverage provided to Employee pursuant to this Section 8 shall be of a scope and on terms and conditions at least as favorable as the most favorable coverage provided to any other officer or director of the Company (or any successor). In addition, to the maximum extent permitted under applicable law, during the Term and for a period of six years thereafter, the Company shall indemnify Employee against and hold Employee harmless from any costs, liabilities, losses and exposures for Employee's services as an employee, officer and director of the Company (or any successor). 14. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically authorized by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or in 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. This Agreement is an integration of the parties agreement; no agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Texas. 15. 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 instrument. 16. Arbitration. Employee shall be permitted (but not required) to elect that any dispute or controversy arising under or in connection with this Agreement be settled by arbitration in the city in which Employee resides at such time in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. All legal fees and costs incurred by Employee in connection with the resolution of any dispute or controversy under or in connection with this Agreement shall be paid by the Company as bills for such services are presented by Employee to the Company. 17. Prior Employment Agreement. This Agreement supersedes and replaces in full any existing employment agreement (written or oral) between the parties. F-8 28 IN WITNESS WHEREOF, the parties have executed this Agreement on ___________, 1998, effective for all purposes as provided above. OCEAN ENERGY, INC. By: ----------------------------------- Name: --------------------------------- Chairman of the Compensation Committee of the Board EMPLOYEE -------------------------------------- John B. Brock F-9 29 EXHIBIT G TO AMENDMENT NO.1 TO THE MERGER AGREEMENT EXHIBIT G TO THE MERGER AGREEMENT AMENDMENT TO OEI CERTIFICATE "4. The total number of shares of stock which the Corporation shall have the authority to issue is two hundred sixty million (260,000,000), consisting of ten million (10,000,000) shares of preferred stock, par value $.01 per share (hereinafter called "Preferred Stock"), and two hundred fifty million (250,000,000) shares of common stock, par value $.01 per share (hereinafter called "Common Stock")." G-1 EX-10.38 4 AMEND #2 AGREEMENT AND PLAN OF MERGER - 2-20-98 1 EXHIBIT 10.38 AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is made and entered into effective as of February 20, 1998, among OEI HOLDING CORPORATION, a Delaware corporation ("Newco"), UNITED MERIDIAN CORPORATION, a Delaware corporation ("UMC"), and OCEAN ENERGY, INC. a Delaware corporation ("OEI"). RECITALS A. Newco, UMC and OEI have entered into that certain Agreement and Plan of Merger, dated as of December 22, 1997, as amended by that certain Amendment No. 1 to Agreement and Plan of Merger, dated as of January 7, 1998 (as amended, the "Merger Agreement"). B. Newco, UMC and OEI desire to further amend the Merger Agreement as set forth in this Amendment. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained in the Merger Agreement and this Amendment, the parties hereto agree as follows: 1. Amendment to Section 1.3 of the Merger Agreement. Section 1.3 of the Merger Agreement is hereby amended and restated in its entirety as follows: "Section 1.3 Closing. The closing of the Mergers (the "Closing") will take place at such time and on such date to be specified by the parties (the "Closing Date"), which date shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VII, unless another time or date is agreed to by the parties hereto. The Closing will be held at such location as is agreed to by the parties hereto." 2. Amendment to Section 1.4 of the Merger Agreement. Section 1.4 of the Merger Agreement is hereby amended and restated in its entirety as follows: "Section 1.4 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, the parties shall file a certificate of merger (individually, a "Certificate of Merger" with respect to each of the Mergers, and collectively with respect to both Mergers, the "Certificates of Merger") executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL in order to effect both Mergers. The Newco Merger shall become effective at such 2 time as is specified in the Certificate of Merger for the Newco Merger, which time shall be at 3:00 p.m. (Houston, Texas time) on the date of the Closing (the "Newco Effective Time"). The UMC Merger shall become effective at such time as is specified in the Certificate of Merger for the UMC Merger, which time shall be at 3:01 p.m. (Houston, Texas time) on the date of the Closing (the "UMC Effective Time" or, in some cases, the "Effective Time")." 3. Amendment to Section 3.1 of the Merger Agreement. Section 3.1 of the Merger Agreement is hereby amended and restated in its entirety as follows: "Section 3.1 Board of Directors of OEI Subsequent to Effective Time. Immediately subsequent to the UMC Effective Time, the Board of Directors of OEI shall have 14 members and shall be divided into three classes, Class I, Class II and Class III, with the term of Class I expiring at OEI's first annual meeting following the Effective Time, the term of Class II expiring at OEI's second annual meeting following the Effective Time and the term of Class III expiring at OEI's third annual meeting following the Effective Time. Prior to the UMC Effective Time, (i) the Board of Directors of OEI shall select from among the current members of the Board of Directors of OEI seven individuals (the "OEI Director Nominees") for nomination as directors of OEI, which nominees shall include James C. Flores, and (ii) the Board of Directors of UMC shall select from among the current members of the Board of Directors of UMC seven individuals (the "UMC Director Nominees") for nomination as directors of OEI, which nominees shall include John B. Brock. If an individual so selected consents to serve as a director, such individual shall be elected as a director of OEI, effective as of the UMC Effective Time, for a term expiring at OEI's next annual meeting of stockholders following the Effective Time at which the term of the class to which such director belongs expires, subject to being renominated as a director at the discretion of OEI's Board of Directors. Each class shall consist of an equal, or as near as equal as possible, number of directors (as provided in OEI's certificate of incorporation and the DGCL) and the specific designation of UMC Director Nominees and OEI Director Nominees to a particular class shall be determined by UMC and OEI prior to the UMC Effective Time; provided, however, that (i) James C. Flores shall be designated by the Board of Directors of OEI as a Class III Director and shall serve as President and Chief Executive Officer as of the UMC Effective Time until the earlier of his resignation or removal or until his successor is duly elected and qualified in accordance with the Bylaws of OEI in effect subsequent to the UMC Effective Time and (ii) John B. Brock shall be designated by the Board of Directors of UMC as a Class III Director and shall serve as Chairman of the Board as of the UMC Effective Time until the earlier of his resignation or removal or until his successor is duly elected and qualified in accordance with the Bylaws of OEI in effect subsequent to the UMC Effective Time. If at any time prior to the UMC Effective Time, any UMC Director Nominee or OEI Director Nominee shall be unable to serve as a director at the UMC Effective Time, the respective Board of Directors that designated such individual as provided herein shall designate another individual to serve in such individual's place; provided that in the event John Brock is unable to serve as Chairman of the Board, James C. Flores shall serve as Chairman of the Board as of the Effective Time until his successor is duly elected and qualified in accordance with the Bylaws of OEI in effect subsequent to the UMC Effective Time; provided, further, in the event James C. Flores is unable to serve as President and Chief Executive Officer, John Brock 2 3 shall serve as President and Chief Executive Officer of the Company as of the Effective Time until his successor is duly elected and qualified in accordance with the Bylaws of OEI in effect subsequent to the UMC Effective Time." 4. Amendment to Section 3.2 of the Merger Agreement. Section 3.2 of the Merger Agreement is hereby amended and restated in its entirety as follows: "Section 3.2. Board Committees and Executive Officers. The committees of the Board of Directors of OEI immediately subsequent to the UMC Effective Time shall contain an equal number of UMC Director Nominees and OEI Director Nominees and the composition of such committees (including chairmen thereof) shall be as designated prior to the UMC Effective Time until the earlier of the resignation or removal of any individual so designated or until their respective successors are duly elected and qualified, as the case may be, it being agreed that if at any time prior to the UMC Effective Time any director nominee designated as a member of a committee shall be unable to serve as a member of a committee (including as a chairman of any committee) at the UMC Effective Time, the respective Board of Directors that designated such individual as provided herein (or in the case of Messrs. Brock and Flores, the respective Board of Directors on which they presently serve) shall designate another individual to serve in such individual's place. The chairman of each of the Finance and Audit Committees of the Board of Directors of OEI immediately subsequent to the UMC Effective Time shall be UMC Director Nominees and the chairman of each of the Nominating and Compensation Committees of the Board of Directors of OEI immediately subsequent to the UMC Effective Time shall be OEI Director Nominees. Subsequent to the UMC Effective Time, those individuals set forth on EXHIBIT B hereto shall be executive officers of OEI having the titles and positions set forth opposite their respective names on such Exhibit until the earlier of the resignation or removal of any such individual or until their respective successors are duly elected and qualified, as the case may be. Prior to the UMC Effective Time, OEI and UMC may mutually agree to designate additional individuals to serve as executive officers of OEI subsequent to the UMC Effective Time. Subject to Section 3.1, if any executive officer set forth on EXHIBIT B or designated in accordance with this Section 3.2 ceases to be a full-time employee of either OEI or UMC (or otherwise declines to serve in such designated capacity) at or before the UMC Effective Time, OEI and UMC will agree upon another person to serve in such person's stead or agree to leave such office vacant through the UMC Effective Time." 5. Amendment to Section 4.2(a) of the Merger Agreement. Section 4.2(a) of the Merger Agreement is hereby amended and restated in its entirety as follows: "(a) As of the date hereof, the authorized capital stock of OEI consists of (i) 100,000,000 shares of common stock, par value $.01 per share ("OEI Common Stock"), of which 22,896,787 shares are issued and outstanding as of the date of this Agreement, 100 shares are held as treasury shares, and 3,023,955 shares are reserved for issuance upon exercise of options under OEI Stock Plans and (ii) 10,000,000 shares of preferred stock, par 3 4 value $.01 per share, which have not yet been issued or designated as to a series by the Board of Directors of OEI; provided that 2,000,000 of such shares have been or will be designated by OEI as "Series A Junior Participating Preferred Stock" (the "OEI Junior Preferred") in connection with the adoption by the Board of Directors of OEI, concurrently with the authorization of this Agreement, of a stockholder rights plan (the "OEI Rights Plan") pursuant to which a preferred share purchase right (an "OEI Right") has been or will be declared payable as a dividend on all outstanding shares of OEI Common Stock, which Rights will be issued pursuant to a OEI Rights Agreement of even date with this Agreement between OEI and Harris Trust and Savings Bank (the "OEI Rights Agreement"). All of the aforesaid outstanding shares of capital stock have been validly issued, are fully paid and nonassessable, and are free of preemptive rights. Except as described above, including pursuant to the OEI Rights Plan, as of the date hereof, there are no shares of capital stock or other equity securities of OEI outstanding and no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock of OEI, or contracts, commitments, understandings, or arrangements by which OEI is or may become bound to issue additional shares of its capital stock (other than previously reserved shares described above) or options, warrants or rights to purchase or acquire any shares of its capital stock." 6. Effect of Amendment. Except as amended by the foregoing, the Merger Agreement shall remain in full force and effect. 7. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes. [The remainder of this page is intentionally left blank.] 4 5 IN WITNESS WHEREOF, the parties have executed this Amendment as of February 20, 1998. OEI HOLDING CORPORATION By: /s/ JOHN B. BROCK ________________________________ Name: John B. Brock Title: Chairman of the Board UNITED MERIDIAN CORPORATION By: /s/ JOHN B. BROCK ________________________________ Name: John B. Brock Title: Chairman of the Board and Chief Executive Officer OCEAN ENERGY, INC. By: /s/ ROBERT K. REEVES ________________________________ Name: Robert K. Reeves Title: Executive Vice President-Administation and General Counsel 5 EX-21.1 5 SUBSIDIARIES OF UNITED MERIDIAN CORPORATION 1 EXHIBIT 21.1 SUBSIDIARIES OF UNITED MERIDIAN CORPORATION
JURISDICTION NAME IN WHICH ORGANIZED UMC Petroleum Corporation Delaware UMC Resources Canada Ltd. British Columbia, Canada UMC Cayman Islands Corporation Cayman Islands UMC Equatorial Guinea Corporation Delaware UMC Pipeline Corporation Delaware UMIC Cote d'Ivoire Corporation Delaware United Meridian International Corporation Delaware Norfolk Holdings Inc. Delaware UMIC (CI-01) Corporation Delaware UMIC (CI-02) Corporation Delaware UMIC (CI-12) Corporation Delaware UMC Bangladesh Corporation Delaware UMC Pakistan Corporation Delaware Big Sky Gas Marketing Corporation Delaware UMIC (CI-105) Corporation Delaware UMC Ghana Corporation Delaware Havre Pipeline Company, LLC Texas UMC Colorado, LLC Colorado UMC Angola Corporation Delaware Lion G.P.L., S. A. Cote d'Ivoire
EX-23.1 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation in this Form 10-K of our report dated February 9, 1998, into United Meridian Corporation's previously filed Registration Statements on Form S-8 Nos. 33-86480, 33-79160, 33-73574, 33-72258, 333-05401 and 333-28017 and Registration Statements on Form S-3 (Nos. 333-28063 and 333-42467). ARTHUR ANDERSEN LLP Houston, Texas February 20, 1998 EX-23.2 7 CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. 1 EXHIBIT 23.2 CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of our reports dated February 10, 1998, February 18, 1998, and February 19, 1998, that were utilized in aggregate as a basis for United Meridian Corporation's Form 10-K for the year ended December 31, 1997, and to all references to our Firm included in this Registration Statement. We also consent to the reference to such reports in the Form 10-K for the year ending December 31, 1997. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ DANNY D. SIMMONS ------------------------------------ Danny D. Simmons Senior Vice President Houston, Texas February 20, 1998 EX-23.3 8 CONSENT OF MCDANIEL & ASSOCIATES CONSULTANTS LTD. 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PETROLEUM RESERVE ENGINEERS Dear Sirs: We consent to the incorporation by reference in this Registration Statement on Form S-4 and to the reference to Form 10-K of portions of our reports entitled "UMC Petroleum Corporation, Evaluation of Certain Interests in the State of Montana, SEC Parameters, as of January 1, 1998", dated February 3, 1998; and "UMC Resources Canada Ltd., Evaluation of Oil & Gas Reserves, SEC Parameters, as of January 1, 1998", dated January 27, 1998, (the "Reports") and to our having evaluated the Corporations' interest in oil and gas reserves. We also consent to the reference of our firm under the caption "Experts". Sincerely, MCDANIEL & ASSOCIATES CONSULTANTS LTD. /s/ W.C. SETH - ------------------------ W.C. Seth, P. Eng. President & Managing Director Calgary, Alberta Dated: February 20, 1998 EX-23.4 9 CONSENT OF RYDER SCOTT COMPANY 1 EXHIBIT 23.4 CONSENT OF RYDER SCOTT COMPANY We consent to the incorporation by reference in the Registration Statement on Form S-4 of our reserve report and all schedules, exhibits, and attachments thereto and to any reference made to us on Form S-4 as a result of such incorporation. We further consent to the reference to our report in the Form 10-K for the year ending December 31, 1997. Sincerely, /s/ RYDER SCOTT COMPANY PETROLEUM ENGINEERS RYDER SCOTT COMPANY PETROLEUM ENGINEERS Denver, Colorado February 20, 1998 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 11,689 0 80,218 1,190 10,025 108,164 1,161,553 420,581 885,025 106,712 282,646 0 0 358 459,041 885,025 257,014 264,865 0 56,492 135,263 0 21,749 39,462 19,675 19,787 0 0 0 19,787 .56 .54
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