-----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, Cqzn50JqNPLYRYGfzAc9VNnrr5h12Wy+bMoZ7A0aTTv0Px93/+RjEoMLtoRF+Gd0 YkMGvsWpYeq9zmTXKmReOw== 0000890566-95-000686.txt : 19951208 0000890566-95-000686.hdr.sgml : 19951208 ACCESSION NUMBER: 0000890566-95-000686 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19951207 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENRON OIL & GAS CO CENTRAL INDEX KEY: 0000821189 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 470684736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-64055 FILM NUMBER: 95599818 BUSINESS ADDRESS: STREET 1: 1400 SMITH ST CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7138535482 S-3/A 1 AMENDMENT NO. 2 TO FORM S-3 MARKED COPY AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1995 REGISTRATION NO. 33-64055 ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ENRON OIL & GAS COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 47-0684736 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1400 SMITH STREET, HOUSTON, TEXAS 77002 TELEPHONE NO. (713) 853-6161 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DENNIS M. ULAK, ESQ. VICE PRESIDENT AND GENERAL COUNSEL ENRON OIL & GAS COMPANY 1400 SMITH STREET HOUSTON, TEXAS 77002 (713) 853-6161 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: GARY W. ORLOFF, ESQ. REX R. ROGERS, ESQ. BRACEWELL & PATTERSON, L.L.P. ASSISTANT GENERAL COUNSEL SOUTH TOWER PENNZOIL PLACE ENRON CORP. 711 LOUISIANA STREET, SUITE 2900 1400 SMITH STREET, ROOM 4842 HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ------------------------ CALCULATION OF REGISTRATION FEE
================================================================================================================== PROPOSED TITLE OF EACH MAXIMUM AMOUNT OF CLASS OF SECURITIES OFFERING REGISTRATION TO BE REGISTERED PRICE(1)(2) FEE(1)(2) - ------------------------------------------------------------------------------------------------------------------ $493,695,000 $170,240(3) Common Stock, par value $.01 per share........................................ $122,647,500 $ 24,530(3) $ 17,763(4) ==================================================================================================================
(1) Estimated in accordance with Rule 457 solely for the purpose of calculating the registration fee. Includes up to 11,000,000 shares which are deliverable only upon exchange at maturity of the Exchangeable Notes of Enron Corp. (which notes are separately registered pursuant to a Registration Statement on Form S-3 filed by Enron Corp. concurrently herewith) and no separate consideration will be received for such shares. Accordingly, pursuant to Rule 457(l), no registration fee is required. (2) Includes shares subject to the Underwriters' over-allotment option. Also includes up to 6,210,000 shares that are to be offered outside the United States but that may be resold from time to time in the United States under circumstances requiring delivery of a prospectus; such shares are not being registered for the purpose of sales outside the United States. (3) Previously paid. (4) Paid herewith in accordance with the procedures outlined in the Commission's press release issued on November 21, 1995. ------------------------ THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ============================================================================== EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with an offering (the "Prospectus") by Enron Corp. of Enron Oil & Gas Company Common Stock; and one used in connection with the shares deliverable upon mandatory exchange pursuant to the terms of the Exchangeable Notes of Enron Corp. (which Exchangeable Notes are separately registered pursuant to a Registration Statement on Form S-3 filed by Enron Corp. concurrently herewith), and which will be included in such registration statement as Appendix A to the prospectus (the "Appendix Prospectus"). The Appendix Prospectus and the Prospectus are identical except that they contain different front and back cover pages, different descriptions under "Prospectus Summary -- Relationship between the Company and Enron Corp." and different descriptions of the plan of distribution (contained under the captions "Underwriting" and "Plan of Distribution"). In addition, the Appendix Prospectus will omit from the "Prospectus Summary" the material captioned "The Stock Offerings." The form of the Prospectus is included herein and is followed by those pages to be used in the Appendix Prospectus which differ from, or are in addition to, those in the Prospectus. Each of the pages for the Appendix Prospectus included herein is labeled "Alternative Page For Appendix Prospectus." ******************************************************************************* *INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * *REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE * *SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES * *MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * *REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * *CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * *NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH * *OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR * *QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. * ******************************************************************************* SUBJECT TO COMPLETION, DATED DECEMBER 7, 1995 27,000,000 SHARES ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ Of the 27,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), of Enron Oil & Gas Company (the "Company") offered, 21,600,000 shares are being offered hereby in the United States and 5,400,000 shares are being offered in a concurrent international offering outside the United States (collectively, the "Stock Offerings"). The initial public offering price and the aggregate underwriting discount per share are identical for both of the Stock Offerings. See "Underwriting". All of the shares of Common Stock offered in the Stock Offerings are being sold by Enron Corp., which currently owns 80% of the outstanding shares of Common Stock. The Company will not receive any of the proceeds from the sale of shares of Common Stock in the Stock Offerings. Concurrently with the Stock Offerings, Enron Corp. is offering 10,000,000 (11,000,000 if the over-allotment option of the Underwriters in such offering is exercised in full) % Exchangeable Notes due , 1998 ("the Exchangeable Notes"), which are mandatorily exchangeable into shares of the Company's Common Stock currently owned by Enron Corp., subject to Enron Corp.'s right to deliver cash in lieu of such shares (the "Exchangeable Notes Offering"). The consummation of the Exchangeable Notes Offering is not contingent upon the consummation of the Stock Offerings or vice versa. At maturity, the Exchangeable Notes may be mandatorily exchanged for no more than 10,000,000 shares of Common Stock (no more than 11,000,000 shares if the over-allotment option of the Underwriters in the Exchangeable Notes Offering is exercised in full), subject to adjustment under certain circumstances. Following the consummation of the Stock Offerings, Enron Corp. will own an aggregate of 101,000,000 shares of Common Stock or approximately 63% of the outstanding shares (or, assuming that the Underwriters' over-allotment options in the Stock Offerings are exercised in full, 96,950,000 shares of Common Stock or approximately 61% of the outstanding shares). Assuming the Underwriters' over-allotment options in the Stock Offerings and the Exchangeable Notes Offering are exercised in full and the maximum number of shares of Common Stock is delivered upon mandatory exchange of the Exchangeable Notes at maturity, Enron Corp. would own approximately 54% of the outstanding Common Stock. On December 6, 1995, the last reported sale price of Common Stock on the New York Stock Exchange Composite Tape was $21 3/4 per share. See "Price Range of Common Stock and Cash Dividends". ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------------------------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING ENRON OFFERING PRICE DISCOUNT(1) CORP.(2) -------------- ------------ ------------- Per Share............................ $ $ $ Total (3)............................ $ $ $
- ------------ (1) The Company and Enron Corp. have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) The Company will pay estimated expenses of $ in connection with the Stock Offerings. (3) Enron Corp. has granted the Underwriters an option for 30 days to purchase up to an additional 3,240,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. Additionally, Enron Corp. has granted an over-allotment option with respect to an additional 810,000 shares as part of the international offering. If such over-allotment options are exercised in full, the total initial public offering price, underwriting discount and proceeds to Enron Corp. will be $ , $ and $ , respectively. See "Underwriting". ------------------------ The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that the certificates for the shares will be ready for delivery in New York, New York, on or about , 1995. GOLDMAN, SACHS & CO. SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED S.G.WARBURG & CO. INC. HOWARD, WEIL, LABOUISSE, FRIEDRICHS RAUSCHER PIERCE REFSNES, INC. INCORPORATED ------------------------ The date of this Prospectus is , 1995. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the following Regional Offices of the Commission: Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The Company's Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE"), and reports, proxy statements and other information concerning the Company can be inspected and copied at the offices of the New York Exchange at 20 Broad Street, New York, New York 10005. This Prospectus constitutes a part of a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the shares of Common Stock offered hereby. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission or incorporated by reference herein are not necessarily complete, and in each instance reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. ------------------------ INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1994, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995 and the description of the Common Stock contained in the Registration Statement on Form 8-A declared effective on October 3, 1989, are incorporated herein by reference. Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the shares of Common Stock pursuant hereto shall be deemed to be incorporated herein by reference and to be a part hereof from the date of filing of such document. Any statement contained herein or in a document all or a portion of which is incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, on the request of any such person, a copy of any or all of the foregoing documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into the documents that this Prospectus incorporates). Requests should be directed to Secretary Division, Enron Oil & Gas Company, at its principal executive offices, 1400 Smith Street, Houston, Texas 77002 (telephone: 713-853-6161). ------------------------ IN CONNECTION WITH THE OFFERING OF THE EXCHANGEABLE NOTES AND COMMON STOCK OF THE COMPANY BY ENRON CORP., THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE EXCHANGEABLE NOTES OR THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS. IT IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. CERTAIN TERMS ARE DEFINED IN THIS SUMMARY UNDER "CERTAIN DEFINITIONS." CAPITALIZED TERMS WHICH ARE NOT DEFINED IN THIS SUMMARY ARE USED AS DEFINED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Enron Oil & Gas Company (together with its subsidiaries, "the Company") is one of the largest independent (non-integrated) oil and gas companies in the United States in terms of domestic proved reserves. It is engaged, directly and through its subsidiaries, in the exploration for, and the development, production and marketing of, natural gas and crude oil primarily in major producing basins in the United States, as well as in Canada, Trinidad and India and to a lesser extent, selected other international areas. At December 31, 1994, the Company's estimated net proved natural gas reserves were 1,910 Bcf and estimated net proved crude oil, condensate and natural gas liquids reserves were 37 MMBbl, a net increase of 8% and 78%, respectively, over year end 1993. The Company has increased its reserves for six consecutive years. At December 31, 1994, approximately 70% of the Company's reserves (on a natural gas equivalent basis) was located in the United States, 16% in Canada, 11% in Trinidad and 3% in India. At such date, approximately 90% of the Company's total proved reserves was classified as developed. While year end reserve evaluations will not be available for some time, based on the results of the Company's drilling program for the first nine months of 1995, it is expected that extensions, discoveries and other additions to reserves for the year will exceed production for both North America and Trinidad, as well as in total. Additionally, reserves acquired are expected to substantially exceed those sold, with the resulting replacement of production from all sources expected to exceed 150%. BUSINESS STRATEGY. The Company's strategy is to maximize the rate of return on investment of capital by controlling both operating and capital costs and enhancing the certainty of future revenues through the use of various marketing mechanisms. This strategy enhances the generation of both income and cash flow from each unit of production and allows for the growth of production on a cost-effective basis by optimizing the reinvestment of cash flow. Through this strategy, the Company has increased its net income in each of the last five years, despite the volatile natural gas price environment, and achieved a return on equity ranging from 8% in 1990 to 15% in 1994. For the first nine months of 1995, net income increased 5% compared to the same period for 1994. The Company refocused its 1995 drilling activity away from natural gas deliverability and toward natural gas reserve enhancement and crude oil exploitation in the United States in response to the decline in United States natural gas prices in recent periods. The Company also is focusing on the cost-effective utilization of advances in technology associated with gathering, processing and interpretation of 3-D seismic data, developing reservoir simulation models and drilling operations through the use of new and/or improved drill bits, mud motors, mud additives, formation logging techniques and reservoir fracturing methods. These advanced technologies are used, as appropriate, throughout the Company to reduce the risks associated with all aspects of oil and gas reserve exploration, exploitation and development. The Company implements its strategy by emphasizing the drilling of internally generated prospects in order to find and develop low cost reserves. By following this strategy, the Company has increased production in each of the last four years with a compound annual growth rate of 13.1%, while increasing proved reserves approximately 32%, both on a natural gas equivalent basis. For 1994, net equivalent production reached a new high of 307 Bcfe, an increase of 9% over 1993. Natural gas delivered in 1994 averaged approximately 749 MMcf per day, which represents an increase of 6% over 1993. Crude oil and condensate production averaged 12.6 MBbl per day in 1994 which represents an 3 increase of 42% over 1993. Natural gas production for the first nine months of 1995 averaged 719 MMcf per day, down 24 MMcf per day from the first nine months of 1994. Lower volumes in 1995 reflect the voluntary curtailment by the Company of United States production at a higher rate than in 1994 because United States natural gas prices were down by 26% period to period, the impact of the sale of reserves and related assets and the effect of the reduction and redirection of natural gas drilling activities early in 1995. Crude oil and condensate volumes for the first nine months of 1995 averaged 18.6 MBbl per day, an increase of 55% over the first nine months of 1994. Achieving and maintaining the lowest possible cost structure are also important goals in the implementation of the Company's strategy. Over the last five years, the Company has reduced total cash operating expenses, including lease and well, general and administrative, taxes other than income, and interest expenses from $.95/Mcfe in 1989 to $.49/Mcfe in 1994, a reduction of 48%. At the same time non-cash expenses (depreciation, depletion and amortization) have been reduced from $.93/Mcfe in 1989 to $.80/Mcfe in 1994, a reduction of 14%. For the first nine months of 1995, cash operating expenses averaged $.56/Mcfe compared to $.50/Mcfe for the first nine months of 1994 and non-cash expenses averaged $.69/Mcfe and $.81/Mcfe for the two periods, respectively. Consistent with the Company's desire to optimize the use of its assets, the Company also maintains a strategy of selling select oil and gas properties that for various reasons no longer fit into future operating plans, or which are not assessed to have sufficient future growth potential and when the economic value to be obtained by selling the properties and reserves in the ground is evaluated to be greater than what would be obtained by holding the properties and producing the reserves over time. As a result, the Company typically receives each year a varying but substantial level of proceeds related to such sales which proceeds are available for general corporate use. Proceeds from property sales in 1994 were $91 million ($71 million after tax) and in the first nine months of 1995 were $101 million ($77 million after tax). NORTH AMERICAN OPERATIONS. The Company's seven principal United States producing areas are the Big Piney area of Wyoming, South Texas area, East Texas area, Offshore Gulf of Mexico area, Canyon Trend area of West Texas, Pitchfork Ranch area of New Mexico and Vernal area of Utah. Properties in these areas comprised approximately 76% of the Company's United States reserves (on a natural gas equivalent basis) and 85% of the Company's United States net natural gas deliverability as of December 31, 1994 and are substantially all operated by the Company. The Company's other United States natural gas and crude oil producing properties are located primarily in other areas of Texas, Utah, New Mexico and in Oklahoma. At December 31, 1994, 93% of the Company's proved United States reserves (on a natural gas equivalent basis) was natural gas and 7% was crude oil, condensate and natural gas liquids. A substantial portion of the Company's United States natural gas reserves is in long-lived fields with well-established production histories. The Company believes that opportunities exist to increase production in many of these fields through continued infill and other development drilling. The Company also has natural gas and crude oil producing properties located in Western Canada, primarily in the provinces of Alberta, Saskatchewan and Manitoba. The Company produces natural gas from seven major areas and crude oil from three major areas. The Sandhills area in Southern Saskatchewan is the largest single producing area, contributing 51% of Canadian deliverability at September 30, 1995. Canadian natural gas deliverability net to the Company at September 30, 1995 was approximately 70 MMcf per day and the Company held approximately 350,000 net undeveloped acres in Canada. OUTSIDE NORTH AMERICA OPERATIONS. The Company has operations offshore Trinidad and India and is conducting exploration in selected other international areas. Properties offshore Trinidad and India comprise 100% of the Company's current reserves and production outside of North America. 4 The Company's reserves at December 31, 1994 included 236 Bcf of natural gas and 12 MMBbl of liquids in these two areas. The Company's net production from offshore Trinidad was approximately 100 MMcf per day of natural gas and 6.2 MBbl per day of crude oil and condensate at September 30, 1995. The Company's net production from offshore India was approximately 3.5 MBbl per day of crude oil net to the Company at September 30, 1995. In addition, the Company is pursuing other exploitation opportunities in countries, including China, Mozambique and Qatar, where indigenous natural gas reserves have been identified, particularly where synergies in natural gas transportation, processing and power cogeneration can be optimized with other Enron Corp. affiliated companies. RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP. Enron Corp. currently owns 80% of the outstanding shares of the Company's Common Stock. After consummation of the sale of Common Stock pursuant to the Stock Offerings, Enron will own an aggregate of 101,000,000 shares of Common Stock or approximately 63% of the outstanding shares (or, assuming that the Underwriters' over-allotment options in the Stock Offerings are exercised in full, 96,950,000 shares of Common Stock or approximately 61% of the outstanding shares). Concurrently with the offering of Common Stock hereby, Enron Corp. is offering 10,000,000 (11,000,000 if the over-allotment option of the underwriters in such offering is exercised in full) Exchangeable Notes, which are mandatorily exchangeable into shares of Common Stock of the Company at maturity, subject to Enron Corp.'s option to pay cash in lieu of such mandatory exchange (the "Exchangeable Notes Offering"). The consummation of the Exchangeable Notes Offering is not contingent upon the consummation of the Stock Offerings or vice versa. At maturity, the Exchangeable Notes may be mandatorily exchanged for no more than 10,000,000 shares of Common Stock owned by Enron Corp. (no more than 11,000,000 shares if the over-allotment option of the underwriters in the Exchangeable Notes Offering is exercised in full), subject to adjustment under certain circumstances and to Enron Corp.'s option to pay cash in lieu of such mandatory exchange. Any market that develops in the Exchangeable Notes is likely to influence and be influenced by the market for the Common Stock. For example, the price of the Common Stock could become more volatile and could be depressed by possible sales of Common Stock by investors who view the Exchangeable Notes as a more attractive means of equity participation in the Company and by hedging and arbitrage activity that may develop involving the Exchangeable Notes and the Common Stock. Neither the Stock Offerings nor the delivery of shares of Common Stock pursuant to the terms of the Exchangeable Notes will affect the existing agreements between the Company and Enron Corp. and their respective affiliates, except for the Tax Allocation Agreement which will cease to be effective from the time at which deconsolidation occurs (when Enron Corp. ceases to own 80% of the outstanding shares of Common Stock). The Company and Enron Corp. have entered into a new tax agreement pursuant to which, among other things, Enron Corp. has agreed (in exchange for the payment of $8.0 million by the Company) to be liable for, and to indemnify the Company against, all federal income taxes and state taxes measured by net income imposed on the Company for periods through the date Enron Corp. reduces its ownership in the Company to less than 80%. The Company does not believe that the cessation of consolidated tax reporting with Enron Corp. and effectiveness of the Tax Allocation Agreement concurrently with deconsolidation or the terms of the new agreement will have a material adverse effect on its financial condition or results of operations. See "Relationship Between the Company and Enron Corp." The nature of the respective businesses of the Company and Enron Corp. and its affiliates is such as to potentially give rise to conflicts of interest between the two companies. The Company's operations account for substantially all of Enron Corp.'s natural gas and crude oil exploration and 5 production operations. An affiliate of Enron Corp. has entered into an agreement to acquire a controlling interest in Coda Energy, Inc. ("Coda"), a company engaged in domestic oil and gas exploration, development and production. Crude oil accounts for approximately 86% of Coda's proved reserves. At December 31, 1994, Coda reported estimated proved natural gas reserves of 39,808 MMcf and estimated proved crude oil, condensate and natural gas liquids reserves of 39,207 MBbls. If the transaction is consummated, conflicts of interest could arise between the Company and Coda. See "Relationship Between the Company and Enron Corp.-- Conflicts of Interest." THE STOCK OFFERINGS Common Stock offered by Enron Corp.(1): U.S. Offering...................... 21,600,000 shares International Offering............. 5,400,000 shares Total........................... 27,000,000 shares Dividends............................ $0.03 per share, quarterly. See "Price Range of Common Stock and Cash Dividends." New York Stock Exchange symbol....... EOG Use of proceeds...................... All of the shares of Common Stock being offered are being offered by Enron Corp. The Company will not receive any proceeds from the sale of the shares. - ------------ (1) Excludes 4,050,000 shares subject to the Underwriters' over-allotment options. The offering of 21,600,000 shares of Common Stock in the United States (the "U.S. Offering") and the offering of 5,400,000 shares of Common Stock outside the United States (the "International Offering") are collectively referred to as the "Stock Offerings." The closing of the International Offering is a condition to the closing of the U.S. Offering, and vice versa. See "Underwriting." 6 SUMMARY FINANCIAL AND OPERATING INFORMATION The following table sets forth a summary of selected consolidated financial and operating data for the Company for each of the five years in the period ended December 31, 1994 and for the nine-month periods ended September 30, 1994 and 1995. This information should be read in conjunction with the consolidated financial statements of the Company and related notes thereto incorporated by reference herein (see "Incorporation of Certain Documents by Reference") and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. Financial information for each of the five years in the period ended December 31, 1994 has been derived from audited financial statements. Financial information for the nine-month periods ended September 30, 1994 and 1995 has been derived from unaudited financial statements. The interim data reflects all adjustments which, in the opinion of the management of the Company, are necessary to present fairly such information for the interim periods. Results of the nine-month periods are not necessarily indicative of the results expected for a full year or any other interim period.
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------------------------------------- ------------------------ 1990 1991 1992 1993 1994 1994 1995 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA) STATEMENT OF INCOME DATA: Net operating revenues(1)............ $ 403,137 $ 402,588 $ 459,026 $ 581,020 $ 625,823 $ 474,340 $ 492,342 Income before income taxes........... 34,614 45,669 79,844 112,273 153,935 126,166 144,175 Net income........................... 45,468 47,916 97,580 138,025 147,998 105,438 110,731 Earnings per share of common stock(2)........................... $.30 $.32 $.63 $.86 $.93 $.66 $.69 Average number of common shares(2)... 151,800 151,800 154,533 159,966 159,845 159,826 159,951 BALANCE SHEET DATA (AT PERIOD END): Net oil and gas properties........... $ 1,305,136 $ 1,339,666 $ 1,468,011 $ 1,546,045 $ 1,684,811 $ 1,637,762 $ 1,843,150 Total assets......................... 1,417,939 1,455,608 1,731,012 1,811,162 1,861,867 1,855,819 2,109,971 Long-term debt Affiliate........................ 277,918 132,836 --(3) -- 25,000 25,000 16,320 Other............................ 140,442 289,556 150,000(3) 153,000 165,337 158,862 247,552 Deferred revenue..................... -- -- 301,395 227,528 184,183 195,109 224,085 Shareholders' equity................. 610,042 643,185 826,986(3) 933,073 1,043,419 1,019,712 1,140,295 OPERATING DATA: Wellhead Volumes and Prices Natural Gas Volumes (MMcf per day)(4)............................ 455 491 564 709 749 743 719 Average Natural Gas Prices ($/Mcf)(5)......................... $1.51 $1.37 $1.58 $1.92 $1.62 $1.69 $1.23 Crude/Condensate Volumes (MBbl per day)............................... 8.2 8.2 8.5 8.9 12.6 12.0 18.6 Average Crude/Condensate Prices ($/Bbl)............................ $21.67 $18.78 $17.90 $16.37 $15.62 $15.24 $16.77
------------ (1) Net operating revenues for the years 1990 and 1991 and for the first nine months of 1994 have been revised to include gains from sales of reserves and related assets for consistency with current year reporting. (2) In May 1994, the Board of Directors declared a two-for-one split of the Company's Common Stock to be effected as a non-taxable dividend of one share for each share outstanding on May 31, 1994. All share and per share amounts presented herein are reflected on a post-split basis. (3) In August 1992, the Company completed the sale of 8.2 million shares of Common Stock resulting in aggregate net proceeds to the Company of approximately $112 million used primarily to repay long-term debt. In September 1992, the Company completed the sale of a volumetric production payment, resulting in net proceeds of approximately $327 million used to repay long-term debt and for other general corporate purposes. (4) Includes 28 MMcf per day in 1992, 81 MMcf per day in 1993 and 48 MMcf per day in 1994 and in the nine-month periods ended September 30, 1994 and 1995 delivered under the terms of a volumetric production payment agreement effective October 1, 1992, as amended. (5) Includes an average equivalent wellhead value of $1.70 per Mcf in 1992, $1.57 per Mcf in 1993, $1.27 per Mcf in 1994 and $1.32 per Mcf and $.76 per Mcf in the nine-month periods ended September 30, 1994 and 1995, respectively, for the volumes described in note (4), net of transportation costs. 7 SUMMARY OIL AND GAS RESERVE INFORMATION The following table sets forth summary information with respect to the Company's estimates of its net proved natural gas, crude oil, condensate and natural gas liquids reserves at December 31, 1994. For additional information relating to reserves, see "Business-- Oil and Gas Exploration and Production Properties and Reserves."
NATURAL GAS NATURAL EQUIVALENTS (BCFE) GAS LIQUIDS ------------------------ (BCF) (MBBL)(1) DEVELOPED UNDEVELOPED -------- ----------- --------- ----------- Net proved reserves at December 31, 1994: United States.......................................... 1,307 17,787 1,229 185 Canada................................................. 297 7,237 330 10 Trinidad............................................... 206 4,429 233 -- India.................................................. 29 7,585 46 29 -------- ----------- --------- ----------- Total............................................. 1,839 37,038 1,838 224 ======== =========== --------- -----------
Reserve amounts set out above have been revised to exclude volumes attributable to a volumetric production payment from owned reserves. The Company's estimates of its net proved natural gas, crude oil, condensate and natural gas liquids reserves at December 31, 1994, including amounts attributable to a volumetric production payment, are shown below. This disclosure is presented as additional information and is not intended to represent required disclosure pursuant to Statement of Financial Accounting Standards ("SFAS") No. 69-- "Disclosures about Oil and Gas Producing Activities."
NATURAL GAS NATURAL EQUIVALENTS (BCFE) GAS LIQUIDS ------------------------ (BCF) (MBBL)(1) DEVELOPED UNDEVELOPED -------- ----------- --------- ----------- Net proved reserves at December 31, 1994, including amounts attributable to volumetric production payment: United States.......................................... 1,378 17,787 1,300 185 Canada................................................. 297 7,237 330 10 Trinidad............................................... 206 4,429 233 -- India.................................................. 29 7,585 46 29 -------- ----------- --------- ----------- Total............................................. 1,910 37,038 1,909 224 ======== =========== ========= ===========
- ------------ (1) Includes crude oil, condensate and natural gas liquids. 8 CERTAIN DEFINITIONS Unless otherwise indicated in this Prospectus, natural gas volumes are stated at the legal pressure base of the state, area or country in which the reserves are located and at 60 Fahrenheit. Natural gas equivalents are determined using the ratio of 6.0 Mcf of natural gas to 1.0 barrel of crude oil, condensate or natural gas liquids. As used herein, the following terms have the specific meanings set out: "Mcf" means thousand cubic feet, "MMcf" means million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel, "MBbl" means thousand barrels, "MMBbl" means million barrels, "Mcfe" means thousand cubic feet equivalent, "MMcfe" means million cubic feet equivalent, "Bcfe" means billion cubic feet equivalent, "MMBtu" means million British thermal units, "BBtu" means billion British thermal units and "TBtu" means trillion British thermal units. With respect to information on the Company's working interest in wells or acreage, "net" oil and gas wells or acreage are determined by multiplying "gross" oil and gas wells or acreage by the Company's working interest in the wells or acreage. "Exploration and development expenditures" include costs associated with exploratory and development drilling (including exploratory dry holes), leasehold acquisitions, seismic data acquisitions, geological and land related overhead expenditures, delay rentals, producing property acquisitions, capitalized interest and other miscellaneous capital expenditures. "Total finding costs" is the ratio of total exploration and development expenditures to reserves added as a result of the drilling and acquisition program. Reserves added include the total net natural gas equivalent volume of all natural gas, crude oil, condensate and natural gas liquids added from extensions, discoveries and other additions, purchases in place and revisions of previous estimates. "Infill drilling" means drilling for the development and production of net proved undeveloped reserves. 9 USE OF PROCEEDS The shares of Common Stock of the Company being offered hereby and the Exchangeable Notes are being sold by Enron Corp. Accordingly, the Company will not receive any of the proceeds from the Stock Offerings or the sale of the Exchangeable Notes or delivery of shares of Common Stock pursuant thereto. PRICE RANGE OF COMMON STOCK AND CASH DIVIDENDS The following table sets forth, for the periods indicated, the high and low sale prices per share for the Common Stock, as reported on the New York Stock Exchange Composite Tape, and the amount of cash dividends paid per share. The 1993 and First and Second Quarter 1994 sales prices and cash dividends per share have been restated to reflect the two-for-one stock split on May 31, 1994. PRICE RANGE -------------------- CASH HIGH LOW DIVIDENDS --------- --------- --------- 1993 First Quarter................... $ 20.31 $ 13.38 $ .03 Second Quarter.................. 22.50 17.88 .03 Third Quarter................... 26.81 19.88 .03 Fourth Quarter.................. 27.00 17.06 .03 1994 First Quarter................... $ 23.75 $ 19.31 $ .03 Second Quarter.................. 24.63 22.38 .03 Third Quarter................... 23.00 18.50 .03 Fourth Quarter.................. 22.75 17.38 .03 1995 First Quarter................... $ 24.88 $ 17.12 $ .03 Second Quarter.................. 24.75 20.25 .03 Third Quarter................... 25.38 20.00 .03 Fourth Quarter (through December 6, 1995)........................ 22.75 18.75 See the cover page of this Prospectus for the last reported sale price of the Common Stock on the NYSE as of a recent date. As of November 1, 1995, there were approximately 270 record holders of the Company's Common Stock, including individual participants in security position listings. There are an estimated 5,100 beneficial owners of the Company's Common Stock, including shares held in street name. Following the initial public offering and sale of its Common Stock in October 1989, the Company paid quarterly dividends of $0.025 per share beginning with an initial dividend paid in January 1990 with respect to the fourth quarter of 1989. Beginning in January 1993 with respect to the fourth quarter of 1992, the Company has paid quarterly dividends of $0.03 per share. The Company currently intends to continue to pay quarterly cash dividends on its outstanding shares of Common Stock. However, the determination of the amount of future cash dividends, if any, to be declared and paid will depend upon, among other things, the financial condition, funds from operations, level of exploration and development expenditure opportunities and future business prospects of the Company. 10 BUSINESS GENERAL The Company, a Delaware corporation organized in 1985, is engaged, either directly or through a marketing subsidiary with regard to domestic operations or through various subsidiaries with regard to international operations, in the exploration for, and the development, production and marketing of, natural gas and crude oil primarily in major producing basins in the United States, as well as in Canada, Trinidad and India and to a lesser extent, selected other international areas. At December 31, 1994, the Company's estimated net proved natural gas reserves were 1,910 Bcf and estimated net proved crude oil, condensate and natural gas liquids reserves were 37 MMBbl. At such date, approximately 70% of the Company's reserves (on a natural gas equivalent basis) was located in the United States, 16% in Canada, 11% in Trinidad and 3% in India. The Company pursues its oil and gas exploration and development operations primarily by the acquisition, through various means including but not limited to leasing, purchasing and farming-in of acreage that is either undeveloped or lightly developed, and drilling of internally generated prospects. The Company also maintains a strategy of selling selected oil and gas properties that, for various reasons, no longer fit into future operating plans or which are not assessed to have sufficient future growth potential and when the economic value to be obtained by selling the properties and reserves in the ground is evaluated to be greater than what would be obtained by holding the properties and producing the reserves over time. As a result, the Company typically receives each year a varying but substantial level of proceeds related to such sales which proceeds are available for general corporate use. EXPLORATION AND PRODUCTION NORTH AMERICAN OPERATIONS The Company's seven principal United States producing areas are the Big Piney area, South Texas area, East Texas area, Offshore Gulf of Mexico area, Canyon Trend area, Pitchfork Ranch area and Vernal area. Properties in these areas comprised approximately 76% of the Company's United States reserves (on a natural gas equivalent basis) and 85% of the Company's United States net natural gas deliverability as of December 31, 1994 and are substantially all operated by the Company. At September 30, 1995, properties in these areas comprised approximately 87% of the Company's United States net natural gas deliverability. The Company's other United States natural gas and crude oil producing properties are located primarily in other areas of Texas, Utah, New Mexico and in Oklahoma. At December 31, 1994, 93% of the Company's proved United States reserves (on a natural gas equivalent basis) was natural gas and 7% was crude oil, condensate and natural gas liquids. A substantial portion of the Company's United States natural gas reserves is in long-lived fields with well-established production histories. The Company believes that opportunities exist to increase production in many of these fields through continued infill and other development drilling. The Company also has natural gas and crude oil producing properties located in Western Canada, primarily in the provinces of Alberta, Saskatchewan and Manitoba. BIG PINEY AREA. The Company's largest reserve accumulation is located in the Big Piney area in Sublette and Lincoln counties in southwestern Wyoming. The Company is the holder of the largest productive acreage base in this area, with approximately 219,000 net acres under lease directly within field limits. The Company operates approximately 650 natural gas wells in this area in which it owns a 91% average working interest. Deliveries from the area net to the Company averaged 124 MMcf per day of natural gas and 1.5 MBbl per day of crude oil, condensate, and natural gas liquids in 1994. At September 30, 1995, natural gas deliverability net to the Company was approximately 138 MMcf per day. The current principal producing intervals are the Frontier and Mesaverde formations. The Frontier formation, which occurs at 6,500-10,000 feet, contains approximately 66% of the Company's current Big Piney reserves. The Company drilled 67 wells in the Big Piney area in 1994. Although natural gas drilling has been curtailed in this area during 1995 in response to market conditions, numerous drilling opportunities will be available for several years. 11 During the fourth quarter of 1995, the Company anticipates recording as proved undeveloped reserves approximately 1,100 Bcf of methane contained, along with high concentrations of carbon dioxide and nitrogen as well as small amounts of other gaseous substances, in the deep Wyoming Paleozoic formation located under acreage leased by the Company and held by production in the Big Piney area. The Company is actively pursuing the consummation of a market or markets from several different potential sources to facilitate realizing the value of these reserves. SOUTH TEXAS AREA. The Company's activities in South Texas are focused in the Wilcox, Expanded Wilcox, Frio and Lobo producing horizons. The principal area of activity is in the Lobo Trend which occurs primarily in Webb and Zapata counties. The Company operates approximately 470 wells in the South Texas area. Production is primarily from the Lobo sand of the Wilcox formation at depths ranging from 7,000 to 11,000 feet. The Company has approximately 250,000 net acres under lease in this area. Natural gas deliveries net to the Company averaged 181 MMcf per day in 1994. At September 30, 1995, natural gas deliverability from this area net to the Company was approximately 150 MMcf per day which was impacted during 1995 by the sale of selected properties. The Company drilled 56 wells in the South Texas area in 1994 and anticipates an active drilling program will continue for several years. EAST TEXAS AREA. The Company's activities in the East Texas area are primarily in the Carthage field, located in Panola County, and the North Milton field, located in northern Harris County. The Carthage field is the Company's newest area of concentration. This field is one of the most prolific fields in east Texas with production primarily from the Cotton Valley, Travis Peak and Pettit formations. In 1995, properties were acquired that doubled the Company's acreage position to 17,000 acres. An active drilling program is planned for the remainder of 1995 and for several years. The Company has an average 71% working interest in its holdings. The Company has continued its activity in the North Milton field where it now operates 19 wells and holds a 100% working interest in the acreage. Further drilling is planned for 1996. At September 30, 1995, deliverability from the East Texas area was approximately 35 MMcf per day of natural gas with almost 1.0 MBbl per day of condensate, both net to the Company. OFFSHORE GULF OF MEXICO AREA. At September 30, 1995, the Company held an interest in 191 blocks in the Offshore Gulf of Mexico area totaling 561,000 net acres. Of the 191 blocks, 133 are operated by the Company. These interests are located predominantly in federal waters offshore Texas and Louisiana. During 1995, the Company acquired a 50% interest in operations previously owned by Santa Fe Minerals complementing previously owned interests and adding significantly to the Company's offshore operations. Natural gas deliveries from this area averaged 83 MMcf per day during 1994 and 118 MMcf per day during the first nine months of 1995, both net to the Company. A substantial portion of such deliveries was from interests in the Matagorda trend with significant volumes also coming from the Mustang Island area. Deliverability from this area at September 30, 1995 was 160 MMcf per day net to the Company sourced principally as noted above. The Company has maintained an active drilling program in this area during 1994 and 1995 and anticipates a similar program to continue for several years. CANYON TREND AREA. The Company's activities in this area have been concentrated in Crockett, Sutton, Terrell and Val Verde Counties, Texas where the Company drilled 331 natural gas wells during the period 1992 through 1994. The Company holds approximately 91,800 net acres and now operates approximately 500 natural gas wells in this area in which it owns a 97% average working interest. Production is from the Canyon sands and Strawn limestone at depths from 5,500 to 11,500 feet. In 1994, natural gas deliveries from this area net to the Company averaged 65 MMcf per day. At September 30, 1995, natural gas deliverability from this area net to the Company was approximately 54 MMcf per day. The Company has maintained an active drilling program in the Canyon Trend area during 1995 and expects a similar program to continue for several years. PITCHFORK RANCH FIELD. The Pitchfork Ranch field located in Lea County, New Mexico, produces primarily from the Bone Spring, Atoka and Morrow formations. In 1994, deliveries net to the Company from this area averaged 36 MMcf per day of natural gas and approximately 2 MBbl per 12 day of crude oil, condensate and natural gas liquids. At September 30, 1995, deliverability from this area net to the Company was approximately 32 MMcf per day of natural gas and 3.6 MBbl per day of crude oil, condensate and natural gas liquids. The Company holds approximately 27,900 net acres and expects to maintain an active drilling program in this field for several years. VERNAL AREA. In the Vernal area, located primarily in Uintah County, Utah, the Company operates approximately 195 producing wells and presently controls approximately 79,000 net acres. For the first nine months of 1995, natural gas deliveries net to the Company from the Vernal area averaged 24 MMcf per day which represents deliverability. Production is from the Green River and Wasatch formations located at depths between 4,500-8,000 feet. The Company has an average working interest of approximately 60%. The Company drilled 20 wells in the Vernal area in 1994 and has maintained a comparable drilling program during 1995. CANADA. The Company is engaged in the exploration for and the development, production and marketing of natural gas and crude oil and the operation of natural gas processing plants in western Canada, principally in the provinces of Alberta, Saskatchewan, and Manitoba. The Company conducts operations from offices in Calgary. The Company produces natural gas from seven major areas and crude oil from three major areas. The Sandhills area in Southern Saskatchewan is the largest single producing area where 160 wells were drilled in 1994 resulting in deliverability net to the Company from the field of approximately 38 MMcf per day at December 31, 1994. Canadian natural gas deliverability net to the Company at September 30, 1995 was approximately 70 MMcf per day and the Company held approximately 350,000 net undeveloped acres in Canada. The Company expects to maintain an active drilling program in Canada for several years. OUTSIDE NORTH AMERICA OPERATIONS The Company has operations offshore Trinidad and India and is conducting exploration in selected other international areas. Properties offshore Trinidad and India comprised 100% of the Company's proved reserves and production outside of North America at year end 1994. TRINIDAD. In November 1992, the Company was awarded a 95% working interest concession in the South East Coast Consortium ("SECC") block offshore Trinidad, encompassing three undeveloped fields, previously held by three government-owned energy companies. The Kiskadee field has been developed, the Ibis field is under development and the Oil Bird field is anticipated to be developed over the next three to five years. Existing surplus processing and transportation capacity at the Pelican field facilities owned and operated by Trinidad and Tobago government-owned companies is being used to process and transport the production. Natural gas is being sold into the local market under a take-or-pay agreement with the National Gas Company of Trinidad and Tobago. In 1994, deliveries net to the Company averaged 63 MMcf per day of natural gas and 2.6 MBbl per day of crude oil and condensate. At September 30, 1995, deliverability net to the Company was approximately 166 MMcf per day of natural gas and 8.0 MBbls per day of crude oil and condensate. The Company's net production from offshore Trinidad was approximately 100 MMcf per day of natural gas and 6.2 MBbl per day of crude oil and condensate at September 30, 1995. The Company held approximately 71,000 net undeveloped acres in Trinidad. The Company recently has been awarded the right to develop the U(a) block adjacent to the SECC block and is presently negotiating the terms of a production sharing contract with the Government of Trinidad and Tobago. INDIA. In December 1994, the Company signed agreements covering profit sharing, joint operations and product sales, and was granted a 30% working interest in, the Tapti, Panna and Mukta blocks located offshore Bombay, India. The Company is designated operator of all three areas. The blocks were previously operated by the Indian national oil company, Oil & Natural Gas Corporation Limited, which retained a 40% working interest. The 363,000 acre Tapti Block contains two major proved gas accumulations delineated by 22 expendable exploration wells that have been plugged. The Company has initiated a development plan for the Tapti Block accumulations. The 106,000 acre Panna Block and the 192,000 acre Mukta Block are partially developed with 30 wells producing from five producing platforms located in the Panna and Mukta fields. The fields were producing approximately 3.5 MBbl per day of crude oil net to the Company as of September 30, 13 1995; all associated natural gas was being flared. The Company intends to continue development of the accumulations and to expand processing capacity to allow crude oil production at full deliverability as well as to permit natural gas sales. OTHER INTERNATIONAL. The Company continues to evaluate other selected conventional natural gas and crude oil opportunities outside North America. The Company is pursuing other exploitation opportunities in countries where indigenous natural gas reserves have been identified, particularly where synergies in natural gas transportation, processing and power cogeneration can be optimized with other Enron Corp. affiliated companies. In early 1995, the Company and the Qatar General Petroleum Corporation signed a nonbinding letter of intent concerning the possible development of a liquefied natural gas project for natural gas to be produced from the North Dome Field. The Company and Enron Corp. may jointly hold up to a 40% working interest in the joint venture and drill and develop to-be-agreed-upon reserves. In addition, the Company signed letters of intent in early 1995 with the National Oil Corporation of Uzbekistan, and Gazprom, the Russian natural gas company, to pursue the feasibility of joint venture development and marketing of previously discovered conventional hydrocarbon reserves in Uzbekistan. The Company is also in discussions concerning the potential for conventional oil and gas development opportunities in China, Mozambique and Qatar. The Company holds nonoperating working interests in two conventional oil and gas exploration prospects in the U.K. North Sea. The Company continues evaluation and assessment of its international opportunity portfolio in the coalbed methane recovery arena, including projects in South Wales in the U.K., the Lorraine Basin in France, Galilee Basin in Queensland, Australia and Hedong basin in China. MARKETING WELLHEAD MARKETING The Company's North America wellhead natural gas production is currently being sold on the spot market and under long-term natural gas contracts at market responsive prices. In many instances, the long-term contract prices closely approximate the prices received for natural gas being sold on the spot market. Wellhead natural gas volumes from Trinidad are sold at prices that are based on a fixed price schedule with annual escalations. Natural gas volumes in India will be sold to the Gas Authority of India, Ltd. under a take-or-pay contract at a price linked to a basket of world market fuel oil quotations with floor and ceiling limits. Approximately 45% of the Company's wellhead natural gas production is currently being sold to pipeline and marketing subsidiaries of Enron Corp. The Company believes that the terms of its transactions and agreements with Enron Corp. and/or its affiliates are and intends that future such transactions and agreements will be at least as favorable to the Company as could be obtained from third parties. Substantially all of the Company's wellhead crude oil and condensate is sold under short-term contracts at market responsive prices. OTHER MARKETING Enron Oil & Gas Marketing, Inc. ("EOGM") is a wholly-owned subsidiary of the Company engaged in various marketing activities. Both the Company and EOGM contract to provide, under short and long-term agreements, natural gas to various purchasers and then aggregate the necessary supplies for the sales with purchases from various sources including third-party producers, marketing companies, pipelines or from the Company's own production. In addition, EOGM has purchased and constructed several small gathering systems in order to facilitate its entry into the gathering business on a strategic basis. Both the Company and EOGM utilize other short and long-term hedging and trading mechanisms including sales and purchases utilizing NYMEX-related commodity market transactions. All of these activities are currently conducted with companies affiliated with Enron Corp. These marketing activities have provided an effective balance in managing the Company's exposure to commodity price risks for both natural gas and crude oil and condensate wellhead prices. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Capital Resources and Liquidity-- Hedging Transactions." 14 WELLHEAD VOLUMES AND PRICES, AND LEASE AND WELL EXPENSES The following table sets forth certain information regarding the Company's wellhead volumes of and average prices for natural gas per Mcf, crude oil and condensate, and natural gas liquids per Bbl, and average lease and well expenses per Mcfe delivered during each of the three years in the period ended December 31, 1994 and the nine-month periods ended September 30, 1994 and 1995.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1992 1993 1994 1994 1995 --------- --------- --------- --------- --------- VOLUMES (PER DAY) Natural Gas (MMcf) United States(1)........... 534 649 614 609 534 Canada..................... 30 58 72 71 75 Trinidad................... -- 2 63 63 110 --------- --------- --------- --------- --------- Total(1)................. 564 709 749 743 719 ========= ========= ========= ========= ========= Crude Oil and Condensate (MBbl) United States.............. 6.3 6.6 8.0 7.5 9.1 Canada..................... 2.2 2.2 2.0 1.9 2.4 Trinidad................... -- .1 2.5 2.6 4.8 India...................... -- -- .1 -- 2.3 --------- --------- --------- --------- --------- Total.................... 8.5 8.9 12.6 12.0 18.6 ========= ========= ========= ========= ========= Natural Gas Liquids (MBbl) United States.............. .3 .2 .3 .2 1.2 Canada..................... .4 .4 .4 .5 .3 --------- --------- --------- --------- --------- Total.................... .7 .6 .7 .7 1.5 ========= ========= ========= ========= ========= AVERAGE PRICES Natural Gas ($/Mcf) United States(2)........... $ 1.61 $ 1.97 $ 1.71 $ 1.79 $ 1.33 Canada..................... 1.18 1.34 1.42 1.51 .95 Trinidad................... -- .89 .93 .93 .97 Composite(2)............. 1.58 1.92 1.62 1.69 1.23 Crude Oil and Condensate ($/Bbl) United States.............. $ 18.29 $ 16.96 $ 16.06 $ 15.64 $ 17.20 Canada..................... 16.80 14.63 14.05 13.72 16.31 Trinidad................... -- 14.36 15.50 15.20 16.16 India...................... -- -- 15.70 -- 16.82 Composite................ 17.90 16.37 15.62 15.24 16.77 Natural Gas Liquids ($/Bbl) United States.............. $ 11.56 $ 13.85 $ 12.45 $ 12.50 $ 11.76 Canada..................... 10.05 9.46 8.45 7.86 9.69 Composite................ 10.69 11.12 9.90 9.43 11.27 LEASE AND WELL EXPENSES ($/MCFE) United States.............. $ .20 $ .18 $ .19 $ .19 $ .20 Canada..................... .50 .48 .34 .35 .35 Trinidad................... -- 1.46 .17 .15 .14 India...................... -- -- .13 -- 1.59 Composite................ .22 .21 .20 .20 .23
- ------------ (1) Includes 28 MMcf per day in 1992, 81 MMcf per day in 1993 and 48 MMcf per day in 1994 and in the nine-month periods ended September 30, 1994 and 1995 delivered under the terms of a volumetric production payment agreement effective October 1, 1992, as amended. (2) Includes an average equivalent wellhead value of $1.70 per Mcf in 1992, $1.57 per Mcf in 1993, $1.27 per Mcf in 1994 and $1.32 per Mcf and $.76 per Mcf in the nine-month periods ended September 30, 1994 and 1995, respectively, for the volumes described in note (1), net of transportation costs. 15 OTHER NATURAL GAS MARKETING VOLUMES AND PRICES The following table sets forth certain information regarding the Company's volumes of natural gas delivered under other marketing and volumetric production payment arrangements, and resulting average per unit gross revenue and per unit amortization of deferred revenues along with associated costs during each of the three years in the period ended December 31, 1994 and the nine-month periods ended September 30, 1994 and 1995.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1992 1993 1994 1994 1995 --------- --------- --------- --------- --------- Volumes (MMcf per day)(1)............ 255 293 324 327 266 Average Gross Revenue ($/Mcf)(2)..... $ 2.62 $ 2.57 $ 2.38 $ 2.41 $ 1.87 Associated Costs ($/Mcf)(3)(4)....... 1.99 2.32 2.06 2.13 1.49 --------- --------- --------- --------- --------- Margin ($/Mcf)....................... $ 0.63 $ 0.25 $ 0.32 $ 0.28 $ 0.38 ========= ========= ========= ========= =========
- ------------ (1) Includes 28 MMcf per day in 1992, 81 MMcf per day in 1993 and 48 MMcf per day in 1994 and in the nine-month periods ended September 30, 1994 and 1995 delivered under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended. (2) Includes per unit deferred revenue amortization for the volumes detailed in note (1) at an equivalent of $2.51 per Mcf in 1992, $2.50 per Mcf in 1993, $2.46 per Mcf in 1994 and $2.46 per Mcf and $2.47 per Mcf in the nine-month periods ended September 30, 1994 and 1995, respectively. (3) Includes an average value of $2.37 per Mcf in 1992, $2.20 per Mcf in 1993, $1.92 per Mcf in 1994 and $1.99 per Mcf and $1.50 per Mcf in the nine-month periods ended September 30, 1994 and 1995, respectively, including average equivalent wellhead value, any applicable transportation costs and exchange differentials, for the volumes detailed in note (1). (4) Including transportation and exchange differentials. OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES The following tables set forth the Company's net proved and proved developed reserves at December 31, 1993 and 1994, and the changes in the net proved reserves for the year 1994 as estimated by the Company's engineering staff. The additional disclosures that include volumes attributable to a volumetric production payment set forth in the following tables are presented as additional information and are not intended to represent required disclosure pursuant to SFAS No. 69 -- "Disclosures about Oil and Gas Producing Activities."
UNITED STATES CANADA TRINIDAD INDIA TOTAL ------------- ------ -------- --------- --------- Natural Gas (Bcf) Net proved reserves at December 31, 1993...................... 1,313.2 271.0 100.5 -- 1,684.7 Additional disclosures: Volumes attributable to volumetric production payment.................. 87.5 -- -- -- 87.5 ------------- ------ -------- --------- --------- Net proved reserves at December 31, 1993, including volumes attributable to volumetric production payment............ 1,400.7 271.0 100.5 -- 1,772.2 ============= ====== ======== ========= ========= Net proved reserves at December 31, 1993...................... 1,313.2 271.0 100.5 -- 1,684.7 Revisions of previous estimates................ (17.1) (6.5 ) 15.0 -- (8.6) Purchases in place......... 18.8 9.2 -- 29.3 57.3 Extensions, discoveries and other additions.......... 233.8 50.2 113.9 -- 397.9 Sales in place............. (29.3) (1.0 ) -- -- (30.3) Production................. (212.0) (26.3 ) (23.2) -- (261.5) ------------- ------ -------- --------- --------- Net proved reserves at December 31, 1994...................... 1,307.4 296.6 206.2 29.3 1,839.5 16 UNITED STATES CANADA TRINIDAD INDIA TOTAL ------------- ------ -------- --------- --------- Additional disclosures: Volumes attributable to volumetric production payment.................. 70.9 -- -- -- 70.9 ------------- ------ -------- --------- --------- Net proved reserves at December 31, 1994, including volumes attributable to volumetric production payment............ 1,378.3 296.6 206.2 29.3 1,910.4 ============= ====== ======== ========= ========= Liquids (MBbl)(1) Net proved reserves at December 31, 1993...................... 13,172 5,471 2,218 -- 20,861 Revisions of previous estimates................ 2,179 (177 ) 455 -- 2,457 Purchases in place......... 358 -- -- 7,617 7,975 Extensions, discoveries and other additions.......... 5,332 2,848 2,687 -- 10,867 Sales in place............. (257) -- -- -- (257) Production................. (2,997) (905 ) (931) (32) (4,865) ------------- ------ -------- --------- --------- Net proved reserves at December 31, 1994...................... 17,787 7,237 4,429 7,585 37,038 ============= ====== ======== ========= ========= UNITED STATES CANADA TRINIDAD INDIA TOTAL ------------- ------ -------- --------- --------- Net proved developed reserves at Natural Gas (Bcf) December 31, 1993.......... 1,079.8 250.6 71.4 -- 1,401.8 December 31, 1994.......... 1,128.2 288.3 206.2 -- 1,622.7 Liquids (MBbl)(1) December 31, 1993.......... 11,165 5,409 1,591 -- 18,165 December 31, 1994.......... 16,770 7,073 4,429 7,585 35,857 UNITED STATES CANADA TRINIDAD INDIA TOTAL ------------- ------ -------- --------- --------- Net proved developed reserves, including amounts attributable to volumetric production payment at Natural Gas (Bcf) December 31, 1993.......... 1,167.3 250.6 71.4 -- 1,489.3 December 31, 1994.......... 1,199.1 288.3 206.2 -- 1,693.6 Liquids (MBbl)(1) December 31, 1993.......... 11,165 5,409 1,591 -- 18,165 December 31, 1994.......... 16,770 7,073 4,429 7,585 35,857
- ------------ (1) Includes crude oil, condensate and natural gas liquids. Estimates of proved and proved developed reserves at December 31, 1993 and 1994 were based on studies performed by the Company's engineering staff for reserves in the United States, Canada, Trinidad and India. Opinions by DeGolyer and MacNaughton, independent petroleum consultants, for the years ended December 31, 1993 and 1994 covering producing areas containing 65% and 59%, respectively, of proved reserves of the Company on a net-equivalent-cubic-feet-of-gas basis, indicate that the estimates of proved reserves prepared by the Company's engineering staff for the properties reviewed by DeGolyer and MacNaughton, when compared in total on a net- equivalent-cubic-feet-of-gas basis, do not differ materially from the estimates prepared by DeGolyer and MacNaughton. Such estimates by DeGolyer and MacNaughton in the aggregate varied by not more than 5% from those prepared by the Company's engineering staff. All reports by DeGolyer and MacNaughton were developed utilizing geological and engineering data provided by the Company. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth herein represent only estimates. Reserve engineering is a subjective process of estimating underground accumulations of 17 natural gas and liquids, including crude oil, condensate and natural gas liquids, that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the amount and quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers normally vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they were based. In general, the volume of production from oil and gas properties owned by the Company declines as reserves are depleted. Except to the extent the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities, or both, the proved reserves of the Company will decline as reserves are produced. Volumes generated from future activities of the Company are therefore highly dependent upon the level of success in acquiring or finding additional reserves and the costs incurred in doing so. ACREAGE The following tables summarize the Company's developed and undeveloped acreage at December 31, 1994 and September 30, 1995. Excluded is acreage in which the Company's interest is limited to owned royalty, overriding royalty and other similar interests.
DEVELOPED UNDEVELOPED TOTAL -------------------------- ---------------------------- ---------------------------- GROSS NET GROSS NET GROSS NET ------------ ------------ ------------- ------------- ------------- ------------- At December 31, 1994: United States................... 978,427 637,870 1,952,656 1,705,716 2,931,083 2,343,586 Canada.......................... 501,989 307,996 437,523 353,550 939,512 661,546 India........................... 60,000 18,000 602,207 180,662 662,207 198,662 Trinidad........................ 4,200 3,990 74,851 71,108 79,051 75,098 Other International............. -- -- 13,913,600 11,756,800 13,913,600 11,756,800 ------------ ------------ ------------- ------------- ------------- ------------- Total...................... 1,544,616 967,856 16,980,837 14,067,836 18,525,453 15,035,692 ============ ============ ============= ============= ============= ============= At September 30, 1995: United States................... 1,554,024 661,647 2,321,727 1,775,151 3,875,751 2,436,798 Canada.......................... 559,534 335,559 424,302 349,503 983,836 685,062 India........................... 60,000 18,000 602,207 180,662 662,207 198,662 Trinidad........................ 4,200 3,990 74,851 71,108 79,051 75,098 Other International............. -- -- 13,422,400 11,773,100 13,422,400 11,773,100 ------------ ------------ ------------- ------------- ------------- ------------- Total...................... 2,177,758 1,019,196 16,845,487 14,149,524 19,023,245 15,168,720 ============ ============ ============= ============= ============= =============
18 DRILLING AND ACQUISITION ACTIVITIES During the years ended December 31, 1992, 1993 and 1994 and the nine months ended September 30, 1995 the Company spent approximately $396, $430, $494 and $401 million, respectively, for exploratory and development drilling and acquisition of leases and producing properties. The Company drilled, participated in the drilling of or acquired wells as set out in the table below for the periods indicated:
NINE MONTHS ENDED SEPTEMBER YEAR ENDED DECEMBER 31, 30, -------------------------------------------------------- ---------------- 1992 1993 1994 1995 ---------------- ---------------- ---------------- ---------------- GROSS NET GROSS NET GROSS NET GROSS NET ----- ------- ----- ------- ----- ------- ----- ------- Development Wells Completed Domestic Gas........................ 484 399.06 352 279.00 308 244.23 99 77.78 Oil........................ 19 10.80 45 19.01 34 29.57 36 32.06 Dry........................ 64 56.12 59 46.83 41 32.15 38 30.80 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 567 465.98 456 344.84 383 305.95 173 140.64 International Gas........................ 2 2.00 227 190.10 250 190.30 116 107.66 Oil........................ 13 11.70 4 3.50 11 5.10 13 8.21 Dry........................ 5 4.05 11 7.60 13 11.50 11 8.38 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 20 17.75 242 201.20 274 206.90 140 124.25 ----- ------- ----- ------- ----- ------- ----- ------- Total Development............... 587 483.73 698 546.04 657 512.85 313 264.89 ----- ------- ----- ------- ----- ------- ----- ------- Exploratory Wells Completed Domestic Gas........................ 11 8.72 14 10.03 13 9.80 4 2.52 Oil........................ 1 .40 3 2.50 3 2.57 3 2.63 Dry........................ 16 13.42 32 22.08 23 18.17 6 4.47 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 28 22.54 49 34.61 39 30.54 13 9.62 International Gas........................ 7 5.75 14 11.40 9 7.90 2 1.24 Oil........................ 4 3.69 2 .90 1 .50 2 2.00 Dry........................ 4 2.85 10 7.35 14 12.50 5 3.70 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 15 12.29 26 19.65 24 20.90 9 6.94 ----- ------- ----- ------- ----- ------- ----- ------- Total Exploratory............... 43 34.83 75 54.26 63 51.44 22 16.56 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 630 518.56 773 600.30 720 564.29 335 281.45 Wells in Progress at end of period... 82 60.75 82 61.09 45 28.79 53 38.72 ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 712 579.31 855 661.39 765 593.08 388 320.17 ===== ======= ===== ======= ===== ====== === ====== Wells Acquired Gas............................. 641 597.29* 44 26.44* 41 40.90* 271 97.37* Oil............................. 28 25.80* -- 12.80* 60 38.99* 5 .93* ----- ------- ----- ------- ----- ------- ----- ------- Total.................... 669 623.09 44 39.24 101 79.89 276 98.30 ===== ======= ===== ======= ===== ====== === ======
- ------------ * Includes the acquisition of additional interests in certain wells in which the Company previously held an interest. All of the Company's drilling activities are conducted on a contract basis with independent drilling contractors. The Company owns no drilling equipment. 19 SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION The following table sets forth a summary of selected consolidated financial and operating information for the Company for each of the five years in the period ended December 31, 1994 and the nine-month periods ended September 30, 1994 and 1995. This information should be read in conjunction with the consolidated financial statements of the Company and related notes thereto incorporated by reference herein (see "Incorporation of Certain Documents by Reference") and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. Financial information for each of the five years in the period ended December 31, 1994 has been derived from audited financial statements. Financial information for the nine-month periods ended September 30, 1994 and 1995 has been derived from unaudited financial statements. The interim data reflects all adjustments which, in the opinion of the management of the Company, are necessary to present fairly such information for the interim periods. Results of the nine-month periods are not necessarily indicative of the results expected for a full year or any other interim period.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------------------------------- ------------------------ 1990 1991 1992 1993 1994 1994 1995 ----------- ----------- ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net operating revenues Natural gas...................... $ 301,645 $ 321,603 $ 388,988 $ 505,162 $ 489,893 $ 365,654 $ 332,015 Crude oil, condensate and natural gas liquids.................... 66,165 62,836 58,927 55,834 76,338 52,632 90,342 Gains on sales of reserves and related assets................. 31,802 14,983 6,037 13,318 54,014 52,212 62,546 Other............................ 3,525 3,166 5,074 6,706 5,578 3,842 7,439 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total........................ 403,137 402,588 459,026 581,020 625,823 474,340 492,342 Operating expenses Lease and well................... 43,806 49,922 49,406 59,344 60,384 44,782 52,918 Exploration...................... 35,031 31,470 33,278 36,921 41,811 29,647 31,590 Dry hole......................... 12,986 14,698 10,764 18,355 17,197 10,803 8,586 Impairment of unproved oil and gas properties................. 20,571 12,791 15,136 20,467 24,936 17,364 20,453 Depreciation, depletion and amortization................... 155,877 160,885 179,839 249,704 242,182 181,645 157,875 General and administrative....... 38,254 36,216 36,648 45,274 51,418 38,050 41,186 Taxes other than income.......... 22,966 18,222 28,346 35,396 28,254 22,010 25,606 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total........................ 329,491 324,204 353,417 465,461 466,182 344,301 338,214 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Operating income..................... 73,646 78,384 105,609 115,559 159,641 130,039 154,128 Other income (expense)............... (2,153) (3,215) (3,476) 6,635 2,783 2,238 (1,143) Interest expense (net of interest capitalized)....................... 36,879 29,500 22,289 9,921 8,489 6,111 8,810 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before income taxes........... 34,614 45,669 79,844 112,273 153,935 126,166 144,175 Income tax provision (benefit)(1).... (10,854) (2,247) (17,736) (25,752)(2) 5,937(3) 20,728 33,444(4) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income........................... $ 45,468 $ 47,916 $ 97,580 $ 138,025 $ 147,998 $ 105,438 $ 110,731 =========== =========== =========== =========== =========== =========== =========== Earnings per share of common stock(5)........................... $ .30 $ .32 $ .63 $ .86 $ .93 $ .66 $ .69 =========== =========== =========== =========== =========== =========== =========== Average number of common shares(5)... 151,800 151,800 154,533 159,996 159,845 159,826 159,951 =========== =========== =========== =========== =========== =========== =========== BALANCE SHEET DATA (AT PERIOD END): Net oil and gas properties........... $ 1,305,136 $ 1,339,666 $ 1,468,011 $ 1,546,045 $ 1,684,811 $ 1,637,762 $ 1,843,150 Total assets......................... 1,417,939 1,455,608 1,731,012 1,811,162 1,861,867 1,855,819 2,109,971 Long-term debt Affiliate........................ 277,918 132,836 --(6) -- 25,000 25,000 16,320 Other............................ 140,442 289,556 150,000(6) 153,000 165,337 158,862 247,552 Deferred revenue..................... -- -- 301,395 227,528 184,183 195,109 224,085 Shareholders' equity................. 610,042 643,185 826,986(6) 933,073 1,043,419 1,019,712 1,140,295 20 OPERATING DATA: Wellhead Volumes and Prices Natural Gas Volumes (MMcf per day) United States(7)................. 437 466 534 649 613 609 534 Canada........................... 18 25 30 58 73 71 75 Trinidad......................... -- -- -- 2 63 63 110 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total(7)..................... 455 491 564 709 749 743 719 =========== =========== =========== =========== =========== =========== =========== Average Natural Gas Prices ($/Mcf) United States.................... $ 1.51 $ 1.38 $ 1.61 $ 1.97 $ 1.71 $ 1.79 $ 1.33 Canada........................... 1.47 1.32 1.18 1.34 1.42 1.51 .95 Trinidad......................... -- -- -- .89 .93 .93 .97 Composite.................... 1.51 1.37 1.58 1.92 1.62 1.69 1.23 Crude/Condensate Volumes (MBbl per day) United States.................... 5.8 5.9 6.3 6.6 8.0 7.5 9.1 Canada........................... 2.4 2.3 2.2 2.2 2.0 1.9 2.4 Trinidad......................... -- -- -- .1 2.5 2.6 4.8 India............................ -- -- -- -- .1 -- 2.3 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total........................ 8.2 8.2 8.5 8.9 12.6 12.0 18.6 =========== =========== =========== =========== =========== =========== =========== Average Crude/Condensate Prices ($/Bbl) United States.................... $21.95 $19.24 $18.29 $16.96 $16.06 $15.64 $17.20 Canada........................... 21.01 17.58 16.80 14.63 14.05 13.72 16.31 Trinidad......................... -- -- -- 14.36 15.50 15.20 16.16 India............................ -- -- -- -- 15.70 -- 16.82 Composite.................... 21.67 18.78 17.90 16.37 15.62 15.24 16.77 Natural Gas Liquids Volumes (MBbl per day) United States.................... .4 .3 .3 .2 .3 .2 1.2 Canada........................... -- .3 .4 .4 .4 .5 .3 Total........................ .4 .6 .7 .6 .7 .7 1.5 Average Natural Gas Liquids Prices ($/Bbl) United States.................... $10.59 $10.79 $11.56 $13.85 $12.45 $12.50 $11.76 Canada........................... -- 12.48 10.05 9.46 8.45 7.86 9.69 Composite.................... 10.59 11.64 10.69 11.12 9.90 9.43 11.27
- ------------ (1) Includes benefits of approximately $17 million, $43 million, $65 million and $36 million in 1991, 1992, 1993 and 1994, respectively, and $29 million and $16 million in the nine-month periods ended September 30, 1994 and 1995, respectively, relating to tight gas sand federal income tax credits and $25 million and $7 million in 1990 and 1991, respectively, associated with the utilization of a net operating loss carryforward. (2) Includes a benefit of $12 million from the reduction of the Company's deferred federal income tax liability resulting from a reevaluation of deferred tax requirements partially offset by an approximate $7 million predominantly non-cash charge primarily to adjust the Company's accumulated deferred income tax liability for the increase in the corporate federal income tax rate from 34% to 35%. (3) Includes a benefit of approximately $8 million related to reduced estimated state income taxes and certain franchise taxes, a portion of which is treated as income tax under SFAS No. 109-- "Accounting for Income Taxes", and a $5 million benefit from the reduction of the Company's deferred federal income tax liability resulting from a reevaluation of deferred tax requirements. (4) Includes a $12 million benefit associated with the successful resolution on audit of federal income taxes for certain prior years. (5) In May 1994, the Board of Directors declared a two-for-one split of the Company's Common Stock to be effected as a non-taxable dividend of one share for each share outstanding. Shares were issued on June 15, 1994 to shareholders of record as of May 31, 1994. All share and per share amounts presented herein are reflected on a post-split basis. (6) In August 1992, the Company completed the sale of an additional 8.2 million shares of Common Stock resulting in aggregate net proceeds to the Company of approximately $112 million used primarily to repay long-term debt. In September 1992, the Company completed the sale of a volumetric production payment, resulting in net proceeds of approximately $327 million used to repay long-term debt and for other general corporate purposes. (7) Includes 28 MMcf per day in 1992, 81 MMcf per day in 1993 and 48 MMcf per day in 1994 and in the nine-month periods ended September 30, 1994 and 1995 delivered under the terms of a volumetric production payment effective October 1, 1992, as amended. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for each of the three years in the period ended December 31, 1994 and for the nine-month periods ended September 30, 1994 and 1995 should be read in conjunction with the consolidated financial statements of the Company and notes thereto and other financial data incorporated by reference herein. See "Incorporation of Certain Documents by Reference." RESULTS OF OPERATIONS NET OPERATING REVENUES Wellhead volume and price statistics for the specified periods were as follows:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------- -------------------- 1992 1993 1994 1994 1995 ---------- ---------- ---------- --------- --------- Natural Gas Volumes (MMcf per day) North America(1)........... 564 707 686 680 609 Trinidad................... -- 2 63 63 110 ---------- ---------- ---------- --------- --------- Total................. 564 709 749 743 719 ========== ========== ========== ========= ========= Average Natural Gas Prices ($/Mcf) North America(2)........... $ 1.58 $ 1.92 $ 1.68 $ 1.76 $ 1.28 Trinidad................... -- .89 .93 .93 .97 Composite............. 1.58 1.92 1.62 1.69 1.23 Crude/Condensate Volumes (MBbl per day) North America.............. 8.5 8.8 10.0 9.4 11.5 Trinidad................... -- .1 2.5 2.6 4.8 India...................... -- -- .1 -- 2.3 ---------- ---------- ---------- --------- --------- Total................. 8.5 8.9 12.6 12.0 18.6 ========== ========== ========== ========= ========= Average Crude/Condensate Prices ($/Bbl) North America.............. $ 17.90 $ 16.39 $ 15.65 $ 15.25 $ 17.01 Trinidad................... -- 14.36 15.50 15.20 16.16 India...................... -- -- 15.70 -- 16.82 Composite............. 17.90 16.37 15.62 15.24 16.77
- ------------ (1) Includes 28 MMcf per day in 1992, 81 MMcf per day in 1993 and 48 MMcf per day in 1994 and in the nine-month periods ended September 30, 1994 and 1995 delivered under the terms of volumetric production payment and exchange agreements effective October 1, 1992, as amended. (2) Includes an average equivalent wellhead value of $1.70 per Mcf in 1992, $1.57 per Mcf in 1993, $1.27 per Mcf in 1994 and $1.32 per Mcf and $.76 per Mcf in the nine-month periods ended September 30, 1994 and 1995, respectively, for the volumes detailed in note (1), net of transportation costs. NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994. During the first nine months of 1995, net operating revenues increased $18 million to $492 million as compared to the same period in 1994. Average wellhead natural gas prices for the first nine months of 1995 were down approximately 27% from the same period in 1994 reducing net operating revenues by approximately $90 million. In addition, a decrease of 3% in wellhead natural gas volumes from the first nine months of 1994 reduced net operating revenues by approximately $11 million. The Company voluntarily curtailed its United States wellhead natural gas delivered volumes by an average of approximately 140 MMcf per day during the first nine months of 1995 compared to approximately 110 MMcf per day during the 22 same period in 1994 due to significantly lower United States wellhead natural gas prices. In addition, the impact of the sales of oil and gas reserves and related assets (net of purchases of similar assets) resulted in a reduction of approximately 40 MMcf per day in delivered volumes for the first nine months of 1995 as compared to the first nine months of 1994. The Company refocused its 1995 drilling activity away from natural gas deliverability and toward natural gas reserve enhancement and crude oil exploitation in the United States in response to the significant decline in United States natural gas prices in recent periods. Wellhead crude oil and condensate average prices increased 10% adding approximately $8 million to net operating revenues compared to the first nine months of 1994. Crude oil and condensate wellhead volumes increased 55% adding approximately $27 million to net operating revenues compared to the same period a year ago primarily reflecting new production on stream offshore India, and higher volumes offshore Trinidad and in North America. Other marketing activities associated with sales and purchases of natural gas, natural gas price swap transactions, other commodity price hedging of natural gas and crude oil and condensate prices utilizing NYMEX-related commodity market transactions, and volumetric production payment related margins added approximately $91 million to net operating revenues during the first nine months of 1995, an increase of approximately $67 million from the same period in 1994. This increase primarily resulted from a gain of $51 million on natural gas commodity price hedging activities utilizing NYMEX-related commodity market transactions in the first nine months of 1995 compared to a $2 million loss during the same period in 1994 and increased margins associated with other natural gas marketing activities. The average associated costs of natural gas marketing, price swap and volumetric production payment transactions, including, where appropriate, average wellhead value, transportation costs and exchange differentials, decreased $.64 per Mcf. The average price received for these transactions decreased $.54 per Mcf. Related other natural gas marketing volumes decreased 19%. The reduction in other natural gas marketing volumes and prices relates primarily to the exchange of the fuel contracts noted below, lower wellhead market prices and decreased other marketing activities. The $.10 per Mcf margin increase partially offset by the reduction in other natural gas marketing volumes increased net operating revenues by approximately $3 million compared to the first nine months of 1994. The Company realized an $11 million gain in the first nine months of 1995 related to certain NYMEX-related commodity market transactions with an Enron Corp. affiliated company that were designated for trading purposes in late 1994. The Company had no open trading positions at September 30, 1995. See "Trading Transactions." In March 1995, the Company exchanged existing fuel supply and purchase contracts and related price swap agreements associated with a Texas City cogeneration plant for certain natural gas price swap agreements of equivalent value issued by an Enron Corp. affiliated company. As a result of these transactions, the Company realized a $8.4 million increase in net operating revenues in the first nine months of 1995 over the amount realized from the exchanged fuel supply and purchase contracts in the same period of 1994. See "Relationship Between the Company and Enron Corp.-- Contractual Agreements." Gains on sales of reserves and related assets during the first nine months of 1995 increased $10 million to $63 million when compared to the same period in 1994 which increase was attributable to the Company's continuing efforts in optimizing the use of its assets. 1994 COMPARED TO 1993. During 1994, net operating revenues increased to $626 million, up $45 million as compared to 1993. Average wellhead natural gas volumes increased approximately 6% compared to 1993 primarily reflecting the effects of development activities offshore Trinidad and in Canada partially offset by voluntary curtailments of production in the United States in 1994. The volume reductions in the United States as a result of voluntary curtailments were more than offset by the new natural gas deliveries from the Kiskadee field offshore Trinidad and increased deliveries in Canada. The increase in wellhead natural gas volumes added $28 million to net operating revenues. Average wellhead natural gas prices were down significantly from 1993 reducing net operating revenues by 23 approximately $83 million. This 16% reduction in average wellhead natural gas prices reflects the overall decline in the United States natural gas markets during the last half of 1994 and increased volumes offshore Trinidad sold under a long-term contract at a price considerably below North America spot market prices. A 42% increase in wellhead crude oil and condensate volumes over 1993 added $22 million to net operating revenues primarily reflecting development activities offshore Trinidad and increased production in the United States. A 5% decrease in wellhead crude oil and condensate average prices decreased net operating revenues by approximately $3 million. Other marketing activities associated with sales and purchases of natural gas, natural gas and crude oil price swap transactions, other commodity price hedging of natural gas and crude oil prices utilizing NYMEX-related commodity market transactions, and margins relating to the volumetric production payment added $50 million to net operating revenues during 1994. This increase of $41 million from the same period in 1993 primarily results from a gain of $11 million on natural gas commodity price hedging activities utilizing NYMEX-related commodity market transactions in 1994 versus an $18 million loss during 1993 and increased margins associated with other natural gas marketing activities. The average associated costs of natural gas marketing, price swap and volumetric production payment transactions, including, where appropriate, average wellhead value, transportation costs and exchange differentials, decreased $.26 per Mcf. The average price received for these transactions decreased $.19 per Mcf. Related other natural gas marketing volumes increased 10%. Gains on sales of selected oil and gas reserves and related assets were $54 million in 1994 as compared to $13 million in 1993. While the quantity of equivalent reserves sold in 1994 was slightly less than 1993, higher average proceeds received per equivalent unit in 1994 as compared to 1993 primarily contributed to the increased gain recognition. In continuing its strategy of fully utilizing its assets in optimizing profitability, cash flow and return on investments, the Company expects to continue the sale of similar properties from time to time. 1993 COMPARED TO 1992. During 1993, net operating revenues increased to $581 million, up $122 million as compared to 1992. Average wellhead natural gas volumes increased approximately 26% compared to 1992 primarily reflecting the effects of exploration and development activities relating to tight gas sand formations. Wellhead natural gas delivered volumes were curtailed less during portions of 1993 than for the comparable periods in 1992 due to the significant increases realized in wellhead natural gas prices in 1993. Average wellhead natural gas prices were up approximately 22% in 1993 over those received in 1992, adding approximately $87 million to net operating revenues. Increases in wellhead natural gas volumes in 1993 added $83 million to net operating revenues compared to 1992. Average wellhead crude oil and condensate prices in 1993 were down 9% compared to 1992, reducing net operating revenues by $5 million. Increases in wellhead crude oil and condensate volumes in 1993 added approximately $2 million to net operating revenues compared to 1992. Other marketing activities associated with sales and purchases of natural gas, natural gas price swap transactions, other commodity price hedging of natural gas and crude oil and condensate prices utilizing NYMEX-related commodity market transactions, and margins relating to the volumetric production payment added $8 million to net operating revenues during 1993. This decrease of $54 million from 1992 primarily results from shrinking margins associated with sales under long-term fixed price contracts and amortization of volumetric production payment deferred revenue due to increases in market responsive natural gas prices associated with volumes supplying these dispositions and losses on natural gas commodity price hedging activities utilizing NYMEX-related commodity market transactions. The average associated costs of natural gas marketing, price swap and volumetric production payment transactions, including, where appropriate, average wellhead value, transportation costs and exchange differentials, increased $.33 per Mcf. Related other natural gas marketing volumes increased 15%. 24 The impact of the other marketing activities, a substantial portion of which serve as hedges of commodity price risks for a portion of wellhead deliveries for the respective periods, were more than offset by reductions in revenues associated with market responsive prices for wellhead deliveries during those periods. OPERATING EXPENSES NINE MONTHS 1995 COMPARED TO NINE MONTHS 1994. During the first nine months of 1995, operating expenses of $338 million were $6 million lower than the $344 million incurred in the same period in 1994. Lease and well expenses increased approximately $8 million to $53 million primarily due to expanded international operations including the initiation of operations in India in late December 1994 partially offset by reductions in United States lease and well expenses. Exploration expenses increased $2 million to $32 million due to increased exploration activities. Impairment of unproved oil and gas properties for the first nine months of 1995 increased $3 million from the comparable period a year ago primarily due to impairments associated with certain offshore Gulf of Mexico leases. Depreciation, depletion and amortization ("DD&A") expense decreased $24 million to $158 million reflecting a decrease in the average DD&A rate from $.81 per Mcfe in the first nine months of 1994 to $.69 per Mcfe in the first nine months of 1995. The DD&A rate decrease is primarily attributable to increased production from international operations with lower average DD&A rates than incurred for North America operations. General and administrative expenses increased approximately $3 million to $41 million due to expanded international activities and overall higher costs associated with certain employee related expenses. Taxes other than income were $4 million higher in the first nine months of 1995 compared to the same period in 1994 primarily due to a reduction included in 1994 associated with state franchise taxes and higher production related taxes associated with new production in India in the first nine months of 1995 partially offset by decreases in state severance taxes due to lower taxable North America wellhead volumes and average prices in 1995. The Company reduced its total per unit operating costs for lease and well expense, DD&A, general and administrative expense, interest expense, and taxes other than income by $.06 per Mcfe, averaging $1.25 per Mcfe during the first nine months of 1995 compared to $1.31 per Mcfe during the same period in 1994. This decrease is primarily attributable to the reduction in the average DD&A rate as noted above partially offset by increases in per unit lease and well, general and administrative expenses, and taxes other than income. 1994 COMPARED TO 1993. During 1994, total operating expenses of $466 million were approximately $1 million higher than the $465 million incurred in 1993. Lease and well expenses of $60 million were approximately $1 million higher than 1993 primarily due to increased expenses related to new operations offshore Trinidad partially offset by cost reductions in North America. Exploration expenses of $42 million increased $5 million from the previous year primarily due to an increased level of exploration activities. Impairment of unproved oil and gas properties increased $4 million from 1993 primarily due to impairments associated with certain offshore Gulf of Mexico leases. DD&A expense decreased from $250 million in 1993 to $242 million in 1994 reflecting a $.09 per Mcfe decrease in the average DD&A rate to $.80 per Mcfe. The rate decrease is primarily due to increased production from offshore Trinidad at an average DD&A rate significantly less than the North America operations DD&A rate and a $.03 per Mcfe reduction in the North America operations DD&A rate. General and administrative expenses increased $6 million to $51 million primarily due to overall higher costs associated with expanded international and domestic operations. Taxes other than income decreased approximately $7 million from 1993 primarily due to lower taxable United States wellhead volumes and prices and reductions included in 1994 related to revisions of certain prior year production taxes. Included in 1994 and 1993 are benefits associated with reductions in state franchise taxes of $4 million and $3 million, respectively. The Company continues to benefit from certain state severance tax exemptions allowed on high cost natural gas volumes. 25 Total per unit operating costs for lease and well expense, DD&A, general and administrative expense, interest expense, and taxes other than income decreased $.14 per Mcfe, averaging $1.29 per Mcfe during 1994 compared to $1.43 per Mcfe for 1993. The decrease was primarily due to per unit reductions in DD&A and taxes other than income as discussed above. 1993 COMPARED TO 1992. During 1993, total operating expenses of $465 million were $112 million higher than the $353 million incurred in 1992. Lease and well expenses increased approximately $10 million primarily due to expanded domestic and international operations. Exploration expenses increased approximately $4 million primarily due to increased exploration activities in North America. An unsuccessful Gulf of Mexico well added nearly $4 million to dry hole expenses and a related $3 million to lease impairments in 1993. Dry hole expenses also reflect the impact of increased drilling activity outside North America. DD&A expense increased $70 million to $250 million reflecting an increase in production volumes and an average DD&A rate increase from $.79 per Mcfe in 1992 to $.89 per Mcfe for 1993. The DD&A rate increase is primarily due, as expected, to factors associated with the tight gas sands drilling program which costs are being more than offset by benefits realized in the form of tight gas sand federal income tax credits and certain state severance tax exemptions. General and administrative expenses increased almost $9 million to $45 million primarily reflecting cost reductions included in 1992 related to changes associated with certain employee compensation plans and overall higher costs in 1993 due to an expansion of domestic and international operations. Taxes other than income increased $7 million primarily due to increased production volumes and revenues in 1993, partially offset by continuing benefits associated with certain state severance tax exemptions allowed on high cost natural gas volumes and a $3 million reduction of state franchise taxes resulting from refunds of prior year payments received in 1993. Total per unit operating costs for lease and well expense, DD&A, general and administrative expense, interest expense, and taxes other than income increased $.03 per Mcfe, averaging $1.43 per Mcfe during 1993 compared to $1.40 per Mcfe for 1992. The total increase was associated with DD&A expense which was up $.10 per Mcfe as noted above being partially offset by a reduction of $.07 Mcfe in all other costs. OTHER INCOME Other income for 1993 includes $4 million in interest income associated with the investment of funds temporarily surplus to the Company and $4 million associated with settlements related to the termination of certain long-term natural gas contracts. INTEREST EXPENSE Net interest expense for the first nine months of 1995 was up $3 million as compared to the same period in 1994 reflecting primarily a higher level of debt outstanding during the 1995 period. Net interest expense in 1994 decreased approximately $1 million to $8 million as compared to 1993 primarily due to favorable interest rates on new financing acquired by a subsidiary of the Company for operations offshore Trinidad and the retirement of higher interest rate debt. The estimated fair value of outstanding interest rate swap agreements at December 31, 1994 was a negative $0.5 million based on termination values obtained from third parties. Net interest expense decreased $12 million, or 55%, to $10 million in 1993 as compared to 1992 reflecting the repayment of a substantial portion of the Company's long-term debt in 1992 with proceeds from the sale of common stock in August 1992 and the sale of a volumetric production payment in September 1992. The estimated fair value of outstanding interest rate swap agreements at December 31, 1993 was a negative $3.3 million based upon termination values obtained from third parties. 26 INCOME TAXES Income tax provision increased $13 million for first nine months of 1995 as compared to the same period in 1994 primarily resulting from higher income before income taxes and lower benefits associated with tight gas sand federal income tax credits utilized in the first nine months of 1995 as compared to the same period in 1994 partially offset by a $12 million benefit associated with the successful resolution on audit of federal income taxes for certain prior years. Income tax provision in 1994 includes a benefit of approximately $36 million associated with tight gas sand federal income tax credit utilization, a benefit of approximately $8 million related to reduced estimated state income taxes and a portion of certain franchise taxes which is treated as income tax under SFAS No. 109, and a $5 million benefit from the reduction of the Company's deferred federal income tax liability resulting from a reevaluation of deferred tax requirements. Income tax benefit in 1993 includes a benefit of approximately $65 million associated with tight gas sand federal income tax credit utilization, an approximate $7 million predominantly one-time non-cash charge recorded in the third quarter of 1993 primarily to adjust the Company's accumulated deferred federal income tax liability for the increase in the corporate federal income tax rate from 34% to 35% and a $12 million benefit from the reduction of the Company's deferred federal income tax liability resulting from a reevaluation of deferred tax requirements. CAPITAL RESOURCES AND LIQUIDITY CASH FLOW The primary sources of cash for the Company during the nine-month period ended September 30, 1995 and for each of the years in the three-year period ended December 31, 1994 included funds generated from operations, the sale of Common Stock, the sale of a volumetric production payment, proceeds from the sale of selected oil and gas reserves and related assets and the issuance of debt. Primary cash outflows during these periods included funds used in operations, exploration and development expenditures, dividends and the repayment of debt. Discretionary cash flow, a frequently used measure of performance for exploration and production companies, is generally derived by adjusting net income to eliminate the effects of depreciation, depletion and amortization, impairment of unproved oil and gas properties, deferred taxes, gains on sales of oil and gas reserves and related assets, certain other miscellaneous non-cash amounts, except for amortization of deferred revenue, and exploration and dry hole expenses. However, based on the continuing practice of the Company of selling selected oil and gas reserves and related assets in furtherance of its strategy of fully utilizing its assets in optimizing profitability, cash flow and return on investments, it believes that net proceeds from these transactions should also be considered as available discretionary cash flow and accordingly is presenting those values for all periods shown. The Company generated discretionary cash flow of $387 million during the first nine months of 1995, a 3% decrease from the $401 million generated for the same period in 1994, primarily reflecting lower net operating revenues, higher cash expenses and a decrease in benefits associated with tight gas sand federal income tax credits. The Company generated discretionary cash flow of approximately $514 million in 1994, $521 million in 1993 and $346 million in 1992. The 1993 amount includes $50 million associated with a federal income tax refund resulting from the settlement on audit of federal income taxes paid in certain prior years. Net operating cash flows for the first nine months of 1995 and for each of the years in the three-year period ended December 31, 1994 have been revised to reflect proceeds from the sale of a volumetric production payment during 1992 and the elimination of the related amortization of deferred revenues as net operating cash flows rather than as investing cash flows as previously reported. Net operating cash flows of $229 million for the first nine months of 1995 decreased approximately $72 million as compared to the same period in 1994 primarily reflecting the same factors addressed above with regard to discretionary cash flow and higher working capital requirements. Net operating cash flows were approximately $383 million in 1994, $406 million in 1993, and 27 $608 million in 1992. Decreased 1994 net operating cash flows were primarily due to the receipt in 1993 of a refund on settlement on audit of federal income taxes paid in certain prior years. Decreased 1993 net operating cash flows were primarily due to the receipt in 1992 of $327 million of proceeds from the sale of a volumetric production payment, increased net operating revenues and a decrease in provision for current taxes resulting from both increased tight gas sand federal income tax credit utilization and the receipt of a refund on settlement on audit of federal income taxes paid in certain prior years. In accordance with the requirements of SFAS No. 95-- "Statement of Cash Flows", net proceeds from the sale of selected oil and gas reserves and related assets are not included in the determination of net operating cash flows. SALE OF SELECTED OIL AND GAS RESERVES AND RELATED ASSETS During the first nine months of 1995, the Company received proceeds of $101 million from the sale of selected oil and gas reserves and related assets compared to $82 million received in the first nine months of 1994. Taxable gains from the first nine months of 1995 sales generated income taxes of $24 million leaving, net proceeds of $77 million. During 1994, the Company received proceeds of $91 million from the sale of selected oil and gas reserves and related assets compared to $42 million received in 1993. While the quantity of equivalent reserves sold in 1994 was slightly less than 1993, higher average proceeds received per equivalent unit of reserves sold in 1994 as compared to 1993 resulted in significantly higher 1994 proceeds. Taxable gains resulting from the 1994 sales generated income taxes of $20 million, leaving net proceeds of $71 million. Taxable gains resulting from such sales in 1993 generated federal income taxes of $8 million, leaving net proceeds of $34 million. SALE OF VOLUMETRIC PRODUCTION PAYMENT In September 1992, the Company sold a volumetric production payment for $326.8 million to a limited partnership. Under the terms of the production payment agreements, the Company conveyed a real property interest in approximately 124 Bcfe (136 TBtu) of certain natural gas and other hydrocarbons to the purchaser. Effective October 1, 1993, the agreements were amended providing for the extension of the original term of the volumetric production payment through March 31, 1999 and including a revised schedule of daily quantities of hydrocarbons to be delivered which is approximately one-half of the original schedule. The revised schedule will total approximately 89.1 Bcfe (97.8 TBtu) versus approximately 87.9 Bcfe (96.4 TBtu) remaining to be delivered under the original agreement. Daily quantities of hydrocarbons no longer required to be delivered under the revised schedule during the period from October 1, 1993 through June 30, 1996 are available for sale by the Company. The Company retains responsibility for its working interest share of the cost of operations. In accordance with generally accepted accounting principles, the Company accounted for the proceeds received in the transaction as deferred revenue which is being amortized into revenue and income as natural gas and other hydrocarbons are produced and delivered to the purchaser during the term, as revised, of the volumetric production payment thereby matching those revenues with the depreciation of asset values which remained on the balance sheet following the sale and the operating expenses incurred for which the Company retained responsibility. The Company expects the above transaction, as amended, to have minimal direct impact on future earnings. However, cash made available by the sale of the volumetric production payment has provided considerable financial flexibility for the pursuit of investment alternatives. 28 EXPLORATION AND DEVELOPMENT EXPENDITURES The table below sets out components of actual exploration and development expenditures for the years ended December 31, 1992, 1993 and 1994, along with those estimated for the year 1995 and actual components of exploration and development expenditures for the nine-month periods ended September 30, 1994 and 1995.
NINE MONTHS ENDED SEPTEMBER 30, -------------------- EXPENDITURE CATEGORY 1992 1993 1994 1994 1995 - ------------------------------------- --------- --------- --------- --------- --------- (IN MILLIONS) Capital Drilling and Facilities......... $ 260 $ 331 $ 342 $ 257 $ 225 Leasehold Acquisitions.......... 23 29 52 32 17 Producing Property Acquisitions.................. 65 9 34 14 114 Capitalized Interest and Other......................... 14 14 14 10 9 --------- --------- --------- --------- --------- Total...................... 362 383 442 313 365 Exploration Expenses................. 44 55 59 41 40 --------- --------- --------- --------- --------- Total................................ $ 406 $ 438 $ 501 $ 354 $ 405 ========= ========= ========= ========= =========
Exploration and development expenditures for the first nine months of 1995 increased $51 million compared to the same period in 1994, and primarily reflect the acquisitions of selected properties to complement existing United States producing areas. Exploration and development expenditures increased $63 million, or 14%, in 1994 compared to 1993. The increase primarily reflects the acquisitions of selected properties to compliment existing North America producing areas and the addition of new international activities in India. See "Business-- Exploration and Production" for additional information detailing the specific geographic locations of the Company's drilling programs and "_ Outlook" below for a discussion related to future exploration and development expenditure plans. Exploration and development expenditures in 1993 increased to $438 million, an 8% increase, as compared to the $406 million expended in 1992. The increase was attributable to increased domestic drilling activity with reduced emphasis on development drilling expenditures associated with tight gas sand formations. The Company also implemented its first development program outside of North America during 1993, installing a jacket, platform and production facilities and initiating natural gas production from the Kiskadee field offshore the southeast coast of Trinidad. HEDGING TRANSACTIONS With the objective of enhancing the certainty of future revenues, the Company has, as of October 23, 1995, entered into hedging transactions for approximately 400 BBtu per day (approximately 381 MMcf per day) and 529 BBtu per day (approximately 504 MMcf per day) of its North America natural gas volumes for the last three months of 1995 and the year 1996, respectively. A significant portion of the 1995 and substantially all of the 1996 hedge transactions involve NYMEX-based commodity price swap agreements totaling 260 BBtu per day at an average price of $1.98 per MMBtu and 447 BBtu per day at an average price of $2.00 per MMBtu for the last three months of 1995 and the year 1996, respectively. The remaining hedge transactions of 140 BBtu per day and 82 BBtu per day for the last three months of 1995 and the year 1996, respectively, include notional and physical transactions that involve fixed price sales contracts and volumetric production payment and exchange agreements. Included in the 1996 hedge transactions are commodity price swap agreements totaling 200 BBtu per day of notional volumes at a weighted average NYMEX-based price of $1.97 per MMbtu which include one-time options exercisable by the counterparty on or before December 17, 1996 totaling 200 BBtu per day of notional volumes in 1997 and 1998 at the same weighted average NYMEX-based price of $1.97 per MMBtu. The Company has also, as of October 16, 1995, hedged approximately 10,100 Bbl per day and 9,600 Bbl per day of its North 29 America crude oil and condensate volumes using commodity price swap agreements at NYMEX-based West Texas Intermediate Crude Oil ("WTI") prices averaging $18.77 per Bbl and $18.90 per Bbl for the last three months of 1995 and the year 1996, respectively. Included in the 1995 and 1996 hedge transactions are commodity price swap agreements totaling up to 3,000 Bbl per day at WTI prices ranging between $18.70 and $18.80 per Bbl each of which includes a one-time option exercisable by the counterparty at various times up to and including December 31, 1996 and for various periods some of which extend through December 31, 2000 at the same respective NYMEX-based prices as are applicable in the individual agreements for the 1995 and 1996 periods. The Company continues to evaluate the potential for entering into and may enter into, additional hedging transactions related to certain of the remaining months in 1995, and in future years. In addition, the Company also may close out any portion of the existing or yet to be entered into hedges as determined appropriate by management of the Company. TRADING TRANSACTIONS Subsequent to September 30, 1995, the Company sold call options with a notional volume of 50 BBtu per day at an average price of $2.10 per MMBtu for the period January through December, 1996. FINANCING The Company's long-term debt-to-total-capital ratio was 19%, 15% and 14% as of September 30, 1995 and December 31, 1994 and 1993, respectively. The Company has entered into an agreement with Enron Corp. pursuant to which the Company may borrow funds from Enron Corp. at a representative market rate of interest on a revolving basis. During 1994, there were no funds borrowed by the Company under this agreement. During the first nine months of 1995, the average of the daily balances of funds borrowed by the Company under the agreement was $2.3million, and the balance at September 30, 1995 was $16.3 million. Under a promissory note effective January 1, 1993 at a fixed interest rate of 7%, the Company may advance funds temporarily surplus to the Company to Enron Corp. for investment purposes. Daily outstanding balances of funds advanced to Enron Corp. under the note averaged $200,000 during the first nine months of 1995 and $69 million during 1994 with no balance outstanding at December 31, 1994 or September 30, 1995. There was a balance of $7 million outstanding at December 31, 1994 under a commercial paper program initiated in 1990. Proceeds from the commercial paper program were used to fund current transactions. During 1994, total long-term debt increased $37 million to $190 million as a result of $23 million of new borrowings related to certain international drilling activities, a $7 million increase in commercial paper, and the recording of an $8 million capital lease obligation. The estimated fair value of the Company's long-term debt, including current maturities of $2 million and $30 million, at December 31, 1994 and 1993 was $186 million and $192 million, respectively, based upon quoted market prices and, where such prices were not available, upon interest rates currently available to the Company at year end. OUTLOOK Uncertainty continues to exist as to the direction of future North America natural gas price trends and there is a wide divergence in the opinions held by some in the industry. However, recent history would tend to support, and it seems there is emerging among a larger number of industry representatives somewhat of a consensus, that natural gas prices will remain below parity with crude oil, condensate and natural gas liquids for some time. This situation is being impacted by improvements in the technology used in drilling and completing oil and gas wells that are tending to mitigate the impacts of fewer oil and gas wells being drilled, the deregulation of the natural gas market under Federal Energy Regulatory Commission Order 636 and subsequent related orders, and improvements being realized in the availability and utilization of natural gas storage capacity. However, the continually increasing recognition of natural gas as a more environmentally friendly source of energy along with the availability of significant domestically sourced supplies should result 30 in further increases in demand and a supporting/strengthening of the overall natural gas market over time. Being primarily a natural gas producer, the Company is more significantly impacted by changes in natural gas prices than by changes in crude oil and condensate prices. Based on the portion of the Company's anticipated natural gas volumes for which prices have not, in effect, been hedged using NYMEX-related commodity market transactions, long-term marketing contracts and the sale of a volumetric production payment, the Company's net income and cash flow sensitivity to changing natural gas prices is approximately $4.0 million for each $.10 per Mcf change in average wellhead natural gas prices. Using various commodity price hedging mechanisms, the Company has, in effect, locked in prices for an average of about 50% of its anticipated wellhead natural gas volumes and about 30% of its anticipated wellhead crude oil and condensate volumes for the year 1995 and about 65% of its anticipated wellhead natural gas volumes and about 40% of its anticipated wellhead crude oil and condensate volumes for the year 1996. The percentage of volumes hedged may change during the remainder of 1995 and will change in future years. Other factors representing positive impacts that are more certain continue to hold good potential for the Company in future periods. While the drilling qualification period for the tight gas sand federal income tax credit expired on December 31, 1992, the Company has continued in 1995, and should continue in the future, to realize significant benefits associated with production from wells drilled during the qualifying period as it will be eligible for the federal income tax credit through the year 2002. However, all other factors remaining equal, the annual benefit, which was $36 million in 1994 and is estimated to be approximately $21 million for 1995, is expected to continue to decline in future periods as production from the qualified wells declines. The drilling qualification period for a certain state severance tax exemption available on qualifying high-cost natural gas revenues continues through August 1996 in its current form and in a modified and somewhat reduced form from that point through August 2002. Consequently, new qualifying production will be added prospectively to that presently qualified. Other natural gas marketing activities are also expected to continue to contribute meaningfully to financial results. The Company completed a fairly significant restructure of its other natural gas marketing portfolio during 1992 with the sale of a volumetric production payment of approximately 124 Bcfe (136 TBtu) for $326.8 million that was subsequently revised in 1993 and elimination of most delivery obligations under four long-term fixed price marketing contracts. The proceeds from the sale of the volumetric production payment added substantially to the financial flexibility of the Company supporting future development while the combined effect of all elements of the restructuring on net income has not been, and will not in the future be, significant. These factors are expected to contribute significantly to earnings, cash flow, and the ability of the Company to pursue the continuation of an active exploration, development and selective acquisition program. The Company plans to continue to focus a substantial portion of its development and certain exploration expenditures in its major producing areas in North America. However, based on the continuing uncertainty associated with North America natural gas prices and the continuing weakness in that market, and as a result of the recent success realized offshore Trinidad and opportunities available to the Company in conjunction with the recent signing of agreements in India, the Company anticipates expending an increasing portion of its available funds in the further development of these opportunities. In addition, the Company expects to include limited but meaningful exploratory exposure in other areas outside of North America in its expenditure plans and will continue to evaluate the potential for involvement in other exploitation type opportunities. The continuation of expenditures in other areas outside of North America in the near term is expected to be primarily for the evaluation of conventional oil and gas exploration and exploitation opportunities in the U.K. North Sea and China, respectively, and coalbed methane recovery prospects in Australia and China. Other prospects in various locations will also attract the expenditure of some funds. (See "Business-- Exploration and Production" for additional information detailing the specific geographic locations of the related drilling programs). The Company continues to pursue a strategy of funding 31 exploration, development and acquisition activities primarily from available internally generated cash flow. The level of exploration and development expenditures will vary in future periods depending on energy market conditions and other related economic factors. Based upon existing economic and market conditions, the Company believes net operating cash flow and available financing alternatives will be sufficient to fund its net investing cash requirements for the near term. However, the Company has significant flexibility with respect to its financing alternatives and adjustment of its exploration and development expenditure plans as circumstances warrant. While the Company has certain continuing commitments associated with expenditure plans related to operations in India, they are not anticipated to be material when considered in relation to the total financial capacity of the Company. OTHER The cost of environmental compliance has not been material to the Company. In March 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 "Standard"). The Standard requires, among other things, that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company is required to adopt the Standard no later than the first quarter of 1996. While the Company has not finalized its evaluation of the effect of adoption of the Standard, its evaluation to date indicates that application of the Standard to its current portfolio of assets could result in impairment charges ranging from $5 million to $60 million before federal income taxes ($3 million to $39 million after federal income taxes). However, such impairment charges would be non-cash. 32 MANAGEMENT The current directors and executive officers of the Company and their names and ages are as follows:
NAME AGE POSITION ---- --- -------- Forrest E. Hoglund........................ 62 Chairman of the Board, President and Chief Executive Officer; Director Fred C. Ackman............................ 64 Director Richard D. Kinder......................... 51 Director Kenneth L. Lay............................ 53 Director Edward Randall, III....................... 68 Director Joe Michael McKinney...................... 55 President-International Operations Mark G. Papa.............................. 49 President-North American Operations Walter C. Wilson.......................... 53 Senior Vice President and Chief Financial Officer Ben B. Boyd............................... 54 Vice President and Controller Dennis M. Ulak............................ 41 Vice President and General Counsel
Forrest E. Hoglund joined the Company as Chairman of the Board, Chief Executive Officer and Director in September 1987. Since May 1990, he has also served as President of the Company. Mr. Hoglund was a director of USX Corporation from February 1986 until September 1987. He joined Texas Oil & Gas Corp. ("TXO") in 1977 as president, was named Chief Operating Officer in 1979, Chief Executive Officer in 1982, and served TXO in those capacities until September 1987. Mr. Hoglund is also an advisory director of Texas Commerce Bank National Association. Fred C. Ackman is the former Chairman, President and Chief Executive Officer of The Superior Oil Company. For over five years Mr. Ackman has been a consultant to the oil and gas industry and has interests in ranching and investments. Richard D. Kinder has been President and Chief Operating Officer of Enron Corp. since October 1990. From December 1988 until October 1990, he served Enron Corp. as Vice Chairman of the Board. For over five years prior to his election as Vice Chairman, Mr. Kinder served in various management and legal positions with Enron Corp. and its affiliates. Mr. Kinder is also a director of Enron Corp., Enron Global Power & Pipelines L.L.C., EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), Enron Liquids Pipeline Company (the general partner of Enron Liquids Pipeline, L.P.), Sonat Offshore Drilling Inc. and Baker Hughes Incorporated. Kenneth L. Lay has been Chairman of the Board and Chief Executive Officer of Enron Corp. for over five years. From February 1989 until October 1990, he also served as President of Enron Corp. Mr. Lay is also a director of Eli Lilly and Company, Compaq Computer Corporation, Trust Company of the West, EOTT Energy Corp. (the general partner of EOTT Energy Partners, L.P.), and Enron Corp. Edward Randall, III is principally involved in investments. Mr. Randall is also a director of KN Energy, Inc. and PaineWebber Group Inc. Joe Michael McKinney has been President-International Operations since February 1994 with responsibilities for all exploration, drilling, production and engineering activities for the Company's international ventures outside North America. Mr. McKinney joined Enron Oil & Gas International, Inc., a wholly-owned subsidiary of the Company, in December 1991 as Senior Vice President of Operations and was elected President and Chief Operating Officer of Enron Oil & Gas International, Inc. in April 1993, a capacity in which he continues to serve. Prior to joining the Company, Mr. McKinney held operations management positions with Union Texas Petroleum Company, The Superior Oil Company and Exxon Company, USA. 33 Mark G. Papa has been President-North American Operations since February 1994. From May 1986 through January 1994, Mr. Papa served as Senior Vice President-Operations. Mr. Papa joined Belco Petroleum Corporation, a predecessor of the Company, in 1981 as Division Production Coordinator and served as Senior Vice President-Drilling and Production, BelNorth Petroleum Corporation from May 1984 until May 1986. Walter C. Wilson has been Senior Vice President and Chief Financial Officer since May 1991. Mr. Wilson joined the Company in November 1987 as Vice President and Controller and was named Senior Vice President-Finance in October 1988. Prior to joining the Company Mr. Wilson held financial management positions with Exxon Company, USA for 16 years and The Superior Oil Company for four years. Ben B. Boyd has been Vice President and Controller since March 1991. Mr. Boyd joined the Company in March 1989 as Director of Accounting and was named Controller in May 1990. Prior to joining the Company, Mr. Boyd held financial management positions with DeNovo Oil & Gas, Inc., Scurlock Oil Company and Coopers & Lybrand. Dennis M. Ulak has been Vice President and General Counsel since March 1992. Mr. Ulak joined the Company in March 1987 as Senior Counsel and was named Assistant General Counsel in August 1990. Prior to joining the Company, Mr. Ulak held various legal positions with Enron Corp. and Northern Natural Gas Company. THE SELLING STOCKHOLDER
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP BEFORE STOCK OFFERINGS AFTER STOCK OFFERINGS(1)(2) ----------------------------- SHARES TO ----------------------------- SELLING STOCKHOLDER SHARES PERCENTAGE BE SOLD(1) SHARES PERCENTAGE - ------------------------------------- -------------- ---------- ------------- -------------- ---------- Enron Corp. 128,000,000 80% 27,000,000 101,000,000 63%
- ------------ (1) Assumes that the Underwriters' over-allotment options in the Stock Offerings are not exercised. If such options are exercised in full, Enron Corp. will sell 31,050,000 shares of Common Stock in the Stock Offerings and will beneficially own 96,950,000 shares of Common Stock (approximately 61% of the outstanding shares) after the Stock Offerings. (2) Concurrently with the Stock Offerings, Enron Corp. is offering Exchangeable Notes, which at maturity may be exchanged for no more than 10,000,000 shares of Common Stock (no more than 11,000,000 shares if the over-allotment option to the Underwriters in the Exchangeable Notes Offering is exercised in full) owned by Enron Corp., subject to adjustment under certain circumstances and to Enron Corp.'s option to pay an amount in cash in lieu of such mandatory exchange. Following consummation of the Exchangeable Notes Offering, the shares that may be delivered upon exchange therefor will continue to be beneficially owned by Enron Corp. until such time, if any, as they are delivered at maturity of the Exchangeable Notes. If the Underwriters' over-allotment options in the Stock Offerings and the Exchangeable Notes Offering are exercised in full and the maximum number of shares of Common Stock are delivered at maturity of the Exchangeable Notes, Enron Corp. will beneficially own 85,950,000 shares of Common Stock or approximately 54% of the outstanding shares. The registration related to the Stock Offerings and the Common Stock deliverable upon exchange of the Exchangeable Notes is being provided pursuant to the terms of a Stock Restriction and Registration Agreement with Enron Corp., under which the Company has agreed that upon the request of Enron Corp. (or certain assignees), the Company will register under the Securities Act and applicable state securities laws the sale of Common Stock owned by Enron Corp. The Company's obligation is subject to certain limitations relating to a minimum amount of Common Stock required for registration, the timing of registration and other similar matters. The Company is obligated to pay all expenses incidental to such registration, excluding underwriters' discounts and commissions and certain legal fees and expenses. 34 RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP. OWNERSHIP OF COMMON STOCK Through its ability to elect all of the directors of the Company, Enron Corp. has the ability to control all matters relating to the management of the Company, including any determination with respect to acquisition or disposition of Company assets, future issuance of Common Stock or other securities of the Company and any dividends payable on the Common Stock. Enron Corp. also has the ability to control the Company's exploration, development, acquisition and operating expenditure plans. There is no agreement between Enron Corp. and the Company that would prevent Enron Corp. from acquiring additional shares of Common Stock of the Company. The sale by Enron Corp. of the shares of Common Stock of the Company will cause Enron Corp.'s ownership interest in the Company to fall below 80% with the result that (i) the Company will cease to be included in the consolidated federal income tax return filed by Enron Corp. and (ii) the Tax Allocation Agreement between the Company and Enron Corp. described below will cease to be effective from the time at which deconsolidation occurs. The Company and Enron Corp. have entered into a new tax agreement pursuant to which, among other things, Enron Corp. has agreed (in exchange for the payment of $8.0 million by the Company) to be liable for, and to indemnify the Company against, all federal income taxes and state taxes measured by net income imposed on the Company for periods through the date Enron Corp. reduces its ownership in the Company to less than 80%. The Company does not believe that the cessation of consolidated tax reporting with Enron Corp. and effectiveness of the Tax Allocation Agreement concurrently with deconsolidation or the terms of the new agreement will have a material adverse effect on its financial condition or results of operations. CONTRACTUAL ARRANGEMENTS The Company entered into a Services Agreement (the "Services Agreement") with Enron Corp. effective January 1994, pursuant to which Enron Corp. provides various services, such as maintenance of certain employee benefit plans, provision of telecommunications and computer services, lease of office space and the provision of purchasing and operating services and certain other corporate staff and support services. Such services historically have been supplied to the Company by Enron Corp., and the Services Agreement provides for the further delivery of such services substantially identical in nature and quality to those services previously provided. The Company has agreed to a fixed rate for the rental of office space and to reimburse Enron Corp. for all other direct costs incurred in rendering services to the Company under the contract and to pay Enron Corp. for allocated indirect costs incurred in rendering such services up to a maximum of $6.7 million for 1994, such cap to be increased in subsequent years for inflation and certain changes in the Company's allocation bases with any increase not to exceed 7.5% per year. Approximately $6.6 million was paid under the Services Agreement by the Company to Enron Corp. in 1994. The Services Agreement is for an initial term of five years through December 1998 and will continue thereafter until terminated by either party. In March 1995, in a series of transactions with Enron Corp. and an affiliate of Enron Corp., the Company exchanged all of its fuel supply and purchase contracts and related price swap agreements associated with a Texas City cogeneration plant (the "Cogen Contracts") for certain natural gas price swap agreements (the "Swap Agreements") of equivalent value. As a result of the transactions, the Company has been relieved of all performance obligations associated with the Cogen Contracts. The Company will realize net operating revenues and receive corresponding cash payments of approximately $91 million during the period extending through December 31, 1999 under the terms of the Swap Agreements. The estimated fair value of the Swap Agreements was approximately $81 million at the date the Swap Agreements were received. The net of this series of transactions will result in increases in net operating revenues and cash receipts for the Company during 1995 and 1996 of approximately $13 million and $7 million, respectively, with offsetting decreases in 1998 and 1999 versus that anticipated under the Cogen Contracts. 35 The Company has been included in the consolidated federal income tax return filed by Enron Corp. as the common parent for itself and its subsidiaries and affiliated companies, excluding any foreign subsidiaries. Consistent therewith and pursuant to a Tax Allocation Agreement between the Company, the Company's subsidiaries and Enron Corp., either Enron Corp. has paid to the Company and each subsidiary an amount equal to the tax benefit realized in the Enron Corp. consolidated federal income tax return resulting from the utilization of the Company's or the subsidiary's net operating losses and/or tax credits, or the Company and each subsidiary has paid to Enron Corp. an amount equal to the federal income tax computed on its separate taxable income less the tax benefits associated with any net operating losses and/or tax credits generated by the Company or the subsidiary which were utilized in the Enron Corp. consolidated return. Enron Corp. has paid the Company and each subsidiary for the tax benefits associated with their net operating losses and tax credits utilized in the Enron Corp. consolidated return, provided that a tax benefit was realized except as discussed below, even if such benefits could not have been used by the Company or the subsidiary on a separately filed tax return. The Company entered into an agreement with Enron Corp. providing for the Company to be paid for all realizable benefits associated with tight gas sand federal income tax credits concurrent with tax reporting and settlement for the periods in which they were generated. The Tax Allocation Agreement applies to the Company and each of its subsidiaries for all years in which the Company or any of its subsidiaries are or were included in the Enron Corp. consolidated return. To the extent a state or other taxing jurisdiction requires or permits a consolidated, combined, or unitary tax return to be filed and such return includes the Company or any of its subsidiaries, the principles expressed with respect to consolidated federal income tax allocation shall apply. The Tax Allocation Agreement will cease to be effective from the time at which deconsolidation occurs. The Company and Enron Corp. have entered into a new tax agreement pursuant to which, among other things, Enron Corp. has agreed (in exchange for the payment of $8.0 million by the Company) to be liable for, and to indemnify the Company against, all federal income taxes and state taxes measured by net income imposed on the Company for periods through the date Enron Corp. reduces its ownership in the Company to less than 80%. The Company does not believe that the cessation of consolidated tax reporting with Enron Corp. and effectiveness of the Tax Allocation Agreement concurrently with deconsolidation or the terms of the new agreement will have a material adverse effect on its financial condition or results of operations. For a discussion of transactions between the Company and Enron Corp. and its affiliates, see the Company's Annual Report on Form 10-K for the year ended December 31, 1994 incorporated herein by reference. See "Incorporation of Certain Documents by Reference." CONFLICTS OF INTEREST The nature of the respective businesses of the Company and Enron Corp. and its affiliates is such as to potentially give rise to conflicts of interest between the two companies. Conflicts could arise, for example, with respect to transactions involving purchases, sales and transportation of natural gas and other business dealings between the Company and Enron Corp. and its affiliates, potential acquisitions of businesses or oil and gas properties, the issuance of additional shares of voting securities, the election of directors or the payment of dividends by the Company. Circumstances may also arise that would cause Enron Corp. to engage in the exploration for and/or development and production of natural gas and crude oil in competition with the Company. For example, opportunities might arise which would require financial resources greater than those available to the Company, which are located in areas or countries in which the Company does not intend to operate or which involve properties that the Company would be unwilling to acquire. Also, Enron Corp. might acquire a competing oil and gas business as part of a larger acquisition. In addition, as part of Enron Corp.'s strategy of securing supplies of natural gas or capital, Enron Corp. may from time to time acquire producing properties or interests in entities owning producing 36 properties, and thereafter engage in exploration, development and production activities with respect to such properties or indirectly engage in such activities through such companies. Enron Corp. subsidiaries provide or arrange financing, including debt or equity financing, for exploration and production companies that compete with the Company. In connection with such activities, Enron Corp. affiliates may make investments in the debt or equity of such companies. There are currently no such transactions under consideration that would result in voting control by Enron Corp. or any of its affiliates, other than the transaction described in the next paragraph. In its financing activities Enron Corp. or any entity in which it has an interest may make loans secured by oil and gas properties or securities of oil and gas companies, may acquire production payments or may receive interests in oil and gas properties as equity components of lending transactions. As a result of its lending activities, Enron Corp. may also acquire oil and gas properties or companies upon foreclosure of secured loans or as part of a borrower's rearrangement of its obligations. Such acquisition, exploration, development and production activities may directly or indirectly compete with the Company's business. There can be no assurances that Enron Corp. will not engage, directly or indirectly through entities other than the Company, in the natural gas and crude oil exploration, development and production business in competition with the Company. Joint Energy Development Investments Limited Partnership ("JEDI"), a limited partnership in which Enron Capital & Trade Resources Corp. ("ECT"), a wholly owned subsidiary of Enron Corp., owns a 50% general partner interest, has entered into an agreement to acquire a controlling interest in Coda. Coda is engaged in the exploration for, and the development, production and marketing of, natural gas and crude oil primarily in North Texas and Oklahoma. Crude oil accounts for approximately 86% of Coda's proved reserves. At December 31, 1994, Coda reported estimated proved natural gas reserves of 39,808 MMcf and estimated proved crude oil, condensate and natural gas liquids reserves of 39,207 MBbls. Enron anticipates that the transaction will be consummated in early 1996, subject to Coda stockholder approval and other conditions. Conflicts may arise between Coda and the Company, and if the acquisition of Coda occurs Enron will be required to resolve such conflicts in a manner that is consistent with its fiduciary and contractual duties to other investors in Coda and JEDI and its fiduciary duties to the Company. ECT has entered into an agreement with JEDI and other investors in Coda designed to minimize certain conflicts of interest that may arise and providing, among other things, that the Company has no obligation to offer any business opportunities to Coda. The Company and Enron Corp. and its affiliates have in the past entered into material intercompany transactions and agreements incident to their respective businesses, and the Company and Enron Corp. and its affiliates may be expected to enter into material transactions and agreements from time to time in the future. Such transactions and agreements have related to, among other things, the purchase and sale of natural gas and crude oil, the financing of exploration and development efforts by the Company, and the provision of certain corporate services. The Company believes that its existing transactions and agreements with Enron Corp. and its affiliates have been at least as favorable to the Company as could be obtained from third parties, and the Company intends that the terms of any future transactions and agreements between the Company and Enron Corp. and its affiliates will be at least as favorable to the Company as could be obtained from third parties. 37 DESCRIPTION OF COMMON STOCK AUTHORIZED AND OUTSTANDING CAPITAL STOCK The authorized capital stock of the Company consists of 160,000,000 shares of Common Stock, $.01 par value, of which 159,799,955 shares were outstanding on October 31, 1995. The following summary description of the capital stock of the Company is qualified in its entirety by reference to the Restated Certificate of Incorporation of the Company, as amended, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Common Stock possesses ordinary voting rights for the election of directors and in respect to other corporate matters, each share being entitled to one vote. There are no cumulative voting rights, meaning that the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so. The Common Stock carries no preemptive rights and is not convertible, redeemable or assessable, or entitled to the benefits of any sinking fund. The holders of Common Stock are entitled to dividends in such amounts and at such times as may be declared by the Board of Directors out of funds legally available therefor. Upon liquidation or dissolution, holders of Common Stock are entitled to share ratably in all net assets available for distribution to stockholders after payment of any corporate debts. All outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable. The transfer agent and registrar of the Common Stock is First Chicago Trust Company of New York, Jersey City, New Jersey. LIMITATION ON DIRECTORS' LIABILITY Delaware corporation law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations authorized by such laws, directors are accountable to corporations and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. The Delaware laws enable corporations to limit available relief to equitable remedies such as injunction or rescission. The Restated Certificate of Incorporation, as amended, of the Company limits the liability of directors of the Company to the Company or its stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted by the Delaware law. Specifically, directors of the Company will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. This provision in the Restated Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors, and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited the Company and its stockholders. 38 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES FOR NON-UNITED STATES HOLDERS OF COMMON STOCK The following is a summary of certain United States federal income tax consequences of the acquisition, ownership and disposition of Common Stock by a holder that, for United States federal income and estate tax purposes, is a Non-United States Holder. For purposes of this discussion, a "Non-United States Holder" means a corporation, individual or partnership that is, as to the United States, a foreign corporation, a non-resident alien individual or a foreign partnership, or a trust or estate other than one the income of which is subject to United States federal income tax regardless of its source. This summary does not address all aspects of United States federal income and estate taxation and does not deal with foreign, state and local tax consequences that may be relevant to Non-United States Holders in light of their specific circumstances. Furthermore, this summary is based on the provisions of the United States Internal Revenue Code of 1986, as amended, and the regulations, rulings and judicial decisions thereunder, all of which are subject to change. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE UNITED STATES TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION. DIVIDENDS Dividends paid to a Non-United States Holder generally will be subject to withholding of United States federal income tax at a rate of 30% (or a lower rate prescribed by an applicable tax treaty). If the dividends are effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder, the dividends will be subject to the ordinary United States federal income tax on net income that applies to United States persons and will not be subject to withholding if the Non-United States Holder files a United States Internal Revenue Service Form 4224 with the Company or its dividend paying agent. In the case of corporate holders, such dividends might also be subject to the United States branch profits tax at a rate of 30% (or a lower rate prescribed by an applicable tax treaty). A Non-United States Holder may be required to satisfy certain certification requirements in order to obtain any reduction of or exemption from withholding under the foregoing rules and may obtain a refund of any excess amounts currently withheld by filing an appropriate refund claim with the United States Internal Revenue Service. Distributions in excess of the Company's current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated first as a return of capital to the extent of the Non-United States Holder's tax basis in the Common Stock (and will be applied against and reduce such holder's tax basis in the Common Stock) and thereafter as gain from the sale of Common Stock. The portion treated as a return of capital will not be subject to United States federal income tax and the portion, if any, treated as gain will be subject to the rules described under "-- Gain on Disposition" below. Because the Company will not be able to determine whether a distribution should properly be treated as a dividend or as a return of capital at the time of payment, it is required to treat all distributions as dividends for United States withholding tax purposes. Non-United States Holders will be eligible to claim a refund to the extent that a distribution represents a return of capital and may in certain circumstances be eligible to claim a refund to the extent that a distribution is treated as gain. Non-United States Holders should consult their own tax advisors with respect to distributions in excess of current and accumulated earnings and profits. GAIN ON DISPOSITION GENERAL RULE Subject to special rules for individuals described below, a Non-United States Holder generally will not be subject to United States federal income tax on gain recognized on a sale or other disposition of Common Stock unless (a) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder (in which case the United 39 States branch profits tax described above may also apply to corporate holders) or (b) the gain is treated as effectively connected with the conduct of a trade or business within the United States because the Company is or has been a "United States real property holding corporation" for United States federal income tax purposes (in which case, withholding of such tax may also apply). The Company believes that it is currently, and is likely to remain, a United States real property holding corporation. The preceding sentence notwithstanding, under currently effective United States federal income tax laws, gain recognized by a Non-United States Holder will not be treated as effectively connected with the conduct of a trade or business within the United States (or subject to withholding) unless such Non-United States Holder held, directly or indirectly, at any time during the five-year period ending on the date of disposition, more than five percent of the Common Stock. Non-United States Holders should consult applicable tax treaties, which may provide for different rules (including possibly the exemption of certain capital gains from tax). INDIVIDUALS In addition to the rules described above, an individual Non-United States Holder who holds Common Stock as a capital asset generally will be subject to tax on any gain recognized on the disposition of such stock if such individual is present in the United States for 183 days or more in the taxable year of disposition and either (a) has a "tax home" in the United States (as specifically defined under the United States federal income tax laws) or (b) maintains an office or other fixed place of business in the United States to which the gain from the sale of the stock is attributable. Certain individual Non-United States Holders may also be subject to tax pursuant to provisions of United States federal income tax law applicable to United States expatriates. FEDERAL ESTATE TAX Common Stock owned or treated as owned by an individual Non-United States Holder at the date of death will be subject to United States federal estate tax, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company or its designated paying agent (the "payor") must report annually to the United States Internal Revenue Service and to each Non-United States Holder the amount of dividends paid to and the tax, if any, withheld with respect to such holder. That information may also be made available to the tax authorities of the country in which the Non-United States Holder resides. United States information reporting requirements (other than the reporting of dividend payments described in the preceding paragraph) and United States backup withholding (imposed at a 31% rate) generally will not apply to dividends paid to a Non-United States Holder at an address outside the United States, unless the payor has knowledge that the payee is a United States person. Otherwise, information reporting and backup withholding may apply to dividends paid on the Common Stock to a Non-United States Holder who fails to furnish certain information, including a tax identification number, in the manner required by United States law and applicable regulations. Payment of the proceeds of a disposition of Common Stock by a United States office of a broker is subject to backup withholding and information reporting, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a Non-United States Holder or the holder otherwise establishes an exemption. Neither backup withholding nor information reporting generally will apply to a payment of the proceeds of a disposition of Common Stock by a foreign office of a foreign broker that is not a United States Related Person (as defined below). Information reporting requirements (but not backup withholding) will apply to a payment of the proceeds of a disposition of Common Stock by a foreign office of a broker that is a United States person or a United States Related Person, unless the broker has documentary evidence in its records that the holder is a Non-United States Related Person and certain other conditions are met, or the holder otherwise establishes an exemption. For this purpose, a "United States Related 40 Person" is (a) a foreign broker, 50% or more of whose gross income for certain periods is effectively connected with the conduct of a trade or business in the United States or (b) a foreign broker that is a "controlled foreign corporation" for United States federal income tax purposes. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that required information is furnished to the United States Internal Revenue Service. UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, Enron Corp. has agreed to sell to each of the U.S. Underwriters named below, and each of such U.S. Underwriters, for whom Goldman, Sachs & Co. are acting as representatives, has severally agreed to purchase from Enron Corp. the respective number of shares of Common Stock set forth opposite its name below: NUMBER OF SHARES OF COMMON UNDERWRITER STOCK - ------------------------------------- ----------- Goldman, Sachs & Co.................. Smith Barney Inc..................... Donaldson, Lufkin & Jenrette Securities Corporation............. PaineWebber Incorporated............. S.G.Warburg & Co. Inc................ Howard, Weil, Labouisse, Friedrichs Incorporated....................... Rauscher Pierce Refsnes, Inc......... ----------- Total........................... 21,600,000 =========== Under the terms and conditions of the Underwriting Agreement, the U.S. Underwriters are committed to take and pay for all of the shares of Common Stock offered hereby, if any are taken. The U.S. Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per share. The U.S. Underwriters may allow, and each of such dealers may reallow, a concession not exceeding $ per share to certain dealers and brokers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. Enron Corp. and the Company have entered into an underwriting agreement (the "International Underwriting Agreement") with the underwriters of the International Offering (the "International Underwriters") providing for the concurrent offer and sale by Enron Corp. of 5,400,000 shares of Common Stock in an international offering outside the United States. The offering price and aggregate underwriting discounts and commissions per share for the two offerings are identical. The closing of the offering made hereby is a condition to the closing of the International Offering, and vice versa. The representatives of the International Underwriters are Goldman Sachs International and SBC Warburg. Pursuant to an Agreement between the U.S. and International Underwriting Syndicates (the "Agreement Between") relating to the two offerings, each of the U.S. Underwriters named herein has agreed that, as a part of the distribution of the shares offered hereby and subject to certain exceptions, it will offer, sell or deliver the shares of Common Stock, directly or indirectly, only in the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (the "United States") and to U.S. persons, which term shall mean, for purposes of this paragraph; (a) any individual who is a resident of the United States or (b) any corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof and whose office most directly involved with the 41 purchase is located in the United States. Each of the International Underwriters has agreed pursuant to the Agreement Between that, as a part of the distribution of the shares offered as a part of the International Offering, and subject to certain exceptions, it will (i) not, directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the United States or to any U.S. persons or (b) to any person who it believes intends to reoffer, resell or deliver the shares in the United States or to any U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any concession to agree to observe a similar restriction. Pursuant to the Agreement Between, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed. The price of any shares so sold shall be the initial public offering price, less an amount not greater than the selling concession. Enron Corp. has granted the U.S. Underwriters an option exercisable for 30 calendar days after the date of this Prospectus to purchase up to an aggregate of 3,240,000 additional shares of Common Stock solely to cover over-allotments, if any. If the U.S. Underwriters exercise their over- allotment option, the U.S. Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of the shares of Common Stock to be purchased by each of them, as shown in the foregoing table, bears to the 21,600,000 shares of Common Stock being offered. Enron Corp. has granted the International Underwriters a similar option exercisable up to an aggregate of 810,000 additional shares of Common Stock. Enron Corp., the Company and the Company's Chief Executive Officer have agreed that during the period beginning from the date of this Prospectus and continuing to and including the date 270 days after the date of this Prospectus, subject to certain exceptions set forth in the Underwriting Agreement, they will not offer, sell, contract to sell or otherwise dispose of any Common Stock, any securities of the Company which are substantially similar to shares of Common Stock, or any securities convertible into or exchangeable for Common Stock or such substantially similar securities without the prior written consent of Goldman, Sachs & Co., except for the shares of Common Stock offered in connection with the concurrent International Offering and the Exchangeable Notes Offering. The Common Stock (including the shares of Common Stock offered hereby) is listed on the NYSE. The Underwriters and/or their affiliates have provided investment banking and financial advisory services to Enron Corp., its subsidiaries or affiliates in the past, for which they have received customary compensation and expense reimbursement, and may do so again in the future. Enron Corp. and the Company have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 42 VALIDITY OF COMMON STOCK The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Dennis M. Ulak, Esq., Vice President and General Counsel of the Company, and for the Underwriters by Bracewell & Patterson, L.L.P. Certain matters will be passed upon for Enron Corp. by Vinson & Elkins L.L.P. Mr. Ulak owns substantially less than 1% of the outstanding shares of Common Stock of the Company or common stock of Enron Corp. Bracewell & Patterson, L.L.P. provides services to Enron Corp. and certain of its subsidiaries (including the Company) and affiliates on matters unrelated to the offering of the Exchangeable Notes, the delivery of the Common Stock upon exchange thereof or the Stock Offerings. EXPERTS The consolidated financial statements and schedule included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The letter report of DeGolyer and MacNaughton, independent petroleum consultants, included as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and the estimates from the reports of that firm appearing in such Annual Report, are incorporated by reference herein on the authority of said firm as experts in petroleum engineering and in giving such reports. 43 =============================================================================== NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS PAGE ----- Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Prospectus Summary................... 3 Use of Proceeds...................... 10 Price Range of Common Stock and Cash Dividends........... 10 Business............................. 11 Selected Consolidated Financial and Operating Information.............. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22 Management........................... 33 The Selling Stockholder.............. 34 Relationship Between the Company and Enron Corp............. 35 Description of Common Stock.......... 38 Certain United States Federal Tax Consequences For Non-United States Holders of Common Stock............ 39 Underwriting......................... 41 Validity of Common Stock............. 43 Experts.............................. 43 27,000,000 SHARES ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ PROSPECTUS ------------------------ GOLDMAN, SACHS & CO. SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION PAINEWEBBER INCORPORATED S.G.WARBURG & CO. INC. HOWARD, WEIL, LABOUISSE, FRIEDRICHS INCORPORATED RAUSCHER PIERCE REFSNES, INC. REPRESENTATIVES OF THE UNDERWRITERS =============================================================================== ******************************************************************************* *INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * *REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE * *SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES * *MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * *REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE* *AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * *NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH * *OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR * *QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. * ******************************************************************************* [ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS] SUBJECT TO COMPLETION, DATED DECEMBER 7, 1995 APPENDIX A ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ This Prospectus relates to up to 11,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), of Enron Oil & Gas Company (the "Company"), which may be delivered by Enron Corp. upon mandatory exchange of the % Exchangeable Notes due , 1998 (the "Exchangeable Notes") of Enron Corp., subject to Enron Corp.'s right to deliver cash in lieu of such shares. This Prospectus is Appendix A to a prospectus of Enron Corp. covering the sale of 10,000,000 Exchangeable Notes (the "Exchangeable Notes Prospectus"). The Company will not receive any of the proceeds from the sale of the Exchangeable Notes or the delivery of shares of Common Stock upon mandatory exchange of the Exchangeable Notes at maturity. Enron Corp. has granted the underwriters of the Exchangeable Notes a 30-day option to purchase up to an additional 1,000,000 Exchangeable Notes at the initial offering price per Exchangeable Note, less the underwriting discount, which may be exchangeable at their maturity for additional shares of Common Stock. Such option has been granted solely to cover over-allotments, if any. Concurrently with the offering of the Exchangeable Notes made by the Exchangeable Notes Prospectus (the "Exchangeable Notes Offering"), Enron Corp. is offering for sale 27,000,000 shares of Common Stock (31,050,000 shares if the underwriters' over-allotment options in such offerings are exercised in full) in concurrent U.S. and international offerings (collectively, the "Stock Offerings"). The consummation of the Exchangeable Notes Offering is not contingent upon the consummation of the Stock Offerings, or vice versa. On December 6, 1995, the last reported sale price of Common Stock on the New York Stock Exchange Composite Tape was $21 3/4 per share. See "Price Range of Common Stock and Cash Dividends". ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------------------------- The date of this Prospectus is , 1995. [ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS] PLAN OF DISTRIBUTION This Prospectus relates to the 11,000,000 shares of Common Stock that may be delivered by Enron Corp. pursuant to the Exchangeable Notes and is Appendix A to the Enron Corp. Exchangeable Notes Prospectus. At maturity of the Exchangeable Notes, the principal amount of each such note will be mandatorily exchanged by Enron Corp. for shares of Common Stock or, at the option of Enron Corp., cash in lieu of such mandatory exchange. For a description of the Exchangeable Notes, see "Description of the Exchangeable Notes" in the Enron Corp. Exchangeable Notes Prospectus. Enron Corp., the Company and the Company's Chief Executive Officer have agreed that during the period beginning from the date of this Prospectus and continuing to and including the date 270 days after the date of this Prospectus, subject to certain exceptions set forth in the underwriting agreements, they will not offer, sell, contract to sell or otherwise dispose of Common Stock, any securities of the Company which are substantially similar to shares of Common Stock or any securities which are convertible into or exchangeable for Common Stock or such substantially similar securities without the prior written consent of Goldman, Sachs & Co., except for the shares of Common Stock offered in connection with the concurrent Stock Offerings. In connection with the distribution of the Exchangeable Notes, Enron Corp. and the Company have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. VALIDITY OF COMMON STOCK The validity of the shares of Common Stock deliverable upon exchange of the Exchangeable Notes will be passed upon for the Company by Dennis M. Ulak, Esq., Vice President and General Counsel of the Company, and for the Underwriters by Bracewell & Patterson, L.L.P. Certain matters will be passed upon for Enron Corp. by Vinson & Elkins L.L.P. Mr. Ulak owns substantially less than 1% of the outstanding shares of Common Stock of the Company or common stock of Enron Corp. Bracewell & Patterson, L.L.P. provides services to Enron Corp. and certain of its subsidiaries (including the Company) and affiliates on matters unrelated to the offering of the Exchangeable Notes, the delivery of the Common Stock upon exchange thereof and the Stock Offerings. EXPERTS The consolidated financial statements and schedule included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, incorporated by reference in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The letter report of DeGolyer and MacNaughton, independent petroleum consultants, included as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and the estimates from the reports of that firm appearing in such Annual Report, are incorporated by reference herein on the authority of said firm as experts in petroleum engineering and in giving such reports. [ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS] RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP. All of the shares of Common Stock offered hereby and in the Stock Offerings are being sold by Enron Corp., and the Company will receive no proceeds from such sales. Concurrently with the offering of the Exchangeable Notes, Enron Corp. is offering for sale 27,000,000 shares of Common Stock (31,050,000 shares if the Underwriters' over-allotment options in such Stock Offerings are exercised in full). Following the consummation of the Stock Offerings, Enron Corp. will own an aggregate of 101,000,000 shares of Common Stock or approximately 63% of the outstanding shares (or, assuming that the Underwriters' over-allotment options in the Stock Offerings are exercised in full, 96,950,000 shares of Common Stock or approximately 61% of the outstanding shares). At maturity, the Exchangeable Notes may be exchanged for no more than 10,000,000 shares of Common Stock (no more than 11,000,000 shares if the over-allotment option of the underwriters in the Exchangeable Notes Offering is exercised in full), subject to adjustment under certain circumstances and to Enron Corp.'s option to pay an amount of cash in lieu of such mandatory exchange. Assuming the underwriters' over-allotment options in the Stock Offerings and the Exchangeable Notes Offering are exercised in full and the maximum number of shares is mandatorily exchanged at maturity of the Exchangeable Notes, Enron Corp.'s remaining ownership of Common Stock would be approximately 54% of the outstanding shares. Any market that develops in the Exchangeable Notes is likely to influence, and be influenced by, the market for the Common Stock. For example, the price of the Common Stock could become more volatile and could be depressed by possible sales of Common Stock by investors who view the Exchangeable Notes as a more attractive means of equity participation in the Company and by hedging and arbitrage activity that may develop involving the Exchangeable Notes and the Common Stock. Neither the Stock Offerings nor the delivery of shares of Common Stock pursuant to the terms of the Exchangeable Notes will affect the existing agreements between the Company and Enron Corp. and their respective affiliates, except for the Tax Allocation Agreement which will cease to be effective from the time at which deconsolidation occurs (when Enron Corp. ceases to own 80% of the outstanding shares of Common Stock). The Company and Enron Corp. have entered into a new tax agreement pursuant to which, among other things, Enron Corp. has agreed (in exchange for the payment of $8.0 million by the Company) to be liable for, and to indemnify the Company against, all federal income taxes and state taxes measured by net income imposed on the Company for periods through the date Enron Corp. reduces its ownership in the Company to less than 80%. The Company does not believe that the cessation of consolidated tax reporting with Enron Corp. and effectiveness of the Tax Allocation Agreement concurrently with deconsolidation or the terms of the new agreement will have a material adverse effect on its financial condition or results of operations. See "Relationship Between the Company and Enron Corp." The nature of the respective businesses of the Company and Enron Corp. and its affiliates is such as to potentially give rise to conflicts of interest between the two companies. The Company's operations account for substantially all of Enron Corp.'s natural gas and crude oil exploration and production operations. An affiliate of Enron Corp. has entered into an agreement to acquire a controlling interest in Coda Energy, Inc. ("Coda"), a company engaged in domestic oil and gas exploration, development and production. Crude oil accounts for approximately 86% of Coda's proved reserves. At December 31, 1994, Coda reported estimated proved natural gas reserves of 39,808 MMcf and estimated proved crude oil, condensate and natural gas liquids reserves of 39,207 MBbls. If the transaction is consummated, conflicts of interest could arise between the Company and Coda. See "Relationship Between the Company and Enron Corp.-- Conflicts of Interest." 5 [ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS] =============================================================================== NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS PAGE ----- Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Prospectus Summary................... 3 Use of Proceeds...................... 10 Price Range of Common Stock and Cash Dividends........... 10 Business............................. 11 Selected Consolidated Financial and Operating Information.............. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22 Management........................... 33 The Selling Stockholder.............. 34 Relationship Between the Company and Enron Corp............. 35 Description of Common Stock.......... 38 Certain United States Federal Tax Consequences For Non-United States Holders of Common Stock............ 39 Plan of Distribution................. 43 Validity of Common Stock............. 43 Experts.............................. 43 ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ PROSPECTUS ------------------------ =============================================================================== ******************************************************************************* *THE INFORMATION CONTAINED HEREIN IS SUBJECT TO AMENDMENT AND COMPLETION. * ******************************************************************************* [ALTERNATIVE PAGE FOR INTERNATIONAL EQUITY OFFERING] SUBJECT TO COMPLETION, DATED DECEMBER 7, 1995 27,000,000 SHARES ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ Of the 27,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), of Enron Oil & Gas Company (the "Company") offered, 5,400,000 shares are being offered hereby in an international offering outside the United States and 21,600,000 shares are being offered in a concurrent offering in the United States (collectively, the "Stock Offerings"). The initial public offering price and the aggregate underwriting discount per share are identical for both of the Stock Offerings. See "Underwriting". All of the shares of Common Stock offered in the Stock Offerings are being sold by Enron Corp., which currently owns 80% of the outstanding shares of Common Stock. The Company will not receive any of the proceeds from the sale of shares of Common Stock in the Stock Offerings. Concurrently with the Stock Offerings, Enron Corp. is offering 10,000,000 (11,000,000 if the over-allotment option of the Underwriters in such offering is exercised in full) % Exchangeable Notes due , 1998 ("the Exchangeable Notes"), which are mandatorily exchangeable into shares of the Company's Common Stock currently owned by Enron Corp., subject to Enron Corp.'s right to deliver cash in lieu of such shares (the "Exchangeable Notes Offering"). The consummation of the Exchangeable Notes Offering is not contingent upon the consummation of the Stock Offerings or vice versa. At maturity, the Exchangeable Notes may be mandatorily exchanged for no more than 10,000,000 shares of Common Stock (no more than 11,000,000 shares if the over-allotment option of the Underwriters in the Exchangeable Notes Offering is exercised in full), subject to adjustment under certain circumstances. Following the consummation of the Stock Offerings, Enron Corp. will own an aggregate of 101,000,000 shares of Common Stock or approximately 63% of the outstanding shares (or, assuming that the Underwriters' over-allotment options in the Stock Offerings are exercised in full, 96,950,000 shares of Common Stock or approximately 61% of the outstanding shares). Assuming the Underwriters' over-allotment options in the Stock Offerings and the Exchangeable Notes Offering are exercised in full and the maximum number of shares of Common Stock is delivered upon mandatory exchange of the Exchangeable Notes at maturity, Enron Corp. would own approximately 54% of the outstanding Common Stock. On December 6, 1995, the last reported sale price of Common Stock on the New York Stock Exchange Composite Tape was $21 3/4 per share. See "Price Range of Common Stock and Cash Dividends". ------------------------ THIS INTERNATIONAL PROSPECTUS IS INTENDED FOR USE ONLY IN CONNECTION WITH OFFERS AND SALES OF THE COMMON STOCK OUTSIDE THE UNITED STATES AND IS NOT TO BE SENT OR GIVEN TO ANY PERSON WITHIN THE UNITED STATES. THE COMMON STOCK OFFERED HEREBY IS NOT BEING REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 FOR THE PURPOSE OF SALES OUTSIDE THE UNITED STATES. --------------------------------------
PROCEEDS TO INITIAL PUBLIC UNDERWRITING ENRON OFFERING PRICE DISCOUNT(1) CORP.(2) -------------- ------------ ------------- Per Share............................ $ $ $ Total(3)............................. $ $ $
- ------------ (1) The Company and Enron Corp. have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) The Company will pay estimated expenses of $ in connection with the Stock Offerings. (3) Enron Corp. has granted the Underwriters an option for 30 days to purchase up to an additional 810,000 shares at the initial public offering price per share, less the underwriting discount, solely to cover over-allotments. Additionally, Enron Corp. has granted an over-allotment option with respect to an additional 3,240,000 shares as part of the United States offering. If such over-allotment options are exercised in full, the total initial public offering price, underwriting discount and proceeds to Enron Corp. will be $ , $ and $ , respectively. See "Underwriting". ------------------------ The shares offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them, to their right to reject any order in whole or in part. It is expected that the certificates for the shares will be ready for delivery in New York, New York, on or about , 1995. GOLDMAN SACHS INTERNATIONAL SBC WARBURG A DIVISION OF SWISS BANK CORPORATION DONALDSON, LUFKIN & JENRETTE DRESDNER BANK-- KLEINWORT BENSON SECURITIES CORPORATION HOWARD, WEIL, LABOUISSE, FRIEDRICHS INC. PAINEWEBBER INTERNATIONAL PARIBAS CAPITAL MARKETS RAUSCHER PIERCE REFSNES, INC. SMITH BARNEY INC. ------------------------ The date of this Prospectus is , 1995. [ALTERNATIVE PAGE FOR INTERNATIONAL EQUITY OFFERING] Person' is (a) a foreign broker, 50% or more of whose gross income for certain periods is effectively connected with the conduct of a trade or business in the United States or (b) a foreign broker that is a "controlled foreign corporation" for United States federal income tax purposes. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that required information is furnished to the United States Internal Revenue Service. UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, Enron Corp. has agreed to sell to each of the International Underwriters named below, and each of such International Underwriters, for whom Goldman Sachs International and SBC Warburg are acting as representatives, has severally agreed to purchase from Enron Corp., the respective number of shares of Common Stock set forth opposite its name below. NUMBER OF SHARES OF COMMON UNDERWRITER STOCK - ------------------------------------- ---------- Goldman Sachs International.......... Swiss Bank Corporation............... Banque Paribas....................... Donaldson, Lufkin & Jenrette Securities Corporation......... Howard, Weil, Labouisse, Friedrichs Inc.................................. Kleinwort Benson Limited............. PaineWebber International (UK) Ltd.................................. Rauscher Pierce Refsnes, Inc......... Smith Barney Inc..................... ---------- Total...................... 5,400,000 ========== Under the terms and conditions of the Underwriting Agreement, the International Underwriters are committed to take and pay for all of the shares offered hereby, if any are taken. The International Underwriters propose to offer the shares of Common Stock in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per share. The International Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the shares of Common Stock are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. Enron Corp. and the Company has entered into an underwriting agreement (the "U.S. Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S. Underwriters") providing for the concurrent offer and sale of 21,600,000 shares of Common Stock in an offering in the United States. The offering price and aggregate underwriting discounts and commissions per share for the two offerings are identical. The closing of the offering made hereby is a condition to the closing of the U.S. Offering, and vice versa. The representatives of the U.S. Underwriters are Goldman, Sachs & Co. Pursuant to an Agreement between the U.S. and International Underwriting Syndicates (the "Agreement Between") relating to the two offerings, each of the U.S. Underwriters has agreed that, as a part of the distribution of the shares offered hereby and subject to certain exceptions, it will offer, sell or deliver the shares of Common Stock, directly or indirectly, only in the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (the "United States") and to U.S. persons, which term shall mean, for purposes of this paragraph: (a) any individual who is a resident of the United States or (b) any corporation, partnership or other entity organized in or under the laws of the United States or any political subdivision thereof and whose office most directly involved with the purchase is located in the United States. Each of the International Underwriters named herein has agreed pursuant to the 41 [ALTERNATIVE PAGE FOR INTERNATIONAL EQUITY OFFERING] Agreement Between that, as a part of the distribution of the shares offered as a part of the International Offering, and subject to certain exceptions, it will (i) not, directly or indirectly, offer, sell or deliver shares of Common Stock (a) in the United States or to any U.S. persons or (b) to any person who it believes intends to reoffer, resell or deliver the shares in the United States or to any U.S. persons, and (ii) cause any dealer to whom it may sell such shares at any concession to agree to observe a similar restriction. Pursuant to the Agreement Between, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed. The price of any shares so sold shall be the initial public offering price, less an amount not greater than the selling concession. Enron Corp. has granted the International Underwriters an option exercisable for 30 calendar days after the date of this Prospectus to purchase up to an aggregate of 810,000 additional shares of Common Stock solely to cover over-allotments, if any. If the International Underwriters exercise their over-allotment option, the International Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares to purchased by each of them, as shown in the foregoing table, bears to the 5,400,000 shares of Common Stock being offered. Enron Corp. has granted the U.S. Underwriters a similar option is to purchase up to an aggregate of 3,240,000 additional shares of Common Stock. Enron Corp., the Company and the Company's Chief Executive Officer have agreed that during the period beginning from the date of this Prospectus and continuing to and including the date 270 days after the date of this Prospectus, subject to certain exceptions set forth in the Underwriting Agreement, they will not offer, sell, contract to sell or otherwise dispose of any Common Stock, any securities of the Company which are substantially similar to shares of Common Stock or which are convertible into or exchangeable for Common Stock or such substantially similar securities without the prior written consent of Goldman, Sachs & Co., except for the shares of Common Stock offered in connection with the concurrent U.S. Offering and the Exchangeable Notes Offering. Each International Underwriter has also agreed that (a) it has not offered or sold and prior to the date six months after the date of issue of the shares of Common Stock will not offer or sell any shares of Common Stock to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (b) it has complied, and will comply with, all applicable provisions of the Financial Services Act of 1986 of Great Britain with respect to anything done by it in relation to the shares of Common Stock in, from or otherwise involving the United Kingdom, and (c) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of the shares of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) 1995 of Great Britain or is a person to whom the document may otherwise lawfully be issued or passed on. Purchasers of shares of Common Stock offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the initial public offering price. The Common Stock (including the shares of Common Stock offered hereby) is listed on the NYSE. The representatives and certain of the Underwriters and/or their affiliates have provided investment banking and financial advisory services to Enron Corp., its subsidiaries or affiliates in the past, for which they have received customary compensation and expense reimbursement, and may do so again in the future. Enron Corp. and the Company have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 42 [ALTERNATIVE PAGE FOR INTERNATIONAL EQUITY OFFERING] =============================================================================== NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS PAGE ----- Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Prospectus Summary................... 3 Use of Proceeds...................... 10 Price Range of Common Stock and Cash Dividends........... 10 Business............................. 11 Selected Consolidated Financial and Operating Information.............. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22 Management........................... 33 The Selling Stockholder.............. 34 Relationship Between the Company and Enron Corp............. 35 Description of Common Stock.......... 38 Certain United States Federal Tax Consequences For Non-United States Holders of Common Stock............ 39 Underwriting......................... 41 Validity of Common Stock............. 43 Experts.............................. 43 27,000,000 SHARES ENRON OIL & GAS COMPANY COMMON STOCK (PAR VALUE $.01 PER SHARE) ------------------------ PROSPECTUS ------------------------ GOLDMAN SACHS INTERNATIONAL SBC WARBURG A DIVISION OF SWISS BANK CORPORATION REPRESENTATIVES OF THE UNDERWRITERS =============================================================================== PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth those expenses to be incurred by the Company in connection with the issuance and distribution of the securities being registered. Except for the Securities and Exchange Commission registration fee and the NASD, Inc. filing fee, all amounts shown are estimates. Filing Fee for Registration Statement............................ $ 212,533 NASD, Inc. Filing Fee................ 30,500 Legal Fees and Expenses.............. 30,000 Accounting Fees and Expenses......... 70,000 Transfer Agent's Fees and Expenses... 15,000 Blue Sky Fees and Expenses........... 10,000 Printing and Engraving Expenses...... 150,000 Miscellaneous........................ 11,967 ----------- Total................................ $ 380,000 =========== ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Restated Certificate of Incorporation, as amended, of the Company (the "Corporation" therein) contains the following provisions relating to indemnification of directors and officers, namely: "A.1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. 2. The foregoing provisions of this Article shall not eliminate or limit the liability of a director for any act or omission occurring prior to the effective date of this Restated Certificate of Incorporation. Any repeal or amendment of this Article by the stockholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or amendment. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the foregoing provisions of this Article, a director shall not be liable to the fullest extent permitted by any amendment to the Delaware General Corporation Law enacted that further limits the liability of a director. B.1. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the II-1 same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provided broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph 2. hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of the proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. 2. If a claim under paragraph B.1. of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 3. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. 4. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. II-2 5. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director, officer, employee and agent of the Corporation, and may nevertheless indemnify and hold harmless each employee and agent of the Corporation, as to costs, charges and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. 6. For purposes of this Article, reference to the "Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger prior to (or, in the case of an entity specifically designated in a resolution of the Board of Directors, after) the adoption hereof and which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued." The Restated Certificate of Incorporation of Enron Corp. (the "Corporation" therein) contains the following provisions relating to indemnification of directors and officers, namely: "2.(A) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (B) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of the proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its II-3 Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (B) If a claim under paragraph 2(A) of this Article XVI is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden or proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (C) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (D) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law". The Underwriting Agreements filed as Exhibits 1(a) and 1(b) hereto, under certain specified circumstances, provide for indemnification by the Underwriters of the directors, officers and controlling persons of the Company. The Stock Restriction and Registration Agreement, filed as Exhibit 99 hereto, under certain specified circumstances, provides for the indemnification of the Company by Enron Corp. Enron Corp. has purchased liability insurance policies covering the directors and officers of the Company to provide protection where the Company cannot legally indemnify a director or officer and where a claim arises under the Employee Retirement Income Security Act of 1974 against a director or officer based on an alleged breach of fiduciary duty or other wrongful act. The directors and officers of the Company will continue to be covered by such insurance policies so long as the Company remains a subsidiary of Enron Corp. ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTIONS - ------------------------ ------------------------------------------------------------------------------------------ **1(a) -- Form of Underwriting Agreement for U.S. Offering. **1(b) -- Form of Underwriting Agreement for International Offering. **1(c) -- Form of Underwriting Agreement for Exchangeable Notes. *4 -- Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1 Registration Statement No. 33-30678, filed August 24, 1989 ("Form S-1"). **5 -- Opinion of Dennis M. Ulak, Esq., Vice President and General Counsel of Enron Oil & Gas Company. 10 -- Form of 1995 Tax Allocation Agreement between Enron Oil & Gas Company and Enron Corp. 23(a) -- Consent of Arthur Andersen LLP. **23(b) -- Consent of DeGolyer and MacNaughton. **23(c) -- The consent of Dennis M. Ulak, Esq., is contained in his opinion filed as Exhibit 5 hereto. **24 -- Powers of Attorney. *99 -- Stock Restriction and Registration Agreement dated as of August 23, 1989 (Exhibit 10.2 to Form S-1).
- ------------ * Incorporated by reference as indicated. ** Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ENRON OIL & GAS COMPANY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 6TH DAY OF DECEMBER, 1995. ENRON OIL & GAS COMPANY (Registrant) By: ___/s/__WALTER C. WILSON________ (WALTER C. WILSON) SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT OR AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES WITH ENRON OIL & GAS COMPANY INDICATED AND ON THE 6TH DAY OF DECEMBER, 1995. SIGNATURE TITLE - ------------------------------------ ------------------------------------------ /s/FORREST E. HOGLUND Chairman of the Board, President and Chief (FORREST E. HOGLUND) Officer and Director Executive (Principal Executive Officer) /s/WALTER C. WILSON Senior Vice President and Chief Financial (WALTER C. WILSON) Officer (Principal Financial Officer) /s/BEN B. BOYD Vice President and Controller (BEN B. BOYD) (Principal Accounting Officer) FRED C. ACKMAN* Director (FRED C. ACKMAN) RICHARD D. KINDER* Director (RICHARD D. KINDER) KENNETH L. LAY* Director (KENNETH L. LAY) EDWARD RANDALL, III* Director (EDWARD RANDALL, III) *By /s/ANGUS H. DAVIS (ANGUS H. DAVIS) (ATTORNEY-IN-FACT FOR PERSONS INDICATED) II-6 INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED EXHIBIT NUMBER DESCRIPTION PAGE - ------------------------ --------------------------------------------------------------------------------------------------------- **1(a) -- Form of Underwriting Agreement for U.S. Offering. **1(b) -- Form of Underwriting Agreement for International Offering. **1(c) -- Form of Underwriting Agreement for Exchangeable Notes. *4 -- Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1 Registration Statement No. 33-30678, filed August 24, 1989 ("Form S-1"). **5 -- Opinion of Dennis M. Ulak, Esq., Vice President and General Counsel of Enron Oil & Gas Company. 10 -- Form of 1995 Tax Allocation Agreement between Enron Oil & Gas Company and Enron Corp. 23(a) -- Consent of Arthur Andersen LLP. **23(b) -- Consent of DeGolyer and MacNaughton. **23(c) -- The consent of Dennis M. Ulak, Esq., is contained in his opinion filed as Exhibit 5 hereto. **24 -- Powers of Attorney. *99 -- Stock Restriction and Registration Agreement dated as of August 23, 1989 (Exhibit 10.2 to Form S-1).
- ------------ * Incorporated by reference as indicated. ** Previously filed. EX-10 2 1995 TAX ALLOCATION AGREEMENT EXHIBIT 10 1995 TAX ALLOCATION AGREEMENT THIS 1995 TAX ALLOCATION AGREEMENT ("Agreement") is entered into effective as of the Deconsolidation Date being December ___, 1995 between Enron Corp., a Delaware corporation with its principal place of business being Houston, Texas ("Enron"), Enron Oil & Gas Company, also a Delaware corporation with its principal place of business being Houston, Texas ("EOG"), and those domestic subsidiaries of EOG listed below as additional parties. (Enron, EOG, and those EOG subsidiaries listed below are hereinafter collectively referred to as the "Parties" and singularly as a "Party", while EOG and its domestic subsidiaries are collectively referred to as "EOG"). RECITALS WHEREAS, Enron and EOG previously entered into that certain First Amended and Restated Tax Allocation Agreement (hereinafter the "Base Agreement") executed in August 1991 generally providing for the apportionment and allocation of federal income and other tax liabilities between the Parties; and WHEREAS, the Parties subsequently modified the terms of the Base Agreement, as reflected in Modification "A" to the First Amended and Restated Tax Allocation Agreement executed in 1992 (the Base Agreement and Modification "A" are hereinafter collectively referred to as the "Earlier Agreements") so as to further specify their agreement as to the apportionment and allocation of federal income and other tax liabilities; and WHEREAS, Enron is considering selling a certain number of shares of common stock that it owns in EOG, thus reducing its ownership interest in EOG below 80 percent and thereby precluding Enron from continuing to include EOG in the consolidated federal income tax returns prepared by Enron as common parent for the taxable periods following the Deconsolidation Date; WHEREAS, EOG has represented in various public statements that the Deconsolidation, when coupled with the effectiveness of the Earlier Agreements and this Agreement, will not have a material adverse effect on its financial condition or results of operations; and WHEREAS, the Earlier Agreements do not fully address the obligations of the Parties vis-a-vis one another upon Deconsolidation; and WHEREAS, the Parties have agreed to change certain of the provisions of the Earlier Agreements and thus would like to memorialize such agreement regarding their respective rights, obligations, and intentions as to any tax payments to be made by EOG to Enron or by Enron to EOG during the Post-Deconsolidation Date Period but related to the Pre-Consolidation Date Period and, in particular, the Parties' rights, obligations, and intentions with respect to (i) paragraph 7 of Modification "A" and (ii) any refund of Taxes to be received by the Consolidated Group attributable to the four years from 1988 through and including 1991, and have such terms generally supersede those of the Earlier Agreements. NOW, THEREFORE, the Parties to this Agreement agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS: As used in this Agreement, the following terms have the following meanings: "Code" means the Internal Revenue Code of 1986, as amended, or corresponding provisions of any subsequent federal tax laws. "Consolidated Group" means the "affiliated group" of corporations of which Enron is the "common parent corporation", as such terms are defined in Code ss. 1504(a)(1). "Consolidated Minimum Tax Credit(s)" means the consolidated minimum tax credit(s) computed in accordance with Code ss.ss. 53, 1502, and 1503, and shown on a Consolidated Return with respect to those tax periods up to and including the Deconsolidation Date. "Consolidated Return" means the consolidated federal income tax return of the Consolidated Group for each taxable year as filed or to be filed by Enron on behalf of the Consolidated Group. "Consolidated Tax Liability" means, generally, the consolidated federal income tax liability computed in accordance with Treasury Regulation ss. 1.1502-2 and shown on a Consolidated Return, taking into account all credits to which the Consolidated Group is entitled under the Code, but not taking into account any "consolidated alternative minimum tax liability" (as provided under Code ss.ss. 55, 1502, and 1503) or any Consolidated Minimum Tax Credit. "Deconsolidation" means that event which causes Enron to no longer have the requisite ownership interest in EOG so as to allow the Parties to file as a Consolidated Group. "Deconsolidation Date" means that date when Enron and EOG no longer constitute a Consolidated Group. "Earlier Agreements" has that meaning ascribed to it in the Recitals. "Party" and "Parties" have that meaning ascribed to them in the Recitals. -2- "Pre-Deconsolidation Date Period" means, chronologically, those tax years prior to the 1995 tax year plus that period in time beginning January 1, 1995 and ending on and including the Deconsolidation Date. "Post-Deconsolidation Date Period" means, chronologically, that period following the Deconsolidation Date. "Taxes" or "Tax" means federal income taxes as provided in Code ss. 11, alternative minimum tax as provided in Code ss. 55, and any state taxes measured by net income (including state taxes measured by net income reflected in any Unitary Tax Returns filed by Enron) and any interest or penalties thereon. The term Taxes or Tax, however, specifically excludes any tax imposed by any foreign government. "Unitary Tax Return" means a state income tax return which reflects the combined and/or consolidated reporting (either on a domestic or worldwide basis) of Enron and its affiliates for a state which either (i) imposes its income tax on its apportioned and/or allocable share of the net income and its United States affiliates that are engaged in a "unitary business", part of which is conducted in the state or (ii) imposes its income tax on its apportioned and/or allocable share of the net income of a taxpayer and its affiliates--both domestic and foreign--that are engaged in a unitary business. Other terms defined herein have the meanings given them. ARTICLE II TAX INDEMNIFICATION 2.1 ENRON'S TAX INDEMNIFICATION FOR THE PRE-DECONSOLIDATION DATE PERIOD: Enron shall be liable for, indemnify, and hold EOG harmless for all Taxes (i) imposed on or incurred by EOG for the Pre-Deconsolidation Date Period and (ii) equitably apportioned to EOG by Enron for all tax periods beginning before and ending after the Deconsolidation Date. Enron, in turn, shall be entitled to receive all refunds of Taxes attributable to the Pre-Deconsolidation Date Period, if any, from either the applicable tax authorities or EOG (in the event such refund(s) have been made directly to EOG), except with respect to the $10.5 million amount set forth in Section 2.3(a) below. 2.2 EOG'S 1995 TAX LIABILITY AND PAYMENT (a) EOG's sole liability for Taxes for the portion of the Pre-Deconsolidation Date Period attributable to the 1995 tax year shall be based on EOG's preparation of its portion of Enron's 1995 Consolidated Return and Enron's review thereof. Any discrepancies between EOG's return position and Enron's subsequent review shall be resolved by consultation by each Party's respective tax officers and Enron's ultimate determination shall be controlling as long as such determination does not have a material adverse effect on EOG's financial condition or results of operations. -3- (b) The Parties agree that in determining EOG's allocable share of the (i) Unitary and (ii) Consolidated Tax Liabilities for the 1995 tax year that they shall follow the allocation and methodology set forth in the Earlier Agreements. (c) EOG shall pay Enron its allocable share of the estimated Unitary and Consolidated Tax Liabilities for the 1995 tax year, net of any 1995 Code ss. 29 credits, within 45 days from the Deconsolidation Date. A "true-up" payment, should one be necessary, shall be made by EOG to Enron or Enron to EOG within 15 days after Enron's subsequent determination of EOG's liability based on taxable income and tax credits reported as part of Enron's 1995 Unitary and Consolidated Returns and EOG's separate state Tax returns. (d) Enron shall be liable for, indemnify, and hold EOG harmless for all Taxes attributable to the event of Deconsolidation. 2.3 OTHER PAYMENTS TO BE MADE BETWEEN THE PARTIES (a) Enron is obligated to pay to EOG $10.5 million attributable to a federal income tax refund to be received by Enron for the four tax years from 1988 through and including 1991. (b) In consideration of Enron's tax indemnification as set forth in Section 2.1 to this Agreement, EOG shall be obligated to pay to Enron $8 million no later than on the Deconsolidation Date. (c) In the event Enron has not paid EOG the $10.5 million refund amount by the Deconsolidation Date, EOG shall have the right to offset its $8 million indemnification payment obligation to Enron by such $10.5 million sum thus resulting in a net payment by Enron to EOG of $2.5 million no later than on the Deconsolidation Date. ARTICLE III MINIMUM TAX CREDIT AND RELATED MATTERS ASSOCIATED WITH DECONSOLIDATION 3.1 CONSOLIDATED MINIMUM TAX CREDIT (a) As currently calculated by Enron, no Consolidated Minimum Tax Credits have been allocated to EOG by Enron based on Consolidated Returns filed through tax year ended December 31, 1994 under the methodology followed for the Pre-Deconsolidation Date Period and Enron has not made any determination of EOG's allocable share of Consolidated Minimum Tax Credits for the 1995 tax year. In the event Consolidated Minimum Tax Credits are allocated to EOG, EOG shall be obligated to reimburse Enron for the amount of such credits allocated to EOG upon the occurrence of the earlier of the following two events: -4- (i) The date of EOG's filing of its federal income tax return for the tax year in the Post-Deconsolidation Date Period when EOG utilizes any reallocated Consolidated Minimum Tax Credits; or (ii) The date of Enron's filing its federal income tax return for the tax year in the Post-Deconsolidation Date Period when Enron could have utilized such Consolidated Minimum Tax Credits but is precluded from doing so because of the reallocation to EOG. (b) For purposes of Section 3.1(a)(ii), no Consolidated Minimum Tax Credits will be considered usable by Enron until Enron could have first utilized all Consolidated Minimum Tax Credits remaining with Enron after the reallocation. Any minimum tax credits generated by Enron in the Post-Deconsolidation Date Period shall be disregarded in making this determination. For purposes of Section 3.1(a)(i), no Consolidated Minimum Tax Credits will be considered as utilized by EOG until EOG first utilizes all minimum tax credits it has generated in the Post-Deconsolidation Date Period. (c) For purposes of Section 3.1(a), any payments to be made between EOG and Enron may be made for more than one tax year of the Post-Deconsolidation Date Period until the reallocated Consolidated Minimum Tax Credit is used (or could have been used) in its entirety. 3.2 CONSOLIDATED MINIMUM TAX CREDIT ALLOCATION ADJUSTMENTS: In the event the amount of the Consolidated Minimum Tax Credits allocated to EOG are adjusted resulting in a reduction of Consolidated Minimum Tax Credits previously utilized by EOG and a payment has been made by EOG to Enron pursuant to the terms of Section 3.1, Enron shall be obligated to pay EOG for any assessment made against it by the Internal Revenue Service attributable to such adjustment. Payment shall be made by Enron to EOG on the day EOG pays the Internal Revenue Service for such assessment. ARTICLE IV AUDITS AND OTHER TAX PROCEEDINGS 4.1 GENERAL COOPERATION AND EXCHANGE OF INFORMATION (a) EOG shall provide, or cause to be provided, to Enron copies of all correspondence received from any taxing authority by EOG in connection with the liability of the Parties for Taxes for the Pre-Deconsolidation Date Period. EOG shall also provide Enron with access to or copies of any materials requested by Enron which would assist Enron in resolving any tax matters for the Consolidated Group for the Pre-Deconsolidation Date Period. Further, the Parties will provide each other with such cooperation and information as they may reasonably request of each other in preparing or filing any return, amended return, or claim for refund, in determining liability or right of refund, or in conducting any audit or other proceeding, in respect of Taxes -5- imposed on the Parties or their respective affiliates including, by way of example, information relating to net operating losses, foreign tax credits, overall foreign losses, and excess loss accounts.. (b) Enron on one hand and EOG on the other hand and their affiliates will preserve and retain all returns, schedules, workpapers, and all material records or other documents relating to any such returns, claims, audits, or other proceedings until the expiration of the statutory period of limitations (including extensions) of the taxable periods to which such documents relate and until the final determination of any payments which may be required with respect to such periods under this Agreement and shall make such documents available at the then-current corporate headquarters of such Party to the other Party or any affiliate thereof, and their respective officers, employees, and agents, upon reasonable notice and at reasonable times, it being understood that such representative shall be entitled to make copies of any such books and records relating to Enron or EOG as they shall deem necessary. (c) Enron on one hand and EOG on the other hand further agree to permit representatives of the other Party or any affiliate thereof to meet with employees of such Party on a mutually convenient basis in order to enable such representatives to obtain additional information and explanations of any documents provided pursuant to this Section 4.1. Enron on one hand and EOG on the other hand shall make available to the representatives of the other Party or any affiliate thereof sufficient workspace and facilities to perform the activities described in this Section. Any information obtained pursuant to this Section 4.1 shall be kept confidential, except as may be otherwise necessary in connection with the filing of returns or claims for refund or in conducting any audit or other proceeding. Each Party shall provide the cooperation and information required by this Section 4.1 at its own expense. 4.2 AUDITS: In the event of an audit by the Internal Revenue Service, or by any state or local tax authority, of a return filed by Enron for the Pre-Deconsolidation Date Period, Enron shall give EOG timely and reasonable notice of audit proceedings and EOG will provide all necessary information and other assistance reasonably requested by Enron with respect to issues concerning the activities of EOG. All communications with the Internal Revenue Service concerning such audit will be made by Enron unless otherwise agreed between the Parties hereto. 4.3 MATERIAL ADVERSE IMPACT TO EOG: Notwithstanding the provisions of Section 4.2, the Parties agree that in no event shall Enron file any amended tax return, claim for refund, or make any tax election affecting the Pre-Deconsolidation Date Period that would have any material adverse impact on EOG's financial condition or results of operations without first obtaining the written permission of EOG. -6- ARTICLE V UNITARY TAX RETURNS FOR POST-DECONSOLIDATION DATE PERIOD FILINGS Enron agrees to continue to file any Unitary Tax Returns and allocate Unitary tax liability for the Post-Deconsolidation Date Period in which the operations of EOG are reflected in a manner consistent with the methodology followed for the Pre-Deconsolidation Date Period. ARTICLE VI OTHER PROVISIONS 6.1 EFFECT OF THE AGREEMENT: The obligations of the Parties set forth under this Agreement shall be unconditional and absolute, and shall remain in effect without limitation as to time. Further, all prior tax sharing and allocation agreements between Enron and EOG (including the Earlier Agreements) shall terminate effective as of the Deconsolidation Date, except that those provisions of the Earlier Agreement regarding the allocation of Consolidated Tax Liability shall remain in effect for the 1995 tax year until the provisions of Section 2.2 of this Agreement are fully implemented by the Parties. 6.2 CONFLICT OR AMBIGUITY: Because the terms of this Agreement generally supersede the terms of the Earlier Agreements, the Parties agree that if there is any conflict or ambiguity between the Earlier Agreements and this Agreement the terms of this Agreement shall control. 6.3 ASSIGNABILITY: The rights and obligations of the Parties under this Agreement may not be assigned by a Party without the prior written consent of the other Party to this Agreement. 6.4 GOVERNING LAW: This Agreement shall be governed by the laws of the state of Texas. IN WITNESS WHEREOF, the Parties hereto have caused their names to be subscribed and executed by the respective authorized officers on the dates indicated, effective as of the date first written above. ENRON CORP. By:____________________________________ Robert J. Hermann Vice President, Tax ENRON OIL & GAS COMPANY By:____________________________________ Susan M. Murray Vice President, Tax ENRON OIL & GAS INTERNATIONAL, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-TRINIDAD, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-AUSTRALIA, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-FRANCE, INC. By:____________________________________ Susan M. Murray Vice President, Tax -8- EOGI-RUSSIA, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-QATAR, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-UZBEKISTAN, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-KUWAIT, INC. By:____________________________________ Susan M. Murray Vice President, Tax ENRON OIL & GAS-CARTHAGE, INC. By:____________________________________ Susan M. Murray Vice President, Tax -9- ERSO, INC. By:____________________________________ Susan M. Murray Vice President, Tax ENRON OIL & GAS PROPERTY MANAGEMENT, INC. By:____________________________________ Susan M. Murray Vice President, Tax ENRON OIL & GAS MARKETING, INC. By:____________________________________ Susan M. Murray Vice President, Tax I N HOLDINGS, INC. By:____________________________________ Susan M. Murray Vice President, Tax NILO OPERATING COMPANY By:____________________________________ Susan M. Murray Vice President, Tax -10- EOGI-TRINIDAD U(a) BLOCK, INC. By:____________________________________ Susan M. Murray Vice President, Tax EOGI-ALGERIA, INC. By:____________________________________ Susan M. Murray Vice President, Tax -11- EOGI TRINIDAD COMPANY By:____________________________________ Dennis M. Ulak Assistant Secretary EOGI AUSTRALIA COMPANY By:____________________________________ Dennis M. Ulak Assistant Secretary EOGI-KAZAKHSTAN, INC. By:____________________________________ Dennis M. Ulak Assistant Secretary EOGI-INDIA, INC. By:____________________________________ Dennis M. Ulak Assistant Secretary EOGI-CHINA, INC. By:____________________________________ Dennis M. Ulak Assistant Secretary -12- EOGI-UNITED KINGDOM, INC. By:____________________________________ Angus H. Davis Assistant Secretary -13- ENRON OIL & GAS INVESTMENTS, INC. By:____________________________________ Douglas Weaver President -14- EX-23.A 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our report on the consolidated financial statements of Enron Oil & Gas Company and subsidiaries dated February 17, 1995, included in Enron Oil & Gas Company's Form 10-K for the year ended December 31, 1994, and to all references to our Firm included in this Registration Statement. ARTHUR ANDERSEN LLP Houston, Texas December 6, 1995 -----END PRIVACY-ENHANCED MESSAGE-----