-----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, ENfCwR9u7aKV1hEjh/iWOPipEI5NCta188jgBAdTF0K7oS9EURXHgAEQ5lhA5onL bx1KVfUPyWNGTedhzBX8oA== 0000950129-99-001042.txt : 19990319 0000950129-99-001042.hdr.sgml : 19990319 ACCESSION NUMBER: 0000950129-99-001042 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENRON OIL & GAS CO CENTRAL INDEX KEY: 0000821189 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 470684736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09743 FILM NUMBER: 99567917 BUSINESS ADDRESS: STREET 1: 1400 SMITH ST CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7138535482 10-K405 1 ENRON OIL & GAS COMPANY - DATED 12/31/98 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------------- FORM 10-K --------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 1-9743 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 77002-7369 (Address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713-853-6161 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - --------------------------------------------- --------------------------------------------- Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of the voting stock held by nonaffiliates of the registrant, based on the closing sale price in the daily composite list for transactions on the New York Stock Exchange on February 26, 1999 was $1,108,372,096. As of March 1, 1999, there were 153,731,704 shares of the registrant's Common Stock, $.01 par value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE. Certain portions of the registrant's definitive Proxy Statement to be filed by April 30, 1999 ("Proxy Statement") are incorporated in Part III by reference. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS PART I
PAGE ---- Item 1. Business General..................................................... 1 Business Segments........................................... 2 Exploration and Production.................................. 2 Wellhead Volumes and Prices, and Lease and Well Expenses.... 7 Competition................................................. 8 Regulation.................................................. 8 Relationship Between the Company and Enron Corp............. 10 Other Matters............................................... 13 Current Executive Officers of the Registrant................ 16 Item 2. Properties Oil and Gas Exploration and Production Properties and Reserves.................................................... 17 Item 3. Legal Proceedings........................................... 20 Item 4. Submission of Matters to a Vote of Security Holders......... 20 PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters......................................... 21 Item 6. Selected Financial Data..................................... 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 34 Item 8. Financial Statements and Supplementary Data................. 34 Item 9. Disagreements on Accounting and Financial Disclosure........ 34 PART III Item 10. Directors and Executive Officers of the Registrant.......... 34 Item 11. Executive Compensation...................................... 35 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 35 Item 13. Certain Relationships and Related Transactions.............. 35 PART IV Item 14. Financial Statements and Financial Statement Schedule, Exhibits and Reports on Form 8-K............................ 35
i 3 PART I ITEM 1. BUSINESS GENERAL Enron Oil & Gas Company (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. The Company's principal producing areas are further described under "Exploration and Production" below. At December 31, 1998, the Company's estimated net proved natural gas reserves were 5,229 billion cubic feet ("Bcf"), including 1,180 Bcf of proved undeveloped methane reserves in the Big Piney deep Paleozoic formations, and estimated net proved crude oil, condensate and natural gas liquids reserves were 105 million barrels ("MMBbl"). (See "Supplemental Information to Consolidated Financial Statements"). At such date, approximately 53% of the Company's reserves (on a natural gas equivalent basis) was located in the United States, 9% in Canada, 18% in Trinidad, 18% in India and 2% in China. As of December 31, 1998, the Company employed approximately 1,190 persons, including foreign national employees. The Company's business 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 selective 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. The Company continued to focus its 1998 drilling activity toward natural gas deliverability in addition to natural gas reserve enhancement and to a lesser extent crude oil exploitation. The Company also continues to focus 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. Achieving and maintaining the lowest possible operating cost structure are also important goals in the implementation of the Company's strategy. Consistent with the Company's desire to optimize the use of its assets, it also maintains a strategy of selling selected oil and gas properties that for various reasons may 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. As of December 31, 1998, Enron Corp. owned 54% of the outstanding shares of the common stock of the Company. (See "Relationship Between the Company and Enron Corp."). In December 1998, Enron Corp. publicly disclosed that it had received an unsolicited indication of interest from a third party with respect to exploring a possible transaction pursuant to which the third party would acquire Enron Corp.'s shares of common stock of the Company, and offer to acquire the remaining shares of outstanding common stock of the Company. In response to this indication of interest, the Board of Directors of the Company has established a special committee consisting of two independent directors who have retained a financial advisor and legal counsel. Although Enron Corp. has publicly indicated that it currently intends to actively explore alternative transactions for its Company common stock along with the unsolicited indication of interest, there can be no assurance that any such transactions will be pursued or, if pursued, will be consummated. Unless the context otherwise requires, all references herein to the Company include Enron Oil & Gas Company, its predecessors and subsidiaries, and any reference to the ownership of interests or pursuit of 1 4 operations in any international areas by the Company recognizes that all such interests are owned and operations are pursued by subsidiaries of Enron Oil & Gas Company. Unless the context otherwise requires, all references herein to Enron Corp. include Enron Corp., its predecessors and affiliates, other than the Company and its predecessors and subsidiaries. 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. Unless otherwise defined, all references to wells are gross. BUSINESS SEGMENTS The Company's operations are all natural gas and crude oil exploration and production related. EXPLORATION AND PRODUCTION NORTH AMERICA OPERATIONS United States. The Company's eight principal United States producing areas are the Big Piney area of Wyoming, South Texas area, East Texas area, Offshore Gulf of Mexico area, Canyon/Strawn Trend area of West Texas, Sand Tank and Pitchfork Ranch areas of New Mexico and Vernal area of Utah. Properties in these areas comprised approximately 81% of the Company's United States reserves (on a natural gas equivalent basis) and 82% of the Company's United States net natural gas deliverability as of December 31, 1998 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, Oklahoma, California, Mississippi and Kansas. At December 31, 1998, 93% of the Company's proved United States reserves, including the reserves in the Big Piney deep Paleozoic formations (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. 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 280,000 net acres under lease directly within field limits. The Company operates approximately 800 natural gas and crude oil wells in this area in which it owns an 85% average working interest. Deliveries from the area net to the Company averaged 118 million cubic feet ("MMcf") per day of natural gas and 4.0 thousand barrels ("MBbl") per day of crude oil, condensate, and natural gas liquids in 1998. At December 31, 1998, natural gas deliverability net to the Company was approximately 110 MMcf per day. The current principal producing intervals are the Almy, Mesaverde and Frontier formations. The Frontier formation, which occurs at 6,500 to 10,000 feet, contains approximately 64% of the Company's Big Piney proved developed reserves. The Company drilled 44 wells in the Big Piney area in 1998 and anticipates an active drilling program will continue for several years. The Company has recorded as proved undeveloped reserves 1,180 Bcf of methane contained, along with high concentrations of carbon dioxide as well as small amounts of other gaseous substances, in the deep Wyoming Paleozoic (Madison) formation located under acreage leased by the Company and held by production in the Big Piney area. In January 1999, the Company acquired certain adjacent Madison formation producing interests that include the rights to an agreement covering the processing of natural gas from such adjacent interests from the Madison formation through an existing plant operated by another company in the industry. 2 5 South Texas Area. The Company's activities in South Texas are focused in the Lobo, Wilcox and Frio producing horizons. The principal areas of activity are in the Lobo and Wilcox Trends which occur primarily in Webb, Zapata and Duval counties, as well as the Frio Trend in Matagorda County. In Matagorda County, two wells were completed in 1998, each with a rate of 40 MMcf per day of natural gas and 2.0 MBbl per day of condensate. The Company operates approximately 420 wells in the South Texas area, and production is primarily from the Frio, Wilcox and Lobo sands at depths ranging from 5,000 to 16,000 feet. The Company has approximately 273,000 net leasehold acres and more than 40,000 net mineral fee acres in this area. Natural gas deliveries net to the Company averaged approximately 162 MMcf per day in 1998. At December 31, 1998, natural gas deliverability from this area net to the Company was approximately 182 MMcf per day. The Company drilled 47 wells in the South Texas area in 1998, acquired 758 square miles of new 3-D seismic and leased 64,500 net acres. An active drilling program in this area is anticipated to 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, the North Milton field, located in northern Harris County and the Stowell/Big Hill area, located in Jefferson and Chambers Counties. The Carthage field production is primarily from the Cotton Valley, Travis Peak and Pettit formations. The Company holds approximately 17,900 net acres under lease with an average 74% working interest in this area. The Company drilled 29 wells in the Carthage field in 1998 and anticipates an active drilling program will continue for several years. The Company has continued its activity in the North Milton field where it now operates 27 wells and holds a 100% working interest in the acreage. The Company expects to drill additional wells during 1999. The Company drilled 10 wells in the Stowell/Big Hill area in 1998 and expects to continue expansion of the program in 1999. Net deliveries from the East Texas area averaged 56.4 MMcf per day of natural gas and 2.3 MBbl per day of crude oil, condensate and natural gas liquids in 1998. At December 31, 1998, deliverability from the area was approximately 80 MMcf per day of natural gas with 2.0 MBbl per day of crude oil, condensate and natural gas liquids both net to the Company. Offshore Gulf of Mexico Area. During 1998, the Company participated in two lease sales offering leases in the Gulf of Mexico and acquired approximately 20,700 net acres (6 leases). As a result of the lease sale activity, the Company acquired two deepwater (greater than 600 feet) tracts to add to the 19 deepwater tracts held at the end of 1997. During 1998, the Company made a significant acquisition in the OCS Gulf of Mexico purchasing a 19% working interest in the Matagorda Island 623 field which increased the Company's natural gas deliveries, adding 55 MMcf per day net to the Company. Development of the Eugene Island 135 discovery continued with a third development well increasing the Company's net field production to 17 MMcf per day and 760 barrels of condensate per day. At December 31, 1998, the Company held an interest in 184 blocks in the Offshore Gulf of Mexico area totaling approximately 544,000 net acres. Of these 184 blocks, located predominantly in federal waters offshore Texas and Louisiana, 127 are operated by the Company. Natural gas deliveries from this area averaged 116 MMcf per day during 1998 net to the Company with total deliveries at year end of 152 MMcf per day. A substantial portion of such deliveries was from interests in the Matagorda Island and Mustang Island areas of offshore Texas with significant volumes also coming from Eugene Island 135. Deliverability from the offshore Gulf of Mexico area at December 31, 1998 was approximately 161 MMcf per day net to the Company sourced principally as noted above. During 1998, the Company participated in the drilling of 10 wells (3.9 net wells) in the Gulf of Mexico. In 1999, the Company anticipates participating in the drilling of 5-10 wells. Canyon/Strawn Trend Area. The Company's activities in this area have been concentrated in Crockett, Terrell and Val Verde Counties in Texas where the Company drilled 21 natural gas wells during 1998. The Company holds approximately 66,000 net acres and now operates approximately 350 natural gas wells in this area in which it owns a 90% average working interest. Production is from the Canyon sands and Strawn limestone at depths from 5,500 to 12,500 feet. At December 31, 1998, natural gas deliverability net to the Company was approximately 35 MMcf per day. The Company plans an aggressive program on several new prospects in 1999. 3 6 Sand Tank Area. The Sand Tank area located in Eddy County, New Mexico produces from the Chester, Morrow, and Atoka formations. Natural gas deliveries for 1998 averaged 16 MMcf per day and deliveries of crude oil, condensate and natural gas liquids averaged .3 MBbl per day in 1998 both net to the Company. At year end 1998, deliverability, net to the Company, was approximately 15 MMcf per day of natural gas and .2 MBbl per day of crude oil, condensate and natural gas liquids. The Company holds 14,000 net acres and has an average working interest of approximately 60%. Several wells are planned in 1999 for this stacked-pay area. Pitchfork Ranch Area. The Pitchfork Ranch area located in Lea County, New Mexico, produces primarily from the Bone Spring, Wolfcamp, Atoka and Morrow formations. In 1998, deliveries net to the Company averaged 18 MMcf per day of natural gas and approximately 2.0 MBbl per day of crude oil, condensate and natural gas liquids. At December 31, 1998, deliverability net to the Company was approximately 21 MMcf per day of natural gas and 1.8 MBbl per day of crude oil, condensate and natural gas liquids. The Company holds approximately 34,000 net acres and is continuing to interpret a 3-D seismic survey shot over this entire area. The Company expects to maintain a drilling program in this area in 1999. Vernal Area. In the Vernal area, located primarily in Uintah County, Utah, the Company operates approximately 305 producing wells and presently controls approximately 77,000 net acres. In 1998, natural gas deliveries net to the Company from the Vernal area averaged 21 MMcf per day. Deliverability at December 31, 1998, was approximately 26 MMcf per day. Production is from the Green River and Wasatch formations located at depths between 4,500 and 8,000 feet. The Company has an average working interest of approximately 60%. Numerous drilling opportunities will be available in this area in 1999. Canada. The Company is engaged in the exploration for and the development, production and marketing of natural gas, natural gas liquids and crude oil in Western Canada, principally in the provinces of Alberta, Saskatchewan, and Manitoba. The Company conducts operations from offices in Calgary, Alberta, and produces natural gas and crude oil from five major areas. The Sandhills area in southwestern Saskatchewan is the largest single natural gas producing area in Canada for the Company. In 1998, 150 wells were drilled in the area and additional acreage and wells were acquired in the area resulting in deliverability of approximately 44 MMcf per day net to the Company at December 31, 1998. The Blackfoot area in southeastern Alberta is the second largest natural gas producing area in Canada for the Company. In 1998, 16 new wells were drilled and numerous recompletions, workovers and facility optimizations were carried out resulting in deliverability of approximately 30 MMcf per day and 1.2 MBbl per day of crude oil and condensate net to the Company at December 31, 1998. Total Canadian natural gas deliverability net to the Company at December 31, 1998 was approximately 120 MMcf per day, and the Company held approximately 555,000 net undeveloped acres in Canada. Total Canadian natural gas deliveries net to the Company for 1998 averaged approximately 105 MMcf per day. The Company expects to maintain an active drilling program in Western Canada for several years. OUTSIDE NORTH AMERICA OPERATIONS The Company has producing operations offshore Trinidad and India, and is evaluating and conducting exploration, exploitation and development in selected other international areas. 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 since been developed. The Ibis field is under development and the Oilbird field is anticipated to be developed over the next several 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 1998, deliveries net to the Company averaged 139 MMcf per day of natural gas, which includes 24 MMcf per day of gas balancing volumes relating to a field allocation agreement, and 3.0 MBbl per day of crude oil and condensate. At December 31, 1998, the Company held approximately 144,000 net undeveloped acres in Trinidad. 4 7 In 1995, the Company was awarded the right to develop the modified U(a) block near the SECC Block. A production sharing contract was signed with the Government of Trinidad and Tobago in 1996. The contract committed the Company to the acquisition of 3-D seismic data and the drilling of three wells. The first well was drilled in 1998 and was successful, encountering over 400 feet of net pay, resulting in the largest exploration discovery in the Company's history. The Company estimates the gross proved reserves of the discovery to be over 600 billion cubic feet equivalent. India. In December 1994, the Company signed agreements covering profit sharing, joint operations and product sales and representing a 30% working interest in, and was designated operator of, the Tapti, Panna and Mukta Blocks located offshore Bombay, India. 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 natural gas accumulations delineated by 22 expendable exploration wells that have been plugged. The Company has substantially implemented an initial development plan for the Tapti Block accumulations and production began during 1997. At December 31, 1998, production, net to the Company, from Tapti was 50 MMcf per day. The 106,000 acre Panna Block and the 192,000 acre Mukta Block are partially developed with 65 wells capable of producing from six production platforms located in the Panna and Mukta fields. The Panna field was producing approximately 7.1 MBbl per day of crude oil net to the Company as of December 31, 1998. Natural gas sales began from the Panna field during the first quarter of 1998 and as of December 31, 1998, production, net to the Company, was 18 MMcf per day. The Company intends to continue development of the fields. Venezuela. The Company was awarded exploration, exploitation and development rights for a block offshore the eastern state of Sucre, Venezuela in early 1996. The Company signed agreements with the government of Venezuela and other participants associated with a concession awarded in the Gulf of Paria East. The Company holds an initial 90% working interest in the joint venture and acts as operator. One exploratory well was drilled during 1998 and encountered hydrocarbons. Additional evaluation work is being done, and another well is expected to be drilled during 1999. China. In August 1997, the Company signed a 30-year production sharing contract with the China National Petroleum Corporation for the appraisal and potential development of crude oil and natural gas reserves within the Chuanzhong Block situated in one of China's oldest producing areas in the central Sichuan Province. The Company holds a 100% working interest in the fields and is the operator. The contract provides for a two-year evaluation period during which the Company will perform three workover/stimulations to improve productivity in existing wells and will drill three new wells in the proved areas. Further commitments, if any, would arise from entering into the development period as specified in the contract. In 1998, the Company drilled and completed one well and recompleted another well. Other International. The Company continues to evaluate other selected conventional natural gas and crude oil opportunities outside North America by pursuing other exploitation opportunities in countries where indigenous natural gas and crude oil reserves have been identified, particularly where synergies in natural gas transportation, processing and power generation can be optimized with other Enron Corp. affiliated companies. The Company is also participating in discussions concerning the potential for natural gas development opportunities in Mozambique as well as other opportunities in Trinidad, India and other countries. (See "Relationship Between the Company and Enron Corp. - Business Opportunity Agreement" for a further discussion of the relationship between the Company and Enron Corp. in the Mozambique project.) 5 8 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. Under terms of the production sharing contracts, natural gas volumes in India are sold to a nominee of the Government of India at a price linked to a basket of world market fuel oil quotations with floor and ceiling limits. Approximately 7% 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. 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 various terms and arrangements at market responsive prices. Approximately 1% of the Company's wellhead crude oil and condensate production is currently being sold to subsidiaries of Enron Corp. Other Marketing. Enron Oil & Gas Marketing, Inc. ("EOGM"), a wholly-owned subsidiary of the Company, is a marketing company engaging 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 and arrange for any necessary transportation to the points of delivery. In addition, EOGM has purchased and constructed several small gathering systems in order to facilitate its entry into the gathering business on a limited 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. These marketing activities have provided an effective balance in managing a portion of the Company's exposure to commodity price risks for both natural gas and crude oil and condensate wellhead prices. (See "Other Matters - Risk Management"). In September 1992, the Company sold a volumetric production payment for $326.8 million to a limited partnership. Delivery obligations were terminated in December 1998. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Sale of Volumetric Production Payment"). In March 1995, in a series of transactions with 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 was 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 effect of this series of transactions has resulted in increases in net operating revenues and cash receipts for the Company during 1995 and 1996 of approximately $13 million and $7 million, respectively, with offsetting decreases in 1998 and 1999 versus that anticipated under the Cogen Contracts. 6 9 WELLHEAD VOLUMES AND PRICES, AND LEASE AND WELL EXPENSES The following table sets forth certain information regarding the Company's wellhead volumes of and average prices for natural gas per thousand cubic feet ("Mcf"), crude oil and condensate, and natural gas liquids per barrel ("Bbl"), and average lease and well expenses per thousand cubic feet equivalent ("Mcfe" - natural gas equivalents are determined using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl of crude oil, condensate or natural gas liquids) delivered during each of the three years in the period ended December 31, 1998:
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 1996 ------ ------ ------ VOLUMES (PER DAY) Natural Gas (MMcf) United States(1)....................................... 671 657 608 Canada................................................. 105 101 98 Trinidad............................................... 139 113 124 India.................................................. 56 18 - ------ ------ ------ Total............................................. 971 889 830 ====== ====== ====== Crude Oil and Condensate (MBbl) United States.......................................... 14.0 11.7 9.2 Canada................................................. 2.6 2.5 2.4 Trinidad............................................... 3.0 3.4 5.2 India.................................................. 5.1 2.3 2.8 ------ ------ ------ Total............................................. 24.7 19.9 19.6 ====== ====== ====== Natural Gas Liquids (MBbl) United States.......................................... 2.9 2.6 1.3 Canada................................................. 1.0 1.3 1.2 ------ ------ ------ Total............................................. 3.9 3.9 2.5 ====== ====== ====== AVERAGE PRICES Natural Gas ($/Mcf) United States(2)....................................... $ 1.93 $ 2.32 $ 2.04 Canada................................................. 1.40 1.43 1.15 Trinidad............................................... 1.06 1.05 1.00 India.................................................. 2.41 2.79 - Composite......................................... 1.78 2.07 1.78 Crude Oil and Condensate ($/Bbl) United States.......................................... $12.84 $19.81 $21.88 Canada................................................. 11.82 17.16 18.01 Trinidad............................................... 12.26 18.68 19.76 India.................................................. 12.86 20.05 20.17 Composite......................................... 12.66 19.30 20.60 Natural Gas Liquids ($/Bbl) United States.......................................... $ 8.38 $12.76 $14.67 Canada................................................. 5.32 8.94 9.14 Composite......................................... 7.56 11.54 11.99 LEASE AND WELL EXPENSES ($/MCFE) United States.......................................... $ .22 $ .23 $ .19 Canada................................................. .37 .39 .34 Trinidad............................................... .12 .16 .16 India.................................................. .24 .64 .99 Composite......................................... .24 .26 .22
- --------------- (1) Includes 48 MMcf per day in 1998, 1997 and 1996 delivered under the terms of a volumetric production payment agreement effective October 1, 1992, as amended. Delivery obligations were terminated in December 1998. (2) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998, $1.73 per Mcf in 1997, and $1.17 per Mcf in 1996 for the volumes described in note (1), net of transportation costs. 7 10 COMPETITION The Company actively competes for reserve acquisitions and exploration/exploitation leases, licenses and concessions, frequently against companies with substantially larger financial and other resources. To the extent the Company's exploration budget is lower than that of certain of its competitors, the Company may be disadvantaged in effectively competing for certain reserves, leases, licenses and concessions. Competitive factors include price, contract terms, and quality of service, including pipeline connection times and distribution efficiencies. In addition, the Company faces competition from other producers and suppliers, including competition from other world wide energy supplies, such as natural gas from Canada. REGULATION United States Regulation of Natural Gas and Crude Oil Production. Natural gas and crude oil production operations are subject to various types of regulation, including regulation in the United States by state and federal agencies. United States legislation affecting the oil and gas industry is under constant review for amendment or expansion. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations which, among other things, require permits for the drilling of wells, regulate the spacing of wells, prevent the waste of natural gas and liquid hydrocarbon resources through proration and restrictions on flaring, require drilling bonds and regulate environmental and safety matters. The regulatory burden on the oil and gas industry increases its cost of doing business and, consequently, affects its profitability. A substantial portion of the Company's oil and gas leases in the Big Piney area and in the Gulf of Mexico, as well as some in other areas, are granted by the federal government and administered by the Bureau of Land Management (the "BLM") and the Minerals Management Service (the "MMS") federal agencies. Operations conducted by the Company on federal oil and gas leases must comply with numerous statutory and regulatory restrictions concerning the above and other matters. Certain operations must be conducted pursuant to appropriate permits issued by the BLM and the MMS. MMS leases contain relatively standardized terms requiring compliance with detailed MMS regulations and, in the case of offshore leases, orders pursuant to the Outer Continental Shelf Lands Act ("OCSLA") (which are subject to change by the MMS). Such offshore operations are subject to numerous regulatory requirements, including the need for prior MMS approval for exploration, development, and production plans, stringent engineering and construction specifications applicable to offshore production facilities, regulations restricting the flaring or venting of production, and regulations governing the plugging and abandonment of offshore wells and the removal of all production facilities. Under certain circumstances, the MMS may require operations on federal leases to be suspended or terminated. Any such suspension or termination could adversely affect the Company's interests. The MMS has issued a notice of proposed rulemaking in which it proposes to amend its regulations governing the calculation of royalties and the valuation of crude oil produced from federal leases. This proposed rule would modify the valuation procedures for both arm's length and non-arm's length crude oil transactions to decrease reliance on oil posted prices and assign a value to crude oil that, in the opinion of the MMS, better reflects its market value, establish a new MMS form for collecting differential data, and amend the valuation procedure for the sale of federal royalty oil. The Company cannot predict what action the MMS will take on this matter, nor can it predict how the Company will be affected by any change to this regulation. The MMS recently issued a final rule to clarify the types of costs that are deductible transportation costs for purposes of royalty valuation of production sold off the lease. In particular, the MMS will not allow deduction of costs associated with marketer fees, cash out and other pipeline imbalance penalties, or long-term storage fees. The Company cannot predict what, if any, effect the new rule will have on its operations. Sales of crude oil, condensate and natural gas liquids by the Company are made at unregulated market prices. 8 11 The transportation and sale for resale of natural gas in interstate commerce are regulated pursuant to the Natural Gas Act of 1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). These statutes are administered by the Federal Energy Regulatory Commission (the "FERC"). Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas prices for all "first sales" of natural gas, which includes all sales by the Company of its own production. All other sales of natural gas by the Company, such as those of natural gas purchased from third parties, remain jurisdictional sales subject to a blanket sales certificate under the NGA, which has flexible terms and conditions. Consequently, all of the Company's sales of natural gas currently may be made at market prices, subject to applicable contract provisions. The Company's jurisdictional sales, however, are subject to the future possibility of greater federal oversight, including the possibility the FERC might prospectively impose more restrictive conditions on such sales. Since 1985, the FERC has endeavored to enhance competition in natural gas markets by making natural gas transportation more accessible to natural gas buyers and sellers on an open and nondiscriminatory basis. These efforts culminated in Order No. 636 and various rehearing orders ("Order No. 636"), which mandate a fundamental restructuring of interstate natural gas pipeline sales and transportation services, including the "unbundling" by interstate natural gas pipelines of the sales, transportation, storage, and other components of their service, and to separately state the rates for each unbundled service. The courts have largely affirmed the significant features of Order No. 636 and numerous related orders pertaining to the individual pipelines, although certain appeals remain pending and the FERC continues to review and modify its open access regulations. Order No. 636 does not directly regulate the Company's activities, but has an indirect effect because of its broad scope. Order No. 636 has ended interstate pipelines' traditional role as wholesalers of natural gas, and substantially increased competition in natural gas markets. In spite of this uncertainty, Order No. 636 may enhance the Company's ability to market and transport its natural gas production, although it may also subject the Company to more restrictive pipeline imbalance tolerances and greater penalties for violation of such tolerances. The Company owns, directly or indirectly, certain natural gas pipelines that it believes meet the traditional tests the FERC has used to establish a pipeline's status as a gatherer not subject to FERC jurisdiction under the NGA. State regulation of gathering facilities generally includes various safety, environmental, and in some circumstances, nondiscriminatory take requirements, but does not generally entail rate regulation. Natural gas gathering may receive greater regulatory scrutiny at both the state and federal levels as the pipeline restructuring under Order No. 636 is implemented. For example, the Texas Railroad Commission has approved changes to its regulations governing transportation and gathering services performed by intrastate pipelines and gatherers, which prohibit such entities from unduly discriminating in favor of their affiliates. The Company's gathering operations could be adversely affected should they be subject in the future to the application of state or federal regulation of rates and services. The Company's natural gas gathering operations also may be or become subject to safety and operational regulations relating to the design, installation, testing, construction, operation, replacement, and management of facilities. Additional rules and legislation pertaining to these matters are considered or adopted from time to time. The Company cannot predict what effect, if any, such legislation might have on its operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes. The FERC has recently begun a broad review of its transportation regulations, including how they operate in conjunction with state proposals for retail gas marketing restructuring, whether to eliminate cost-of-service rates for short-term transportation, whether to allocate all short-term capacity on the basis of competitive auctions, and whether changes to its long-term transportation policies may also be appropriate to avail a market bias toward short-term contracts. While any resulting FERC action would affect the Company only indirectly, these inquiries are intended to further enhance competition in natural gas markets, while maintaining adequate consumer protections. The Company cannot predict the effect that any of the aforementioned orders or the challenges to such orders will ultimately have on the Company's operations. Additional proposals and proceedings that might 9 12 affect the natural gas industry are considered from time to time by Congress, the FERC and the courts. The Company cannot predict when or whether any such proposals or proceedings may become effective. It should also be noted that the natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less regulated approach currently being pursued by the FERC will continue indefinitely. Environmental Regulation. Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company's operations and costs as a result of their effect on natural gas and crude oil exploration, development and production operations. Compliance with such laws and regulations has not had a material adverse effect on the Company's operations or financial condition. It is not anticipated, based on current laws and regulations, that the Company will be required in the near future to expend amounts that are material in relation to its total exploration and development expenditure program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are frequently changed, the Company is unable to predict the ultimate cost of compliance. Canadian Regulation. In Canada, the petroleum industry is subject to extensive controls and operates under various provincial and federal legislation and regulations governing land tenure, royalties, taxes, production rates, operational standards, environmental protection, health and safety, exports and other matters. The Company operates within this regulatory framework and continues to monitor and evaluate the impact of the regulatory regime when determining parameters for engaging in oil and gas activities and investments in Canada. The price of natural gas and crude oil in Canada has been deregulated and is determined by market conditions and negotiations between buyers and sellers in a North American market place. The North American Free Trade Agreement supports the on-going cross-border commercial transactions of the natural gas and crude oil business. Various matters relating to the transportation and export of natural gas continue to be subject to regulation by provincial agencies and federally, by the National Energy Board; however, the North American Free Trade Agreement may have reduced the risk of altering existing cross-border commercial transactions through the assurance of fair implementation of regulatory changes, minimal disruption of contractual arrangements and the prohibition of discriminatory order restrictions and export taxes. Canadian governmental regulations may have a material effect on the economic parameters for engaging in oil and gas activities in Canada and may have a material effect on the advisability of investments in Canadian oil and gas drilling activities. The Company is monitoring political, regulatory and economic developments in Canada. Other International Regulation. The Company's exploration and production operations outside North America are subject to various types of regulations imposed by the respective governments of the countries in which the Company's operations are conducted, and may affect the Company's operations and costs within that country. The Company currently has producing operations offshore Trinidad and India and exploration, exploitation and development activities in other selected international areas. RELATIONSHIP BETWEEN THE COMPANY AND ENRON CORP. Ownership of Common Stock. Enron Corp. owns a majority of the outstanding shares of common stock of the Company. Through its ability to elect all of the directors of the Company, Enron Corp. generally has the ability to control matters relating to the management and policies of the Company, including determination with respect to acquisition or disposition of Company assets, the Company's exploration, development, and operating expenditure plans, future issuances of common stock or other securities of the Company and dividends payable on the common stock. (See also "General" relating to the announced intent by Enron Corp. to explore various potential transactions for its Company common stock.) Conflicts of Interest. The nature of the respective businesses of the Company and Enron Corp. and its other affiliates ("Enron") is such as to give rise to conflicts of interest between the companies from time to time. Conflicts may arise, for example, with respect to transactions involving purchases, sales and transportation of natural gas and other business dealings between the Company and Enron, potential acquisitions of 10 13 businesses or crude oil and natural gas properties or the payment of dividends by the Company. In connection with its finance and trading business conducted by its subsidiaries, Enron Capital & Trade Resources Corp. ("ECT") and Enron International Capital & Trade Corp. ("EICT"), Enron provides or arranges financing for others, including exploration and production companies, some of which compete with the Company. Enron may make investments in the debt or equity of such companies, may make loans secured by crude oil and natural gas properties or securities of crude oil and natural gas companies, may acquire production payments or may receive interests in crude oil and natural gas properties as equity components of lending transactions. As a result of its finance and trading business, Enron may also acquire crude oil and natural gas properties or companies upon foreclosure of secured loans or as part of a borrower's rearrangement of its obligations. Enron also has interests in entities such as Joint Energy Development Investments Limited Partnership, which makes debt and equity investments in energy-related businesses, including exploration and production companies. The acquisition, exploration, development and production activities of entities in which Enron has interests may directly or indirectly compete with the Company's business. Business Opportunity Agreement. In December 1997, Enron Corp. and the Company entered into an Equity Participation and Business Opportunity Agreement (the "Business Opportunity Agreement") that defines certain obligations that Enron owes to the Company and relieves Enron from certain obligations to the Company that it might otherwise have, including the obligation to offer certain business opportunities to the Company. Enron has advised the Company that, although it believes that it has conducted its business in a manner that is consistent with its duties as a majority shareholder of the Company, it was motivated to enter into the Business Opportunity Agreement because of the difficulty of determining the applicability of the law relating to duties that Enron may owe to the Company in connection with Enron's finance and trading business and because of Enron's desire to have more flexibility in pursuing business opportunities identified by or developed solely by Enron personnel. The Business Opportunity Agreement was approved by the Board of Directors of the Company after it was approved unanimously by a special committee of the Board of Directors consisting of the Company's independent directors. The special committee retained its own legal and financial advisers in connection with its evaluation of Enron's proposal, and the Business Opportunity Agreement as executed reflects significant concessions on Enron's part resulting from its negotiations with members of the special committee. The Business Opportunity Agreement provides generally that, so long as such activities are conducted in compliance with the Business Opportunity Agreement in all material respects, Enron may pursue business opportunities independently of the Company. The Business Opportunity Agreement contains an acknowledgment by the Company that Enron's finance and trading business may result in the acquisition by Enron of oil and gas properties or companies and that in certain cases Enron or entities in which Enron has an interest may acquire such assets pursuant to bidding or auction processes in which the Company is also a bidder. In the Business Opportunity Agreement, the Company acknowledges and agrees that such activities may have an impact on the Company or the price it pays for properties or securities it purchases from others, that Enron or entities in which it has an interest may acquire direct or indirect interests in oil and gas properties or companies as a result of such activities, may own, operate and control any such assets in connection therewith, and may acquire additional oil and gas properties or companies or pursue opportunities related thereto in connection therewith, in each case without any duty to offer all or any portion of such assets or opportunities to the Company. The Business Opportunity Agreement contains an acknowledgment and agreement by the Company that, to the extent that a court might hold that the conduct of such activity is a breach of a duty to the Company (and without admitting that the conduct of such activity is such a breach of duty), the Company waives any and all claims and causes of action that it may have to claim that the conduct of such activity is a breach of a duty to the Company. The Business Opportunity Agreement contains certain restrictions on the conduct of Enron's business. It also provides that, except with respect to business opportunities pursued jointly by Enron and the Company and except as otherwise agreed to between Enron and the Company, Enron's business will be conducted through the use of its own personnel and assets and not with the use of any personnel or assets of the Company. Thus, without the consent of the Company, the finance and trading business conducted by ECT, EICT or other Enron entities may only involve business opportunities identified by or presented to ECT 11 14 personnel, EICT personnel or other Enron personnel and developed and pursued solely through the use of the personnel and assets of ECT, EICT or other Enron entities. Enron has agreed that, so long as it controls the Company, it will not pursue any business opportunity a majority of the value of which involves oil and gas properties if the opportunity is first presented to an officer or director of Enron who is also an officer or director of the Company at the time such opportunity is presented, unless Enron first offers such opportunity to the Company. The Business Opportunity Agreement states that its provisions relate exclusively to the duties that Enron owes the Company and that nothing in the Business Opportunity Agreement affects the fiduciary or other duties owed to the Company by any individual director or officer of the Company in his or her capacity as such. In this connection, Enron has agreed that its representatives on the Board of Directors of the Company will not, for the purpose of enabling Enron to pursue an opportunity in the oil and gas business, vote in such a manner as to effectively prevent, prohibit or restrict the Company from pursuing such opportunity. In consideration for the Company's agreements in the Business Opportunity Agreement, Enron provided valuable consideration to the Company, including options to purchase common stock of Enron that will give the Company the opportunity to participate in future appreciation in value of Enron, including any appreciation in value resulting from activities that the Company has agreed to permit Enron and its subsidiaries to pursue. Enron granted the Company ten year options to purchase 3,200,000 shares of Enron common stock at $39.1875 per share, the closing price per share on the date that the Company's Board of Directors approved the Business Opportunity Agreement. The options vest in accordance with a schedule that provides that 25% vested immediately, 15% vest on the anniversary of the Business Opportunity Agreement in 1998 and 10% vest each anniversary thereafter until all of the options are vested. Vesting will be accelerated in the event of a change of control of the Company. For such purposes a "change of control" means that (a) Enron no longer owns capital stock of the Company representing at least 35% of the voting power for the election of directors and (b) a majority of the members of the Board of Directors of the Company consists of persons who are not officers or directors of Enron or any affiliate of Enron other than the Company. The Business Opportunity Agreement also included (i) an agreement to replace the existing services agreement, under which Enron provides certain services to the Company, with a new services agreement under which the Company's maximum payments to Enron for allocated indirect costs will be reduced by $2.8 million per year, (ii) an agreement by Enron relieving the Company of the obligation to bear the costs of any registration of sales by Enron of shares of common stock of the Company, (iii) an agreement by Enron to pay the costs of registration of the Company's sales of Enron common stock acquired upon exercise of the options granted in the Business Opportunity Agreement, (iv) an agreement that if Enron takes any action that results in the loss by the Company of its status as an "independent producer" under the Internal Revenue Code, Enron will pay the Company each year through 2006 the lesser of (a) $1 million and (b) an amount which, after payment of applicable taxes, will compensate the Company for the additional income tax liability resulting from the loss of independent producer status, (v) an agreement that if Enron requests that the Company relocate its offices, and if the Company agrees to do so, Enron will pay the Company's moving expenses, including expenses of building out or refurbishing the space in its new offices and expenses of removing and reinstalling the Company's telecommunications and information systems facilities and (vi) an agreement by Enron to reimburse the Company for the costs and expenses of legal and financial consultants retained to assist the special committee in connection with the Business Opportunity Agreement. In addition, pursuant to the Business Opportunity Agreement, Enron agreed to cause its subsidiary, Houston Pipe Line Company, to enter into various agreements with the Company rearranging certain existing contractual arrangements between them, and Enron and the Company entered into a licensing agreement covering the Enron name and mark and recognizing that the EOG and EOGI names and marks belong to the Company. In the Business Opportunity Agreement Enron and the Company also entered into agreements in principle regarding the manner in which they will share the burdens and benefits of the integrated projects under joint development by Enron and the Company in Qatar, Mozambique and Uzbekistan. The agreements in principle provide generally that the Company's interests in these projects will be 20%, 20% and 80%, respectively, of the combined ownership interest of the Company and Enron. In December 1998, the Company sold its interest in the Uzbekistan project and anticipates disposing of its interest in the Qatar project in early 1999. The Business Opportunity Agreement also contains provisions that give Enron the right to maintain its equity interest in the Company at certain levels. It provides that if the Company issues additional shares of its 12 15 capital stock Enron will have the right to purchase additional shares of capital stock of the Company as follows: (i) if Enron owns a majority interest, Enron will have the right to purchase sufficient shares to permit it to retain its majority interest; (ii) if Enron does not own a majority interest but accounts for the assets and operations of the Company on a consolidated basis for financial reporting purposes Enron will have the right to purchase sufficient shares to permit it to continue to account for the Company on a consolidated basis; and (iii) if Enron accounts for the assets and operations of the Company using the equity method for financial reporting purposes Enron will have the right to purchase sufficient shares to permit it to continue to account for the Company using the equity method. Any such purchase by Enron will be for cash at 97% of the average closing price per share over a specified 20 day period (reflecting a 3% private placement discount). Contractual Arrangements. As part of the Business Opportunity Agreement, the Company entered into a Services Agreement (the "Services Agreement") with Enron Corp. effective January 1, 1997, pursuant to which Enron Corp. provides various services, such as maintenance of certain employee benefit plans, provision of certain telecommunications and computer services, lease of certain office space and the provision of certain 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 approximately $5.1 million for 1998 and $5.3 million for 1997. The limit on cost for the allocated indirect services provided by Enron Corp. to the Company will increase in subsequent years for inflation and certain changes in the Company's allocation bases. The Services Agreement is for an initial term of ten years through December 2006 and will continue thereafter until terminated by either party. In March 1995, in a series of transactions with 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 was 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 effect of this series of transactions has resulted 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. The Company and Enron Corp. have in the past entered into material intercompany transactions and agreements incident to their respective businesses, and they may be expected to enter into such transactions and agreements in the future. Such transactions and agreements have related to, among other things, the purchase and sale of natural gas and crude oil, hedging and trading activities, the financing of exploration and development efforts by the Company, and the provision of certain corporate services. (See "Marketing" and the Consolidated Financial Statements and notes thereto). The Company believes that its existing transactions and agreements with Enron Corp. 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. will be at least as favorable to the Company as could be obtained from third parties. OTHER MATTERS Energy Prices. Since the Company is primarily a natural gas company, it is more significantly impacted by changes in natural gas prices than in the prices for crude oil, condensate or natural gas liquids. During recent periods, domestic natural gas has been priced significantly below parity with crude oil and condensate based on the energy equivalency of, and differences in transportation and processing costs associated with, the respective products although that relationship improved during 1998. This imbalance in parity has been 13 16 primarily driven by, among other things, a supply of domestic natural gas volumes in excess of demand requirements. The Company is unable to predict when this supply imbalance may be resolved due to the significant impacts of factors such as general economic conditions, technology developments, weather and other international energy supplies over which the Company has no control. Average North America wellhead natural gas prices have fluctuated, at times rather dramatically, during the last three years. While these fluctuations resulted in increases in average North America wellhead natural gas prices received by the Company of 43% from 1995 to 1996 and 15% from 1996 to 1997, the average North America wellhead natural gas prices realized by the Company from 1997 to 1998 decreased by 15%. Wellhead natural gas volumes from Trinidad are sold at prices that are based on a fixed schedule with periodic escalations. Natural gas deliveries in India commenced in June 1997 and, under the terms of the production sharing contracts, the price of such deliveries are indexed to a basket of world market fuel oil quotations structured to include floor and ceiling limits. Due to the many uncertainties associated with the world political environment, the availabilities of other world wide energy supplies and the relative competitive relationships of the various energy sources in the view of the consumers, the Company is unable to predict what changes may occur in natural gas prices in the future. Substantially all of the Company's wellhead crude oil and condensate is sold under various terms and arrangements at market responsive prices. Crude oil and condensate prices also have fluctuated during the last three years. Due to the many uncertainties associated with the world political environment, the availabilities of other world wide energy supplies and the relative competitive relationships of the various energy sources in the view of the consumers, the Company is unable to predict what changes may occur in crude oil and condensate prices in the future. Risk Management. The Company engages in price risk management activities from time to time primarily for non-trading and to a lesser extent for trading purposes. Derivative financial instruments (primarily price swaps and costless collars) are utilized for non-trading purposes to hedge the impact of market fluctuations of natural gas and crude oil market prices on net income and cash flow. At December 31, 1998, the Company had outstanding crude oil commodity price swap transactions, designated as hedges, covering approximately 700 MBbl of crude oil and condensate for 1999. The fair value of the positions was a net revenue increase of $4 million at December 31, 1998. At December 31, 1998, based on the portion of the Company's anticipated natural gas volumes for 1999 for which prices have not, in effect, been hedged using NYMEX-related commodity market transactions and long-term marketing contracts, the Company's net income and cash flow sensitivity to changing natural gas prices is approximately $18 million for each $.10 per Mcf change in average wellhead natural gas prices. While the Company is not impacted as significantly by changing crude oil prices for those volumes not otherwise hedged, its net income and cash flow sensitivity is approximately $6 million for $1.00 per barrel change in average wellhead crude oil prices. Natural gas prices received in India fluctuate between floor and ceiling price limits based on prices for a basket of petroleum products. Tight Gas Sand Tax Credits (Section 29) and Severance Tax Exemption. United States federal tax law provides a tax credit for production of certain fuels produced from nonconventional sources (including natural gas produced from tight formations), subject to a number of limitations. Fuels qualifying for the credit must be produced from a well drilled or a facility placed in service after November 5, 1990 and before January 1, 1993, and must be sold before January 1, 2003. The credit, which is currently approximately $.52 per million British thermal units ("MMBtu") of natural gas, is computed by reference to the price of crude oil, and is phased out as the price of crude oil exceeds $23.50 in 1980 dollars (adjusted for inflation) with complete phaseout if such price exceeds $29.50 in 1980 dollars (similarly adjusted). Under this formula, the commencement of phaseout would be triggered if the average price for crude oil rose above approximately $48 per barrel in current dollars. Significant benefits from the tax credit have accrued and continue to accrue to the Company since a portion (and in some cases a substantial portion) of the Company's natural gas production from new wells drilled after November 5, 1990, 14 17 and before January 1, 1993, on the Company's leases in several of the Company's significant producing areas qualify for this tax credit. Natural gas production from wells spudded or completed after May 24, 1989 and before September 1, 1996 in tight formations in Texas qualifies for a ten-year exemption, ending August 31, 2001, from severance taxes, subject to certain limitations. In 1995, the drilling qualification period was extended in a modified and somewhat reduced form from September 1996 through August 2002. Consequently, new qualifying production will be added prospectively to that presently qualified. Other. All of the Company's natural gas and crude oil activities are subject to the risks normally incident to the exploration for and development and production of natural gas and crude oil, including blowouts, cratering and fires, each of which could result in damage to life and property. Offshore operations are subject to usual marine perils, including hurricanes and other adverse weather conditions, and governmental regulations as well as interruption or termination by governmental authorities based on environmental and other considerations. In accordance with customary industry practices, insurance is maintained by the Company against some, but not all, of the risks. Losses and liabilities arising from such events could reduce revenues and increase costs to the Company to the extent not covered by insurance. The Company's operations outside of North America are subject to certain risks, including expropriation of assets, risks of increases in taxes and government royalties, renegotiation of contracts with foreign governments, political instability, payment delays, limits on allowable levels of production and currency exchange and repatriation losses, as well as changes in laws, regulations and policies governing operations of foreign companies generally. 15 18 CURRENT EXECUTIVE OFFICERS OF THE REGISTRANT The current executive officers of the Company and their names and ages are as follows (all positions are with the Company unless otherwise noted):
NAME AGE POSITION ---- --- -------- Forrest E. Hoglund.......... 65 Chairman of the Board; Director Mark G. Papa................ 52 President and Chief Executive Officer; Director Edmund P. Segner, III....... 45 Vice Chairman and Chief of Staff Dennis M. Ulak.............. 45 President, International Operations and Chairman of the Board and Chief Executive Officer, Enron Oil & Gas International, Inc. Jeffrey B. Sherrick......... 44 President and Chief Operating Officer, Enron Oil & Gas International, Inc. Loren M. Leiker............. 45 Executive Vice President, Exploration Gary L. Thomas.............. 49 Executive Vice President, North American Operations Barry Hunsaker, Jr.......... 48 Senior Vice President and General Counsel Walter C. Wilson............ 56 Senior Vice President and Chief Financial Officer
Forrest E. Hoglund joined the Company as Chairman of the Board and Director in September 1987. He also served as Chief Executive Officer of the Company until September 1998 and served as President from May 1990 until December 1996. Mr. Hoglund is an advisory director of Chase Bank of Texas, National Association. Mark G. Papa was elected President and Chief Executive Officer and Director of the Company in September 1998, President and Chief Operating Officer in September 1997, President in December 1996 and was President North America Operations from February 1994 to September 1998. 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. Edmund P. Segner, III became Vice Chairman and Chief of Staff of the Company in September 1997. Mr. Segner was a director of the Company from January 1997 to October 1997. Mr. Segner joined Enron Corp. in 1988 and was Executive Vice President and Chief of Staff. Dennis M. Ulak has been President - International Operations since January 1996 with responsibility for activities outside North America. Mr. Ulak also serves as Chairman and Chief Executive Officer of Enron Oil & Gas International, Inc. Mr. Ulak joined the Company in March 1987 as Senior Counsel and was named Assistant General Counsel for international operations in February 1989, Assistant General Counsel in August 1990 and Vice President and General Counsel in March 1992. Jeffrey B. Sherrick joined the Company in July 1989 and has been President and Chief Operating Officer of Enron Oil & Gas International, Inc., since September 1997. Mr. Sherrick was previously Senior Vice President, Acquisitions and Engineering of the Company. Loren M. Leiker joined the Company in April 1989 and has been Executive Vice President, Exploration since May 1998. Mr. Leiker was previously Senior Vice President, Exploration of the Company. Gary L. Thomas was elected Executive Vice President, North American Operations in May 1998. He was previously Senior Vice President and General Manager of the Company's Midland Division. Mr. Thomas joined a predecessor of the Company in July 1978. Barry Hunsaker, Jr. has been Senior Vice President and General Counsel since he joined the Company in May 1996. Prior to joining the Company, Mr. Hunsaker was a partner in the law firm of Vinson & Elkins L.L.P. Walter C. Wilson joined the Company in November 1987 and has been Senior Vice President and Chief Financial Officer since May 1991. 16 19 ITEM 2. PROPERTIES OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES Reserve Information. For estimates of the Company's net proved and proved developed reserves of natural gas and liquids, including crude oil, condensate and natural gas liquids, see "Supplemental Information to Consolidated Financial Statements". 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 in Supplemental Information to Consolidated Financial Statements represent only estimates. Reserve engineering is a subjective process of estimating underground accumulations of 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, exploitation and development activities, 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 finding or acquiring additional reserves and the costs incurred in so doing. The Company's estimates of reserves filed with other federal agencies agree with the information set forth in Supplemental Information to Consolidated Financial Statements. 17 20 Acreage. The following table summarizes the Company's developed and undeveloped acreage at December 31, 1998. 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 --------- --------- --------- --------- --------- --------- United States California.................... 21,324 16,747 821,738 748,238 843,062 764,985 Texas......................... 413,305 220,075 637,850 513,807 1,051,155 733,882 Offshore Gulf of Mexico....... 283,571 126,306 564,775 417,827 848,346 544,133 Wyoming....................... 153,597 116,092 324,531 251,792 478,128 367,884 Oklahoma...................... 188,963 104,633 122,848 87,264 311,811 191,897 Montana....................... 119,686 1,651 146,013 103,779 265,699 105,430 New Mexico.................... 71,945 35,091 106,133 64,232 178,078 99,323 Utah.......................... 74,454 50,311 40,873 27,205 115,327 77,516 Mississippi................... 5,144 5,052 43,174 42,950 48,318 48,002 Kansas........................ 17,339 15,489 6,747 4,009 24,086 19,498 Colorado...................... 20,619 1,233 30,908 13,618 51,527 14,851 Louisiana..................... 6,285 5,429 6,520 3,767 12,805 9,196 Arkansas...................... 8,522 1,319 2,457 2,010 10,979 3,329 Other......................... 5,247 984 1,015 795 6,262 1,779 --------- --------- --------- --------- --------- --------- Total................. 1,390,001 700,412 2,855,582 2,281,293 4,245,583 2,981,705 Canada Saskatchewan.................. 251,805 235,121 288,834 283,732 540,639 518,853 Alberta....................... 372,612 243,225 336,713 243,971 709,325 487,196 Manitoba...................... 11,743 9,954 23,730 21,966 35,473 31,920 British Columbia.............. 656 164 8,755 5,553 9,411 5,717 --------- --------- --------- --------- --------- --------- Total Canada.......... 636,816 488,464 658,032 555,222 1,294,848 1,043,686 Other International China......................... 5,000 5,000 1,844,531 1,844,531 1,849,531 1,849,531 Venezuela..................... - - 268,413 241,572 268,413 241,572 India......................... 98,300 29,490 564,307 169,292 662,607 198,782 France........................ - - 168,032 168,032 168,032 168,032 Trinidad...................... 4,200 3,990 147,233 143,490 151,433 147,480 --------- --------- --------- --------- --------- --------- Total Other International....... 107,500 38,480 2,992,516 2,566,917 3,100,016 2,605,397 --------- --------- --------- --------- --------- --------- Total................. 2,134,317 1,227,356 6,506,130 5,403,432 8,640,447 6,630,788 ========= ========= ========= ========= ========= =========
Producing Well Summary. The following table reflects the Company's ownership in gas and oil wells located in Texas, the Gulf of Mexico, Oklahoma, New Mexico, Utah, Wyoming, and various other states, Canada, Trinidad, India and China at December 31, 1998. Gross gas and oil wells include 255 with multiple completions.
PRODUCTIVE WELLS ----------------- GROSS NET ------- ------- Gas......................................................... 5,253 3,788 Oil......................................................... 897 506 ----- ----- Total............................................. 6,150 4,294 ===== =====
18 21 Drilling and Acquisition Activities. During the years ended December 31, 1998, 1997 and 1996 the Company spent approximately $769 million, $693 million and $599 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:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1998 1997 1996 -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- ------ ----- ------ ----- ------ Development Wells Completed North America Gas....................................... 478 402.80 467 352.90 396 325.04 Oil....................................... 38 34.98 94 74.85 80 57.46 Dry....................................... 79 62.16 101 80.01 80 68.77 --- ------ --- ------ --- ------ Total................................ 595 499.94 662 507.76 556 451.27 Outside North America Gas....................................... - - 12 3.60 - - Oil....................................... 21 6.30 6 1.80 1 .30 Dry....................................... - - - - - - --- ------ --- ------ --- ------ Total................................ 21 6.30 18 5.40 1 .30 --- ------ --- ------ --- ------ Total Development.................... 616 506.24 680 513.16 557 451.57 --- ------ --- ------ --- ------ Exploratory Wells Completed North America Gas....................................... 5 4.40 8 5.12 14 10.36 Oil....................................... 6 5.50 - - 1 .78 Dry....................................... 22 15.70 12 7.53 26 19.00 --- ------ --- ------ --- ------ Total................................ 33 25.60 20 12.65 41 30.14 Outside North America Gas....................................... 1 1.00 - - - - Oil....................................... 1 .90 - - - - Dry....................................... - - - - 1 .50 --- ------ --- ------ --- ------ Total................................ 2 1.90 - - 1 .50 --- ------ --- ------ --- ------ Total Exploratory.................... 35 27.50 20 12.65 42 30.64 --- ------ --- ------ --- ------ Total................................ 651 533.74 700 525.81 599 482.21 Wells in Progress at end of period............. 28 15.73 44 36.39 87 61.08 --- ------ --- ------ --- ------ Total................................ 679 549.47 744 562.20 686 543.29 === ====== === ====== === ====== Wells Acquired Gas....................................... 333 317.23* 227 82.45* 350 148.20* Oil....................................... - 1.70* 48 20.50* 5 .65 --- ------ --- ------ --- ------ Total................................ 333 318.93 275 102.95 355 148.85 === ====== === ====== === ======
- --------------- * Includes the acquisition of additional interests in certain wells in which the Company previously acquired 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 22 ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries and related companies are named defendants in numerous lawsuits and named parties in numerous governmental proceedings arising in the ordinary course of business. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial condition or results of operations of the Company. Enron Oil & Gas India Ltd. ("EOGIL"), a wholly-owned subsidiary of the Company, is a respondent in two public interest lawsuits filed in the Delhi High Court, India. The first (the "Wadehra Action") was brought by B. L. Wadehra, an Indian public interest lawyer, against the Union of India, EOGIL, EOGIL co- participants in the Panna and Mukta fields, Reliance Industries Limited ("Reliance") and Oil & Natural Gas Corporation Limited ("ONGC"), and certain other respondents. ONGC is the Indian national oil company and is wholly-owned by the Union of India. The second suit (the "CPIL Action") was brought by the Centre for Public Interest Litigation and the National Alliance of People's Movement against the Union of India, the Central Bureau of Investigation, ONGC, Reliance and EOGIL. Petitioners in both the Wadehra Action and the CPIL Action allege various improprieties in the award of the Panna and Mukta fields to EOGIL, Reliance and ONGC, and seek the cancellation of the Production Sharing Contract for the Panna and Mukta fields. The Union of India is vigorously disputing these allegations. The Company believes that the public competitive bidding process for the fields was fair and that the award of these fields to EOGIL, Reliance and ONGC was proper. Following a series of hearings, the Delhi High Court has entered an order dismissing both lawsuits. The plaintiffs have filed a special leave petition seeking to appeal this decision to the India Supreme Court. Although no assurances can be given, based on currently available information the Company believes that the claims made by the petitioners in both actions are without merit, and that the ultimate resolution of these matters will not have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1998. 20 23 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table sets forth, for the periods indicated, the high and low sales prices per share for the common stock of the Company, as reported on the New York Stock Exchange Composite Tape, and the amount of cash dividends paid per share.
PRICE RANGE --------------- CASH HIGH LOW DIVIDENDS ------ ------ --------- 1996 First Quarter............................................. $28.50 $22.38 $0.03 Second Quarter............................................ 28.63 23.88 0.03 Third Quarter............................................. 30.63 22.88 0.03 Fourth Quarter............................................ 28.38 23.25 0.03 1997 First Quarter............................................. $27.00 $19.88 $0.03 Second Quarter............................................ 21.75 17.50 0.03 Third Quarter............................................. 25.06 17.69 0.03 Fourth Quarter............................................ 23.81 18.50 0.03 1998 First Quarter............................................. $24.13 $18.56 $0.03 Second Quarter............................................ 24.50 18.13 0.03 Third Quarter............................................. 20.69 11.75 0.03 Fourth Quarter............................................ 18.50 12.69 0.03
As of March 1, 1999, there were approximately 440 record holders of the Company's common stock, including individual participants in security position listings. There are an estimated 22,000 beneficial owners of the Company's common stock, including shares held in street name. 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, exploitation and development expenditure opportunities and future business prospects of the Company. 21 24 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net operating revenues............ $ 769,188 $ 783,501 $ 730,648 $ 648,702 $ 625,823 Operating expenses Lease and well.................. 98,868 96,064 76,618 69,463 60,384 Exploration costs............... 65,940 57,696 55,009 42,044 41,811 Dry hole costs.................. 22,751 17,303 13,193 12,911 17,197 Impairment of unproved oil and gas properties............... 32,076 27,213 21,226 23,715 24,936 Depreciation, depletion and amortization................. 315,106 278,179 251,278 216,047 242,182 General and administrative...... 69,010 54,415 56,405 56,626 51,418 Taxes other than income......... 51,776 59,856 48,089 32,587 28,254 ---------- ---------- ---------- ---------- ---------- Total................... 655,527 590,726 521,818 453,393 466,182 ---------- ---------- ---------- ---------- ---------- Operating income.................. 113,661 192,775 208,830 195,309 159,641 Other income (expense), net....... (4,800) (1,588) (5,007) 669 2,783 Interest expense (net of interest capitalized).................... 48,579 27,717 12,861 11,924 8,489 ---------- ---------- ---------- ---------- ---------- Income before income taxes........ 60,282 163,470 190,962 184,054 153,935 Income tax provision(1)........... 4,111(2) 41,500(3) 50,954(4) 41,936(5) 5,937(6) ---------- ---------- ---------- ---------- ---------- Net income........................ $ 56,171 $ 121,970 $ 140,008 $ 142,118 $ 147,998 ========== ========== ========== ========== ========== Net income per share of common stock Basic........................... $ .36 $ .78 $ .88 $ .89 $ .93 ========== ========== ========== ========== ========== Diluted......................... $ .36 $ .77 $ .87 $ .88 $ .92 ========== ========== ========== ========== ========== Average number of common shares Basic........................... 154,345 157,376 159,853 159,917 159,845 ========== ========== ========== ========== ========== Diluted......................... 155,054 158,160 161,525 161,132 160,654 ========== ========== ========== ========== ==========
AT DECEMBER 31, -------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Oil and gas properties - net..... $2,676,363 $2,387,207 $2,099,589 $1,881,545 $1,684,811 Total assets..................... 3,018,095 2,723,355 2,458,353 2,147,258 1,861,867 Long-term debt Trade.......................... 942,779 548,775 466,089 147,559 165,337 Affiliate...................... 200,000 192,500 - 141,520 25,000 Deferred revenue................. 4,198 39,918 56,383 205,453 184,183 Shareholders' equity............. 1,280,304 1,281,049 1,265,090 1,163,659 1,043,419
- --------------- (1) Includes benefits of approximately $12 million, $12 million, $16 million, $22 million and $36 million in 1998, 1997, 1996, 1995 and 1994, respectively, relating to tight gas sand federal income tax credits. (2) Includes a benefit of $2 million related to the final audit assessments of India taxes for certain prior years, a benefit of $3.8 million related to reduced deferred franchise taxes, and $3.5 million related to Venezuela deferred tax benefits. (3) Includes a benefit of $15 million primarily associated with the refiling of certain Canadian tax returns and the sale of certain international assets and subsidiaries. (4) Includes a benefit of $9 million primarily associated with a reassessment of deferred tax requirements and the successful resolution on audit of Canadian income taxes for certain prior years. (5) Includes a benefit of approximately $14 million associated with the successful resolution on audit of federal income taxes for certain prior years. (6) 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 Statement of Financial Accounting Standards ("SFAS") No. 109 - "Accounting for Income Taxes", and a $5 million benefit from the reduction of the Company's deferred federal income tax liability resulting from a reevaluation of deferred tax requirements. 22 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations for each of the three years in the period ended December 31, 1998 should be read in conjunction with the consolidated financial statements of the Company and notes thereto beginning with page F-1. RESULTS OF OPERATIONS Net Operating Revenues. Wellhead volume and price statistics for the specified years were as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1998 1997 1996 ------ ------ ------ Natural Gas Volumes (MMcf per day) United States(1).......................................... 671 657 608 Canada.................................................... 105 101 98 Trinidad.................................................. 139 113 124 India..................................................... 56 18 - ------ ------ ------ Total............................................. 971 889 830 ====== ====== ====== Average Natural Gas Prices ($/Mcf) United States(2).......................................... $ 1.93 $ 2.32 $ 2.04 Canada.................................................... 1.40 1.43 1.15 Trinidad.................................................. 1.06 1.05 1.00 India..................................................... 2.41 2.79 - Composite......................................... 1.78 2.07 1.78 Crude Oil and Condensate Volumes (MBbl per day) United States............................................. 14.0 11.7 9.2 Canada.................................................... 2.6 2.5 2.4 Trinidad.................................................. 3.0 3.4 5.2 India..................................................... 5.1 2.3 2.8 ------ ------ ------ Total............................................. 24.7 19.9 19.6 ====== ====== ====== Average Crude Oil and Condensate Prices ($/Bbl) United States............................................. $12.84 $19.81 $21.88 Canada.................................................... 11.82 17.16 18.01 Trinidad.................................................. 12.26 18.68 19.76 India..................................................... 12.86 20.05 20.17 Composite......................................... 12.66 19.30 20.60 Natural Gas Equivalent Volumes (MMcfe per day)(3) United States............................................. 771 743 670 Canada.................................................... 128 124 120 Trinidad.................................................. 157 133 156 India..................................................... 86 32 17 ------ ------ ------ Total............................................. 1,142 1,032 963 ====== ====== ====== Total Bcfe Deliveries............................. 417 377 353
- --------------- (1) Includes 48 MMcf per day in 1998, 1997 and 1996 delivered under the terms of a volumetric production payment agreement effective October 1, 1992, as amended. Delivery obligations were terminated in December 1998. (2) Includes an average equivalent wellhead value of $1.53 per Mcf in 1998, $1.73 per Mcf in 1997, and $1.17 per Mcf in 1996 for the volumes detailed in note (1), net of transportation costs. (3) Includes natural gas and crude oil, condensate and natural gas liquids. 23 26 1998 compared to 1997. During 1998, net operating revenues decreased $14 million to $769 million. Total wellhead revenues of $755 million decreased by $74 million, or 9%, as compared to 1997. Average wellhead natural gas prices for 1998 were approximately 14% lower than the comparable period in 1997 reducing net operating revenues by approximately $104 million. Average wellhead crude oil and condensate prices were down by 34% worldwide decreasing net operating revenues by $60 million. Revenues from the sale of natural gas liquids decreased $6 million primarily due to lower wellhead prices. Wellhead natural gas volumes were approximately 9% higher than the comparable period in 1997 increasing net operating revenues by nearly $62 million. Natural gas production in India increased 38 MMcf per day from the Tapti and Panna fields, which did not commence deliveries until late in the second quarter of 1997 and the first quarter of 1998, respectively. Production in Trinidad increased 26 MMcf per day due primarily to additional volumes above the current contract level relating to gas balancing volumes pursuant to a field allocation agreement. North America wellhead natural gas production was approximately 2% higher than the comparable period in 1997. Wellhead crude oil and condensate volumes were 24% higher than in 1997 increasing net operating revenues by $34 million. Production from the Panna and Mukta fields in India more than doubled as a result of the ongoing development program and shut-down of crude oil production in the second quarter of 1997 to allow for the conversion from temporary to permanent production facilities. North America crude oil and condensate volumes increased 17% due primarily to higher levels of liquids production in South Texas and offshore. Other marketing activities associated with sales and purchases of natural gas, natural gas and crude oil price hedging and trading transactions, and margins related to the volumetric production payment decreased net operating revenue by $4 million during 1998, compared to a $61 million reduction in 1997, representing an improvement of $57 million. 1997 compared to 1996. During 1997, net operating revenues increased $53 million to $784 million. Total wellhead revenues of $828 million increased by $129 million, or 18%, as compared to 1996. Average wellhead natural gas prices for 1997 were up approximately 16% from the comparable period in 1996 increasing net operating revenues by approximately $82 million. Wellhead natural gas volumes were up 7% from 1996 adding net operating revenues of approximately $49 million. This is primarily attributable to a 7% increase in North America wellhead natural gas volumes and commencement of natural gas production from the Tapti field in India. Wellhead crude oil and condensate average prices decreased 6%, reducing net operating revenues by approximately $10 million from 1996. Wellhead crude oil and condensate volumes increased slightly from the comparable period a year ago and added approximately $2 million to net operating revenues as a 23% increase in North America wellhead crude oil and condensate volumes was partially offset by a natural decline in crude oil production from the Ibis field offshore Trinidad. Gains on the sales of reserves and related assets totaled $9 million in 1997 as compared to $20 million realized in 1996, reflecting a lower level of sales activity. Other marketing activities associated with sales and purchases of natural gas, natural gas and crude oil price hedging and trading transactions, and margins related to the volumetric production payment decreased net operating revenues by $61 million during 1997, compared to a $4 million increase in 1996. A $51 million revenue reduction related to natural gas commodity price hedging activities utilizing NYMEX-related commodity market transactions in 1997 partially offset greater wellhead price benefits noted above and compares to a $13 million revenue increase associated with similar transactions a year ago. A decrease in margins associated with sales and purchases of natural gas and the volumetric production payment reduced net revenues by approximately $9 million as compared to an $18 million addition in 1996, primarily resulting from higher costs of natural gas delivered in 1997. Additionally, the Company incurred a $5 million revenue reduction on its NYMEX-related crude oil price swap transactions in 1997 compared to a $13 million revenue reduction in 1996. 24 27 Operating Expenses 1998 compared to 1997. During 1998, operating expenses of $656 million were approximately $65 million higher than the $591 million incurred in 1997. Lease and well expenses increased $3 million to $99 million primarily due to commencement of operations in China. Exploration expenses of $66 million and dry hole expenses of $23 million increased $8 million and $5 million, respectively, from 1997 primarily due to increased exploratory drilling and other exploration activities in North America. Impairment of unproved oil and gas properties increased $5 million to $32 million resulting from a full year of impairment recorded on unproved leases acquired in 1997 in North America. Depreciation, depletion and amortization ("DD&A") expense increased approximately $37 million to $315 million in 1998 primarily reflecting a higher per unit rate in North America and increased worldwide production volumes. General and administrative expenses were $15 million higher than in 1997 due to expanded worldwide operations. Taxes other than income were down by approximately $8 million from the prior year primarily due to lower state severance taxes associated with decreased wellhead revenues in the United States. Total operating costs per unit of production, which include lease and well, DD&A, general and administrative, taxes other than income and interest expense, increased 2% to $1.40 per thousand cubic feet equivalent ("Mcfe") in 1998 from $1.37 per Mcfe in 1997. This increase is primarily due to a higher per unit rate of interest expense, DD&A expense and general and administrative expenses, partially offset by a lower per unit rate of lease and well expense and taxes other than income. 1997 compared to 1996. During 1997, operating expenses of $591 million were approximately $69 million higher than the $522 million incurred in 1996. Lease and well expenses increased $19 million to $96 million primarily due to expanded operations and increased North America production activities at higher costs to maximize the volumes delivered at higher product prices. Exploration expenses of $58 million and dry hole expenses of $17 million increased $3 million and $4 million, respectively, from 1996 primarily due to increased exploratory drilling activities in North America. Impairment of unproved oil and gas properties increased $6 million to $27 million as a result of increased acquisition of unproved leases in North America. DD&A expense increased approximately $27 million to $278 million in 1997 primarily reflecting an increase in North America production volumes. Taxes other than income were up by approximately $12 million from the prior year primarily due to higher state severance taxes associated with increased wellhead revenues in the United States. Total operating costs per unit of production, which include lease and well, DD&A, general and administrative, taxes other than income and interest expense, increased 9% to $1.37 per Mcfe in 1997 from $1.26 per Mcfe in 1996. This increase was primarily attributable to increased lease and well costs industry- wide, higher per unit DD&A and higher interest expense associated with expanded worldwide operations, partially offset by lower per unit general and administrative expenses. Other Income (Expense). The net expense for 1998 was primarily comprised of provisions for doubtful accounts receivable associated with certain international activities and contract settlements partially offset by interest income. Interest Expense. The increase in net interest expense of $21 million from 1997 to 1998 and $15 million from 1996 to 1997 primarily reflects a higher level of debt outstanding due to expanded worldwide operations and common stock repurchases. (See Note 4 to Consolidated Financial Statements.) Income Taxes. Income tax provision decreased approximately $37 million for 1998 as compared to 1997 and decreased approximately $9 million for 1997 as compared to 1996 primarily due to lower pre-tax income year to year. CAPITAL RESOURCES AND LIQUIDITY Cash Flow. The primary sources of cash for the Company during the three-year period ended December 31, 1998 included funds generated from operations, proceeds from the sales of selected oil and gas 25 28 reserves and related assets and proceeds from new borrowings. Primary cash outflows included funds used in operations, exploration and development expenditures, common stock repurchases, dividends paid to Company shareholders and the repayment of debt. Net operating cash flows of $404 million in 1998 decreased approximately $127 million as compared to 1997 primarily reflecting increased working capital for operating activities, higher interest expense, decreased operating revenues, increased cash operating expenses and increased cash taxes. Changes in working capital and other liabilities decreased operating cash flows by $72 million as compared to 1997 primarily due to the payment of $25 million of income taxes due under the 1997 tax agreement with Enron Corp. and changes in accounts receivable, accrued royalties payable and accrued production taxes caused by fluctuation of commodity prices at each year end. Net investing cash outflows of $760 million in 1998 increased by $63 million as compared to 1997 due primarily to increased exploration and development expenditures of $78 million, partially offset by higher proceeds from sales of reserves and related assets of $24 million. Changes in Components of Working Capital Associated with Investing Activities included for all periods changes in accounts payable related to the accrual of exploration and development expenditures and changes in inventories which represent materials and equipment used in drilling and related activities. Cash provided by financing activities in 1998 was $353 million as compared to $168 million in 1997. Financing activities in 1998 included the net issuance of $402 million of long-term debt primarily to fund exploration and development activities, to repurchase shares of the Company's common stock and to pay cash dividends. Share repurchases in 1998 totaled $26 million as compared to repurchases of $99 million in 1997. Dividend payments were approximately $19 million in each year. Net operating cash flows of $531 million in 1997 increased approximately $166 million as compared to 1996 due to higher production related net operating revenues net of cash operating expenses, lower current income taxes and reduced working capital requirements. The working capital changes primarily reflected higher 1996 end of year operating revenues collected in 1997 partially offset by the higher level of end of year 1996 operating-related accounts payable paid in 1997. Net investing cash outflows of $697 million in 1997 increased by approximately $185 million as compared to 1996 due primarily to increased exploration and development expenditures of approximately $93 million and reduced proceeds from sales of reserves and related assets of $26 million. The investing cash outflows in 1997 included a $22 million increase in working capital requirements associated with investing activities as compared to a $37 million decrease in 1996 primarily related to the timing of drilling expenditures. Cash provided by financing activities in 1997 increased $37 million, as compared to 1996, to $168 million. Financing activities in 1997 included the net issuance of $279 million of long-term debt as compared to $179 million issued in 1996. Share repurchases were $99 million in 1997 as compared to $44 million in 1996, and dividends paid were approximately $19 million in each year. 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 income taxes, gains on sales of oil and gas reserves and related assets, certain other non-cash amounts, except for amortization of deferred revenue, and exploration and dry hole costs. The Company generated discretionary cash flow of approximately $463 million in 1998, $508 million in 1997 and $479 million in 1996. Volumetric Production Payment. In September 1992, the Company sold a volumetric production payment for $326.8 million to a limited partnership. (See Note 5 to Consolidated Financial Statements.) Under the terms of the production payment, as amended October 1, 1993, the Company conveyed a real property interest of certain natural gas and other hydrocarbons to the purchaser. Deliveries were scheduled at the rate of 50 billion British thermal units per day through March 31, 1999. The Company accounted for the proceeds received in the transaction as deferred revenue, which was amortized into revenue and income as natural gas and other hydrocarbons were produced and delivered during the term of the volumetric production payment agreement. In December 1998, the Company settled the remainder of the contract in cash which was not materially different from the recorded deferred revenue, and delivery obligations were terminated. 26 29 Exploration and Development Expenditures. The table below sets out components of actual exploration and development expenditures for the years ended December 31, 1998, 1997 and 1996, along with those budgeted for the year 1999.
ACTUAL ------------------ BUDGETED EXPENDITURE CATEGORY 1998 1997 1996 1999 - -------------------- ---- ---- ---- --------- (IN MILLIONS) Capital Drilling and Facilities................................... $421 $446 $408 Leasehold Acquisitions.................................... 36 77 45 Producing Property Acquisitions........................... 211 81 69 Capitalized Interest and Other............................ 22 22 18 ---- ---- ---- Subtotal.......................................... 690 626 540 Exploration Costs........................................... 66 58 55 Dry Hole Costs.............................................. 23 17 13 ---- ---- ---- Total............................................. $779 $701 $608 $575-$650 ==== ==== ==== =========
Exploration and development expenditures increased $78 million in 1998 as compared to 1997 primarily due to the third quarter 1998 acquisition of producing properties in the Gulf of Mexico for $156 million. Unproved leasehold acquisitions decreased $41 million primarily in North America. Drilling and facilities expenditures declined by approximately $25 million in 1998 as decreased activity in North America and lower expenditures in India were partially offset by new drilling in Trinidad and Venezuela. While development activities continued in India, expenditures in 1998 were less than in 1997 due to 1997 expenditures associated with the installation of permanent production facilities. Exploration and development expenditures increased $93 million in 1997 as compared to 1996 primarily due to increased exploration and development activities in the United States and the acquisition of producing properties in South Texas and in the Blackfoot area in Canada. Partially offsetting these increases were the reduction of construction expenditures in India related to the Tapti and Panna/Mukta production facilities which were completed in 1997. (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 1999 exploration and development expenditure plans). Hedging Transactions. The Company's 1998 NYMEX-related natural gas and crude oil commodity price swaps closed with "other marketing revenue" increases of $1 million pretax and $5 million pretax, respectively. At December 31, 1998, there were open crude oil commodity price swaps for 1999 covering approximately 700 MBbl of crude oil at a weighted average price of $18.85 per barrel. There were no outstanding natural gas commodity price swaps. Financing. The Company's long-term debt-to-total-capital ratio was 47% and 37% as of December 31, 1998 and 1997, respectively. During 1998, total long-term debt increased $402 million to $1,143 million as a result of borrowings related to increased exploration and development expenditures and the repurchase of the Company's common stock. (See Note 4 to the Consolidated Financial Statements). The estimated fair value of the Company's long-term debt at December 31, 1998 and 1997 was $1,141 million and $744 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. The Company's debt is primarily at fixed interest rates. At December 31, 1998, a 1% change in interest rates would result in a $49 million change in the estimated fair value of the fixed rate obligations. (See Note 14 to the Consolidated Financial Statements). Certain borrowings of the Company contain covenants requiring the maintenance of certain financial ratios and limitations on liens, debt issuance and dispositions of assets. These covenants include a 50% debt-to-total-capital limitation. Should commodity price levels experienced in late 1998 and early 1999 persist, the resulting reduction in cash flow available from 27 30 operations may necessitate further action(s) which could include a reduction in capital expenditure plans, the issuance of preferred stock and/or common equity, and/or the renegotiation of the debt covenants in order to remain in compliance. The Company maintains reciprocal agreements with Enron Corp. that provide for the borrowing by the Company of up to $200 million and investing by the Company of surplus funds of up to $200 million at market-based interest rates through December 31, 1999. Advances from Enron Corp. of $200 million and $193 million were outstanding as of December 31, 1998 and 1997, respectively. There were no investments with Enron Corp. as of December 31, 1998 or 1997. Outlook. Uncertainty continues to exist as to the direction of future North America natural gas and crude oil price trends, and there remains a rather wide divergence in the opinions held by some in the industry. This divergence in opinion is caused by various factors including improvements in the technology used in drilling and completing crude oil and natural gas wells that are tending to mitigate the impacts of fewer crude oil and natural gas wells being drilled, improvements being realized in the availability and utilization of natural gas storage capacity and warmer than normal weather experienced in 1998. 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 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. (See "Business - Other Matters - Energy Prices"). At December 31, 1998, based on the portion of the Company's anticipated natural gas volumes for 1999 for which prices have not, in effect, been hedged using NYMEX-related commodity market transactions and long-term marketing contracts, the Company's net income and cash flow sensitivity to changing natural gas prices is approximately $18 million for each $.10 per Mcf change in average wellhead natural gas prices. While the Company is not impacted as significantly by changing crude oil prices for those volumes not otherwise hedged, its net income and cash flow sensitivity is approximately $6 million for $1.00 per barrel change in average wellhead crude oil prices. The Company plans to continue to focus a substantial portion of its development and exploration expenditures in its major producing areas in North America. However, based on the continuing uncertainty associated with North America natural gas prices and as a result of the recent success realized in Trinidad and India and commencement of development activities in China, the Company anticipates expending a substantial portion of its available funds in the further development of these opportunities outside North America. In addition, the Company expects to conduct limited exploratory activity in other areas outside of North America and will continue to evaluate the potential for involvement in other exploitation type opportunities. (See "Business - Exploration and Production" for additional information detailing the specific geographic locations of the related drilling programs). Budgeted 1999 expenditures are anticipated to be managed within the range of $575-$650 million, addressing the continuing uncertainty with regard to the future of the North America natural gas and crude oil and condensate price environment. Budgeted expenditures for 1999 are structured to maintain the flexibility necessary under the Company's continuing strategy of funding North America exploration, exploitation, development and acquisition activities primarily from available internally generated cash flow. The level of exploration and development expenditures may vary in 1999 and 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 in 1999 will be sufficient to fund its net investing cash requirements for the year. However, the Company has significant flexibility with respect to its financing alternatives and adjustment of its exploration, exploitation, development and acquisition expenditure plans if circumstances warrant. While the Company has certain continuing commitments associated with expenditure plans related to operations in India, Trinidad, Venezuela and China, such commitments are not anticipated to be material when considered in relation to the total financial capacity of the Company. Other factors representing positive impacts 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 as of 28 31 December 31, 1992, the Company continued in 1998, 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, the annual benefit, which was approximately $12 million in 1998 and is estimated to be approximately $8 million for 1999, is expected to continue to decline in future periods as production from the qualified wells declines. The drilling qualification period for a Texas severance tax exemption available on qualifying high cost natural gas revenues continued through August 1996 in its original form and is continuing 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. (See "Business - Other Matters - Tight Gas Sand Tax Credits (Section 29) and Severance Tax Exemption"). Environmental Regulations. Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to protection of the environment, may affect the Company's operations and costs as a result of their effect on natural gas and crude oil exploration, exploitation, development and production operations. Compliance with such laws and regulations has not had a material adverse effect on the Company's operations or financial condition. It is not anticipated, based on current laws and regulations, that the Company will be required in the near future to expend amounts that are material in relation to its total exploration and development expenditure program by reason of environmental laws and regulations. However, inasmuch as such laws and regulations are frequently changed, the Company is unable to predict the ultimate cost of compliance. NEW ACCOUNTING PRONOUNCEMENT - SFAS NO. 133 In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 - "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. The statement cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1997. The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statements of income and requires a company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. The Company has not yet quantified the impacts of adopting SFAS No. 133 on its financial statements and has not determined the timing of adoption. Based on the criteria of SFAS No. 133 and current interpretations thereof, the Company believes that the options it owns to purchase 3,200,000 Enron Corp. common shares, at a price of $39.1875 per share that expire in December 2007, qualify as derivative instruments. Accordingly, SFAS No. 133 would require the changes in the fair value of the options to be recognized currently in earnings. The Company cannot predict whether future interpretations currently being considered by the Emerging Issues Task Force of the FASB or potential amendments of SFAS No. 133 will result in the options being considered derivative instruments at the time of its adoption. At December 31, 1997, the carrying value of the options was approximately $23 million pre-tax, which represented the estimated fair value at the date of grant. At December 31, 1998, Enron Corp. common shares closed at $57.06 per share. Based on the Company's current level of other derivative and hedging activities, the Company does not expect the impact of adoption of SFAS No. 133 relative to those other activities to be material. 29 32 YEAR 2000 The Year 2000 problem generally results from the use in computer hardware and software of two digits rather than four digits to define the applicable year. When computer systems must process dates both before and after January 1, 2000, two-digit year "fields" may create processing ambiguities that can cause errors and system failures. For example, a date represented by "00" may be interpreted as referring to the year 1900, instead of 2000. The effects of the Year 2000 problem can be exacerbated by the interdependence of computer and telecommunications systems in the United States and throughout the world. This interdependence can affect the Company and its suppliers, trading partners, and customers, as well as governments of countries around the world where the Company does business. State of Readiness The Company Board of Directors has been briefed about the Year 2000 problem. The Board has adopted a Year 2000 Project (the "Project") aimed at preventing the Company's mission-critical functions from being impaired due to the Year 2000 problem. "Mission-critical" functions are those critical functions whose loss would cause an immediate stoppage of or significant impairment to core business processes (a core business process is one of material importance to the Company business). Implementation of the Project is directly supervised by a Year 2000 Oversight Committee, made up of four senior executives of the Company and its affiliates. Each operating division of the Company is implementing procedures specific to it that are part of the overall Project. The Company also has engaged certain outside consultants, technicians and other external resources to aid in formulating and implementing the Project. The Company is actively implementing the Project, which will be modified as events warrant. Under the Project, the Company will continue to inventory mission-critical computer hardware and software systems and embedded microprocessors (microprocessors with date-related functions, contained in a wide variety of devices), and software; assess the effects of Year 2000 problems on the mission-critical functions of the Company; remedy systems, software and embedded microprocessors in an effort to avoid material disruptions or other material adverse effects on mission-critical functions, processes and systems; verify and test the mission-critical systems to which remediation efforts have been applied; and attempt to mitigate those mission-critical aspects of the Year 2000 problem that are not remediated by January 1, 2000, including the development of contingency plans to cope with the mission-critical consequences of Year 2000 problems that have not been identified or remediated by that date. The Project recognizes that the computer, telecommunications, and other systems ("Outside Systems") of outside entities ("Outside Entities") have the potential for major, mission-critical, adverse effects on the conduct of Company business. The Company does not have control of these Outside Entities or Outside Systems. (In some cases, Outside Entities are U.S., state and local governmental organizations, foreign governments or businesses located in foreign countries.) However, the Project includes an ongoing process of identifying and contacting Outside Entities whose systems in the Company's judgment have, or may have, a substantial effect on the Company's ability to continue to conduct the mission-critical aspects of Company business without disruption from Year 2000 problems. The Project envisions the Company making an attempt to inventory and assess the extent to which these Outside Systems may not be "Year 2000 ready" or "Year 2000 compatible". The Company will attempt reasonably to coordinate with these Outside Entities in an ongoing effort to obtain assurance that the Outside Systems that are mission-critical will be Year 2000 compatible well before January 1, 2000. Consequently, the Company will work with Outside Entities in a reasonable attempt to inventory, assess, analyze, convert (where necessary), test, and develop contingency plans for connections to these mission-critical Outside Systems and to ascertain the extent to which they are, or can be made to be, Year 2000 ready and compatible with the Company's remediation of its own mission-critical systems. 30 33 As of March 1999, the Company is at various stages in implementation of the Project, as shown in the following tables. Any notation of "complete" conveys the fact only that the initial iteration of this phase has been substantially completed. All dates are only relevant for the initial iteration of the applicable stage of the Project. YEAR 2000 PROJECT READINESS
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY PLAN --------- ---------- -------- ---------- ------- --------- ---------------- Mission-Critical Internal Items.................. C IP IP IP IP IP IP Mission-Critical Outside Entities............... IP IP IP IP IP IP IP
- --------------- Legend: C = Complete IP = In Process YEAR 2000 PROJECT ESTIMATED COMPLETION DATES
INVENTORY ASSESSMENT ANALYSIS CONVERSION TESTING Y2K-READY CONTINGENCY PLAN --------- ---------- -------- ---------- ------- --------- ---------------- Mission-Critical Internal Items.................. 12/98 3/99 3/99 6/99 9/99 9/99 9/99 Mission-Critical Outside Entities............... 3/99 6/99 6/99 9/99 9/99 9/99 9/99
It is important to recognize that the processes of inventorying, assessing, analyzing, converting (where necessary), testing, and developing contingency plans for mission-critical items in anticipation of the Year 2000 event may be iterative processes, requiring a repeat of some or all of these processes as the Company learns more about the Year 2000 problem and its effects on internal business information systems and on Outside Systems, and about the effects of embedded microprocessors on systems and business operations. The Company anticipates that it will continue with these processes through January 1, 2000 and on into the Year 2000 in order to assess and remediate problems that reasonably can be identified only after the start of the new century. The Project envisions verification and validation of certain mission-critical facilities and functions by independent consultants. These consultants will participate to varying degrees in many or all of the stages, including the inventory, assessment, and testing phases. Currently, the Company is utilizing Raytheon Engineers & Constructors, Inc. to assist Company personnel in the inventory and assessment phases of onshore and offshore and domestic and international operations. Costs to Address Year 2000 Issues The Company has not incurred material historical costs for Year 2000 awareness, inventory, assessment, analysis, conversion, testing, or contingency planning and anticipates that any future costs for these purposes, including those for implementing Year 2000 contingency plans, are not likely to be material. Although management believes that its estimates are reasonable, there can be no assurance, for the reasons stated in the "Summary" section below, that the actual costs of implementing the Project will not differ materially from the estimated costs or that the Company will not be materially adversely affected by Year 2000 issues. Year 2000 Risk Factors Regulatory requirements. Certain of the Company's operations are regulated by governmental authorities. The Company expects to satisfy these regulatory authority requirements for achieving Year 2000 readiness. If the Company's reasonable expectations in this regard are in error, and if a regulatory authority 31 34 should order the temporary cessation of operations in one or more of these areas, the adverse effect on the Company could be material. Outside Entities may face similar problems that materially adversely affect the Company. Shortage of Resources. Between now and 2000 it is anticipated that there will be increased competition for people with technical and managerial skills necessary to deal with the Year 2000 problem. While the Company is taking substantial precautions to recruit and retain sufficient people skilled in dealing with the Year 2000 problem, and has hired consultants who bring additional skilled people to deal with the Year 2000 problem, the Company could face shortages of skilled personnel or other resources, such as particular microprocessors or components containing Year 2000 ready microprocessors, and these shortages might delay or otherwise impair the Company's ability to assure that its mission-critical systems are Year 2000 ready. Outside Entities could face similar problems that materially adversely affect the Company. The Company believes that the possible impact of the shortage of skilled people and resources is not, and will not be, unique to the Company. Potential Shortcomings. The Company estimates that mission-critical systems, domestic and international, will be Year 2000-ready substantially before January 1, 2000. However, there is no assurance that the Project will succeed in accomplishing its purpose, or that unforeseen circumstances will not arise during implementation of the Project that would materially adversely affect the Company. Cascading Effect. The Company is taking reasonable steps to identify, assess, and, where appropriate, to replace devices that contain embedded microprocessors. Despite these reasonable efforts, the Company anticipates that it will not be able to find and remediate all embedded microprocessors in all systems. Further, it is anticipated that Outside Entities also will not be able to find and remediate all embedded microprocessors in their systems. Some of the embedded microprocessors that fail to operate or that produce anomalous results may create system disruptions or failures. Some of these disruptions or failures may spread from the systems in which they are located to other systems causing adverse effects upon the Company's ability to maintain safe operations, to serve its customers and otherwise to fulfill certain contractual and other legal obligations. The embedded microprocessor problem is widely recognized as one of the more difficult aspects of the Year 2000 problem across industries and throughout the world. The possible adverse impact of the embedded microprocessor problem is not, and will not be, unique to the Company. Third parties. The Company cannot assure that suppliers upon which it depends for essential goods and services will convert and test their mission-critical systems and processes in a timely manner. Failure or delay by all or some of these entities, including the U.S. and state or local governments and foreign governments, could create substantial disruptions having a material adverse effect on Company business. Contingency Plans As part of the Project, the Company is developing contingency plans that deal with, among others, two primary aspects of the Year 2000 problem: (1) that the Company, despite its good-faith, reasonable efforts, may not have satisfactorily remediated all internal, mission-critical systems; and (2) that Outside Systems may not be Year 2000 ready, despite the Company's good-faith, reasonable efforts to work with Outside Entities. These contingency plans are being designed to mitigate the disruptions or other adverse effects resulting from Year 2000 incompatibilities regarding these mission-critical functions or systems, and to facilitate the early identification and remediation of mission-critical Year 2000 problems that first manifest themselves after January 1, 2000. These contingency plans will contemplate an assessment of all mission-critical internal information technology systems and internal operational systems that use computer-based controls. This process will be pursued continuously into the Year 2000 as circumstances require. Further, the Company will in that time frame assess any mission-critical disruptions due to Year 2000-related failures that are external to the Company. These contingency plans include the creation, as deemed reasonably appropriate, of teams that will be standing by on the eve of the new millennium, prepared to respond rapidly and otherwise as necessary to 32 35 mission-critical Year 2000-related problems as soon as they become known. The composition of teams that are assigned to deal with Year 2000 problems will vary according to the nature, mission-criticality, and location of the problem. Because the Company operates internationally, some of its Year 2000 contingency teams will be located at mission-critical facilities overseas. Worst Case Scenario The Securities and Exchange Commission requires that public companies must forecast the most reasonably likely worst case Year 2000 scenario, assuming that the Company's Year 2000 plan is not effective. Analysis of the most reasonably likely worst case Year 2000 scenarios the Company may face leads to contemplation of the following possibilities which, though considered highly unlikely, must be included in any consideration of worst cases: widespread failure of electrical, natural gas, and similar supplies by utilities serving the Company domestically and internationally; widespread disruption of the services of communications common carriers domestically and internationally; similar disruption to means and modes of transportation for the Company and its employees, contractors, suppliers, and customers; significant disruption to the Company's ability to gain access to, and continue working in, office buildings and other facilities; the failure of substantial numbers of mission-critical hardware and software computer systems, including both internal business systems and systems (such as those with embedded microprocessors) controlling operational facilities such as electrical generation, transmission, and distribution systems and crude oil and natural gas plants and pipelines, domestically and internationally; and the failure, domestically and internationally, of Outside Systems, the effects of which would have a cumulative material adverse impact on the Company's mission-critical systems. Among other things, the Company could face substantial claims by customers for loss of revenues due to supply interruptions, inability to fulfill contractual obligations, inability to account for certain revenues or obligations or to bill or pay customers accurately and on a timely basis, and increased expenses associated with litigation, stabilization of operations following mission-critical failures, and the execution of contingency plans. The Company could also experience an inability by customers, traders, and others to pay, on a timely basis or at all, obligations owed to the Company. Under these circumstances, the adverse effect on the Company, and the diminution of Company revenues, could be material, although not quantifiable at this time. Further in this scenario, the cumulative effect of these failures could have a substantial adverse effect on the economy, domestically and internationally. The adverse effect on the Company, and the diminution of Company revenues, from a domestic or global recession or depression also could be material, although not quantifiable at this time. The Company will continue to monitor business conditions with the aim of assessing and quantifying material adverse effects, if any, that result or may result from the Year 2000 problem. Summary The Company has a plan to deal with the Year 2000 challenge and believes that it will be able to achieve substantial Year 2000 readiness with respect to the mission critical systems that it controls. From a forward-looking perspective, the extent and magnitude of the Year 2000 problem as it will affect the Company, both before and for some period after January 1, 2000, are difficult to predict or quantify for a number of reasons. Among these are: the difficulty of locating "embedded" microprocessors that may be in a great variety of mission-critical hardware used for process or flow control, environmental, transportation, access, communications, and other systems; the difficulty of inventorying, assessing, remediating, verifying and testing, Outside Systems connected, and vital, to the Company's computer, telecommunications, or other mission-critical systems; the difficulty of locating all mission-critical software (computer code) that is not Year 2000 compatible; and the unavailability of certain necessary internal or external resources, including but not limited to trained hardware and software engineers, technicians, and other personnel to perform adequate remediation, verification, and testing of mission-critical Company systems or Outside Systems. Year 2000 costs are difficult to estimate accurately because of unanticipated vendor delays, technical difficulties, the impact of tests of Outside Systems, and similar events. There can be no assurance for example that all Outside Systems with a mission-critical impact will be adequately remediated so that they are Year 2000 ready by January 1, 2000, or by some earlier date, so as not to create a material disruption to the Company's business. If, despite reasonable 33 36 efforts under the Year 2000 Project, there are mission-critical Year 2000-related failures that create substantial disruptions to Company business, the adverse impact on the Company could be material. Additionally, Year 2000 costs are difficult to estimate accurately because of unanticipated vendor delays, technical difficulties, the impact of tests of Outside Systems and similar events. Moreover, despite the Company's belief that costs for implementing the Project will not be material, the estimated costs of implementing the Project do not take into account the costs, if any, that might be incurred as a result of Year 2000-related failures that occur despite implementation of the Project. INFORMATION REGARDING FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that such expectations will be achieved. Important factors that could cause actual results to differ materially from those in the forward looking statements herein include, but are not limited to, the timing and extent of changes in commodity prices for crude oil, natural gas and related products and interest rates; the extent of the Company's success in discovering, developing, marketing and producing reserves and in acquiring oil and gas properties; the Company's success in implementing its Year 2000 Plan, the effectiveness of the Company's Year 2000 Plan, and the Year 2000 readiness of Outside Entities; political developments around the world and conditions of the capital and equity markets during the periods covered by the forward looking statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to interest rate risk and commodity price risk is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Financing" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Outlook", respectively. The Company's exposure to foreign currency exchange rate risks and other market risks is insignificant. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required hereunder is included in this report as set forth in the "Index to Financial Statements" on page F-1. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item regarding directors is set forth in the Proxy Statement under the caption entitled "Election of Directors", and is incorporated herein by reference. See list of "Current Executive Officers of the Registrant" in Part I located elsewhere herein. There are no family relationships among the officers listed, and there are no arrangements or understandings pursuant to which any of them were elected as officers. Officers are appointed or elected annually by the Board of Directors at its first meeting following the Annual Meeting of Shareholders, each to hold office until the corresponding meeting of the Board in the next year or until a successor shall have been elected, appointed or shall have qualified. 34 37 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth in the Proxy Statement under the caption "Compensation of Directors and Executive Officers", and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth in the Proxy Statement under the captions "Election of Directors" and "Compensation of Directors and Executive Officers", and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is set forth in the Proxy Statement under the caption "Certain Transactions", and is incorporated herein by reference. PART IV ITEM 14.FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, EXHIBITS AND REPORTS ON FORM 8-K (A)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE See "Index to Financial Statements" set forth on page F-1. (A)(3) EXHIBITS See pages E-1 through E-5 for a listing of the exhibits. (B) REPORTS ON FORM 8-K The Company filed a Report on Form 8-K on April 17, 1998 reporting the sale on April 8, 1998 of $150 million principal amount of 6.65% Notes due April 1, 2028 pursuant to an underwritten public offering. The Company filed a Report on Form 8-K on December 24, 1998 reporting the sale on December 14, 1998 of $175 million principal amount of 6.00% Notes due December 15, 2008 pursuant to an underwritten public offering. 35 38 ENRON OIL & GAS COMPANY INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements: Management's Responsibility for Financial Reporting....... F-2 Report of Independent Public Accountants.................. F-3 Consolidated Statements of Income and Comprehensive Income for Each of the Three Years in the Period Ended December 31, 1998...................................... F-4 Consolidated Balance Sheets - December 31, 1998 and 1997................................................... F-5 Consolidated Statements of Shareholders' Equity for Each of the Three Years in the Period Ended December 31, 1998................................................... F-6 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 1998...... F-7 Notes to Consolidated Financial Statements................ F-8 Supplemental Information to Consolidated Financial Statements................................................ F-25 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts and Reserves.................................................. S-1
Other financial statement schedules have been omitted because they are inapplicable or the information required therein is included elsewhere in the consolidated financial statements or notes thereto. F-1 39 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The following consolidated financial statements of Enron Oil & Gas Company and its subsidiaries were prepared by management, which is responsible for their integrity, objectivity and fair presentation. The statements have been prepared in conformity with generally accepted accounting principles and, accordingly, include some amounts that are based on the best estimates and judgments of management. Arthur Andersen LLP, independent public accountants, was engaged to audit the consolidated financial statements of Enron Oil & Gas Company and its subsidiaries and issue a report thereon. In the conduct of the audit, Arthur Andersen LLP was given unrestricted access to all financial records and related data including minutes of all meetings of shareholders, the Board of Directors and committees of the Board. Management believes that all representations made to Arthur Andersen LLP during the audit were valid and appropriate. The system of internal controls of Enron Oil & Gas Company and its subsidiaries is designed to provide reasonable assurance as to the reliability of financial statements and the protection of assets from unauthorized acquisition, use or disposition. This system includes, but is not limited to, written policies and guidelines including a published code for the conduct of business affairs, conflicts of interest and compliance with laws regarding antitrust, antiboycott and foreign corrupt practices policies, the careful selection and training of qualified personnel, and a documented organizational structure outlining the separation of responsibilities among management representatives and staff groups. The adequacy of financial controls of Enron Oil & Gas Company and its subsidiaries and the accounting principles employed in financial reporting by the Company are under the general oversight of the Audit Committee of the Board of Directors. No member of this committee is an officer or employee of the Company. The independent public accountants and internal auditors have direct access to the Audit Committee and meet with the committee from time to time to discuss accounting, auditing and financial reporting matters. It should be recognized that there are inherent limitations to the effectiveness of any system of internal control, including the possibility of human error and circumvention or override. Accordingly, even an effective system can provide only reasonable assurance with respect to the preparation of reliable financial statements and safeguarding of assets. Furthermore, the effectiveness of an internal control system can change with circumstances. It is management's opinion that, considering the criteria for effective internal control over financial reporting and safeguarding of assets which consists of interrelated components including the control environment, risk assessment process, control activities, information and communication systems, and monitoring, the Company maintained an effective system of internal control as to the reliability of financial statements and the protection of assets against unauthorized acquisition, use or disposition during the year ended December 31, 1998. WALTER C. WILSON MARK G. PAPA Senior Vice President and President and Chief Financial Officer Chief Executive Officer
Houston, Texas March 5, 1999 F-2 40 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Enron Oil & Gas Company: We have audited the accompanying consolidated balance sheets of Enron Oil & Gas Company (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Enron Oil & Gas Company and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas March 5, 1999 F-3 41 ENRON OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- NET OPERATING REVENUES Natural Gas Trade.................................................. $558,376 $544,181 $393,129 Associated Companies................................... 62,929 71,339 164,745 Crude Oil, Condensate and Natural Gas Liquids Trade.................................................. 120,366 121,838 108,365 Associated Companies................................... 9,266 29,951 37,539 Gains on Sales of Reserves and Related Assets and Other, Net.................................................... 18,251 16,192 26,870 -------- -------- -------- Total............................................. 769,188 783,501 730,648 OPERATING EXPENSES Lease and Well............................................ 98,868 96,064 76,618 Exploration Costs......................................... 65,940 57,696 55,009 Dry Hole Costs............................................ 22,751 17,303 13,193 Impairment of Unproved Oil and Gas Properties............. 32,076 27,213 21,226 Depreciation, Depletion and Amortization.................. 315,106 278,179 251,278 General and Administrative................................ 69,010 54,415 56,405 Taxes Other Than Income................................... 51,776 59,856 48,089 -------- -------- -------- Total............................................. 655,527 590,726 521,818 -------- -------- -------- OPERATING INCOME............................................ 113,661 192,775 208,830 OTHER INCOME (EXPENSE), NET................................. (4,800) (1,588) (5,007) -------- -------- -------- INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES............. 108,861 191,187 203,823 INTEREST EXPENSE Incurred Trade.................................................. 60,701 41,399 20,383 Affiliate.............................................. 589 24 1,614 Capitalized............................................... (12,711) (13,706) (9,136) -------- -------- -------- Net Interest Expense................................... 48,579 27,717 12,861 -------- -------- -------- INCOME BEFORE INCOME TAXES.................................. 60,282 163,470 190,962 INCOME TAX PROVISION........................................ 4,111 41,500 50,954 -------- -------- -------- NET INCOME.................................................. 56,171 121,970 140,008 OTHER COMPREHENSIVE INCOME (LOSS) Foreign Currency Translation Adjustment................... (16,077) (9,592) 568 -------- -------- -------- COMPREHENSIVE INCOME........................................ $ 40,094 $112,378 $140,576 ======== ======== ======== NET INCOME PER SHARE OF COMMON STOCK Basic..................................................... $ .36 $ .78 $ .88 ======== ======== ======== Diluted................................................... $ .36 $ .77 $ .87 ======== ======== ======== AVERAGE NUMBER OF COMMON SHARES Basic..................................................... 154,345 157,376 159,853 ======== ======== ======== Diluted................................................... 155,054 158,160 161,525 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 42 ENRON OIL & GAS COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
AT DECEMBER 31, ------------------------- 1998 1997 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents................................. $ 6,303 $ 9,330 Accounts Receivable Trade.................................................. 176,608 185,979 Associated Companies................................... 16,980 46,120 Inventories............................................... 39,581 32,040 Other..................................................... 6,878 8,566 ----------- ----------- Total............................................. 246,350 282,035 OIL AND GAS PROPERTIES (Successful Efforts Method).......... 4,814,425 4,291,405 Less: Accumulated Depreciation, Depletion and Amortization........................................... (2,138,062) (1,904,198) ----------- ----------- Net Oil and Gas Properties............................. 2,676,363 2,387,207 OTHER ASSETS................................................ 95,382 54,113 ----------- ----------- TOTAL ASSETS...................................... $ 3,018,095 $ 2,723,355 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable Trade.................................................. $ 159,690 $ 198,109 Associated Companies................................... 46,597 37,613 Accrued Taxes Payable..................................... 20,087 28,841 Dividends Payable......................................... 4,710 4,705 Other..................................................... 31,550 21,729 ----------- ----------- Total............................................. 262,634 290,997 LONG-TERM DEBT Trade..................................................... 942,779 548,775 Affiliate................................................. 200,000 192,500 OTHER LIABILITIES Trade..................................................... 21,516 37,739 Associated Companies...................................... 46,327 44,699 DEFERRED INCOME TAXES....................................... 260,337 287,678 DEFERRED REVENUE............................................ 4,198 39,918 COMMITMENTS AND CONTINGENCIES (Note 9) SHAREHOLDERS' EQUITY Common Stock, $.01 Par, 320,000,000 shares Authorized and 160,000,000 shares Issued.............................. 201,600 201,600 Additional Paid In Capital................................ 401,524 402,877 Unearned Compensation..................................... (4,900) (4,694) Cumulative Foreign Currency Translation Adjustment........ (35,848) (19,771) Retained Earnings......................................... 838,371 800,709 Common Stock Held in Treasury, 6,276,156 shares at December 31, 1998 and 4,935,744 shares at December 31, 1997................................................... (120,443) (99,672) ----------- ----------- Total Shareholders' Equity........................ 1,280,304 1,281,049 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 3,018,095 $ 2,723,355 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 43 ENRON OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CUMULATIVE FOREIGN COMMON ADDITIONAL CURRENCY STOCK TOTAL COMMON PAID IN UNEARNED TRANSLATION RETAINED HELD IN SHAREHOLDERS' STOCK CAPITAL COMPENSATION ADJUSTMENT EARNINGS TREASURY EQUITY -------- ---------- ------------ ----------- -------- --------- ------------- Balance at December 31, 1995.......... $201,600 $399,379 $ - $(10,747) $576,740 $ (3,313) $1,163,659 Net Income.......................... - - - - 140,008 - 140,008 Dividends Paid/Declared, $.12 Per Share............................. - - - - (19,184) - (19,184) Translation Adjustment.............. - - - 568 - - 568 Treasury Stock Purchased/ Tendered.......................... - - - - - (63,004) (63,004) Treasury Stock Issued Under Stock Plans............................. - (11,167) (7,085) - - 59,937 41,685 Amortization of Unearned Compensation...................... - - 1,358 - - - 1,358 -------- -------- ------- -------- -------- --------- ---------- Balance at December 31, 1996.......... 201,600 388,212 (5,727) (10,179) 697,564 (6,380) 1,265,090 Net Income.......................... - - - - 121,970 - 121,970 Dividends Paid/Declared, $.12 Per Share............................. - - - - (18,825) - (18,825) Translation Adjustment.............. - - - (9,592) - - (9,592) Treasury Stock Purchased............ - - - - - (99,306) (99,306) Treasury Stock Issued Under Stock Plans............................. - (872) - - - 6,014 5,142 Options Granted by Enron Corp....... - 15,081 - - - - 15,081 Amortization of Unearned Compensation...................... - - 1,033 - - - 1,033 Other............................... - 456 - - - - 456 -------- -------- ------- -------- -------- --------- ---------- Balance at December 31, 1997.......... 201,600 402,877 (4,694) (19,771) 800,709 (99,672) 1,281,049 Net Income.......................... - - - - 56,171 - 56,171 Dividends Paid/Declared, $.12 Per Share............................. - - - - (18,509) - (18,509) Translation Adjustment.............. - - - (16,077) - - (16,077) Treasury Stock Purchased............ - - - - - (25,875) (25,875) Treasury Stock Issued Under Stock Plans............................. - (492) (1,709) - - 5,104 2,903 Amortization of Unearned Compensation...................... - - 1,503 - - - 1,503 Other............................... - (861) - - - - (861) -------- -------- ------- -------- -------- --------- ---------- Balance at December 31, 1998.......... $201,600 $401,524 $(4,900) $(35,848) $838,371 $(120,443) $1,280,304 ======== ======== ======= ======== ======== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 44 ENRON OIL & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Reconciliation of Net Income to Net Operating Cash Inflows: Net Income................................................ $ 56,171 $ 121,970 $ 140,008 Items Not Requiring (Providing) Cash Depreciation, Depletion and Amortization............... 315,106 278,179 251,278 Impairment of Unproved Oil and Gas Properties.......... 32,076 27,213 21,226 Deferred Income Taxes.................................. (26,794) 16,665 2,276 Other, Net............................................. 7,761 359 7,830 Exploration Costs......................................... 65,940 57,696 55,009 Dry Hole Costs............................................ 22,751 17,303 13,193 Gains On Sales of Reserves and Related Assets and Other, Net.................................................... (11,191) (9,287) (20,358) Other, Net................................................ 1,116 (2,590) 8,871 Changes in Components of Working Capital and Other Liabilities Accounts Receivable.................................... 36,363 48,893 (120,370) Inventories............................................ (7,541) (11,294) (9,049) Accounts Payable....................................... (65,249) (11,478) 87,495 Accrued Taxes Payable.................................. (8,754) 10,287 (1,041) Other Liabilities...................................... 2,324 2,521 3,752 Other, Net............................................. (3,620) 9,760 270 Amortization of Deferred Revenue.......................... (43,344) (43,345) (43,463) Changes in Components of Working Capital Associated with Investing and Financing Activities..................... 30,491 18,077 (31,817) --------- --------- --------- NET OPERATING CASH INFLOWS.................................. 403,606 530,929 365,110 INVESTING CASH FLOWS Additions to Oil and Gas Properties....................... (690,352) (626,198) (539,330) Exploration Costs......................................... (65,940) (57,696) (55,009) Dry Hole Costs............................................ (22,751) (17,303) (13,193) Proceeds from Sales of Reserves and Related Assets........ 61,858 37,521 63,951 Changes in Components of Working Capital Associated with Investing Activities................................... (30,173) (22,454) 37,402 Other, Net................................................ (12,262) (11,000) (5,381) --------- --------- --------- NET INVESTING CASH OUTFLOWS................................. (759,620) (697,130) (511,560) FINANCING CASH FLOWS Long-Term Debt Trade.................................................. 394,004 86,595 320,580 Affiliate.............................................. 7,500 192,500 (141,520) Dividends Paid............................................ (18,504) (18,938) (19,161) Treasury Stock Purchased.................................. (25,875) (99,306) (43,507) Proceeds from Sales of Treasury Stock..................... 2,883 5,141 22,188 Other, Net................................................ (7,021) 1,895 (7,525) --------- --------- --------- NET FINANCING CASH INFLOWS.................................. 352,987 167,887 131,055 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (3,027) 1,686 (15,395) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 9,330 7,644 23,039 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 6,303 $ 9,330 $ 7,644 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-7 45 ENRON OIL & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements of Enron Oil & Gas Company (the "Company"), 54% of the outstanding common stock of which was owned by Enron Corp. as of December 31, 1998, include the accounts of all domestic and foreign subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to the consolidated financial statements for prior years to conform with the current presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. The Company records as cash equivalents all highly liquid short-term investments with original maturities of three months or less. The Company had approximately $32 million of outstanding checks payable classified as accounts payable at December 31, 1998. Oil and Gas Operations. The Company accounts for its natural gas and crude oil exploration and production activities under the successful efforts method of accounting. Oil and gas lease acquisition costs are capitalized when incurred. Unproved properties with significant acquisition costs are assessed quarterly on a property-by-property basis, and any impairment in value is recognized. Amortization of any remaining costs of such leases begins at a point prior to the end of the lease term depending upon the length of such term. Unproved properties with acquisition costs that are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive, based on historical experience, is amortized over the average holding period. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and gas properties. Lease rentals are expensed as incurred. Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of natural gas and crude oil, are capitalized. Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. Estimated future dismantlement, restoration and abandonment costs (classified as long-term liabilities), net of salvage values, are taken into account. Certain other assets are depreciated on a straight-line basis. In the first quarter of 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Periodically, or when circumstances indicate that an asset may be impaired, the Company compares expected undiscounted future cash flows at a producing field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on the Company's estimate of future crude oil and natural gas prices and operating costs, and anticipated production from proved and risk-adjusted probable and possible reserves, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate. Since the adoption of SFAS No. 121, the Company has recorded non-cash impairment charges that were immaterial to and included in depreciation, depletion and amortization expense. F-8 46 Inventories, consisting primarily of tubular goods and well equipment held for use in the exploration for, and development and production of natural gas and crude oil reserves, are carried at cost with adjustments made from time to time to recognize changes in condition value. Natural gas revenues are recorded on the entitlement method based on the Company's percentage ownership of current production. Each working interest owner in a well generally has the right to a specific percentage of production, although actual production sold may differ from an owner's ownership percentage. Under entitlement accounting, a receivable is recorded when underproduction occurs and a payable when overproduction occurs. Gains and losses associated with the sale of in place natural gas and crude oil reserves and related assets are classified as net operating revenues in the consolidated statements of income and comprehensive income based on the Company's strategy of continuing such sales in order to maximize the economic value of its assets. Accounting for Price Risk Management. The Company engages in price risk management activities from time to time primarily for non-trading and to a lesser extent for trading purposes. Derivative financial instruments (primarily price swaps and costless collars) are utilized for non-trading purposes to hedge the impact of market fluctuations on natural gas and crude oil market prices. Hedge accounting is utilized in non-trading activities when there is a high degree of correlation between price movements in the derivative and the item designated as being hedged. Gains and losses on derivative financial instruments used for hedging purposes are recognized as revenue in the same period as the hedged item. Gains and losses on hedging instruments that are closed prior to maturity are deferred in the consolidated balance sheets. In instances where the anticipated correlation of price movements does not occur, hedge accounting is terminated and future changes in the value of the derivative are recognized as gains or losses using the mark-to-market method of accounting. Derivative and other financial instruments utilized in connection with trading activities, primarily price swaps and call options, are accounted for using the mark-to-market method, under which changes in the market value of outstanding financial instruments are recognized as gains or losses in the period of change. The cash flow impact of derivative and other financial instruments used for non-trading and trading purposes is reflected as cash flows from operating activities in the consolidated statements of cash flows. Capitalized Interest Costs. Certain interest costs have been capitalized as a part of the historical cost of unproved oil and gas properties and in work in progress for exploratory drilling and related facilities with significant cash outlays. Interest costs capitalized during each of the three years in the period ended December 31, 1998 are set out in the consolidated statements of income and comprehensive income. Income Taxes. The Company accounts for income taxes under the provisions of SFAS No. 109 - "Accounting for Income Taxes". SFAS No. 109 requires the asset and liability approach for accounting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases (See Note 8 "Income Taxes"). Foreign Currency Translation. For subsidiaries whose functional currency is deemed to be other than the U.S. dollar, asset and liability accounts are translated at year-end exchange rates and revenue and expenses are translated at average exchange rates prevailing during the year. Translation adjustments are included as a separate component of shareholders' equity. Any gains or losses on transactions or monetary assets or liabilities in currencies other than the functional currency are included in net income in the current period. Net Income Per Share. In accordance with the provisions of SFAS No. 128 - "Earnings per Share", basic net income per share is computed on the basis of the weighted-average number of common shares outstanding during the periods. Diluted net income per share is computed based upon the weighted-average number of common shares plus the assumed issuance of common shares for all potentially dilutive securities. (See Note 10 "Net Income Per Share" for additional information to reconcile the difference between the Average Number of Common Shares outstanding for basic and diluted net income per share). F-9 47 2. NATURAL GAS AND CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS NET OPERATING REVENUES Natural gas revenues, trade for 1998, 1997 and 1996 are net of costs of natural gas purchased for sale related to natural gas marketing activities of $44.8 million, $73.6 million and $72.6 million, respectively. Natural gas revenues, associated for 1998, 1997 and 1996 are net of costs of natural gas purchased for sale related to natural gas marketing activities of $51.0 million, $47.7 million and $24.9 million, respectively. 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 of equivalent value issued by the affiliate that are designated as hedges (the "Swap Agreements"). Such Swap Agreements were closed on March 31, 1995. As a result of the transactions, the Company was 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 closed Swap Agreements. The estimated fair value of the Swap Agreements was approximately $81 million at the date the Swap Agreements were received in exchange for the Cogen Contracts. The net effect of this series of transactions resulted 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. The total cash payments receivable under the terms of the Swap Agreements were approximately $4 million and $13 million at December 31, 1998 and 1997, respectively, and are presented in the accompanying balance sheet as Accounts Receivable - Associated Companies for the $4 million and $9 million current portion, respectively, and as Other Assets for the $4 million noncurrent portion at December 31, 1997. The corresponding total future revenue of approximately $4 million and $13 million, respectively, is classified as Deferred Revenue. (See Note 14 "Price and Interest Rate Risk Management"). 3. OTHER ASSETS In December 1997, the Company and Enron Corp. entered into an Equity Participation and Business Opportunity Agreement (the "Business Opportunity Agreement"). (See Note 7 "Transactions with Enron Corp. and Related Parties - Business Opportunity Agreement"). Among other things, under the agreement, Enron Corp. granted to the Company ten-year options to purchase 3,200,000 shares of Enron Corp. common stock at a price of $39.1875 per share which was the closing price of the stock on the date that the agreement was approved by the Board of Directors of the Company. The option vesting schedule provides that 25% vested immediately, 15% vest on the anniversary of the Business Opportunity Agreement in 1998 and 10% vest each anniversary thereafter until all of the options are vested. Vesting will be accelerated in the event of a change of control of the Company. For such purposes, a "change of control" means that (a) Enron Corp. no longer owns capital stock of the Company representing at least 35% of the voting power for the election of directors and (b) a majority of the members of the Board of Directors of the Company consists of persons who are not officers or directors of Enron Corp. or any affiliate of Enron Corp. other than the Company. Other Assets at December 31, 1998 and 1997 includes $23.3 million or $7.29 per share representing the estimated fair value of the Enron Corp. stock options at the date of grant. Such estimated fair value was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions at the date the options were issued: (1) dividend yield of 2.5%, (2) expected volatility of 17.5%, (3) risk-free interest rate of 5.85%, and (4) expected average life of 4.0 years. Receipt of the options represented a capital contribution from Enron Corp. and, accordingly, the fair value received, net of tax effects of $8.2 million, was credited to Additional Paid In Capital. (See Note 16 "New Accounting Pronouncement - SFAS No. 133"). F-10 48 4. LONG-TERM DEBT Long-Term Debt at December 31 consisted of the following:
1998 1997 ---------- -------- Commercial Paper............................................ $ 162,539 $ 42,415 6.50% Notes due 2004........................................ 100,000 100,000 6.70% Notes due 2006........................................ 150,000 150,000 6.50% Notes due 2007........................................ 100,000 100,000 6.00% Notes due 2008........................................ 175,000 - 6.65% Notes due 2028........................................ 150,000 - 9.10% Notes due 1998........................................ - 20,000 Subsidiary Debt due 2001.................................... 105,000 105,000 Subsidiary Debt due 1998.................................... - 31,000 Other....................................................... 240 360 ---------- -------- 942,779 548,775 Affiliate................................................... 200,000 192,500 ---------- -------- Total............................................. $1,142,779 $741,275 ========== ========
The Company has three credit facilities with domestic and foreign banks which provide for an aggregate of $550 million in long-term committed credit, with $250 million expiring in 1999 and $300 million expiring in 2002. With respect to the aggregate $250 million from two separate facilities, both of which expire during 1999, the Company may, at its option, extend the final maturity date of any advances made under the facilities by one full year from the expiration date of the applicable facility, effectively qualifying such debt as long-term. Advances under all three agreements bear interest, at the option of the Company, based upon a base rate or a Eurodollar rate. At December 31, 1998, there were no advances outstanding under any of these agreements. Commercial Paper and short-term funding from uncommitted credit facilities provide financing for various corporate purposes and bear interest based upon market rates. No advances were outstanding under the uncommitted lines on December 31, 1998 or 1997. Commercial paper, uncommitted credit and affiliate facility balances (when present) are classified as long-term debt based on the Company's intent and ability to ultimately replace such amounts with other long-term debt. (See Note 14 "Price and Interest Rate Risk Management"). The 6.00% to 6.70% Notes due 2004 to 2028 were issued through public offerings and have effective interest rates of 6.14% to 6.83%. The Subsidiary Debt due 2001 bears interest at variable market-based rates and is guaranteed by the Company. Certain borrowings of the Company contain covenants requiring the maintenance of certain financial ratios and limitations on liens, debt issuance and dispositions of assets. These covenants include a 50% debt-to- total-capital limitation. Should commodity price levels experienced in late 1998 and early 1999 persist, the resulting reduction in cash flow available from operations may necessitate further action(s) which could include a reduction in capital expenditure plans, the issuance of preferred stock and/or common equity, and/or the renegotiation of the debt covenants in order to remain in compliance. At December 31, 1998, the aggregate annual maturities of long-term debt outstanding were less than $1.0 million for each of the years 1999 and 2000, $105 million for 2001 and none for 2002 and 2003. Shelf Registration. The Company may sell from time to time up to an aggregate of approximately $90 million in debt securities and/or common stock pursuant to an effective "shelf" registration statement filed with the Securities and Exchange Commission. Financing Arrangements With Enron Corp. The Company engages in various transactions with Enron Corp. that are characteristic of a consolidated group under common control. Accordingly, the Company maintains reciprocal agreements with Enron Corp. that provide for the borrowing by the Company of up to F-11 49 $200 million and investing by the Company of surplus funds of up to $200 million at market-based interest rates through December 31, 1999. Advances from Enron Corp. of $200 million and $193 million were outstanding at December 31, 1998 and 1997, respectively, and such balances were classified as long-term based on the Company's intent and ability to ultimately replace such amounts with other long-term debt. There were no investments with Enron Corp. at December 31, 1998 or 1997. (See Note 14 "Price and Interest Rate Risk Management"). Fair Value Of Long-Term Debt. At December 31, 1998 and 1997, the Company had $1,143 million and $741 million, respectively, of long-term debt which had fair values of approximately $1,141 million and $744 million, respectively. The fair value of long-term debt is the value the Company would have to pay to retire the debt, including any premium or discount to the debtholder for the differential between the stated interest rate and the year-end market rate. The fair value of long-term debt is based upon quoted market prices and, where such quotes were not available, upon interest rates available to the Company at year-end. 5. 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, as amended October 1, 1993, the Company conveyed a real property interest of certain natural gas and other hydrocarbons to the purchaser. Deliveries were scheduled at the rate of 50 billion British thermal units per day through March 31, 1999. The Company accounted for the proceeds received in the transaction as deferred revenue, which was amortized into revenue and income as natural gas and other hydrocarbons were produced and delivered during the term of the volumetric production payment agreement. In December 1998, the Company settled the remainder of the contract in cash which was not materially different from the recorded deferred revenue, and delivery obligations were terminated. 6. SHAREHOLDERS' EQUITY The Board of Directors of the Company has approved an authorization for purchasing and holding in treasury at any time up to 1,000,000 shares of common stock of the Company for the purpose of, but not limited to, meeting obligations associated with the exercise of stock options granted to qualified employees pursuant to the Company's stock option plans. The Board of Directors has also approved the selling from time to time, subject to certain conditions, of put options on the common stock of the Company. The 1,000,000 share limit mentioned above applies to shares held in treasury and unexpired put options outstanding. In February 1997, as amended in February 1998, the Board of Directors authorized the additional purchase of up to an aggregate maximum of 10 million shares of common stock of the Company from time to time in the open market to be held in treasury for the purpose of, but not limited to, fulfilling any obligations arising under the Company's stock option plans and any other approved transactions or activities for which such common stock shall be required. At December 31, 1998 and 1997, 6,276,156 shares and 4,935,744 shares, respectively, were held in treasury under these authorizations. (See Note 9 "Commitments and Contingencies - Treasury Shares"). The Company has, from time to time, entered into transactions in which it writes put options on its own common stock. At December 31, 1998, there were put options outstanding for 175,000 shares of common stock. Such options have strike prices ranging from $13.13 to $21.13 per share and are exercisable by the counterparties only on the dates of expiration ranging from May 1999 to December 1999. Settlement alternatives are at the option of the Company and include physical share, net share and net cash settlement. These transactions are accounted for as equity transactions with any premiums received and cash payments made being recorded to Additional Paid In Capital in the consolidated balance sheets. 7. TRANSACTIONS WITH ENRON CORP. AND RELATED PARTIES Business Opportunity Agreement. In December 1997, Enron Corp. and the Company entered into the Business Opportunity Agreement which defines certain obligations that Enron Corp. owes to the Company and relieves Enron Corp. from certain obligations to the Company that it might otherwise have, including the obligation to offer certain business opportunities to the Company. Enron Corp. has advised the Company that, F-12 50 although it believes that it has conducted its business in a manner that is consistent with its duties as a majority shareholder of the Company, it was motivated to enter into the Business Opportunity Agreement because of the difficulty of determining the applicability of the law relating to duties that Enron Corp. may owe to the Company in connection with Enron Corp.'s finance and trading business and because of Enron Corp.'s desire to have more flexibility in pursuing business opportunities identified by or developed solely by Enron Corp. personnel. The Business Opportunity Agreement was approved by the Board of Directors of the Company after it was approved unanimously by a special committee of the Board of Directors consisting of the Company's independent directors. The Business Opportunity Agreement provides generally that, so long as such activities are conducted in compliance with the Business Opportunity Agreement in all material respects, Enron Corp. may pursue business opportunities independently of the Company. The Business Opportunity Agreement contains an acknowledgment by the Company that Enron Corp.'s finance and trading business may result in the acquisition by Enron Corp. of oil and gas properties or companies and that in certain cases Enron Corp. or entities in which Enron Corp. has an interest may acquire such assets pursuant to bidding or auction processes in which the Company is also a bidder. In the Business Opportunity Agreement, the Company acknowledges and agrees that such activities may have an impact on the Company or the price it pays for properties or securities it purchases from others. The Business Opportunity Agreement contains an acknowledgement and agreement by the Company that, to the extent that a court might hold that the conduct of such activity is a breach of a duty to the Company (and without admitting that the conduct of such activity is such a breach of duty), the Company waives any and all claims and courses of action that it may have to claim the conduct of such activity is a breach of duty to the Company. The Business Opportunity Agreement contains certain restrictions on the conduct of Enron's business. It also provides that, except with respect to business opportunities pursued jointly by Enron Corp. and the Company and except as otherwise agreed to between Enron Corp. and the Company, Enron Corp.'s business will be conducted through the use of its own personnel and assets and not with the use of any personnel or assets of the Company. The Business Opportunity Agreement states that its provisions relate exclusively to the duties that Enron Corp. owes the Company and that nothing in the Business Opportunity Agreement affects the fiduciary or other duties owed to the Company by any individual director or officer of the Company in his or her capacity as such. In this connection, Enron Corp. has agreed that its representatives on the Board of Directors of the Company will not, for the purpose of enabling Enron Corp. to pursue an opportunity in the oil and gas business, vote in such a manner as to effectively prevent, prohibit or restrict the Company from pursuing such opportunity. In consideration for the Company's agreements in the Business Opportunity Agreement, Enron Corp. provided valuable consideration to the Company, including options to purchase common stock of Enron Corp. that will give the Company the opportunity to participate in future appreciation in value of Enron, including any appreciation in value resulting from activities that the Company has agreed to permit Enron Corp. and its subsidiaries to pursue. (See Note 3 "Other Assets"). The Business Opportunity Agreement also included (i) an agreement to replace the existing services agreement, under which Enron Corp. provides certain services to the Company, with a new services agreement under which the Company's maximum payments to Enron Corp. for allocated indirect costs will be reduced by $2.8 million per year, (ii) an agreement by Enron Corp. relieving the Company of the obligation to bear the costs of any registration of sales by Enron Corp. of shares of common stock of the Company, (iii) an agreement by Enron Corp. to pay the costs of registration of the Company's sales of Enron Corp. common stock acquired upon exercise of the options granted in the Business Opportunity Agreement, (iv) an agreement that if Enron Corp. takes any action that results in the loss by the Company of its status as an "independent producer" under the Internal Revenue Code, Enron Corp. will pay the Company each year through 2006 the lesser of (a) $1 million and (b) an amount which, after payment of applicable taxes, will compensate the Company for the additional income tax liability resulting from the loss of independent producer status, (v) and an agreement that if Enron Corp. requests that the Company relocate its offices, and if the Company agrees to do so, Enron will pay the Company's moving expenses, including expenses of building out or refurbishing the space in its new offices and expenses of removing and reinstalling the Company's telecommunications and information systems facilities. In addition, F-13 51 pursuant to the Business Opportunity Agreement, Enron Corp. agreed to cause its subsidiary, Houston Pipe Line Company, to enter into various agreements with the Company rearranging certain existing contractual arrangements between them and Enron Corp., and the Company entered into a licensing agreement covering the Enron Corp. name and mark and recognizing that the EOG and EOGI names and marks belong to the Company. In the Business Opportunity Agreement, Enron Corp. and the Company also entered into agreements in principle regarding the manner in which they will share the burdens and benefits of the integrated projects under joint development by Enron Corp. and the Company in Qatar, Mozambique and Uzbekistan. The agreements in principle provide generally that the Company's interests in these projects will be 20%, 20% and 80%, respectively, of the combined ownership interest of the Company and Enron Corp. In December 1998, the Company sold its interest in the Uzbekistan project and anticipates disposing of its interest in the Qatar project in early 1999. The Business Opportunity Agreement also contains provisions that give Enron Corp. the right to maintain its equity interest in the Company at certain levels. It provides that if the Company issues additional shares of its capital stock, Enron Corp. will have the right to purchase additional shares of capital stock of the Company as follows: (i) if Enron Corp. owns a majority interest, Enron Corp. will have the right to purchase sufficient shares to permit it to retain its majority interest; (ii) if Enron Corp. does not own a majority interest but accounts for the assets and operations of the Company on a consolidated basis for financial reporting purposes Enron Corp. will have the right to purchase sufficient shares to permit it to continue to account for the Company on a consolidated basis; and (iii) if Enron Corp. accounts for the assets and operations of the Company using the equity method for financial reporting purposes Enron Corp. will have the right to purchase sufficient shares to permit it to continue to account for the Company using the equity method. Any such purchase by Enron Corp. will be for cash at 97% of the average closing price per share over a specified 20 day period (reflecting a 3% private placement discount). Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues. Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues include revenues from and associated costs paid to various subsidiaries and affiliates of Enron Corp. pursuant to contracts which, in the opinion of management, are no less favorable than could be obtained from third parties. (See Note 2 "Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues"). Natural Gas and Crude Oil, Condensate and Natural Gas Liquids Net Operating Revenues also include certain commodity price swap and NYMEX-related commodity transactions with Enron Corp. affiliated companies, which in the opinion of management, are no less favorable than could be received from third parties. (See Note 14 "Price and Interest Rate Risk Management.) General and Administrative Expenses. The Company is charged by Enron Corp. for all direct costs associated with its operations. Such direct charges, excluding benefit plan charges (See Note 9 "Commitments and Contingencies - Employee Benefit Plans"), totaled $14.2 million, $16.1 million and $17.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. Management believes that these charges are reasonable. Additionally, certain administrative costs not directly charged to any Enron Corp. operations or business segments are allocated to the entities of the consolidated group. Allocation percentages are generally determined utilizing weighted average factors derived from property gross book value, net operating revenues and payroll costs. Effective January 1, 1997, the Company entered into an agreement with Enron Corp. with an initial term of ten years through December 2006, which agreement replaced a similar previous agreement, providing for services substantially identical in nature and quality to those services previously provided and for allocated indirect costs incurred in rendering such services up to a maximum of approximately $5.1 million for 1998 and $5.3 million for 1997. Maximum allocated indirect costs under the previous service agreement were $7.5 million for 1996. The limit on cost for the allocated indirect services provided by Enron Corp. to the Company will increase in subsequent years for inflation and certain changes in the Company's allocation bases. Management believes the indirect allocated charges for the numerous types of support services provided by the corporate staff are reasonable. Approximately $5.1 million and $5.3 million was incurred by the Company for indirect general and administrative expenses for 1998 and 1997, respectively. Under the previous F-14 52 agreement, approximately $7.5 million was charged to the Company for indirect general and administrative expenses for 1996. Financing. See Note 4 "Long-Term Debt - Financing Arrangements with Enron Corp." for a discussion of financing arrangements with Enron Corp. Enron Corp. Ownership. In December 1998, Enron Corp. publicly disclosed that it had received an unsolicited indication of interest from a third party with respect to exploring a possible transaction pursuant to which the third party would acquire Enron Corp.'s shares of common stock of the Company, and offer to acquire the remaining shares of outstanding common stock of the Company. In response to this indication of interest, the Board of Directors of the Company has established a special committee consisting of two independent directors who have retained a financial advisor and legal counsel. Although Enron Corp. has publicly indicated that it currently intends to actively explore alternative transactions for its Company common stock along with the unsolicited indication of interest, there can be no assurance that any such transactions will be pursued or, if pursued, will be consummated. 8. INCOME TAXES The principal components of the Company's net deferred income tax liability at December 31, 1998 and 1997 were as follows:
1998 1997 -------- -------- Deferred Income Tax Assets Cogen Contract Exchange.......................... $ 9,519 $ 19,781 Net Operating Loss Carryforward, India........... 44,640 27,500 Non-Producing Leasehold Costs.................... 19,411 13,391 Seismic Costs Capitalized for Tax................ 7,687 7,144 Alternative Minimum Tax Credit Carryforward...... 17,656 12,681 Trading Activity................................. 4,253 - Other............................................ 12,084 11,441 -------- -------- Total Deferred Income Tax Assets......... 115,250 91,938 Deferred Income Tax Liabilities Oil and Gas Exploration and Development Costs Deducted for Tax Over Book Depreciation, Depletion and Amortization.................... 360,045 304,122 Capitalized Interest............................. 12,512 10,231 Volumetric Production Payment Book Revenue Over Income for Tax................................ - 58,850 Trading Activity................................. - 3,470 Other............................................ 3,030 2,943 -------- -------- Total Deferred Income Tax Liabilities.... 375,587 379,616 -------- -------- Net Deferred Income Tax Liability........ $260,337 $287,678 ======== ========
The components of income (loss) before income taxes were as follows:
1998 1997 1996 -------- -------- -------- United States...................................... $ (3,297) $103,831 $146,335 Foreign............................................ 63,579 59,639 44,627 -------- -------- -------- Total.................................... $ 60,282 $163,470 $190,962 ======== ======== ========
F-15 53 Total income tax provision (benefit) was as follows:
1998 1997 1996 -------- -------- -------- Current: Federal.......................................... $ 10,496 $ 50,494 $ 21,064 State............................................ 1,474 840 (916) Foreign.......................................... 18,935 23,614 28,530 -------- -------- -------- Total.................................... 30,905 74,948 48,678 Deferred: Federal.......................................... (31,279) (32,711) 13,620 State............................................ (4,589) 348 (1,826) Foreign.......................................... 9,074 (1,085) (9,518) -------- -------- -------- Total.................................... (26,794) (33,448) 2,276 -------- -------- -------- Income Tax Provision............................... $ 4,111 $ 41,500 $ 50,954 ======== ======== ========
The differences between taxes computed at the U.S. federal statutory tax rate and the Company's effective rate were as follows:
1998 1997 1996 -------- -------- -------- Statutory Federal Income Tax Rate.................. 35.00% 35.00% 35.00% State Income Tax, Net of Federal Benefit........... (3.36) 0.47 (0.76) Income Tax Related to Foreign Operations........... 4.76 2.83 6.16 Tight Gas Sand Federal Income Tax Credits.......... (17.36) (7.51) (8.22) Revision of Prior Years' Tax Estimates............. (10.78) (4.34) (4.46) Other.............................................. (1.45) (1.06) (1.04) -------- -------- -------- Effective Income Tax Rate................ 6.81% 25.39% 26.68% ======== ======== ========
In 1997, the Company and Enron Corp. agreed to replace an existing tax allocation agreement with a new tax allocation agreement. In the new agreement, Enron Corp. agreed to refund a $13 million payment made by the Company pursuant to the existing agreement, the Company agreed to release Enron Corp. from the liabilities assumed related to the $13 million payment and the parties agreed to indemnify each other in a manner consistent with a former agreement. Enron Corp. also advanced the Company approximately $50 million to fund certain federal income taxes related to the 1995 taxable year. This advance is being repaid in annual installments through January 1, 2001. The Company's foreign subsidiaries' undistributed earnings of approximately $243 million at December 31, 1998 are considered to be indefinitely invested outside the U.S. and, accordingly, no U.S. federal or state income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends, the Company may be subject to both foreign withholding taxes and U.S. income taxes, net of allowable foreign tax credits. Determination of any potential amount of unrecognized deferred income tax liabilities is not practicable. The Company has a $93 million India tax net operating loss carryforward at December 31, 1998. The loss carryforward utilization is limited to future taxable earnings of Enron Oil & Gas India Ltd. which earnings are expected to exceed this carryforward amount before the carryforward period expires. The India carryforward period is eight years, and unutilized net operating loss carryforward will begin to expire with the fiscal year ending March 31, 2002. The Company has an alternative minimum tax ("AMT") credit carryforward of $18 million which can be used to offset regular income taxes payable in future years. The AMT credit carryforward has an indefinite carryforward period. F-16 54 9. COMMITMENTS AND CONTINGENCIES Employee Benefit Plans. Employees of the Company are covered by various retirement, stock purchase and other benefit plans of Enron Corp. During each of the years ended December 31, 1998, 1997 and 1996, the Company was charged $6.4 million, $5.0 million and $5.0 million, respectively, for all such benefits, including pension expense totaling $1.3 million, $1.0 million and $1.0 million, respectively, by Enron Corp. As of September 30, 1998, the most recent valuation date of the various Enron Corp. pension and other postretirement plans in which the employees of the Company participate, the actuarial present value of projected aggregate plan benefit obligations exceeded the aggregate plan net assets by approximately $24 million. The assumed discount rate, rate of return on plan assets and rate of increases in wages used in determining the actuarial present value of projected plan benefits were 6.75%, 10.5% and 4.0%, respectively. The Company also has in effect pension and savings plans related to its Canadian, Trinidadian and Indian subsidiaries. Activity related to these plans is not material relative to the Company's operations. The Company provides certain postretirement medical and dental benefits to eligible employees and their eligible dependents. Benefits are provided under the provisions of contributory defined dollar benefit plans of Enron Corp. The Company accrues the cost of these postretirement benefits over the service lives of the employees expected to be eligible to receive such benefits. The transition obligation is being amortized over an average period of 19 years. Stock Plans Stock Options. The Company has various stock plans ("the Plans") under which employees of the Company and its subsidiaries and nonemployee members of the Board of Directors have been or may be granted rights to purchase shares of common stock of the Company at a price not less than the market price of the stock at the date of grant. Stock options granted under the Plans vest over a period of time based on the nature of the grants and as defined in the individual grant agreements. Terms for stock options granted under the Plans have not exceeded a maximum term of 10 years. The Company accounts for the stock options under the provisions and related interpretations of Accounting Principles Board Opinion No. 25 ("APB No. 25") - "Accounting for Stock Issued to Employees." No compensation expense is recognized for such options. In accordance with SFAS No. 123 - "Accounting for Stock-Based Compensation" issued in 1995, the Company has continued to apply APB No. 25 for purposes of determining net income and to present the pro forma disclosures required by SFAS No. 123. The following table sets forth the option transactions under the Plans for the years ended December 31 (options in thousands):
1998 1997 1996 ----------------- ----------------- ----------------- AVERAGE AVERAGE AVERAGE GRANT GRANT GRANT OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- ------- ------- ------- ------- ------- Outstanding at January 1....... 9,735 $19.99 8,796 $20.70 8,019 $18.61 Granted...................... 5,949 15.76 3,079 20.18 2,941 24.53 Exercised.................... (172) 15.14 (261) 17.16 (1,989) 17.95 Forfeited.................... (476) 20.62 (1,879) 24.06 (175) 20.28 ------- ------- ------- Outstanding at December 31..... 15,036 18.35 9,735 19.99 8,796 20.70 ======= ======= ======= Options Exercisable at December 31........................... 7,703 19.38 5,618 19.70 4,402 19.13 ======= ======= ======= Options Available for Future Grant........................ 3,098 2,519 3,741 ======= ======= ======= Average Fair Value of Options Granted During Year.......... $ 4.75 $ 6.96 $ 9.29 ======= ======= =======
F-17 55 The fair value of each option grant is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998, 1997 and 1996, respectively: (1) dividend yield of 0.6%, 0.6% and 0.5%, (2) expected volatility of 26%, 27% and 31%, (3) risk-free interest rate of 5.1%, 6.3% and 5.8%, and (4) expected life of 4.9 years, 5.2 years and 5.5 years. During 1997, in response to extremely competitive conditions for technical personnel, the Company cancelled options issued in 1996 to purchase 1,282,000 shares of common stock at an exercise price of $25.38 per share, and reissued the same number of options with an exercise price of $18.25 per share. The reissue did not involve any executive officers of the Company. The following table summarizes certain information for the options outstanding at December 31, 1998 (options in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ -------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE REMAINING GRANT GRANT RANGE OF GRANT PRICES OPTIONS LIFE PRICE OPTIONS PRICE - --------------------- ------- --------- -------- -------- --------- $ 9.00 to $12.99...................... 409 3 years $ 9.87 409 $ 9.87 13.00 to 17.99...................... 5,607 9 14.98 1,737 16.08 18.00 to 22.99...................... 7,410 6 20.18 4,494 20.51 23.00 to 29.00...................... 1,610 6 23.81 1,063 23.77 ------ ----- 9.00 to 29.00...................... 15,036 7 18.35 7,703 19.38 ====== =====
The Company's pro forma net income and net income per share of common stock for 1998, 1997 and 1996, had compensation costs been recorded in accordance with SFAS No. 123, are presented below (in millions except per share data):
1998 1997 1996 -------------------- -------------------- -------------------- AS AS AS REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA -------- --------- -------- --------- -------- --------- Net Income................ $56.2 $47.3 $122.0 $116.7 $140.0 $135.5 Net Income per Share of Common Stock Basic................ $ .36 $ .31 $ .78 $ .74 $ .88 $ .85 ===== ===== ====== ====== ====== ====== Diluted.............. $ .36 $ .30 $ .77 $ .74 $ .87 $ .84 ===== ===== ====== ====== ====== ======
The effects of applying SFAS No. 123 in this pro forma disclosure should not be interpreted as being indicative of future effects. SFAS No. 123 does not apply to awards prior to 1995, and the extent and timing of additional future awards cannot be predicted. The Black-Scholes model used by the Company to calculate option values, as well as other currently accepted option valuation models, were developed to estimate the fair value of freely tradable, fully transferable options without vesting and/or trading restrictions, which significantly differ from the Company's stock option awards. These models also require highly subjective assumptions, including future stock price volatility and expected time until exercise, which significantly affect the calculated values. Accordingly, management does not believe that this model provides a reliable single measure of the fair value of the Company's stock option awards. Restricted Stock. Under the Plans, participants may be granted restricted stock without cost to the participant. The shares granted vest to the participant at various times ranging from one to seven years. Upon F-18 56 vesting, the shares are released to the participants. The following summarizes shares of restricted stock granted:
RESTRICTED SHARES ------------------------------ 1998 1997 1996 -------- -------- -------- Outstanding at January 1............................. 284,000 284,000 - Granted............................................ 108,500 - 301,500 Released to Participants........................... (14,166) - (17,500) Forfeited or Expired............................... (33,000) - - -------- -------- -------- Outstanding at December 31........................... 345,334 284,000 284,000 ======== ======== ======== Average Fair Value of Shares Granted During Year..... $ 20.11 $ - $ 23.50 ======== ======== ========
The fair value of the restricted shares at date of grant has been recorded in shareholders' equity as unearned compensation and is being amortized as compensation expense. Related compensation expense for 1998, 1997 and 1996 was approximately $1.5 million, $1.0 million and $1.4 million, respectively. Treasury Shares. During 1998, 1997 and 1996, the Company purchased or was tendered 1,590,200, 4,954,344 and 2,383,727 of its common shares, respectively, and delivered such shares upon the exercise of stock options and awards of restricted stock, except for shares held in treasury at December 31, 1998, 1997 and 1996. The difference between the cost of the treasury shares and the exercise price of the options, net of federal income tax benefit of $.3 million, $.5 million and $6.1 million for the years 1998, 1997 and 1996, respectively, is reflected as an adjustment to Additional Paid In Capital. In December 1992, as amended in September 1994 and December 1996, the Company commenced a stock repurchase program of up to 1,000,000 shares authorized by the Board of Directors to facilitate the availability of treasury shares of common stock for, but not limited to, the settlement of employee stock option exercises pursuant to the Plans. In February 1997 as amended in February 1998, the Board of Directors authorized the additional purchase of up to 10 million shares for similar purposes. At December 31, 1998 and 1997, 6,276,156 and 4,935,744 shares, respectively, were held in treasury under these authorizations. (See Note 6 "Shareholders' Equity"). Letters Of Credit. At December 31, 1998 and 1997, the Company had letters of credit outstanding totaling approximately $127 million and $169 million, respectively. Contingencies. Enron Oil & Gas India Ltd. ("EOGIL"), a wholly-owned subsidiary of the Company, is a respondent in two public interest lawsuits filed in the Delhi High Court, India. The first (the "Wadehra Action") was brought by B. L. Wadehra, an Indian public interest lawyer, against the Union of India, EOGIL, EOGIL co-participants in the Panna and Mukta fields, Reliance Industries Limited ("Reliance") and Oil & Natural Gas Corporation Limited ("ONGC"), and certain other respondents. ONGC is the Indian national oil company and is wholly-owned by the Union of India. The second suit (the "CPIL Action") was brought by the Centre for Public Interest Litigation and the National Alliance of People's Movement against the Union of India, the Central Bureau of Investigation, ONGC, Reliance and EOGIL. Petitioners in both the Wadehra Action and the CPIL Action allege various improprieties in the award of the Panna and Mukta fields to EOGIL, Reliance and ONGC, and seek the cancellation of the Production Sharing Contract for the Panna and Mukta fields. The Union of India is vigorously disputing these allegations. The Company believes that the public competitive bidding process for the fields was fair and that the award of these fields to EOGIL, Reliance and ONGC was proper. Following a series of hearings, the Delhi High Court has entered an order dismissing both lawsuits. The plaintiffs have filed a special leave petition seeking to appeal this decision to the India Supreme Court. Although no assurances can be given, based on currently available information the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its financial condition or results of operations. There are various other suits and claims against the Company that have arisen in the ordinary course of business. However, management does not believe these suits and claims will individually or in the aggregate have a material adverse effect on the Company's financial condition or results of operations. The Company has been named as a potentially responsible party in certain Comprehensive Environmental Response Compensation and Liability Act proceedings. However, management does not F-19 57 believe that any potential assessments resulting from such proceedings will individually or in the aggregate have a materially adverse effect on the financial condition or results of operations of the Company. 10. NET INCOME PER SHARE The difference between the Average Number of Common Shares outstanding for basic and diluted net income per share of common stock is due to the assumed issuance of approximately 709,000, 784,000 and 1,672,000 common shares relating to employee stock options in 1998, 1997 and 1996, respectively. 11. CASH FLOW INFORMATION Cash paid for interest and income taxes was as follows for the years ended December 31:
1998 1997 1996 ------- ------- ------- Interest (net of amount capitalized).................... $51,166 $27,759 $14,237 Income taxes............................................ 38,551 28,708 42,014
12. BUSINESS SEGMENT INFORMATION The Company's operations are all natural gas and crude oil exploration and production related. The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during the fourth quarter of 1998. SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision making group is the Executive Committee, which consists of the President and Chief Executive Officer and other key officers. This group routinely reviews and makes operating decisions related to significant issues associated with each of the Company's major producing areas in the United States and each significant international location. For segment reporting purposes, the major U.S. producing areas have been aggregated as one reportable segment due to similarities in their operations as allowed by SFAS No. 131. Financial information by reportable segment is presented below for the years ended December 31, or at December 31:
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- -------- -------- -------- -------- ---------- 1998 Net Operating Revenues............. $ 564,378 $ 68,622 $ 66,967 $ 72,826 $ (3,605) $ 769,188 Depreciation, Depletion and Amortization..................... 265,738 25,972 12,867 8,456 2,073 315,106 Operating Income (Loss)............ 54,272 11,908 42,094 41,718 (36,331) 113,661 Interest Income.................... 216 88 507 205 131 1,147 Other Income (Expense)............. (559) - (150) (1,761) (3,477) (5,947) Interest Expense................... 53,773 6,558 859 100 - 61,290 Income Tax Provision (Benefit)..... (6,214) (1,112) 21,517 13,401 (23,481) 4,111 Additions to Oil and Gas Properties....................... 547,209 49,142 19,347 46,657 27,997 690,352 Total Assets....................... 2,238,969 277,861 131,964 289,596 79,705 3,018,095 1997 Net Operating Revenues............. $ 603,845 $ 73,466 $ 66,000 $ 35,332 $ 4,858 $ 783,501 Depreciation, Depletion and Amortization..................... 239,418 23,116 11,031 3,716 898 278,179 Operating Income (Loss)............ 138,213 19,983 38,968 13,794 (18,183) 192,775 Interest Income.................... 2,746 392 484 134 366 4,122 Other Income (Expense)............. (5,517) 4 (289) (848) 940 (5,710) Interest Expense................... 28,548 8,132 4,701 42 - 41,423 Income Tax Provision (Benefit)..... 30,940 (3,228) 21,538 1,402 (9,152) 41,500 Additions to Oil and Gas Properties....................... 468,168 79,789 163 67,777 10,301 626,198 Total Assets....................... 2,036,933 276,998 116,578 252,115 40,731 2,723,355 (Table continued on following page)
F-20 58
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- -------- -------- -------- -------- ---------- 1996 Net Operating Revenues............. $ 563,346 $ 63,076 $ 83,536 $ 20,691 $ (1) $ 730,648 Depreciation, Depletion and Amortization..................... 209,635 24,935 15,447 611 650 251,278 Operating Income (Loss)............ 160,109 12,720 48,962 5,667 (18,628) 208,830 Interest Income.................... 959 44 836 412 13 2,264 Other Income (Expense)............. (4,569) 9 394 5 (3,110) (7,271) Interest Expense................... 9,006 7,969 4,003 1,019 - 21,997 Income Tax Provision (Benefit)..... 36,519 (10,508) 26,172 754 (1,983) 50,954 Additions to Oil and Gas Properties....................... 407,115 33,008 8,654 82,098 8,455 539,330 Total Assets....................... 1,882,900 236,925 129,896 180,225 28,407 2,458,353
13. OTHER INCOME (EXPENSE), NET Other income (expense), net consisted of the following for the years ended December 31:
1998 1997 1996 ------- ------- ------- Interest Income(1)...................................... $ 1,147 $ 4,122 $ 2,264 Financial Reserve Accruals(2)........................... (4,350) - (6,897) Contract Settlement..................................... (610) - - Litigation Provision.................................... - (5,800) - Other, Net.............................................. (987) 90 (374) ------- ------- ------- Total......................................... $(4,800) $(1,588) $(5,007) ======= ======= =======
- --------------- (1) Includes $102, $2,549 and $403 from related parties. (2) Pertains to provisions for doubtful accounts receivable associated with certain international activities. 14. PRICE AND INTEREST RATE RISK MANAGEMENT Periodically, the Company enters into certain trading and non-trading activities including NYMEX-related commodity market transactions and other contracts. The non-trading portions of these activities have been designated to hedge the impact of market price fluctuations on anticipated commodity delivery volumes or other contractual commitments. Trading Activities. Trading activities in 1998 included a revenue increase of $1.1 million related to change in market value of natural gas price swap options exercisable by a counterparty and partially offsetting "buy" price swap positions. During 1995, the Company entered into a NYMEX-related natural gas price swap covering 73 trillion British thermal units ("TBtu") for the year ended December 31, 1996. This swap contained an option to extend the price swap covering 73 TBtu for each of the years 1997 and 1998 which was exercisable at one time prior to December 31, 1996. The 1996 price swap was closed in the first quarter of 1996. During 1996, this option was restructured into four options each exercisable, in total, at one time by the counterparty before December 31, 1996, 1997, 1998 and 1999 to purchase 37 TBtu of notional natural gas for each of the years 1997, 1998, 1999 and 2000 at an average fixed price of $1.98, $1.98, $1.93 and $1.93 per million British thermal units ("MMBtu"), respectively. The 1997 and 1998 options were subsequently restructured to be exercisable monthly at a price of $2.16 and $2.07 per MMBtu, respectively. These options cover notional volumes averaging 3 TBtu per month during 1997 and 1998. During the fourth quarter of 1996, the 1999 and 2000 options were terminated. In 1996, the Company entered into "buy" NYMEX-related natural gas price swap positions in the same notional quantities and maturities as are covered by the 1997 and 1998 options. The Company recognized a $1.1 million and $3.4 million revenue increase in 1998 and 1997, respectively, and a $12 million revenue reduction in 1996 related to these trading activities. F-21 59 The following table summarizes the estimated fair value of financial instruments held for trading purposes at year-end and the average during the year:
ESTIMATED FAIR VALUES(1) (IN MILLIONS) ---------------------------------------------------- 1998 1997 1996 -------------- ---------------- ---------------- YEAR YEAR YEAR END AVERAGE END AVERAGE END AVERAGE ---- ------- ------ ------- ------ ------- Options Written..................... $ - $(5.1) $(10.5) $(13.7) $(12.8) $(8.3) NYMEX-related Natural Gas Price Swaps............................. - 5.0 4.2 7.1 0.8 3.4
- --------------- (1) Estimated fair values have been determined by using available market data and valuation methodologies. Judgment is necessarily required in interpreting market data and the use of different market assumptions or estimation methodologies may affect the estimated fair value amounts. Interest Rate Swap Agreements and Foreign Currency Contracts. At December 31, 1998 and 1997, a subsidiary of the Company and the Company are parties to offsetting foreign currency and interest rate swap agreements with an aggregate notional principal amount of $210 million. Such swap agreements are scheduled to terminate in 2001. At December 31, 1998 and 1997, the composite fair value of the agreements was not significant based upon termination values obtained from third parties. In November 1998, the Company entered into two interest rate swap agreements having notional values of $100 million each. The agreements were entered into to hedge the base variable interest rates of the Company's commercial paper, uncommitted credit facilities and affiliate borrowings. The Company anticipates having such borrowings outstanding of at least the notional amounts under the swap agreements during the term of the swap agreements. Under the agreements, the Company will pay interest based on fixed rates of approximately 4.96% and 5.01% and receive interest based on the three-month LIBOR calculated on the notional value of the swap agreements. These agreements are scheduled to terminate in November 2000. At December 31, 1998, the composite fair value of these agreements was not significant based upon termination values obtained from third parties. Hedging Transactions. With the objective of enhancing the certainty of future revenues, the Company from time to time enters into NYMEX-related commodity price swaps and costless collars. Using NYMEX-related commodity price swaps, the Company receives a fixed price for the respective commodity hedged and pays a floating market price, as defined for each transaction, to the counterparty at settlement. At December 31, 1998, the Company had outstanding positions covering notional volumes of .7 million barrels ("MMBbl") of crude oil and condensate for 1999. The fair value of the positions was a net revenue increase of approximately $4 million. In 1998, the Company closed positions covering notional volumes of approximately 4 TBtu of natural gas for each of the years 1999 through 2005. The Company also recorded closed positions covering 2.2 MMBbl and 1.7 MMBbl of crude oil and condensate for the years 1999 and 2000, respectively. At December 31, 1998, the aggregate deferred revenue reduction for 1999, 2000 and thereafter was approximately $13 million, $12 million and $6 million, respectively, and is classified as "Other Assets". At December 31, 1997, the Company had outstanding positions covering notional volumes of approximately 37 TBtu of natural gas for 1998 and approximately 4 TBtu of natural gas for each of the years 1999 and 2000 and approximately 1.3 MMBbl and .7 MMBbl of crude oil and condensate for the years 1998 and 1999, respectively. The fair value of the positions was a net revenue increase of $1 million at December 31, 1997. During the fourth quarter of 1997, the Company closed positions covering notional volumes of approximately 37 TBtu of natural gas for each of the years 1999 and 2000. At December 31, 1997, the aggregate deferred revenue reduction for the 1998, 1999 and 2000 closed positions was approximately $9 million, $10 million and $10 million, respectively. F-22 60 The following table summarizes the estimated fair value of financial instruments and related transactions for non-trading activities at December 31, 1998 and 1997:
1998 1997 ------------------------ ------------------------ CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE(1) AMOUNT FAIR VALUE(1) -------- ------------- -------- ------------- (IN MILLIONS) (IN MILLIONS) Long-Term Debt(2)....................... $1,142.8 $1,141.0 $741.3 $744.4 Swap Agreements......................... 4.2 4.1 13.3 12.7 NYMEX-Related Commodity Market Positions............................. (30.9) (26.5) (27.4) (31.6)
- --------------- (1) Estimated fair values have been determined by using available market data and valuation methodologies. Judgment is necessarily required in interpreting market data and the use of different market assumptions or estimation methodologies may affect the estimated fair value amounts. (2) See Note 4 "Long-Term Debt." Credit Risk. While notional contract amounts are used to express the magnitude of price and interest rate swap agreements, the amounts potentially subject to credit risk, in the event of nonperformance by the other parties, are substantially smaller. The Company does not anticipate nonperformance by the other parties. 15. CONCENTRATION OF CREDIT RISK Substantially all of the Company's accounts receivable at December 31, 1998 and 1997 result from crude oil and natural gas sales and/or joint interest billings to affiliate and third party companies including foreign state-owned entities in the oil and gas industry. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral from a customer or joint interest owner, the Company analyzes the entity's net worth, cash flows, earnings, and credit ratings. Receivables are generally not collateralized. Historical credit losses incurred on receivables by the Company have been immaterial. 16. NEW ACCOUNTING PRONOUNCEMENT - SFAS NO. 133 In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 - "Accounting for Derivative Instruments and Hedging Activities" effective for fiscal years beginning after June 15, 1999. The statement cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired or substantively modified after December 31, 1997. The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statements of income and requires a company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. F-23 61 The Company has not yet quantified the impacts of adopting SFAS No. 133 on its financial statements and has not determined the timing of adoption. Based on the criteria of SFAS No. 133 and current interpretations thereof, the Company believes that the options it owns to purchase 3,200,000 Enron Corp. common shares, at a price of $39.1875 per share that expire in December 2007, qualify as derivative instruments. Accordingly, SFAS No. 133 would require the changes in the fair value of the options to be recognized currently in earnings. The Company cannot predict whether future interpretations currently being considered by the Emerging Issues Task Force of the FASB or potential amendments of SFAS No. 133 will result in the options being considered derivative instruments at the time of its adoption. At December 31, 1997, the carrying value of the options was approximately $23 million pre-tax, which represented the estimated fair value at the date of grant. At December 31, 1998, Enron Corp. common shares closed at $57.06 per share. Based on the Company's current level of other derivative and hedging activities, the Company does not expect the impact of adoption of SFAS No. 133 relative to those other activities to be material. F-24 62 ENRON OIL & GAS COMPANY SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE INDICATED) (UNAUDITED EXCEPT FOR RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES) OIL AND GAS PRODUCING ACTIVITIES The following disclosures are made in accordance with SFAS No. 69 - "Disclosures about Oil and Gas Producing Activities": Oil and Gas Reserves. Users of this information should be aware that the process of estimating quantities of "proved", "proved developed" and "proved undeveloped" crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history, and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. Proved reserves represent estimated quantities of natural gas, crude oil, condensate, and natural gas liquids that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. Proved developed reserves are proved reserves expected to be recovered, through wells and equipment in place and under operating methods being utilized at the time the estimates were made. Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. Canadian provincial royalties are determined based on a graduated percentage scale which varies with prices and production volumes. Canadian reserves, as presented on a net basis, assume prices and royalty rates in existence at the time the estimates were made, and the Company's estimate of future production volumes. Future fluctuations in prices, production rates, or changes in political or regulatory environments could cause the Company's share of future production from Canadian reserves to be materially different from that presented. Estimates of proved and proved developed reserves at December 31, 1998, 1997 and 1996 were based on studies performed by the engineering staff of the Company for reserves in the United States, Canada, Trinidad, India and China. Opinions by DeGolyer and MacNaughton ("D&M"), independent petroleum consultants, for the years ended December 31, 1998, 1997 and 1996 covered producing areas containing 39%, 54% and 64%, respectively, of proved reserves, excluding deep Paleozoic methane reserves, of the Company on a net-equivalent-cubic-feet-of-gas basis. D&M's opinions indicate that the estimates of proved reserves prepared by the Company's engineering staff for the properties reviewed by D&M, when compared in total on a net-equivalent-cubic-feet-of-gas basis, do not differ materially from the estimates prepared by D&M. The deep Paleozoic methane reserves were covered by the opinion of D&M for the year ended December 31, 1995. Such estimates by D&M in the aggregate varied by not more than 5% from those prepared by the engineering F-25 63 staff of the Company. The India reserves, which accounted for 23% of the Company's December 31, 1998 proved reserves, excluding deep Paleozoic reserves, were not included in the year end review by D&M; however, a review was conducted as of April 30, 1998. The estimate of the India reserves prepared by D&M varied by not more than 10% from the estimate prepared by the engineering staff of the Company. All reports by D&M were developed utilizing geological and engineering data provided by the Company. No major discovery or other favorable or adverse event subsequent to December 31, 1998 is believed to have caused a material change in the estimates of proved or proved developed reserves as of that date. The following table sets forth the Company's net proved and proved developed reserves at December 31 for each of the four years in the period ended December 31, 1998, and the changes in the net proved reserves for each of the three years in the period then ended as estimated by the engineering staff of the Company. NET PROVED AND PROVED DEVELOPED RESERVE SUMMARY
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------- -------- ------- ----- ------- Natural Gas (Bcf)(1) Net proved reserves at December 31, 1995.................................... 2,654.1(2) 313.9 245.5 75.0 - 3,288.5 Revisions of previous estimates......... 3.6 (2.9) 79.6 - - 80.3 Purchases in place...................... 100.6 0.9 - - - 101.5 Extensions, discoveries and other additions............................ 256.8 49.2 90.7 124.6 - 521.3 Sales in place.......................... (58.4) (4.3) - - - (62.7) Production.............................. (210.2) (35.9) (45.6) - - (291.7) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1996.................................... 2,746.5(2) 320.9 370.2 199.6 - 3,637.2 Revisions of previous estimates......... (50.8) (1.5) (0.4) 25.1 - (27.6) Purchases in place...................... 60.0 67.6 - - - 127.6 Extensions, discoveries and other additions............................ 275.9 37.8 - 253.5 7.7 574.9 Sales in place.......................... (17.7) (0.4) - - - (18.1) Production.............................. (229.1) (37.0) (41.0) (6.6) - (313.7) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1997.................................... 2,784.8(2) 387.4 328.8 471.6 7.7 3,980.3 Revisions of previous estimates......... (55.9) (2.5) 4.7 32.3 (0.4) (21.8) Purchases in place...................... 123.0 54.9 - - - 177.9 Extensions, discoveries and other additions............................ 272.8 62.9 693.8 340.9 103.0 1,473.4 Sales in place.......................... (37.5) - - - - (37.5) Production.............................. (233.8) (38.5) (50.9) (20.2) - (343.4) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1998.................................... 2,853.4(2) 464.2 976.4 824.6 110.3 5,228.9 ======= ======= ======= ======= ======= ======= (Table continued on following page)
F-26 64
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------- -------- ------- ----- ------- Liquids (MBbl)(3)(4) Net proved reserves at December 31, 1995.................................... 25,399 6,585 6,870 11,542 - 50,396 Revisions of previous estimates......... 339 191 1,835 - - 2,365 Purchases in place...................... 312 2 - - - 314 Extensions, discoveries and other additions............................ 7,103 2,116 1,388 275 - 10,882 Sales in place.......................... (447) (121) - - - (568) Production.............................. (3,830) (1,321) (1,925) (1,026) - (8,102) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1996.................................... 28,876 7,452 8,168 10,791 - 55,287 Revisions of previous estimates......... 3,515 225 (31) 19 - 3,728 Purchases in place...................... 127 1,123 - - - 1,250 Extensions, discoveries and other additions............................ 6,037 1,590 - 20,123 - 27,750 Sales in place.......................... (1,683) - - - - (1,683) Production.............................. (5,223) (1,384) (1,236) (838) - (8,681) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1997.................................... 31,649 9,006 6,901 30,095 - 77,651 Revisions of previous estimates......... (152) (504) (1,049) 3,063 73 1,431 Purchases in place...................... 3,104 - - - - 3,104 Extensions, discoveries and other additions............................ 9,396 448 11,429 11,501 1,089 33,863 Sales in place.......................... (1,039) - - - - (1,039) Production.............................. (6,131) (1,358) (1,077) (1,874) - (10,440) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1998.................................... 36,827 7,592 16,204 42,785 1,162 104,570 ======= ======= ======= ======= ======= ======= Bcf Equivalent (Bcfe)(1) Net proved reserves at December 31, 1995.................................... 2,806.6(2) 353.3 286.7 144.3 - 3,590.9 Revisions of previous estimates......... 5.7 (1.8) 90.6 - - 94.5 Purchases in place...................... 102.5 0.9 - - - 103.4 Extensions, discoveries and other additions............................ 299.4 61.9 99.0 126.2 - 586.5 Sales in place.......................... (61.0) (5.1) - - - (66.1) Production.............................. (233.1) (43.9) (57.1) (6.2) - (340.3) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1996.................................... 2,920.1(2) 365.3 419.2 264.3 - 3,968.9 Revisions of previous estimates......... (29.8) (0.1) (0.5) 25.2 - (5.2) Purchases in place...................... 60.7 74.4 - - - 135.1 Extensions, discoveries and other additions............................ 312.1 47.4 - 374.2 7.7 741.4 Sales in place.......................... (27.7) (0.4) - - - (28.1) Production.............................. (260.4) (45.3) (48.5) (11.7) - (365.9) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1997.................................... 2,975.0(2) 441.3 370.2 652.0 7.7 4,446.2 Revisions of previous estimates......... (57.0) (5.5) (1.7) 50.8 - (13.4) Purchases in place...................... 141.6 54.9 - - - 196.5 Extensions, discoveries and other additions............................ 329.2 65.6 762.4 409.9 109.5 1,676.6 Sales in place.......................... (43.7) - - - - (43.7) Production.............................. (270.6) (46.6) (57.3) (31.4) - (405.9) ------- ------- ------- ------- ------- ------- Net proved reserves at December 31, 1998.................................... 3,074.5(2) 509.7 1,073.6 1,081.3 117.2 5,856.3 ======= ======= ======= ======= ======= ======= (Table continued on following page)
F-27 65
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------- -------- ------- ----- ------- Net proved developed reserves at Natural Gas (Bcf) December 31, 1995.................... 1,218.1 310.1 233.9 - - 1,762.1 December 31, 1996.................... 1,325.7 319.5 370.2 124.6 - 2,140.0 December 31, 1997.................... 1,349.0 370.9 328.8 286.6 - 2,335.3 December 31, 1998.................... 1,429.7 387.4 283.0 407.4 - 2,507.5 Liquids (MBbl)(4) December 31, 1995.................... 19,977 6,505 5,607 11,542 - 43,631 December 31, 1996.................... 24,868 7,452 8,168 10,791 - 51,279 December 31, 1997.................... 27,707 8,885 6,901 23,322 - 66,815 December 31, 1998.................... 33,045 7,465 4,782 33,472 - 78,764 Bcf Equivalents December 31, 1995.................... 1,338.0 349.1 267.5 69.3 - 2,023.9 December 31, 1996.................... 1,474.9 364.2 419.2 189.3 - 2,447.6 December 31, 1997.................... 1,515.3 424.2 370.2 426.5 - 2,736.2 December 31, 1998.................... 1,628.0 432.1 311.7 608.2 - 2,980.0
- --------------- (1) Billion cubic feet or billion cubic feet equivalent, as applicable. (2) Includes 1,180 Bcf of proved undeveloped methane reserves contained, along with high concentrations of carbon dioxide and other gases in deep Paleozoic (Madison) formations in the Big Piney area of Wyoming. (3) Thousand barrels. (4) Includes crude oil, condensate and natural gas liquids. Capitalized Costs Relating to Oil and Gas Producing Activities. The following table sets forth the capitalized costs relating to the Company's natural gas and crude oil producing activities at December 31, 1998 and 1997:
1998 1997 ---------- ---------- Proved Properties........................................... $4,630,353 $4,069,914 Unproved Properties......................................... 184,072 221,491 ---------- ---------- Total.................................................. 4,814,425 4,291,405 Accumulated depreciation, depletion and amortization........ (2,138,062) (1,904,198) ---------- ---------- Net capitalized costs....................................... $2,676,363 $2,387,207 ========== ==========
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities. The acquisition, exploration and development costs disclosed in the following tables are in accordance with definitions in SFAS No. 19 - "Financial Accounting and Reporting by Oil and Gas Producing Companies". Acquisition costs include costs incurred to purchase, lease, or otherwise acquire property. Exploration costs include exploration expenses, additions to exploration wells including those in progress, and depreciation of support equipment used in exploration activities. Development costs include additions to production facilities and equipment, additions to development wells including those in progress and depreciation of support equipment and related facilities used in development activities. F-28 66 The following tables set forth costs incurred related to the Company's oil and gas activities for the years ended December 31:
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------- -------- ------- ------- -------- 1998 Acquisition Costs of Properties Unproved...................... $ 32,925 $ 3,545 $ - $ - $ - $ 36,470 Proved........................ 198,006 12,896 - - - 210,902 -------- ------- ------- ------- ------- -------- Total................. 230,931 16,441 - - - 247,372 Exploration Costs............... 82,248 12,375 15,217 1,278 25,465 136,583 Development Costs............... 297,904 27,822 6,157 46,657 16,548 395,088 -------- ------- ------- ------- ------- -------- Total................. $611,083 $56,638 $21,374 $47,935 $42,013 $779,043 ======== ======= ======= ======= ======= ======== 1997 Acquisition Costs of Properties Unproved...................... $ 69,258 $ 7,700 $ - $ - $ 235 $ 77,193 Proved........................ 42,386 38,949 - - 28 81,363 -------- ------- ------- ------- ------- -------- Total................. 111,644 46,649 - - 263 158,556 Exploration Costs............... 74,360 8,279 1,344 965 15,935 100,883 Development Costs............... 333,093 30,856 163 67,777 9,869 441,758 -------- ------- ------- ------- ------- -------- Total................. $519,097 $85,784 $ 1,507 $68,742 $26,067 $701,197 ======== ======= ======= ======= ======= ======== 1996 Acquisition Costs of Properties Unproved...................... $ 38,832 $ 3,565 $ 2,000 $ - $ 77 $ 44,474 Proved........................ 68,706 672 - - - 69,378 -------- ------- ------- ------- ------- -------- Total................. 107,538 4,237 2,000 - 77 113,852 Exploration Costs............... 60,880 8,069 2,082 748 16,490 88,269 Development Costs............... 283,985 25,705 6,654 82,098 6,969 405,411 -------- ------- ------- ------- ------- -------- Total................. $452,403 $38,011 $10,736 $82,846 $23,536 $607,532 ======== ======= ======= ======= ======= ========
F-29 67 Results of Operations for Oil and Gas Producing Activities(1). The following tables set forth results of operations for oil and gas producing activities for the years ended December 31:
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL -------- ------- -------- ------- -------- -------- 1998 Operating Revenues Trade.................................... $431,943 $53,485 $66,967 $72,826 $ 52 $625,273 Associated Companies..................... 117,719 15,132 - - - 132,851 Gains on Sales of Reserves and Related Assets................................. 29,268 (15) - - (3,658) 25,595 -------- ------- ------- ------- -------- -------- Total............................. 578,930 68,602 66,967 72,826 (3,606) 783,719 Exploration Expenses, including Dry Hole... 63,875 7,496 2,027 1,278 14,015 88,691 Production Costs........................... 98,909 19,715 7,361 13,617 3,666 143,268 Impairment of Unproved Oil and Gas Properties............................... 29,952 2,124 - - - 32,076 Depreciation, Depletion and Amortization... 264,927 25,972 12,867 8,456 2,073 314,295 -------- ------- ------- ------- -------- -------- Income (Loss) before Income Taxes.......... 121,267 13,295 44,712 49,475 (23,360) 205,389 Income Tax Provision (Benefit)............. 22,944 3,840 24,592 23,748 (7,370) 67,754 -------- ------- ------- ------- -------- -------- Results of Operations...................... $ 98,323 $ 9,455 $20,120 $25,727 $(15,990) $137,635 ======== ======= ======= ======= ======== ======== 1997 Operating Revenues Trade.................................... $448,824 $58,712 $66,000 $35,332 $ 21 $608,889 Associated Companies..................... 206,738 15,280 - - 2 222,020 Gains on Sales of Reserves and Related Assets................................. 4,464 (13) - - 4,836 9,287 -------- ------- ------- ------- -------- -------- Total............................. 660,026 73,979 66,000 35,332 4,859 840,196 Exploration Expenses, including Dry Hole... 50,930 5,995 1,344 965 15,765 74,999 Production Costs........................... 106,395 20,073 12,256 10,505 75 149,304 Impairment of Unproved Oil and Gas Properties............................... 24,229 2,643 - - 341 27,213 Depreciation, Depletion and Amortization... 238,765 23,116 11,032 3,716 901 277,530 -------- ------- ------- ------- -------- -------- Income (Loss) before Income Taxes.......... 239,707 22,152 41,368 20,146 (12,223) 311,150 Income Tax Provision (Benefit)............. 69,252 8,130 22,752 9,670 (252) 109,552 -------- ------- ------- ------- -------- -------- Results of Operations...................... $170,455 $14,022 $18,616 $10,476 $(11,971) $201,598 ======== ======= ======= ======= ======== ======== 1996 Operating Revenues Trade.................................... $281,522 $48,717 $83,536 $20,691 $ - $434,466 Associated Companies..................... 253,629 13,715 - - - 267,344 Gains on Sales of Reserves and Related Assets................................. 19,127 670 - - - 19,797 -------- ------- ------- ------- -------- -------- Total............................. 554,278 63,102 83,536 20,691 - 721,607 Exploration Expenses, including Dry Hole... 45,291 5,003 2,082 748 15,078 68,202 Production Costs........................... 77,352 16,633 14,577 9,890 - 118,452 Impairment of Unproved Oil and Gas Properties............................... 18,571 2,284 - - 371 21,226 Depreciation, Depletion and Amortization... 208,872 24,935 15,447 611 648 250,513 -------- ------- ------- ------- -------- -------- Income (Loss) before Income Taxes.......... 204,192 14,247 51,430 9,442 (16,097) 263,214 Income Tax Provision (Benefit)............. 54,412 5,674 28,287 4,721 (50) 93,044 -------- ------- ------- ------- -------- -------- Results of Operations...................... $149,780 $ 8,573 $23,143 $ 4,721 $(16,047) $170,170 ======== ======= ======= ======= ======== ========
- --------------- (1) Excludes net revenues associated with other marketing activities, interest charges, general corporate expenses and certain gathering and handling fees for each of the three years in the period ended December 31, 1998. The gathering and handling fees and other marketing net revenues are directly associated with oil and gas operations with regard to segment reporting as defined in SFAS No. 131 - "Disclosures about Segments of an Enterprise and Related Information", but are not part of Disclosures about Oil and Gas Producing Activities as defined in SFAS No. 69. F-30 68 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves. The following information has been developed utilizing procedures prescribed by SFAS No. 69 and based on crude oil and natural gas reserve and production volumes estimated by the engineering staff of the Company. It may be useful for certain comparison purposes, but should not be solely relied upon in evaluating the Company or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of the Company. The future cash flows presented below are based on sales prices, cost rates, and statutory income tax rates in existence as of the date of the projections. It is expected that material revisions to some estimates of crude oil and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves, and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated. F-31 69 The following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company's crude oil and natural gas reserves at December 31, for the years ended December 31:
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- -------- ---------- ---------- -------- ----------- 1998 Future cash inflows(1)................... $5,471,121 $950,151 $1,210,060 $2,384,459 $179,329 $10,195,120 Future production costs.................. (1,280,875) (319,938) (347,431) (556,609) (127,039) (2,631,892) Future development costs................. (316,175) (42,252) (161,424) (392,546) (11,325) (923,722) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows before income taxes.................................. 3,874,071 587,961 701,205 1,435,304 40,965 6,639,506 Future income taxes...................... (903,983) (119,655) (229,281) (614,297) (7,111) (1,874,327) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows.................... 2,970,088 468,306 471,924 821,007 33,854 4,765,179 Discount to present value at 10% annual rate................................... (1,399,541) (161,988) (234,129) (434,714) (13,893) (2,244,265) ---------- -------- ---------- ---------- -------- ----------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves(2).................... $1,570,547 $306,318 $ 237,795 $ 386,293 $ 19,961 $ 2,520,914 ========== ======== ========== ========== ======== =========== 1997 Future cash inflows(1)................... $5,186,755 $814,195 $ 532,318 $1,633,199 $ 13,862 $ 8,180,329 Future production costs.................. (1,138,401) (302,965) (106,999) (422,474) (3,587) (1,974,426) Future development costs................. (313,463) (19,610) (400) (102,014) (1,814) (437,301) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows before income taxes.................................. 3,734,891 491,620 424,919 1,108,711 8,461 5,768,602 Future income taxes...................... (887,521) (92,927) (215,344) (501,109) (779) (1,697,680) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows.................... 2,847,370 398,693 209,575 607,602 7,682 4,070,922 Discount to present value at 10% annual rate................................... (1,297,651) (121,381) (61,656) (287,874) (1,906) (1,770,468) ---------- -------- ---------- ---------- -------- ----------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves....................... $1,549,719 $277,312 $ 147,919 $ 319,728 $ 5,776 $ 2,300,454 ========== ======== ========== ========== ======== =========== 1996 Future cash inflows(1)................... $9,390,661 $715,143 $ 709,082 $ 864,386 $ - $11,679,272 Future production costs.................. (1,639,531) (281,244) (236,643) (338,202) - (2,495,620) Future development costs................. (306,028) (9,014) (1,588) (150) - (316,780) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows before income taxes.................................. 7,445,102 424,885 470,851 526,034 - 8,866,872 Future income taxes...................... (2,260,500) (98,606) (245,577) (227,177) - (2,831,860) ---------- -------- ---------- ---------- -------- ----------- Future net cash flows.................... 5,184,602 326,279 225,274 298,857 - 6,035,012 Discount to present value at 10% annual rate................................... (2,692,833) (100,521) (68,436) (104,672) - (2,966,462) ---------- -------- ---------- ---------- -------- ----------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves....................... $2,491,769 $225,758 $ 156,838 $ 194,185 $ - $ 3,068,550 ========== ======== ========== ========== ======== ===========
- --------------- (1) Based on year end market prices determined at the point of delivery from the producing unit. (2) Based on natural gas and crude oil prices as of March 1, 1999, the standardized measure of discounted future net cash flows for operations in the United States would have been lower by approximately 23%. Changes in other producing areas and changes in reported reserve quantities were not material. F-32 70 Changes in Standardized Measure of Discounted Future Net Cash Flows. The following table sets forth the changes in the standardized measure of discounted future net cash flows at December 31, for each of the three years in the period ended December 31, 1998.
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- -------- -------- --------- ------- ---------- December 31, 1995....................... $1,240,140(1) $176,573 $115,026 $ 53,401 $ - $1,585,140 Sales and transfers of oil and gas produced, net of production costs... (437,143) (45,799) (68,959) (10,801) - (562,702) Net changes in prices and production costs............................... 1,817,466 57,587 60,387 53,676 - 1,989,116 Extensions, discoveries, additions and improved recovery net of related costs............................... 580,417 62,506 62,165 150,475 - 855,563 Development costs incurred............ 57,800 2,200 2,200 - - 62,200 Revisions of estimated development costs............................... (14,490) (2,696) 1,010 13,500 - (2,676) Revisions of previous quantity estimates........................... 7,002 (1,227) 79,933 - - 85,708 Accretion of discount................. 137,441 18,387 19,376 8,928 - 184,132 Net change in income taxes............ (655,801) (29,814) (73,985) (86,627) - (846,227) Purchases of reserves in place........ 161,454 456 - - - 161,910 Sales of reserves in place............ (102,671) (3,561) - - - (106,232) Changes in timing and other........... (299,846) (8,854) (40,315) 11,633 - (337,382) ---------- -------- -------- --------- ------- ---------- December 31, 1996....................... 2,491,769(1) 225,758 156,838 194,185 - 3,068,550 Sales and transfers of oil and gas produced, net of production costs... (518,594) (53,919) (53,744) (24,827) - (651,084) Net changes in prices and production costs............................... (1,664,174) (19,784) 4,730 (34,611) - (1,713,839) Extensions, discoveries, additions and improved recovery net of related costs............................... 374,283 37,533 - 257,256 5,616 674,688 Development costs incurred............ 52,300 1,900 - - - 54,200 Revisions of estimated development costs............................... 3,681 4,345 1,188 (33,210) - (23,996) Revisions of previous quantity estimates........................... (17,257) (101) (442) 26,696 - 8,896 Accretion of discount................. 327,724 26,287 30,956 31,669 - 416,636 Net change in income taxes............ 605,769 11,097 12,734 (90,729) 160 539,031 Purchases of reserves in place........ 43,882 52,911 - - - 96,793 Sales of reserves in place............ (28,589) (379) - - - (28,968) Changes in timing and other........... (121,075) (8,336) (4,341) (6,701) - (140,453) ---------- -------- -------- --------- ------- ---------- December 31, 1997....................... 1,549,719(1) 277,312 147,919 319,728 5,776 2,300,454 Sales and transfers of oil and gas produced, net of production costs... (423,733) (48,902) (59,606) (59,209) 3,664 (587,786) Net changes in prices and production costs............................... (33,809) 10,891 (36,730) (103,097) (6,961) (169,706) Extensions, discoveries, additions and improved recovery net of related costs............................... 325,308 43,686 159,497 218,168 18,894 765,553 Development costs incurred............ 59,600 2,900 6,000 43,400 4,300 116,200 Revisions of estimated development costs............................... (26,611) 690 (11,410) (66,128) (3,233) (106,692) Revisions of previous quantity estimates........................... (35,216) (4,137) (1,142) 36,877 - (3,618) Accretion of discount................. 174,102 30,332 28,791 53,296 562 287,083 Net change in income taxes............ 47,745 (5,822) (122) 212 (428) 41,585 Purchases of reserves in place........ 156,818 20,131 - - - 176,949 Sales of reserves in place............ (33,549) - - - - (33,549) Changes in timing and other........... (189,827) (20,763) 4,598 (56,954) (2,613) (265,559) ---------- -------- -------- --------- ------- ---------- December 31, 1998....................... $1,570,547(1) $306,318 $237,795 $ 386,293 $19,961 $2,520,914 ========== ======== ======== ========= ======= ==========
- --------------- (1) Includes approximately $77,500, $344,300, $85,700 and $155,400, discounted before income taxes, in 1995, 1996, 1997 and 1998, respectively, related to the reserves in the Big Piney deep Paleozoic formations. F-33 71 UNAUDITED QUARTERLY FINANCIAL INFORMATION
QUARTER ENDED -------------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- 1998 Net Operating Revenues.......................... $199,831 $183,307 $191,262 $194,788 ======== ======== ======== ======== Operating Income................................ $ 38,286 $ 32,669 $ 19,199 $ 23,507 ======== ======== ======== ======== Income before Income Taxes...................... $ 28,206 $ 22,173 $ 3,969 $ 5,934 Income Tax Provision (Benefit).................. 1,201 8,916 (1,975) (4,031) -------- -------- -------- -------- Net Income...................................... $ 27,005 $ 13,257 $ 5,944 $ 9,965 ======== ======== ======== ======== Net Income per Share of Common Stock Basic......................................... $ .17 $ .09 $ .04 $ .06 ======== ======== ======== ======== Diluted....................................... $ .17 $ .09 $ .04 $ .06 ======== ======== ======== ======== Average Number of Common Shares Basic......................................... 154,736 154,857 154,083 153,702 ======== ======== ======== ======== Diluted....................................... 155,522 155,770 154,409 154,516 ======== ======== ======== ======== 1997 Net Operating Revenues.......................... $180,651 $171,753 $193,120 $237,977 ======== ======== ======== ======== Operating Income................................ $ 41,170 $ 28,619 $ 48,757 $ 74,229 ======== ======== ======== ======== Income before Income Taxes...................... $ 37,311 $ 24,111 $ 40,975 $ 61,073 Income Tax Provision (Benefit).................. 14,246 (460) 9,802 17,912 -------- -------- -------- -------- Net Income...................................... $ 23,065 $ 24,571 $ 31,173 $ 43,161 ======== ======== ======== ======== Net Income per Share of Common Stock Basic......................................... $ .15 $ .16 $ .20 $ .28 ======== ======== ======== ======== Diluted....................................... $ .14 $ .16 $ .20 $ .28 ======== ======== ======== ======== Average Number of Common Shares Basic......................................... 158,866 157,489 157,072 156,076 ======== ======== ======== ======== Diluted....................................... 159,790 157,950 158,049 156,808 ======== ======== ======== ======== 1996 Net Operating Revenues.......................... $159,026 $197,113 $170,182 $204,327 ======== ======== ======== ======== Operating Income................................ $ 31,997 $ 73,643 $ 46,179 $ 57,011 ======== ======== ======== ======== Income before Income Taxes...................... $ 27,338 $ 70,332 $ 43,361 $ 49,931 Income Tax Provision............................ 1,415 22,750 11,994 14,795 -------- -------- -------- -------- Net Income...................................... $ 25,923 $ 47,582 $ 31,367 $ 35,136 ======== ======== ======== ======== Net Income per Share of Common Stock Basic...... $ .16 $ .30 $ .20 $ .22 ======== ======== ======== ======== Diluted....................................... $ .16 $ .29 $ .19 $ .22 ======== ======== ======== ======== Average Number of Common Shares Basic......................................... 159,934 159,910 159,850 159,719 ======== ======== ======== ======== Diluted....................................... 161,411 161,656 161,677 161,352 ======== ======== ======== ========
F-34 72 SCHEDULE II ENRON OIL & GAS COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- ADDITIONS DEDUCTIONS BALANCE AT CHARGED TO FOR PURPOSE FOR BALANCE AT BEGINNING OF COSTS AND WHICH RESERVES END OF DESCRIPTION YEAR EXPENSES WERE CREATED YEAR - ----------- ------------ ---------- --------------- ---------- 1998 Reserves deducted from assets to which they apply - Allowance for Doubtful Accounts Receivable........................ $7,025 $4,350 $ - $11,375 ====== ====== ====== ======= 1997 Reserves deducted from assets to which they apply - Allowance for Doubtful Accounts Receivable........................ $7,030 $ - $ 5 $ 7,025 ====== ====== ====== ======= 1996 Reserves deducted from assets to which they apply - Allowance for Doubtful Accounts Receivable........................ $2,571 $6,897 $2,438 $ 7,030 ====== ====== ====== =======
S-1 73 EXHIBITS Exhibits not incorporated herein by reference to a prior filing are designated by an asterisk (*) and are filed herewith; all exhibits not so designated are incorporated herein by reference to the Company's Form S-1 Registration Statement, Registration No. 33-30678, filed on August 24, 1989 ("Form S-1"), or as otherwise indicated.
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1(a) - Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 3.1 to Form S-1). 3.1(b) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 4.1(b) to Form S-8 Registration Statement No. 33-52201, filed February 8, 1994). 3.1(c) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 4.1(c) to Form S-8 Registration Statement No. 33-58103, filed March 15, 1995). 3.1(d) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company, dated June 11, 1996 (Exhibit 3(d) to Form S-3 Registration Statement No. 333-09919, filed August 9, 1996). 3.1(e) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company, dated May 7, 1997 (Exhibit 3(e) to Form S-3 Registration Statement No. 333-44785, filed January 23, 1998). *3.2 - By-laws of Enron Oil & Gas Company dated August 23, 1989, as amended December 12, 1990, February 8, 1994, January 19, 1996, February 13, 1997 and May 5, 1998. 3.3 - Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1). 4.3(a) - Amended and Restated Enron Oil & Gas Company 1994 Stock Plan (Exhibit 4.3 to Form S-8 Registration Statement No. 33-58103, filed March 15, 1995). 4.3(b) - Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 12, 1995 (Exhibit 4.3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4.3(c) - Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 10, 1996 (Exhibit 4.3(a) to Form S-8 Registration Statement No. 333-20841, filed January 31, 1997). 4.3(d) - Third Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 9, 1997 (Exhibit 4.3(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *4.3(e) - Fourth Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of May 5, 1998. *4.3(f) - Fifth Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 8, 1998. 10.2(a) - Stock Restriction and Registration Agreement dated as of August 23, 1989 (Exhibit 10.2 to Form S-1). 10.2(b) - Amendment to Stock Restriction and Registration Agreement, dated December 9, 1997, between Enron Oil & Gas Company and Enron Corp. (Exhibit 10.2(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.3 - Tax Allocation Agreement, entered into effective as of Deconsolidation Date between Enron Corp., Enron Oil & Gas Company, and the subsidiaries of Enron Oil & Gas Company listed therein as additional parties.
E-1 74
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.9(a) - Employment Agreement between Enron Oil & Gas Company and Forrest Hoglund, dated as of September 1, 1987, as amended (Exhibit 10.19 to Form S-1), and Second and Third Amendments to Employment Agreement dated June 30, 1989 and February 14, 1992, respectively (Exhibit 10.10 to Form S-1 Registration Statement No. 33-50462, filed August 5, 1992). 10.9(b) - 4th Amendment to Employment Agreement dated December 14, 1994, among Enron Corp., Enron Oil & Gas Company and Forrest Hoglund (Exhibit 10.9(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). *10.9(c) - Fifth Amendment to Employment Agreement entered into September 8, 1998, and effective as of September 1, 1998, among Enron Corp., Enron Oil & Gas Company and Forrest E. Hoglund. 10.14(a) - Enron Oil & Gas Company 1993 Nonemployee Directors' Stock Option Plan (Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.14(b) - First Amendment to Enron Oil & Gas Company 1993 Nonemployee Directors' Stock Option Plan (Exhibit 10.14(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.16 - Interest Rate and Currency Exchange Agreement, dated as of June 1, 1991, between Enron Risk Management Services Corp. and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991), Confirmation dated June 14, 1992 (Exhibit 10.17 to Form S-1 Registration Statement, No. 33-50462, filed August 5, 1992) and Confirmations dated March 25, 1991, April 25, 1991, and September 23, 1992 (assigned to Enron Risk Management Services Corp. by Enron Finance Corp. pursuant to an Assignment and Assumption Agreement, dated as of November 1, 1993, by and between Enron Finance Corp., Enron Risk Management Services Corp. and Enron Oil & Gas Marketing, Inc.). (Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.17 - Assignment and Assumption Agreement, dated as of November 1, 1993, by and between Enron Oil & Gas Marketing, Inc., Enron Oil & Gas Company and Enron Risk Management Services Corp. (Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.18 - ISDA Master Agreement, dated as of November 1, 1993, between Enron Oil & Gas Company and Enron Risk Management Services Corp., and Confirmation Nos. 1268.0, 1286.0, 1291.0, 1292.0, 1304.0, 1305.0, 1321.0, 1335.0, 1338.0, 1370.0, 1471.0, 1485.0, 1486.0, 1494.0, 1495.0, 1509.0, 1514.0, 1533.01, 1569.0, 1986.0, 2217.0, 2227.0, 2278.0, 2299.0, 2372.0, 2647.0 (Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.19 - Letter Agreement between Colorado Interstate Gas Company and Enron Oil & Gas Marketing, Inc. dated November 1, 1990 (Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10.23 - Gas Purchase Agreement between Enron Oil & Gas Company and Enron Oil & Gas Marketing, Inc. dated August 22, 1989 (Exhibit 10.41 to Form S-1). 10.24 - Gas Purchase Agreement between Enron Oil & Gas Company and Enron Oil & Gas Marketing, Inc. dated August 22, 1989 (Exhibit 10.42 to Form S-1). 10.25 - Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp. Annual Report on Form 10-K for the year ended December 31, 1991). 10.26 - Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form S-1).
E-2 75
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.28 - Enron Executive Supplemental Survivor Benefits Plan Effective January 1, 1987 (Exhibit 10.51 to Form S-1). 10.30 - Credit Agreement between Enron Corp. and Enron Oil & Gas Company dated September 29, 1995 (Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.31 - Credit Agreement between Enron Oil & Gas Company and Enron Corp. dated September 29, 1995 (Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.34(a) - Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated effective December 14, 1994) (incorporated by reference to Exhibit A to the Company's Proxy Statement, dated March 27, 1995, with respect to the Company's 1995 Annual Meeting of Shareholders). 10.34(b) - Amendment to Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated Effective December 14, 1994) (Exhibit 10.34(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.34(c) - Second Amendment to Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated Effective December 14, 1994 (Exhibit 10.34(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.35 - Enron Corp. 1992 Deferral Plan (Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.36(a) - Conveyance of Production Payment, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.36(b) - First Amendment to Conveyance of Production Payment, dated effective April 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.36(c) - Second Amendment to Conveyance of Production Payment, dated effective July 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.36(d) - Third Amendment to Conveyance of Production Payment, dated effective October 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.37(a) - Hydrocarbon Exchange Agreement dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.37(b) - Amendment to Hydrocarbon Exchange Agreement dated effective as of January 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(c) - First Amendment to Hydrocarbon Exchange Agreement dated effective as of April 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
E-3 76
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.37(d) - Second Amendment to Hydrocarbon Exchange Agreement dated effective as of July 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(e) - Amendment to Hydrocarbon Exchange Agreement dated effective as of August 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(f) - Fourth Amendment to Hydrocarbon Exchange Agreement, dated effective October 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.38 - Purchase and Sale Agreement, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.39(a) - Production and Delivery Agreement, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.39(b) - First Amendment to Production and Delivery Agreement, dated effective April 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.39(c) - Second Amendment to Production and Delivery Agreement, dated effective July 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.39(d) - Third Amendment to Production and Delivery Agreement, dated effective October 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.57(a) - Letter Agreement relating to Natural Gas Swap Transactions, dated March 31, 1995, among Enron Oil & Gas Company, Enron Corp. and Enron Capital & Trade Resources Corp (Exhibit 10.57(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.57(b) - Amendment to Natural Gas Swap Transactions Letter Agreement, dated March 31, 1995, among Enron Oil & Gas Company, Enron Corp. and Enron Capital & Trade Resources Corp (Exhibit 10.57(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.58 - Confirmation Letter (revised due to adjustments to the attached Payment Schedule), dated March 31, 1995, between Enron Oil & Gas Company and Enron Capital & Trade Resources Corp. (ECT Transaction Reference No. 15198.00) (Exhibit 10.58 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.59 - Confirmation Letter (revised due to Price Change for 1998 and adjustment to the attached Payment Schedule), dated March 31, 1995, between Enron Oil & Gas Company and Enron Capital & Trade Resources Corp. (ECT Transaction Reference No. 15198.01) (Exhibit 10.59 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
E-4 77
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.60 - Services Agreement, dated January 1, 1997, between Enron Corp. and Enron Oil & Gas Company (Exhibit 10.60 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.61 - Equity Participation and Business Opportunity Agreement, dated December 9, 1997, between Enron Oil & Gas Company and Enron Corp. (Exhibit 10 to Form S-3 Registration Statement No. 333-44785, filed January 23, 1998). 10.62 - Stock Restriction and Registration Rights Agreement, dated December 9, 1997, between Enron Corp. and Enron Oil & Gas Company (Exhibit 10.62 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.63(a) - Enron Oil & Gas Company 1996 Deferral Plan (Exhibit 10.63(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.63(b) - First Amendment to Enron Oil & Gas Company 1996 Deferral Plan, dated effective as of December 9, 1997 (Exhibit 10.63(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.63(c) - Second Amendment to Enron Oil & Gas Company 1996 Deferral Plan, dated effective as of December 8, 1998. 10.64 - Executive Employment Agreement between Enron Oil & Gas Company and Mark G. Papa, effective as of November 1, 1997 (Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.65 - Executive Employment Agreement between Enron Oil & Gas Company and Edmund P. Segner, III, effective as of September 1, 1998. *10.66 - Executive Employment Agreement between Enron Oil & Gas Company and Dennis M. Ulak, effective as of September 1, 1998. *10.67 - Executive Employment Agreement between Enron Oil & Gas Company and Jeffery B. Sherrick, effective as of September 1, 1998. *21 - List of subsidiaries. *23.1 - Consent of DeGolyer and MacNaughton. *23.2 - Opinion of DeGolyer and MacNaughton dated January 11, 1999. *23.3 - Consent of Arthur Andersen LLP. *24 - Powers of Attorney. *27 - Financial Data Schedule.
E-5 78 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 18th day of March, 1999. 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 Exchange Act of 1934, this report has been signed by the following persons on behalf of registrant and in the capacities with Enron Oil & Gas Company indicated and on the 18th day of March, 1999.
SIGNATURE TITLE --------- ----- /s/ MARK G. PAPA President and Chief Executive Officer - ----------------------------------------------------- and Director (Principal Executive (Mark G. Papa) Officer) /s/ WALTER C. WILSON Senior Vice President and Chief - ----------------------------------------------------- Financial Officer (Principal Financial (Walter C. Wilson) and Principal Accounting Officer) FORREST E. HOGLUND * Chairman of the Board and Director - ----------------------------------------------------- (Forrest E. Hoglund) FRED C. ACKMAN * Director - ----------------------------------------------------- (Fred C. Ackman) RICHARD A. CAUSEY * Director - ----------------------------------------------------- (Richard A. Causey) JAMES V. DERRICK, JR * Director - ----------------------------------------------------- (James V. Derrick, Jr.) JOHN H. DUNCAN * Director - ----------------------------------------------------- (John H. Duncan) KEN L. HARRISON * Director - ----------------------------------------------------- (Ken L. Harrison) KENNETH L. LAY * Director - ----------------------------------------------------- (Kenneth L. Lay) EDWARD RANDALL, III * Director - ----------------------------------------------------- (Edward Randall, III) JEFFREY K. SKILLING * Director - ----------------------------------------------------- (Jeffrey K. Skilling) FRANK G. WISNER * Director - ----------------------------------------------------- (Frank G. Wisner) *By /s/ ANGUS H. DAVIS -------------------------------------------------- (Angus H. Davis) (Attorney-in-fact for persons indicated)
79 EXHIBIT INDEX Exhibits not incorporated herein by reference to a prior filing are designated by an asterisk (*) and are filed herewith; all exhibits not so designated are incorporated herein by reference to the Company's Form S-1 Registration Statement, Registration No. 33-30678, filed on August 24, 1989 ("Form S-1"), or as otherwise indicated.
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 3.1(a) - Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 3.1 to Form S-1). 3.1(b) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 4.1(b) to Form S-8 Registration Statement No. 33-52201, filed February 8, 1994). 3.1(c) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 4.1(c) to Form S-8 Registration Statement No. 33-58103, filed March 15, 1995). 3.1(d) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company, dated June 11, 1996 (Exhibit 3(d) to Form S-3 Registration Statement No. 333-09919, filed August 9, 1996). 3.1(e) - Certificate of Amendment of Restated Certificate of Incorporation of Enron Oil & Gas Company, dated May 7, 1997 (Exhibit 3(e) to Form S-3 Registration Statement No. 333-44785, filed January 23, 1998). *3.2 - By-laws of Enron Oil & Gas Company dated August 23, 1989, as amended December 12, 1990, February 8, 1994, January 19, 1996, February 13, 1997 and May 5, 1998. 3.3 - Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1). 4.3(a) - Amended and Restated Enron Oil & Gas Company 1994 Stock Plan (Exhibit 4.3 to Form S-8 Registration Statement No. 33-58103, filed March 15, 1995). 4.3(b) - Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 12, 1995 (Exhibit 4.3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4.3(c) - Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 10, 1996 (Exhibit 4.3(a) to Form S-8 Registration Statement No. 333-20841, filed January 31, 1997). 4.3(d) - Third Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 9, 1997 (Exhibit 4.3(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *4.3(e) - Fourth Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of May 5, 1998. *4.3(f) - Fifth Amendment to Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, dated effective as of December 8, 1998. 10.2(a) - Stock Restriction and Registration Agreement dated as of August 23, 1989 (Exhibit 10.2 to Form S-1). 10.2(b) - Amendment to Stock Restriction and Registration Agreement, dated December 9, 1997, between Enron Oil & Gas Company and Enron Corp. (Exhibit 10.2(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.3 - Tax Allocation Agreement, entered into effective as of Deconsolidation Date between Enron Corp., Enron Oil & Gas Company, and the subsidiaries of Enron Oil & Gas Company listed therein as additional parties.
80
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.9(a) - Employment Agreement between Enron Oil & Gas Company and Forrest Hoglund, dated as of September 1, 1987, as amended (Exhibit 10.19 to Form S-1), and Second and Third Amendments to Employment Agreement dated June 30, 1989 and February 14, 1992, respectively (Exhibit 10.10 to Form S-1 Registration Statement No. 33-50462, filed August 5, 1992). 10.9(b) - 4th Amendment to Employment Agreement dated December 14, 1994, among Enron Corp., Enron Oil & Gas Company and Forrest Hoglund (Exhibit 10.9(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). *10.9(c) - Fifth Amendment to Employment Agreement entered into September 8, 1998, and effective as of September 1, 1998, among Enron Corp., Enron Oil & Gas Company and Forrest E. Hoglund. 10.14(a) - Enron Oil & Gas Company 1993 Nonemployee Directors' Stock Option Plan (Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.14(b) - First Amendment to Enron Oil & Gas Company 1993 Nonemployee Directors' Stock Option Plan (Exhibit 10.14(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.16 - Interest Rate and Currency Exchange Agreement, dated as of June 1, 1991, between Enron Risk Management Services Corp. and Enron Oil & Gas Marketing, Inc. (Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991), Confirmation dated June 14, 1992 (Exhibit 10.17 to Form S-1 Registration Statement, No. 33-50462, filed August 5, 1992) and Confirmations dated March 25, 1991, April 25, 1991, and September 23, 1992 (assigned to Enron Risk Management Services Corp. by Enron Finance Corp. pursuant to an Assignment and Assumption Agreement, dated as of November 1, 1993, by and between Enron Finance Corp., Enron Risk Management Services Corp. and Enron Oil & Gas Marketing, Inc.). (Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.17 - Assignment and Assumption Agreement, dated as of November 1, 1993, by and between Enron Oil & Gas Marketing, Inc., Enron Oil & Gas Company and Enron Risk Management Services Corp. (Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.18 - ISDA Master Agreement, dated as of November 1, 1993, between Enron Oil & Gas Company and Enron Risk Management Services Corp., and Confirmation Nos. 1268.0, 1286.0, 1291.0, 1292.0, 1304.0, 1305.0, 1321.0, 1335.0, 1338.0, 1370.0, 1471.0, 1485.0, 1486.0, 1494.0, 1495.0, 1509.0, 1514.0, 1533.01, 1569.0, 1986.0, 2217.0, 2227.0, 2278.0, 2299.0, 2372.0, 2647.0 (Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.19 - Letter Agreement between Colorado Interstate Gas Company and Enron Oil & Gas Marketing, Inc. dated November 1, 1990 (Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10.23 - Gas Purchase Agreement between Enron Oil & Gas Company and Enron Oil & Gas Marketing, Inc. dated August 22, 1989 (Exhibit 10.41 to Form S-1). 10.24 - Gas Purchase Agreement between Enron Oil & Gas Company and Enron Oil & Gas Marketing, Inc. dated August 22, 1989 (Exhibit 10.42 to Form S-1). 10.25 - Enron Corp. 1991 Stock Plan (Exhibit 10.08 to Enron Corp. Annual Report on Form 10-K for the year ended December 31, 1991). 10.26 - Enron Corp. 1988 Deferral Plan (Exhibit 10.49 to Form S-1).
81
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.28 - Enron Executive Supplemental Survivor Benefits Plan Effective January 1, 1987 (Exhibit 10.51 to Form S-1). 10.30 - Credit Agreement between Enron Corp. and Enron Oil & Gas Company dated September 29, 1995 (Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.31 - Credit Agreement between Enron Oil & Gas Company and Enron Corp. dated September 29, 1995 (Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.34(a) - Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated effective December 14, 1994) (incorporated by reference to Exhibit A to the Company's Proxy Statement, dated March 27, 1995, with respect to the Company's 1995 Annual Meeting of Shareholders). 10.34(b) - Amendment to Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated Effective December 14, 1994) (Exhibit 10.34(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.34(c) - Second Amendment to Enron Oil & Gas Company 1992 Stock Plan (As Amended and Restated Effective December 14, 1994 (Exhibit 10.34(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.35 - Enron Corp. 1992 Deferral Plan (Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). 10.36(a) - Conveyance of Production Payment, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.36(b) - First Amendment to Conveyance of Production Payment, dated effective April 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.36(c) - Second Amendment to Conveyance of Production Payment, dated effective July 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.36(d) - Third Amendment to Conveyance of Production Payment, dated effective October 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.37(a) - Hydrocarbon Exchange Agreement dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.37(b) - Amendment to Hydrocarbon Exchange Agreement dated effective as of January 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(c) - First Amendment to Hydrocarbon Exchange Agreement dated effective as of April 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
82
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.37(d) - Second Amendment to Hydrocarbon Exchange Agreement dated effective as of July 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(e) - Amendment to Hydrocarbon Exchange Agreement dated effective as of August 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37(e) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). 10.37(f) - Fourth Amendment to Hydrocarbon Exchange Agreement, dated effective October 1, 1993, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.38 - Purchase and Sale Agreement, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.39(a) - Production and Delivery Agreement, dated September 25, 1992, between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). 10.39(b) - First Amendment to Production and Delivery Agreement, dated effective April 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.39(c) - Second Amendment to Production and Delivery Agreement, dated effective July 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(c) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.39(d) - Third Amendment to Production and Delivery Agreement, dated effective October 1, 1993 between Enron Oil & Gas Company and Cactus Hydrocarbon 1992-A Limited Partnership (Exhibit 10.39(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.57(a) - Letter Agreement relating to Natural Gas Swap Transactions, dated March 31, 1995, among Enron Oil & Gas Company, Enron Corp. and Enron Capital & Trade Resources Corp (Exhibit 10.57(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.57(b) - Amendment to Natural Gas Swap Transactions Letter Agreement, dated March 31, 1995, among Enron Oil & Gas Company, Enron Corp. and Enron Capital & Trade Resources Corp (Exhibit 10.57(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.58 - Confirmation Letter (revised due to adjustments to the attached Payment Schedule), dated March 31, 1995, between Enron Oil & Gas Company and Enron Capital & Trade Resources Corp. (ECT Transaction Reference No. 15198.00) (Exhibit 10.58 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.59 - Confirmation Letter (revised due to Price Change for 1998 and adjustment to the attached Payment Schedule), dated March 31, 1995, between Enron Oil & Gas Company and Enron Capital & Trade Resources Corp. (ECT Transaction Reference No. 15198.01) (Exhibit 10.59 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
83
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 10.60 - Services Agreement, dated January 1, 1997, between Enron Corp. and Enron Oil & Gas Company (Exhibit 10.60 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.61 - Equity Participation and Business Opportunity Agreement, dated December 9, 1997, between Enron Oil & Gas Company and Enron Corp. (Exhibit 10 to Form S-3 Registration Statement No. 333-44785, filed January 23, 1998). 10.62 - Stock Restriction and Registration Rights Agreement, dated December 9, 1997, between Enron Corp. and Enron Oil & Gas Company (Exhibit 10.62 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.63(a) - Enron Oil & Gas Company 1996 Deferral Plan (Exhibit 10.63(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.63(b) - First Amendment to Enron Oil & Gas Company 1996 Deferral Plan, dated effective as of December 9, 1997 (Exhibit 10.63(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.63(c) - Second Amendment to Enron Oil & Gas Company 1996 Deferral Plan, dated effective as of December 8, 1998. 10.64 - Executive Employment Agreement between Enron Oil & Gas Company and Mark G. Papa, effective as of November 1, 1997 (Exhibit 10.64 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). *10.65 - Executive Employment Agreement between Enron Oil & Gas Company and Edmund P. Segner, III, effective as of September 1, 1998. *10.66 - Executive Employment Agreement between Enron Oil & Gas Company and Dennis M. Ulak, effective as of September 1, 1998. *10.67 - Executive Employment Agreement between Enron Oil & Gas Company and Jeffery B. Sherrick, effective as of September 1, 1998. *21 - List of subsidiaries. *23.1 - Consent of DeGolyer and MacNaughton. *23.2 - Opinion of DeGolyer and MacNaughton dated January 11, 1999. *23.3 - Consent of Arthur Andersen LLP. *24 - Powers of Attorney. *27 - Financial Data Schedule.
EX-3.2 2 BY-LAWS 1 EXHIBIT 3.2 BYLAWS OF ENRON OIL & GAS COMPANY A Delaware Corporation Date of Adoption: August 23, 1989 As Amended: December 12, 1990, February 8, 1994, January 19, 1996, February 13, 1997, May 5, 1998. 2 BYLAWS Table of Contents
Page ---- Article I. Offices Section 1. Registered Office 1 Section 2. Other Offices 1 Article II. Stockholders Section 1. Place of Meetings 1 Section 2. Quorum; Adjournment of Meetings 1 Section 3. Annual Meetings 2 Section 4. Special Meetings 2 Section 5. Record Date 3 Section 6. Notice of Meeting 3 Section 7. Stockholder List 3 Section 8. Proxies 4 Section 9. Voting; Elections; Inspectors 4 Section 10. Conduct of Meetings 5 Section 11. Treasury Stock 5 Section 12. Business to Be Brought Before the Annual Meeting 6 Article III. Board of Directors Section 1. Power; Number; Term of Office 7 Section 2. Quorum; Voting 7 Section 3. Place of Meetings; Order of Business 7 Section 4. First Meeting 8 Section 5. Regular Meetings 8 Section 6. Special Meetings 8 Section 7. Nomination of Directors 8 Section 8. Removal 9 Section 9. Vacancies; Increases in the Number of Directors 9 Section 10. Compensation 10 Section 11. Action Without a Meeting; Telephone Conference Meeting 10
3
Page ---- Section 12. Approval or Ratification of Acts or Contracts by Stockholders 10 Section 13. Retirement 11 Article IV. Committees Section 1. Executive Committee 11 Section 2. Audit Committee 11 Section 3. Other Committees 11 Section 4. Procedure; Meetings; Quorum 12 Section 5. Substitution and Removal of Members; Vacancies 12 Article V. Officers Section 1. Number, Titles and Term of Office 12 Section 2. Powers and Duties of the Chairman of the Board 13 Section 3. Powers and Duties of the President, President-North American Operations, and President-International Operations 13 Section 4. Powers and Duties of Vice Chairman of the Board 14 Section 5. Vice Presidents 14 Section 6. General Counsel 14 Section 7. Secretary 14 Section 8. Deputy Corporate Secretary and Assistant Secretaries 15 Section 9. Treasurer 15 Section 10. Assistant Treasurers 15 Section 11. Action with Respect to Securities of Other Corporations 15 Section 12. Delegation 16 Article VI. Capital Stock Section 1. Certificates of Stock 16 Section 2. Transfer of Shares 16
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Page ---- Section 3. Ownership of Shares 17 Section 4. Regulations Regarding Certificates 17 Section 5. Lost or Destroyed Certificates 17 Article VII. Miscellaneous Provisions Section 1. Fiscal year 17 Section 2. Corporate Seal 17 Section 3. Notice and Waiver of Notice 18 Section 4. Facsimile Signatures 18 Section 5. Reliance upon Books, Reports and Records 18 Section 6. Application of Bylaws 18 Article VIII. Amendments 19
-4- 5 BYLAWS OF ENRON OIL & GAS COMPANY Article I Offices Section 1. Registered Office. The registered office of the Corporation required by the General Corporation Law of the State of Delaware to be maintained in the State of Delaware shall be the registered office named in the original Certificate of Incorporation of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Section 2. Offices. The Corporation may also have offices at such other places both within and without the state of incorporation of the Corporation as the Board of Directors may from time to time determine or the business of the Corporation may require. Article II Stockholders Section 1. Place of Meetings. All meetings of the stockholders shall be held at the principal office of the Corporation, or at such other place within or without the state of incorporation of the Corporation as shall be specified or fixed in the notices or waivers of notice thereof. Section 2. Quorum; Adjournment of Meetings. Unless otherwise required by law or provided in the Certificate of Incorporation or these Bylaws, (i) the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, (ii) in all matters other than election of directors, the affirmative vote of the holders of a majority of such stock so present or represented at any meeting of stockholders at which a quorum is present shall constitute the act of the stockholders, and (iii) where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative 6 vote of the majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, subject to the provisions of clauses (ii) and (iii) above. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Notwithstanding the other provisions of the Certificate of Incorporation or these Bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy and entitled to vote thereat, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called. Section 3. Annual Meetings. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place (within or without the state of incorporation of the Corporation), on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen (13) months subsequent to the last annual meeting of stockholders. Section 4. Special Meetings. Unless otherwise provided in the Certificate of Incorporation, special meetings of the stockholders for any purpose or purposes may be called at any time by the Chairman of the Board, by the President, by the Vice Chairman of the Board, by a majority of the Board of Directors, or by a majority of the executive committee (if any), at such time and at such place as may be stated in the notice of the meeting. A special meeting of stockholders shall be called by the Chairman of the Board, the President or the Secretary upon written request therefor, stating the purpose(s) of the meeting, delivered to such officer and signed by the holder(s) of at least ten percent (10%) of the issued and outstanding stock entitled to vote at such meeting. Business transacted at a special meeting shall be confined to the purpose(s) stated in the notice of such meeting. -2- 7 Section 5. Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors of the Corporation may fix a date as the record date for any such determination of stockholders, which record date shall not precede the date on which the resolutions fixing the record date are adopted and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting of stockholders, nor more than sixty (60) days prior to any other action. If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, if in accordance with Article VII, Section 3 of these Bylaws notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Notice of Meetings. Written notice of the place, date and hour of all meetings, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the Chairman of the Board, the President, the Vice Chairman of the Board, the Secretary or the other person(s) calling the meeting to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice may be delivered either personally or by mail. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Section 7. Stockholder List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stockholder list shall also be produced -3- 8 and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 8. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions. No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power. Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of such portion of the shares as is equal to the reciprocal of the fraction equal to the number of proxies representing such shares divided by the total number of shares represented by such proxies. Section 9. Voting; Elections; Inspectors. Unless otherwise required by law or provided in the Certificate of Incorporation, each stockholder shall on each matter submitted to a vote at a meeting of stockholders have one vote for each share of stock entitled to vote which is registered in his name on the record date for the meeting. For the purposes hereof, each election to fill a directorship shall constitute a separate matter. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws (or comparable instrument) of such corporation may prescribe, or in the absence of such provision, as the Board of Directors (or comparable body) of such corporation may determine. Shares registered in the name of a deceased person may be voted by the executor or administrator of such person's estate, either in person or by proxy. -4- 9 All voting, except as required by the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, upon request of the chairman of the meeting or upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by written ballots, unless otherwise provided in the Certificate of Incorporation. At any meeting at which a vote is taken by written ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. Such inspector shall receive the written ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector. Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited. Section 10. Conduct of Meetings. The meetings of the stockholders shall be presided over by the Chairman of the Board, or if the Chairman of the Board is not present, by the President, or if the President is not present, by the Vice Chairman of the Board, or if neither the Chairman of the Board, the President nor the Vice Chairman of the Board is present, by a chairman elected at the meeting. The Secretary of the Corporation, if present, shall act as secretary of such meetings, or if the Secretary is not present, the Deputy Corporate Secretary or an Assistant Secretary shall so act; if neither the Secretary or the Deputy Corporate Secretary or an Assistant Secretary is present, then a secretary shall be appointed by the chairman of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to the chairman in order. Section 11. Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes. Nothing in this Section 11 shall be construed as limiting the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. -5- 10 Section 12. Business to Be Brought Before the Annual Meeting. To be properly brought before the annual meeting of stockholders, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 12 of Article II, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 12 of Article II. In addition to any other applicable requirements, for business to be brought before an annual meeting by a stockholder of the Corporation, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 120 days prior to the anniversary date of the proxy statement for the preceding annual meeting of stockholders of the Corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the acquisition date, the class and the number of shares of voting stock of the Corporation which are owned beneficially by the stockholder, (iv) any material interest of the stockholder in such business, and (v) a representation that the stockholder intends to appear in person or by proxy at the meeting to bring the proposed business before the meeting. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 12. The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 12 of Article II, and if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 12 of Article II, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 12. -6- 11 Article III Board of Directors Section 1. Power; Number; Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and subject to the restrictions imposed by law or the Certificate of Incorporation, the Board of Directors may exercise all the powers of the Corporation. The number of directors which shall constitute the whole Board of Directors shall be determined from time to time by the Board of Directors (provided that no decrease in the number of directors which would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). If the Board of Directors makes no such determination, the number of directors shall be three. Each director shall hold office for the term for which such director is elected, and until such Director's successor shall have been elected and qualified or until such Director's earlier death, resignation or removal. Unless otherwise provided in the Certificate of Incorporation, directors need not be stockholders nor residents of the state of incorporation of the Corporation. Section 2. Quorum; Voting. Unless otherwise provided in the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business of the Board of Directors and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 3. Place of Meetings; Order of Business. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by law, in such place or places, within or without the state of incorporation of the Corporation, as the Board of Directors may from time to time determine. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board, or in the Chairman of the Board's absence by the President (should the President be a director), or in the President's absence by the Vice Chairman of the Board, or by the Board of Directors. -7- 12 Section 4. First Meeting. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders. Notice of such meeting shall not be required. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held next after the annual meeting of stockholders, the Board of Directors shall elect the officers of the Corporation. Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by the Chairman of the Board or, in the absence of the Chairman of the Board, by the President (should the President be a director), or in the President's absence, by the Vice Chairman of the Board. Notice of such regular meetings shall not be required. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President (should the President be a director) or the Vice Chairman of the Board or, on the written request of any two directors, by the Secretary, in each case on at least twenty-four (24) hours personal, written, telegraphic, cable or wireless notice to each director. Such notice, or any waiver thereof pursuant to Article VII, Section 3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for in the Certificate of Incorporation or these Bylaws. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. Section 7. Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 7 of Article III, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 7 of Article III. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at the annual meeting of the stockholders of the Corporation, not less than 120 days prior to the anniversary date of the proxy statement for the immediately preceding annual meeting of stockholders of the Corporation, and (ii) with respect to an election to be held at a special meeting of stockholders of the Corporation for the election of directors, not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or -8- 13 public disclosure of the date of the meeting was made, whichever first occurs. Such stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to the person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder, and (ii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. In the event that a person is validly designated as nominee to the Board and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee. No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 7 of Article III. The chairman of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if the chairman should so determine, the chairman shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 7 of Article III, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 7 of Article III. Section 8. Removal. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Section 9. Vacancies; Increases in the Number of Directors. Unless otherwise provided in the Certificate of Incorporation, vacancies existing on the Board of Directors for any reason and newly created directorships resulting from any increase in the authorized number of directors may be filled by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director; and -9- 14 any director so chosen shall hold office until the next annual election and until such Director's successor shall have been elected and qualified, or until such Director's earlier death, resignation or removal. Section 10. Compensation. Directors and members of standing committees may receive such compensation as the Board of Directors from time to time shall determine to be appropriate, and shall be reimbursed for all reasonable expenses incurred in attending and returning from meetings of the Board of Directors. Section 11. Action Without a Meeting; Telephone Conference Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee designated by the Board of Directors, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of the state of incorporation of the Corporation. Unless otherwise restricted by the Certificate of Incorporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone connection or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 12. Approval or Ratification of Acts or Contracts by Stockholders. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present) shall be as valid and as binding upon the Corporation and upon all the stockholders as if it has been approved or ratified by every stockholder of the Corporation. -10- 15 Section 13. Retirement. No incumbent Director serving the Corporation as of February 13, 1997, shall be eligible to stand for reelection as a Director of the Corporation after attaining the age of 73 years, and no Director elected subsequent to February 13, 1997, shall be eligible to stand for reelection as a Director of the Corporation after having attained the age of 72 years. Article IV Committees Section 1. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate an Executive Committee consisting of one or more of the directors of the Corporation, one of whom shall be designated chairman of the Executive Committee. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all the powers of the Board of Directors, including the power to authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that the Executive Committee shall not have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, amending, altering or repealing these Bylaws or adopting new bylaws for the Corporation or otherwise acting where action by the Board of Directors is specified by the Delaware General Corporation Law. The Executive Committee shall also have, and may exercise, all the powers of the Board of Directors, except as aforesaid, whenever a quorum of the Board of Directors shall fail to be present at any meeting of the Board. Section 2. Audit Committee. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate an Audit Committee consisting of one or more of the directors of the Corporation, one of whom shall be designated chairman of the Audit Committee. The Audit Committee shall have and may exercise such powers and authority as provided in the resolution creating it and as determined from time to time by the Board of Directors. Section 3. Other Committees. The Board of Directors may, by resolution passed from time to time by a majority of the whole Board of Directors, designate such other committees as it shall see fit consisting of one or more of the directors of the Corporation, one of whom shall be designated chairman of each such committee. Any such committee -11- 16 shall have and may exercise such powers and authority as provided in the resolution creating it and as determined from time to time by the Board of Directors. Section 4. Procedure; Meetings; Quorum. Any committee designated pursuant to this Article IV shall keep regular minutes of its actions and proceedings in a book provided for that purpose and report the same to the Board of Directors at its meeting next succeeding such action, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by such committee or the Board of Directors. Should a committee fail to fix its own rules, the provisions of these Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum, except as provided in Section 5 of this Article IV, and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. Section 5. Substitution and Removal of Members; Vacancies. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. The Board of Directors shall have the power at any time to remove any member(s) of a committee and to appoint other directors in lieu of the person(s) so removed and shall also have the power to fill vacancies in a committee. Article V Officers Section 1. Number, Titles and Term of Office. The officers of the Corporation shall be a Chairman of the Board, a President, a President-North American Operations, one or more Presidents-International Operations, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a General Counsel, a Treasurer, a Secretary and such other officers as the Board of Directors may from time to time elect or appoint (including, but not limited to, a Vice Chairman of the Board, a Deputy Corporate Secretary, one or more Assistant Secretaries and one or more Assistant Treasurers). Each officer shall hold office until such officer's successor shall be duly elected and shall qualify or until such officer's death or until such officer shall resign or shall have been removed. Any number of offices may be held by -12- 17 the same person, unless the Certificate of Incorporation provides otherwise. Except for the Chairman of the Board and the Vice Chairman of the Board, no officer need be a director. Section 2. Powers and Duties of the Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation. Subject to the control of the Board of Directors and the Executive Committee (if any), the Chairman of the Board shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the Chairman of the Board by the Board of Directors. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors. Section 3. Powers and Duties of the President, President-North American Operations, and President-International Operations. (a) Unless the Board of Directors otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board of Directors otherwise determines, the President shall, in the absence of the Chairman of the Board or if there be no Chairman of the Board, preside at all meetings of the stockholders and (should the President be a director) of the Board of Directors; and the President shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the President by the Board of Directors or the Chairman of the Board. (b) Unless the Board of Directors otherwise determines, the President-North American Operations shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation pertaining to the Corporation's North American operations; and the President-North American Operations shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the President-North American Operations by the Board of Directors or the Chairman of the Board. (c) Unless the Board of Directors otherwise determines, each President-International Operations shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation -13- 18 pertaining to the Corporation's international operations; and each President-International Operations shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to each President-International Operations by the Board of Directors or the Chairman of the Board. Section 4. Powers and Duties of the Vice Chairman of the Board. The Board of Directors may assign areas of responsibility to the Vice Chairman of the Board, and, in such event, and subject to the overall direction of the Chairman of the Board and the Board of Directors, the Vice Chairman of the Board shall be responsible for supervising the management of the affairs of the Corporation and its subsidiaries within the area or areas assigned and shall monitor and review on behalf of the Board of Directors all functions within the corresponding area or areas of the Corporation and each such subsidiary of the Corporation. In the absence of the President, or in the event of the President's inability or refusal to act, the Vice Chairman of the Board shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Further, the Vice Chairman of the Board shall have such other powers and duties as designated in accordance with these Bylaws and as from time to time may be assigned to the Vice Chairman of the Board by the Board of Directors or the Chairman of the Board. Section 5. Vice Presidents. Each Vice President shall at all times possess power to sign all certificates, contracts and other instruments of the Corporation, except as otherwise limited in writing by the Chairman of the Board, the President or the Vice Chairman of the Board or of the Corporation. Each Vice President shall have such other powers and duties as from time to time may be assigned to such Vice President by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. Section 6. General Counsel. The General Counsel shall act as chief legal advisor to the Corporation. The General Counsel may have one or more staff attorneys and assistants, and may retain other attorneys to conduct the legal affairs and litigation of the Corporation under the General Counsel's supervision. Section 7. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, committees of the Board of Directors and the stockholders, in books provided for that purpose; shall attend to the giving and serving of all notices; may in the name of the Corporation affix the seal of the Corporation to all contracts of the Corporation and attest the affixation of the seal of the Corporation thereto; may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable -14- 19 times be open to inspection of any director upon application at the office of the Corporation during business hours; shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Secretary by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board; and shall in general perform all acts incident to the office of Secretary, subject to the control of the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. Section 8. Deputy Corporate Secretary and Assistant Secretaries. The Deputy Corporate Secretary and each Assistant Secretary shall have the usual powers and duties pertaining to such offices, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Deputy Corporate Secretary or an Assistant Secretary by the Board of Directors, the Chairman of the Board, the President, the Vice Chairman of the Board, or the Secretary. The Deputy Corporate Secretary shall exercise the powers of the Secretary during that officer's absence or inability or refusal to act. Section 9. Treasurer. The Treasurer shall have responsibility for the custody and control of all the funds and securities of the Corporation, and shall have such other powers and duties as designated in these Bylaws and as from time to time may be assigned to the Treasurer by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board. The Treasurer shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors, the Chairman of the Board, the President and the Vice Chairman of the Board; and the Treasurer shall, if required by the Board of Directors, give such bond for the faithful discharge of the Treasurer's duties in such form as the Board of Directors may require. Section 10. Assistant Treasurers. Each Assistant Treasurer shall have the usual powers and duties pertaining to such office, together with such other powers and duties as designated in these Bylaws and as from time to time may be assigned to each Assistant Treasurer by the Board of Directors, the Chairman of the Board, the President, the Vice Chairman of the Board, or the Treasurer. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer's absence or inability or refusal to act. Section 11. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board, the President or the Vice Chairman of the Board, together with the Secretary, the Deputy Corporate Secretary or any Assistant Secretary shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers -15- 20 which this Corporation may possess by reason of its ownership of securities in such other corporation. Section 12. Delegation. For any reason that the Board of Directors may deem sufficient, the Board of Directors may, except where otherwise provided by statute, delegate the powers or duties of any officer to any other person, and may authorize any officer to delegate specified duties of such officer to any other person. Any such delegation or authorization by the Board shall be effected from time to time by resolution of the Board of Directors. Article VI Capital Stock Section 1. Certificates of Stock. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the Certificate of Incorporation, as shall be approved by the Board of Directors. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board, President, Vice Chairman of the Board or a Vice President and the Secretary, Deputy Corporate Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer of the Corporation representing the number of shares (and, if the stock of the Corporation shall be divided into classes or series, certifying the class and series of such shares) owned by such stockholder which are registered in certified form; provided, however, that any of or all the signatures on the certificate may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder's name and number of shares. Section 2. Transfer of Shares. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by -16- 21 proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the state of incorporation of the Corporation. Section 4. Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation. Section 5. Lost or Destroyed Certificates. The Board of Directors may determine the conditions upon which the Corporation may issue a new certificate of stock in place of a certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed and may require the owner of such certificate or such owner's legal representative to give bond, with surety sufficient to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate in the place of the one so lost, stolen or destroyed. Article VII Miscellaneous Provisions Section 1. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January of each year. Section 2. Corporate Seal. The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of its incorporation, which seal shall be in the charge of the Secretary and shall be affixed to certificates of stock, debentures, bonds, and other documents, in accordance with the direction of the Board of Directors or a committee thereof, and as may be required by law; however, the Secretary may, if the Secretary deems it expedient, have a facsimile of the corporate seal inscribed on any such certificates of stock, debentures, bonds, contracts or other documents. Duplicates of the seal may be kept for use by the Deputy Corporate Secretary or any Assistant Secretary. -17- 22 Section 3. Notice and Waiver of Notice. Whenever any notice is required to be given by law, the Certificate of Incorporation or under the provisions of these Bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, cable or wireless transmission (including by telecopy or facsimile transmission) or (ii) by deposit of the same in a post office box or by delivery to an overnight courier service company in a sealed prepaid wrapper addressed to the person entitled thereto at such person's post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing or delivery to courier, as the case may be. Whenever notice is required to be given by law, the Certificate of Incorporation or under any of the provisions of these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person, including without limitation a director, at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. Section 4. Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors. Section 5. Reliance upon Books, Reports and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors, shall, in the performance of such person's duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinion, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 6. Application of Bylaws. In the event that any provisions of these Bylaws is or may be in conflict with any law of the United States, of the state of incorporation of the Corporation or of any other governmental body or power having jurisdiction over this Corporation, or over the subject matter to which such provision of these Bylaws applies, or may apply, such provision of these Bylaws shall be inoperative -18- 23 to the extent only that the operation thereof unavoidably conflicts with such law, and shall in all other respects be in full force and effect. Article VIII Amendments The Board of Directors shall have the power to adopt, amend and repeal from time to time Bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to amend or repeal such Bylaws as adopted or amended by the Board of Directors. -19- EX-4.3.E 3 FOURTH AMENDMENT TO AMENDED 1994 STOCK PLAN 1 EXHIBIT 4.3(e) FOURTH AMENDMENT TO AMENDED AND RESTATED ENRON OIL & GAS COMPANY 1994 STOCK PLAN WHEREAS, Enron Oil & Gas Company (the "Company") has theretofore adopted and maintains the Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, as amended by amendments dated effective as of December 12, 1995, December 10, 1996, and December 9, 1997 (hereinafter collectively referred to as the "Plan"); and WHEREAS, the Company desires to amend the Plan to provide for the increase in the number of shares available for grant; NOW, THEREFORE, the Plan is amended as follows: Section 3.1(i) is hereby rescinded and amended in its entirety to read as follows: "(i) Calculation Of Number Of Shares Available. The number of Shares available for granting Awards under the Plan shall be twelve million (12,000,000) Shares, subject to adjustment as provided in Section 3.2." AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed. Dated effective as of May 5, 1998. ATTEST: ENRON OIL & GAS COMPANY By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards ------------------------------ ------------------------------- Angus H. Davis Patricia L. Edwards Vice President, Communications Vice President, Human Resources and Corporate Secretary and Administration EX-4.3.F 4 FIFTH AMENDMENT TO AMENDED 1994 STOCK PLAN 1 EXHIBIT 4.3(f) FIFTH AMENDMENT TO AMENDED AND RESTATED ENRON OIL & GAS COMPANY 1994 STOCK PLAN WHEREAS, Enron Oil & Gas Company (the "Company") has theretofore adopted and maintains the Amended and Restated Enron Oil & Gas Company 1994 Stock Plan, as amended by amendments dated effective as of December 12, 1995, December 10, 1996, December 9 1997, and May 5, 1998 (hereinafter collectively referred to as the "Plan"); and WHEREAS, the Company desires to amend the Plan to provide for the increase in the number of shares available for grant; NOW, THEREFORE, the Plan is amended as follows: Section 3.1(i) is hereby rescinded and amended in its entirety to read as follows: "(i) Calculation of Number of Shares Available. The number of Shares available for granting Awards under the Plan shall be fifteen million (15,000,000) Shares, subject to adjustment as provided in Section 3.2." AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed. Dated effective as of December 8, 1998. ATTEST: ENRON OIL & GAS COMPANY By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards ------------------------------ ------------------------------- Angus H. Davis Patricia L. Edwards Vice President, Communications Vice President, Human Resources And Corporate Secretary and Administration EX-10.3 5 1995 TAX ALLOCATION AGREEMENT 1 EXHIBIT 10.3 TAX ALLOCATION AGREEMENT THIS AGREEMENT ("Agreement") is entered into effective as of the Deconsolidation Date among Enron Corp., formerly a Delaware corporation and currently an Oregon corporation ("Enron"), Enron Oil & Gas Company, a Delaware corporation ("EOG"), and those subsidiaries of EOG (the "EOG Subsidiaries") listed on the signature pages of this Agreement as additional parties to this Agreement. (Enron, EOG and the EOG Subsidiaries are referred to collectively as the "Parties" and separately as a "Party"). Enron, EOG, and certain of the EOG Subsidiaries entered into that certain First Amended and Restated Tax Allocation Agreement (the "Base Agreement") on the 9th day of August, 1991. Enron, EOG, and certain of the EOG Subsidiaries entered into that certain Modification "A" to the First Amended and Restated Tax Allocation Agreement ("Modification A") on February 6, 1992. Enron, EOG, and the EOG Subsidiaries entered into that certain 1995 Tax Allocation Agreement (the "1995 Agreement") on December 11, 1995. Each of the Base Agreement, Modification A, and the 1995 Agreement provided for the apportionment and allocation of federal income and other tax liabilities among the Parties. On the Deconsolidation Date, Enron sold a number of shares of EOG common stock which reduced Enron's ownership of EOG below that required to include EOG in the Consolidated Return of the Enron Group for periods following the Deconsolidation Date. Enron, EOG, and the EOG Subsidiaries now desire to terminate the 1995 Agreement and to restate their respective rights, obligations and intentions as to tax matters for the Post-Deconsolidation Date Period. Accordingly, the Parties hereby agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms have the following meanings: "Actual Tax Liability" is defined in Section 3.3. "Actual Tax Savings" is defined in Section 3.3. "Base Agreement" is defined in the preamble to this Agreement. 2 "Change Date" is defined in Section 3.3. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Alternative Minimum Tax Liability" means the consolidated alternative minimum tax liability computed in accordance with sections 55, 1502 and 1503 of the Code and shown on a Consolidated Return. "Consolidated Group" means an "affiliated group" of corporations of which one corporation is the "common parent" corporation, as such terms are defined in section 1504(a)(1) of the Code. "Consolidated Minimum Tax Credits" means the consolidated minimum tax credits computed in accordance with sections 53, 1502 and 1503 of the Code and shown on a Consolidated Return. "Consolidated Return" means the consolidated federal income tax return of a Consolidated Group for a taxable year. "Consolidated Tax Liability" means the consolidated federal income tax liability determined 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 without regard to any Consolidated Alternative Minimum Tax Liability or any Consolidated Minimum Tax Credits. "Deconsolidation Date" means the last day on which EOG was includible as a member of the Enron Group, which the Parties believe to be December 13, 1995. "Enron" is defined in the preamble to this Agreement. "Enron Entity" for any taxable year means any corporation or other entity which is required to be included in the Consolidated Return of the Enron Group or in a Unitary Tax Return filed by Enron, other than an EOG Entity. "Enron Group" means the Consolidated Group of which Enron is the common parent corporation. "EOG" is defined in the preamble to this Agreement. "EOG Entity" for any taxable year means any of EOG, the EOG Subsidiaries, and any other corporation or other entity 50 percent or more of the outstanding equity interests (by -2- 3 voting power or value) in which is owned directly or indirectly by any one or more other EOG Entities. "EOG Group" means the Consolidated Group of which EOG is the common parent corporation. "EOG 1995 Adjustment" is defined in Section 5.2. "EOG 1995 Unsevered Adjustment" is defined in Section 5.2. "EOG Subsidiaries" is defined in the preamble to this Agreement. "EOG Unitary Loss" is defined in Section 2.2. "Fuel Contracts" is defined in Section 2.1. "Hypothetical Tax Liability" is defined in Section 3.3. "Interest Rate" means eight percent (8%) per annum or, if lower, the maximum rate of interest permitted by applicable law. "Loss Contracts" means the Fuel Contracts listed in Schedule A to this Agreement. "Loss Contracts Tax Basis" is defined in Section 3.3. "Modification A" is defined in the preamble to this Agreement. "Net Swap Gain" is defined in Section 2.1 "1995 Agreement" is defined in the preamble to this Agreement. "1995 Swap Transactions" is defined in Section 2.1. "Party" and "Parties" are defined in the preamble to this Agreement. "Permanent Difference" is defined in Section 5.2. "Pre-Deconsolidation Date Period" means those taxable years ending on or before December 31, 1994, plus the taxable period beginning January 1, 1995 and ending on and including the Deconsolidation Date. -3- 4 "Post-Deconsolidation Date Period" means that period following the Deconsolidation Date. "Recognized Loss Allowance Year" is defined in Section 3.3. "Recognized Loss Allowed Portion" is defined in Section 3.3. "Recognized Loss Amortization Amount" is defined in Section 3.3. "Section 29 Credits" means the credits provided by section 29 of the Code, prior to application of the limitation of section 29(b)(6) of the Code. "Swap Contracts" is defined in Section 2.1. "Swap Contracts Tax Basis" means EOG's federal income tax basis in the Swap Contracts resulting from the 1995 Swap Transactions. "Tax" or "Taxes" means any tax imposed by any federal, state, local, or foreign taxing authority, including, without limitation, income tax, add-on or alternative minimum tax, ad valorem tax, environmental tax, excise tax, franchise tax, gains tax, gross income tax, gross receipts tax, occupation tax, payroll tax, profits tax, severance tax, value added tax, windfall profit tax, withholding tax, and any other tax or like assessment, together with any interest, penalties, additions to tax or additional amounts imposed in connection with such tax. "Tax Item" means any item of income, gain, loss, deduction or credit, or other item, relevant to the determination of any Tax. "Tax Opinion" is defined in Section 5.2. "Timing Difference" is defined in Section 5.2. "Unitary Tax" means a state income tax which reflects the combined and/or consolidated tax reporting (either on a domestic or worldwide basis) of a corporation and its affiliates and which is imposed by that state either (i) on its apportioned and/or allocable share of the net income of a taxpayer and its United States affiliates that are engaged in a unitary business, part of which is conducted in the state or (ii) 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. A "unitary business" is a group of affiliated corporations that (i) exhibits common ownership, centralized management, functional integration, and/or economies of scale, or (ii) is doing business in the state and included in a Consolidated Return. -4- 5 "Unitary Tax Liability" means the liability for a Unitary Tax. "Unitary Tax Return" means a state income tax return with respect to a Unitary Tax. ARTICLE II TAX RETURNS 2.1 AMENDED TAX RETURNS FOR 1995. Within 30 days following the execution of this Agreement, Enron shall file an amended Consolidated Return for the Enron Group for 1995, and as soon as practicable thereafter but in any event within the time limits prescribed by applicable law, Enron shall file (where applicable) amended Unitary Tax Returns for 1995, in each case to reflect therein the recognition by EOG of gain (net of loss where determined by Enron to be allowable by the relevant state taxing jurisdiction) on the transfer of certain natural gas fuel supply contracts and natural gas fuel purchase contracts and its position in a natural-gas-based notional principal contract (collectively, the "Fuel Contracts") in exchange for two notional principal contracts (the "Swap Contracts") with Enron Capital & Trade Resources Corp. on March 31, 1995 (the "1995 Swap Transactions"). The Parties agree that the amount of the gain from the 1995 Swap Transactions net of the amortization of the Swap Contracts Tax Basis in the Pre-Deconsolidation Date Period is $143,179,195 (the "Net Swap Gain") and that the amended tax returns will reflect such amount except to the extent that the relevant state taxing jurisdiction allows the Net Swap Gain to be offset by any loss from the 1995 Swap Transactions. Enron shall pay the additional Taxes attributable to the Net Swap Gain so reflected in such amended tax returns. 2.2 UNITARY TAX RETURNS. (a) Enron shall continue to file any Unitary Tax Return which includes or reflects the operations of both Enron Entities and EOG Entities, and shall allocate the Unitary Tax Liability owed pursuant to such Unitary Tax Returns as provided in Section 2.2(b) or 2.2(c). (b) With respect to any Unitary Tax Return which includes or reflects the operations of any of the EOG Entities for any taxable year ending on or before December 31, 1996, the Unitary Tax Liability for the period covered by such Unitary Tax Return shall be allocated between Enron and EOG in a manner consistent with the methodology followed for the Pre-Deconsolidation Date Period. No Unitary Tax Liability shall be allocated to EOG by Enron for 1995 except (x) with respect to the Net Swap Gain reflected in the amended returns as provided in Sections 2.1 and 3.1(iii) of this Agreement and (y) with respect to any -5- 6 change to the Unitary Tax Liability for 1995 by reason of the filing of any other amended return or an audit of any tax return. (c) With respect to any Unitary Tax Return which includes or reflects the operations of any of the EOG Entities for any taxable year ending after December 31, 1996, the Unitary Tax Liability for the period covered by such Unitary Tax Return shall be allocated to EOG to the extent of the amount of Unitary Tax which would be due with respect to such period if such Unitary Tax Return included only those EOG Entities, and the balance of such Unitary Tax Liability shall be allocated to Enron. If any such Unitary Tax Return would show a loss for the taxable year if it included only the EOG Entities (an "EOG Unitary Loss"), Enron shall compensate EOG for such EOG Unitary Loss, when and to the extent that such EOG Unitary Loss actually is utilized and results in a reduction in the amount of Unitary Tax Liability of one or more Enron Entities, by the payment to EOG of an amount equal to the product of the EOG Unitary Loss so utilized and the effective rate of Unitary Tax applicable to the EOG Entities (as determined by Enron and EOG) for the taxable year in which such EOG Unitary Loss is so utilized. In the event of any adjustment to an EOG Tax Item or an EOG Unitary Loss (or its utilization) by reason of the filing of an amended return or the audit of a tax return, the amount of any payment due from Enron to EOG with respect to an EOG Unitary Loss shall be recomputed, and a payment shall be made between Enron and EOG to reflect such adjustment. (d) Schedules allocating the Unitary Tax Liability between the Enron Entities and the EOG Entities, respectively, shall be prepared by Enron and provided to EOG for its review by December 1 of the year in which the Unitary Tax Return is filed. EOG shall pay to Enron the amount of Unitary Tax Liability so allocated to the EOG Entities by December 31 of such year; any amount not so paid shall bear interest at the Interest Rate until paid. If EOG does not approve such schedules, EOG and Enron shall resolve their differences on a mutually agreeable basis; if Enron and EOG agree on an allocation of Unitary Tax Liability to the EOG Entities that is less than the amount previously paid by EOG to Enron therefor, Enron shall refund such excess to EOG together with interest at the Interest Rate. In the event a Unitary Tax Return is amended or audited, schedules reallocating the Unitary Tax Liability between the Enron Entities and the EOG Entities, respectively, shall be prepared by Enron and provided to EOG for its review. EOG shall pay to Enron any increase in the amount of Unitary Tax Liability so allocated to the EOG Entities, or Enron shall pay to EOG any decrease in the amount of Unitary Tax Liability so allocated to the EOG Entities, within 30 days after Enron delivers such schedules to EOG; any amount not so paid shall bear interest at the Interest Rate until paid. If EOG does not approve such schedules, EOG and Enron shall resolve their differences on a mutually agreeable basis; if Enron and EOG agree on a reallocation of Unitary Tax Liability to the EOG Entities that is less than the amount previously paid by EOG to Enron therefor, Enron shall refund such excess to EOG together with interest at the Interest Rate. -6- 7 ARTICLE III PAYMENTS BETWEEN PARTIES 3.1 PAYMENTS BETWEEN ENRON AND EOG. Upon the execution of this Agreement, Enron shall be obligated to pay to EOG, and EOG shall be obligated to pay to Enron, the following amounts on the following dates: (i) Enron shall pay to EOG $13,000,000 on the date of execution of this Agreement plus interest thereon at the Interest Rate for the period from December 18, 1995 to the date of execution of this Agreement. (ii) EOG shall pay to Enron $50,112,718 in six annual installments of $8,352,119.66 each (except for the last installment which shall be in the amount of $8,352,119.70) as of January 1 of the years 1996 through 2001. The first three such installments shall be paid on the date of execution of this Agreement, and the remaining three installments shall be paid on January 1, 1999, January 1, 2000 and January 1, 2001, respectively. (iii) EOG shall pay to Enron the amount of Unitary Tax Liability attributable to the Net Swap Gain reflected in the amended Unitary Tax Returns filed pursuant to Section 2.1 of this Agreement, within 5 days after delivery by Enron to EOG of a schedule of such Unitary Tax Liability. Any amount not paid on the date specified for such amount shall bear interest at the Interest Rate until paid. 3.2 PAYMENTS FOR USE OF CREDITS. As of the date of this Agreement, no Consolidated Minimum Tax Credits have been allocated to EOG or any EOG Entity by Enron based on Consolidated Returns of the Enron Group for the Pre-Deconsolidation Date Period. In the event Consolidated Minimum Tax Credits are allocated to EOG or any EOG Entity for any taxable year or period in the Pre-Deconsolidation Date Period, EOG shall make a good faith effort to utilize such Consolidated Minimum Tax Credits, and shall be obligated to reimburse Enron for the amount of such Consolidated Minimum Tax Credits so allocated to EOG upon the occurrence of the earlier of the following two events: (i) the date on which EOG files its federal income tax return for a taxable year in the Post-Deconsolidation Date Period in which EOG or any EOG Entity utilizes any such Consolidated Minimum Tax Credits; or -7- 8 (ii) the date on which the Tax liability of EOG or any EOG Entity is reduced by such Consolidated Minimum Tax Credits (if not on an original return) by reason of the receipt of a refund of Tax or the reduction in a payment of Tax otherwise required to be made by EOG or an EOG Entity. Any minimum tax credits generated by EOG in the Post-Deconsolidation Date Period shall be disregarded in making determinations pursuant to this Section 3.2. Payments by EOG to reimburse Enron shall be made for each taxable year in the Post-Deconsolidation Date Period upon the occurrence of either of the above events until the Consolidated Minimum Tax Credits allocated to EOG are used in their entirety. In the event the amount of the Consolidated Minimum Tax Credits allocated to EOG is 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 this Section 3.2, Enron shall be obligated to pay EOG for any assessment of Taxes made against it by the Internal Revenue Service attributable to such adjustment. Any such payment by Enron shall be made to EOG on the day EOG pays the Internal Revenue Service the amount of such assessment. 3.3 PAYMENT FOR THE RECOGNITION OF LOSS ON 1995 SWAP TRANSACTIONS. (a) In the event Enron's stock ownership in EOG is reduced on any date after the execution of this Agreement (the "Change Date") such that Enron and EOG are no longer members of the same controlled group (within the meaning of section 267(b)(3) and (f) of the Code), Enron and EOG shall determine EOG's federal income tax basis in the Loss Contracts as of the Change Date (the "Loss Contracts Tax Basis"). If any portion of the Loss Contracts Tax Basis is allowed as an item of deduction or amortization to the Enron Group (a "Recognized Loss Allowed Portion") for any taxable year in the Post-Deconsolidation Date Period (a "Recognized Loss Allowance Year"), Enron shall be obligated to pay to EOG with respect to each of the six taxable years commencing with such Recognized Loss Allowance Year the greater of (x) the Actual Tax Savings (as determined in Section 3.3(a)(i)) or (y) the Recognized Loss Amortization Amount (as determined in Section 3.3(a)(ii)). Each such payment shall be made by Enron to EOG within 30 days after the filing of the Consolidated Return of the Enron Group for the respective taxable year. In the event of any adjustment that reduces the amount Enron is obligated to pay to EOG under this Section 3.3, EOG shall repay to Enron an amount equal to such reduction upon written notice from Enron of such adjustment. (i) The "Actual Tax Savings" means the amount by which the Hypothetical Tax Liability exceeds the Actual Tax Liability for any taxable year. For this purpose, the "Actual Tax Liability" means the Consolidated Tax Liability of the Enron Group for the taxable year, and the "Hypothetical Tax Liability" means the amount that would be the Actual Tax Liability for such -8- 9 taxable year if the Recognized Loss Allowed Portion were not taken into account. (ii) The "Recognized Loss Amortization Amount" means an amount determined by (x) multiplying the Recognized Loss Allowed Portion by the maximum rate of tax imposed on corporations under section 11 of the Code for the year in which the Recognized Loss Allowed Portion is allowed as an item of deduction or amortization to the Enron Group and (y) dividing the result by six. (b) Notwithstanding the preceding provisions of this Section 3.3, in no event shall the aggregate payments made by Enron to EOG under Section 3.3(a) with respect to any Recognized Loss Allowed Portion exceed an amount determined by multiplying such Recognized Loss Allowed Portion by the maximum rate of tax imposed on corporations under section 11 of the Code for the year in which such Recognized Loss Allowed Portion is allowed as an item of deduction or amortization to the Enron Group. (c) Any Recognized Loss Allowed Portion shall be treated as an EOG Unitary Loss for purposes of Section 2.2(c) of this Agreement. 3.4 PAYMENTS FOR SECTION 29 CREDITS. Enron shall pay to EOG on the date of the execution of this Agreement the net amount of $669,184 related to the net underreporting of Section 29 Credits for the taxable years 1992 through 1994 (which is comprised of $956,346 related to underreporting, and $ 287,162 related to overreporting, of Section 29 Credits for such years), together with interest at the Interest Rate computed from the 15th day of the third month following the end of the taxable year to which the respective Section 29 Credits relate. 3.5 PAYMENTS WITH RESPECT TO CAPITAL LOSS CARRYBACKS. If for any taxable year in the Post-Deconsolidation Date Period EOG or an EOG Entity has a "net capital loss" that is a "capital loss carryback" to a "prior taxable year" in the Pre-Deconsolidation Date Period in which there is "capital gain net income" (as such terms are defined in section 1212(a) of the Code), the following payments shall be made between Enron and EOG upon the allowance of such capital loss carryback as a deduction against the capital gain net income for such prior taxable year: (i) Enron shall pay to EOG an amount determined by multiplying the capital loss carryback of EOG or such EOG Entity that actually is allowed as a deduction to the Enron Group for the prior taxable year by the statutory rate of federal income tax imposed on the net capital gain of a corporation for such prior taxable year. -9- 10 (ii) EOG shall pay to Enron an amount equal to 100% of the Section 29 Credits shown on the Consolidated Return of the Enron Group for the prior taxable year that are disallowed for the prior taxable year because of the carryback of the net capital loss of EOG or such EOG Entity to the prior taxable year, together with interest on such amount at the Interest Rate from the 15th day of the third month following the end of the prior taxable year until paid. ARTICLE IV INDEMNIFICATION FOR TAXES 4.1 EOG TAXES. EOG and the EOG Subsidiaries, jointly and severally, shall be responsible for, and shall indemnify and hold Enron and each Enron Entity harmless from, (x) all Taxes imposed on, incurred by, or measured by the income, operations, assets or capital of, EOG or any EOG Entity and (y) all Taxes imposed on or incurred by Enron or any Enron Entity which are allocated to EOG or any EOG Entity by Enron in accordance with the allocation methodology set forth in the Base Agreement, Modification A, or this Agreement, including specifically, but without limitation, any Taxes attributable to the 1995 Swap Transactions or the amended returns filed pursuant to Section 2.1 of this Agreement in excess of those paid by Enron pursuant to Section 2.1 of this Agreement. EOG, in turn, shall be entitled to receive all refunds of such Taxes, if any (including any refund of Taxes attributable to the 1995 Net Swap Transactions paid by Enron pursuant to Section 2.1 of this Agreement), from either the applicable taxing authorities or Enron (in the event such refunds have been made directly to Enron). 4.2 ENRON TAXES. Enron shall be responsible for, and shall indemnify and hold EOG and the EOG Subsidiaries harmless from, (x) all Taxes imposed on, incurred by, or measured by the income, operations, assets or capital of, Enron or any Enron Entity and (y) all Taxes imposed on or incurred by EOG or any EOG Entity which are allocated to Enron or any Enron Entity by Enron in accordance with the allocation methodology set forth in the Base Agreement, Modification A, or this Agreement. Enron, in turn, shall be entitled to receive all refunds of such Taxes, if any, from either the applicable taxing authorities or EOG (in the event such refunds have been made directly to EOG). 4.3 PAYMENTS. Any payment by a Party to indemnify another Party pursuant to this Article IV shall be made within 5 days after demand therefor by the indemnified Party. -10- 11 ARTICLE V AUDITS AND OTHER TAX PROCEEDINGS 5.1 GENERAL COOPERATION AND EXCHANGE OF INFORMATION. (a) Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand, shall provide or cause to be provided to the other Party copies of all correspondence received from any taxing authority in connection with the liability of the Parties for Taxes for the Pre-Deconsolidation Date Period. Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand, shall also provide the other Party with access to or copies of any materials requested by such Party which would be of assistance in resolving any tax matters 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 imposed on the Parties or their respective affiliates. (b) Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand, and their affiliates, will preserve and retain all returns, schedules, workpapers, and all material records and 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 representatives shall be entitled to make copies of any such books and records relating to Enron or EOG and the EOG Subsidiaries as they shall deem necessary. (c) Enron, on the one hand, and EOG and the EOG Subsidiaries, 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 5.1. Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand, shall make available to the representatives of the other Party or any affiliate thereof sufficient work space and facilities to perform the activities described in this Section 5.1. Any information obtained pursuant to this Section 5.1 shall be kept confidential, except as may otherwise be 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 5.1 at its own expense. -11- 12 5.2 AUDITS. (a) In the event of an audit by the Internal Revenue Service or any state, local or foreign taxing authority of a tax return filed by Enron for any taxable period or portion thereof in the Pre-Deconsolidation Date Period, or of any Unitary Tax Return or other tax return for any period that includes both an Enron Entity and an EOG Entity, Enron shall give EOG timely and reasonable notice of audit proceedings, and EOG and the EOG Subsidiaries shall provide all necessary information and other assistance reasonably requested by Enron with respect to issues concerning the activities of EOG and the EOG Subsidiaries. All communications with the applicable taxing authority concerning such audit shall be made or controlled by Enron. Enron shall use all reasonable efforts to refute any unfavorable adjustments to EOG and the EOG Entities, but Enron shall have full, exclusive and final control over all such audit proceedings, except to the extent provided in Section 5.2(b). (b) In the event that the Internal Revenue Service proposes an adjustment to any Tax Item of EOG or any of the EOG Subsidiaries for that portion of the 1995 taxable year ending on the Deconsolidation Date with respect to which EOG has obtained and delivered to Enron a written opinion satisfactory in form and substance to Enron of nationally recognized tax counsel satisfactory to Enron (the "Tax Opinion") to the effect that it is at least more likely than not that the tax treatment of such Tax Item (as reported on the 1995 Consolidated Return of the Enron Group) will be upheld (an adjustment which meets the foregoing Tax Opinion requirement is referred to as an "EOG 1995 Adjustment"), EOG shall be permitted (at EOG's sole expense) to control the audit proceedings and pursue any available administrative and judicial remedies with respect to such EOG 1995 Adjustment, but only if such EOG 1995 Adjustment can be separated from the audit and final determination of all other adjustments proposed with respect to other Tax Items in the 1995 Consolidated Return of the Enron Group in a manner that would permit Enron to control the settlement or contest of all such other Tax Items separate and apart from the settlement or contest of the Tax Item related to such EOG 1995 Adjustment. Any EOG 1995 Adjustment which cannot be so separated from all other adjustments (an "EOG 1995 Unsevered Adjustment") shall be subject to the control of Enron as provided in Section 5.2(a). However, each of the EOG 1995 Unsevered Adjustments shall be categorized as either a Timing Difference or a Permanent Difference. For this purpose, a "Timing Difference" is an EOG 1995 Unsevered Adjustment which, as finally determined, results in an increase in an item of income or gain or decrease in an item of loss, deduction or credit for 1995 but will reverse by resulting in a decrease in an item of income or gain or an increase in an item of loss, deduction or credit for any subsequent year or years, and a "Permanent Difference" is any EOG 1995 Unsevered Adjustment, as finally determined, other than a Timing Difference. The Timing Differences (in the aggregate) and each Permanent Difference shall be subject to whichever of the following is applicable: -12- 13 (i) If the aggregate of all Timing Differences increases the federal income tax liability of EOG and the EOG Entities for that portion of the 1995 taxable year ending on the Deconsolidation Date by at least $1,750,000, Enron shall pay to EOG interest, at the Interest Rate, for each 12- month period commencing March 15, 1996 until March 15 following the taxable year in which all Timing Differences have fully reversed, on an amount equal to 35% (or 100% in the case of those Timing Differences which result from a decrease in an item of tax credit for 1995) of the excess of (x) the aggregate of all Timing Differences over (y) the amount of all Timing Differences which have reversed by the end of the taxable year preceding the end of the respective 12-month period. (ii) If the aggregate of all Timing Differences increases the federal income tax liability of EOG and the EOG Entities for that portion of the 1995 taxable year ending on the Deconsolidation Date by less than $1,750,000, Enron shall not be obligated to pay any amount to EOG with respect to Timing Differences. (iii) In the case of each Permanent Difference, the method for dealing with the settlement or contest of such Permanent Difference shall be determined by the tax personnel of Enron and EOG as part of their general cooperation and exchange of information contemplated by Section 5.1 of this Agreement. If the tax personnel are unable to resolve such matter, the matter shall be referred to senior management of Enron and EOG for resolution. If senior management are also unable to resolve such matter, Enron shall be obligated to pay to EOG (x) an amount determined by multiplying 35% of the amount of such Permanent Difference as finally determined (or 100% if such Permanent Difference resulted from a decrease in an item of tax credit for 1995) by 50% if the Tax Opinion concluded that the Tax Item related to such Permanent Difference was more likely than not to be upheld or by such other higher percentage expressed in the Tax Opinion as to the likelihood that such Tax Item would be upheld, plus (y) interest on such amount, at the Interest Rate, from March 15, 1996 until such amount is paid. 5.3 ACTIONS BY EOG AND ENRON. In no event shall EOG or any EOG Subsidiary file any tax return or amended tax return, claim any refund, or make any tax election with respect to or which could in any way affect or be inconsistent with (x) any tax return filed for any taxable period or portion thereof in the Pre-Deconsolidation Date Period or (y) any Unitary Tax Return for any period that includes both an Enron Entity and an EOG Entity, without first obtaining the written permission of Enron. In no event shall Enron file any amended tax return, claim any refund, or make any tax election affecting or with respect to -13- 14 the Pre-Deconsolidation Date Period that would have a material adverse effect on EOG's financial condition or results of operation without first obtaining the written permission of EOG. Upon written request from EOG, Enron shall take all reasonable measures to timely obtain any refund of Tax due EOG or any EOG Entity. 5.4 EOG TAX RETURNS. For any taxable period at any time during which one or more members of the Enron Group own at least 50 percent (by voting power or value) of the outstanding stock of EOG, EOG shall furnish to Enron a copy of each Consolidated Return of the EOG Group, and any other tax return of any EOG Entity requested by Enron, which is proposed to be filed by or with respect to the EOG Group or an EOG Entity for such taxable period at least 15 days prior to the proposed filing of such tax return with the applicable taxing authority. With respect to any Consolidated Return filed with respect to the EOG Group for a taxable period in the Post-Deconsolidation Date Period, EOG shall elect pursuant to section 172(b)(3) of the Code to relinquish the carryback period with respect to any net operating loss to the extent such loss otherwise could be carried back to a taxable period in the Pre-Deconsolidation Date Period. ARTICLE VI OTHER PROVISIONS 6.1 EFFECT OF THIS AGREEMENT. The obligations of the Parties set forth in this Agreement shall be unconditional and absolute, and shall remain in effect without limitation as to time. All other tax sharing or allocation agreements between Enron, on the one hand, and EOG and the EOG Subsidiaries, on the other hand, including the Base Agreement and Modification A, shall terminate effective with respect to taxable periods beginning after the Deconsolidation Date, except that those provisions of the Base Agreement and Modification A regarding the allocation of Unitary Tax Liability shall remain in effect for the 1995 and 1996 taxable years except to the extent inconsistent with the provisions of this Agreement. 6.2 TERMINATION OF 1995 AGREEMENT. Upon the execution of this Agreement, the 1995 Agreement shall terminate and be of no force or effect whatsoever. 6.3 CONFLICT. Because the terms of this Agreement generally supersede the terms of the Base Agreement and Modification A, the Parties agree that if there is any conflict or ambiguity between this Agreement and the Base Agreement or Modification A, the terms of this Agreement shall control. Notwithstanding the preceding sentence, if there is any conflict or ambiguity between sections 2, 3 and 4 of Modification A and this Agreement, sections 2, 3 and 4 of Modification A shall control. -14- 15 6.4 ASSIGNABILITY. The rights and obligations of the Parties under this Agreement may not be assigned by any Party without the prior written consent of the other Parties to this Agreement. 6.5. MODE OF PAYMENT. Any payment to be made by a Party to another Party pursuant to this Agreement shall be made by wire transfer to the account of the payee-Party specified in a notice to the payor-Party. 6.6. NOTICES. All notices or demands pursuant to this Agreement shall be in writing and shall be delivered in person, by confirmed facsimile or by registered or certified mail to the chief financial officer (or the chief accounting and information officer in the case of Enron) of the Party to whom notice or demand is given at the then-current corporate headquarters of such Party, or to such other officer or address as a Party may have previously furnished to the other Parties in the manner provided herein for giving notice. Any notice or demand shall be deemed to have been received as of the date so delivered in person or by confirmed facsimile or, if mailed, three days after the date so mailed. 6.7 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 this Agreement to be executed by their respective authorized officers, on the dates indicated, effective as of the date stated above. ENRON CORP. Date: 2-17-98 By: /s/ Richard A. Causey ----------- ------------------------------------- Richard A. Causey Sr. Vice President & Chief Accounting & Information Officer 16 ENRON OIL & GAS COMPANY Date: 2-10-98 By: /s/ W. C. Wilson --------------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer ENRON OIL & GAS MARKETING, INC. Date: 2-10-98 By: /s/ W. C. Wilson --------------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOG - CANADA, INC. Date: 2-10-98 By: /s/ W. C. Wilson --------------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer ENRON OIL & GAS INTERNATIONAL, INC. Date: 2-10-98 By: /s/ W. C. Wilson --------------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - TRINIDAD, INC. Date: 2-10-98 By: /s/ W. C. Wilson --------------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer 17 EOGI - AUSTRALIA, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - FRANCE, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - QATAR, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - UZBEKISTAN, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - KUWAIT, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer 18 ENRON OIL & GAS - CARTHAGE, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer ERSO, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer ENRON OIL & GAS PROPERTY MANAGEMENT, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer NILO OPERATING COMPANY Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - TRINIDAD U(a) BLOCK, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer 19 EOGI - ALGERIA, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - KHAZAKSTAN, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - INDIA, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - CHINA, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer EOGI - UNITED KINGDOM, INC. Date: 2-10-98 By: /s/ W. C. Wilson ----------- ------------------------------------- Walter C. Wilson Senior Vice President & Chief Financial Officer 20 SCHEDULE A LOSS CONTRACTS 1. Gas Sales Contract dated September 2, 1987 between Enron Oil & Gas Company ("Seller") and Cogenron, Inc. ("Buyer"), as amended. 2. Gas Sales Contract dated October 5, 1987 between Enron Oil & Gas Company ("Buyer") and Panhandle Gas Company ("Seller"), as amended. 3. Swap Agreement effective November 1, 1990 between Enron Oil & Gas Company and Banque Paribas, as amended. EX-10.9.C 6 5TH AMEND.TO EMPLOYMENT AGRMT. - FORREST HOGLUND 1 Exhibit 10.9(c) FIFTH AMENDMENT TO EMPLOYMENT AGREEMENT This Agreement, entered into on this 8th of September, 1998, and made effective as of September 1, 1998, by and between ENRON CORP. ("Enron" or "Parent") and ENRON OIL & GAS COMPANY ("Company"), and FORREST E. HOGLUND ("Employee") is an amendment to that certain Employment Agreement made and entered into among the parties the 28th day of August, 1987 and made effective as of September 1, 1987 (the "Employment Agreement"), as amended to date. WHEREAS, the parties desire to amend the Employment Agreement as provided herein; NOW, THEREFORE, in consideration of Employee's continued engagement with Company, and of the covenants contained herein, and for other good and valuable consideration, the parties agree as follows: 1. Article 1: EMPLOYMENT AND DUTIES, Section 1.1 is amended to read as follows: "Employee agrees to serve as Chairman of the Board of the Company, and to perform diligently and to the best of Employee's abilities, the duties and services appertaining to such position as reasonably directed by the Company. Employee shall have the general powers and duties of management and supervision customarily vested in the office of Chairman in the same or similar businesses or enterprises as that engaged in by Company." 2. Article 2: TERM OF EMPLOYMENT is amended to read as follows: "Unless sooner terminated pursuant to other provisions hereof, Employee's period of employment under this Agreement shall extend from the effective date of this Agreement through September 1, 1999 (the "initial Term"). 3. Paragraph 2 of the Fourth Amendment to the Employment Agreement is hereby deleted and the following inserted in its place: "Before December 31, 1994, the Company shall cause Employee to receive a grant of an option under the Enron Oil & Gas Company 1992 Stock Plan (the "Plan") to purchase one million eight hundred twenty thousand (1,820,000) shares of common stock of the Company (the "Shares") at a price equal to the Fair Market Value (as defined in the Plan) of such shares on the date of grant; provided however, said grant shall be contingent upon and subject to the Company's shareholders approving -1- 2 before May 15, 1995 an amendment to the Plan that increases the number of shares available for granting Awards under the Plan by a number not less than said number of Shares. If for any reason after the grant is made such shareholder approval is not obtained before May 15, 1995, this Agreement shall be rescinded and the grant made hereunder shall become null and void as thought it never existed. The grant is further amended hereby and Employee, Employee's estate or the person who acquires the Option by bequest or inheritance by reason of death of Employee, may exercise the Option at any time during the period of thirty six months following the date of Employee's death, Disability, Retirement or Involuntary Termination up to the number of vested shares of Stock Employee was entitled to under the Option; provided however, the Option shall not be exercisable in any event after the expiration of seven years from the date of grant. This Amendment is a Fifth Amendment to the Employment Agreement, and the parties agree that all other terms, conditions and stipulations contained in the Employment Agreement, and any amendments thereto, shall remain in full force and effect and without any change or modification, except as provided herein. -2- 3 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ENRON CORP. By: /s/ Peggy B. Menchaca ----------------------------------------- Name: Peggy B. Menchaca Title: Vice President & Secretary This 18th day of December, 1998 ---- -------- ---------------- ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ----------------------------------------- Name: Patricia Edwards Title: V.P. Human Resources & Administration This 18th day of December, 1998 ---- -------- ---------------- FORREST E. HOGLUND /s/ Forrest E. Hoglund --------------------------------------------- This 18th day of December, 1998 ---- -------- ---------------- -3- EX-10.63.C 7 SECOND AMENDMENT TO 1996 DEFERRAL PLAN 1 EXHIBIT 10.63(c) SECOND AMENDMENT TO ENRON OIL & GAS COMPANY 1996 DEFERRAL PLAN WHEREAS, Enron Oil & Gas Company (the "Company") has heretofore adopted the Enron Oil & Gas Company 1996 Deferral Plan (the "Plan"); and WHEREAS, the Board of Directors of the Company has determined and authorized that the Plan be amended; NOW, THEREFORE, effective January 1, 1999, the Plan is amended as follows: Section 3.7 is added to Article III: "3.7 Company Deferral Contributions. As of any date selected by the Company, the Company may make Company Deferrals on a Member's behalf in such amount, if any, as the Company shall determine in its sole discretion, and to any investment account under the Plan. Such Company Deferrals may be made on behalf of some Participants to the exclusion of others, and may vary among individual Participants in amount and/or with respect to the investment account in which they may be credited." Section 6.1 under Article VI of the Plan is deleted and the following is inserted in its place: "6.1 Participant Elections. Participants may elect a lump sum payout or periodic annual payouts from two years to 15 years following the event of retirement, disability, death or termination (except for cause). Additionally, a Participant may elect to receive a distribution, with respect to all or a part of his Deferrals for a Plan Year, to commence prior to such an event of retirement, disability, death or termination, any time following the third anniversary of such election. The period of benefit payments must be chosen at the time that the election to defer compensation is made (an "Initial Payout Election"). A lump sum payment may be elected for 1996 deferrals or for any subsequent year of Plan participation." AS AMENDED HEREBY, the Plan is specifically ratified and reaffirmed. Dated effective as of December 8, 1998. ATTEST: ENRON OIL & GAS COMPANY By: /s/ Angus H. Davis By: /s/ Patricia L. Edwards ------------------------------ --------------------------- Angus H. Davis Patricia L. Edwards Vice President, Communications Vice President, Human Resources and Corporate Secretary & Administration EX-10.64.B 8 1ST AMEND.TO EXECUTIVE EMPLOYMENT AGMT.- MARK PAPA 1 Exhibit 10.64(b) FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Agreement, entered into on this 12th of March, 1999, and made effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY ("Company" or "Employer") and MARK G. PAPA ("Employee") is an amendment to that certain Employment Agreement made effective as of November 1, 1997 (the "Employment Agreement"). WHEREAS, the parties desire to amend the Employment Agreement as provided herein; NOW, THEREFORE, in consideration thereof and of the mutual covenants contained herein, the parties agree as follows: 1. Article 3, Section 3.5 of the Employment Agreement is hereby deleted in its entirety and the following is substituted therefor: " 3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Notwithstanding any other provisions of this Agreement, a termination of the employment relationship by either the Employer or Employee which meets the definition of Involuntary Termination under the Company's Change of Control Severance Plan (the "Plan") shall constitute an Involuntary Termination under this Agreement. In the event of such Involuntary Termination which entitles Employee to severance benefits under the Plan but for the following severance payment by the Company to the Employee, Employee shall receive from the Company a severance benefit under this Agreement equal to the sum of Employee's then current Monthly Base Salary times 12 times 2.99 plus two times the Employee's annual bonus target award under the Company's annual bonus program for the year in which the Change of Control Date occurs. Employee's severance benefit payable under the Plan, if any, shall be determined according to the provisions thereof. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and 2 Employer's sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action." 2. The following sentence shall be inserted at the end of Article 6, Section 6.1: "However, upon an Involuntary Termination as defined in the Company's Change of Control Severance Plan, which entitles Employee to severance benefits under said Plan, these non-competition obligations shall expire immediately and have no further force and effect." 3. The following new Article 8 shall be inserted at the end of the Employment Agreement: "ARTICLE 8: U.S. EXCISE TAX INDEMNIFICATION 8.1 Indemnification. In the event it shall be determined that any payment or distribution by the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, the Company's Change of Control Severance Plan or otherwise, but determined without regard to any additional payments required under this Article 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 8.2 Determination of Amount. Subject to the provisions of Section 8.3, all determinations required to be made under this Article 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a public accounting firm chosen by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee if 3 requested by either the Company or Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8.3 and Employee thereafter is required to make a payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. 8.3 Contest of Claims. If the Company elects to contest a claim by the Internal Revenue Service that Excise Tax is due from Employee, Employee shall cooperate fully with the Company in order to effectively contest such claim, including, but not limited to providing information reasonably requested by the Company relating to such claim, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and permitting the Company to participate in any proceedings relating to such claim. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 8.4 Advances and Refunds. If the Company directs Employee to pay a claim by the Internal Revenue Service and sue for a refund, the Company shall advance the amount of such payment to Employee on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 8.4, Employee becomes entitled to receive, and receives, any refund with respect to such claim, Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 8.4, a determination is made that Employee is not entitled to any refund with respect to such claim, then such advance shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid." This Agreement is the First Amendment to the Employment Agreement, and the parties agree that all other terms, conditions and stipulations contained in the 4 Employment Agreement, and any amendments thereto, shall remain in full force and effect and without any change or modification, except as provided herein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ENRON OIL & GAS COMPANY By: /s/ Forrest E. Hoglund -------------------------------------- Name: Forrest E. Hoglund Title: Chairman This 11th day of March, 1999 MARK G. PAPA /s/ Mark G. Papa -------------------------------------- This 12th day of March, 1999 EX-10.65.A 9 EXECUTIVE EMPLOYMENT AGREEMENT - EDMUND SEGNER,III 1 EXHIBIT 10.65(a) EXECUTIVE EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), including the attached Exhibit "A," is entered into between Enron Oil & Gas Company, a Delaware corporation, having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and Edmund P. Segner, III, an individual currently residing at 4130 Tennyson, Houston, Texas 77005 ("Employee"), to be effective as of September 1, 1998 (the "Effective Date"). WITNESSETH: WHEREAS, Employer is desirous of employing Employee pursuant to the terms and conditions and for the consideration set forth in this Agreement, and Employee is desirous of entering the employ of Employer pursuant to such terms and conditions and for such consideration. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: ARTICLE 1: EMPLOYMENT AND DUTIES: 1.1 Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning as of the Effective Date and continuing until the date set forth on Exhibit "A" (the "Term"), subject to the terms and conditions of this Agreement. 1.2 Employee initially shall be employed in the position set forth on Exhibit A. Employer may subsequently assign Employee to a different position or modify Employee's duties and responsibilities, provided that such assignment or modification is consistent with that of an officer of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3 Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or Enron Corp. ("Enron"), or requires any significant portion of Employee's business time. 1.4 In connection with Employee's employment by Employer, Employer shall endeavor to provide Employee access to such confidential information pertaining to the business and services of Employer as is appropriate for Employee's employment responsibilities. Employer also shall endeavor to provide to Employee the opportunity to develop business relationships with those of Employer's clients and potential clients that are appropriate for Employee's employment responsibilities. 1 2 1.5 Employee acknowledges and agrees that, at all times during the employment relationship Employee owes fiduciary duties to Employer, including but not limited to the fiduciary duties of the highest loyalty, fidelity and allegiance to act at all times in the best interests of the Employer, to make full disclosure to Employer of all information that pertains to Employer's business and interests, to do no act which would injure Employer's business, its interests, or its reputation, and to refrain from using for Employee's own benefit or for the benefit of others any information or opportunities pertaining to Employer's business or interests that are entrusted to Employee or that he learned while employed by Employer. Employee acknowledges and agrees that upon termination of the employment relationship, Employee shall continue to refrain from using for his own benefit or the benefit of others any information or opportunities pertaining to Employer's business or interests that were entrusted to Employee during the employment relationship or that he learned while employed by Employer. Employee agrees that while employed by Employer and thereafter he shall not knowingly take any action which interferes with the internal relationships between Employer and its employees or representatives or interferes with the external relationships between Employer and third parties. 1.6 It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that during the employment relationship Employee shall not knowingly become involved in a conflict of interest with Employer or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's President any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by the Employee to Employer's President may be all that is necessary to enable Employer or its affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employer and Employee agree that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 1.7 Employee understands and acknowledges that the terms and conditions of this Agreement constitute confidential information. Employee shall keep confidential the terms of this Agreement and shall not disclose this confidential information to anyone other than Employee's attorneys, tax advisors, or as required by law. Employee acknowledges and understands that disclosure of the terms of this Agreement constitutes a material breach of this Agreement and could subject Employee to disciplinary action, including without limitation, termination of employment. ARTICLE 2: COMPENSATION AND BENEFITS: 2.1 Employee's monthly base salary during the Term shall be not less than the amount set forth under the heading "Monthly Base Salary" on Exhibit A, subject to increase at the sole discretion of the Employer, which shall be paid in semimonthly installments in accordance with 2 3 Employer's standard payroll practice. Any calculation to be made under this Agreement with respect to Employee's Monthly Base Salary shall be made using the then current Monthly Base Salary in effect at the time of the event for which such calculation is made. 2.2 While employed by Employer (both during the Term and thereafter), Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.3 Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of either Employer or Enron, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer. 2.4 Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1 Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time prior to the expiration of the Term for any of the following reasons: (i) For "cause" upon the determination by the Employer's Board of Directors or management committee (or, if there is no management committee, the highest applicable level of Employer's management) that "cause" exists for the termination of the employment relationship. As used in this Section 3.1(i), the term "cause" shall mean [a] Employee's gross negligence or willful misconduct in the performance of the duties and services required of Employee pursuant to this Agreement; [b] Employee's final conviction of a felony involving moral turpitude; [c] Employee's willful refusal without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; [d] Employee's involvement in a conflict of interest as referenced in Section 1.6 for which Employer makes a determination to terminate the employment of Employee which remains uncorrected for thirty (30) days following written notice 3 4 to Employee by Employer of such breach; [e] Employee's willful engagement in conduct that Employee knows or should know is materially injurious to Employer, Enron, or any of their respective subsidiaries; [f] Employee's material breach of any material provision of this Agreement or corporate code or policy which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; or [g] Employee's violation of the Foreign Corrupt Practices Act or other applicable United States law as proscribed by Section 5.1. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to the Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) for determination. If Employee disagrees with the decision reached by Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management), the dispute will be limited to whether Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) reached its decision in good faith; (ii) for any other reason whatsoever, with or without cause, in the sole discretion of the management committee (or, if there is no management committee, the highest applicable level of management) of Employer; (iii) upon Employee's death; or (iv) upon Employee's becoming disabled so as to entitle Employee to benefits under Enron's long-term disability plan or, if Employee is not eligible to participate in such plan, then Employee is permanently and totally unable to perform Employee's duties for Employer as a result of any medically determinable physical or mental impairment as supported by a written medical opinion to the foregoing effect by a physician selected by Employer. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute a "Termination for Cause" if made pursuant to Section 3.1(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.1(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.1(iii) as a result of Employee's death is specified in Section 3.6. The effect of the employment relationship being terminated pursuant to Section 3.1(iv) as a result of the Employee becoming incapacitated is specified in Section 3.7. 3.2 Notwithstanding any other provisions of this Agreement except Section 8.6, Employee shall have the right to terminate the employment relationship under this Agreement at any time prior to the expiration of the Term of employment for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement which remains uncorrected for 30 days following written notice of such breach by Employee to Employer; or 4 5 (ii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute a "Voluntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.3. 3.3 Upon a "Voluntary Termination" of the employment relationship by Employee prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.4 If Employee's employment hereunder shall be terminated by Employer for Cause prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. If such Involuntary Termination occurs within two years after a Change of Control, as defined in Employer's Change of Control Severance Plan, Employee shall receive a minimum of twenty-four (24) months of the then current Monthly Base Salary. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action. 3.6 Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.7 Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his or her pro rata salary through the date of such termination, 5 6 but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.8 In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans, and policies of Employer, Enron, or their affiliates. 3.9 Termination of the employment relationship does not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles 6 and 7. 3.10 Upon termination of the employment relationship between Employee and Employer for any reason, Employee shall be entitled to receive compensation and benefits earned and accrued by Employee during his/her employment as are specifically provided in any applicable employee compensation and/or benefit plan document and any grant or award agreement thereunder. ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF TERMINATION: 4.1 Should Employee remain employed by Employer beyond the expiration of the Term specified on Exhibit "A," such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause. Upon such termination of the employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 5.1 Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendere or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in any Enron entity having civil or criminal liability or responsibility under the FCPA or other applicable United States law with knowledge of the activities giving rise to such liability or knowledge of facts from which Employee should have reasonably inferred the activities giving rise to liability had occurred or were likely to occur, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) determines that the actions found to be in violation of 6 7 the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer and Enron. ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 6.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's business, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Moreover, all drawings, memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, and inventions are and shall be the sole and exclusive property of Employer. 6.2 Employee acknowledges that the business of Employer, Enron, and their affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates , all comprise confidential business information and trade secrets which are valuable, special, and unique assets which Employer, Enron, or their affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Employer, Enron, and their affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after his or her employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer, Enron, or their affiliates, or make any use thereof, except in the carrying out of his or her employment responsibilities hereunder. Enron and its affiliates shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer, Enron, and their affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to 7 8 Employer, including the recovery of damages from Employee and his or her agents involved in such breach. 6.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during the period of Employee's employment by Employer which contain or disclose confidential business information or trade secrets of Employer, Enron, or their affiliates shall be and remain the property of Employer, Enron, or their affiliates, as the case may be. Upon termination of Employee's employment by Employer, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 6.4 If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's premises or otherwise), Employee shall disclose such work to Employer. Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 6.5 Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer and its nominee, at any time, in the protection of Employer's worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or its nominee and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 7.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary and in order to protect Employer's interests in the confidential information of Employer and the business relationships developed by Employee with the clients and potential clients of Employer, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 7. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or Enron or any of their affiliated 8 9 companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with the business conducted by Employer; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by Employer; (iii) induce any employee of Employer or Enron or any of their affiliates to terminate his or her employment with Employer, Enron, or their affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Enron. These non-competition obligations shall extend until the earlier of (a) expiration of the Term or (b) one year after termination of the employment relationship. Further, if Employer ceases to be publicly traded, Employee may exercise his right to voluntarily resign under Section 3.2(ii). If Employee exercises such right, these non-competition obligations shall expire immediately and have no further force and effect, and the Employer shall have no further obligations to Employee under this Agreement. 7.2 Employee understands that the foregoing restrictions may limit his or her ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.5 for the remainder of the Term upon Involuntary Termination) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 7 by Employee, and Employer shall be entitled to enforce the provisions of this Article 7 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 7, but shall be in addition to all remedies available at law or in equity to Employer, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. 7.3 It is expressly understood and agreed that Employer and Employee consider the restrictions contained in this Article 7 to be reasonable and necessary to protect the proprietary information of Employer. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. ARTICLE 8: MISCELLANEOUS: 8.1 For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Enron or Employer. 9 10 8.2 Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or such entities' officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents, or representatives; or that place Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Enron entities and affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law. 8.3 For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer: Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Attention: Corporate Secretary If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 8.4 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 8.5 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.6 If a dispute arises out of or related to this Agreement, other than a dispute regarding Employee's obligations under Article 6, or Article 7, and if the dispute cannot be settled through 10 11 direct discussions, then Employer and Employee agree to first endeavor to settle the dispute in an amicable manner by mediation, before having recourse to any other proceeding or forum. 8.7 Each of Employer and Employee is a citizen of the State of Texas. Employer's principal place of business is in Houston, Harris County, Texas. Employee resides in Harris County, Texas. This Agreement was negotiated and signed in Houston, Texas. This Agreement shall be performed in Houston, Texas. Any litigation that may be brought by either Employer or Employee involving the enforcement of this Agreement or the rights, duties, or obligations of this Agreement, shall be brought exclusively in the State or federal courts sitting in Houston, Harris County, Texas. In the event that service of process cannot be effected upon a party, each party hereby irrevocably appoints the Secretary of State for the State of Texas as its or his agent for service of process to receive the summons and other pleadings in connection with any such litigation. 8.8 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 8.9 This Agreement shall be binding upon and inure to the benefit of Employer and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of Employer. 8.10 There exist other agreements between Employer and Employee relating to the employment relationship between them, e.g., the agreement with respect to company policies contained in Employer's Conduct of Business Affairs booklet and agreements with respect to compensation and benefit plans. This Agreement replaces and merges previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with Employer and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by Employer that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board of Directors of Employer. 11 12 IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards --------------------------------------- Name: Patricia Edwards Title: V.P. Human Resources & Administration --------------------------------------- This 29th day of September, 1998 ---- --------- --------------- EDMUND P. SEGNER, III /s/ Edmund P. Segner, III --------------------------------------------- This 29th day of September, 1998 ---- --------- ---------------- 12 13 EXHIBIT "A" TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ENRON OIL & GAS COMPANY AND EDMUND P. SEGNER, III Employee Name: Edmund P. Segner, III Term: September 1, 1998 through August 31, 2001 Position: Vice Chairman and Chief of Staff Location: Houston, Texas Reporting Relationship: Reports to Mark G. Papa, President and Chief Executive Officer Monthly Base Salary: Twenty-nine thousand one hundred sixty-six dollars and sixty-seven cents ($29,166.67) Bonus: Employee shall be eligible to participate in Employer's annual bonus program, under which bonuses may be paid in a combination of cash, stock options, and/or phantom stock units, as determined by the Compensation Committee of Employer's Board of Directors. Long-Term Incentives: Employee shall be eligible to receive long-term incentive grants consistent with similarly situated executives of Employer. Stock Option Grant: Employee shall receive a grant of 175,000 stock options, effective September 8, 1998, vesting 20% on the Grant Date and 20% on each of the first four anniversaries of the Grant Date, as evidenced by an Award Agreement, upon execution of this Agreement. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ------------------------------------------ Name: Patricia Edwards Title: V.P. Human Resources & Administration --------------------------------------- This 29th day of September, 1998 ---- --------- --------------- EDMUND P. SEGNER, III /s/ Edmund P. Segner, III This 29th day of September, 1998 ---- --------- --------------- 13 EX-10.65.B 10 1ST AMEND.TO EXECUTIVE EMPLOYMENT AGMT.- E. SEGNER 1 Exhibit 10.65(b) FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Agreement, entered into on this 11th of March, 1999, and made effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY ("Company" or "Employer") and EDMUND P. SEGNER, III ("Employee") is an amendment to that certain Employment Agreement made effective as of September 1, 1998 (the "Employment Agreement"). WHEREAS, the parties desire to amend the Employment Agreement as provided herein; NOW, THEREFORE, in consideration thereof and of the mutual covenants contained herein, the parties agree as follows: 1. Article 3, Section 3.5 of the Employment Agreement is hereby deleted in its entirety and the following is substituted therefor: "3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Notwithstanding any other provisions of this Agreement, a termination of the employment relationship by either the Employer or Employee which meets the definition of Involuntary Termination under the Company's Change of Control Severance Plan (the "Plan") shall constitute an Involuntary Termination under this Agreement. In the event of such Involuntary Termination which entitles Employee to severance benefits under the Plan but for the following severance payment by the Company to the Employee, Employee shall receive from the Company a severance benefit under this Agreement equal to the sum of Employee's then current Monthly Base Salary times 12 times 2.99 plus two times the Employee's annual bonus target award under the Company's annual bonus program for the year in which the Change of Control Date occurs. Employee's severance benefit payable under the Plan, if any, shall be determined according to the provisions thereof. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under 2 this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action." 2. The last paragraph of Article 7, Section 7.1 is hereby deleted in its entirety and the following is substituted therefor: "These non-competition obligations shall extend until the earlier of (a) expiration of the Term or (b) one year after termination of the employment relationship; provided, however, that upon an Involuntary Termination as defined in the Company's Change of Control Severance Plan, which entitles Employee to severance benefits under said Plan, these non-competition obligations shall expire immediately and have no further force and effect. Further, if Employer ceases to be publicly traded, Employee may exercise his right to voluntarily resign under Section 3.2(ii). If Employee exercises such right, these non-competition obligations shall expire immediately and have no further force and effect, and the Employer shall have no further obligations to Employee under this Agreement." 3. The following new Article 9 shall be inserted at the end of the Employment Agreement: "ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION 9.1 Indemnification. In the event it shall be determined that any payment or distribution by the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, the Company's Change of Control Severance Plan or otherwise, but determined without regard to any additional payments required under this Article 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 3 9.2 Determination of Amount. Subject to the provisions of Section 9.3, all determinations required to be made under this Article 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a public accounting firm chosen by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee if requested by either the Company or Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9.3 and Employee thereafter is required to make a payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. 9.3 Contest of Claims. If the Company elects to contest a claim by the Internal Revenue Service that Excise Tax is due from Employee, Employee shall cooperate fully with the Company in order to effectively contest such claim, including, but not limited to providing information reasonably requested by the Company relating to such claim, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and permitting the Company to participate in any proceedings relating to such claim. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 9.4 Advances and Refunds. If the Company directs Employee to pay a claim by the Internal Revenue Service and sue for a refund, the Company shall advance the amount of such payment to Employee on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 9.4, Employee becomes entitled to receive, and receives, any refund with respect to such claim, Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this 4 Section 9.4, a determination is made that Employee is not entitled to any refund with respect to such claim, then such advance shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid." This Agreement is the First Amendment to the Employment Agreement, and the parties agree that all other terms, conditions and stipulations contained in the Employment Agreement, and any amendments thereto, shall remain in full force and effect and without any change or modification, except as provided herein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ENRON OIL & GAS COMPANY By: /s/ Forrest E. Hoglund -------------------------------------- Name: Forrest E. Hoglund Title: Chairman This 11th day of March, 1999 EDMUND P. SEGNER, III /s/ Edmund P. Segner, III -------------------------------------- This 11th day of March, 1999 EX-10.66.A 11 EXECUTIVE EMPLOYMENT AGREEMENT - DENNIS M. ULAK 1 EXHIBIT 10.66(a) EXECUTIVE EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), including the attached Exhibit "A," is entered into between Enron Oil & Gas Company, a Delaware corporation, having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and Dennis M. Ulak, an individual currently residing at 54 Lyric Arbor, The Woodlands, Texas 77381 ("Employee"), to be effective as of September 1, 1998 (the "Effective Date"). WITNESSETH: WHEREAS, Employer is desirous of employing Employee pursuant to the terms and conditions and for the consideration set forth in this Agreement, and Employee is desirous of entering the employ of Employer pursuant to such terms and conditions and for such consideration. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: ARTICLE 1: EMPLOYMENT AND DUTIES: 1.1 Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning as of the Effective Date and continuing until the date set forth on Exhibit "A" (the "Term"), subject to the terms and conditions of this Agreement. 1.2 Employee initially shall be employed in the position set forth on Exhibit A. Employer may subsequently assign Employee to a different position or modify Employee's duties and responsibilities, provided that such assignment or modification is consistent with that of an officer of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3 Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or Enron Corp. ("Enron"), or requires any significant portion of Employee's business time. 1.4 In connection with Employee's employment by Employer, Employer shall endeavor to provide Employee access to such confidential information pertaining to the business and services of Employer as is appropriate for Employee's employment responsibilities. Employer also shall endeavor to provide to Employee the opportunity to develop business relationships with those of Employer's clients and potential clients that are appropriate for Employee's employment responsibilities. 1 2 1.5 Employee acknowledges and agrees that, at all times during the employment relationship Employee owes fiduciary duties to Employer, including but not limited to the fiduciary duties of the highest loyalty, fidelity and allegiance to act at all times in the best interests of the Employer, to make full disclosure to Employer of all information that pertains to Employer's business and interests, to do no act which would injure Employer's business, its interests, or its reputation, and to refrain from using for Employee's own benefit or for the benefit of others any information or opportunities pertaining to Employer's business or interests that are entrusted to Employee or that he learned while employed by Employer. Employee acknowledges and agrees that upon termination of the employment relationship, Employee shall continue to refrain from using for his own benefit or the benefit of others any information or opportunities pertaining to Employer's business or interests that were entrusted to Employee during the employment relationship or that he learned while employed by Employer. Employee agrees that while employed by Employer and thereafter he shall not knowingly take any action which interferes with the internal relationships between Employer and its employees or representatives or interferes with the external relationships between Employer and third parties. 1.6 It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that during the employment relationship Employee shall not knowingly become involved in a conflict of interest with Employer or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's President any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by the Employee to Employer's President may be all that is necessary to enable Employer or its affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employer and Employee agree that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 1.7 Employee understands and acknowledges that the terms and conditions of this Agreement constitute confidential information. Employee shall keep confidential the terms of this Agreement and shall not disclose this confidential information to anyone other than Employee's attorneys, tax advisors, or as required by law. Employee acknowledges and understands that disclosure of the terms of this Agreement constitutes a material breach of this Agreement and could subject Employee to disciplinary action, including without limitation, termination of employment. ARTICLE 2: COMPENSATION AND BENEFITS: 2.1 Employee's monthly base salary during the Term shall be not less than the amount set forth under the heading "Monthly Base Salary" on Exhibit A, subject to increase at the sole discretion of the Employer, which shall be paid in semimonthly installments in accordance with 2 3 Employer's standard payroll practice. Any calculation to be made under this Agreement with respect to Employee's Monthly Base Salary shall be made using the then current Monthly Base Salary in effect at the time of the event for which such calculation is made. 2.2 While employed by Employer (both during the Term and thereafter), Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.3 Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of either Employer or Enron, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer. 2.4 Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1 Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time prior to the expiration of the Term for any of the following reasons: (i) For "cause" upon the determination by the Employer's Board of Directors or management committee (or, if there is no management committee, the highest applicable level of Employer's management) that "cause" exists for the termination of the employment relationship. As used in this Section 3.1(i), the term "cause" shall mean [a] Employee's gross negligence or willful misconduct in the performance of the duties and services required of Employee pursuant to this Agreement; [b] Employee's final conviction of a felony involving moral turpitude; [c] Employee's willful refusal without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; [d] Employee's involvement in a conflict of interest as referenced in Section 1.6 for which Employer makes a determination to terminate the employment of Employee which remains uncorrected for thirty (30) days following written notice 3 4 to Employee by Employer of such breach; [e] Employee's willful engagement in conduct that Employee knows or should know is materially injurious to Employer, Enron, or any of their respective subsidiaries; [f] Employee's material breach of any material provision of this Agreement or corporate code or policy which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; or [g] Employee's violation of the Foreign Corrupt Practices Act or other applicable United States law as proscribed by Section 5.1. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to the Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) for determination. If Employee disagrees with the decision reached by Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management), the dispute will be limited to whether Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) reached its decision in good faith; (ii) for any other reason whatsoever, with or without cause, in the sole discretion of the management committee (or, if there is no management committee, the highest applicable level of management) of Employer; (iii) upon Employee's death; or (iv) upon Employee's becoming disabled so as to entitle Employee to benefits under Enron's long-term disability plan or, if Employee is not eligible to participate in such plan, then Employee is permanently and totally unable to perform Employee's duties for Employer as a result of any medically determinable physical or mental impairment as supported by a written medical opinion to the foregoing effect by a physician selected by Employer. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute a "Termination for Cause" if made pursuant to Section 3.1(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.1(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.1(iii) as a result of Employee's death is specified in Section 3.6. The effect of the employment relationship being terminated pursuant to Section 3.1(iv) as a result of the Employee becoming incapacitated is specified in Section 3.7. 3.2 Notwithstanding any other provisions of this Agreement except Section 8.6, Employee shall have the right to terminate the employment relationship under this Agreement at any time prior to the expiration of the Term of employment for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement which remains uncorrected for 30 days following written notice of such breach by Employee to Employer; or 4 5 (ii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute a "Voluntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.3. 3.3 Upon a "Voluntary Termination" of the employment relationship by Employee prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.4 If Employee's employment hereunder shall be terminated by Employer for Cause prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. If such Involuntary Termination occurs within two years after a Change of Control, as defined in Employer's Change of Control Severance Plan, Employee shall receive a minimum of twenty-four (24) months of the then current Monthly Base Salary. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action. 3.6 Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.7 Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his or her pro rata salary through the date of such termination, 5 6 but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.8 In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans, and policies of Employer, Enron, or their affiliates. 3.9 Termination of the employment relationship does not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles 6 and 7. 3.10 Upon termination of the employment relationship between Employee and Employer for any reason, Employee shall be entitled to receive compensation and benefits earned and accrued by Employee during his/her employment as are specifically provided in any applicable employee compensation and/or benefit plan document and any grant or award agreement thereunder. ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF TERMINATION: 4.1 Should Employee remain employed by Employer beyond the expiration of the Term specified on Exhibit "A," such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause. Upon such termination of the employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 5.1 Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendere or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in any Enron entity having civil or criminal liability or responsibility under the FCPA or other applicable United States law with knowledge of the activities giving rise to such liability or knowledge of facts from which Employee should have reasonably inferred the activities giving rise to liability had occurred or were likely to occur, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) determines that the actions found to be in violation of 6 7 the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer and Enron. ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 6.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's business, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Moreover, all drawings, memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, and inventions are and shall be the sole and exclusive property of Employer. 6.2 Employee acknowledges that the business of Employer, Enron, and their affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets which are valuable, special, and unique assets which Employer, Enron, or their affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Employer, Enron, and their affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after his or her employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer, Enron, or their affiliates, or make any use thereof, except in the carrying out of his or her employment responsibilities hereunder. Enron and its affiliates shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer, Enron, and their affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to 7 8 Employer, including the recovery of damages from Employee and his or her agents involved in such breach. 6.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during the period of Employee's employment by Employer which contain or disclose confidential business information or trade secrets of Employer, Enron, or their affiliates shall be and remain the property of Employer, Enron, or their affiliates, as the case may be. Upon termination of Employee's employment by Employer, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 6.4 If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's premises or otherwise), Employee shall disclose such work to Employer. Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 6.5 Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer and its nominee, at any time, in the protection of Employer's worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or its nominee and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 7.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary and in order to protect Employer's interests in the confidential information of Employer and the business relationships developed by Employee with the clients and potential clients of Employer, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 7. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or Enron or any of their affiliated 8 9 companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with the business conducted by Employer; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by Employer; (iii) induce any employee of Employer or Enron or any of their affiliates to terminate his or her employment with Employer, Enron, or their affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Enron. These non-competition obligations shall extend until the earlier of (a) expiration of the Term or (b) one year after termination of the employment relationship. 7.2 Employee understands that the foregoing restrictions may limit his or her ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.5 for the remainder of the Term upon Involuntary Termination) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 7 by Employee, and Employer shall be entitled to enforce the provisions of this Article 7 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 7, but shall be in addition to all remedies available at law or in equity to Employer, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. 7.3 It is expressly understood and agreed that Employer and Employee consider the restrictions contained in this Article 7 to be reasonable and necessary to protect the proprietary information of Employer. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. ARTICLE 8: MISCELLANEOUS: 8.1 For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Enron or Employer. 8.2 Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or 9 10 confidential information about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or such entities' officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents, or representatives; or that place Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Enron entities and affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law. 8.3 For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer: Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Attention: Corporate Secretary If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 8.4 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 8.5 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.6 If a dispute arises out of or related to this Agreement, other than a dispute regarding Employee's obligations under Article 6, or Article 7, and if the dispute cannot be settled through direct discussions, then Employer and Employee agree to first endeavor to settle the dispute in an amicable manner by mediation, before having recourse to any other proceeding or forum. 10 11 8.7 Each of Employer and Employee is a citizen of the State of Texas. Employer's principal place of business is in Houston, Harris County, Texas. Employee resides in Montgomery County, Texas. This Agreement was negotiated and signed in Houston, Texas. This Agreement shall be performed in Houston, Texas. Any litigation that may be brought by either Employer or Employee involving the enforcement of this Agreement or the rights, duties, or obligations of this Agreement, shall be brought exclusively in the State or federal courts sitting in Houston, Harris County, Texas. In the event that service of process cannot be effected upon a party, each party hereby irrevocably appoints the Secretary of State for the State of Texas as its or his agent for service of process to receive the summons and other pleadings in connection with any such litigation. 8.8 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 8.9 This Agreement shall be binding upon and inure to the benefit of Employer and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of Employer. 8.10 There exist other agreements between Employer and Employee relating to the employment relationship between them, e.g., the agreement with respect to company policies contained in Employer's Conduct of Business Affairs booklet and agreements with respect to compensation and benefit plans. This Agreement replaces and merges previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with Employer and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by Employer that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board of Directors of Employer. 11 12 IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ------------------------------------------ Name: Patricia Edwards Title: V.P. Human Resources & Administration --------------------------------------- This 29th day of September, 1998 ---- --------- --------------- DENNIS M. ULAK /s/ Dennis M. Ulak --------------------------------------------- This 29th day of September, 1998 ---- --------- --------------- 12 13 EXHIBIT "A" TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ENRON OIL & GAS COMPANY AND DENNIS M. ULAK Employee Name: Dennis M. Ulak Term: September 1, 1998 through August 31, 2001 Position: Chairman and Chief Executive Officer, Enron Oil & Gas International Location: Houston, Texas Reporting Relationship: Reports to Mark G. Papa, President and Chief Executive Officer Monthly Base Salary: Twenty-five thousand dollars ($25,000) Bonus: Employee shall be eligible to participate in Employer's annual bonus program, under which bonuses may be paid in a combination of cash, stock options, and/or phantom stock units, as determined by the Compensation Committee of Employer's Board of Directors. Long-Term Incentives: Employee shall be eligible to receive long-term incentive grants consistent with similarly situated executives of Employer. Stock Option Grant: Employee shall receive a grant of 125,000 stock options, effective September 8, 1998, vesting 20% on the Grant Date and 20% on each of the first four anniversaries of the Grant Date, as evidenced by an Award Agreement, upon execution of this Agreement. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ------------------------------------------ Name: Patricia Edwards Title: V.P. Human Resources & Administration --------------------------------------- This 29th day of September, 1998 ---- --------- --------------- DENNIS M. ULAK /s/ Dennis M. Ulak --------------------------------------------- This 29th day of September, 1998 ---- --------- --------------- 13 EX-10.66.B 12 1ST AMEND.TO EXECUTIVE EMPLOYMENT AGMT.- D. ULAK 1 EXHIBIT 10.66(b) FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Agreement, entered into on this 18th of March, 1999, and made effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY ("Company" or "Employer") and DENNIS M. ULAK ("Employee") is an amendment to that certain Employment Agreement made effective as of September 1, 1998 (the "Employment Agreement"). WHEREAS, the parties desire to amend the Employment Agreement as provided herein; NOW, THEREFORE, in consideration thereof and of the mutual covenants contained herein, the parties agree as follows: 1. Article 3, Section 3.5 of the Employment Agreement is hereby deleted in its entirety and the following is substituted therefor: "3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Notwithstanding any other provisions of this Agreement, a termination of the employment relationship by either the Employer or Employee which meets the definition of Involuntary Termination under the Company's Change of Control Severance Plan shall constitute an Involuntary Termination under this Agreement. In the event of such Involuntary Termination which entitles Employee to severance benefits under said Plan, but for the following severance payment by the Company to the Employee, Employee shall receive from the Company a severance benefit under this Agreement equal to the sum of Employee's then current Monthly Base Salary times 12 times 2.99 plus two times the Employee's annual bonus target award under the Company's annual bonus program for the year in which the Change of Control Date occurs. Employee's severance benefit payable under said Plan, if any, shall be determined according to the provisions thereof. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under 2 this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action." 2. The following sentence shall be inserted at the end of Article 7, Section 7.1: "However, upon an Involuntary Termination as defined in the Company's Change of Control Severance Plan, which entitles Employee to severance benefits under said Plan, these non-competition obligations shall expire immediately and have no further force and effect." 3. The following new Article 9 shall be inserted at the end of the Employment Agreement: "ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION 9.1 Indemnification. In the event it shall be determined that any payment or distribution by the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, the Company's Change of Control Severance Plan or otherwise, but determined without regard to any additional payments required under this Article 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 9.2 Determination of Amount. Subject to the provisions of Section 9.3, all determinations required to be made under this Article 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a public accounting firm chosen by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee if requested by either the Company or Employee. All fees and expenses of 3 the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9.3 and Employee thereafter is required to make a payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. 9.3 Contest of Claims. If the Company elects to contest a claim by the Internal Revenue Service that Excise Tax is due from Employee, Employee shall cooperate fully with the Company in order to effectively contest such claim, including, but not limited to providing information reasonably requested by the Company relating to such claim, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and permitting the Company to participate in any proceedings relating to such claim. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 9.4 Advances and Refunds. If the Company directs Employee to pay a claim by the Internal Revenue Service and sue for a refund, the Company shall advance the amount of such payment to Employee on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 9.4, Employee becomes entitled to receive, and receives, any refund with respect to such claim, Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 9.4, a determination is made that Employee is not entitled to any refund with respect to such claim, then such advance shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid." This Agreement is the First Amendment to the Employment Agreement, and the parties agree that all other terms, conditions and stipulations contained in the 4 Employment Agreement, and any amendments thereto, shall remain in full force and effect and without any change or modification, except as provided herein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ENRON OIL & GAS COMPANY By: /s/ PATRICIA EDWARDS ---------------------------------------- Name: Patricia Edwards Title: V. P. Human Resources & Administration This 18th day of March, 1999 DENNIS M. ULAK /s/ DENNIS M. ULAK ---------------------------------------- This 18th day of March, 1999 EX-10.67.A 13 EXECUTIVE EMPLOYMENT AGREEMENT - JEFFERY SHERRICK 1 Exhibit 10.67(a) EXECUTIVE EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), including the attached Exhibit "A," is entered into between Enron Oil & Gas Company, a Delaware corporation, having offices at 1400 Smith Street, Houston, Texas 77002 ("Employer"), and Jeffrey B. Sherrick, an individual currently residing at 18822 Autumn Breeze Drive, Spring, Texas 77379 ("Employee"), to be effective as of September 1, 1998 (the "Effective Date"). WITNESSETH: WHEREAS, Employer is desirous of employing Employee pursuant to the terms and conditions and for the consideration set forth in this Agreement, and Employee is desirous of entering the employ of Employer pursuant to such terms and conditions and for such consideration. NOW, THEREFORE, for and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Employee agree as follows: ARTICLE 1: EMPLOYMENT AND DUTIES: 1.1 Employer agrees to employ Employee, and Employee agrees to be employed by Employer, beginning as of the Effective Date and continuing until the date set forth on Exhibit "A" (the "Term"), subject to the terms and conditions of this Agreement. 1.2 Employee initially shall be employed in the position set forth on Exhibit A. Employer may subsequently assign Employee to a different position or modify Employee's duties and responsibilities, provided that such assignment or modification is consistent with that of an officer of Employer. Employee agrees to serve in the assigned position and to perform diligently and to the best of Employee's abilities the duties and services appertaining to such position as determined by Employer, as well as such additional or different duties and services appropriate to such position which Employee from time to time may be reasonably directed to perform by Employer. Employee shall at all times comply with and be subject to such policies and procedures as Employer may establish from time to time. 1.3 Employee shall, during the period of Employee's employment by Employer, devote Employee's full business time, energy, and best efforts to the business and affairs of Employer. Employee may not engage, directly or indirectly, in any other business, investment, or activity that interferes with Employee's performance of Employee's duties hereunder, is contrary to the interests of Employer or Enron Corp. ("Enron"), or requires any significant portion of Employee's business time. 1.4 In connection with Employee's employment by Employer, Employer shall endeavor to provide Employee access to such confidential information pertaining to the business and services of Employer as is appropriate for Employee's employment responsibilities. Employer also shall endeavor to provide to Employee the opportunity to develop business relationships with those of Employer's clients and potential clients that are appropriate for Employee's employment responsibilities. 1 2 1.5 Employee acknowledges and agrees that, at all times during the employment relationship Employee owes fiduciary duties to Employer, including but not limited to the fiduciary duties of the highest loyalty, fidelity and allegiance to act at all times in the best interests of the Employer, to make full disclosure to Employer of all information that pertains to Employer's business and interests, to do no act which would injure Employer's business, its interests, or its reputation, and to refrain from using for Employee's own benefit or for the benefit of others any information or opportunities pertaining to Employer's business or interests that are entrusted to Employee or that he learned while employed by Employer. Employee acknowledges and agrees that upon termination of the employment relationship, Employee shall continue to refrain from using for his own benefit or the benefit of others any information or opportunities pertaining to Employer's business or interests that were entrusted to Employee during the employment relationship or that he learned while employed by Employer. Employee agrees that while employed by Employer and thereafter he shall not knowingly take any action which interferes with the internal relationships between Employer and its employees or representatives or interferes with the external relationships between Employer and third parties. 1.6 It is agreed that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial activities, which interest might in any way adversely affect Employer or any of its affiliates, involves a possible conflict of interest. In keeping with Employee's fiduciary duties to Employer, Employee agrees that during the employment relationship Employee shall not knowingly become involved in a conflict of interest with Employer or its affiliates, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that Employee shall disclose to Employer's President any facts which might involve such a conflict of interest that has not been approved by Employer's President. Employer and Employee recognize that it is impossible to provide an exhaustive list of actions or interests which constitute a "conflict of interest." Moreover, Employer and Employee recognize there are many borderline situations. In some instances, full disclosure of facts by the Employee to Employer's President may be all that is necessary to enable Employer or its affiliates to protect its interests. In others, if no improper motivation appears to exist and the interests of Employer or its affiliates have not suffered, prompt elimination of the outside interest will suffice. In still others, it may be necessary for Employer to terminate the employment relationship. Employer and Employee agree that Employer's determination as to whether a conflict of interest exists shall be conclusive. Employer reserves the right to take such action as, in its judgment, will end the conflict. 1.7 Employee understands and acknowledges that the terms and conditions of this Agreement constitute confidential information. Employee shall keep confidential the terms of this Agreement and shall not disclose this confidential information to anyone other than Employee's attorneys, tax advisors, or as required by law. Employee acknowledges and understands that disclosure of the terms of this Agreement constitutes a material breach of this Agreement and could subject Employee to disciplinary action, including without limitation, termination of employment. ARTICLE 2: COMPENSATION AND BENEFITS: 2.1 Employee's monthly base salary during the Term shall be not less than the amount set forth under the heading "Monthly Base Salary" on Exhibit A, subject to increase at the sole discretion of the Employer, which shall be paid in semimonthly installments in accordance with 2 3 Employer's standard payroll practice. Any calculation to be made under this Agreement with respect to Employee's Monthly Base Salary shall be made using the then current Monthly Base Salary in effect at the time of the event for which such calculation is made. 2.2 While employed by Employer (both during the Term and thereafter), Employee shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. 2.3 Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of either Employer or Enron, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer. 2.4 Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. Notwithstanding any other provisions of this Agreement, Employer shall have the right to terminate Employee's employment under this Agreement at any time prior to the expiration of the Term for any of the following reasons: (i) For "cause" upon the determination by the Employer's Board of Directors or management committee (or, if there is no management committee, the highest applicable level of Employer's management) that "cause" exists for the termination of the employment relationship. As used in this Section 3.1(i), the term "cause" shall mean [a] Employee's gross negligence or willful misconduct in the performance of the duties and services required of Employee pursuant to this Agreement; [b] Employee's final conviction of a felony involving moral turpitude; [c] Employee's willful refusal without proper legal reason to perform the duties and responsibilities required of Employee under this Agreement which remains uncorrected for thirty (30) days following written notice 3 4 to Employee by Employer of such breach; [d] Employee's involvement in a conflict of interest as referenced in Section 1.6 for which Employer makes a determination to terminate the employment of Employee which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; [e] Employee's willful engagement in conduct that Employee knows or should know is materially injurious to Employer, Enron, or any of their respective subsidiaries; [f] Employee's material breach of any material provision of this Agreement or corporate code or policy which remains uncorrected for thirty (30) days following written notice to Employee by Employer of such breach; or [g] Employee's violation of the Foreign Corrupt Practices Act or other applicable United States law as proscribed by Section 5.1. It is expressly acknowledged and agreed that the decision as to whether "cause" exists for termination of the employment relationship by Employer is delegated to the Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) for determination. If Employee disagrees with the decision reached by Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management), the dispute will be limited to whether Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) reached its decision in good faith; (ii) for any other reason whatsoever, with or without cause, in the sole discretion of the management committee (or, if there is no management committee, the highest applicable level of management) of Employer; (iii) upon Employee's death; or (iv) upon Employee's becoming disabled so as to entitle Employee to benefits under Enron's long-term disability plan or, if Employee is not eligible to participate in such plan, then Employee is permanently and totally unable to perform Employee's duties for Employer as a result of any medically determinable physical or mental impairment as supported by a written medical opinion to the foregoing effect by a physician selected by Employer. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute a "Termination for Cause" if made pursuant to Section 3.1(i); the effect of such termination is specified in Section 3.4. The termination of Employee's employment by Employer prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.1(ii); the effect of such termination is specified in Section 3.5. The effect of the employment relationship being terminated pursuant to Section 3.1(iii) as a result of Employee's death is specified in Section 3.6. The effect of the employment relationship being terminated pursuant to Section 3.1(iv) as a result of the Employee becoming incapacitated is specified in Section 3.7. 3.2 Notwithstanding any other provisions of this Agreement except Section 8.6, Employee shall have the right to terminate the employment relationship under this Agreement at any time prior to the expiration of the Term of employment for any of the following reasons: (i) a material breach by Employer of any material provision of this Agreement which remains uncorrected for 30 days following written notice of such breach by Employee to Employer; or 4 5 (ii) for any other reason whatsoever, in the sole discretion of Employee. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute an "Involuntary Termination" if made pursuant to Section 3.2(i); the effect of such termination is specified in Section 3.5. The termination of Employee's employment by Employee prior to the expiration of the Term shall constitute a "Voluntary Termination" if made pursuant to Section 3.2(ii); the effect of such termination is specified in Section 3.3. 3.3 Upon a "Voluntary Termination" of the employment relationship by Employee prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.4 If Employee's employment hereunder shall be terminated by Employer for Cause prior to expiration of the Term, Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. 3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. If such Involuntary Termination occurs within two years after a Change of Control, as defined in Employer's Change of Control Severance Plan, Employee shall receive a minimum of twenty-four (24) months of the then current Monthly Base Salary. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action. 3.6 Upon termination of the employment relationship as a result of Employee's death, Employee's heirs, administrators, or legatees shall be entitled to Employee's pro rata salary through the date of such termination, but Employee's heirs, administrators, or legatees shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.7 Upon termination of the employment relationship as a result of Employee's incapacity, Employee shall be entitled to his or her pro rata salary through the date of such termination, 5 6 but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid to Employee at the date of such termination. 3.8 In all cases, the compensation and benefits payable to Employee under this Agreement upon termination of the employment relationship shall be offset against any amounts to which Employee may otherwise be entitled under any and all severance plans, and policies of Employer, Enron, or their affiliates. 3.9 Termination of the employment relationship does not terminate those obligations imposed by this Agreement which are continuing obligations, including, without limitation, Employee's obligations under Articles 6 and 7. 3.10 Upon termination of the employment relationship between Employee and Employer for any reason, Employee shall be entitled to receive compensation and benefits earned and accrued by Employee during his/her employment as are specifically provided in any applicable employee compensation and/or benefit plan document and any grant or award agreement thereunder. ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS OF TERMINATION: 4.1 Should Employee remain employed by Employer beyond the expiration of the Term specified on Exhibit "A," such employment shall convert to a month-to-month relationship terminable at any time by either Employer or Employee for any reason whatsoever, with or without cause. Upon such termination of the employment relationship by either Employer or Employee for any reason whatsoever, all future compensation to which Employee is entitled and all future benefits for which Employee is eligible shall cease and terminate. Employee shall be entitled to pro rata salary through the date of such termination, but Employee shall not be entitled to any individual bonuses or individual incentive compensation not yet paid at the date of such termination. ARTICLE 5: UNITED STATES FOREIGN CORRUPT PRACTICES ACT AND OTHER LAWS: 5.1. Employee shall at all times comply with United States laws applicable to Employee's actions on behalf of Employer, including specifically, without limitation, the United States Foreign Corrupt Practices Act, generally codified in 15 USC 78 (FCPA), as the FCPA may hereafter be amended, and/or its successor statutes. If Employee pleads guilty to or nolo contendere or admits civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee has personal civil or criminal liability under the FCPA or other applicable United States law, or if a court finds that Employee committed an action resulting in any Enron entity having civil or criminal liability or responsibility under the FCPA or other applicable United States law with knowledge of the activities giving rise to such liability or knowledge of facts from which Employee should have reasonably inferred the activities giving rise to liability had occurred or were likely to occur, such action or finding shall constitute "cause" for termination under this Agreement unless Employer's management committee (or, if there is no management committee, the highest applicable level of Employer's management) determines that the actions found to be in violation of 6 7 the FCPA or other applicable United States law were taken in good faith and in compliance with all applicable policies of Employer and Enron. ARTICLE 6: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 6.1 All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee, individually or in conjunction with others, during Employee's employment by Employer (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's business, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Moreover, all drawings, memoranda, notes, records, files, correspondence, drawings, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, and inventions are and shall be the sole and exclusive property of Employer. 6.2 Employee acknowledges that the business of Employer, Enron, and their affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets which are valuable, special, and unique assets which Employer, Enron, or their affiliates use in their business to obtain a competitive advantage over their competitors. Employee further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Employer, Enron, and their affiliates in maintaining their competitive position. Employee hereby agrees that Employee will not, at any time during or after his or her employment by Employer, make any unauthorized disclosure of any confidential business information or trade secrets of Employer, Enron, or their affiliates, or make any use thereof, except in the carrying out of his or her employment responsibilities hereunder. Enron and its affiliates shall be third party beneficiaries of Employee's obligations under this Section. As a result of Employee's employment by Employer, Employee may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer, Enron, and their affiliates. Employee also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's confidential business information and trade secrets. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 6 by Employee, and Employer shall be entitled to enforce the provisions of this Article 6 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 6, but shall be in addition to all remedies available at law or in equity to 7 8 Employer, including the recovery of damages from Employee and his or her agents involved in such breach. 6.3 All written materials, records, and other documents made by, or coming into the possession of, Employee during the period of Employee's employment by Employer which contain or disclose confidential business information or trade secrets of Employer, Enron, or their affiliates shall be and remain the property of Employer, Enron, or their affiliates, as the case may be. Upon termination of Employee's employment by Employer, for any reason, Employee promptly shall deliver the same, and all copies thereof, to Employer. 6.4 If, during Employee's employment by Employer, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's business, products, or services, whether such work is created solely by Employee or jointly with others (whether during business hours or otherwise and whether on Employer's premises or otherwise), Employee shall disclose such work to Employer. Employer shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by Employer as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer shall be the author of the work. If such work is neither prepared by the Employee within the scope of his or her employment nor a work specially ordered and is deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to Employer all of Employee's worldwide right, title, and interest in and to such work and all rights of copyright therein. 6.5 Both during the period of Employee's employment by Employer and thereafter, Employee shall assist Employer and its nominee, at any time, in the protection of Employer's worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or its nominee and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. ARTICLE 7: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS: 7.1 As part of the consideration for the compensation and benefits to be paid to Employee hereunder, in keeping with Employee's duties as a fiduciary and in order to protect Employer's interests in the confidential information of Employer and the business relationships developed by Employee with the clients and potential clients of Employer, and as an additional incentive for Employer to enter into this Agreement, Employer and Employee agree to the non-competition provisions of this Article 7. Employee agrees that during the period of Employee's non-competition obligations hereunder, Employee will not, directly or indirectly for Employee or for others, in any geographic area or market where Employer or Enron or any of their affiliated 8 9 companies are conducting any business as of the date of termination of the employment relationship or have during the previous twelve months conducted any business: (i) engage in any business competitive with the business conducted by Employer; (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by Employer; (iii) induce any employee of Employer or Enron or any of their affiliates to terminate his or her employment with Employer, Enron, or their affiliates, or hire or assist in the hiring of any such employee by person, association, or entity not affiliated with Enron. These non-competition obligations shall extend until the earlier of (a) expiration of the Term or (b) one year after termination of the employment relationship. 7.2 Employee understands that the foregoing restrictions may limit his or her ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Employee will receive sufficiently high remuneration and other benefits (e.g., the right to receive compensation under Section 3.5 for the remainder of the Term upon Involuntary Termination) under this Agreement to justify such restriction. Employee acknowledges that money damages would not be sufficient remedy for any breach of this Article 7 by Employee, and Employer shall be entitled to enforce the provisions of this Article 7 by terminating any payments then owing to Employee under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 7, but shall be in addition to all remedies available at law or in equity to Employer, including, without limitation, the recovery of damages from Employee and his or her agents involved in such breach. 7.3 It is expressly understood and agreed that Employer and Employee consider the restrictions contained in this Article 7 to be reasonable and necessary to protect the proprietary information of Employer. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. ARTICLE 8: MISCELLANEOUS: 8.1 For purposes of this Agreement the terms "affiliates" or "affiliated" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Enron or Employer. 8.2 Employee shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or 9 10 confidential information about Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or such entities' officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' officers, employees, agents, or representatives; or that place Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of Employer, Enron, any of their respective subsidiaries or affiliates, or any of such entities' or its officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Enron entities and affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law. 8.3 For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer: Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Attention: Corporate Secretary If to Employee, to the address shown on the first page hereof. Either Employer or Employee may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 8.4 This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 8.5 No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.6 If a dispute arises out of or related to this Agreement, other than a dispute regarding Employee's obligations under Article 6, or Article 7, and if the dispute cannot be settled through direct discussions, then Employer and Employee agree to first endeavor to settle the dispute in an amicable manner by mediation, before having recourse to any other proceeding or forum. 10 11 8.7 Each of Employer and Employee is a citizen of the State of Texas. Employer's principal place of business is in Houston, Harris County, Texas. Employee resides in Harris County, Texas. This Agreement was negotiated and signed in Houston, Texas. This Agreement shall be performed in Houston, Texas. Any litigation that may be brought by either Employer or Employee involving the enforcement of this Agreement or the rights, duties, or obligations of this Agreement, shall be brought exclusively in the State or federal courts sitting in Houston, Harris County, Texas. In the event that service of process cannot be effected upon a party, each party hereby irrevocably appoints the Secretary of State for the State of Texas as its or his agent for service of process to receive the summons and other pleadings in connection with any such litigation. 8.8 It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 8.9 This Agreement shall be binding upon and inure to the benefit of Employer and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of Employer by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. Employee's rights and obligations under Agreement hereof are personal and such rights, benefits, and obligations of Employee shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of Employer. 8.10 There exist other agreements between Employer and Employee relating to the employment relationship between them, e.g., the agreement with respect to company policies contained in Employer's Conduct of Business Affairs booklet and agreements with respect to compensation and benefit plans. This Agreement replaces and merges previous agreements and discussions pertaining to the following subject matters covered herein: the nature of Employee's employment relationship with Employer and the term and termination of such relationship. This Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect such subject matters. Each party to this Agreement acknowledges that no representation, inducement, promise, or agreement, oral or written, has been made by either party with respect to such subject matters, which is not embodied herein, and that no agreement, statement, or promise relating to the employment of Employee by Employer that is not contained in this Agreement shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing and signed by each party whose rights hereunder are affected thereby, provided that any such modification must be authorized or approved by the Board of Directors of Employer. 11 12 IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement in multiple originals to be effective on the date first stated above. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ---------------------------------------- Name: Patricia Edwards Title: V.P. Human Resources & Administration ------------------------------------- This 8th day of October, 1998 --- ------- ----------------- JEFFREY B. SHERRICK /s/ Jeffrey B. Sherrick -------------------------------------------- This 2nd day of October, 1998 --- ------- ----------------- 12 13 EXHIBIT "A" TO EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ENRON OIL & GAS COMPANY AND JEFFREY B. SHERRICK Employee Name: Jeffrey B. Sherrick Term: September 1, 1998 through August 31, 2001 Position: President and Chief Operating Officer, Enron Oil & Gas International Location: Houston, Texas Reporting Relationship: Reports to Mark G. Papa, President and Chief Executive Officer Monthly Base Salary: Twenty-two thousand nine hundred seventeen dollars ($22,917) Bonus: Employee shall be eligible to participate in Employer's annual bonus program, under which bonuses may be paid in a combination of cash, stock options, and/or phantom stock units, as determined by the Compensation Committee of Employer's Board of Directors. Long-Term Incentives: Employee shall be eligible to receive long-term incentive grants consistent with similarly situated executives of Employer. Stock Option Grant: Employee shall receive a grant of 150,000 stock options, effective September 8, 1998, vesting 20% on the Grant Date and 20% on each of the first four anniversaries of the Grant Date, as evidenced by an Award Agreement, upon execution of this Agreement. ENRON OIL & GAS COMPANY By: /s/ Patricia Edwards ---------------------------------------- Name: Patricia Edwards Title: V.P. Human Resources & Administration ------------------------------------- This 8th day of October, 1998 --- ------- ----------------- JEFFREY B. SHERRICK /s/ Jeffrey B. Sherrick -------------------------------------------- This 2nd day of October, 1998 --- ------- ----------------- 13 EX-10.67.B 14 1ST AMEND.TO EXECUTIVE EMPLOYMENT AGRMT.- SHERRICK 1 Exhibit 10.67(b) FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT This Agreement, entered into on this 17th of March, 1999, and made effective as of February 1, 1999, by and between ENRON OIL & GAS COMPANY ("Company" or "Employer") and JEFFREY B. SHERRICK ("Employee") is an amendment to that certain Employment Agreement made effective as of September 1, 1998 (the "Employment Agreement"). WHEREAS, the parties desire to amend the Employment Agreement as provided herein; NOW, THEREFORE, in consideration thereof and of the mutual covenants contained herein, the parties agree as follows: 1. Article 3, Section 3.5 of the Employment Agreement is hereby deleted in its entirety and the following is substituted therefor: "3.5 Upon an Involuntary Termination of the employment relationship by either Employer or Employee prior to the expiration of the Term, Employee shall be entitled, in consideration of Employee's continuing obligations hereunder after such termination (including, without limitation, Employee's non-competition obligations), to receive the then current Monthly Base Salary as if Employee's employment (which shall cease on the date of such Involuntary Termination) had continued for the full Term of this Agreement. Notwithstanding any other provisions of this Agreement, a termination of the employment relationship by either the Employer or Employee which meets the definition of Involuntary Termination under the Company's Change of Control Severance Plan shall constitute an Involuntary Termination under this Agreement. In the event of such Involuntary Termination which entitles Employee to severance benefits under said Plan, but for the following severance payment by the Company to the Employee, Employee shall receive from the Company a severance benefit under this Agreement equal to the sum of Employee's then current Monthly Base Salary times 12 times 2.99 plus two times the Employee's annual bonus target award under the Company's annual bonus program for the year in which the Change of Control Date occurs. Employee's severance benefit payable under said Plan, if any, shall be determined according to the provisions thereof. Employee shall not be under any duty or obligation to seek or accept other employment following Involuntary Termination and the amounts due Employee hereunder shall not be reduced or suspended if Employee accepts subsequent employment. Employee's rights under this Section 3.5 are Employee's sole and exclusive rights against Employer, Enron, or their affiliates, and Employer's sole and exclusive liability to Employee under 2 this Agreement, in contract, tort, or otherwise, for any Involuntary Termination of the employment relationship. Employee covenants not to sue or lodge any claim, demand or cause of action against Employer for any sums for Involuntary Termination other than those sums specified in this Section 3.5. If Employee breaches this covenant, Employer shall be entitled to recover from Employee all sums expended by Employer (including costs and attorneys fees) in connection with such suit, claim, demand or cause of action." 2. The following sentence shall be inserted at the end of Article 7, Section 7.1: "However, upon an Involuntary Termination as defined in the Company's Change of Control Severance Plan, which entitles Employee to severance benefits under said Plan, these non-competition obligations shall expire immediately and have no further force and effect." 3. The following new Article 9 shall be inserted at the end of the Employment Agreement: "ARTICLE 9: U.S. EXCISE TAX INDEMNIFICATION 9.1 Indemnification. In the event it shall be determined that any payment or distribution by the Company to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, the Company's Change of Control Severance Plan or otherwise, but determined without regard to any additional payments required under this Article 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. 9.2 Determination of Amount. Subject to the provisions of Section 9.3, all determinations required to be made under this Article 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a public accounting firm chosen by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee if requested by either the Company or Employee. All fees and expenses of 3 the Accounting Firm shall be borne solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9.3 and Employee thereafter is required to make a payment of any additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Employee. 9.3 Contest of Claims. If the Company elects to contest a claim by the Internal Revenue Service that Excise Tax is due from Employee, Employee shall cooperate fully with the Company in order to effectively contest such claim, including, but not limited to providing information reasonably requested by the Company relating to such claim, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and permitting the Company to participate in any proceedings relating to such claim. The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 9.4 Advances and Refunds. If the Company directs Employee to pay a claim by the Internal Revenue Service and sue for a refund, the Company shall advance the amount of such payment to Employee on an interest-free basis and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 9.4, Employee becomes entitled to receive, and receives, any refund with respect to such claim, Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 9.4, a determination is made that Employee is not entitled to any refund with respect to such claim, then such advance shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid." This Agreement is the First Amendment to the Employment Agreement, and the parties agree that all other terms, conditions and stipulations contained in the 4 Employment Agreement, and any amendments thereto, shall remain in full force and effect and without any change or modification, except as provided herein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ENRON OIL & GAS COMPANY By: /s/ PATRICIA EDWARDS --------------------------------------- Name: Patricia Edwards Title: V.P. Human Resources & Administration This 17th day of March, 1999 JEFFREY B. SHERRICK /s/ JEFFREY B. SHERRICK --------------------------------------- This 17th day of March, 1999 EX-21 15 LIST OF SUBSIDIARIES 1 EXHIBIT 21 ENRON OIL & GAS COMPANY LIST OF SUBSIDIARIES
DATE OF WHERE COMPANY NAME INCORPORATION INCORPORATED - ------------------------------------------------------------------------------- ---------------- ------------------- INTERNATIONAL SUBSIDIARIES: Enron Oil & Gas Company 06/12/85 Delaware Enron Oil & Gas International, Inc. 05/27/93 Delaware EOGI-Trinidad, Inc. 06/02/93 Delaware EOGI Trinidad Company 06/02/93 Cayman Islands Enron Gas & Oil Trinidad Limited 11/04/92 Trinidad Enron Oil & Gas Capital Management I, Ltd. 12/08/95 Cayman Islands Wilsyx International Finance B.V. 09/27/96 The Netherlands EOGI Company of Trinidad 03/14/97 Cayman Islands Harfin Capital and Finance Ltd. 07/24/97 Cayman Islands OCC Investment Company Ltd. 10/27/97 Cayman Islands EOGI - Trinidad U(a) Block, Inc. 11/07/95 Delaware EOGI Trinidad - U(a) Block Company 11/09/95 Cayman Islands Enron Gas & Oil Trinidad - U(a) Block Limited 11/10/95 Cayman Islands EOGI-Australia, Inc. 06/02/93 Delaware EOGI-France, Inc. 06/02/93 Delaware Enron Exploration France S.A. 11/13/92 France EOGI-Kazakhstan, Inc. 07/29/93 Delaware Enron Oil & Gas Kazakhstan Ltd. 08/18/94 Cayman Islands EOGI-United Kingdom, Inc. 07/29/93 Delaware EOGI United Kingdom Company B.V. 12/04/81 The Netherlands Enron Oil UK Limited 05/22/90 England EOGI-India, Inc. 03/17/94 Delaware Enron Oil & Gas India Ltd. 06/02/93 Cayman Islands EOGI-China, Inc. 08/18/94 Delaware Enron Oil & Gas China International Ltd. 05/07/97 Cayman Islands EOGI-Qatar, Inc. 09/22/94 Delaware Enron Oil & Gas Qatar Ltd. 09/23/94 Cayman Islands EOGI-Uzbekistan, Inc. 01/30/95 Delaware EOGI - Abu Dhabi, Inc. 04/11/95 Delaware Enron Oil & Gas Abu Dhabi Ltd. 04/12/95 Cayman Islands EOGI - Algeria, Inc. 11/07/95 Delaware Enron Oil & Gas Algeria Ltd. 11/09/95 Cayman Islands EOGI - Venezuela, Inc. 06/17/96 Delaware EOGI Venezuela Company 06/20/96 Cayman Islands Gulf of Paria East Operating Company 06/21/96 Cayman Islands Enron Oil & Gas Venezuela Ltd. 01/11/96 Cayman Islands Administradora del Golfo de Paria Este, S.A. 08/07/96 Venezuela EOGI Venezuela (Guarico), Inc. 05/15/96 Delaware Enron Oil & Gas Venezuela - Guarico Ltd. 04/03/96 Cayman Islands EOGI - China (Sichuan), Inc. 05/07/96 Delaware EOGI China Company 12/08/95 Cayman Islands Enron Oil & Gas China Ltd. 05/08/96 Cayman Islands EOGI - Mozambique, Inc. 05/15/96 Delaware Enron Oil & Gas Mozambique Ltd. 05/16/96 Cayman Islands Enron Oil & Gas Bangladesh Ltd. 06/27/97 Cayman Islands
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DATE OF WHERE COMPANY NAME INCORPORATION INCORPORATED - ------------------------------------------------------------------------------- ---------------- ------------------- DOMESTIC SUBSIDIARIES: Enron Oil & Gas Company 06/12/85 Delaware Enron Oil & Gas - Carthage, Inc. 03/21/95 Delaware ERSO, Inc. 04/24/67 Texas Enron Oil & Gas Property Management, Inc. 04/20/95 Delaware Enron Oil & Gas Investments, Inc. 04/24/95 Delaware Enron Oil & Gas Acquisitions L.P. 04/24/95 Delaware EOG Expat Services, Inc. 02/01/96 Delaware Enron Oil & Gas Marketing, Inc. 04/09/90 Delaware EOG - Canada, Inc. 03/13/85 Delaware EOG Company of Canada 12/14/95 Nova Scotia EOG Canada Company Ltd. 12/12/95 Alberta Enron Oil Canada Ltd. 04/01/82 Alberta Nilo Operating Company 04/04/94 Delaware Enron Oil & Gas - Callaghan, Inc. 04/11/97 Delaware
Page 2 of 2 EX-23.1 16 CONSENT OF DEGOLYER & MACNAUGHTON 1 EXHIBIT 23.1 March 15, 1999 Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Gentlemen: We hereby consent to the references to our firm and to the opinions delivered to Enron Oil & Gas Company (the Company) regarding our comparison of estimates prepared by us with those furnished to us by the Company of the proved oil, condensate, natural gas liquids, and natural gas reserves of certain selected properties owned by the Company. The opinions are contained in our letter reports dated January 17, 1997, January 13, 1998, and January 11, 1999, for estimates as of December 31, 1996, December 31, 1997, and December 31, 1998, respectively. The opinions are referred to in the section "Supplemental Information to Consolidated Financial Statements-Oil and Gas Producing Activities" in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, to be filed with the Securities and Exchange Commission on or about March 18, 1999. DeGolyer and MacNaughton also consents to the inclusion of our letter report, dated January 11, 1999, addressed to the Company as Exhibit (23.2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, to be filed with the Securities and Exchange Commission. Additionally, we hereby consent to the incorporation by reference of such references to our firm and to our opinions included in the Company's Form 10-K in the Company's previously filed Registration Statement Nos. 33-42620, 33-48358, 33-52201, 33-58103, 33-62005, 33-64055, 333-09919, 333-20841, 333-18511, 333-31715, 333-44785, and 333-69483. Very truly yours, DeGOLYER and MacNAUGHTON EX-23.2 17 OPINION OF DEGOLYER & MACNAUGHTON 1 EXHIBIT 23.2 January 11, 1999 Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Gentlemen: Pursuant to your request, we have prepared estimates of the proved oil, condensate, natural gas liquids, and natural gas reserves, as of December 31, 1998, of certain selected properties in the United States, Canada, and Trinidad owned by Enron Oil & Gas Company (Enron). The properties consist of working interests located in California, New Mexico, Texas, Utah, and Wyoming and in the offshore waters of Texas, Louisiana, and Alabama, in Saskatchewan, Canada, and in the offshore waters of Trinidad. The estimates are reported in detail in our "Report as of December 31, 1998, on Proved Reserves of Certain Properties in the United States owned by Enron Oil & Gas Company - Selected Properties," our "Report as of December 31, 1998, on Proved Reserves of Certain Properties in Canada owned by Enron Oil & Gas Company - Selected Properties," and our "Report as of December 31, 1998, on Proved Reserves of the Kiskadee Field, Offshore Trinidad for Enron Oil and Gas Company," hereinafter collectively referred to as the "Reports." We also have reviewed information provided to us by Enron that it represents to be Enron's estimates of the reserves, as of December 31, 1998, for the same properties as those included in the Reports. Proved reserves estimated by us and referred to herein are judged to be economically producible in future years from known reservoirs under existing economic and operating conditions and assuming continuation of current regulatory practices using conventional production methods and equipment. Proved reserves are defined as those that have been proved to a high degree of certainty by reason of actual completion, successful testing, or in certain cases by adequate core analyses and electrical-log interpretation when the producing characteristics of the formation are known from nearby fields. These reserves are defined areally by reasonable geological interpretation of structure and known continuity of oil- or 2 gas-saturated material. This definition is in agreement with the definition of proved reserves prescribed by the Securities and Exchange Commission. Enron represents that its estimates of the proved reserves, as of December 31, 1998, net to its leasehold interests in the properties included in the Reports are as follows, expressed in thousands of barrels (Mbbl) or millions of cubic feet (MMcf): Oil, Condensate, and Natural Gas Liquids Natural Gas Net Equivalent (Mbbl) (MMcf) (MMcf) ---------------------- ------------- ---------------- 30,995 1,643,050 1,829,020 Note: Net equivalent million cubic feet is based on 1 barrel of oil, condensate, or natural gas liquids being equivalent to 6,000 cubic feet of gas. Enron has advised us, and we have assumed, that its estimates of proved oil, condensate, natural gas liquids, and natural gas reserves are in accordance with the rules and regulations of the Securities and Exchange Commission. Proved reserves estimated by us for the properties included in the Reports, as of December 31, 1998, are as follows, expressed in thousands (Mbbl) or millions of cubic feet (MMcf): Oil, Condensate, and Natural Gas Liquids Natural Gas Net Equivalent (Mbbl) (MMcf) (MMcf) ---------------------- ------------- ---------------- 32,012 1,623,101 1,815,173 Note: Net equivalent million cubic fee is based on 1 barrel of oil, condensate, or natural gas liquids being equivalent to 6,000 cubic feet of gas. In making a comparison of the detailed reserves estimates prepared by us and by Enron of the properties involved, we have found differences, both positive and negative, in reserves estimates for individual properties. These differences appear to be compensating to a great extent when considering the reserves of Enron in the properties included in our reports, resulting in overall differences not being substantial. It is our opinion that the reserves estimates prepared by Enron on the 3 properties reviewed by us and referred to above, when compared on the basis of net equivalent million cubic feet of gas, do not differ materially from those prepared by us. Submitted, DeGOLYER and MacNAUGHTON EX-23.3 18 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into Enron Oil & Gas Company and subsidiaries' previously filed Registration Statement File Nos. 33-52201, 33-58103, 33- 62005, 33-64055, 333-09919, 333-20841, 333-18511, 333-31715, 333-44785 and 333-69483. ARTHUR ANDERSEN LLP Houston, Texas March 18, 1999 EX-24 19 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 27th day of February, 1999. /s/ Fred C. Ackman --------------------------------------- Fred C. Ackman 2 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ Kenneth L. Lay --------------------------------------- Kenneth L. Lay 3 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 19th day of February, 1999. /s/ Edward Randall, III --------------------------------------- Edward Randall, III 4 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 27th day of February, 1999. /s/ Ken L. Harrison --------------------------------------- Ken L. Harrison 5 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 2nd day of March, 1999. /s/ Frank G. Wisner --------------------------------------- Frank G. Wisner 6 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ Jeffrey K. Skilling --------------------------------------- Jeffrey K. Skilling 7 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ James V. Derrick, Jr. --------------------------------------- James V. Derrick, Jr. 8 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ Richard A. Causey --------------------------------------- Richard A. Causey 9 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ John H. Duncan --------------------------------------- John H. Duncan 10 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: The undersigned, as a director of Enron Oil & Gas Company, a Delaware corporation (the "Company"), in connection with the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 1998, with the Securities and Exchange Commission, does hereby make, constitute and appoint Mark G. Papa, Walter C. Wilson and Angus H. Davis, each of them with full power (any one of them acting alone), as true and lawful attorneys-in-fact and agents, for and on behalf and in the name, place and stead of the undersigned, in any and all capacities, to sign, execute and file such Annual Report on Form 10-K, together with any amendments or supplements thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto each above-mentioned individual the full power and authority to do and perform each and every act and action requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as the undersigned might or could do if personally present, hereby ratifying and confirming all the said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereto set his hand this 17th day of February, 1999. /s/ Forrest E. Hoglund --------------------------------------- Forrest E. Hoglund EX-27 20 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 DEC-31-1998 6,303 0 193,588 0 39,581 246,350 4,814,425 (2,138,062) 3,018,095 262,634 0 0 0 201,600 1,078,704 3,018,095 750,937 769,188 0 655,527 4,800 0 48,579 60,282 4,111 56,171 0 0 0 56,171 0.36 0.36 BASIC
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