-----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, ReFax1FpF1b1K98/bx6/lJTZQbay/zj0o7jUw+oA6tBkxyrdN2FNyOUtfFkCRlIT Hy7CP112fk4vJPc0UMh31A== 0000950129-99-003269.txt : 19990726 0000950129-99-003269.hdr.sgml : 19990726 ACCESSION NUMBER: 0000950129-99-003269 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990723 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: S-3 SEC ACT: SEC FILE NUMBER: 333-83533 FILM NUMBER: 99669041 BUSINESS ADDRESS: STREET 1: 1400 SMITH ST CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7138535482 S-3 1 ENRON OIL & GAS COMPANY 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ENRON OIL & GAS COMPANY (Exact name of registrant as specified in its charter) DELAWARE 47-0684736 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.)
1400 SMITH STREET, HOUSTON, TEXAS 77002 TELEPHONE NO. (713) 853-6161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ BARRY HUNSAKER, JR., ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL ENRON OIL & GAS COMPANY 1400 SMITH STREET HOUSTON, TEXAS 77002 TELEPHONE: (713) 853-5788 FACSIMILE: (713) 646-2750 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ Copies to: ARTHUR H. ROGERS, ESQ. GARY W. ORLOFF, ESQ. FULBRIGHT & JAWORSKI L.L.P. BRACEWELL & PATTERSON, L.L.P. 1301 MCKINNEY STREET, SUITE 5100 SOUTH TOWER PENNZOIL PLACE, SUITE 2900 HOUSTON, TEXAS 77010 711 LOUISIANA STREET TELEPHONE: (713) 651-5421 HOUSTON, TEXAS 77002 FACSIMILE: (713) 651-5246 TELEPHONE: (713) 221-1306 FACSIMILE: (713) 221-2166
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED* PER UNIT OFFERING PRICE* FEE - --------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 42,550,000 $19.625 $609,356,250 $169,402 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
* Includes 27,000,000 shares that may be offered by the Company in an underwritten offering, and up to 4,050,000 shares that the underwriters in that offering may purchase from Enron Corp. to cover over-allotments, if any. The price is estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) (based on the average of the high and low prices of the common stock as reported in the New York Stock Exchange composite transaction reporting system on July 19, 1999). Also includes up to 11,500,000 shares which are deliverable only upon exchange at maturity of the Exchangeable Notes of Enron Corp. (which Notes are separately registered pursuant to a Registration statement on Form S-3 filed by Enron Corp. concurrently herewith), including shares exchangeable for Notes that the underwriters for Enron Corp.'s offering may purchase to cover over-allotments, if any. No separate consideration will be received by the Company for such shares. Accordingly, pursuant to Rule 457(i), no registration fee is required with respect to such shares. ------------------------ THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one used in connection with an offering (the "Prospectus") by Enron Oil & Gas Company of common stock, $.01 par value per share ("Common Stock"), and one used in connection with shares of Common Stock deliverable upon mandatory exchange pursuant to the terms of the Exchangeable Notes of Enron Corp., which Exchangeable Notes are separately registered pursuant to a Registration Statement on Form S-3 filed by Enron Corp. concurrently herewith, and which will be included in such registration statement as Appendix A to the prospectus (the "Appendix Prospectus"). The Appendix Prospectus and the Prospectus are identical except that they contain different front and back cover pages and different descriptions of "Legal Matters" and the plan of distribution (contained under the captions "Underwriting" and "Plan of Distribution"). In addition, the Appendix Prospectus will omit from the "Prospectus Summary" the material captioned "The Offering". The form of Prospectus is included herein and is followed by those pages to be used in the Appendix Prospectus which differ from or are in addition to, those in the Prospectus. Each of the pages for the Appendix Prospectus included herein is labeled "Alternative Page for Appendix Prospectus". 3 THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED JULY 23, 1999. 27,000,000 Shares [Enron Logo] ENRON OIL & GAS COMPANY Common Stock ---------------------- Enron Oil & Gas Company is offering 27,000,000 shares of its common stock. The common stock is listed on the New York Stock Exchange under the symbol "EOG". The last reported sale price of the common stock on July 21, 1999 was $20.00 per share. Enron Corp. is offering concurrently, in a separate public offering with a separate prospectus 10,000,000 (11,500,000 if the underwriters in that offering fully exercise their over-allotment option) Exchangeable Notes, which are mandatorily exchangeable into shares of EOG common stock currently owned by Enron Corp. This offering of EOG common stock and the concurrent offering of Exchangeable Notes by Enron Corp. are not conditioned on each other. Consider carefully the risk factors beginning on page 10 of this prospectus. ---------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------
Per Share Total --------- -------- Initial price to public..................................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to EOG........................... $ $
To the extent that the underwriters sell more than 27,000,000 shares of common stock, the underwriters have the option to purchase up to an additional 4,050,000 shares from Enron Corp. at the initial price to public less the underwriting discount. ---------------------- The underwriters expect to deliver the shares against payment in New York, New York on August , 1999. GOLDMAN, SACHS & CO. BANC OF AMERICA SECURITIES LLC DAIN RAUSCHER WESSELS A DIVISION OF DAIN RAUSCHER INCORPORATED LEHMAN BROTHERS MERRILL LYNCH & CO. PAINEWEBBER INCORPORATED SALOMON SMITH BARNEY WARBURG DILLON READ LLC ---------------------- Prospectus dated , 1999. 4 ENRON OIL & GAS COMPANY - ------------------------- LOGO *NATURAL GAS EQUIVALENT DAILY PRODUCTION AT DECEMBER 31, 1998. OIL AND GAS TERMS When describing commodities produced and sold: gas = natural gas oil = crude oil liquids = crude oil, condensate and natural gas liquids When describing natural gas: Mcf = thousand cubic feet MMcf = million cubic feet Bcf = billion cubic feet MMBtu = million British Thermal Units When describing oil: Bbl = barrel MBbl = thousand barrels MMBbl = million barrels When comparing oil to natural gas: 1 Bbl of oil = 6 Mcf of natural gas equivalent Mcfe = thousand cubic feet equivalent MMcfe = million cubic feet equivalent Bcfe = billion cubic feet equivalent
2 5 PROSPECTUS SUMMARY This summary highlights selected information we have included or incorporated by reference in this prospectus. However, it does not contain all information that may be important to you. More detailed information about this offering, our business and our financial and operating data is contained elsewhere in this prospectus. We encourage you to read this prospectus in its entirety before making an investment decision. In this prospectus, we refer to Enron Oil & Gas Company and its subsidiaries as "we", "us", "our" or "EOG" unless the context clearly indicates otherwise. ABOUT EOG EOG is one of the largest independent exploration and production companies in the United States. We explore for and produce natural gas and oil in almost every major producing basin in the United States and Canada and internationally in India and Trinidad and, to a lesser extent, selected other areas. SHARE EXCHANGE WITH ENRON CORP. On July 20, 1999, EOG and Enron Corp. announced an agreement to exchange 62,270,000 shares of our common stock out of 82,270,000 shares currently owned by Enron Corp. for all the stock of our subsidiary, EOGI-India, Inc. Prior to the Share Exchange, we will make an indirect $600,000,000 cash capital contribution, plus certain intercompany receivables, to EOGI-India, Inc. At the time of completion of this transaction, this subsidiary will own, through subsidiaries, all of our assets and operations in India and China. We expect this transaction to be tax-free to Enron Corp. and us. We refer to this transaction elsewhere in this prospectus as the Share Exchange. Some time after the Share Exchange, we expect to change our corporate name to "EOG Resources, Inc." and we will make appropriate changes to our subsidiaries' names. See "Relationship with Enron Corp." The completion of the Share Exchange is subject to specific conditions and will occur on the later of August 31, 1999 and three days after all conditions have been satisfied or waived. If prior to August 31, 1999 all conditions to the Share Exchange have been satisfied or waived, we can require that the Share Exchange take place prior to August 31, 1999. We currently expect the Share Exchange to close on or before August 31, 1999. If we complete the Share Exchange prior to this offering, we will use borrowed funds for the cash capital contribution in connection with the Share Exchange, and we will repay a portion of those borrowed funds with the net proceeds of this offering. If we complete this offering on the same day as the Share Exchange, we will use the proceeds of this offering to pay a portion of the capital contribution in connection with the Share Exchange. Upon completion of the Share Exchange, all of the directors of EOG who are affiliated with Enron Corp. will resign from our Board of Directors. For the complete terms of our agreement with Enron Corp., please refer to the Share Exchange Agreement between Enron Corp. and us filed as an exhibit to the registration statement that includes this prospectus. EOG RESOURCES, INC. As EOG Resources, Inc., our reserves and production will be predominantly comprised of natural gas, and will be primarily located in North America. On a pro forma basis, 77% of our total reserves will be located in, and 85% of our production will be derived from, the United States or Canada, with natural gas comprising 87% of total production, on a natural gas equivalent basis 3 6 as of or for the year ended December 31, 1998. After giving effect to the Share Exchange, at December 31, 1998, our estimated total net proved reserves included: - 4,294 Bcf of gas, including: - 1,180 Bcf of proved undeveloped methane reserves in the Big Piney deep Paleozoic formations in Wyoming and - 61 MMBbl of liquids. After giving effect to the Share Exchange, at December 31, 1998, - 66% of our reserves (on a natural gas equivalent basis) was located in the United States - 11% in Canada and - 23% in Trinidad. After giving effect to the Share Exchange, for the year ended December 31, 1998 our delivered volumes (on a natural gas equivalent basis) were - 282 Bcfe in the United States, - 46 Bcfe in Canada and - 57 Bcfe in Trinidad. BUSINESS STRATEGY Our strategy is to maximize the return on invested capital by achieving operating and finding costs that are among the lowest in the industry. We are focused on growing our domestic natural gas reserves and production by concentrating our efforts in known North American reserve basins. We focus on selected international opportunities where we can successfully apply our core competencies in the exploitation of reserves. Our strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost effective basis. Our North American operations are organized into seven largely autonomous business units, each focusing on a basin or basins, utilizing personnel who have developed experience and expertise unique to the geology of the region, thereby leveraging our knowledge and cost structure into enhanced returns on invested capital. We focus our drilling activity toward natural gas deliverability in addition to natural gas reserve enhancement and to a lesser extent crude oil exploitation. We also 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. We implement our strategy by emphasizing the drilling of internally generated prospects in order to find and develop low cost reserves. We also make selected tactical acquisitions that give us additional economies of scale or land positions with significant additional prospects. Achieving and maintaining the lowest possible operating cost structure are also important goals in the implementation of our strategy. Consistent with our desire to optimize the use of our assets, we also sell selected oil and gas properties that for various reasons may no longer fit into future operating plans or which we believe do not have sufficient future growth potential. We do this when we believe the economic value to be obtained by selling the properties and reserves in the ground is greater than what we would obtain by holding the properties and producing the reserves over time. As a result, we typically receive each year a varying but substantial level of proceeds related to such sales. We use these proceeds for general corporate purposes. 4 7 RECENT DEVELOPMENTS For the second quarter 1999, we reported net income of $20.6 million, or $.13 per share, compared to net income of $13.3 million, or $.09 per share, for the comparable period a year ago. Net of non-recurring items, our second quarter 1999 net income was $12.9 million, or $.08 per share. Net operating revenues for second quarter 1999 were $187.2 million compared to $183.3 million for the comparable period a year ago. Our natural gas deliveries in second quarter 1999 increased six percent to 959 MMcf per day versus 1998 second quarter deliveries of 907 MMcf per day. Crude oil and condensate deliveries totaled 24.5 MBbls per day in the second quarter 1999, an increase of nine percent from deliveries of 22.4 MBbls per day for the comparable period a year ago. As a result of the change to our portfolio of assets subsequent to the Share Exchange, we are currently re-evaluating our overall business. We expect to complete this re-evaluation by the end of third quarter 1999. As a result of this re-evaluation, some of our current projects may no longer be deemed central to our business. In that case, we may incur non-cash charges in connection with the disposition of such projects of up to approximately $75 million, after-tax. We have received a commitment for a new credit facility of up to $1.3 billion, which may be used to fund the $600 million cash capital contribution for the Share Exchange if it closes before this offering. We have declared a regular quarterly dividend of $0.03 per share on the common stock of EOG, payable July 30, 1999, to shareholders of record as of July 15, 1999. On July 21, 1999, two stockholders of EOG filed separate lawsuits purportedly on behalf of EOG against Enron Corp. and EOG's directors, alleging that Enron Corp. and EOG's directors breached their fiduciary duties of good faith and loyalty in approving the Share Exchange. The lawsuits seek to temporarily and permanently enjoin the Share Exchange and seek compensatory damages and costs and expenses, including reasonable attorneys' and experts' fees. EOG, Enron Corp. and the EOG directors believe the lawsuits are without merit and intend to vigorously contest them. THE OFFERING - Shares offered by EOG..........................................27,000,000 - Approximate number of shares outstanding after this offering and the Share Exchange........................................................... - New York Stock Exchange symbol................................................................EOG - Use of proceeds..........................................We expect to use the net proceeds from this offering of approximately $ to either make a cash capital contribution to our subsidiaries that conduct our India and China operations in connection with the pending Share Exchange or if the Share Exchange already has taken place when this offering is completed, to repay a portion of the indebtedness incurred to fund such capital contribution. The pending Share Exchange with Enron Corp. is discussed in "Prospectus Summary -- Share Exchange With Enron Corp." We will not receive any proceeds from the underwriters' exercise of the over-allotment option. 5 8 CONCURRENT OFFERING Enron Corp. is offering concurrently, in a separate public offering with a separate prospectus 10,000,000 (11,500,000 if the underwriters in that offering fully exercise their over-allotment option) Exchangeable Notes, which are mandatorily exchangeable into shares of our common stock currently owned by Enron Corp. This offering of our common stock and the concurrent offering of Exchangeable Notes by Enron Corp. are not conditioned on each other. Enron may not sell any shares of our common stock other than those covered by the underwriters' over-allotment and the Exchangeable Notes for a period of six months following the closing of the Share Exchange. We will not receive any proceeds from the Exchangeable Notes offering. 6 9 SUMMARY OF HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA The following table sets forth our summary selected historical financial and operating data as of and for each of the three years in the period ended December 31, 1998 and the three-month periods ended March 31, 1998 and 1999 and our pro forma financial and operating data as of and for the year ended December 31, 1998 and the three-month period ended March 31, 1999. This information should be read in conjunction with our consolidated financial statements and the related notes incorporated by reference in this prospectus (see "Where You Can Find More Information") and our condensed consolidated pro forma financial statements and the related notes included elsewhere in this prospectus. Financial information for each of the three years in the period ended December 31, 1998 has been derived from audited financial statements. Financial information for the three-month periods ended March 31, 1998 and 1999 has been derived from unaudited financial statements. The interim data reflects all adjustments which, in the opinion of our management, are necessary to present fairly such information for the interim periods. Results of the three-month periods are not necessarily indicative of the results expected for a full year or any other interim period. The unaudited condensed consolidated pro forma information is for informational purposes only, and does not necessarily represent what our actual results of operations would have been had the Share Exchange occurred on the dates indicated under "Unaudited Condensed Consolidated Pro Forma Financial Information".
PRO FORMA THREE PRO FORMA THREE MONTHS MONTHS YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31, ENDED ---------------------------------- DECEMBER 31, --------------------- MARCH 31, 1996 1997 1998 1998 1998 1999 1999 -------- -------- -------- ------------ -------- -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net operating revenues......... $730,648.. $783,501 $769,188 $696,351 $199,831 $158,954 $140,120 Operating expenses Lease and well................ 76,618.. 96,064 98,868 87,750 24,909 24,069 19,788 Exploration costs............. 55,009.. 57,696 65,940 63,407 17,398 16,789 15,991 Dry hole costs................ 13,193 17,303 22,751 22,751 7,881 345 345 Impairment of unproved oil and gas properties.............. 21,226 27,213 32,076 32,076 8,348 8,003 8,003 Depreciation, depletion and amortization................ 251,278 278,179 315,106 305,786 71,961 82,022 79,120 General and administrative.... 56,405 54,415 69,010 57,968 16,554 23,635 13,142 Taxes other than income....... 48,089 59,856 51,776 45,161 14,494 13,695 11,473 -------- -------- -------- -------- -------- -------- -------- Total................... 521,818 590,726 655,527 614,899 161,545 168,558 147,862 -------- -------- -------- -------- -------- -------- -------- Operating income (loss)........ 208,830 192,775 113,661 81,452 38,286 (9,604) (7,742) Other income (expense), net.... (5,007) (1,588) (4,800) 5 (970) 26,938(1) 24,639(1) Interest expense (net of interest capitalized)......... 12,861 27,717 48,579 60,590 9,110 14,267 17,134 -------- -------- -------- -------- -------- -------- -------- Income before income taxes..... 190,962 163,470 60,282 20,867 28,206 3,067 (237) Income tax provision (benefit)(2).................. 50,954(3) 41,500(4) 4,111(5) (10,432)(5) 1,201(6) (1,999)(7) (2,047)(7) -------- -------- -------- -------- -------- -------- -------- Net income..................... $140,008 $121,970 $ 56,171 $ 31,299 $ 27,005 $ 5,066 $ 1,810 ======== ======== ======== ======== ======== ======== ======== Net income per share of common stock Basic......................... $ .88 $ .78 $ .36 $ .26 $ .17 $ .03 $ .02 ======== ======== ======== ======== ======== ======== ======== Diluted....................... $ .87 $ .77 $ .36 $ .26 $ .17 $ .03 $ .02 ======== ======== ======== ======== ======== ======== ======== Average number of common shares Basic......................... 159,853 157,376 154,345 119,075 154,736 153,733 118,463 ======== ======== ======== ======== ======== ======== ======== Diluted....................... 161,525 158,160 155,054 119,784 155,522 154,615 119,345 ======== ======== ======== ======== ======== ======== ========
7 10
PRO FORMA AT DECEMBER 31, AT AT ------------------------------------ MARCH 31, MARCH 31, 1996 1997 1998 1999 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Oil and gas properties - net........................... $2,099,589 $2,387,207 $2,676,363 $2,681,316 $2,450,296 Total assets........................................... 2,458,353 2,723,355 3,018,095 2,990,235 2,677,789 Long-term debt Trade................................................ 466,089 548,775 942,779 1,170,518 1,280,518 Affiliate............................................ - 192,500 200,000 - - Deferred revenue....................................... 56,383 39,918 4,198 3,148 3,148 Shareholders' equity................................... 1,265,090 1,281,049 1,280,304 1,284,713 936,967
PRO FORMA THREE MONTHS THREE YEAR ENDED PRO FORMA ENDED MONTHS DECEMBER 31, YEAR ENDED MARCH 31, ENDED ------------------------ DECEMBER 31, --------------- MARCH 31, 1996 1997 1998 1998 1998 1999 1999 ------ ------ ------ ------------- ------ ------ --------- OPERATING DATA: Wellhead Volumes and Prices Natural Gas Volumes (MMcf per day).............. 830 889 971 915 901 1,004 933 Average Natural Gas Prices ($/Mcf).............. $ 1.78 $ 2.07 $ 1.78 $ 1.74 $ 1.86 $ 1.53 $ 1.50 Crude/Condensate Volumes (MBbl per day)......... 19.6 19.9 24.7 19.6 22.3 25.7 18.6 Average Crude/Condensate Prices ($/Bbl)......... $20.60 $19.30 $12.66 $12.61 $14.64 $10.76 $11.12
- --------------- (1) Includes a gain of $28 million related to the sale of options held by EOG to purchase 1.6 million shares of Enron Corp. common stock. (2) Includes benefits of approximately $16 million, $12 million, $12 million, $12 million, $1 million, $3 million and $3 million in the year ended December 31, 1996, 1997, 1998 and 1998 (pro forma), and the three-month period ended March 31, 1998, 1999 and 1999 (pro forma), respectively, relating to tight gas sand federal income tax credits. (3) 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. (4) 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. (5) Includes a benefit of $2 million related to the final audit assessments of India taxes for certain prior years, a benefit of $4 million related to reduced deferred franchise taxes, and $4 million related to Venezuela deferred tax benefits. (6) Includes a benefit of $9 million related to certain international costs and the resolution of certain domestic and international issues. (7) Computed using the actual effective tax rate for the quarter rather than the annual effective tax rate. 8 11 SUMMARY OF HISTORICAL AND PRO FORMA OIL AND GAS RESERVE INFORMATION The following table sets forth summary information with respect to EOG's estimates of its net proved natural gas, crude oil, condensate and natural gas liquids reserves at December 31, 1998. For additional information relating to reserves, see "Business -- Oil and Gas Exploration and Production Properties and Reserves".
NATURAL GAS EQUIVALENTS (BCFE) GAS LIQUIDS ------------------------------- (BCF) (MBBL) DEVELOPED UNDEVELOPED TOTAL ----- --------- --------- ----------- ----- HISTORICAL: Net proved reserves at December 31, 1998: United States........................ 2,854(1) 36,827 1,628 1,446(1) 3,074(1) Canada............................... 464 7,592 432 78 510 Trinidad............................. 976 16,204 312 762 1,074 India................................ 825 42,785 608 473 1,081 Other................................ 110 1,162 - 117 117 ----- ------- ----- ----- ----- Total........................... 5,229 104,570 2,980 2,876 5,856 ===== ======= ===== ===== =====
NATURAL GAS EQUIVALENTS (BCFE) GAS LIQUIDS ------------------------------- (BCF) (MBBL) DEVELOPED UNDEVELOPED TOTAL ------- --------- --------- ----------- ----- PRO FORMA: Net proved reserves at December 31, 1998, as adjusted(2): United States......................... 2,854(1) 36,827 1,628 1,446(1) 3,074(1) Canada................................ 464 7,592 432 78 510 Trinidad.............................. 976 16,204 312 762 1,074 ----- ------- ----- ----- ----- Total............................ 4,294 60,623 2,372 2,286 4,658 ===== ======= ===== ===== =====
- --------------- (1) Includes 1,180 Bcf of methane reserves in the Big Piney deep Paleozoic formations in Wyoming. (2) Adjusted to reflect the effect of the Share Exchange. 9 12 RISK FACTORS In considering whether to purchase shares of our common stock, you should carefully consider the risk factors described below and all the information we have included or incorporated by reference in this prospectus. In addition, please read "Cautionary Statement Regarding Forward-Looking Statements" on page 15 of this prospectus, where we describe uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus. A SUBSTANTIAL OR EXTENDED DECLINE IN OIL OR GAS PRICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON US. Prices for natural gas and oil fluctuate widely. For example, natural gas and oil prices declined significantly in 1998 and, for an extended period of time, remained substantially below prices obtained in previous years. Since we are primarily a natural gas company, we are more significantly affected by changes in natural gas prices than changes in the prices for crude oil, condensate or natural gas liquids. Among the factors that can cause these price fluctuations are: - the level of consumer demand, - weather conditions, - price and availability of alternative fuels, - domestic drilling activity and - overall economic conditions. During 1995, 1996, 1997 and 1998, the high and low prices for natural gas and oil on the twelve-month forward NYMEX strip were:
GAS OIL ------------- --------------- HIGH LOW HIGH LOW ----- ----- ------ ------ 1995................. $2.09 $1.57 $19.16 $16.58 1996................. 2.73 1.85 23.27 16.90 1997................. 2.79 2.02 23.38 18.29 1998................. 2.72 1.92 18.41 12.17
The average North America wellhead natural gas prices we received increased 43% from 1995 to 1996 and 15% from 1996 to 1997, while the average North America wellhead natural gas prices we realized from 1997 to 1998 decreased by 15%. Wellhead natural gas volumes from the Trinidad SECC Block are sold at prices that are based on a fixed schedule with periodic escalations. No formal contract has been entered into regarding future production of proved reserves from the Trinidad U(a) Block. 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, we are unable to predict what changes may occur in natural gas prices in the future. We sell substantially all of our wellhead crude oil and condensate 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 worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of the consumers, the level of consumer demand and the availability of alternative fuels, we are unable to predict what changes may occur in crude oil and condensate prices in the future. Our cash flow and earnings depend to a great extent on the prevailing prices for natural gas and oil. Prolonged or substantial declines in these commodity prices may adversely affect our liquidity, the amount of cash flow available for capital expenditures and our ability to maintain our credit quality and access to the credit and capital markets. OUR ABILITY TO SELL OUR OIL AND GAS PRODUCTION COULD BE MATERIALLY HARMED IF WE FAIL TO OBTAIN ADEQUATE SERVICES SUCH AS TRANSPORTATION AND PROCESSING. The sale of our oil and gas production depends on a number of factors beyond our control, including the availability and capacity of transportation and processing facilities. Our failure to obtain such services on acceptable terms could materially harm our business. 10 13 THE OIL AND GAS RESERVES DATA AND FUTURE NET REVENUES ESTIMATES WE REPORT ARE UNCERTAIN. Estimates of reserves by necessity are projections based on engineering data, the projection of future rates of production and the timing of future expenditures. Estimates of our proved oil and gas reserves and projected future net revenues are based on reserve reports which we prepare and a portion of which are reviewed by independent petroleum engineers. The process of estimating oil and gas reserves requires substantial judgment on the part of the petroleum engineers, resulting in imprecise determinations, particularly with respect to new discoveries. Different reserve engineers may make different estimates of reserve quantities and revenues attributable thereto based on the same data. Future performance that deviates significantly from the reserve reports could have a material adverse effect on us. The accuracy of any reserve estimate depends on the quality of the available data as well as engineering and geological interpretation and judgment. Results of drilling, testing and production and changes in the assumptions regarding decline and production rates, the ability to market oil and gas that is produced, oil and gas prices, revenues, taxes, capital expenditures, operating expenses, geologic success and quantities of recoverable oil and gas may vary substantially from those assumed in the estimates, may result in revisions to such estimates and could materially affect the estimated quantities and related value of reserves. The estimates of future net revenues reflect oil and gas prices as of the date of estimation, without escalation or reduction. Fluctuations in the price of natural gas and oil have the effect of significantly altering reserve estimates as the economic projections inherent in the estimates may reduce or increase the quantities of recoverable reserves. There can be no assurance, however, that such prices will be realized or that the estimated production volumes will be produced during the periods indicated. Actual future production, natural gas and oil prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable natural gas and oil reserves most likely will vary from our estimates. IF WE FAIL TO ACQUIRE OR FIND ADDITIONAL RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE MATERIALLY FROM THEIR CURRENT LEVELS. The rate of production from oil and gas properties generally declines as reserves are depleted. Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline materially as reserves are produced. Future oil and gas production is, therefore, highly dependent upon our level of success in acquiring or finding additional reserves. WE INCUR CERTAIN COSTS TO COMPLY WITH GOVERNMENT REGULATIONS, ESPECIALLY REGULATIONS RELATING TO ENVIRONMENTAL PROTECTION, AND COULD INCUR EVEN GREATER COSTS IN THE FUTURE. Our exploration, production and marketing operations are regulated extensively at the federal, state and local levels, as well as by other countries in which we do business. We have made and will continue to make expenditures in our efforts to comply with the requirements of environmental and other regulations. Further, the oil and gas regulatory environment could change in ways that might substantially increase these costs. Hydrocarbon-producing states regulate conservation practices and the protection of correlative rights. These regulations affect our operations and limit the quantity of hydrocarbons we may produce and sell. In addition, at the U.S. federal level, the Federal Energy Regulatory Commission regulates interstate transportation of natural gas under the Natural Gas Act. Other regulated matters include marketing, pricing, transportation and valuation of royalty payments. As an owner or lessee and operator of oil and gas properties, we are subject to various federal, state, local and foreign regulations relating to discharge of materials into, and 11 14 protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from operations, subject us to liability for pollution damages, and require suspension or cessation of operations in affected areas. Changes in or additions to regulations regarding the protection of the environment could hurt our business. OUR INDUSTRY IS VERY COMPETITIVE. The oil and gas industry is extremely competitive. This is especially true with regard to exploration for, and exploitation and development of, new sources of crude oil and natural gas. As an independent oil and gas company, we frequently compete against other companies that are larger and financially stronger in acquiring properties suitable for exploration, in contracting for drilling equipment and other services and in securing trained personnel. WE DO NOT INSURE AGAINST ALL POTENTIAL LOSSES AND COULD BE SERIOUSLY HARMED BY UNEXPECTED LIABILITIES. Exploration for and production of oil and gas can be hazardous, involving natural disasters and other unforeseen occurrences such as blowouts, cratering, fires and loss of well control, which can damage or destroy wells or production facilities, injure or kill people, and damage property and the environment. 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. We maintain insurance against many, but not all, potential losses or liabilities arising from our operations in accordance with customary industry practices and in amounts that we believe to be prudent. Losses and liabilities arising from such events could reduce our revenues and increase our costs to the extent not covered by insurance. The occurrence of any of the aforementioned events and any payments made as a result of such events and the liabilities related thereto, would reduce the funds available for exploration, drilling and production and could have a material adverse effect on our financial position or results of operations. OUR HEDGING ACTIVITIES MAY PREVENT US FROM BENEFITING FROM PRICE INCREASES AND MAY EXPOSE US TO OTHER RISKS. We engage in price risk management activities from time to time primarily for non-trading and to a lesser extent for trading purposes. We use derivative financial instruments (primarily price swaps and costless collars) for non-trading purposes to hedge the impact of market fluctuations on natural gas and crude oil market prices and net income and cash flow. To the extent that we engage in hedging activities, we may be prevented from realizing the benefits of price increases above the levels of the hedges. In addition, we are subject to risks associated with differences in prices at different locations, particularly where transportation constraints restrict our ability to deliver oil and gas volumes to the delivery point to which the hedging transaction is indexed. Further, hedging contracts are subject to the risk that the other party may prove unable or unwilling to perform its obligations under such contracts. Any significant nonperformance could adversely affect us financially. WHEN WE ACQUIRE OIL AND GAS PROPERTIES, OUR FAILURE TO FULLY IDENTIFY POTENTIAL PROBLEMS, TO PROPERLY ESTIMATE RESERVES OR PRODUCTION RATES OR COSTS, OR TO EFFECTIVELY INTEGRATE THE ACQUIRED OPERATIONS COULD SERIOUSLY HARM US. We from time to time acquire oil and gas properties. When we do so, our failure to fully identify potential problems, to properly estimate reserves or production rates or costs, or to effectively integrate the acquired operations could seriously harm us. Although we perform reviews of acquired properties that we believe are consistent with industry practices, we do not review in depth every individual property involved in each acquisition. Ordinarily we focus on higher-value properties and sample the remainder. 12 15 However, even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, we often assume environmental and other risks and liabilities in connection with acquired properties. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs with respect to acquired properties. Actual results may vary substantially from those assumed in the estimates. In addition, acquisitions may have adverse effects on our operating results, particularly during the periods in which the operations of acquired businesses are being integrated into our ongoing operations. OUR NON-U.S. OPERATIONS ARE SUBJECT TO RISKS OF DOING BUSINESS ABROAD. Our non-U.S. oil and natural gas exploration, exploitation, development and production activities are subject to certain political and economic risks including, among others: - cancellation or renegotiation of contracts; - disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act; - changes in foreign laws or regulations; - changes in tax laws; - royalty and tax increases; - retroactive tax claims; - expropriation or nationalization of property; - currency fluctuations; - foreign exchange controls; - import and export regulations; - environmental controls; - risks of loss due to civil strife, acts of war, guerilla activities and insurrection; and - other risks arising out of foreign governmental sovereignty over the areas in which our operations are conducted. Consequently, our non-U.S. exploration, exploitation, development and production activities may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial position or results of operations. Furthermore, in the event of a dispute arising from non-U.S. operations, we may be subject to the exclusive jurisdiction of courts outside the United States or may not be successful in subjecting non-U.S. persons to the jurisdiction of the courts in the United States, which could adversely affect the outcome of the dispute. A DECLINE IN THE CONDITION OF THE CAPITAL MARKETS OR A SUBSTANTIAL RISE IN INTEREST RATES COULD HARM US. If the condition of the capital markets utilized by us to finance our operations materially declines, we might not be able to finance our operations on terms we consider acceptable. In addition, a substantial rise in interest rates would decrease our net cash flows available for reinvestment. OUR COMPUTER SYSTEMS OR OTHER ASSETS USED IN OUR OPERATIONS AND THOSE OF THIRD PARTIES MAY NOT BE YEAR 2000 COMPLIANT, WHICH MAY CAUSE SYSTEM FAILURES AND DISRUPTIONS IN OPERATIONS. The inability of some computer programs and embedded computer chips to distinguish between the year 1900 and the year 2000 poses a serious threat of business disruption to any organization that uses computer technology and computer chip technology in their business systems or equipment. Each major business unit has been required to 13 16 inventory and assess the risk associated with hardware, software, telecommunications systems, office equipment, embedded chip controls and systems, process control systems, facility control systems and dependencies on external mission critical entities. We presently believe that, with updates to software that are substantially complete or well under way, conversions to new software and completion of efforts planned by each major business unit to update imbedded microprocessors, the risk associated with year 2000 will be significantly reduced. However, we are unable to assure that the consequences of year 2000 failures of systems maintained by us or by third parties will not materially adversely impact our results of operations or financial condition. More detailed information about the year 2000 risks and our efforts to address this issue is contained in our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A, and our Quarterly Report on Form 10-Q for the three months ended March 31, 1999, both of which are incorporated by reference into this prospectus. 14 17 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus and the documents incorporated by reference contain 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. All statements other than statements of historical facts, including, among others, statements regarding our future financial position, business strategy, budgets, reserve information, projected levels of production, projected costs and plans and objectives of management for future operations, are forward-looking statements. We typically use words such as "expect", "anticipate", "estimate", "strategy", "intend", "plan" and "believe" or the negative of those terms or other variations of them or by comparable terminology to identify our forward-looking statements. In particular, statements, express or implied, concerning future operating results or the ability to generate income or cash flows are forward-looking statements. Although we believe our expectations reflected in forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will be achieved. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, among others: - timing and extent of changes in commodity prices for crude oil, natural gas and related products and interest rates; - extent of our success in discovering, developing, marketing and producing reserves and in acquiring oil and gas properties; - successful implementation of our Year 2000 Plan, the effectiveness of our Year 2000 Plan, and the Year 2000 readiness of outside entities; - political developments around the world; and - financial market conditions. Some of these factors are discussed under "Risk Factors" beginning on page 9 of this prospectus. In light of these risks, uncertainties and assumptions, the events anticipated by our forward-looking statements might not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. USE OF PROCEEDS We expect the net proceeds from the offering of common stock to be approximately $ million after deducting discounts to the underwriters and estimated expenses of the offering that we will pay. We expect to use the net proceeds from the offering of common stock either to make a cash capital contribution to our subsidiaries that conduct our India and China operations in connection with the pending Share Exchange or, if the Share Exchange already has taken place when the offering is completed, to repay a portion of the indebtedness incurred to fund such capital contribution. The pending Share Exchange with Enron Corp. is discussed in "Prospectus Summary -- Share Exchange With Enron Corp." We will not receive any proceeds from the underwriters' exercise of the over-allotment option. 15 18 CAPITALIZATION The following table sets forth as of March 31, 1999: - Our actual capitalization; - Our as-adjusted capitalization showing the effects of our receipt of the estimated net proceeds from the sale of the shares we are selling in this offering assuming that the net proceeds are used to repay outstanding commercial paper and bank debt; and - Our pro forma as-adjusted capitalization showing the effects of - our receipt of the estimated net proceeds from the sale of the shares we are selling in this offering; and - our receipt of 62,270,000 shares of our common stock currently owned by Enron Corp. in exchange for all the stock of our subsidiary, EOGI-India, Inc. after we have made, indirectly, a $600,000,000 cash capital contribution and a contribution of receivables due from subsidiaries of EOGI-India, Inc. as of March 31, 1999, funded in part from borrowings under a new credit facility. The as-adjusted capitalization and the pro forma as-adjusted capitalization assume that the net proceeds from the offering of the common stock are used to make capital contributions to our subsidiaries that conduct our India and China operations in connection with the pending Share Exchange. If the Share Exchange has already taken place when the offering is completed, the net proceeds would be used to repay a portion of the indebtedness incurred to fund such capital contribution.
MARCH 31, 1999 -------------------------------------- PRO FORMA ACTUAL AS ADJUSTED AS ADJUSTED ---------- ----------- ----------- (IN THOUSANDS) Long-term debt Company: Commercial paper and bank debt............ $ 390,278 $ - $ 500,278 Notes due 2004 (6.50%).................... 100,000 100,000 100,000 Notes due 2006 (6.70%).................... 150,000 150,000 150,000 Notes due 2007 (6.50%).................... 100,000 100,000 100,000 Notes due 2008 (6.00%).................... 175,000 175,000 175,000 Notes due 2028 (6.65%).................... 150,000 150,000 150,000 Subsidiary companies: Notes due 2001 (floating)................. 105,000 105,000 105,000 Other..................................... 240 240 240 ---------- ---------- ---------- Total long-term debt................. 1,170,518 780,240 1,280,518 Shareholders' equity Common stock................................. 201,600 201,870 201,870 Additional paid in capital................... 401,462 918,992 918,992 Unearned compensation........................ (4,578) (4,578) (4,578) Cumulative foreign currency translation adjustment................................ (32,399) (32,399) (32,399) Retained earnings............................ 838,825 838,825 1,218,679 Common stock held in treasury................ (120,197) (120,197) (1,365,597) ---------- ---------- ---------- Total shareholders' equity........... 1,284,713 1,802,513 936,967 ---------- ---------- ---------- Total capitalization................. $2,455,231 $2,582,753 $2,217,485 ========== ========== ==========
16 19 PRICE RANGE OF COMMON STOCK AND CASH DIVIDENDS The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock, 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 ------ ------ --------- 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 1999 First Quarter....................................... $18.38 $15.69 $0.03 Second Quarter...................................... 21.50 16.00 0.03 Third Quarter(through July 21, 1999)................ 21.44 19.25 -
As of July 1, 1999, there were approximately 430 record holders of our common stock, including individual participants in security position listings. There are an estimated 20,000 beneficial owners of our common stock, including shares held in street name. We have declared a regular quarterly dividend of $0.03 per share on our common stock, payable July 30, 1999, to shareholders of record as of July 15, 1999. We currently intend to continue to pay quarterly cash dividends on the 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, our financial condition, funds from operations, level of exploration, exploitation and development expenditure opportunities and future business prospects of EOG. 17 20 ENRON OIL & GAS COMPANY UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION The following unaudited condensed consolidated pro forma statements of income for the year ended December 31, 1998 and the three months ended March 31, 1999, give effect to the offering and the Share Exchange as described below, as though they occurred on January 1, 1998. The unaudited condensed consolidated pro forma balance sheet at March 31, 1999 gives effect to the offering and the Share Exchange as though they occurred on March 31, 1999. The unaudited condensed consolidated pro forma statements of income and balance sheet have been prepared based upon our historical consolidated statements of income and balance sheet of EOG included in our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A, and our Quarterly Report on Form 10-Q for the three months ended March 31, 1999, both of which are incorporated by reference in this prospectus and have been prepared based upon available information and assumptions that our management believes are reasonable. The unaudited condensed consolidated pro forma statements of income are for informational purposes only, and do not necessarily represent what our actual results of operations would have been had the offering and the Share Exchange occurred on January 1, 1998. The unaudited condensed consolidated pro forma balance sheet is for informational purposes only, and does not purport to represent our actual financial position had the offering and the Share Exchange occurred on March 31, 1999. In addition, the unaudited condensed consolidated pro forma financial statements are not necessarily indicative of our future results of operations or financial position and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of EOG and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A, and our Quarterly Report on Form 10-Q for the three months ended March 31, 1999, both of which are incorporated by reference in this prospectus. 18 21 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ----------- ----------- NET OPERATING REVENUES Natural Gas Trade......................................... $117,267 $(12,580)(a) $104,687 Associated Companies(h)....................... 12,843 12,843 Crude Oil, Condensate and Natural Gas Liquids Trade......................................... 26,517 (6,254)(a) 20,263 Associated Companies(h)....................... 1,036 1,036 Gains on Sales of Reserves and Related Assets and Other, Net.................................... 1,291 1,291 -------- -------- -------- Total.................................... 158,954 (18,834) 140,120 OPERATING EXPENSES Lease and Well................................... 24,069 (4,281)(a) 19,788 Exploration Costs................................ 16,789 (798)(a) 15,991 Dry Hole Costs................................... 345 345 Impairment of Unproved Oil and Gas Properties.... 8,003 8,003 Depreciation, Depletion and Amortization......... 82,022 (2,902)(a) 79,120 General and Administrative....................... 23,635 (10,493)(a) 13,142 Taxes Other Than Income.......................... 13,695 (2,222)(a) 11,473 -------- -------- -------- Total.................................... 168,558 (20,696) 147,862 -------- -------- -------- OPERATING INCOME (LOSS)............................ (9,604) 1,862 (7,742) OTHER INCOME (EXPENSE), NET........................ 26,938 (2,299)(a) 24,639 -------- -------- -------- INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES.... 17,334 (437) 16,897 INTEREST EXPENSE Incurred Trade......................................... 17,310 1,817(b) 19,127 Affiliate(h).................................. 117 117 Capitalized...................................... (3,160) 1,050(a) (2,110) -------- -------- -------- Net Interest Expense.......................... 14,267 2,867 17,134 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES.................. 3,067 (3,304) (237) INCOME TAX PROVISION (BENEFIT)..................... (1,999) 588(a) (2,047) (636)(b) -------- -------- -------- NET INCOME......................................... $ 5,066 $ (3,256) $ 1,810 ======== ======== ======== NET INCOME PER SHARE OF COMMON STOCK Basic............................................ $ 0.03 $ 0.02 ======== ======== Diluted.......................................... $ 0.03 $ 0.02 ======== ======== AVERAGE NUMBER OF COMMON SHARES Basic............................................ 153,733 118,463 ======== ======== Diluted.......................................... 154,615 119,345 ======== ========
The following notes are an integral part of these condensed consolidated pro forma financial statements. 19 22 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ----------- ----------- NET OPERATING REVENUES Natural Gas Trade............................................ $558,376 $(48,722)(a) $509,654 Associated Companies(h).......................... 62,929 62,929 Crude Oil, Condensate and Natural Gas Liquids Trade............................................ 120,366 (24,115)(a) 96,251 Associated Companies(h).......................... 9,266 9,266 Gains on Sales of Reserves and Related Assets and Other, Net....................................... 18,251 18,251 -------- -------- -------- Total....................................... 769,188 (72,837) 696,351 OPERATING EXPENSES Lease and Well...................................... 98,868 (11,118)(a) 87,750 Exploration Costs................................... 65,940 (2,533)(a) 63,407 Dry Hole Costs...................................... 22,751 22,751 Impairment of Unproved Oil and Gas Properties....... 32,076 32,076 Depreciation, Depletion and Amortization............ 315,106 (9,320)(a) 305,786 General and Administrative.......................... 69,010 (11,042)(a) 57,968 Taxes Other Than Income............................. 51,776 (6,615)(a) 45,161 -------- -------- -------- Total....................................... 655,527 (40,628) 614,899 -------- -------- -------- OPERATING INCOME...................................... 113,661 (32,209) 81,452 OTHER INCOME (EXPENSE), NET........................... (4,800) 4,805(a) 5 -------- -------- -------- INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES....... 108,861 (27,404) 81,457 INTEREST EXPENSE Incurred Trade............................................ 60,701 (99)(a) 68,734 8,132(b) Affiliate(h)..................................... 589 589 Capitalized......................................... (12,711) 3,978(a) (8,733) -------- -------- -------- Net Interest Expense............................. 48,579 12,011 60,590 -------- -------- -------- INCOME BEFORE INCOME TAXES............................ 60,282 (39,415) 20,867 INCOME TAX PROVISION (BENEFIT)........................ 4,111 (11,697)(a) (10,432) (2,846)(b) -------- -------- -------- NET INCOME............................................ $ 56,171 $(24,872) $ 31,299 ======== ======== ======== NET INCOME PER SHARE OF COMMON STOCK Basic............................................... $ 0.36 $ 0.26 ======== ======== Diluted............................................. $ 0.36 $ 0.26 ======== ======== AVERAGE NUMBER OF COMMON SHARES Basic............................................... 154,345 119,075 ======== ======== Diluted............................................. 155,054 119,784 ======== ========
The following notes are an integral part of these condensed consolidated pro forma financial statements. 20 23 UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET AT MARCH 31, 1999 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ADDITIONAL EXCHANGE OF BORROWINGS TRANSFERRED AND EQUITY SUBSIDIARIES OTHER HISTORICAL ISSUANCE SHARES ADJUSTMENTS AS ADJUSTED ----------- ---------- ------------ ----------- ----------- ASSETS CURRENT ASSETS Cash and Cash Equivalents.................. $ 13,133 $105,400(b) $ (607,150)(d) $(13,355)(f) $ 8,678 517,800(c) (10,000)(e) 2,850(g) Accounts Receivable Trade.................................... 153,940 (66,899)(d) 87,041 Associated Companies(h).................. 14,867 14,867 Inventories................................ 38,384 (12,100)(d) 26,284 Other...................................... 7,337 (1,505)(d) 5,832 ----------- -------- ----------- -------- ----------- Total................................ 227,661 623,200 (697,654) (10,505) 142,702 OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD).................................... 4,903,390 (247,902)(d) 4,655,488 Less: Accumulated Depreciation, Depletion and Amortization......................... (2,222,074) 16,882(d) (2,205,192) ----------- -------- ----------- -------- ----------- Net Oil and Gas Properties........... 2,681,316 (231,020) 2,450,296 OTHER ASSETS................................. 81,258 4,600(b) (1,067)(d) 84,791 ----------- -------- ----------- -------- ----------- TOTAL ASSETS................................. $ 2,990,235 $627,800 $ (929,741) $(10,505) $ 2,677,789 =========== ======== =========== ======== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable Trade.................................... $ 131,287 $ (42,103)(d) $ 89,184 Associated Companies(h).................. 44,934 (8,352)(f) 36,582 Accrued Taxes Payable...................... 15,469 (1,630)(d) 29(f) 13,868 Dividends Payable.......................... 4,721 4,721 Other...................................... 25,153 (9,090)(d) 1,000(g) 17,063 ----------- -------- ----------- -------- ----------- Total................................ 221,564 (52,823) (7,323) 161,418 LONG-TERM DEBT - Trade....................... 1,170,518 110,000(b) 1,280,518 OTHER LIABILITIES Trade...................................... 22,395 1,850(g) 24,245 Associated Companies(h).................... 31,378 (8,352)(f) 23,026 DEFERRED INCOME TAXES........................ 256,519 (11,568)(d) 3,516(f) 248,467 DEFERRED REVENUES............................ 3,148 3,148 SHAREHOLDERS' EQUITY Common Stock, $.01 Par, 320,000,000 Shares Authorized and 160,000,000 Shares Issued Historical and 187,000,000 Shares Pro Forma.................................... 201,600 270(c) 201,870 Additional Paid In Capital................. 401,462 517,530(c) 918,992 Unearned Compensation...................... (4,578) (4,578) Cumulative Foreign Currency Translation Adjustment............................... (32,399) (32,399) Retained Earnings.......................... 838,825 390,050(d) (196)(f) 1,218,679 (10,000)(e) Common Stock Held in Treasury, 6,263,376 Shares Historical and 68,533,376 Shares Pro Forma................................ (120,197) (1,245,400)(d) (1,365,597) ----------- -------- ----------- -------- ----------- Total Shareholders' Equity........... 1,284,713 517,800 (865,350) (196) 936,967 ----------- -------- ----------- -------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 2,990,235 $627,800 $ (929,741) $(10,505) $ 2,677,789 =========== ======== =========== ======== ===========
The following notes are an integral part of these condensed consolidated pro forma financial statements. 21 24 NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS The following pro forma adjustments give effect to the sale of 27,000,000 shares of our common stock in this offering, additional borrowings of $110.0 million under new revolving credit facilities and the Share Exchange (see note (a)), as though these transactions occurred on January 1, 1998 for income statement purposes, and give effect to these transactions as though they occurred on March 31, 1999 for balance sheet purposes. Our historical results were derived from our historical financial statements included in our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A, and our Quarterly Report on Form 10-Q for the three months ended March 31, 1999, both of which are incorporated by reference in this prospectus. (a) To reflect the elimination of the historical results of operations of EOGI-India, Inc., Enron Oil & Gas India Ltd., EOGI China Company, Enron Oil & Gas China Ltd., EOGI-China, Inc. and Enron Oil & Gas China International Ltd. (collectively referred to as the "Transferred Subsidiaries"), all wholly owned subsidiaries of EOG. All of EOG's interest in the common shares of each of the Transferred Subsidiaries are to be transferred to Enron Corp. in exchange for 62,270,000 shares of our common stock owned by Enron Corp. pursuant to a share exchange agreement (the "Share Exchange"). (b) To reflect the borrowing of $110.0 million under a new revolving credit facility. Borrowings are assumed to be at 6.0% per annum, plus the amortization of total commitment fees of $4.6 million ($1.5 million for 1998 and $0.2 million for the three months ended March 31, 1999). Commitment fees are deferred as "Other Assets" and are amortized over the related commitment or loan period, as applicable. (c) To reflect the net proceeds received from the offering of 27,000,000 shares of our common stock. The net proceeds amount is an estimate based on an assumed offering price of $20.00 per share net of an underwriting discount and offering costs of $0.82 per share. The actual offering price may differ significantly from our estimate. (d) To reflect the elimination of the balances of the Transferred Subsidiaries and the receipt of 62,270,000 shares of our common stock pursuant to the Share Exchange. The shares of our common stock received are reflected at their estimated fair market value on the date of the transfer and a gain is reflected for the difference between the fair market value of our shares of common stock received and our historical cost basis in the Transferred Subsidiaries. The estimated fair market value is based on an assumed market price per share of $20.00. The actual market price per share on the date of the Share Exchange may differ significantly from our estimate. Prior to the Share Exchange EOG contributed $600.0 million in the form of cash capital contributions plus contributions of net intercompany accounts receivable of $170.3 million at March 31, 1999. The actual balance of net intercompany accounts receivable on the date of the Share Exchange may differ significantly from the balance at March 31, 1999. The Share Exchange is in the form of a non-taxable exchange of shares; accordingly, no income taxes have been provided with respect to the recognized gain. (e) To reflect $10.0 million of transaction costs directly related to the Share Exchange. As noted in footnote(d), the Share Exchange is in the form of a non-taxable exchange of shares; accordingly, such transaction costs are not deductible for income tax purposes. (f) To reflect a net payment of $13.4 million from EOG to Enron Corp. to settle amounts payable to Enron Corp. and other income tax related issues, which were resolved as part of the Share Exchange and the termination of the Tax Sharing Agreement, as amended, between EOG and Enron Corp. 22 25 (g) To reflect the payment by Enron Corp. of $1.9 million and the assumption by EOG of a liability of the same amount related to certain unvested benefit obligations under an Enron Corp. Cash Balance Plan and the payment by Enron Corp. of $1.0 million and the assumption by EOG of a liability of the same amount related to employee medical reimbursement accounts concurrent with the loss of control of EOG by Enron Corp. (h) Associated companies and affiliate balances result from transactions with Enron Corp., its subsidiaries or affiliates. If as a result of the offering and the Share Exchange, Enron Corp.'s ownership of our common stock declines to a level that Enron Corp. accounts for its investment in EOG on the cost method, any balances with associated companies or affiliates would be reclassified as trade. 23 26 BUSINESS GENERAL Enron Oil & Gas Company, a Delaware corporation organized in 1985, together with its subsidiaries, explores, develops, produces and markets, natural gas and crude oil primarily in major producing basins in the United States, as well as in Canada and Trinidad and, to a lesser extent, selected other international areas. Our principal producing areas are further described under "Exploration and Production" below. At December 31, 1998, our estimated net proved natural gas reserves were 5,229 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 MMBbl. (See "-- Oil and Gas Exploration and Production Properties and Resources".) After giving effect to the Share Exchange, at December 31, 1998 our estimated net proved reserves would have been 4,294 Bcf of gas and 61 MMBbl of oil. After giving effect to the Share Exchange at December 31, 1998, 66% of our reserves, on a natural gas equivalent basis, was located in the United States, 11% in Canada and 23% in Trinidad. BUSINESS STRATEGY Our strategy is to maximize the return on invested capital by achieving operating and finding costs that are among the lowest in the industry. We are focused on growing our domestic natural gas reserves and production by concentrating our efforts in known North American reserve basins. We focus on selected international opportunities where we can successfully apply our core competencies in the exploitation of reserves. Our strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost effective basis. Our North American operations are organized into seven largely autonomous business units, each focusing on a basin or basins, utilizing personnel who have developed experience and expertise unique to the geology of the region, thereby leveraging our knowledge and cost structure into enhanced returns on invested capital. We focus our drilling activity toward natural gas deliverability in addition to natural gas reserve enhancement and to a lesser extent crude oil exploitation. We also 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. We implement our strategy by emphasizing the drilling of internally generated prospects in order to find and develop low cost reserves. We also make selected tactical acquisitions that give us additional economies of scale or land positions with significant additional prospects. Achieving and maintaining the lowest possible operating cost structure are also important goals in the implementation of our strategy. Consistent with our desire to optimize the use of our assets, we also sell selected oil and gas properties that for various reasons may no longer fit into future operating plans or which we believe do not have sufficient future growth potential. We do this when we believe the economic value to be obtained by selling the properties and reserves in the ground is greater than what we would obtain by holding the properties and producing the reserves over time. As a result, we typically receive each year a varying but substantial level of proceeds related to such sales. We use these proceeds for general corporate purposes. 24 27 With respect to information on our 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 our working interest in the wells or acreage. Unless otherwise defined, all references to wells are gross. BUSINESS SEGMENTS Our operations are all oil and gas exploration and production related. We have not included a discussion of our India and China operations since they will be transferred to Enron Corp. in connection with the Share Exchange. EXPLORATION AND PRODUCTION NORTH AMERICA OPERATIONS United States. Our 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 represented approximately 81% of our United States reserves (on a natural gas equivalent basis) and 82% of our United States net natural gas deliverability as of December 31, 1998. We operate substantially all of these properties. Our other United States oil and gas producing properties are located primarily in other areas of Texas, Utah, New Mexico, Oklahoma, California, Mississippi and Kansas. At December 31, 1998, 93% of our proved United States reserves, including the reserves in the Big Piney deep Paleozoic formations in Wyoming (on a natural gas equivalent basis), was natural gas and 7% was crude oil, condensate and natural gas liquids. A substantial portion of our United States natural gas reserves is in long-lived fields with well-established production histories. We believe that opportunities exist to increase production in many of these fields through continued infill and other development drilling. Big Piney Area. Our largest reserve accumulation is located in the Big Piney area in Sublette and Lincoln counties in southwestern Wyoming. We are the holder of the largest productive acreage base in this area, with approximately 280,000 net acres under lease directly within field limits. We operate approximately 800 natural gas and crude oil wells in this area in which we own an 85% average working interest. Deliveries from the area net to us averaged 118 MMcf per day of natural gas and 4.0 MBbl per day of crude oil, condensate, and natural gas liquids in 1998. At December 31, 1998, natural gas deliverability net to us 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 our Big Piney proved developed reserves. We drilled 44 wells in the Big Piney area in 1998 and we plan to drill 50 wells during 1999. We have 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 we hold by production in the Big Piney area. In January 1999, we 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. South Texas Area. Our 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, we completed two wells in 1998, each with a rate of 40 MMcf per day of natural gas and 2.0 MBbl per day of condensate. At December 31, 1998, we operated approximately 420 wells in the South Texas area, and production is primarily from the Frio, Wilcox and Lobo sands at 25 28 depths ranging from 5,000 to 16,000 feet. We have approximately 273,000 net leasehold acres and more than 40,000 net mineral fee acres in this area. Natural gas deliveries net to us averaged approximately 162 MMcf per day in 1998. At December 31, 1998, natural gas deliverability from this area net to us was approximately 182 MMcf per day. We 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. We plan to drill 54 wells in 1999 and plan to maintain an active drilling program in South Texas for several years. East Texas Area. Our 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. At December 31, 1998, we held approximately 17,900 net acres under lease with an average 74% working interest in this area. We drilled 29 wells in the Carthage area in 1998 and we anticipate drilling 15 wells in this area during 1999. We have continued our activity in the North Milton area where we now operate 30 wells and hold a 100% working interest in the acreage. We expect to drill three additional wells during 1999. We drilled 10 wells in the Stowell/Big Hill area in 1998, and we are continuing 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 us. Offshore Gulf of Mexico Area. During 1998, we made a significant acquisition on the Outer-Continental Shelf of the Gulf of Mexico, purchasing a 19% working interest in the Matagorda Island 623 field which increased our natural gas deliveries, adding 55 MMcf per day net to us. Development of the Eugene Island 135 discovery continued with a third development well increasing our net field production to 17 MMcf per day and 760 barrels of condensate per day. At December 31, 1998, we 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, we operate 127. Natural gas deliveries from this area averaged 116 MMcf per day during 1998 net to us. 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. During 1998, we participated in the drilling of 10 wells (3.9 net wells) in the Gulf of Mexico. In 1999, we anticipate participating in the drilling of four to six wells. Canyon/Strawn Trend Area. Our activities in this area have been concentrated in Crockett, Terrell and Val Verde Counties in Texas where we drilled 21 natural gas wells during 1998. We hold approximately 66,000 net acres and now operate approximately 350 natural gas wells in this area in which we own 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 us was approximately 35 MMcf per day. 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 us. At year end 1998, deliverability, net to us, was approximately 15 MMcf per day of natural gas and .2 MBbl per day of crude oil, condensate and natural gas liquids. We hold 14,000 net acres and have an average working interest of approximately 60%. In 1999, we plan to drill four wells in this stacked-pay area. Pitchfork Ranch Area. The Pitchfork Ranch area located in Lea County, New Mexico, produces primarily from the 26 29 Bone Spring, Wolfcamp, Atoka and Morrow formations. In 1998, deliveries net to us 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 us was approximately 21 MMcf per day of natural gas and 1.8 MBbl per day of crude oil, condensate and natural gas liquids. We hold approximately 34,000 net acres and are continuing to interpret a 3-D seismic survey shot over this entire area. We expect to maintain a drilling program in this area in 1999. Vernal Area. In the Vernal area, located primarily in Uintah County, Utah, we operate approximately 305 producing wells and presently control approximately 77,000 net acres. In 1998, natural gas deliveries net to us 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. We have an average working interest of approximately 60%. We anticipate numerous drilling opportunities will be available in this area in 1999. Canada. We are engaged in the exploration for and the exploitation, 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. We conduct operations from offices in Calgary, Alberta, and produce 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 EOG. In 1998, we drilled 150 wells in the area and we acquired additional acreage and wells in the area resulting in peak deliverability of approximately 44 MMcf per day net to us at December 31, 1998. We plan to drill approximately 223 wells during 1999. At the end of 1999, we expect to realize 48 MMcf per day net deliverability. The Blackfoot area in southeastern Alberta is our second largest natural gas producing area in Canada. In 1998, we drilled 16 new wells and we performed numerous recompletions, workovers and facility optimizations resulting in deliverability of approximately 30 MMcf per day and 1.2 MBbl per day of crude oil and condensate net to us at December 31, 1998. We plan to drill approximately 50 Blackfoot wells during 1999. As a result, we expect the net deliverability from the Blackfoot area to increase to 40 MMcf per day at the end of 1999. Total Canadian natural gas deliverability net to us at December 31, 1998 was approximately 120 MMcf per day, and we held approximately 555,000 net undeveloped acres in Canada. Total Canadian natural gas deliveries net to us for 1998 averaged approximately 105 MMcf per day. OUTSIDE NORTH AMERICA OPERATIONS We have producing operations offshore Trinidad, and are evaluating and conducting exploration, exploitation and development in selected other international areas. Trinidad. In November 1992, we were awarded a 95% working interest concession in the South East Coast Consortium Block offshore Trinidad, encompassing three undeveloped fields, previously held by three government-owned energy companies. We have developed the Kiskadee field. We are developing the Ibis field and we anticipate that the Oilbird field will be developed over the next several years. We are using existing surplus processing and transportation capacity at the Pelican field facilities owned and operated by Trinidad and Tobago government-owned companies to process and transport the production. We are selling natural gas into the local market under a take-or-pay agreement with the National Gas Company of Trinidad and Tobago. In 1998, deliveries net to us 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. In 1995, we were awarded the right to develop the modified U(a) block near the South East Coast Consortium Block. We signed a production sharing contract with the Government of Trinidad and Tobago in 1996. Under the contract we committed to the acquisition of 3-D seismic data and the drilling 27 30 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 our history. We estimate the gross proved reserves of the discovery to be over 600 billion cubic feet equivalent. We expect to drill two significant exploratory wells in 1999. At December 31, 1998, we held approximately 144,000 net undeveloped acres in Trinidad. Venezuela. We were awarded exploration, exploitation and development rights for a block offshore the eastern state of Sucre, Venezuela in early 1996. We signed agreements with the government of Venezuela and other participants associated with a concession awarded in the Gulf of Paria East. We hold an initial 90% working interest in the joint venture and act as operator. We drilled one exploratory well during 1998 and encountered hydrocarbons. We are continuing to do additional evaluation work. Other International. We continue 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. We are also participating in discussions concerning the potential for natural gas development opportunities in Mozambique as well as other opportunities in Trinidad and other countries. (See "Relationship with Enron Corp." for a further discussion of the relationship between our company and Enron Corp. in the Mozambique project.) MARKETING Wellhead Marketing. We currently sell our North America wellhead natural gas production 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. We sell wellhead natural gas volumes from Trinidad at prices that are based on a fixed price schedule with annual escalations. We currently sell approximately 7% of our wellhead natural gas production to pipeline and marketing subsidiaries of Enron Corp. We believe that the terms of our transactions and agreements with Enron Corp. are at least as favorable to us as could be obtained from third parties. We sell substantially all of our wellhead crude oil and condensate under various terms and arrangements at market responsive prices. We currently sell approximately 1% of our wellhead crude oil and condensate production to subsidiaries of Enron Corp. Other Marketing. Enron Oil & Gas Marketing, Inc., one of our wholly-owned subsidiaries, is a marketing company engaging in various marketing activities. Both we and this subsidiary 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 our own production and arrange for any necessary transportation to the points of delivery. In addition, this subsidiary has purchased and constructed several small gathering systems in order to facilitate its entry into the gathering business on a limited basis. Both our company and this subsidiary use 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 our exposure to commodity price risks for both natural gas and crude oil and condensate wellhead prices. (See "-- Other Matters -- Risk Management".) In September 1992, we 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" included in our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A, which is incorporated by reference into this prospectus.) 28 31 In March 1995, in a series of transactions with Enron Corp., we exchanged all of our 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, we were relieved of all performance obligations associated with the Cogen Contracts. We 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 our net operating revenues and cash receipts during 1995 and 1996 of approximately $13 million and $7 million, respectively, with offsetting decreases in 1998 and 1999 versus that anticipated under the Cogen Contracts. 29 32 WELLHEAD VOLUMES AND PRICES, AND LEASE AND WELL EXPENSES The following table sets forth certain information regarding our wellhead volumes of and average prices for natural gas per Mcf, crude oil and condensate, and natural gas liquids per Bbl, and average lease and well expenses per Mcfe delivered during each of the three years in the period ended December 31, 1998 and the three months ended March 31, 1998 and 1999:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------ --------------- 1996 1997 1998 1998 1999 ------ ------ ------ ------ ------ VOLUMES (PER DAY) Natural Gas (MMcf) United States(1)...................................... 608 657 671 644 677 Canada................................................ 98 101 105 101 104 Trinidad.............................................. 124 113 139 109 152 India................................................. - 18 56 47 71 ------ ------ ------ ------ ------ Total............................................ 830 889 971 901 1,004 ====== ====== ====== ====== ====== Crude Oil and Condensate (MBbl) United States......................................... 9.2 11.7 14.0 12.6 13.1 Canada................................................ 2.4 2.5 2.6 2.7 2.7 Trinidad.............................................. 5.2 3.4 3.0 2.8 2.8 India................................................. 2.8 2.3 5.1 4.2 7.1 ------ ------ ------ ------ ------ Total............................................ 19.6 19.9 24.7 22.3 25.7 ====== ====== ====== ====== ====== Natural Gas Liquids (MBbl) United States......................................... 1.3 2.6 2.9 2.7 2.6 Canada................................................ 1.2 1.3 1.0 1.1 0.4 ------ ------ ------ ------ ------ Total............................................ 2.5 3.9 3.9 3.8 3.0 ====== ====== ====== ====== ====== AVERAGE PRICES Natural Gas ($/Mcf) United States(2)...................................... $ 2.04 $ 2.32 $ 1.93 $ 2.01 $ 1.62 Canada................................................ 1.15 1.43 1.40 1.39 1.39 Trinidad.............................................. 1.00 1.05 1.06 1.09 1.06 India................................................. - 2.79 2.41 2.70 1.96 Composite........................................ 1.78 2.07 1.78 1.86 1.53 Crude Oil and Condensate ($/Bbl) United States......................................... $21.88 $19.81 $12.84 $14.68 $11.31 Canada................................................ 18.01 17.16 11.82 13.97 11.75 Trinidad.............................................. 19.76 18.68 12.26 14.03 9.63 India................................................. 20.17 20.05 12.86 15.33 9.79 Composite........................................ 20.60 19.30 12.66 14.64 10.76 Natural Gas Liquids ($/Bbl) United States......................................... $14.67 $12.76 $ 8.38 $ 9.49 $ 7.69 Canada................................................ 9.14 8.94 5.32 5.96 5.00 Composite........................................ 11.99 11.54 7.56 8.48 7.34 LEASE AND WELL EXPENSES ($/MCFE) United States........................................... $ .19 $ .23 $ .22 $ .24 $ .20 Canada.................................................. .34 .39 .37 .40 .41 Trinidad................................................ .16 .16 .12 .15 .11 India................................................... .99 .64 .24 .31 .35 Composite........................................ .22 .26 .24 .26 .23
- --------------- (1) Includes 48 MMcf per day for the year ended December 31, 1996, 1997 and 1998 and for the three-month period ended March 31, 1998 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 $1.17, $1.73 and $1.53 per Mcf for the year ended December 31, 1996, 1997 and 1998 and of $1.62 per Mcf for the three-month period ended March 31, 1998, respectively, for the volumes described in note (1), net of transportation costs. 30 33 COMPETITION We actively compete for reserve acquisitions and exploration/exploitation leases, licenses and concessions, frequently against companies with substantially larger financial and other resources. To the extent our exploration budget is lower than that of certain of our competitors, we 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, we face competition from other producers and suppliers, including competition from other world wide energy supplies, such as natural gas from Canada. OTHER MATTERS Risk Management. We engage in price risk management activities from time to time primarily for non-trading and to a lesser extent for trading purposes. We use derivative financial instruments (primarily price swaps and costless collars) 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, we 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 our 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, our net income and after-tax 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 we are not affected as significantly by changing crude oil prices for those volumes not otherwise hedged, our net income and cash flow sensitivity is approximately $6 million for $1.00 per barrel change in average wellhead crude oil prices. 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 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 $49 per barrel in current dollars. Significant benefits from the tax credit have accrued and continue to accrue to us since a portion (and in some cases a substantial portion) of our natural gas production from wells drilled after November 5, 1990, and before January 1, 1993, on our leases in several of our 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 from September 1996 through August 2002, and the tax exemption was modified in a somewhat reduced form. In 1998, the drilling qualification period was extended eight years through August 2010. 31 34 OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES The following table sets forth our 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 our engineering staff. See "Risk Factors--The oil and gas reserves data and future net revenues estimates we report are uncertain". NET PROVED AND PROVED DEVELOPED RESERVE SUMMARY
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------ -------- ------- ----- ------- Natural Gas(Bcf) Net proved reserves at December 31, 1995........ 2,654.1(1) 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(1) 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(1) 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(1) 464.2 976.4 824.6 110.3 5,228.9 ======= ====== ======= ======= ===== ======= Liquids (MBbl)(2) 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 ======= ====== ======= ======= ===== =======
(Table continued on following page) 32 35
UNITED STATES CANADA TRINIDAD INDIA OTHER TOTAL ------------- ------ -------- ------- ----- ------- Bcf Equivalent (Bcfe) Net proved reserves at December 31, 1995........ 2,806.6(1) 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(1) 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(1) 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(1) 509.7 1,073.6 1,081.3 117.2 5,856.3 ======= ====== ======= ======= ===== ======= 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)(2) 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) 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. (2) Includes crude oil, condensate and natural gas liquids. 33 36 Acreage. The following table summarizes our developed and undeveloped acreage at December 31, 1998. Excluded is acreage in which our 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.
PRODUCTIVE WELLS EXCLUDING INDIA PRODUCTIVE WELLS AND CHINA ---------------- ---------------- GROSS* NET GROSS* NET ------- ------ ------- ------ Gas.................................................. 5,253 3,788 5,241 3,784 Oil.................................................. 897 506 831 486 ----- ----- ----- ----- Total...................................... 6,150 4,294 6,072 4,270 ===== ===== ===== =====
- --------------- * Gross gas and oil wells include 255 with multiple completions. 34 37 DRILLING AND ACQUISITION ACTIVITIES During the years ended December 31, 1996, 1997 and 1998, we spent approximately $599 million, $693 million and $769 million, respectively, for exploratory and development drilling and acquisition of leases and producing properties. We drilled, participated in the drilling of or acquired wells as set out in the table below for the periods indicated:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------ -------------- 1996 1997 1998 1999 -------------- -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET GROSS NET ----- ------ ----- ------ ----- ------ ----- ------ Development Wells Completed North America Gas.......................... 396 325.04 467 352.90 478 402.80 64 46.94 Oil.......................... 80 57.46 94 74.85 38 34.98 6 3.96 Dry.......................... 80 68.77 101 80.01 79 62.16 26 23.60 --- ------ --- ------ --- ------ --- ------ Total................... 556 451.27 662 507.76 595 499.94 96 74.50 Outside North America Gas.......................... - - 12 3.60 - - 5 2.20 Oil.......................... 1 .30 6 1.80 21 6.30 3 .90 Dry.......................... - - - - - - - - --- ------ --- ------ --- ------ --- ------ Total................... 1 .30 18 5.40 21 6.30 8 3.10 --- ------ --- ------ --- ------ --- ------ Total Development....... 557 451.57 680 513.16 616 506.24 104 77.60 --- ------ --- ------ --- ------ --- ------ Exploratory Wells Completed North America Gas.......................... 14 10.36 8 5.12 5 4.40 4 3.05 Oil.......................... 1 .78 - - 6 5.50 - - Dry.......................... 26 19.00 12 7.53 22 15.70 2 1.32 --- ------ --- ------ --- ------ --- ------ Total................... 41 30.14 20 12.65 33 25.60 6 4.37 Outside North America Gas.......................... - - - - 1 1.00 - - Oil.......................... - - - - 1 .90 - - Dry.......................... 1 .50 - - - - - - --- ------ --- ------ --- ------ --- ------ Total................... 1 .50 - - 2 1.90 - - --- ------ --- ------ --- ------ --- ------ Total Exploratory....... 42 30.64 20 12.65 35 27.50 - - --- ------ --- ------ --- ------ --- ------ Total................... 599 482.21 700 525.81 651 533.74 110 81.97 Wells in Progress at end of period.......................... 87 61.08 44 36.39 28 15.73 29 19.47 --- ------ --- ------ --- ------ --- ------ Total................... 686 543.29 744 562.20 679 549.47 139 101.44 === ====== === ====== === ====== === ====== Wells Acquired Gas.......................... 350 148.20* 227 82.45* 333 317.23* 22 2.13* Oil.......................... 5 .65 48 20.50* - 1.70* 2 .67 --- ------ --- ------ --- ------ --- ------ Total................... 355 148.85 275 102.95 333 318.93 24 2.80 === ====== === ====== === ====== === ======
- --------------- * Includes the acquisition of additional interests in certain wells in which we previously acquired an interest. All of our drilling activities are conducted on a contract basis with independent drilling contractors. We own no drilling equipment. 35 38 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of EOG (upon the closing of the Share Exchange with Enron Corp.) and their names and ages are as follows (all positions are with EOG unless otherwise noted):
NAME AGE POSITION ---- --- -------- Fred C. Ackman........................ 68 Director Edward Randall, III................... 72 Director Frank G. Wisner....................... 61 Director Forrest E. Hoglund.................... 66 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 Loren M. Leiker....................... 45 Executive Vice President, Exploration Gary L. Thomas........................ 49 Executive Vice President, North American Operations Barry Hunsaker, Jr. .................. 49 Senior Vice President and General Counsel Walter C. Wilson...................... 56 Senior Vice President and Chief Financial Officer
Mr. Ackman has been a director since 1989. He also has been a consultant to the oil and gas industry for over six years and has interests in ranching and investments. Mr. Randall has been a director since 1990, and his principal occupation is investments. Mr. Randall also is a director of KN Energy, Inc. and PaineWebber Group Inc. Mr. Wisner has been a director since 1997. He also has served as Vice Chairman of American International Group Inc. since 1997 following his retirement as U.S. Ambassador to India. American International Group Inc. is an insurance company, which provides insurance to companies investing in foreign operations. Mr. Wisner's more than 35-year career with the U.S. State Department, primarily in Africa, Asia and Washington, D.C., included serving as U.S. Ambassador to the Philippines, Egypt and Zambia. Forrest E. Hoglund joined EOG as Chairman of the Board and Director in September 1987. He also served as Chief Executive Officer of EOG 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. Mr. Hoglund expects to retire by August 31, 1999 and, therefore, may or may not be a director or executive officer of EOG at the time of the closing of this offering. Mark G. Papa was elected President and Chief Executive Officer and Director of EOG 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 EOG, in 1981. Edmund P. Segner, III became Vice Chairman and Chief of Staff of EOG in September 1997. Mr. Segner was a director of EOG from January 1997 to October 1997. Mr. Segner joined Enron Corp. in 1988 and was Executive Vice President and Chief of Staff. 36 39 Loren M. Leiker joined EOG in April 1989 and has been Executive Vice President, Exploration since May 1998. Mr. Leiker was previously Senior Vice President, Exploration of EOG. Gary L. Thomas was elected Executive Vice President, North American Operations in May 1998. He was previously Senior Vice President and General Manager of EOG's Midland Division. Mr. Thomas joined a predecessor of EOG in July 1978. Barry Hunsaker, Jr. has been Senior Vice President and General Counsel since he joined EOG in May 1996. Prior to joining EOG, Mr. Hunsaker was a partner in the law firm of Vinson & Elkins L.L.P. Walter C. Wilson joined EOG in November 1987 and has been Senior Vice President and Chief Financial Officer since May 1991. THE SELLING STOCKHOLDER
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP AFTER STOCK OFFERING BEFORE STOCK OFFERING AND SHARE EXCHANGE(1)(2) ------------------------ SHARES TO ------------------------ SELLING STOCKHOLDER SHARES PERCENTAGE BE SOLD(1) SHARES PERCENTAGE - ------------------- ---------- ---------- ---------- ---------- ---------- Enron Corp. 82,270,000 53.5% 4,050,000 15,950,000 13.4%
- --------------- (1) Assumes the exercise of the over-allotment option in full, and the transfer by Enron Corp. of 62,270,000 shares of our common stock to us in connection with the Share Exchange. (2) Concurrently with this offering, Enron Corp. is offering Exchangeable Notes, which are mandatorily exchangeable into no more than 10,000,000 shares of our common stock (no more than 11,500,000 shares if the over-allotment option to the underwriters in the Exchangeable Notes offering is exercised in full) owned by Enron Corp. Following consummation of the Exchangeable Notes offering, the shares that may be delivered upon exchange therefor will continue to be beneficially owned by Enron Corp. until such time as they are delivered at maturity of the Exchangeable Notes. If the underwriters' over-allotment options in this offering and the Exchangeable Notes offering are exercised in full and the maximum number of shares of common stock are delivered at maturity of the Exchangeable Notes, Enron Corp. will beneficially own 4,450,000 shares of our common stock or approximately 3.8% of the outstanding shares. The registration related to our common stock covered by the over-allotment option and our common stock deliverable upon exchange of the Exchangeable Notes is being provided pursuant to the terms of a stock restriction and registration agreement with Enron Corp., under which we have agreed that, upon the request of Enron Corp. (or certain assignees), we will register under the Securities Act and applicable state securities laws the sale of our common stock owned by Enron Corp. Our obligation is subject to certain limitations relating to a minimum amount of our common stock required for registration, the timing of registration and other similar matters. We are obligated to pay all expenses incidental to such registration, excluding underwriters' discounts and commissions and certain legal fees and expenses. RELATIONSHIP WITH ENRON CORP. After the Share Exchange, Enron Corp.'s ownership of EOG will be reduced to 20,000,000 shares of common stock. Enron Corp. may not sell these remaining shares of EOG common stock for a period of six months after the Share Exchange. However, Enron Corp. may sell up to 4,050,000 shares of our common stock to satisfy the underwriters' over-allotment option in this offering and may sell convertible securities that would be mandatorily exchangeable into a maximum of 10,000,000 of its remaining 37 40 EOG shares (11,500,000 if the underwriters' over-allotment option in that offering is exercised in full). (See "The Selling Stockholder".) Enron Corp.'s sale of these convertible securities is discussed further in "Concurrent Offering". On closing of the Share Exchange, the EOG board of directors will be reduced to five, and all of Enron Corp.'s officers and directors currently serving as EOG directors will resign from the EOG board. We have the right to use the name "Enron Oil & Gas Company" for the period of six months after the Share Exchange. However, some time soon after the Share Exchange, we expect to change our corporate name to "EOG Resources, Inc." We will also change the names of our subsidiaries to reflect our new corporate name. Enron Corp. currently provides us with various services, such as maintenance of employee benefit plans, provision of some telecommunications and computer support services, lease of office space and the provision of some purchasing and operating services and other corporate staff and support services. After the Share Exchange, we have the right to continue to use these services for a period of up to one year. However, we expect to transition away from using these services as soon as reasonably convenient for both Enron Corp. and us. EOG believes that it has obtained these services at substantially market terms, and, therefore, we expect that our costs to obtain these services from third parties will not materially change. EOG and Enron Corp. have in the past entered into material transactions and agreements incident to their respective businesses. Such transactions and agreements have related to, among other things, the purchase and sale of natural gas and crude oil and hedging and trading activities. Those transactions and agreements currently in place will continue after the Share Exchange, and we do not expect any material changes to such transactions and agreements that would not otherwise occur in a third party transaction. EOG and Enron Corp. may enter into similar types of transactions and agreements in the future. We intend that the terms of any future transactions and agreements between us and Enron Corp. will be at least as favorable to us as could be obtained from other third parties. After the completion of the Share Exchange, we and Enron Corp. can compete anywhere in the world, including India and China. In certain areas of the world, affiliate rules may have prevented us from having exploration opportunities while Enron Corp. owned a majority of our common stock. After the Share Exchange, those rules will no longer restrict us. EOG and Enron Corp. have entered into an agreement regarding the manner in which they will share the burdens and benefits of the integrated project under joint development in Mozambique. The agreement provides generally that our interest in this project will be 20% of the combined ownership interest of EOG and Enron Corp. This agreement will continue in place after the Share Exchange. For further detail of our relationship with Enron Corp. after the Share Exchange and the status of specific intercompany agreements, please refer to the Share Exchange Agreement filed as an exhibit to the registration statement that includes this prospectus. 38 41 DESCRIPTION OF CAPITAL STOCK AUTHORIZED AND OUTSTANDING CAPITAL STOCK Our authorized capital stock consists of 10,000,000 shares of preferred stock, par value $.01 per share, none of which are outstanding, and 320,000,000 shares of common stock, $.01 par value, of which 153,896,229 shares were outstanding as of July 1, 1999. Following the Share Exchange and the offering, there will be 35,270,000 fewer shares of common stock outstanding. The following description of our capital stock summarizes the material terms and provisions of these securities. For the complete terms of our common stock and preferred stock, please refer to our restated certificate of incorporation and bylaws that are incorporated by reference into the registration statement that includes this prospectus. PREFERRED STOCK Our board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of preferred stock in series, by filing a certificate pursuant to the applicable laws of the State of Delaware to establish from time to time the number of shares to be included in each such series, and to fix the powers, designations, preferences, and relative, participating, optional or other rights, if any, of the shares of each such series and any qualifications, limitations, or restrictions thereof, all without stockholder approval. Any future issuance of preferred stock, while providing desired flexibility in connection with acquisitions and other corporate purposes, could adversely affect the voting power or other rights of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation, and could have the effect of delaying, deferring or preventing a change of control of EOG. COMMON STOCK Our common stock possesses ordinary voting rights for the election of directors and in respect to other corporate matters, each share being entitled to one vote. There are no cumulative voting rights, meaning that the holders of a majority of the shares voting for the election of directors can elect all the directors if they choose to do so. Our common stock carries no preemptive rights and is not convertible, redeemable or assessable, or entitled to the benefits of any sinking fund. The holders of our common stock are entitled to dividends in such amounts and at such times as may be declared by the board of directors out of legally available funds. Upon liquidation or dissolution, holders of common stock are entitled to share ratably in all net assets available for distribution to stockholders after payment of any corporate debts and any liquidation preference established for any preferred stock. All outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable. LISTING Our common stock is listed on the New York Stock Exchange. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar of our common stock is First Chicago Trust Company of New York, Jersey City, New Jersey. LIMITATION ON DIRECTORS' LIABILITY Delaware corporation law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations authorized by such laws, directors are accountable to corporations and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. The Delaware laws enable corporations to limit available relief to equitable remedies such as injunction 39 42 or rescission. Our restated certificate of incorporation limits the liability of our directors to EOG or its stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted by the Delaware law. Specifically, our directors will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability - for any breach of the director's duty of loyalty to the company or its stockholders, - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, - for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or - for any transaction from which the director derived an improper personal benefit. This provision in our restated certificate of incorporation may have the effect of reducing the likelihood of derivative litigation against directors, and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders. 40 43 LEGAL MATTERS The validity of our common stock offered hereby will be passed upon for EOG by Barry Hunsaker, Jr., Esq., Senior Vice President and General Counsel, and for the underwriters by Bracewell & Patterson, L.L.P. Certain other matters will be passed on for EOG by Fulbright & Jaworski L.L.P. Mr. Hunsaker owns substantially less than 1% of the outstanding shares of our common stock. Bracewell & Patterson, L.L.P. provides services to us and our affiliates on matters unrelated to the offering of the common stock. EXPERTS The consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended December 31, 1998 incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The letter report of DeGolyer and MacNaughton, independent petroleum consultants, included as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 1998, and the estimates from the reports of that firm appearing in such Annual Report, are incorporated by reference herein on the authority of said firm as experts in petroleum engineering in giving such reports. 41 44 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms located at: - 450 Fifth Street, N.W. Washington, D.C. 20549; - Seven World Trade Center New York, New York 10048; and - Northwest Atrium Center 500 West Madison Street Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Our common stock has been listed and traded on the New York Stock Exchange since 1989. Accordingly, you may inspect the information we file with the SEC at the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 until we sell all of the common stock: - Our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as amended by Amendment No. 1 on Form 10-K/A; and - Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. You may request a copy of these filings, excluding exhibits, at no cost by writing or telephoning Angus H. Davis, Corporate Secretary, at our principal executive office, which is: Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 (713) 853-6161 YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THE SECURITIES COVERED BY THIS PROSPECTUS WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR IN ANY OTHER DOCUMENT INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS. 42 45 UNDERWRITING EOG, Enron Corp. and the underwriters for the offering named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Banc of America Securities LLC, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated, Salomon Smith Barney Inc. and Warburg Dillon Read LLC are the representatives of the underwriters. Shares sold by the underwriters to the public will initially be offered at the initial price to public set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial price to public. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial price to public. If all the shares are not sold at the initial price to public, the representatives may change the offering price and the other selling terms.
Number of Underwriters Shares ------------ --------- Goldman, Sachs & Co. ....................................... Banc of America Securities LLC.............................. Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.............................................. Lehman Brothers Inc. ....................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated .................................. PaineWebber Incorporated.................................... Salomon Smith Barney Inc. .................................. Warburg Dillon Read LLC..................................... ------- Total.................................................. =======
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional 4,050,000 shares from Enron Corp. to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. EOG, its directors and executive officers and Enron Corp. have agreed with the underwriters not to offer, sell, contract to sell or otherwise dispose of or hedge any shares of EOG common stock or securities convertible into or exchangeable for shares of EOG common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to any existing employee benefit U-1 46 plans or the exercise of stock options pursuant to EOG's stock option plan. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by EOG and Enron Corp. The amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
Paid By EOG ------------------- No Full Exercise Exercise -------- -------- Per Share................... $ $0 Total....................... $ $0
Paid By Enron Corp. ------------------- No Full Exercise Exercise -------- -------- Per Share................... $0 $ Total....................... $0 $
In connection with the offering, the underwriters may purchase and sell shares of EOG common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise. EOG estimates that its total expenses of the offering of common stock, excluding underwriting discounts and commissions, will be approximately $ . EOG and Enron Corp. have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect thereof. The representatives or their respective affiliates in the past have provided investment banking and/or commercial banking services and other financial services for us and our affiliates and have received compensation and expense reimbursement for these services. In the case of Goldman, Sachs & Co. and Banc of America Securities LLC, these services have included advice to us in connection with the Share Exchange. The representatives or their respective affiliates may in the future provide investment banking and/or commercial banking services and other financial services to us or our affiliates for which they will receive compensation and expense reimbursement. U-2 47 ================================================================================ No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. --------------------- TABLE OF CONTENTS
Page ---- Prospectus Summary.................... 3 Risk Factors.......................... 10 Cautionary Statement Regarding Forward-Looking Statements.......... 15 Use of Proceeds....................... 15 Capitalization........................ 16 Price Range of Common Stock and Cash Dividends........................... 17 Unaudited Condensed Consolidated Pro Forma Financial Information......... 18 Business.............................. 24 Management............................ 36 The Selling Stockholder............... 37 Relationship with Enron Corp. ........ 37 Description of Capital Stock.......... 39 Legal Matters......................... 41 Experts............................... 41 Where You Can Find More Information......................... 42 Underwriting.......................... U-1
================================================================================ ================================================================================ 27,000,000 Shares ENRON OIL & GAS COMPANY Common Stock [ENRON LOGO] GOLDMAN, SACHS & CO. BANC OF AMERICA SECURITIES LLC DAIN RAUSCHER WESSELS A DIVISION OF DAIN RAUSCHER INCORPORATED LEHMAN BROTHERS MERRILL LYNCH & CO. PAINEWEBBER INCORPORATED SALOMON SMITH BARNEY WARBURG DILLON READ LLC Representatives of the Underwriters ================================================================================ 48 THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED JULY 23, 1999. ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS APPENDIX A 'ENRON LOGO' ENRON OIL & GAS COMPANY Common Stock ---------------------- This prospectus relates to up to 11,500,000 shares of our common stock which may be delivered by Enron Corp. upon mandatory exchange of the % Exchangeable Notes due , 2002 of Enron Corp. This prospectus is Appendix A to a prospectus of Enron Corp. covering the sale of the Exchangeable Notes. We will not receive any of the proceeds from the sale of the Exchangeable Notes or the delivery by Enron Corp. of its shares of our common stock upon exchange of the Exchangeable Notes at maturity. Enron Oil & Gas Company is offering 27,000,000 shares of its common stock. The common stock is listed on the New York Stock Exchange under the symbol "EOG". The last reported sale price of the common stock on July 21, 1999 was $20.00 per share. Enron Corp. is offering concurrently, in a separate public offering with a separate prospectus 10,000,000 (11,500,000 if the underwriters in that offering fully exercise their over-allotment option) Exchangeable Notes, which are mandatorily exchangeable into shares of EOG common stock currently owned by Enron Corp. This offering of EOG common stock and the concurrent offering of Exchangeable Notes by Enron Corp. are not conditioned on each other. Consider carefully the risk factors beginning on page of this prospectus. ---------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------- Prospectus dated , 1999. 49 ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS RECENT DEVELOPMENTS For the second quarter 1999, we reported net income of $20.6 million, or $.13 per share, compared to net income of $13.3 million, or $.09 per share, for the comparable period a year ago. Net of non-recurring items, our second quarter 1999 net income was $12.9 million, or $.08 per share. Net operating revenues for second quarter 1999 were $187.2 million compared to $183.3 million for the comparable period a year ago. Our natural gas deliveries in second quarter 1999 increased six percent to 959 MMcf per day versus 1998 second quarter deliveries of 907 MMcf per day. Crude oil and condensate deliveries totaled 24.5 MBbls per day in the second quarter 1999, an increase of nine percent from deliveries of 22.4 MBbls per day for the comparable period a year ago. As a result of the change to our portfolio of assets subsequent to the Share Exchange, we are currently re-evaluating our overall business. We expect to complete this re-evaluation by the end of third quarter 1999. As a result of this re-evaluation, some of our current projects may no longer be deemed central to our business. In that case, we may incur non-cash charges in connection with the disposition of such projects of up to approximately $75 million, after-tax. We have received a commitment for a new credit facility of up to $1.3 billion, which may be used to fund the $600 million cash capital contribution for the Share Exchange if it closes before this offering. We have declared a regular quarterly dividend of $0.03 per share on the common stock of EOG, payable July 30, 1999, to shareholders of record as of July 15, 1999. On July 21, 1999, two stockholders of EOG filed separate lawsuits purportedly on behalf of EOG against Enron Corp. and EOG's directors, alleging that Enron Corp. and EOG's directors breached their fiduciary duties of good faith and loyalty in approving the Share Exchange. The lawsuits seek to temporarily and permanently enjoin the Share Exchange, compensatory damages and costs and expenses, including reasonable attorneys' and experts' fees. EOG, Enron Corp. and the EOG directors believe the lawsuits are without merit and intend to vigorously contest them. 50 ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS [THIS PAGE INTENTIONALLY LEFT BLANK] 51 ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS LEGAL MATTERS The validity of our common stock deliverable upon exchange of the Exchangeable Notes will be passed upon for EOG by Barry Hunsaker, Jr., Esq., Senior Vice President and General Counsel, and for the underwriters by Bracewell & Patterson, L.L.P. Certain other matters will be passed on for EOG by Fulbright & Jaworski L.L.P. Certain matters will be passed upon for Enron Corp. by Vinson & Elkins L.L.P. Mr. Hunsaker owns substantially less than 1% of the outstanding shares of our common stock. Bracewell & Patterson, L.L.P. provides services to us and our affiliates on matters unrelated to the offering of the common stock. EXPERTS The consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended December 31, 1998 incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The letter report of DeGolyer and MacNaughton, independent petroleum consultants, included as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 1998, and the estimates from the reports of that firm appearing in such Annual Report, are incorporated by reference herein on the authority of said firm as experts in petroleum engineering in giving such reports. PLAN OF DISTRIBUTION This prospectus relates to up to 11,500,000 shares of EOG common stock that may be delivered by Enron Corp. pursuant to its offering of Exchangeable Notes and is Appendix A to the Enron Corp. Exchangeable Notes prospectus. At maturity of the Exchangeable Notes, the principal amount of each note will be mandatorily exchanged by Enron Corp. for shares of EOG common stock. For a description of the Exchangeable Notes, see "Description of the Exchangeable Notes" in the Enron Corp. Exchangeable Notes prospectus. We, our directors and executive officers and Enron Corp. have agreed with the underwriters not to offer, sell, contract to sell or otherwise dispose of or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to any existing employee benefit plans or the exercise of stock options pursuant to our stock option plan. In connection with the distribution of the Exchangeable Notes, we and Enron Corp. have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect thereof. 52 ================================================================================ ALTERNATIVE PAGE FOR APPENDIX PROSPECTUS No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. --------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 5 Risk Factors.......................... 10 Cautionary Statement Regarding Forward-Looking Statements.......... 15 Use of Proceeds....................... 15 Capitalization........................ 16 Price Range of Common Stock and Cash Dividends........................... 17 Unaudited Condensed Consolidated Pro Forma Financial Information......... 18 Business.............................. 24 Management............................ 36 The Selling Stockholder............... 37 Relationship with Enron Corp. ........ 37 Description of Capital Stock.......... 39 Plan of Distribution.................. 41 Legal Matters......................... 41 Experts............................... 41 Where You Can Find More Information......................... 42
[Enron Logo] ENRON OIL & GAS COMPANY Common Stock ----------------------- PROSPECTUS ----------------------- ================================================================================ 53 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth those expenses to be incurred by Enron Oil & Gas Company ("the Company") in connection with the issuance and distribution of the securities being registered. Except for the SEC registration fee, all amounts shown are estimates. SEC Registration Fees....................................... $169,402 Legal Fees and Expenses..................................... 100,000 Accounting Fees and Expenses................................ 120,000 Transfer Agent's Fees and Expenses.......................... 10,000 Blue Sky Fees and Expenses.................................. 10,000 Printing and Engraving Expenses............................. 150,000 Miscellaneous............................................... 40,598 -------- Total............................................. $600,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Restated Certificate of Incorporation, as amended, of the Company (the "Corporation" therein) contains the following provisions relating to indemnification of directors and officers, namely: "Eighth: A.1. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. 2. The foregoing provisions of this Article shall not eliminate or limit the liability of a director for any act or omission occurring prior to the effective date of this Restated Certificate of Incorporation. Any repeal or amendment of this Article by the stockholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or amendment. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the foregoing provisions of this Article, a director shall not be liable to the fullest extent permitted by any amendment to the Delaware General Corporation Law enacted that further limits the liability of a director. B.1. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including II-1 54 attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph 2. hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of the proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. 2. If a claim under paragraph B.1. of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 3. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. 4. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. II-2 55 5. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director, officer, employee and agent of the Corporation, and may nevertheless indemnify and hold harmless each employee and agent of the Corporation, as to costs, charges and expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. 6. For purposes of this Article, reference to the "Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger prior to (or, in the case of an entity specifically designated in a resolution of the Board of Directors, after) the adoption hereof and which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued." The Form of Underwriting Agreement filed herewith as Exhibit 1, under certain specified circumstances, provides for indemnification by the Underwriters of the directors and officers who sign the registration statement and controlling persons of the Company. The Company has purchased liability insurance policies covering the directors and officers of the Company to provide protection where the Company cannot legally indemnify a director or officer and where a claim arises under the Employee Retirement Income Security Act of 1974 against a director or officer based on an alleged breach of fiduciary duty or other wrongful act. ITEM 16. 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 NO. DESCRIPTION ----------- ----------- +1 -- Form of Underwriting Agreement. *2 -- Share Exchange Agreement, dated as of July 19, 1999 between Enron Corp. and the Company. 4.1(a) -- Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 3.1 to Form S-1). 4.1(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). 4.1(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). 4.1(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).
II-3 56
EXHIBIT NO. DESCRIPTION ----------- ----------- 4.1(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). 4.2 -- 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 (Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 4.3 -- Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1). *5 -- Opinion of Barry Hunsaker, Jr. *23(a) -- Consent of Arthur Andersen LLP. *23(b) -- Consent of DeGolyer and MacNaughton. 23(c) -- The consent of Barry Hunsaker, Jr., Esq. is contained in his opinion filed as Exhibit 5 hereto. *24 -- Powers of Attorney.
- ------------------ + To be filed by amendment. * Filed herewith. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 57 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Enron Oil & Gas Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement or amendment to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Houston, State of Texas, on the 22nd day of July, 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 Act of 1933, this Registration Statement or amendment has been signed by the following persons in the capacities with Enron Oil & Gas Company indicated and on the 22nd day of July, 1999.
SIGNATURE TITLE --------- ----- FORREST E. HOGLUND* Chairman of the Board and Director - ----------------------------------------------------- (Forrest E. Hoglund) /s/ MARK G. PAPA President and Chief Executive Officer and - ----------------------------------------------------- Director (Principal Executive Officer) (Mark G. Papa) /s/ WALTER C. WILSON Senior Vice President and Chief Financial - ----------------------------------------------------- Officer (Principal Financial and Accounting (Walter C. Wilson) Officer) 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)
II-5 58 INDEX TO 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 NO. DESCRIPTION ----------- ----------- +1 -- Form of Underwriting Agreement. *2 -- Share Exchange Agreement, dated as of July 19, 1999 between Enron Corp. and the Company. 4.1(a) -- Restated Certificate of Incorporation of Enron Oil & Gas Company (Exhibit 3.1 to Form S-1). 4.1(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). 4.1(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). 4.1(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). 4.1(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). 4.2 -- 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 (Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 4.3 -- Specimen of Certificate evidencing the Common Stock (Exhibit 3.3 to Form S-1). *5 -- Opinion of Barry Hunsaker, Jr. *23(a) -- Consent of Arthur Andersen LLP. *23(b) -- Consent of DeGolyer and MacNaughton. 23(c) -- The consent of Barry Hunsaker, Jr., Esq. is contained in his opinion filed as Exhibit 5 hereto. *24 -- Powers of Attorney.
- ------------------ + To be filed by amendment. * Filed herewith. EX-2 2 SHARE EXCHANGE AGREEMENT - ENRON CORP. 1 EXHIBIT 2 SHARE EXCHANGE AGREEMENT THIS SHARE EXCHANGE AGREEMENT (this "Agreement") is entered into as of this 19th day of July, 1999 by and between Enron Corp., an Oregon corporation ("Enron"), and Enron Oil & Gas Company, a Delaware corporation ("EOG"). Enron and EOG are referred to collectively herein as the "Parties" and individually as a "Party." RECITALS WHEREAS, Enron owns 82,270,000 shares of common stock, par value $.01 per share of EOG ("EOG Common Stock"), or approximately 53.5% of the outstanding EOG Common Stock; WHEREAS, Enron Oil & Gas International, Inc., a Delaware corporation and a wholly owned subsidiary of EOG ("EOG International"), owns (a) all of the issued and outstanding capital stock (the "EOG India Shares") of EOGI-India, Inc., a Delaware corporation ("EOG India HoldCo"); (b) all of the issued and outstanding capital stock (the "EOG China Sichuan Shares") of EOGI-China (Sichuan), Inc., a Delaware corporation ("EOG China Sichuan"), and (c) all of the issued and outstanding capital stock (the "EOG China Delaware Shares") of EOGI-China, Inc., a Delaware corporation ("EOG China Delaware"); WHEREAS, EOG India HoldCo owns all of the issued and outstanding capital stock of Enron Oil & Gas India Ltd., a Cayman Islands corporation ("EOG India Cayco"); WHEREAS, EOG China Sichuan owns all of the issued and outstanding capital stock of EOGI China Company, a Cayman Islands corporation ("EOG China Cayco"), and EOG China Cayco owns all of the issued and outstanding capital stock of Enron Oil & Gas China Ltd., a Cayman Islands corporation ("EOG China Limited"); WHEREAS, EOG China Delaware owns all of the issued and outstanding capital stock of Enron Oil & Gas China International Ltd., a Cayman Islands corporation ("EOG China International"); WHEREAS, subject to the terms and conditions set forth in this Agreement, Enron desires to transfer to EOG 62,270,000 of the shares of EOG Common Stock owned by Enron in exchange for all of the EOG India Shares; and WHEREAS, this Agreement and the transactions contemplated hereby have been unanimously approved by the Board of Directors of EOG and unanimously recommended to the Board of Directors by a committee of the Board of Directors consisting solely of two directors not employed by, or otherwise having any relationship with, Enron or EOG other than as directors of EOG (the "Special Committee"); 1 2 NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and covenants herein contained, and other good and valuable consideration, the receipt of which are hereby acknowledged, the Parties hereby agree as follows: ARTICLE 1. DEFINITIONS Capitalized terms not otherwise defined herein used in this Agreement shall have the meanings ascribed to them in this Article 1. "Acquired Companies" means collectively EOG India HoldCo, EOG China Sichuan (until the merger contemplated by Section 2.1(a) has been consummated), EOG China Delaware, EOG India Cayco, EOG China Cayco, EOG China International and EOG China Limited. "Affiliate" shall mean with respect to any Person, any Person which, directly or indirectly, controls, is controlled by, or is under a common control with, such Person. The term "control" (including the terms "controlled by" and "under common control with") as used in the preceding sentence means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Notwithstanding the foregoing, unless otherwise expressly stated and except for purposes of the definition of Unitary Tax, for purposes of this Agreement (a) EOG and its Subsidiaries shall not be deemed to be Affiliates of Enron, (b) any Person who would be an Affiliate of EOG solely because such Person is an Affiliate of Enron shall not be deemed to be an Affiliate of EOG and (c) Enron shall not be deemed to be an Affiliate of EOG. "Aircraft Agreements" means collectively (a) the Aircraft Sublease Agreement, dated as of June 12, 1997, among Wilmington Trust Company, Enron and EOG, (b) the N5731 Aircraft Subleasing Agreement, dated as of December 23, 1997, among Wilmington Trust Company, ECT Investing Partners L.P., Enron and EOG and (c) the N5732 Aircraft Subleasing Agreement, dated as of December 23, 1997, among Wilmington Trust Company, ECT Investing Partners L.P., Enron and EOG. "EOG Group" means the affiliated group of corporations of which EOG is the common parent corporation within the meaning of section 1504(a) of the Code, and any analogous definition under applicable state Income Tax law of a group of corporations filing a Tax Return relating to consolidated or combined Tax liability or a Unitary Tax Return of which EOG is the common parent corporation. "Business Day" shall mean any day other than a day on which banks in the State of Texas are authorized or obligated to be closed. 2 3 "Business Opportunity Agreement" shall mean the Equity Participation and Business Opportunity Agreement between EOG and Enron dated December 9, 1997, as amended, as the same may be further amended from time to time. "Claim" shall mean all demands, claims, actions, investigations, proceedings and arbitrations, whether or not ultimately determined to be valid. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Enron Benefit Plans" shall mean collectively, each Plan and each other program, contract, fringe benefit or arrangement providing for bonuses, remuneration, pensions, deferred compensation, retirement plan payments, profit sharing, incentive or other pay, hospitalization or medical expenses or insurance sponsored by Enron for its employees and its participating employer companies (including EOG and its Subsidiaries) and their employees. "Enron Group" means the affiliated group of corporations of which Enron is the common parent corporation within the meaning of section 1504(a) of the Code, and any analogous definition under applicable state Income Tax law of a group of corporations filing a Tax Return relating to consolidated or combined Tax liability or a Unitary Tax Return of which Enron is the common parent corporation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated and rulings issued thereunder. "Fully Diluted EOG Shares" means, on any given date, the shares of EOG Common Stock issued and outstanding on such date, together with the shares of EOG Common Stock issuable by EOG upon the exercise, conversion or exchange of any outstanding stock options, warrants, agreements, securities, rights or other instruments, but only to the extent that any of the foregoing are exercisable or will be exercisable on or prior to December 31, 1999, and only to the extent that any of the foregoing have an exercise price, conversion price or exchange ratio of less than $22.00 per share. "Governmental Authority" or "Governmental Authorities" shall mean the United States and any foreign, state, county, city or other political subdivision, agency, court or instrumentality. "Income Tax" means any Tax based on or measured by net income. "knowledge" means, with respect to any Party, the actual knowledge of any executive officer of such Person. "Laws" shall mean any constitution, statute, code, regulation, rule, injunction, judgment, order, decree or ruling of any applicable Governmental Authority. 3 4 "Lock-up Expiration Date" shall mean the date that is six months after the Closing Date. "Loss" or "Losses" shall mean all debts, liabilities, losses, penalties, fines, assessments, settlements, judgments, costs (including, but not limited to, remediation costs) and expenses (including, without limitation, involving theories of negligence or strict liability and including court costs and attorneys' fees), other than Taxes. "Material Adverse Effect" shall mean, with respect to any given Person, any event, circumstance, condition, development or occurrence causing, resulting in or having an adverse effect on the financial condition, business, assets or properties that is material to such Person and its Subsidiaries, taken as a whole; provided, that such term shall not include effects that result from market conditions generally in the oil and gas industry. "Oil and Gas Interests" shall mean (a) direct and indirect interests in and rights with respect to oil, gas, mineral, and related properties and assets of any kind and nature, direct or indirect, including working, leasehold and mineral interests and operating rights and royalties, overriding royalties, production payments, net profit interests and other nonworking interests and nonoperating interests; (b) all interests in rights with respect to hydrocarbons and other minerals or revenues therefrom, all contracts in connection therewith and claims and rights thereto (including all oil and gas leases, operating agreements, unitization and pooling agreements and orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and gas sales, exchange and processing contracts and agreements, and in each case, interests thereunder); (c) surface interests, fee interests, reversionary interests, reservations, and concessions related to the foregoing; (d) all easements, rights of way, licenses, permits, leases, and other interests associated with, appurtenant to, or necessary for the operation of any of the foregoing; and (e) all interests in equipment and machinery (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing, and storage facilities (including tanks, tank batteries, pipelines, and gathering systems), pumps, water plants, electric plants, gasoline and gas processing plants, refineries, and other tangible personal property and fixtures associated with, appurtenant to, or necessary for the operation of any of the foregoing. "Pension Plan" shall mean any "employee pension benefit plan" as such term is defined in Section 3(2) of ERISA that is maintained or sponsored by Enron. "Plan" shall mean any "employee benefit plan" as such term is defined in Section 3(3) of ERISA, including without limitation any Pension Plan. "Person" shall mean any natural person, firm, partnership, association, corporation, limited liability company, trust, entity, public body or government. "Pre-Closing Period" means any taxable period ending on or before the Closing Date. 4 5 "Reasonable Efforts" shall mean a party's efforts in accordance with reasonable commercial practices and without the payment of any money to any third party except the incurrence of reasonable expenses that are insignificant in amount. "Registration Rights Agreement" means the Stock Restriction and Registration Rights Agreement dated as of August 23, 1989 between Enron and EOG, as amended. "Retained Shares" shall mean any of the shares of EOG Common Stock beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by Enron other than the Exchanged Shares (or shares that will become the Exchanged Shares). "Securities Act" shall mean the Securities Act of 1933, as amended. "Standstill Expiration Date" shall mean the later of (a) the second anniversary of the Closing Date and (b) the earliest date that Enron ceases to beneficially own more than 5% of the issued and outstanding shares of EOG Common Stock. "Straddle Period" means any taxable period beginning on or before and ending after the Closing Date. "Subsidiary" or "Subsidiaries" of a specified Person shall mean any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified Person (either alone and/or through and/or together with any other Subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity or of which the specified Person controls the management. Notwithstanding the foregoing, unless otherwise expressly stated for purposes of this Agreement, EOG and its Subsidiaries shall not be deemed to be Subsidiaries of Enron. "Tax" or "Taxes" means any and all federal, state, local, foreign or (American) Indian nation taxes, duties, levies, imposts, or withholdings of any nature whatsoever (including, without limitation, income, franchise, gross receipts, sales, rental, use, turnover, value added, property (tangible and intangible), windfall profit, goods and services, excise and stamp taxes), together with any and all assessments, penalties, fines, additions and interest relating thereto. "Termination Date" shall mean November 1, 1999. "Third Party Claim" shall mean a Claim asserted against an Indemnified Party by a Person other than a party to this Agreement or any Affiliate thereof that could give rise to a right of indemnification under this Agreement, other than a Claim for or related to Taxes. "Unitary Tax" means a state Income Tax that reflects the combined and/or consolidated tax reporting (either on a domestic or worldwide basis) of a corporation and its Affiliates and that is 5 6 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 federal Income Tax return. "Unitary Tax Return" shall have the meaning given such term in Article 10. ARTICLE 2. THE TRANSACTIONS 2.1 Contributions. Subject to the terms and conditions set forth in this Agreement, prior to the consummation of the Share Exchange the following transactions shall be consummated: (a) EOG shall cause EOG China Sichuan to be merged into EOG International; (b) EOG may, in its discretion, cause EOG International to be merged into EOG (any such merger into EOG, the "EOG International Merger") or into a limited liability company (provided that such limited liability company is disregarded as an entity separate from EOG for Income Tax purposes) wholly owned by EOG, provided that if EOG International is merged into such a limited liability company, then references in this Agreement to EOG International shall refer to such limited liability company after such merger occurs and to EOG International prior to such merger; (c) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) the shares of EOG China Cayco to EOG India HoldCo; (d) EOG shall cause EOG India HoldCo to contribute the shares of EOG China Cayco to EOG India Cayco. Effective the day after such contribution (but prior to the day of the Share Exchange) EOG shall cause EOG China Cayco to elect to be disregarded as an entity separate from its owner pursuant to Treas. Reg. Section 301.7701-3; (e) EOG shall contribute to EOG International, shall cause EOG International to contribute to EOG India HoldCo simultaneously with the receipt of such amount from EOG, and shall cause EOG India HoldCo to contribute to EOG India Cayco simultaneously with the receipt of such amount from EOG International, $600 million in cash (the "Contributed Amount"); provided, however, that if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute the Contributed Amount directly to EOG India HoldCo; 6 7 (f) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) to EOG India HoldCo the EOG China Delaware Shares; (g) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) to EOG India HoldCo, and shall cause EOG India HoldCo to contribute to EOG India Cayco simultaneously with the receipt of same from EOG International (or EOG), the balance as of the Closing Date of all receivables from EOG India Cayco; (h) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) to EOG India HoldCo, and shall cause EOG India HoldCo to contribute to EOG India Cayco simultaneously with the receipt of such amount from EOG International (or EOG), an amount of cash sufficient to allow EOG India Cayco to discharge all of its payables (including accrued interest) to Wilsyx International Finance B.V. as of the Closing Date, which payables shall be so discharged prior to the consummation of the Share Exchange; (i) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) to EOG India HoldCo, shall cause EOG India HoldCo to contribute to EOG India Cayco simultaneously with the receipt of same from EOG International (or EOG), and shall cause EOG India Cayco to contribute to EOG China Cayco simultaneously with the receipt of same from EOG India HoldCo, the balance as of the Closing Date of all receivables from EOG China Cayco; and (j) EOG shall cause EOG International to contribute (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG shall contribute) to EOG India HoldCo, shall cause EOG India HoldCo to contribute to EOG China Delaware simultaneously with the receipt of same from EOG International (or EOG), and shall cause EOG China Delaware to contribute to EOG China International simultaneously with the receipt of same from EOG India HoldCo, the balance as of the Closing Date of all receivables from EOG China International. The transactions contemplated by this Section 2.1 of this Agreement (except for the EOG International Merger pursuant to Section 2.1(b)) shall be collectively referred to herein as the "Contributions." 2.2 Share Exchange. Subject to the terms and conditions set forth in this Agreement, (a) prior to the transactions referred to in clauses (b) and (c) of this Section 2.2, EOG International shall distribute to EOG all of the EOG India Shares (unless EOG International is merged into EOG pursuant to Section 2.1(b)); (b) Enron shall transfer and assign to EOG an aggregate of 62,270,000 shares of EOG Common Stock owned by Enron (the "Exchanged Shares") and (c) in exchange therefor EOG shall transfer and assign to Enron all of the EOG India Shares. The transactions 7 8 contemplated by this Section 2.2 of this Agreement shall be collectively referred to herein as the "Share Exchange." 2.3 Closing. The closing of the transactions contemplated by Section 2.2 of this Agreement (the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin, Houston, Texas 77002 at 9:30 a.m., Houston time, on the later of August 31, 1999 and the third Business Day following the satisfaction or waiver of the conditions set forth in Article 8 (other than the deliveries contemplated to occur at Closing), or at such other time as Enron and EOG shall agree in writing; provided, however, that if all of the conditions set forth in Article 8 (other than the deliveries contemplated to occur at Closing) have been satisfied or waived prior to August 31, 1999, EOG shall have the right, but not the obligation, to cause the Closing to occur on a Business Day after such waiver or satisfaction and prior to August 31, 1999 by giving at least three Business Days notice to Enron of the rescheduled date of Closing. The date upon which the Closing occurs shall be referred to herein as the "Closing Date." 2.4 Deliveries at or Prior to the Closing. (a) At or prior to the Closing, EOG will, or will (if applicable) cause EOG International to, deliver to Enron: (i) written evidence reasonably satisfactory to Enron of the consummation of the Contributions as contemplated by Section 2.1 of this Agreement; (ii) the certificate required to be delivered by EOG pursuant to Section 8.2(d) of this Agreement; and (iii) stock certificates representing all of the EOG India Shares endorsed in blank or accompanied by duly executed assignment documents. (b) At or prior to the Closing, Enron will deliver to EOG: (i) the certificate required to be delivered by Enron pursuant to Section 8.3(c) of this Agreement; (ii) stock certificates representing all of the Exchanged Shares endorsed in blank or accompanied by duly executed assignment documents; and (iii) written evidence reasonably satisfactory to EOG of the resignation, effective upon the Closing, as a director of EOG of each of the following individuals: Kenneth L. Lay, Jeffrey K. Skilling; James V. Derrick, Jr.; Ken L. Harrison; Richard A. Causey; and John H. Duncan (or any successors thereto or additional directors appointed without the concurrence of the Special Committee) (collectively, the "Resigning Directors"). 8 9 ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF ENRON Enron hereby represents and warrants to EOG as follows, subject to the matters set forth in the disclosure schedule delivered by Enron to EOG on the date hereof (the "Enron Disclosure Schedule") and, provided that the disclosures made on any section of the Enron Disclosure Schedule with respect to any representation or warranty shall be deemed to be made with respect to any other representation or warranty requiring the same or similar disclosure to the extent that the relevance of such disclosure to other representations and warranties is evident from the face of the applicable section of the Enron Disclosure Schedule: 3.1 Organization. Enron is a corporation duly organized, validly existing and in good standing under the Laws of the State of Oregon, with full corporate power, right and authority to own and lease the properties and assets it currently owns and leases and to carry on its business as such business is currently being conducted. 3.2 Qualification. Enron is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary, except where the failure to be so qualified or in good standing would not or would not reasonably be expected to, have a Material Adverse Effect on Enron. 3.3 Authorization of this Agreement; No Violation. This Agreement has been duly executed and delivered by Enron. Enron has the full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Enron of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite corporate action on the part of Enron. Except as disclosed in Section 3.3 of the Enron Disclosure Schedule, neither the execution and delivery by Enron of this Agreement nor the consummation by Enron of the transactions contemplated hereby will conflict with, result in a breach, default or violation of, or require the consent of any third party under, (a) the terms, provisions or conditions of the certificate of incorporation or bylaws of Enron; (b) any judgment, decree or order or any Law to which Enron is a party or is subject that would, or would reasonably be expected to, have a Material Adverse Effect on Enron; or (c) any material contract, agreement, lease, license or other arrangement to which Enron or one of its Subsidiaries is a party or by which it or one of its Subsidiaries, or any of 9 10 their respective properties, is bound that would, or would reasonably be expected to, have a Material Adverse Effect on Enron. 3.4 Governmental Consents. Except as disclosed in Section 3.4 of the Enron Disclosure Schedule, no consent, action, approval or authorization of, or registration, declaration or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution and delivery by Enron of this Agreement or Enron's performance of the terms of this Agreement or the validity or enforceability hereof against Enron. 3.5 Enforceability. This Agreement constitutes the legal, valid and binding obligation of Enron enforceable against Enron in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Laws affecting creditors' rights generally and general principles of equity. 3.6 Ownership of Exchanged Shares. Enron is the record and beneficial owner of all of the Exchanged Shares, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities Laws), claims, liens for taxes, security interests, options, warrants, rights, contracts, calls, commitments, equities and demands. Enron has the sole right to vote the Exchanged Shares. None of the Exchanged Shares is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of the Exchanged Shares, and no proxy, power of attorney or other authorization has been granted with respect to any of the Exchanged Shares. Other than as set forth in this Agreement, neither Enron nor any of its Subsidiaries is a party to any contracts, agreements, commitments or other arrangements, including any options, warrants or other rights, obligating Enron or any of its Subsidiaries to sell, dispose of or encumber any of the Exchanged Shares. 3.7 Brokers' Fees. Except for Credit Suisse First Boston Corporation, Enron has no liability or obligation to pay any fees or commissions to any broker or finder with respect to the transactions contemplated by this Agreement. Enron shall be solely responsible for all fees payable to any broker or finder engaged on behalf of Enron with respect to the transactions contemplated by this Agreement. 3.8 Investment. Enron is not acquiring the EOG India Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. Enron, together with its directors and executive officers and advisors, is familiar with investments of the nature of the EOG India Shares, understands that this investment involves substantial risks, has adequately investigated the Acquired Companies and has substantial knowledge and experience in financial and business matters such that it is capable of evaluating, and has evaluated, the merits and risks inherent in acquiring the EOG India Shares, and is able to bear the economic risks of such investment. 3.9 Litigation. Except as disclosed in Enron's Annual Report on Form 10-K for the year ended December 31, 1998 or Enron's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, as of the date hereof, there are no actions, suits, proceedings or governmental 10 11 investigations or inquiries pending, or to the knowledge of Enron, threatened, against Enron, its Subsidiaries or any of their respective properties, assets, operations or businesses that would, or would reasonably be expected to, have a Material Adverse Effect on Enron. 3.10 Tax Representations and Warranties. (a) Immediately after the Share Exchange, EOG India HoldCo will be engaged in the active conduct of a trade or business within the meaning of section 355(b)(1)(A) (without regard to section 355(b)(2)(B)) of the Code. (b) Following the Share Exchange, EOG India Cayco will continue, independently of EOG and EOG International and with its separate employees, the active conduct of the business conducted by EOG India Cayco prior to the Share Exchange. (c) Enron has no plan or intention to sell, exchange, transfer by gift, or otherwise dispose of any stock in, or securities of, any of the Acquired Companies following the Share Exchange. (d) There is no plan or intention by any of the Acquired Companies to redeem or otherwise acquire any of its outstanding stock following the Share Exchange. (e) There is no plan or intention to sell or otherwise dispose of the assets of any of the Acquired Companies following the Share Exchange, except in the ordinary course of business. (f) Following the Share Exchange, EOG India Cayco will use the Contributed Amount for expansion of its existing business and to make debt and equity investments in related and unrelated parties for use in operations outside the United States. (g) It is Enron's intention to sell the Retained Shares in the manner permitted by Section 6.2(c) as soon as is reasonably practical and consistent with market conditions. (h) Enron has no plan or intention to violate, or take any action inconsistent with, any of its covenants in Section 6.1 or 6.3 of this Agreement. (i) Enron has owned, either directly or through a wholly owned subsidiary of Enron, the Exchanged Shares and the Retained Shares during the entire period beginning on October 9, 1990 and ending on the Closing Date. During such period, Enron has not acquired any of the Exchanged Shares or the Retained Shares by purchase (within the meaning of section 355(d) of the Code). (j) To the knowledge of Enron, no disposition by Enron or any Affiliate of Enron of EOG Common Stock during the five-year period preceding the Closing Date was made 11 12 to one or more Persons acting pursuant to a plan or arrangement of such Person or Persons to acquire at least 50% of the outstanding shares of EOG Common Stock. (k) The dispositions by Enron of EOG Common Stock in March 1996, May 1996, June 1996, August 1996, September 1996 and November 1996 were made on the open market in broker transactions. The dispositions by Enron of EOG Common Stock in December 1995 were made in a public offering through underwriters. (l) Enron has no knowledge of any plan or intention of any Person (or Persons acting in concert) to acquire at least 5% of the outstanding shares of EOG Common Stock after the date hereof; provided, however, that the Parties acknowledge and agree that any proposals or indications of interest received by or on behalf of, or discussions or negotiations with, Enron or EOG prior to the date hereof shall not be deemed to constitute any such plan or intention if such proposals, indications of interest, discussions or negotiations would violate the provisions of, or be inconsistent with the transactions contemplated by, this Agreement. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF EOG EOG hereby represents and warrants to Enron as follows, subject to the matters set forth in the disclosure schedule delivered by EOG to Enron on the date hereof (the "EOG Disclosure Schedule"), and, provided that the disclosures made on any section of the EOG Disclosure Schedule with respect to any representation or warranty shall be deemed to be made with respect to any other representation or warranty requiring the same or similar disclosure to the extent that the relevance of such disclosure to other representations and warranties is evident from the face of the applicable section of the EOG Disclosure Schedule: 4.1 Organization. Each of EOG and (until the EOG International Merger occurs, if it occurs) EOG International is a corporation (or, in the case of EOG International, if it is merged into a limited liability company pursuant to Section 2.1(b), a limited liability company) duly organized, validly existing and in good standing under the Laws of the State of Delaware, with full corporate power, right and authority to own and lease the properties and assets it currently owns and leases and to carry on its business as such business is currently being conducted. Each of the Acquired Companies is duly organized, validly existing and (to the extent the concept is recognized in the applicable jurisdiction) in good standing under the Laws of its respective jurisdiction of incorporation, with full company power, right and authority to own and lease the properties and assets it currently owns and leases and to carry on its business as such business is currently being conducted. 4.2 Qualification. Each of EOG, (until the EOG International Merger occurs, if it occurs) EOG International, and each of the Acquired Companies is duly qualified to do business as a foreign 12 13 corporation and is in good standing in each jurisdiction in which the nature of the business as now conducted or the character of the property owned or leased by it makes such qualification necessary (in each case to the extent such concept is recognized in the applicable jurisdiction), except where the failure to be so qualified or in good standing would not, or would not reasonably be expected to, have a Material Adverse Effect on the Acquired Companies, taken as a whole, or EOG. 4.3 Authorization of Agreement; No Violation. This Agreement has been duly executed and delivered by EOG. EOG has the full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by EOG of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all requisite corporate action on the part of EOG. Without limiting the generality of the foregoing, this Agreement and the transactions contemplated hereby have been unanimously approved by the Board of Directors of EOG and have been unanimously recommended to the Board of Directors by the Special Committee. Except as disclosed in Section 4.3 of the EOG Disclosure Schedule, neither the execution and delivery by EOG of this Agreement nor the consummation by EOG of the transactions contemplated hereby will conflict with, result in a breach, default or violation of, or require the consent of any third party under, (a) the terms, provisions or conditions of the certificate of incorporation or bylaws or other organizational documents of EOG or any of its Subsidiaries; (b) any judgment, decree or order or any Law to which EOG or any of its Subsidiaries is a party or is subject that would, or would reasonably be expected to, have a Material Adverse Effect on the Acquired Companies, taken as a whole, or EOG; or (c) any material contract, agreement, lease, license or other arrangement to which EOG or one of its Subsidiaries is a party or by which it or one of its Subsidiaries, or any of their respective properties, is bound that would, or would reasonably be expected to, have a Material Adverse Effect on EOG or the Acquired Companies, taken as a whole. 4.4 Governmental Consents. Except as disclosed in Section 4.4 of the EOG Disclosure Schedule, no consent, action, approval or authorization of, or registration, declaration or filing with, any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution and delivery by EOG of this Agreement or EOG's performance of the terms of this Agreement or the validity or enforceability hereof against EOG. 4.5 Enforceability. This Agreement constitutes the legal, valid and binding obligation of EOG enforceable against EOG in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other Laws affecting creditors' rights generally and general principles of equity. 4.6 Ownership of EOG India Shares. EOG International (or, if the EOG International Merger occurs, then EOG) is the record and beneficial owner of all of the EOG India Shares free and 13 14 clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities Laws), claims, liens for taxes, security interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding shares of any class of capital stock of EOG India HoldCo (other than the EOG India Shares) or any securities convertible into or exercisable or exchangeable for any class of capital stock of EOG India HoldCo. EOG International (or, if the EOG International Merger occurs, then EOG) has the sole right to vote all of the EOG India Shares. None of the EOG India Shares is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of such shares, and no proxy, power of attorney or other authorization has been granted with respect to any of such shares. Other than as set forth in this Agreement, there are no contracts, agreements, commitments or other arrangements, including any options, warrants or other rights, obligating EOG, EOG India HoldCo or any other Person to issue, sell, dispose of or encumber any shares of any class of EOG India HoldCo capital stock. 4.7 Brokers' Fees. Except for Goldman, Sachs & Co., Banc of America Securities LLC, and J. P. Morgan Securities Inc., neither EOG nor any of its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker or finder with respect to the transactions contemplated by this Agreement. EOG shall be solely responsible for all fees payable to any broker or finder engaged on behalf of EOG or any board committee thereof with respect to the transactions contemplated by this Agreement. 4.8 Litigation. Except as set forth in Section 4.8 of the EOG Disclosure Schedule or in EOG's Annual Report on Form 10-K for the year ended December 31, 1998 or EOG's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, as of the date hereof, there are no actions, suits, proceedings or governmental investigations or inquiries pending, or to the knowledge of EOG, threatened, against EOG, its Subsidiaries or any of their respective properties, assets, operations or businesses that would, or would reasonably be expected to, have a Material Adverse Effect on the Acquired Companies, taken as a whole, or EOG. 4.9 Tax Representations and Warranties. (a) EOG has owned all of the outstanding stock of EOG International, and EOG International has (or, if the EOG International Merger occurs, then EOG International and EOG, collectively, have) owned all of the EOG India Shares, during the entire five-year period ending on the date of the Share Exchange. (b) Immediately after the Share Exchange, EOG will be engaged in the active conduct of a trade or business within the meaning of section 355(b)(2) of the Code, and such trade or business has been actively conducted throughout the five-year period ending on the date of the Share Exchange. (c) Following the Share Exchange, EOG will continue, independently of the Acquired Companies and with its separate employees, the active conduct of the business conducted by EOG prior to the Share Exchange. 14 15 (d) EOG intends to complete on the Closing Date or within one year after the Closing Date a stock offering of at least 10,000,000 shares of EOG Common Stock the proceeds of which will be used to fund operations, capital expenditures, acquisitions, the retirement of indebtedness, or other business needs, unless market conditions change materially and adversely with respect to completion of such stock offering on or after the Closing Date. (e) To their knowledge, the management of EOG is not aware of any plan or intention on the part of any particular shareholder or security holder of EOG (other than Enron) to sell, exchange, transfer by gift, or otherwise dispose of any stock in, or securities of, EOG following the Share Exchange, other than through public market trading. (f) There is no plan or intention by EOG, directly or through any Subsidiary, to purchase any of its outstanding stock following the Share Exchange. (g) EOG has no plan or intention to sell or otherwise dispose of the assets of EOG after the Share Exchange, except in the ordinary course of business and except for sales or dispositions of assets that EOG believes do not have significant value. (h) None of EOG, EOG International and EOG India HoldCo is an investment company as defined in section 368(a)(2)(F)(iii) and (iv) of the Code. (i) Neither EOG nor EOG International will own any equity interest in EOG India HoldCo following the Share Exchange. (j) As of the time immediately prior to the Share Exchange, EOG India HoldCo has never had any Texas gross receipts for Texas franchise tax purposes. 4.10. Financing Commitment. EOG has obtained a commitment (the "Financing Commitment") from Bank of America, N.A. to finance the Contributed Amount as well as any fees or expenses required to be paid by EOG in connection with the transactions contemplated by this Agreement. A true and correct copy of the Financing Commitment has been provided to Enron. ARTICLE 5. COVENANTS OF ENRON AND EOG 5.1 Reasonable Efforts; Consents. Each of the Parties shall use its Reasonable Efforts to obtain the satisfaction of all conditions to the Closing attributable to such Party in an expeditious manner. Each of the Parties will use its Reasonable Efforts to obtain the authorizations, consents, orders and approvals of Governmental Authorities and any other third parties that may be or become necessary or advisable for the performance of its obligations pursuant to this Agreement and the consummation of the transactions contemplated hereby and will cooperate in all reasonable respects 15 16 with each other in promptly seeking to obtain such authorizations, consents, orders and approvals as may be necessary or advisable for the performance of their respective obligations pursuant to this Agreement. In addition, each Party shall make all filings required to be made by such party in connection with this Agreement or necessary or desirable to achieve the purposes contemplated hereby, and shall cooperate as needed with respect to any such filing by the other Party. Except as required by Law, none of the Parties will take any action that is reasonably likely to have the effect of delaying, impairing or impeding in any material respect the receipt of any required approvals and each of the Parties will use its Reasonable Efforts to secure such approvals as promptly as possible. 5.2 Delivery and Retention of Records. (a) On the Closing Date, EOG shall deliver or cause to be delivered to Enron all material agreements, documents, books, records and files (collectively, "Acquired Companies Records"), if any, in the possession of EOG or any of its Subsidiaries relating to the business and operations of the Acquired Companies to the extent not then in the possession of the Acquired Companies, subject to the following exceptions: (i) Enron recognizes that certain Acquired Companies Records may contain incidental information relating to the Acquired Companies or may relate primarily to Subsidiaries or divisions of EOG other than the Acquired Companies, and that EOG may retain such Acquired Companies Records and shall provide copies of the relevant portions thereof to Enron at EOG's cost and (ii) EOG may retain any tax returns and reports, forms or workpapers relating thereto, and Enron shall be provided with copies of such returns, reports, forms or workpapers, only to the extent that they relate to the Acquired Companies' separate returns or separate tax liability. (b) Enron agrees (i) to hold the Acquired Companies Records and not to destroy or dispose of any thereof for a period of six years from the Closing Date or such longer time as may be required by Law, provided that, if it desires to destroy or dispose of such Acquired Companies Records during such period, it will first offer in writing at least 90 days prior to such destruction or disposition to surrender them to EOG and if EOG does not accept such offer within 60 days after receipt of such offer, Enron may take such action and (ii) following the Closing Date to afford EOG and its accountants and counsel, during normal business hours, upon reasonable request, at any time, full access to the Acquired Companies Records and to Enron's and the Acquired Companies' employees to the extent that such access may be requested for any legitimate purpose at no cost to EOG (other than for reasonable out-of-pocket expenses), provided, however, that such access will not operate to cause the waiver of any attorney-client, work product or like privilege; provided further, that in the event of any litigation nothing herein shall limit either party's rights of discovery under applicable Law. Notwithstanding the foregoing, Enron shall be entitled to convey all or any portion of the Acquired Companies Records in connection with the sale, if any, of all or any portion of the capital stock, business or assets of the Acquired Companies to the purchaser of such capital stock, business or assets of any of the Acquired Companies; provided, that the purchaser of such capital stock, business or assets agrees to be bound by the terms of this 16 17 Section 5.2(b). Enron shall have the same rights, and EOG the same obligations, as are set forth above in this Section 5.2(b) with respect to any copies of Acquired Companies Records pertaining to any of the Acquired Companies that are retained by EOG, with the exception of tax returns retained by EOG, provided that such access will not operate to cause the waiver of any attorney-client, work product, or like privilege. 5.3 Notice of Certain Events. Each Party will notify the other Party of: (a) any notice from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (b) any notice from any Governmental Authority in connection with the transactions contemplated by this Agreement; and (c) any actions, suits, claims, investigations or proceedings commenced or threatened, which, if pending on the date of this Agreement, would have been required to have been disclosed by it pursuant to Sections 3.9 or 4.8. 5.4 Corporate Name, Trademarks, Etc. Pursuant to Section 5 of the Non-Exclusive License Agreement between Enron and EOG dated as of December 9, 1997 (the "License Agreement"), the License Agreement and the non-exclusive license granted thereunder shall be terminated six months after the Closing Date in accordance with the terms of the License Agreement. The Parties hereby amend Section 7 of the License Agreement such that the references therein to "eighteen months" shall be "twelve (12) months." 5.5 EOG International Guarantee. Enron will use its Reasonable Efforts to replace as soon as practicable the current guarantees (the "India Guarantees") by EOG International to the Indian government of EOG India Cayco's obligations under any applicable production sharing contracts, it being acknowledged that such replacement will not be a condition to Closing. During any period that such replacement does not occur, or if such replacement never occurs, then Enron will indemnify, defend and hold harmless EOG, its Affiliates and their respective directors, officers, shareholders and employees (each a "EOG Party" and collectively, the "EOG Parties"), from and against all Claims (including, without limitation, any Claims for Taxes) and Losses asserted against, imposed upon, or incurred by any EOG Party, directly or indirectly, by reason of, arising out of, or resulting from any requirement (or any assertion, Claim or allegation by or on behalf of any beneficiary of the India Guarantee as to any requirement) for EOG International (or, if the EOG International Merger occurs pursuant to Section 2.1(b), EOG) to honor the India Guarantees. EOG agrees to use its Reasonable Efforts to assist Enron in implementing the replacement of the guarantee contemplated by this Section. EOG further agrees not to modify the terms of any India Guarantee, or to consent to any modification, without the prior written consent of Enron, which consent shall not be unreasonably withheld or delayed. 17 18 5.6 North Milton Field. The Parties acknowledge that under the terms of that certain letter agreement by and between Enron Natural Gas Marketing & Storage Company, a wholly owned subsidiary of Enron ("NGMS"), and EOG dated as of January 9, 1989 (the "Bammel Agreement"), NGMS has the right to acquire, on the terms and conditions set forth therein, EOG's interests (the "North Milton Interests") in the North Milton Field located in Harris County, Texas if EOG desires to sell the North Milton Interests or any part thereof or if EOG should cease to be a majority owned subsidiary of Enron (a "Change of Control"). Enron agrees that even if the execution of this Agreement or the consummation of the transactions contemplated hereby constitute a Change of Control, Enron shall not have the right to exercise its right to acquire the North Milton Interests; provided, however, if EOG or any of its Subsidiaries directly or indirectly transfers or otherwise disposes of any interest in the North Milton Interests to any third party not affiliated with EOG, or if following the Closing any Person acquires more than 50% of the voting stock of EOG, then Enron shall have the right to exercise its right to acquire the North Milton Interests (or in the case EOG or any of its Subsidiaries directly or indirectly transfers or otherwise disposes only a portion of their interest in the North Milton Interests, such portion of the North Milton Interests so transferred or otherwise disposed of) in accordance with the provisions of the Bammel Agreement. Furthermore, neither EOG nor any of its Subsidiaries may directly or indirectly transfer or otherwise dispose of all or a portion of the North Milton Interests unless the transferee thereof agrees to be bound by the provisions of this Section and the Bammel Agreement; provided that no such transfer shall relieve EOG of its obligations hereunder or under the Bammel Agreement. 5.7 Employee Benefit and Compensation Matters. (a) As of the Closing Date, EOG and its Subsidiaries shall cease to be participating employers in Enron Benefit Plans and employees of EOG and its Subsidiaries shall cease to be participants in all Enron Benefit Plans, and all liability associated with such Enron Benefit Plans, including but not limited to funding, claims for events which occur prior to the Closing, earned or accrued benefits, fines, penalties and Taxes, shall remain the sole liability of Enron. Notwithstanding the foregoing, employees of EOG and its Subsidiaries who are participants in or who have accrued benefits under the Enron Executive Supplemental Survivor Benefits Plan, the Enron Performance Unit Plan and the Enron 1988 Deferral Plan shall remain entitled to benefits provided thereunder according to the terms and provisions of such plans, which if necessary shall be amended by Enron to recognize continuing service with EOG (or service with a member of a controlled group of corporations that includes EOG, within the meaning of Code Section 414(b)) as continued employment under such plans. (b) EOG shall promptly establish employee benefit plans for its employees for the period subsequent to the Closing. EOG shall promptly seek a favorable determination letter from the Internal Revenue Service for each such Plan that is intended to be tax qualified. Each EOG employee shall be given credit for all purposes under EOG's employee benefit plans, programs, practices and policies (in each case other than tax-qualified Pension Plans) for all service prior to the Closing Date with EOG and its Affiliates, or any predecessor employer, to the extent such credit was given under the Enron Benefit Plans ("Past Service"). With respect to any of the EOG employee benefit plans that is a tax qualified 18 19 Pension Plan, each EOG employee shall be given credit, to the extent he or she participates in any such Pension Plan, for all Past Service for purposes of eligibility to participate and vesting, but not for purposes of benefit accrual, except that EOG shall give credit for Past Service for purposes of benefit accrual for those employees of EOG who were not vested in Enron's Cash Balance Plan. Upon the Closing Date, Enron shall pay EOG an amount in cash equal to $1,850,000 which is attributable to the unvested accrued benefits of EOG's employees upon the cessation of EOG's participation in Enron's Cash Balance Plan. Upon establishment by EOG of a tax qualified defined contribution Pension Plan meeting the requirements of section 401(k) of the Code, and the issuance of a favorable determination letter by the Internal Revenue Service for such plan, Enron and EOG will cooperate for a trust-to-trust transfer of assets and assumption of liabilities (cash and Enron common stock) from the 401(k) Pension Plan sponsored by Enron to such 401(k) Pension Plan established by EOG. Subsequent to the Closing and until such transfer shall occur, Enron will accept non-payroll deducted loan payments from employees of EOG who have loans from their accounts in the Enron 401(k) Pension Plan. (c) As of the Closing, Enron shall cause the Enron Flexible Compensation Plan to be split into two identical plans, with one such plan designated the EOG Flexible Compensation Plan which shall cover EOG's employees and include their flexible spending account balances. As of the Closing, EOG shall assume and become financially responsible for the EOG Flexible Compensation Plan. (d) Prior to the Closing Date, representatives of Enron and EOG shall negotiate in good faith to develop a list (the "Enron Employee Offer List") of the names of employees of EOG and its Subsidiaries to whom Enron may make offers of employment effective as of the Closing Date on such terms and conditions as Enron in its sole discretion may determine, provided, however, it shall be a condition of employment of any such employee by Enron that such employee agree to execute an election in a form satisfactory to Enron and EOG to exchange all stock-based awards made to such employee under any stock plan maintained by EOG at an equal conversion value determined by Enron for equivalent stock awards made under a stock plan maintained by Enron. Subject thereto, neither Enron nor EOG (nor their respective Subsidiaries) may, prior to the Closing and for a one year period thereafter, without the prior written consent of the other Party, solicit to hire any employee of the other Party. Each employee of EOG listed on the Enron Employee Offer List who (i) accepts an offer of employment from Enron, (ii) commences employment with Enron as of the Closing and (iii) is a participant in the EOG 1996 Deferral Plan shall cease deferrals to such Plan but remain entitled to benefits provided thereunder according to the terms and provisions of such Plan, which if necessary shall be amended by EOG to recognize continuing service with Enron (or service with a member of a controlled group of corporations that includes Enron, within the meaning of Code Section 414(b)) as continued employment under such Plan. (e) Enron shall assume EOG's liability for payment of awards becoming due after the Closing to employees of EOG who accept offers of employment from Enron made pursuant to preceding paragraph (d), pertaining to payments under EOG's 20 Bcfe Award Program attributable to Panna/Mukta, Tapti and China discoveries. A true and correct copy of the current form of such 19 20 program has been furnished to Enron, and such program will not be amended without the prior written consent of Enron. 5.8 Aircraft Leases. At the Closing, all of EOG's rights and obligations under each of the Aircraft Agreements shall be terminated. 5.9 Office Space. Enron shall use its Reasonable Efforts to make available to EOG office space in Three Allen Center, Houston, Texas to which Enron currently has access that reasonably accommodates EOG. In the event that Enron makes available to EOG office space in Three Allen Center that reasonably accommodates EOG, (i) EOG shall promptly move its office to such location and vacate its current office space at 1400 Smith Street, Houston, Texas and (ii) Enron shall subsidize the rent that is payable by EOG for the offices located at Three Allen Center from the date that EOG vacates its offices at 1400 Smith Street through the date that is one year following the Closing Date by an amount equal to the aggregate rent subsidy that EOG would have otherwise been entitled to receive for its offices at 1400 Smith Street under the Services Agreement dated as of January 1, 1997 between Enron and EOG for the same period ("Services Agreement"). The obligations in this Section shall be in addition to Enron's obligations to pay for EOG's relocation expenses on the terms, and subject to the conditions, set forth in Section 11(d) of the Business Opportunity Agreement. 5.10 Intercompany Agreements. In the event that there shall be any agreement between EOG or its Subsidiaries, on the one hand, and Enron or its Subsidiaries, on the other hand, in existence and effect as of the Closing Date that is not set forth on Appendix I (which has been mutually prepared and does not constitute a representation of either Party), then the Parties agree that, within 30 days after the date that one Party identifies any such agreement to the other Party, the Parties will negotiate in good faith whether to modify or terminate such agreement (or whether to take no action with respect thereto), it being understood that in the absence of any agreement to the contrary, such agreement will not be affected by the transactions contemplated by this Agreement, unless otherwise expressly provided for herein or in such agreement. 5.11 Business Opportunity Agreement. (a) The Parties hereby agree that Section 12 of the Business Opportunity Agreement is hereby amended, effective as of the date hereof, to the effect that Enron shall no longer have the rights set forth in such Section 12 to participate in any subsequent offerings of capital stock by EOG that are consummated simultaneously with, or after, the Closing; provided, however, that Enron shall continue to have the rights set forth in Section 6.2 hereof. If this Agreement is terminated without the occurrence of a Closing, then the amendment effected pursuant to this Section 5.11 shall be null and void ab initio. (b) The Parties hereby agree that, notwithstanding anything to the contrary contained in the Business Opportunity Agreement, in the event that Enron is required pursuant to Section 4 of the Business Opportunity Agreement to offer to EOG a business 20 21 opportunity that involves E& P Business Assets (as defined in the Business Opportunity Agreement) located in India or China, (i) if Enron so elects, EOG shall offer such business opportunity, at Enron's cost, to one of the Acquired Companies selected by Enron to pursue such opportunity and (ii) following the Closing, Enron shall be entitled, directly or indirectly to pursue such opportunity. In addition, the Parties hereby agree that Section 4 of the Business Opportunity Agreement is hereby amended, effective as of the Closing Date, by adding a sentence to the end of such Section that reads as follows: "Notwithstanding the foregoing, for purposes of this Section 4, a business opportunity involving E&P Business Assets located in India or China that was first presented after July 19, 1999 shall be deemed not to have been first presented until after Enron no longer controls EOG and no longer owns directly or indirectly at least 40% of the capital stock of EOG having ordinary voting power for the election of directors." 5.12 Payroll Services. Subsequent to the Closing and through December 31, 1999, Enron shall continue to provide to EOG the payroll services being provided under the Services Agreement. EOG shall compensate Enron for performance of such services using the methodology described in the Services Agreement. After December 31, 1999, EOG shall no longer have any rights to such services, except that Enron will provide to EOG under the terms of the Services Agreement year-end payroll and payroll tax reporting with respect to the year ended December 31, 1999. 5.13 Certain Board Matters. If, prior to the Closing, the Board of Directors of EOG votes upon any matter that specifically relates to EOG's operations or proposed operations in India or China, then the parties agree that, in addition to the vote of the Board of Directors required under the Delaware General Corporation Law and EOG's Certificate of Incorporation or Bylaws, such matter will also require the concurrence of the Special Committee. ARTICLE 6. ADDITIONAL COVENANTS OF ENRON 6.1 Ownership of Exchanged Shares. Except as otherwise contemplated by Section 2.2 of this Agreement, Enron will not, directly or indirectly, sell, transfer, pledge or otherwise dispose any of the Exchanged Shares (or shares that will become Exchanged Shares) to any Person or grant an option with respect to any of the Exchanged Shares (or shares that will become Exchanged Shares), or enter into any other agreement or arrangement with respect to any of the Exchanged Shares (or shares that will become Exchanged Shares). 21 22 6.2 Post-Closing Transfers of Retained Shares of EOG Common Stock. (a) Except as provided in Section 6.2(b) below, from and after the date hereof and prior to the Lock-up Expiration Date, Enron will not, directly or indirectly, sell, transfer, pledge or otherwise dispose of (including without limitation by issuing any debt or equity securities exercisable or exchangeable for, or convertible into) any Retained Shares to any Person other than a wholly owned Subsidiary of Enron. (b) Notwithstanding the provisions of Section 6.2(a), in the event that EOG engages in a public offering of its equity securities ("Public Offering") prior to the Lock-Up Expiration Date, Enron shall be entitled, subject to the terms and conditions of the Registration Rights Agreement (including those terms relating to underwriter cutbacks), to sell in the Public Offering (i) one or more series of debt or equity securities of Enron ("Convertible Securities") that are mandatorily exchangeable for or mandatorily convertible into up to 10,000,000 Retained Shares less any shares sold pursuant to clause (ii) below and (ii) with the prior written consent of EOG, up to 10,000,000 Retained Shares less the number of Retained Shares underlying Convertible Securities sold pursuant to clause (i) above. In connection with any such Public Offering, Enron and EOG shall use their Reasonable Efforts to cause the underwriters in such Public Offering to distribute any such securities in a widely dispersed manner. (c) Enron shall not, without the prior written consent of EOG, sell, transfer, pledge or otherwise dispose of, directly or indirectly, any Retained Shares or Convertible Securities other than (to the extent any transaction is permitted by Sections 6.2(a) and 6.2(b)) (i) pursuant to a public offering registered under the Securities Act (provided that Enron shall use its Reasonable Efforts to cause the underwriters in such public offering to distribute such shares in a widely dispersed manner), (ii) pursuant to Rule 144 promulgated under the Securities Act, (iii) to a wholly owned subsidiary of Enron, which shall thereafter become subject to the provisions of this Agreement to the same extent as Enron, (iv) pursuant to any merger approved by the Board of Directors of EOG with respect to which Enron did not violate the provisions of Section 6.3 hereof or (v) any tender offer or exchange offer recommended by the Board of Directors of EOG with respect to which Enron did not violate the provisions of Section 6.3 hereof. (d) Enron shall notify EOG in writing within five Business Days after Enron consummates the sale of any Retained Shares. 6.3 Standstill. Enron agrees that, commencing on the date hereof and ending on the Standstill Expiration Date, unless specifically requested in advance by EOG's board of directors, neither Enron nor any of its Subsidiaries will directly or indirectly (a) acquire, offer to acquire, or agree to acquire, or cause or recommend that any other Person acquire, directly or indirectly, by purchase, gift, through the acquisition or control of another Person or otherwise, any voting securities of EOG (other than Retained Shares in connection with dispositions of shares of EOG Common 22 23 Stock permitted by Section 6.2 hereof), (b) make or in any way participate in, directly or indirectly, any "solicitation" of "proxies" to vote or become a "participant" in any "election contest" (as such terms are used in the proxy rules of the Securities and Exchange Commission) or seek to advise or influence any Person with respect to the voting of any voting securities of EOG, (c) propose or nominate any nominee for director of EOG (other than to fill any vacancy prior to the Closing Date caused by a Resigning Director ceasing to be a director of EOG prior to the Closing Date), (d) submit any stockholder proposal to be voted upon by the stockholders of EOG, (e) deposit any voting securities in a voting trust or subject any such voting securities to any arrangement or agreement with respect to the voting of such voting securities, (f) except as expressly contemplated by this Agreement, propose any business combination (including without limitation pursuant to any merger or share exchange) involving EOG or make or propose a tender or exchange offer or any other offer for any of EOG's voting securities, or arrange, or participate in the arrangement of, financing thereof, (g) disclose an intent, purpose, plan or proposal with respect to EOG or its voting securities inconsistent with the provisions of this Agreement, (h) from and after the Closing Date, otherwise act, alone or in concert with or on behalf of others, to seek directly or indirectly to control the officers or board of directors of EOG (provided that prior to the Closing Date Enron will not take any action with respect thereto that is inconsistent with this Agreement, its implementation or the effectuation of the purposes hereof), or (i) encourage or assist any other Person in connection with any of the foregoing. In addition, during the period from the Closing Date until the Standstill Expiration Date, at any meeting of EOG stockholders with respect to which Enron owns Retained Shares entitled to vote, Enron will attend such meeting in person or by proxy and will vote all of its Retained Shares in the manner, if any, recommended by the board of directors of EOG. 6.4 Cooperation in Litigation. Following the Closing Date, and to the extent reasonably necessary to permit EOG or any of its Affiliates to defend (including, without limitation, any related investigation, appeal or settlement) any lawsuit, mediation, enforcement action, arbitration, administrative hearing or other adjudicative proceeding which exists at the Closing Date or which is brought thereafter, Enron agrees to afford EOG and its Affiliates and their respective accountants and counsel, during normal business hours at no cost to EOG other than reasonable out-of-pocket expenses, (i) reasonable access to all employees of Enron or any of its Affiliates and all witnesses subject to the control or direction of Enron or any of its Affiliates and (ii) reasonable access to all documents and records within the custody or subject to the control of Enron or any of its Affiliates; provided, however, that such access will not operate to cause the waiver of any attorney-client, work product or like privilege; provided further, that in the event of any litigation nothing herein shall limit either party's rights of discovery under applicable Law. Following the Closing Date, Enron also agrees to give EOG 15 days prior written notice of the intention of Enron or any of its Affiliates to settle or otherwise compromise any claims against Enron or any of its Affiliates arising from or related to any Enron Producer/Affiliate Disputes, as that term is defined below, whether or not those claims have been formally filed with any court or other adjudicative body. As used in this paragraph, the term "Enron Producer/Affiliate Disputes" means any claim, lawsuit, mediation, enforcement action, arbitration, administrative hearing or other adjudicative proceeding where the allegations include claims that EOG or any of its Affiliates have failed to pay or has improperly paid any amount alleged to be due and owing and which further alleges that such failure to pay or improper payment 23 24 results in whole or in part from, or is in any way related to, the affiliate relationship of EOG or any of its Affiliates with Enron or any of its Affiliates. The foregoing definition is intended to include, but is not limited to, claims asserting failure to pay or improper payment of royalties, overriding royalties, production payments, severance taxes, and/or any other liability arising from the production and/or sale of hydrocarbons. 6.5 Resignation of Directors. Enron shall cause each of the Resigning Directors who is also an employee of Enron to resign as a director of EOG effective upon the Closing. Enron shall use its Reasonable Efforts to cause any other Resigning Directors to resign as a director of EOG effective upon the Closing. ARTICLE 7. ADDITIONAL COVENANTS OF EOG 7.1 Ownership of the EOG India Shares. Except as otherwise contemplated by this Agreement, EOG and EOG International will not, directly or indirectly, sell, transfer, pledge or otherwise dispose of any of the EOG India Shares (or the shares of capital stock of any of the Acquired Companies) to any Person or grant an option with respect to any of the foregoing, or enter into any other agreement or arrangement with respect to any of the foregoing. 7.2 Conduct of Business by the Acquired Companies Pending the Share Exchange. From the date hereof until the Closing Date, unless Enron shall otherwise agree in writing, EOG shall cause the Acquired Companies to conduct their business in the ordinary course consistent with recent past practice and shall use all Reasonable Efforts to preserve intact the Acquired Companies' business organizations and relationships with third parties and to keep available the services of the Acquired Companies' present officers and key employees. Except as set forth in Section 7.2 of the EOG Disclosure Schedule or as otherwise expressly contemplated by or expressly provided in this Agreement, and without limiting the generality of the foregoing, from the date hereof until the Closing Date, except with the prior written consent of Enron, which consent shall not be unreasonably withheld, EOG will cause the following: (a) None of the Acquired Companies will adopt or propose any change to its certificate of incorporation or bylaws or other organizational documents; (b) None of the Acquired Companies will (i) declare, set aside or pay any dividend or other distribution with respect to any of their shares of capital stock or (ii) repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other securities of, or other ownership interests in the Acquired Companies. (c) Except for the pending Tata farmout and the pending Hardy Oil & Gas acquisition, both of which have been described to Enron, and except as set forth in the capital budget 24 25 or work program furnished in writing to Enron, none of the Acquired Companies will merge or consolidate with any other Person or acquire assets having an individual purchase price of more than $1 million or an aggregate purchase price of more than $5 million; (d) Except as set forth in the capital budget or work program furnished in writing to Enron, none of the Acquired Companies will sell, lease, license or otherwise surrender, relinquish or dispose of any assets or properties with an individual fair market value exceeding $1 million or an aggregate fair market value exceeding $5 million; (e) None of the Acquired Companies will settle any material tax audit, make or change any material tax election or file any material amended tax return, which audit, election or return relates solely to one or more Acquired Companies; (f) Except as described on Section 7.2(f) of the EOG Disclosure Schedule, none of the Acquired Companies will issue any securities, incur any indebtedness except trade debt in the ordinary course of business or pursuant to existing credit facilities or arrangements, increase compensation, bonus or other benefits payable to any executive officer or former employee except in the ordinary course of business or enter into any settlement or consent with respect to any pending material litigation; (g) None of the Acquired Companies will change any method of financial accounting or accounting practice, except for any such change required by GAAP and except, to the extent relating to any reporting required by foreign Law, for any such change required by foreign Law; (h) Except as described on Section 7.2(h) of the EOG Disclosure Schedule, neither EOG India HoldCo nor any of its Subsidiaries will become bound or obligated to participate in any operation, or consent to participate in any operation, with respect to any Oil and Gas Interests that will individually cost in excess of $1 million unless the operation is a currently existing obligation of EOG India HoldCo or any of its Subsidiaries or necessary to extend, preserve or maintain an Oil and Gas Interest; (i) None of the Acquired Companies will enter into any futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, other than in the ordinary course of business in accordance with the Acquired Companies' recent past practice; (j) Neither EOG nor any of the Acquired Companies will pledge any of the shares or assets of EOG India Cayco, EOG China Cayco, EOG China Limited, or EOG China International as security for any loan to any member of the EOG Group; and (k) None of the Acquired Companies will agree or commit to do any of the foregoing. 25 26 7.3 Cooperation in Litigation. Following the Closing Date, and to the extent reasonably necessary to permit Enron or any of its Affiliates to defend (including, without limitation, any related investigation, appeal or settlement) any lawsuit, mediation, enforcement action, arbitration, administrative hearing or other adjudicative proceeding which exists at the Closing Date or which is brought thereafter, EOG agrees to afford Enron and its Affiliates and their respective accountants and counsel, during normal business hours, at no cost to Enron other than reasonable out-of-pocket expenses, (i) reasonable access to all employees of EOG or any of its Affiliates and all witnesses subject to the control or direction of EOG or any of its Affiliates and (ii) reasonable access to all documents and records within the custody or subject to the control of EOG or any of its Affiliates; provided, however, that such access will not operate to cause the waiver of any attorney-client, work product or like privilege; provided further, that in the event of any litigation nothing herein shall limit either party's rights of discovery under applicable Law. Following the Closing Date, EOG also agrees to give Enron 15 days prior written notice of the intention of EOG or any of its Affiliates to settle or otherwise compromise any claims against EOG or any of its Affiliates arising from or related to any EOG Producer/Affiliate Disputes, as that term is defined below, whether or not those claims have been formally filed with any court or other adjudicative body. As used in this paragraph, the term "EOG Producer/Affiliate Disputes" means any claim, lawsuit, mediation, enforcement action, arbitration, administrative hearing or other adjudicative proceeding where the allegations include claims that Enron or any of its Affiliates have failed to pay or has improperly paid any amount alleged to be due and owing and which further alleges that such failure to pay or improper payment results in whole or in part from, or is in any way related to, the affiliate relationship of Enron or any of its Affiliates with EOG or any of its Affiliates. The foregoing definition is intended to include, but is not limited to, claims asserting failure to pay or improper payment of royalties, overriding royalties, production payments, severance taxes, and/or any other liability arising from the production and/or sale of hydrocarbons. 7.4 Share Issuances. EOG will not issue or dispose of any shares of its capital stock (other than pursuant to currently outstanding options under employee or director stock option plans) prior to the Closing unless, after such issuance or disposition, Enron continues to own at least a majority of the Fully Diluted EOG Shares; provided, however, that the foregoing provision shall not prohibit the issuance of shares of capital stock by EOG in connection with the Public Offering, so long as such issuance is consummated no earlier than simultaneously with the Closing. ARTICLE 8. CONDITIONS TO CLOSING 8.1 Conditions Precedent to Obligation of Each Party. The respective obligations of each Party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: 26 27 (a) no order shall have been entered and shall have remained in effect in any action or proceeding before any Governmental Authority that would prohibit or make illegal the consummation of the transactions contemplated by this Agreement; and (b) any and all material consents of Governmental Authorities, if any, necessary to consummate the transactions contemplated by this Agreement shall have been obtained. 8.2 Additional Conditions Precedent to Obligations of Enron. The obligations of Enron to consummate the transactions contemplated by this Agreement are also subject to the fulfillment (or waiver in writing by Enron) at or prior to the Closing Date of the following conditions: (a) each of the representations and warranties of EOG contained in Article 4 of this Agreement (other than those representations and warranties contained in Sections 4.2 and 4.7) shall, to the extent qualified as to Material Adverse Effect, be true and correct in all respects as of the Closing Date (except for such representations and warranties as are made as of a specified date, which shall be true and correct in all respects as of such specified date), and to the extent not so qualified shall be true and correct except for such failures which, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect on the Acquired Companies, taken as a whole, or Enron; (b) all the covenants in this Agreement to be complied with and performed by EOG on or before the Closing Date (other than the covenants set forth in paragraphs (b), (c), (d) or (h) of Section 7.2, which are the subject of paragraph (c) below) shall have been duly complied with and performed in all material respects; (c) each of the covenants set forth in paragraphs (b), (c), (d) or (h) of Section 7.2 of this Agreement to be complied with and performed by EOG on or before the Closing Date shall have been duly complied with and performed in all respects, except for such failures which, individually or in the aggregate, have not had and would not reasonably be expected to have, a Material Adverse Effect on the Acquired Companies, taken as a whole, or Enron; (d) a certificate to the foregoing effect dated the Closing Date and signed by an authorized executive officer of EOG shall have been delivered to Enron; and (e) Vinson & Elkins L.L.P. shall have delivered to Enron its written opinion (which may be based upon certain representations of EOG and Enron) dated as of the Closing Date to the effect that no gain or loss should be recognized to Enron upon the Share Exchange pursuant to section 355(a) of the Code. 8.3 Additional Conditions Precedent to Obligations of EOG. The obligations of EOG to consummate the transactions contemplated by this Agreement are also subject to the fulfillment (or waiver in writing by EOG) at or prior to the Closing Date of the following conditions: 27 28 (a) each of the representations and warranties of Enron contained in Article 3 of this Agreement (other than those representations and warranties contained in Sections 3.2 and 3.7) shall, to the extent qualified as to Material Adverse Effect, be true and correct in all respects as of the Closing Date (except for such representations and warranties as are made as of a specified date, which shall be true and correct in all respects as of such specified date), and to the extent not so qualified shall be true and correct except for such failures which, individually or in the aggregate have not had and would not reasonably be expected to have a Material Adverse Effect on EOG; (b) all the covenants in this Agreement to be complied with and performed by Enron on or before the Closing Date shall have been duly complied with and performed in all material respects; (c) a certificate to the foregoing effect dated the Closing Date and signed by an authorized executive officer of Enron shall have been delivered to EOG; (d) Steptoe & Johnson LLP shall have delivered to EOG its written opinion (which may be based upon certain representations of EOG and Enron) dated as of the Closing Date to the effect that the Share Exchange should constitute a distribution of the stock of a controlled corporation described in section 355 of the Code upon which no gain or loss is recognized to EOG and, if the EOG International Merger does not occur, no gain or loss is recognized to EOG International; and (e) at or prior to the Closing, each Resigning Director shall resign as a director of EOG, effective upon the Closing. ARTICLE 9. INDEMNIFICATION 9.1 By Enron. Subject to the terms and conditions of this Article 9, Enron hereby agrees to indemnify, defend and hold harmless EOG, its Affiliates and their respective directors, officers and employees (each a "EOG Party" and collectively, the "EOG Parties"), from and against the following (collectively, the "EOG Indemnified Liabilities"): all Claims and Losses asserted against, imposed upon, or incurred by any EOG Party, directly or indirectly, by reason of, arising out of, or resulting from (a) the inaccuracy or breach of any representation or warranty of Enron contained in this Agreement or (b) the breach of any covenant or agreement of Enron contained in this Agreement. 9.2 By EOG. Subject to the terms and conditions of this Article 9, EOG hereby agrees to indemnify, defend and hold harmless Enron, its Affiliates and their respective directors, officers and employees (each an "Enron Party" and collectively, the "Enron Parties"), from and against the following (collectively, the "Enron Indemnified Liabilities"): all Claims and Losses asserted against, 28 29 imposed upon or incurred by any Enron Party, directly or indirectly, by reason of, arising out of, or resulting from (a) the inaccuracy or breach of any representation or warranty of EOG contained in this Agreement, or (b) the breach of any covenant or agreement of EOG contained in this Agreement. 9.3 Express Negligence Rule. WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS ARTICLE 9, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND. 9.4 Exceptions to Indemnities. Notwithstanding anything to the contrary set forth in Section 9.1, EOG Indemnified Liabilities shall not include any and all Claims to the extent such Claims are attributable to a breach of any representation, warranty, covenant or agreement of EOG under this Agreement. Notwithstanding anything to the contrary set forth in Section 9.2, Enron Indemnified Liabilities shall not include any and all Claims to the extent such Claims are attributable to a breach of any representation, warranty, covenant or agreement of Enron under this Agreement. Notwithstanding any other provision of this Article 9, the provisions of this Article 9 (other than this sentence) shall not apply to any matters relating to indemnification for Taxes (including indemnification relating to Sections 3.10 and 4.9), which matters shall be governed exclusively by Article 10 and this sentence; provided that this Section 9.4 shall not limit Enron's obligations pursuant to Section 5.5. 9.5 Notice of Claim. (a) For purposes of this Article 9, the term "Indemnifying Party" when used in connection with a particular Claim or Loss shall mean the party having an obligation to indemnify another party with respect to such Claim or Loss pursuant to this Article 9, and the term "Indemnified Party" when used in connection with a particular Claim or Loss shall mean the party having the right to be indemnified with respect to such Claim or Loss by another party pursuant to this Article 9. (b) Promptly after any Indemnified Party becomes aware of facts giving rise to a Claim by it for indemnification pursuant to this Article 9, such Indemnified Party will provide notice thereof in writing to the Indemnifying Party (a "Claim Notice") specifying the nature and specific basis for such Claim and a copy of all papers served with respect to such Claim (if any). For purposes of this Section 9.5(b), receipt by a party of written notice of any demand, assertion, claim, action or proceeding (judicial, administrative or otherwise) by or from any Person other than a party to this Agreement which gives rise to a Claim on behalf of such party shall constitute the discovery of facts giving rise to a Claim by it and shall 29 30 require prompt notice of the receipt of such matter as provided in the first sentence of this Section 9.5(b). The failure by an Indemnified Party to notify an Indemnifying Party shall not be a defense to any indemnification obligation unless the Indemnifying Party is able to demonstrate that actual prejudice was suffered by the Indemnifying Party as a result of such failure to notify. Each Claim Notice shall set forth a reasonable description of the Claim as the Indemnified Party shall then have and shall contain a statement to the effect that the Indemnified Party giving the notice is making a claim pursuant to and formal demand for indemnification under this Article 9. The Claim Notice must set forth the particular provision in this Article 9 and any related provision in this Agreement pursuant to which such indemnification claim is made. 9.6 Third Party Claims. (a) If an Indemnified Party shall have any Third Party Claim asserted against such Indemnified Party, the Indemnified Party promptly shall transmit to the Indemnifying Party a Claim Notice relating to such Third Party Claim. Prior to the expiration of the 45-day period following the Indemnifying Party's receipt of such notice (the "Election Period"), the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party disputes its potential liability to the Indemnified Party under this Article 9 with respect to such Third Party Claim. (b) If an Indemnifying Party notifies an Indemnified Party within the Election Period that the Indemnifying Party does not dispute its potential liability to the Indemnified Party under this Article 9, the Indemnifying Party shall assume the defense of the Third Party Claim, at its sole cost and expense, and shall prosecute such defense diligently to a final conclusion or settle such Third Party Claim at the discretion of the Indemnifying Party in accordance with this Section 9.6(b). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel at the Indemnifying Party's expense in contesting any Third Party Claim that the Indemnifying Party elects to contest, including, without limitation, the making of any related counterclaim against the Person asserting the Third Party Claim or any cross-complaint against any Person. The Indemnified Party shall have the right to participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 9.6(b) and shall bear its own costs and expenses with respect to any such participation. 9.7 Subrogation. In the event that any Indemnified Party has a right against a Third Party with respect to any damages, losses, costs or expenses paid to or on behalf of such Indemnified Party by an Indemnifying Party, then such Indemnifying Party shall, to the extent of such payment, be subrogated to the right of such Indemnified Party. 30 31 9.8 Exclusive Remedies; Survival of Representations and Warranties. EOG and Enron (a) agree that only actual damages shall be recoverable under this Agreement and (b) hereby waive any right to recover special, punitive, consequential, incidental or exemplary damages except to the extent any such party suffers such damages to an unaffiliated Third Party in connection with a Third Party Claim, in which event such damages shall be recoverable. Notwithstanding anything to the contrary in this Agreement, the indemnification provisions of this Article 9 shall be (x) the exclusive remedies for a Party for any Claim based upon the breach of any representation or warranty of the other Party contained in this Agreement following Closing and (y) the exclusive monetary remedies for any Claim based upon the breach of any covenant of the other Party contained in this Agreement; provided, however, that indemnification related to Taxes, including indemnification relating to Sections 3.10 and 4.9, shall be governed exclusively by Article 10. No Claim of any nature can be brought by any EOG Party against Enron pursuant to Section 9.1(a) or any Enron Party against EOG pursuant to Section 9.2(a) unless written notice of such Claim has been given on or before the second anniversary of the Closing Date and otherwise in accordance with this Article 9 with respect to any other Claim. Indemnity obligations of any Indemnifying Party shall be reduced by any insurance proceeds realized by any Indemnified Party. ARTICLE 10. TAX MATTERS 10.1 Preparation and Filing of Tax Returns. (a) Unitary Tax Returns Filed by Enron. Enron shall file timely all returns and reports ("Tax Returns") with respect to a Unitary Tax ("Unitary Tax Returns") covering a Pre-Closing Period or a Straddle Period required to be filed by Enron and shall be responsible for the timely payment of all Taxes due with respect to the period covered by such Unitary Tax Returns. EOG shall provide to Enron all information in its or its Subsidiaries' possession needed by Enron to prepare and file such Unitary Tax Returns. (b) Tax Returns of Acquired Companies (other than Consolidated Income Tax Returns) for Pre-Closing Periods. With respect to each Tax Return covering a Pre-Closing Period that is required to be filed after the Closing Date (other than the Tax Returns described in Section 10.1(a) or 10.1(d)) for, by or with respect to any of the Acquired Companies, Enron shall cause such Tax Return to be prepared, shall cause to be included in such Tax Return all items of income, gain, loss, deduction and credit and other tax items ("Tax Items") required to be included therein, shall furnish a copy of such Tax Return to EOG as soon as practicable, shall file timely such Tax Return with the appropriate taxing authority, and shall be responsible for the timely payment of all Taxes due with respect to the period covered by such Tax Return. (c) Tax Returns of Acquired Companies (other than Consolidated Income Tax Returns) for Straddle Periods. With respect to any Tax Return of an Acquired Company 31 32 covering a taxable period beginning on or before the Closing Date and ending after the Closing Date that is required to be filed after the Closing Date, Enron shall cause such Tax Return to be prepared, shall cause to be included in such Tax Return all Tax Items required to be included therein, shall furnish a copy of such Tax Return to EOG as soon as practicable, shall file timely such Tax Return with the appropriate taxing authority, and shall be responsible for the timely payment of all Taxes due with respect to the period covered by such Tax Return. (d) Consolidated Income Tax Returns. With respect to each U.S. federal Income Tax Return, each Tax Return relating to consolidated or combined state Income Taxes, and each Unitary Tax Return covering a Pre-Closing Period or a Straddle Period that is required to be filed after the Closing Date for, by or with respect to the EOG Group, EOG shall cause such Tax Return to be prepared, shall cause to be included in such Tax Return all Tax Items required to be included therein, shall deliver a copy of such Tax Return to Enron as soon as practicable, and shall pay timely all Taxes required to be paid by or with respect to the EOG Group for the periods covered by such Tax Returns. (e) Income Tax Return Preparation. Except as specifically set forth in this Section 10.1, any Tax Return to be prepared pursuant to the provisions of this Section 10.1 shall be prepared in a manner consistent with practices followed in prior years with respect to similar Tax Returns, except for changes required by changes in Law. To the extent necessary, EOG shall grant to Enron or its designee and Enron shall grant to EOG or its designee appropriate powers of attorney to enable each to prepare and file Tax Returns as provided in this Section 10.1. (f) Treatment of Contributions and Share Exchange. Effective the day after the contribution of the shares of EOG China Cayco to EOG India Cayco pursuant to Section 2.1(d) hereof (but prior to the day of the Share Exchange) EOG shall cause EOG China Cayco to elect to be disregarded as an entity separate from its owner pursuant to Treas. Reg. ss. 301.7701-3. EOG and Enron shall treat the contribution described in Section 2.1(d) hereof as a transfer of the assets of EOG China Cayco to EOG India Cayco pursuant to a reorganization within the meaning of section 368(a)(1)(D) of the Code, shall cooperate with each other to preserve the tax-free nature of such transaction, and shall take no action or position inconsistent with the nature of the contribution described in Section 2.1(d) hereof as tax-free (taking into account section 367 of the Code) without the need for filing a gain recognition agreement. Enron and EOG shall treat, and shall take no action or position inconsistent with the treatment of, the Share Exchange as tax-free to Enron, EOG and (if the EOG International Merger does not occur) EOG International under section 355 of the Code, unless the Share Exchange is required to be treated differently pursuant to a determination (within the meaning of section 1313(a) of the Code). Enron and EOG shall treat, and shall take no position or action inconsistent with the treatment of, the transactions described in Section 2.1 of this Agreement as not creating Texas gross receipts for Texas franchise Tax purposes, unless such transactions are required to be treated differently pursuant to a 32 33 determination (within the meaning of section 1313(a) of the Code or comparable provision of Texas Tax Law). (g) Subpart F Income. In the event that Enron intends to file any Tax Return reflecting Taxes for which EOG would be responsible pursuant to Section 10.3(b)(ii), Enron will present Enron's good faith calculations of the relevant amount of Subpart F income and of the amount of Tax, computed as provided in Section 10.4(e), for which Enron believes EOG is responsible in connection with such Tax Return at least 45 days prior to the date such Tax Return is due, including extensions. EOG will provide EOG's good faith comments on such calculations no later than 15 days after receipt of such calculations from Enron. To the extent that Enron agrees with EOG's good faith comments, Enron will accept them and reflect them on such Tax Return as it is filed. To the extent that Enron disagrees with EOG's good faith comments, the Parties will attempt in good faith to resolve the dispute. In the event that they do not resolve the dispute, a neutral accountant mutually selected by Enron and EOG will resolve the dispute expeditiously prior to the date the Tax Return is due, including extensions. 10.2 Liquidation of Tax Sharing Agreements. (a) Except as provided in Section 10.2(b), all Tax sharing agreements or similar agreements or arrangements between Enron, on the one hand, and EOG or any members of the EOG Group on the other hand, whether written or unwritten and including specifically (i) the Tax Allocation Agreement, dated February 17, 1998, between Enron and EOG and certain EOG Subsidiaries (the "1998 Tax Sharing Agreement") and (ii) the First Amended and Restated Tax Allocation Agreement, dated August 9, 1991, between Enron and EOG and certain EOG Subsidiaries, shall be terminated as of the Closing Date upon payment by EOG to Enron of $13,355,313 (appropriately adjusted if the Closing Date is other than September 30, 1999), and thereafter no party to any such agreement shall have any liability to make any payment under any such agreement. (b) Notwithstanding Section 10.2(a), the provisions of Section 3.2 of the 1998 Tax Sharing Agreement, dealing with payments for utilization of consolidated minimum tax credits, and the provisions of Section 3.5 of the 1998 Tax Sharing Agreement, dealing with payments with respect to capital loss carrybacks, and the related provisions of the 1998 Tax Sharing Agreement to the extent necessary to implement Sections 3.2 and 3.5 thereof, shall survive the Closing and continue in force and effect. 10.3 Indemnification for Taxes. (a) Subject to the terms and conditions of Section 10.4, from and after the Closing Date Enron shall be liable for and shall indemnify and hold harmless EOG and its Subsidiaries (collectively, the "EOG Tax Indemnitees")from and against the following: 33 34 (i) Any Taxes of an Acquired Company or of any member of the Enron Group (other than EOG or any member of the EOG Group (other than an Acquired Company) which was also a member of the Enron Group) for any taxable period, except to the extent provided in Section 10.3(b); (ii) Any Taxes imposed on EOG or EOG International with respect to the Share Exchange to the extent resulting from a breach by Enron of any representation or warranty made pursuant to Section 3.10 of this Agreement or covenant made pursuant to Section 6.2 of this Agreement; (iii) Any Taxes imposed on EOG or EOG International with respect to the Share Exchange to the extent resulting from any of the following events: (1) within two years following the Closing Date the percentage ownership by Enron or any Acquired Company of the stock of an Acquired Company is decreased to less than 80% of its ownership percentage of such stock immediately after the Share Exchange, (2) within two years following the Closing Date any Acquired Company redeems or otherwise acquires more than 20 percent of its stock outstanding immediately after the Share Exchange, (3) within two years following the Closing Date any Acquired Company disposes of any of its assets other than in the ordinary course of business, or (4) within two years following the Closing Date Enron sells the Retained Shares to one Person (or a group of Persons composed of one Person and other Persons related to such Person within the meaning of section 267(b) or 707(b)(1) of the Code); and (iv) Any withholding Tax imposed by India with respect to interest paid or accrued by EOG India Cayco. (b) Subject to the terms and conditions of Section 10.4, from and after the Closing Date EOG shall be liable for and shall indemnify and hold harmless Enron, EOG India HoldCo and their respective Subsidiaries (collectively, the "Enron Tax Indemnitees") from and against the following: (i) Any Taxes of any member of the EOG Group (whether pursuant to Treas. Reg. Sections. 1.1502-6 or otherwise) other than any Acquired Company for any taxable period except to the extent provided in Section 10.3(a); (ii) Any Taxes imposed with respect to any Subpart F income (within the meaning of section 952 of the Code) of any of the Acquired Companies attributable (using an interim closing of the books approach) to the period January 1, 1999 through the Closing Date; (iii) Any Taxes imposed on Enron with respect to the Share Exchange to the extent resulting from a breach by EOG of any representation or warranty made pursuant to Section 4.9 of this Agreement; 34 35 (iv) Any Taxes imposed on Enron with respect to the Share Exchange if continuity of interest in EOG within the meaning of Treas. Reg. Sections. 1.355-2(c) is not maintained with respect to the Share Exchange unless the absence of such continuity of interest was not a contributing cause with respect to the imposition on Enron of any such Taxes; provided, however, that if EOG asserts that continuity of interest was maintained with respect to the Share Exchange and/or that any absence of continuity of interest was not a contributing cause with respect to the imposition of any such Taxes, EOG shall bear the burden of proof and be required to prove such matters by clear and convincing evidence; and (v) Any Texas franchise Taxes (measured by any of the contributions described in Section 2.1 of this Agreement) imposed on EOG India HoldCo to the extent resulting from a breach of the representation contained in Section 4.9(j) of this Agreement. 10.4 Indemnification Procedures. (a) If a claim is made by any taxing authority that, if successful, would result in the indemnification of a party (the "Tax Indemnified Party") under Section 10.3, the Tax Indemnified Party shall promptly give written notice of such fact to the party (the "Tax Indemnifying Party") obligated under Section 10.3 to indemnify the Tax Indemnified Party. (b) The Tax Indemnified Party shall take such action in connection with contesting such claim as the Tax Indemnifying Party shall reasonably request in writing from time to time, including the selection of counsel and experts and the execution of appropriate powers of attorney; provided that (i) within 30 days after the notice required by this section has been delivered (or such earlier date that any payment of Taxes is due by the Tax Indemnified Party but in no event sooner than 10 days after the Tax Indemnifying Party's receipt of such notice), the Tax Indemnifying Party requests that such claim be contested, (ii) the Tax Indemnifying Party shall have agreed to pay to the Tax Indemnified Party on a monthly basis all costs and expenses that the Tax Indemnified Party reasonably incurs in connection with contesting such claim, including reasonable attorneys' and accountants' fees and disbursements, and (iii) if the Tax Indemnified Party is requested by the Tax Indemnifying Party to pay the Tax claimed and sue for a refund, the Tax Indemnifying Party shall have advanced to the Tax Indemnified Party, on an interest-free basis, the amount of such claim. The Tax Indemnified Party shall not make any payment of any such claim for at least 30 days (or such shorter period as may be required by applicable Law) after the giving of the notice required by this subsection, shall give to the Tax Indemnifying Party any information reasonably requested relating to such claim, and otherwise shall cooperate with the Tax Indemnifying Party in order to contest effectively any such claim. The Tax Indemnifying Party shall determine the method of any contest of such claim and shall control the conduct thereof. (c) Subject to the provisions of Section 10.4(b), the Tax Indemnified Party shall enter into a settlement of such contest with the applicable taxing authority or prosecute such 35 36 contest to a determination in a court of initial or appellate jurisdiction, all as the Tax Indemnifying Party may request. (d) Promptly after the extent of the liability of the Tax Indemnified Party with respect to a claim shall be established by the final judgment or decree of a court or a final and binding settlement with a governmental authority having jurisdiction thereof, the Tax Indemnifying Party shall pay to the Tax Indemnified Party the amount of any Taxes (computed as provided in Section 10.4(e) with respect to U.S. state and federal Income Taxes) and costs and expenses to which the Tax Indemnified Party may become entitled by reason of the provisions of Section 10.3 and this Section 10.4, less any amount advanced to the Tax Indemnified Party pursuant to Section 10.4(b). Any such payment shall be treated as described in Section 10.5(c). (e) The amount of U.S. state and federal income Taxes to which the Tax Indemnified Party shall be entitled pursuant to Section 10.3 (other than Section 10.3(b)(v)) and this Section 10.4 shall be computed as follows: (i) Determine the amount of income or gain included in the Tax Indemnified Party's gross income for U.S. federal income tax purposes with respect to the Taxes for which the Tax Indemnified Party is indemnified; (ii) Multiply the amount determined in clause (i) above by the percentage which is two percentage points higher than the highest rate of tax applicable to corporations under section 11 of the Code for the taxable year to which the indemnified Taxes relate; (iii) If and to the extent that any amount of the payment by the Tax Indemnifying Party to the Tax Indemnified Party of indemnified Taxes is subject (without regard to the Tax Indemnified Party's other Tax Items) to Income Tax in the hands of the Tax Indemnified Party, multiply the amount determined in clause (ii) above by a fraction, the numerator of which is one and the denominator of which is one minus the percentage (expressed as a decimal) which is two percentage points higher than the highest rate of tax applicable to corporations under section 11 of the Code for the taxable year in which such payment is made or otherwise required to be reported; and (iv) Add to the amount determined in clause (iii) above interest at the rate and in the manner specified in section 6621(a)(2) of the Code from the due date of the Tax Return for the taxable year to which the indemnified Taxes relate to the date of payment of the indemnified Taxes by the Tax Indemnifying Party to the Tax Indemnified Party. 36 37 10.5 Tax Refunds. (a) Except as provided in Section 10.5(b), to the extent any determination of Taxes, whether as the result of an audit or examination, a claim for refund, the filing of an amended Tax Return, or otherwise, results in a refund of Taxes paid (all referred to as a "Refund"), EOG shall be entitled to any part of such Refund attributable to a Tax for which EOG has indemnified the Enron Tax Indemnitees pursuant to Section 10.3(b) of this Agreement, and Enron shall be entitled to any part of such Refund attributable to a Tax for which Enron has indemnified the EOG Tax Indemnitees pursuant to Section 10.3(a) of this Agreement. Whichever Party receives a Refund shall, within 10 days after receipt thereof, pay such Refund, or any part thereof, together with any interest received thereon, to the Party entitled thereto under this Section 10.5(a). (b) If, subsequent to any payment made between Parties pursuant to Section 10.5(a), the amount of any Refund is adjusted, a subsequent payment shall be made between the Parties to reflect the amount of such adjustment. (c) Any payment from Enron to EOG pursuant to this Agreement shall be treated for Tax purposes as a decrease in the amount contributed by EOG to EOG India HoldCo pursuant to Section 2.1 of this Agreement, and any payment from EOG to Enron pursuant to this Agreement shall be treated for Tax purposes as an increase in the amount contributed by EOG to EOG India HoldCo pursuant to Section 2.1 of this Agreement unless required to be treated differently pursuant to a determination (within the meaning of section 1313(a) of the Code). ARTICLE 11. TERMINATION 11.1 Termination. This Agreement may be terminated and the transactions contemplated hereby abandoned as follows: (a) by the mutual written consent of Enron and EOG at any time prior to the Closing; (b) by Enron or EOG if a final, non-appealable order to restrain, enjoin or otherwise prevent the consummation of the transactions contemplated hereby shall have been entered; (c) by Enron or EOG if the Closing shall not have occurred on or before the Termination Date; provided that, a Party shall not be entitled to terminate this Agreement pursuant to this Section 11.1(c) if the failure results primarily from the breach by such Party of any of its representations, warranties or covenants contained in this Agreement. 37 38 11.2 Effect of Termination. In the event that Closing does not occur as a result of any party exercising its right to terminate pursuant to Section 11.1, then this Agreement shall be null and void and no party shall have any rights or obligations under this Agreement, except that nothing herein and no termination pursuant hereto shall relieve any party from any liability for any breach hereof prior to such termination, or, with respect to those provisions that survive such termination, prior to or following such termination. ARTICLE 12. MISCELLANEOUS 12.1 Expenses. Except as otherwise expressly provided in the Business Opportunity Agreement and in the Registration Rights Agreement, each Party shall be solely responsible for all expenses, including due diligence expenses, incurred by it or its Subsidiaries in connection with the transactions contemplated by this Agreement, and no Party shall be entitled to any reimbursement for such expenses from any other Party. Notwithstanding the foregoing and in addition to any amounts that may be due under the preceding sentence, Enron shall reimburse EOG for $1.25 million of its expenses incurred in connection with the transactions contemplated by this Agreement, which reimbursement shall be, and shall be effected through, an adjustment to the Contributed Amount. 12.2 Waiver. Except as expressly provided in this Agreement, neither the failure nor any delay on the part of any Party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, or of any other right, power or remedy; nor shall any single or partial exercise of any right, power or remedy preclude any further or other exercise thereof, or the exercise of any other right, power or remedy. Except as expressly provided herein, no waiver of any of the provisions of this Agreement shall be valid unless it is in writing and signed by the Party against whom it is sought to be enforced and, in the case of any waiver of EOG prior to the Closing, has been approved by the Special Committee. 12.3 Publicity. The Parties shall consult with each other with regard to all publicity and other releases concerning the transactions contemplated by this Agreement and, except as required by applicable Law or the applicable rules or regulations of any Governmental Authority or stock exchange, no Party (including each Party's Subsidiaries) shall issue any such publicity or other release without the prior written consent of the other Party. 12.4 Assignment. Neither this Agreement nor any rights or obligations hereunder shall be assigned or transferred in any way whatsoever by the Parties hereto except with the prior written consent of the other Party hereto, which consent such other Party shall be under no obligation to grant, and any assignment or attempted assignment without such consent shall have no force or effect with respect to the non-assigning Party. Subject to the preceding sentence, this Agreement shall be binding on and inure to the benefit of the Parties hereto and their successors and permitted assigns. 38 39 12.5 Notices. Any and all notices or other communications required or permitted under this Agreement shall be given in writing and delivered in Person or sent by United States certified or registered mail, postage prepaid, return receipt requested, or by overnight express mail, or by telex, facsimile or telecopy to the address of such party set forth below. Any such notice shall be effective upon receipt or three days after placed in the mail, whichever is earlier. if to Enron: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: Kenneth L. Lay and James V. Derrick, Jr. Facsimile No.: (713) 853-9479 with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower Houston, Texas 77002 Attention: J. Mark Metts Facsimile No.: (713) 615-5605 if to EOG: Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Attention: Mark G. Papa and Barry Hunsaker Facsimile No.: (713) 646-2750 with copies to: Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010 Attention: Arthur H. Rogers Facsimile No.: (713) 651-5246 and Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Daniel A. Neff and David A. Katz Facsimile No.: (212) 403-2000 Any party may, by notice so delivered, change its address for notice purposes hereunder. 12.6 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, excluding any choice of Law rules that may direct the application of the Laws of another jurisdiction. 39 40 12.7 Further Assurances. After the Closing each Party hereto at the reasonable request of the other Party hereto and without additional consideration, shall execute and deliver, or shall cause to be executed and delivered, from time to time, such further certificates, agreements or instruments of conveyance and transfer, assumption, release and acquittance and shall take such other action as the other Party hereto may reasonably request, to consummate or implement the transactions contemplated by this Agreement. 12.8 Severability. If any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in full force and effect and this Agreement shall be construed in all respects as if such invalid, illegal or unenforceable provision were omitted. If any provision is inapplicable to any Person or circumstance, it shall, nevertheless, remain applicable to all other Persons and circumstances. 12.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and which together shall constitute but one and the same instrument. 12.10 Construction. Any section headings in this Agreement are for convenience of reference only, and shall be given no effect in the construction or interpretation of this Agreement or any provisions thereof. No provision of this Agreement will be interpreted in favor of, or against, any Party by reason of the extent to which any such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. 12.11 Entire Agreement; Amendment. This Agreement, the Schedules hereto, each of which is deemed to be a part hereof, and any agreements, instruments or documents executed and delivered by the Parties (or their Subsidiaries) pursuant to this Agreement, constitute the entire agreement and understanding between the Parties, and it is understood and agreed that all previous undertakings, negotiations and agreements between the Parties regarding the subject matter hereof are merged herein. This Agreement may not be modified orally, but only by an agreement in writing signed by each of the Parties; provided that any modification to this Agreement shall not be effective unless recommended to the Board of Directors of EOG by the Special Committee. 12.12 No Third Party Beneficiaries. Nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third party beneficiary contract; provided, however, that the indemnification provisions in Article 9 shall inure to the benefit of the Enron Parties and the EOG Parties as provided therein. 40 41 IN WITNESS WHEREOF, the Parties have duly executed and delivered this Agreement on the date first written above. ENRON CORP. By /s/ Jeffrey K. Skilling --------------------------------- Jeffrey K. Skilling President and Chief Operating Officer ENRON OIL & GAS COMPANY By /s/ Mark G. Papa --------------------------------- Mark G. Papa President and Chief Executive Officer 41 EX-5 3 OPINION OF BARRY HUNSAKER, JR. 1 EXHIBIT 5 July 22, 1998 Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Gentlemen: As Senior Vice President and General Counsel of Enron Oil & Gas Company, a Delaware corporation (the "Company"), I am familiar with the Registration Statement on Form S-3 (the "Registration Statement") currently being filed with the Securities and Exchange Commission relating to the proposed offering by the Company of up to 27,000,000 shares of common stock, par value $.01 per share, of the Company (the "Common Stock"), and the proposed offering by Enron Corp. of up to 15,550,000 shares of Common Stock (11,500,000 shares of which are deliverable only upon exchange at maturity of exchangeable notes of Enron Corp., which exchangeable notes are being separately registered pursuant to a registration statement on Form S-3 filed by Enron Corp.). In connection therewith, I have examined, among other things, a copy of the Restated Certificate of Incorporation and Bylaws of the Company as amended to the date hereof, the corporate proceedings taken to date with respect to the authorization, issuance and sale of the Common Stock, and I have performed such other investigations as I have considered appropriate as the basis for the opinions expressed herein. Capitalized terms used but not defined herein are used as defined in the Registration Statement. Based on the foregoing, I am of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. 2. The issuance of the shares of Common Stock to be issued by the Company pursuant to the Registration Statement has been duly authorized, and (subject to the Registration Statement becoming effective and applicable Blue Sky laws being complied with), when the terms of their issue and sale have been duly established, upon the issuance and delivery thereof as set forth in the Registration 2 Statement, and upon the receipt by the Company of the purchase price thereof, such shares of Common Stock will be validly issued, fully paid and nonassessable. 3. The shares of Common Stock of the Company to be sold by the Selling Stockholder pursuant to the Registration Statement are, and upon sale will be, validly issued, fully paid and nonassessable. I am a member of the bar of the State of Texas. The opinions set forth above are limited in all respects to the laws of the State of Texas, the General Corporation Law of the State of Delaware and federal law. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to me under the caption "Legal Experts" in the Prospectus constituting part of the Registration Statement and to the filing of this opinion as an exhibit thereto. By giving such consent, I do not admit that I am an expert with respect to any part of the Registration Statement, including this exhibit, within the meaning of the term "expert" as used in the Securities Act of 1933, as amended, or the rules and regulations of the Commission issued thereunder. Very truly yours, Barry Hunsaker, Jr. EX-23.A 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report on the consolidated financial statements of Enron Oil & Gas Company and subsidiaries dated March 5, 1999, included in Enron Oil & Gas Company's Form 10-K, as amended by Amendment No. 1 on Form 10-K/A, for the year ended December 31, 1998, and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Houston, Texas July 21, 1999 EX-23.B 5 CONSENT OF DEGOLYER AND MACNAUGHTON 1 EXHIBIT 23(b) July 21, 1999 Enron Oil & Gas Company 1400 Smith Street Houston, Texas 77002 Gentlemen: In connection with the Registration Statement on Form S-3 (the Registration Statement), to be filed with the Securities and Exchange Commission on or about July 22, 1999, by Enron Oil & Gas Company (the Company), DeGolyer and MacNaughton (the firm) hereby consents to the incorporation in said Registration Statement of the references to the firm and to the opinions delivered to the Company regarding the comparison of estimates prepared by the firm with those furnished to it 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. DeGolyer and MacNaughton also consents to the references to it in section "Experts" in the Prospectus that is a part of the Registration Statement. Very truly yours, DeGOLYER and MacNAUGHTON EX-24 6 POWERS OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Forrest E. Hoglund ----------------------------- Forrest E. Hoglund 2 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Fred C. Ackman ----------------------------- Fred C. Ackman 3 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ James V. Derrick ----------------------------- James V. Derrick 4 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Ken L. Harrison ----------------------------- Ken L. Harrison 5 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Kenneth L. Lay ----------------------------- Kenneth L. Lay 6 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Edward Randall, III ----------------------------- Edward Randall, III 7 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Jeffrey K. Skilling ----------------------------- Jeffrey K. Skilling 8 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Frank G. Wisner ----------------------------- Frank G. Wisner 9 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ Richard A. Causey ----------------------------- Richard A. Causey 10 POWER OF ATTORNEY Enron Oil & Gas Company KNOW ALL MEN BY THESE PRESENTS, that in connection with the proposed registration by Enron Oil & Gas Company, a Delaware corporation (the "Company"), of up to 42,550,000 shares of its Common Stock, $.01 par value (the "Common Stock"), inclusive of the underwriters' over-allotment option, plus such additional number of shares of Common Stock as may be permitted pursuant to Rule 462 of the Securities Act of 1933, as amended, in connection with the proposed sale of such Common Stock by the Company, the undersigned officer or director of the Company hereby constitutes and appoints Barry Hunsaker, Jr. Walter C. Wilson, and Angus H. Davis, and each of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file a registration statement on Form S-3 relating to such securities to be filed with the Securities and Exchange Commission, together with all amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises 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 July, 1999. /s/ John H. Duncan ----------------------------- John H. Duncan -----END PRIVACY-ENHANCED MESSAGE-----