-----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, VHvubPz0Rdql+lvafBXbIiiwb9tZrRGHTfBiuPNT9514cCiK/4v0NdwqSI6xkuTE Wwobk0S3mmDziJFybFGh/A== 0000833320-99-000014.txt : 19990809 0000833320-99-000014.hdr.sgml : 19990809 ACCESSION NUMBER: 0000833320-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON RESOURCES INC CENTRAL INDEX KEY: 0000833320 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 911413284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09971 FILM NUMBER: 99678916 BUSINESS ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136249500 MAIL ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: STE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 06/30/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-9971 BURLINGTON RESOURCES INC. (Exact name of registrant as specified in its charter) Delaware 91-1413284 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5051 Westheimer, Suite 1400, Houston, Texas 77056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (713) 624-9500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding Common Stock, par value $.01 per share, as of June 30, 1999 177,493,347 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SECOND QUARTER SIX MONTHS ------------- -------------- 1999 1998 1999 1998 ----- ----- ----- ----- (In Millions, Except per Share Amounts) Revenues ..................................... $ 376 $ 412 $ 725 $ 844 ----- ----- ----- ----- Costs and Expenses Production Taxes ............................ 24 24 41 48 Production and Processing ................... 89 96 183 189 Depreciation, Depletion and Amortization .... 125 132 254 260 Exploration Costs ........................... 41 62 89 116 Administrative .............................. 32 34 67 68 ----- ----- ----- ----- Total Costs and Expenses ..................... 311 348 634 681 ----- ----- ----- ----- Operating Income ............................. 65 64 91 163 Interest Expense ............................. 42 36 83 72 Other Expense (Income) - Net ................. 1 (2) -- (5) ----- ----- ----- ----- Income Before Income Taxes ................... 22 30 8 96 Income Tax Expense ........................... 7 7 3 25 ----- ----- ----- ----- Net Income ................................... $ 15 $ 23 $ 5 $ 71 ===== ===== ===== ===== Basic Earnings per Common Share .............. $ .08 $ .13 $ .03 $ .40 ===== ===== ===== ===== Diluted Earnings per Common Share ............ $ .08 $ .13 $ .03 $ .40 ===== ===== ===== =====
See accompanying Notes to Consolidated Financial Statements. 2 BURLINGTON RESOURCES INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31, 1999 1998 ------- ------- (In Millions, Except Share Data) ASSETS Current Assets Cash and Cash Equivalents ........................................ $ -- $ -- Accounts Receivable .............................................. 343 402 Inventories ...................................................... 34 33 Other Current Assets ............................................. 26 21 ------- ------- 403 456 ------- ------- Oil & Gas Properties (Successful Efforts Method) ................... 9,554 9,348 Other Properties ................................................... 854 828 ------- ------- 10,408 10,176 Accumulated Depreciation, Depletion and Amortization ............. 5,081 4,818 ------- ------- Properties - Net ............................................... 5,327 5,358 ------- ------- Other Assets ....................................................... 122 103 ------- ------- Total Assets ................................................. $ 5,852 $ 5,917 ======= ======= LIABILITIES Current Liabilities Accounts Payable ................................................. $ 302 $ 374 Taxes Payable .................................................... 49 53 Accrued Interest ................................................. 34 26 Dividends Payable ................................................ 24 24 Deferred Revenue ................................................. 16 17 Other Current Liabilities ........................................ 2 -- ------- ------- 427 494 ------- ------- Long-term Debt ..................................................... 1,988 1,938 ------- ------- Deferred Income Taxes .............................................. 200 199 ------- ------- Deferred Revenue ................................................... 32 40 ------- ------- Other Liabilities and Deferred Credits ............................. 217 217 ------- ------- Put Options on Common Stock ........................................ -- 11 ------- ------- Commitments and Contingent Liabilities STOCKHOLDERS' EQUITY Preferred Stock, Par Value $.01 Per Share (Authorized 75,000,000 Shares; No Shares Issued) ................ -- -- Common Stock, Par Value $.01 Per Share (Authorized 325,000,000 Shares; Issued 202,795,635 Shares) ...... 2 2 Paid-in Capital .................................................... 2,993 2,984 Retained Earnings .................................................. 995 1,039 ------- ------- 3,990 4,025 Cost of Treasury Stock (25,302,288 and 25,420,562 Shares for 1999 and 1998, respectively) 1,002 1,007 ------- ------- Stockholders' Equity ............................................... 2,988 3,018 ------- ------- Total Liabilities and Stockholders' Equity ................... $ 5,852 $ 5,917 ======= =======
See accompanying Notes to Consolidated Financial Statements. 3 BURLINGTON RESOURCES INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ---------------- 1999 1998 ----- ----- (In Millions) Cash Flows From Operating Activities Net Income .............................................. $ 5 $ 71 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities Depreciation, Depletion and Amortization .............. 262 267 Deferred Income Taxes ................................. 1 (11) Exploration Costs ..................................... 89 116 Working Capital Changes Accounts Receivable ................................... 59 48 Inventories ........................................... (1) (8) Other Current Assets .................................. (5) -- Accounts Payable ...................................... (72) (159) Taxes Payable ......................................... (4) 16 Accrued Interest ...................................... 8 (1) Other Current Liabilities ............................. 1 (1) Other ................................................... 15 37 ----- ----- Net Cash Provided By Operating Activities ............ 358 375 ----- ----- Cash Flows From Investing Activities Additions to Properties ............................... (312) (537) Short-term Investments ................................ -- 14 Other ................................................. (31) (35) ----- ----- Net Cash Used In Investing Activities .............. (343) (558) ----- ----- Cash Flows From Financing Activities Proceeds from Long-term Debt .......................... 450 92 Reduction in Long-term Debt ........................... (400) -- Dividends Paid ........................................ (49) (49) Common Stock Purchases ................................ (9) -- Other ................................................. (7) 11 ----- ----- Net Cash Provided By (Used In) Financing Activities (15) 54 ----- ----- Decrease in Cash and Cash Equivalents .................... -- (129) Cash and Cash Equivalents Beginning of Year ..................................... -- 152 ----- ----- End of Period ......................................... $ -- $ 23 ===== =====
See accompanying Notes to Consolidated Financial Statements. 4 BURLINGTON RESOURCES INC. Notes TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The 1998 Annual Report of Burlington Resources Inc. (the "Company") includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q ("Quarterly Report"). The financial statements for the periods presented herein are unaudited, condensed and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. In the opinion of management, all material adjustments necessary to present fairly the results of operations have been included. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year. The consolidated financial statements include certain reclassifications that were made to conform to current presentation. Basic earnings per common share ("EPS") is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding for computing basic EPS was 177 million for the second quarter and for the first six months of 1999 and 1998. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The weighted average number of common shares outstanding for computing diluted EPS, including dilutive stock options, was 178 million for the second quarter and for the first six months of 1999 and 1998. No adjustments were made to reported net income in the computation of EPS. EPS discussions within this document are in reference to basic EPS. 2. COMMITMENTS AND CONTINGENT LIABILITIES The Company is involved in several proceedings challenging the payment of royalties for its crude oil and natural gas production. On November 20, 1997, the Company and numerous other defendants entered into a settlement agreement in a lawsuit styled as The McMahon Foundation, et al. v. Amerada Hess Corporation, et al. This lawsuit is a proposed class action consisting of both working interest owners and royalty owners against numerous defendants, all of which are oil companies and/or purchasers of oil from oil companies, including Burlington Resources Oil & Gas Company, formerly known as Meridian Oil Inc. ("BROG") and The Louisiana Land and Exploration Company ("LL&E"). The plaintiffs allege that the defendants conspired to fix, depress, stabilize and maintain at artificially low levels the prices paid for oil by, among other things, setting their posted prices at arbitrary levels below competitive market prices. Cases involving similar allegations have been filed in federal courts in other states. On January 14, 1998, the United States Judicial Panel on Multidistrict Litigation issued an order consolidating these cases and transferring the McMahon case to the United States District Court for the Southern District of Texas in Corpus Christi (In Re Lease Oil Antitrust Litigation, MDL No. 1206). The Company and other defendants have entered into a Settlement Agreement which received preliminary approval by the Court on October 28, 1998. A hearing was held by the Court in April 1999 to receive evidence relating to the fairness and reasonableness of the settlement and a decision by the Court is pending. 5 The Company is also involved in several governmental proceedings relating to the payment of royalties. Various administrative proceedings are pending before the Minerals Management Service ("MMS") of the United States Department of the Interior with respect to the proper valuation of oil and gas produced on federal and Indian lands for purposes of paying royalties on production sold by BROG to its affiliate, Burlington Resources Trading Inc. ("BRTI"), or gathered by its affiliate, Burlington Resources Gathering Inc. In general, these proceedings stem from regular MMS audits of the Company's royalty payments over various periods of time and involve the interpretation of the relevant federal regulations. In late February 1998, the Company and numerous other oil and gas companies received a complaint filed in the United States District Court for the Eastern District of Texas in Lufkin in a lawsuit styled as United States of America ex rel J. Benjamin Johnson, Jr., et al v. Shell Oil Company, et al. alleging violations of the civil False Claims Act. The United States has intervened in this lawsuit as to some of the defendants, including the Company, and has filed a separate complaint. This suit alleges that the Company underpaid royalties for crude oil produced on federal and Indian lands through the use of below-market posted prices in the sale of oil from BROG to BRTI. The suit alleges that royalties paid by BROG based on these posted prices were lower than the royalties allegedly required to be paid under federal regulations, and that the forms filed by BROG with the MMS reporting the royalties paid were false, thereby violating the civil False Claims Act. The Company and others have also received document subpoenas and other inquiries from the Department of Justice relating to the payment of royalties to the federal government for natural gas production. These requests and inquiries have been made in the context of one or more other False Claims Act cases brought by individuals which remain under seal and are now being investigated by the Civil Division of the Department of Justice. The Company has responded and continues to respond to these requests and inquiries, but the Company does not know what action, if any, the Department of Justice will take with regard to these other cases. If the government chooses not to intervene and pursue these cases, the individuals who initially brought these cases are free to pursue them in return for a share, if any, of any final settlement or judgment. In addition, the Company has been advised that it is a target of a criminal investigation by the United States Attorney for the District of Wyoming into the alleged underpayment of oil and gas royalties. The Company has responded to numerous grand jury document subpoenas in connection with an investigation and is otherwise cooperating with the investigation. Management cannot predict when the investigation will be completed or its ultimate outcome. Based on the Company's present understanding of the various governmental proceedings relating to royalty payments, described in the preceding two paragraphs, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. However, in the event that the Company is found to have violated the civil False Claims Act or is indicted or convicted on criminal charges, the Company could be subjected to a variety of sanctions, including treble damages, substantial monetary fines, civil and/or criminal penalties and a temporary suspension from entering into future federal mineral leases and other federal contracts for a defined period of time. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material adverse effect on the consolidated financial position of the Company, although results of operations and cash flow could be significantly impacted in the reporting periods in which such matters are resolved. 6 In addition to the foregoing, the Company and its subsidiaries are named defendants in numerous other lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business. While the outcome of these other lawsuits and proceedings cannot be predicted with certainty, management believes these matters, other than the above-described proceedings, will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. 3. COMMODITY HEDGING ACTIVITIES The Company enters into gas swap agreements to fix the price of anticipated future natural gas production. As of June 30, 1999, the Company has the following volumes hedged. Total Hedged Average Production Volume Hedge/Strike Deferred Loss Period (MMBTU) Price (In Millions) ------------ ------------- -------------- -------------- 1999 49,810,000 $ 2.27 $ (3) 2000 156,950,000 2.33 (22) 2001 91,345,000 2.35 (12) 2002 2,530,000 $ 2.57 $ - The Company enters into call option agreements which when matched with gas swap agreements result in a synthetic put option, which allows the Company to participate in market price increases that exceed the floor price. As of June 30, 1999, the Company had approximately 27 million MMBTU of gas matched with swap agreements at $2.27. The deferred gain on these transactions is approximately $2 million. 4. SEGMENT AND GEOGRAPHIC INFORMATION The Company's reportable segments are North America and International. Both segments are engaged principally in the exploration, development, production and marketing of oil and gas. The North America segment is responsible for the Company's operations in the U.S. and Canada and the International segment is responsible for all operations outside that geographical region. There are no significant intersegment sales or transfers. The following tables present information about reported segment operations.
Second Quarter ---------------------------------------------------------------------------- 1999 1998 ------------------------------------- ----------------------------------- North North America International Total America International Total --------- --------------- ------- --------- --------------- ------- (In Millions) Revenues ........................... $340 $ 36 $376 $374 $ 38 $412 Operating income (loss) ............ 109 (10) 99 99 1 100 Additions to oil and gas properties $134 $ 33 $167 $258 $ 15 $273
7
Six Months ---------------------------------------------------------------------------- 1999 1998 ------------------------------------- ----------------------------------- North North America International Total America International Total (In Millions) Revenues .......................... $ 660 $ 65 $ 725 $ 759 $ 85 $ 844 Operating income (loss) ........... 196 (32) 164 235 2 237 Additions to oil and gas properties $ 197 $ 101 $ 298 $ 458 $ 57 $ 515
The following is a reconciliation of segment operating income to consolidated income (loss) before income taxes.
Second Quarter Six Months ---------------------------- --------------------------- 1999 1998 1999 1998 ------------ ------------ ----------- ----------- (In Millions) Total operating income for reportable segments $ 99 $ 100 $ 164 $ 237 Corporate expenses ........................... 34 36 73 74 Interest expense ............................. 42 36 83 72 Other expense (income) - net ................. 1 (2) -- (5) ------------ ------------ ----------- ----------- Consolidated income before income taxes ...... $ 22 $ 30 $ 8 $ 96 ============ ============ =========== ===========
The following is a reconciliation of segment additions to oil and gas properties to consolidated amounts.
Second Quarter Six Months -------------------- -------------------- 1999 1998 1999 1998 -------- ------- -------- -------- (In Millions) Total additions to oil and gas properties for reportable segments.. $ 167 $ 273 $ 298 $ 515 Administrative expenditures.............................................. 3 19 14 22 -------- ------- -------- -------- Consolidated additions to properties................................... $ 170 $ 292 $ 312 $ 537 ======== ======= ======== ========
8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity The total long-term debt to capital ratio at June 30, 1999 and December 31, 1998 was 40 percent and 39 percent, respectively. The Company's credit facilities are comprised of a $600 million revolving credit agreement that expires in February 2003 and a $400 million revolving credit agreement that expires in February 2000. The $400 million revolving credit agreement is renewable annually by mutual consent. As of June 30, 1999, there were no borrowings outstanding under the credit facilities. The Company also has the capacity to issue $1 billion of securities under a shelf registration statement filed with the Securities and Exchange Commission. At June 30, 1999, the Company's total outstanding debt included commercial paper borrowings of $91 million at an average interest rate of 6 percent and $150 million of 6 7/8 percent notes maturing in August 1999. Net cash provided by operating activities for the first six months of 1999 was $358 million compared to $375 million in 1998. The decrease was primarily due to lower operating income partially offset by higher working capital and other changes. The Company and its subsidiaries are named defendants in numerous lawsuits and named parties in numerous governmental and other proceedings arising in the ordinary course of business. While the outcome of lawsuits and other proceedings cannot be predicted with certainty, management believes these matters will not have a material adverse effect on the consolidated financial position of the Company, although results of operations and cash flows could be significantly impacted in the reporting periods in which such matters are resolved. The Company has certain other commitments and uncertainties related to its normal operations. Management believes that there are no other commitments, uncertainties or contingent liabilities that will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. Capital Expenditures Capital expenditures for the first six months of 1999 totaled $312 million compared to $537 million in 1998. Capital expenditures are currently projected to be approximately $750 million for all of 1999 and are expected to be primarily for the development and exploration of oil and gas properties and plant and pipeline expenditures. Capital expenditures will be funded from internal cash flows, supplemented, if needed, by external financing. Dividends On July 7, 1999, the Board of Directors declared a quarterly common stock dividend of $.1375 per share, payable October 1, 1999. 9 Results of Operations - Second Quarter 1999 Compared to Second Quarter 1998 The Company reported net income of $15 million or $.08 per share for the second quarter of 1999 compared to $23 million or $.13 per share in 1998. Operating income for the second quarter of 1999 was $65 million compared to $64 million in 1998. Revenues were $376 million for the second quarter of 1999 compared to $412 million for the second quarter of 1998. Natural gas sales prices decreased 1 percent to $1.92 per MCF and gas sales volumes decreased 10 percent to 1,502 MMCF per day which decreased revenues $1 million and $28 million, respectively. Average oil sales prices increased 14 percent to $15.33 per barrel and oil sales volumes decreased 17 percent to 69.9 MBbls per day which increased revenues $12 million and decreased revenues $18 million, respectively. Gas and oil sales volumes decreased primarily due to reduced capital spending on the Gulf of Mexico shelf coupled with steep production declines in the area. Costs and expenses were $311 million for the second quarter of 1999 compared to $348 in 1998. The decrease was primarily due to a $21 million decrease in exploration costs, a $7 million decrease in production and processing expenses, a $7 million decrease in depreciation, depletion and amortization and a $2 million decrease in administrative expenses. Interest expense was $42 million for the second quarter of 1999 compared to $36 million in 1998. The increase was due to the $450 million of fixed-rate debt issued in March 1999 and also higher outstanding commercial paper borrowings in 1999. Other expense (income) - net was an expense of $1 million for the second quarter of 1999 compared to income of $2 million in 1998, primarily due to lower interest income in 1999. The effective income tax rate was 32 percent for the second quarter of 1999 compared to 24 percent in 1998. The effective tax rate increased primarily as a result of lower nonconventional fuel tax credits. Results of Operations - Six Months 1999 Compared to Six Months 1998 The Company reported net income of $5 million or $.03 per share for the first six months of 1999 compared to $71 million or $.40 per share in 1998. Operating income for the first six months of 1999 was $91 million compared to $163 million in 1998. Revenues were $725 million for the first six months of 1999 compared to $844 million in 1998. Natural gas sales prices decreased 4 percent to $1.90 per MCF and gas sales volumes decreased 7 percent to 1,533 MMCF per day which decreased revenues $22 million and $43 million, respectively. Average oil sales prices decreased 10 percent to $12.88 per barrel and oil sales volumes decreased 15 percent to 72.2 MBbls per day which decreased revenues $19 million and $34 million, respectively. Gas and oil sales volumes decreased primarily due to reduced capital spending on the Gulf of Mexico shelf coupled with steep production declines in the area. Costs and expenses were $634 million for the first six months of 1999 compared to $681 million in 1998. The decrease was primarily due to a $27 million decrease in exploration costs, a $7 million decrease in production taxes, a $6 million decrease in production and processing, a $6 million decrease in depreciation, depletion and amortization and a $1 million decrease in administrative expenses. 10 Interest expense was $83 million for the first six months of 1999 compared to $72 million in 1998. The increase was due to the $450 million of fixed-rate debt issued in March 1999 and also higher outstanding commercial paper borrowings in 1999. Other expense (income) - net was an expense of $100 thousand for the second quarter of 1999 compared to income of $5 million in 1998, primarily due to lower interest income in 1999. The effective income tax rate was 34 percent and an expense of $3 million for the first six months of 1999 compared to 26 percent and an expense of $25 million in 1998. The decreased tax expense in 1999 is primarily a result of lower pretax income offset by lower benefits from nonconventional fuel tax credits. Other Matters Year 2000 Compliance The year 2000 issue is the result of computer systems and other equipment with embedded chips or processors using two digits instead of four to define a specific year and potentially being unable to process accurately certain data before, during or after the year 2000. This could result in system failures or miscalculations, causing disruptions to various activities and operations. The Company began a program during 1996 to assess computer software and hardware (hereafter referred to as information technology), which included an assessment of any year 2000 issues. Since 1996, significant portions of the Company's information technology have been replaced with information technology that is year 2000 compliant, and the Company has further developed a year 2000 readiness plan. The Company's year 2000 readiness plan involves four phases: assessment, remediation, testing and implementation. The Company has completed its assessment of all material systems that could be affected by the year 2000 issue. The assessment confirmed that information technology exposures were not material; however, assets used in producing, gathering and transporting hydrocarbons (hereafter referred to as operating equipment) were determined to be at risk of encountering year 2000 problems. The Company has completed the remediation, testing and implementation phases for all significant operating equipment. The Company's goal under its year 2000 readiness plan is to ensure that all critical operating equipment, systems and processes under its direct control remain operational. However, because certain operating equipment, systems and processes may be linked with systems outside of the Company's control, there can be no assurance that all implementations will be successful. The Company has no means of ensuring that its third-party vendors and suppliers will be year 2000 compliant. The Company has contacted all third-party vendors and suppliers of products and services that it considers material to its operations in order to ascertain their level of year 2000 readiness. All of the significant vendors and suppliers of the Company have responded that they believe the year 2000 issue will not have a material adverse impact on their ability to perform. However, if the Company's third party vendors and suppliers are unable to perform because of year 2000 problems, such failures could result in the inability to transport, deliver or market crude oil, natural gas or natural gas liquids. Crude oil gathering, transportation and marketing by the Company are widely dispersed across the United States, and it is unlikely that a year 2000 failure by any single gatherer, transporter, or purchaser of crude oil would significantly impact the Company. A significant portion of natural gas sales originate in the San Juan Basin. Natural gas is gathered in the San Juan Basin 11 through three primary gathering systems operated by an affiliate and two other companies. The gas is then sold through two primary pipelines. Approximately 70% of natural gas sales by all producers in the San Juan Basin and 35% of the Company's natural gas sales are transported to markets by a single pipeline system. The Company, in conjunction with other major producers in the San Juan Basin, has evaluated these entities' assessment, remediation, testing and implementation on their systems for year 2000 readiness. The Company and other major producers have had discussions with certain suppliers and vendors upon which these gathering and transportation systems rely to perform their services for the Company. The Company has also participated in the development of contingency plans to deal with unforeseeable year 2000 failures. If a failure does occur with respect to the gathering and transportation of natural gas in the San Juan Basin, the Company is continuing to develop contingency plans to address the reasonably foreseeable issues. These plans include manual back-up of computer controlled and embedded technology systems and identification of alternative vendors and suppliers. Although management believes it is unlikely, the most reasonable worst case scenario for the Company would be a complete or partial failure of one or more of the three gathering systems or the complete or partial failure of one of the transportation lines in the San Juan Basin. Such a failure could disrupt or delay a significant portion of the gas sales out of the San Juan Basin during the time of the failure and could be material to the Company. The Company has enhanced existing crisis management plans and year 2000 contingency plans to address potential operational disruptions throughout its production areas. The Company has substantially completed its year 2000 readiness project at a cost of approximately $3 million. The costs of the contingency plans are estimated to be $500,000. The Company's plan to complete the year 2000 modifications and its estimate of the worst case scenarios and contingency plans are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, the failure of embedded chip technology, the inability to control third parties and their year 2000 readiness programs, the failure of electric, communication or transportation infrastructure in the areas where the Company operates and other uncertainties. Presently, based on information available, the Company cannot conclude that any failure of the Company or third parties to achieve year 2000 compliance will not adversely affect the Company. Recent Accounting Pronouncements In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No. 137 during the first quarter of the year ended December 31, 2001. Forward-looking Statements This Quarterly Report contains projections and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These projections and statements reflect the Company's current views with respect to future events and financial performance. No assurances can be given, however, that these events will occur or that these projections will be achieved and actual results could differ materially from those projected as a result of certain factors. A discussion of these factors is included in the Company's 1998 Form 10-K. 12 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings See Note 2 of Notes to Consolidated Financial Statements. ITEM 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders was held on April 7, 1999. The following were nominated and elected to serve as Directors of Burlington Resources Inc. for a term of one year or until their successors shall have been duly elected and qualified: Nominee For Withheld J. V. Byrne 142,647,638 12,947,287 S. P. Gilbert 142,760,663 12,834,262 L. I. Grant 142,809,357 12,785,568 J. T. LaMacchia 142,781,577 12,813,348 J. F. McDonald 142,809,080 12,785,845 K. W. Orce 142,793,016 12,801,909 D. M. Roberts 142,790,572 12,804,353 J. F. Schwarz 142,734,606 12,860,319 W. Scott, Jr. 142,741,619 12,853,306 B. S. Shackouls 142,740,306 12,854,619 H. L. Steward 142,698,241 12,896,684 W. E. Wall 142,705,878 12,899,047 ITEM 6. Exhibits and Reports on Form 8-K A. Exhibits The following exhibits are filed as part of this report. Exhibit Nature of Exhibit Page 4.1 The Company and its subsidiaries either * have filed with the Securities and Exchange Commission or upon request will furnish a copy of any instrument with respect to long-term debt of the Company. 10.29 Employment contract between the 15 Company and Bobby S. Shackouls 27.1 Financial Data Schedule ** * Exhibit incorporated by reference. ** Exhibit required only for filings made electronically using the Securities and Exchange Commission's EDGAR System. B. Reports on Form 8-K The Company filed no reports on Form 8-K during the second quarter of 1999. Items 2, 3 and 5 of Part II are not applicable and have been omitted. 13 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BURLINGTON RESOURCES INC. (Registrant) By /s/ John E. Hagale -------------------- John E. Hagale Executive Vice President and Chief Financial Officer By /s/ Philip W. Cook -------------------- Philip W. Cook Vice President, Controller and Chief Accounting Officer Date: August 5, 1999 14 EXHIBIT 10.29 July 7, 1999 Mr. Bobby S. Shackouls 5051 Westheimer, Suite 1400 Houston, Texas 77056 Dear Bobby, Your employment agreement with Burlington Resources Inc. (the "Company") is dated December 5, 1995 and was previously amended on July 9, 1997. The Board of Directors of the Company (the "Board") has deemed it advisable and in the best interests of the Company and its stockholders to amend and restate the 1995 agreement with respect to the matters addressed herein. Accordingly, this letter (the "Agreement"), when accepted by you in the space provided below, will amend and restate the 1995 agreement (as amended) in its entirety. In consideration of the mutual promises and agreements set forth herein, you and the Company agree as follows: 1. Position. The Company agrees to employ you and you agree to act as its Chairman of the Board, President and Chief Executive Officer. During the Term (as defined below) of this Agreement, you agree to devote substantially all of your business efforts on a full time basis to the business, affairs and interests of the Company and its subsidiaries. 2. Term. The term of this Agreement (the "Term") shall commence on July 7, 1999 and shall be for three years, subject to earlier termination in accordance with the provisions of Section 4 below. If the Agreement has not already been terminated in accordance with the provisions of Section 4 below, beginning on August 1, 1999 and on the first day of each month thereafter, the Term shall automatically be extended for an additional month (so as to establish a three year remaining term) unless either party has given notice in writing that it does not wish to extend the Term. Notwithstanding the foregoing, this Agreement shall end automatically and without additional notice on the date of the Company's Annual Meeting of Stockholders that next follows the date of your 60th birthday. 3. Compensation and Benefits. 3.1 Base Salary. Your minimum salary will be $825,000 per annum or such higher rate as may be fixed from time to time by the Board. 15 3.2 Incentive Compensation and Other Benefits. You will participate with other senior executives of the Company in compensation and benefit plans in effect from time to time, including the Incentive Compensation Plan, the Stock Incentive Plan, the Performance Share Unit Plan, the Deferred Compensation Plan, the Supplemental Benefits Plan, the Senior Executive Survivor Benefit Plan, the Key Executive Severance Protection Plan and any other plan or perquisites available to other senior executives of the Company, including a company automobile and company-provided country and luncheon club memberships. You will also participate in health, retirement, survivor and disability plans available to all employees of the Company. You understand that the Company may amend, modify or terminate these plans at any time. 3.3 Deferred Compensation Benefit. In consideration of the accrued unvested compensation and benefits that you forfeited in terminating employment with a former employer, the Company established a deferred compensation memorandum account under the Supplemental Benefits Plan. This account was credited with $350,000 as of June 1, 1993. This arrangement is an unfunded deferred compensation arrangement that will be paid to you in a lump sum upon termination of your employment with the Company. 3.4 Supplemental Pension Benefit. You are a participant under the Company's qualified Pension Plan and non-qualified Supplemental Benefits Plan. If you are still employed by the Company on your 55th birthday, you (or, in the event your employment terminates by reason of your death, your surviving spouse) will receive upon termination of your employment with the Company a supplemental pension benefit equal to the difference between the benefit calculated using your actual service and the benefit calculated assuming you started employment at age 30. If, before your 55th birthday, your employment is terminated by the Company without Cause, by you for Good Reason, or by reason of your death, you (or, in the event your employment terminates by reason of your death, your surviving spouse) will receive the supplemental pension benefit at termination (calculated based on service from age 30 to the date of termination of your employment) equal to the supplemental benefit described above that would have been payable at age 55 (including, without limitation, the early retirement provisions) but actuarially reduced to reflect the payment of this benefit at or commencing at the time of such termination. This supplemental pension benefit will be calculated using the provisions of the qualified Pension Plan and the non-qualified Supplemental Benefits Plan in effect at the time of the termination of your employment. This benefit is a non-qualified, unfunded deferred compensation arrangement. For purposes of this Agreement, the terms "Cause" and "Good Reason" are defined in the Company's Key Executive Severance Protection Plan. 4. Termination of Employment. 4.1 Right to Terminate Employment. You and the Company agree and acknowledge that, at any time during the Term of this Agreement, either you or the Company may terminate this Agreement and your employment with the Company on the terms and subject to the conditions set forth in this Agreement. 4.2 Involuntary Termination. An "Involuntary Termination" of your employment will be deemed to have occurred for purposes of this Agreement if, during the Term of this Agreement, your employment is terminated either (i) by the Company for any reason, other than as a result of your death, permanent disability, for Cause, or for a material breach by you of your obligations under this Agreement or (ii) is initiated by you for Good Reason. Subject to Section 5 below, in the event of such an Involuntary Termination, the Company will: 16 (a) pay you within 10 days after the date of termination an amount equal to three (3) times the sum of (i) your Base Salary at the time of such termination and (ii) your "target" bonus opportunity under the Incentive Compensation Plan (your "target" bonus opportunity currently is 50% of your base salary); (b) provide you and your eligible dependents with health, life insurance and long-term disability coverage for three (3) years following such Involuntary Termination at benefit levels and at a net cost to you comparable to that provided to you immediately prior to your Involuntary Termination; and (c) provide (i) for the full and immediate vesting of any stock options and restricted stock, (ii) that all outstanding stock options will be exercisable until the earlier to occur of three (3) years following such Involuntary Termination or the original expiration date of such stock options, and (iii) for the full and immediate vesting of that portion of any performance share units that were eligible to have been vested with respect to the Company's performance for the year in which such Involuntary Termination occurred (without regard to any units that did not vest during prior years and have been carried over to the end of the performance cycle), with payment for such performance share units to occur in accordance with the terms of such plan as in effect at the time of such Involuntary Termination. 4.3 Other Termination. If, during the Term of this Agreement, (a) the Company terminates your employment for Cause or for a material breach by you of your obligations under this Agreement, (b) you voluntarily resign or retire from the Company, other than for Good Reason or (c) your employment with the Company is terminated due to your death or permanent disability, you will not be entitled to any of the termination benefits provided for in Section 4.2 above, and the Term of this Agreement shall end immediately and without further notice. 5. Coordination With Other Plans. If your termination entitles you to severance benefits under Section 4.2 of the Key Executive Severance Protection Plan (the "Severance Plan"), you will receive those benefits instead of the benefits under Section 4.2 of this Agreement. You may, however, elect to receive the benefits payable under Section 4.2 of this Agreement instead of the benefits under Section 4.2 of the Severance Plan. If you elect to receive the benefits under this Agreement, you will nevertheless be eligible to receive the additional benefits related to the gross-up payment for excise taxes under Article 6 of the Severance Plan. If you elect to receive the benefits under the Severance Plan, you will nevertheless be eligible to receive the additional deferred compensation and supplemental pension benefits described in Sections 3.3 and 3.4, respectively, of this Agreement, in each case on the terms and subject to the conditions set forth therein. 6. Non-Disclosure. You agree that all reports, maps, data, interpretations, strategies, plans and other data and information furnished to you or obtained or developed by you while employed by the Company are and shall remain confidential. Except as otherwise required by law, you agree that you will not divulge, communicate or otherwise disclose such reports, maps, data, interpretations, plans and other data and information furnished to you or obtained or developed by you while employed by the Company to any person, firm, corporation, governmental agency or other legal entity without the prior express written permission of the Company; provided, however, that this restriction shall not apply to any information which you can show: (a) was in your possession prior to your employment by the Company; or (b) is, or lawfully becomes, part of the public domain; or (c) otherwise lawfully becomes available to you from a source independent of the Company. 17 You agree that, for a period of two years from the date on which your employment with the Company terminates, you will not make any oral or written statements or reveal any information to any person, company or agency which may be construed to be disparaging or damaging to the name, reputation or business, or which would interfere in any way with the business relations, of the Company or any of its subsidiaries, or any of their affiliates, directors or officers and, except to the extent required by law, will not discuss the operations, plans, strategies, business relationships or agreements of the Company, or any of its subsidiaries or affiliates, with any third party (other than your immediate family members or advisors from whom legal or financial advice is sought). 7. Non-Competition. In order to enforce your obligations under Section 6 and in consideration for the benefits of employment described in this Agreement, you agree to the covenant not to compete in this Section 7. You agree and acknowledge that this covenant not to compete is ancillary to your commitment as set forth in Section 6 to refrain from disclosing such confidential information. If you initiate the termination of your employment with the Company other than for Good Reason during the term of this Agreement, you agree that you will not for a period of two years after your termination be employed by, consult with, provide advice or information to, otherwise perform services for, own, manage, operate, join, control or participate in the ownership of more than 5% of the voting power of equity securities of, management, operation or control of any Competitor (as defined in this Agreement) unless released by the Company from such obligation in writing with respect to a specific situation. A Competitor is defined as any entity (i) that is engaged in exploring for and producing oil and natural gas in Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas, federal or state waters in the Gulf of Mexico, the North Sea or East Irish Sea of the United Kingdom, Algeria, or any other state or country (including, without limitation, its territorial waters) in which the Company has or, during the term of this Agreement, develops or obtains significant exploration or production assets (a "New Business Region"), or in the oil and gas marketing business in the mainland United States, the United Kingdom, Algeria or in any such New Business Region and (ii) whose assets associated with such oil and gas business exceed $500 million. 8. Non-Interference. During the Term of this Agreement and for a period of two years after the termination of your employment with the Company, you agree not to solicit, directly or indirectly, any officer or employee of the Company to leave and work for any other employer. During this same period, you agree not to suggest to others that they approach or solicit any officers or employees of the Company with respect to potential employment elsewhere. 9. Miscellaneous Provisions. 9.1 Entire Agreement. All terms and conditions of this Agreement are set forth herein and there are no warranties, agreements or understandings, express or implied, except those expressly set forth in this Agreement. 9.2 Modification and Amendment. Any modification to this Agreement shall be binding only if evidenced in writing signed by you and the Company. 9.3 Governing Law. This Agreement is made pursuant to, and shall be governed by, the laws of the State of Texas in all respects (without giving effect to principles of conflict of laws), including, without limitation, matters of construction, validity and performance. 18 9.4 Severability. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable, the parties hereby agree and consent that such provision will be reformed to make it a valid and enforceable provision to the maximum extent permitted by law. Any provision hereof not capable of such reformation and determined to be prohibited by or unenforceable under applicable law of any jurisdiction will as to such jurisdiction be deemed ineffective and deleted from this Agreement without affecting any other provision of this Agreement. 9.5 Enforcement. In the event of a breach by you of any of the provisions of Sections 6, 7 or 8, you understand and agree that the Company may, in addition to any other rights or remedies existing in its favor, apply to any court of law or equity of competent jurisdiction for specific performance and injunctive or other relief in order to enforce or prevent any violations of such provisions. 9.6 No Duty to Mitigate. You shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to you under any provision of this Agreement. 9.7 Right to Amend Plans. You understand and acknowledge that (a) the Company may, at any time, amend, modify or terminate any of the compensation or benefit plans referred to in this Agreement and (b) your compensation and benefit levels, incentive award opportunities and performance objectives, and other matters pertaining to the administration of the Company's compensation and benefit plans are subject to review and approval by the Compensation and Nominating Committee of the Board of Directors. 9.8 Affiliates. You understand and agree that this Agreement is being executed by the Company on behalf of itself and each of its affiliates, and that all rights of the Company under this Agreement and all of your obligations and duties under this Agreement will inure to the benefit of and may be enforced by the Company or any of its affiliates. 9.9 Dispute Resolution and Legal Expenses. (a) If any dispute or controversy arises under or in connection with this Agreement, including without limitation any claim under any Federal, state or local law, rule, decision or order relating to employment or the fact or manner of its termination, you and the Company hereby agree to attempt to resolve such dispute or controversy through good faith negotiations. (b) If you and the Company fail to resolve any such dispute or controversy within 90 days, you and the Company agree to settle such dispute or controversy by arbitration, conducted before a panel of three arbitrators in Houston, Texas in accordance with the applicable rules and procedures of the American Arbitration Association then in effect. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. Such arbitration will be final and binding on the parties. If you substantially prevail on the substantive matters at issue in such arbitration, the Company will reimburse you for your costs of any arbitration, including without limitation your reasonable attorneys' fees. 19 (c) Pending the resolution of any dispute, the Company will continue payment of all amounts due to you under this Agreement and all benefits to which you are entitled other than those specifically at issue. 9.10 Prior Agreements. This Agreement supersedes and replaces in its entirety the letter agreement dated December 5, 1995, as amended by that letter agreement dated July 7, 1997, by and between you and the Company. If the above correctly set forth our agreement, please sign the original and return it to me. Please retain a copy for your records. Very truly yours, BURLINGTON RESOURCES INC. By /s/ Walter Scott, Jr. Walter Scott, Jr. Its Chairman, Compensation and Nominating Committee ACCEPTED and AGREED TO this seventh day of July, 1999 /s/ Bobby S. Shacklouls Bobby S. Shackouls 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BURLINGTON RESOURCES INC. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1999 JUN-30-1999 0 0 343 0 34 403 10,408 5,081 5,852 427 0 2 0 0 2,986 5,852 725 725 634 634 0 0 83 8 3 5 0 0 0 5 0.03 0.03
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