-----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, LeHUH5qUgK01CMaQ6GBnlUlblBVgMH00H2gPo3zIhFrn1Z21VyezzxJ8Q9aMJkf6 wGxMQwoJdanzAqDtIgfK5w== 0000950134-98-008417.txt : 19981104 0000950134-98-008417.hdr.sgml : 19981104 ACCESSION NUMBER: 0000950134-98-008417 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORYX ENERGY CO CENTRAL INDEX KEY: 0000836442 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 231743284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10053 FILM NUMBER: 98736864 BUSINESS ADDRESS: STREET 1: 13155 NOEL RD CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147154000 MAIL ADDRESS: STREET 1: 13155 NOEL ROAD CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SUN EXPLORATION & PRODUCTION CO DATE OF NAME CHANGE: 19890503 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 1 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 SEPTEMBER 30, 1998 ------------------------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ---------------- ------------------ ---------------------------------------------- Commission file number 1-10053 ------- ORYX ENERGY COMPANY ------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-1743284 -------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 13155 NOEL ROAD, DALLAS, TEXAS 75240-5067 -------------------------------------------------------------- (Address of principal executive offices) (Zip code) (972) 715-4000 -------------------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------- 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 --- --- -------------------------------- The number of shares of common stock, $1 par value, outstanding on October 14, 1998 was 106,233,579. 2 ORYX ENERGY COMPANY FORWARD-LOOKING STATEMENTS In the following report, the Company has included certain statements (other than statements of historical fact) that constitute 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. When used herein, the words "budget", "budgeted", "anticipate", "expects", "believes", "seeks", "goals", "intends" or "projects" and similar expressions are intended to identify forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected by such forward-looking statements. Although the Company believes the expectations reflected in such forward-looking statements are reasonable and such forward-looking statements are based upon the best data available at the time this report is filed with the Securities and Exchange Commission, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include, but are not limited to, the following: production variances from expectations, volatility of oil and gas prices, the need to develop and replace its reserves, the substantial capital expenditures required to fund its operations, exploration uses, environmental risks, uncertainties about estimates of reserves, competition, government regulation and political actions and the ability of the Company to implement its business strategy. All such forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph. 2 3 ORYX ENERGY COMPANY -------------------------------- INDEX
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998 and 1997..................................................... 4 Condensed Consolidated Balance Sheets at September 30, 1998 and December 31, 1997............................................................................ 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997..................................................... 6 Notes to Condensed Consolidated Financial Statements............................ 7 Report of Independent Accountants............................................... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................................ 18 SIGNATURE ................................................................................ 19
3 4 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORYX ENERGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------- For the Three Months For the Nine Months (Millions of Dollars, Ended September 30 Ended September 30 ------------------------ ------------------------ Except per Share Amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) REVENUES Oil and gas $ 195 $ 294 $ 614 $ 912 Other (1) (7) 16 (16) ---------- ---------- ---------- ---------- 194 287 630 896 ---------- ---------- ---------- ---------- COSTS AND EXPENSES Operating costs 58 60 167 196 Production taxes 19 41 42 121 Exploration costs 26 18 95 49 Depreciation, depletion and amortization 83 78 225 231 General and administrative expense 13 14 40 44 Interest and debt expense 30 28 86 83 Interest capitalized (4) (4) (15) (12) Provision for restructuring (Note 2) 25 -- 25 -- ---------- ---------- ---------- ---------- 250 235 665 712 ---------- ---------- ---------- ---------- Income (Loss) Before Provision (Benefit) for Income Taxes (56) 52 (35) 184 Provision (Benefit) for Income Taxes (Note 3) (15) 12 (13) 57 Remeasurement of Foreign Deferred Tax (Note 3) 2 (2) 2 (4) ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (43) $ 42 $ (24) $ 131 ========== ========== ========== ========== Basic and Diluted Net Income (Loss) Per Share of Common Stock (Note 4) $ (.40) $ .40 $ (.23) $ 1.24 ========== ========== ========== ========== Weighted Average Number of Common Shares Outstanding (in millions) 106.2 105.5 106.2 105.5 ========== ========== ========== ==========
(See Accompanying Notes) 4 5 ORYX ENERGY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------- September 30 December 31 (Millions of Dollars) 1998 1997 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 7 $ 10 Accounts receivable and other current assets 170 228 ---------- ---------- Total Current Assets 177 238 Properties, Plants and Equipment (net) (Note 5) 1,975 1,811 Deferred Charges and Other Assets 58 59 ---------- ---------- Total Assets $ 2,210 $ 2,108 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 117 $ 121 Accrued liabilities 210 257 Current portion of long-term debt 119 4 ---------- ---------- Total Current Liabilities 446 382 Long-Term Debt 1,259 1,184 Deferred Income Taxes 231 235 Deferred Credits and Other Liabilities 132 150 Shareholders' Equity (Note 6) Common stock, par value $1 per share 124 124 Additional paid-in capital 1,821 1,821 Accumulated deficit (772) (740) ---------- ---------- 1,173 1,205 Less: Common stock in treasury, at cost (939) (952) Loan to ESOP (92) (96) ---------- ---------- Shareholders' Equity 142 157 ---------- ---------- Total Liabilities and Shareholders' Equity $ 2,210 $ 2,108 ========== ==========
- ----------------- The successful efforts method of accounting is followed. (See Accompanying Notes) 5 6 ORYX ENERGY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------- For the Nine Months Ended September 30 ------------------ (Millions of Dollars) 1998 1997 - ------------------------------------------------------------------------------------------------------------------- (Unaudited) CASH AND CASH EQUIVALENTS FROM OPERATING ACTIVITIES Net income (loss) $ (24) $ 131 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation, depletion and amortization 225 231 Dry hole costs and leasehold impairment 50 18 Loss (gain) on sale of assets, net of taxes (13) 3 Deferred income taxes (11) 21 Provision for restructuring, net of taxes 16 - Remeasurement of foreign deferred tax 2 (4) Other 7 6 -------- -------- 252 406 Changes in working capital: Accounts receivable and other current assets 58 (2) Accounts payable and accrued liabilities (73) 55 -------- -------- Net Cash Flow Provided From Operating Activities 237 459 -------- -------- INVESTING ACTIVITIES Capital expenditures (436) (410) Proceeds from divestments, net of current taxes 15 1 Other (12) (52) -------- -------- Net Cash Flow Used For Investing Activities (433) (461) -------- -------- FINANCING ACTIVITIES Proceeds from borrowings 233 75 Repayments of long-term debt (43) (78) Proceeds from sale of treasury stock 3 9 -------- -------- Net Cash Flow Provided From Financing Activities 193 6 -------- -------- CHANGES IN CASH AND CASH EQUIVALENTS (3) 4 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10 9 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7 $ 13 ======== ========
(See Accompanying Notes) 6 7 ORYX ENERGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying condensed consolidated financial statements and related notes of Oryx Energy Company and its subsidiaries (hereinafter, unless the context otherwise requires, being referred to as the Company) are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by generally accepted accounting principles or those normally made in annual reports on Form 10-K. In management's opinion, all adjustments necessary for a fair presentation of the results of operations for the periods shown have been made and are of a normal recurring nature. The results of operations of the Company for the nine months ended September 30, 1998 are not necessarily indicative of the results for the full year 1998. Certain items in the period ended September 30, 1997 have been reclassified to conform to the 1998 presentation. In December 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," effective January 1, 1997. As a result, earnings per share for the three and nine months ended September 30, 1997 have been restated to conform to the provisions of this statement. In addition, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," effective January 1, 1998. Total comprehensive income and net income are identical for the three and nine months ended September 30, 1998. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value and net gains and losses on derivative instruments be recognized initially in comprehensive income. The Company has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or statement of financial position. Statements of Cash Flows Amounts paid for interest and income taxes were as follows:
Nine Months Ended September 30 1998 1997 --------- -------- (Millions of Dollars) Interest paid (net of capitalized amounts) $ 57 $ 77 Income taxes paid $ 2 $ 42
7 8 ORYX ENERGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Provision for Restructuring On July 28, 1998, in response to the current low oil price environment, the Company announced its intention to reduce payroll related expenses primarily in the U.S. onshore and staff groups. In the third quarter of 1998, the Company recognized a $25 million ($16 million after-tax) restructuring charge for employee terminations. During the third quarter of 1998, $16 million of actuarial related costs were incurred. Accordingly, at September 30, 1998, $9 million of this provision remains and is comprised of severance pay and associated employee benefit costs. Management expects to complete such payments in 1999. In the fourth quarter of 1995, the Company recognized a net $25 million ($16 million after-tax) charge for restructuring comprised of a $4 million adjustment to the 1994 restructuring provision and a $29 million restructuring provision for a plan to achieve further cost reductions. The costs of the 1995 restructuring were complete at December 31, 1996 except for costs associated with an office lease obligation, which expires in 2001 and existed prior to the commitment date, that has no economic benefit to the Company. During the nine months ended September 30, 1998, $2 million of costs associated with this lease were incurred, and at September 30, 1998, $8 million of this provision remains. 3. Income Taxes The Company's provisions for income taxes for the three and nine months ended September 30, 1998 reflect benefits of $15 million and $13 million. The Company's provisions for income taxes for the three and nine months ended September 30, 1997 reflect provisions of $12 million and $57 million. Foreign income tax provisions included within the Company's consolidated provisions are determined based upon the appropriate foreign statutory rates which differ from the U.S. statutory rate. Deferred income taxes are provided to reflect the tax consequences in future periods of differences between financial statements and tax basis of assets and liabilities at period end in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The remeasurement provisions of SFAS No. 109 have affected the reported earnings of the Company. Earnings for the three and nine months ended September 30, 1998 decreased $2 million while reported earnings for the three and nine months ended September 30, 1997 increased $2 million and $4 million. Management believes that such non-cash remeasurements distort current period economic results and should be disregarded in analyzing the Company's current business. Future economic results may also be distorted because payment of the deferred tax liability is not expected to occur in the near-term and it is likely that exchange rates will fluctuate prior to the eventual settlement of the liability. 8 9 ORYX ENERGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Net Income (Loss) Per Share Following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations for the three and nine months ended September 30, 1998 and 1997 (in millions of dollars and shares, except per share amounts).
Three Nine Months Ended Months Ended September 30 September 30 1998 1997 1998 1997 --------- --------- --------- --------- Basic EPS: Numerator, Net Income (Loss) $ (43) $ 42 $ (24) $ 131 Denominator, Common Shares Outstanding 106.2 105.5 106.2 105.5 --------- --------- --------- --------- Basic EPS $ (.40) $ .40 $ (.23) $ 1.24 ========= ========= ========= ========= Diluted EPS: Numerator, Net Income (Loss) $ (43) $ 42 $ (24) $ 131 Potential Common Shares: Debentures* - - - - --------- --------- --------- --------- Total Net Income (Loss) $ (43) $ 42 $ (24) $ 131 --------- --------- --------- --------- Denominator, Common Shares Outstanding 106.2 105.5 106.2 105.5 Potential Common Shares: Common Stock Options** - .5 - .4 Debentures* - - - - --------- --------- --------- --------- Total 106.2 106.0 106.2 105.9 --------- --------- --------- --------- Diluted EPS $ (.40) $ .40 $ (.23) $ 1.24 ========= ========= ========= =========
* The Company has reserved 5,111,438 shares of Common Stock for issuance to the owners of its 7 1/2% Convertible Subordinated Debentures due 2014 (Debentures). The Debentures were not included in the computation of diluted shares since they have an anti-dilutive effect for all periods presented. ** Common Stock options to purchase 2.6 million and 2.1 million shares of Common Stock were outstanding but not included in the computation of diluted EPS for the three months ended September 30, 1998 and 1997 and Common Stock options to purchase 2.3 million and 2.2 million shares of Common Stock were outstanding but not included in the computation of diluted EPS for the nine months ended September 30, 1998 and 1997 because the various exercise prices of the options were greater than the average market price of the common shares. In addition, Common Stock options to purchase 0.1 million and 0.3 million shares of common Stock were outstanding but not included in the computation of diluted EPS for the three and nine months ended September 30, 1998 since they have an anti-dilutive effect for both periods. 9 10 ORYX ENERGY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Properties, Plants and Equipment At September 30, 1998 and December 31, 1997, the Company's properties, plants and equipment; and related accumulated depreciation, depletion and amortization were as follows:
September 30, December 31, 1998 1997 ------------ ----------- (Millions of Dollars) Gross investment $ 5,991 $ 5,626 Less accumulated depreciation, depletion and amortization 4,016 3,815 ------- ------- Net investment $ 1,975 $ 1,811 ======= =======
6. Shareholders' Equity Shares of the Company's preferred and common stocks authorized, issued, outstanding and in treasury at September 30, 1998 and December 31, 1997 were as follows:
Authorized Issued Outstanding In Treasury ---------- ------ ----------- ----------- (Thousands of Shares) September 30, 1998 Preferred stock 15,000 - - - Preference stock 7,741 - - - Common stock 250,000 126,704 106,234 (17,468) December 31, 1997 Preferred stock 15,000 - - - Preference stock 7,741 - - - Common stock 250,000 126,704 105,982 (17,720)
7. Subsequent Events On October 14, 1998, the Company announced a merger with Kerr-McGee Corporation, with Kerr-McGee to be the surviving corporation. The board of each company has unanimously approved the transaction and recommends the merger. Prior to the merger, each share of Oryx common stock will be converted into .369 shares of Oryx common stock in a reverse stock split. If approved by shareholders of both companies, at the effective time of the merger, each Oryx shareholder will receive one newly issued share of Kerr-McGee common stock for each Oryx common share, resulting in an equity split of Kerr-McGee of approximately 55% Kerr-McGee and 45% Oryx. The transaction is intended to be accounted for as a pooling of interests, to be tax-free to Oryx's shareholders and to be completed in the first quarter of 1999. 10 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors, Oryx Energy Company: We have reviewed the accompanying condensed consolidated balance sheet of Oryx Energy Company and its Subsidiaries as of September 30, 1998, the related condensed consolidated statements of income for the three and nine months ended September 30, 1998 and 1997, and the related condensed consolidated statements of cash flows for the nine months ended September 30, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1997, and the related consolidated statements of income and cash flows for the year then ended (not presented herein); and in our report dated February 17, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP Dallas, Texas November 2, 1998 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company's cash and cash equivalents decreased by $3 million over the nine months ended September 30, 1998. The decrease was comprised of $237 million of net cash flow provided from operating activities, $433 million of net cash flow used for investing activities and $193 million of net cash flow provided from financing activities. The $237 million in net cash flow provided from operating activities consisted of $252 million in net cash flow provided from operating activities before changes in current assets and liabilities and $15 million used for changes in current assets and liabilities. The $252 million in net cash flow provided from operating activities before changes in current assets and liabilities was primarily impacted by lower revenues, particularly from lower crude oil prices. The $15 million of net cash flow used for changes in current assets and liabilities consisted of a $58 million decrease in accounts receivable and other current assets and a $73 million decrease in accounts payable and accrued liabilities. The $433 million in net cash flow used for investing activities and the $193 million in net cash flow provided from financing activities are primarily due to cash uses of $436 million for capital expenditures and $190 million from net increases in debt. The increase in debt is primarily due to lower crude oil prices in the first nine months of 1998. As of October 26 1998, the Company has entered into collar agreements to hedge approximately 31 percent of its remaining projected 1998 crude production at an average floor price of $17.71 West Texas Intermediate (WTI) per barrel and an average ceiling price of $18.77 WTI per barrel. Approximately 51 percent of its remaining estimated 1998 U.S. gas production is hedged using collars at an average floor price of $2.37 Henry Hub (HH) per mmbtu and an average ceiling price of $2.54 HH per mmbtu. The Company has also entered into collar arrangements to hedge approximately 7 percent of its projected 1999 crude production at an average floor price of $15.85 WTI per barrel and an average ceiling price of $17.35 WTI per barrel. Approximately 31 percent of its estimated 1999 U.S. gas production is hedged using collars at an average floor price of $2.29 HH per mmbtu and an average ceiling price of $2.47 HH per mmbtu. On July 28, 1998, in response to the current low oil price environment, the Company announced its intention to reduce payroll related expenses, primarily in the U.S. onshore and staff groups. In the third quarter of 1998, the Company recognized a $25 million ($16 million after-tax) restructuring charge for employee terminations. For an analysis of the restructuring provision, see Note 2 to the Condensed Consolidated Financial Statements. The Company previously announced its intention to reduce its 1998 exploration and development investment plans by approximately 17 percent. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED FINANCIAL CONDITION (CONTINUED) In the fourth quarter of 1995, the Company incurred a net $25 million ($16 million after-tax) provision for restructuring comprised of a $4 million adjustment to the 1994 restructuring provision and a $29 million restructuring provision for a plan to achieve further cost reductions. For an analysis of the restructuring provision, see Note 2 to the Condensed Consolidated Financial Statements. On October 14, 1998, the Company announced a merger with Kerr-McGee Corporation, with Kerr-McGee to be the surviving corporation. The board of each company has unanimously approved the transaction and recommends the merger. Prior to the merger, each share of Oryx common stock will be converted into .369 shares of Oryx common stock in a reverse stock split. If approved by shareholders of both companies, at the effective time of the merger, each Oryx shareholder will receive one newly issued share of Kerr-McGee common stock for each Oryx common share, resulting in an equity split of Kerr-McGee of approximately 55% Kerr-McGee and 45% Oryx. The transaction is intended to be accounted for as a pooling of interests, to be tax-free to Oryx's shareholders and to be completed in the first quarter of 1999. FINANCIAL CONDITION - YEAR 2000 PROJECT GENERAL The Project addresses the ability of computer programs and embedded computer chips to distinguish between the year 1900 and the year 2000. An enterprise-wide program was launched in 1996 to take steps to mitigate this problem. The Company additionally chose to replace its financial applications and human resources/payroll systems with systems that were already Year 2000 compliant. Implementation of these systems is on schedule and expected to be completed by January 31, 1999. Remaining business software programs are expected to be made Year 2000 compliant through the Year 2000 Project. None of the Company's other information technology projects have been delayed due to the implementation of the Year 2000 Project. PROJECT The Year 2000 Project is divided into three major sections - Information Technology (IT Systems), Asset Integrity and Commercial Integrity. The general phases common to all sections are: (1) inventorying Year 2000 items; (2) assigning priorities to those items; (3) assessing the Year 2000 compliance of items determined to be material to the Company; (4) repairing or replacing material items that are determined not to be Year 2000 compliant; (5) testing material items and (6) designing and implementing contingency and business continuation plans. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED FINANCIAL CONDITION - YEAR 2000 PROJECT (CONTINUED) PROJECT (CONTINUED) At September 30, 1998, the inventory and priority assessment phases of the Information Technology and the Asset Integrity sections of the Project had been completed. The remediation phase of the Project is currently being performed by the Company. The testing phase is ongoing as hardware or system software is remediated, upgraded or replaced. The Information Technology section includes software applications, telecommunications, networks and other hardware. The Company estimates that all repair or replacement will be completed by the second quarter of 1999. The testing phase is conducted as the software is replaced and is also scheduled to be completed by mid-1999. The Asset Integrity area covers process control, automation and instrumentation systems which can include date-sensitive hardware or software, and associated embedded computer chips that are used in the operation of the assets and facilities of the Company. Testing and remediation is currently being conducted on all critical systems and will continue through the third quarter of 1999. The Commercial Integrity area addresses the external parties who are involved in the Company's business chains and processes. These include suppliers, customers, joint venture partners, transporters, regulatory and government agencies, financial institutions and third party service providers. The Company is currently in the process of identifying those parties who may have a material adverse effect on the Company's business performance. We plan to communicate with them about their plans and progress in addressing the Year 2000 problem commencing in late 1998 with expected completion in mid-1999. COSTS The total cost associated with required modifications to become Year 2000 compliant is not expected to be material to the Company's financial position. The estimated total cost of the Year 2000 Project is approximately $6 million. This estimate does not include Oryx's potential share of Year 2000 costs that may be incurred by partnerships or joint ventures in which the Company participates but is not the operator. The total amount expended on the Project through September 30, 1998 was $1 million, all of which related to the repair, replacement or upgrade of software and hardware and the cost of testing and replacing non-compliant process control and instrumentation systems. The estimated future cost of completing the Year 2000 Project is estimated to be approximately $5 million; $3 million to repair or replace software and related hardware, $2 million to repair or replace process control and instrumentation systems and an immaterial amount to identify and communicate with external parties. 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED FINANCIAL CONDITION - YEAR 2000 PROJECT (CONTINUED) COSTS (CONTINUED) Funds for the Project are provided from operating cash flows and are included in existing operating budgets. The costs of implementing the financial applications and human resources/payroll systems are not included in these cost estimates. CONTINGENCY PLANS The Company has begun, but not yet completed, a comprehensive analysis of the operational problems and costs (including loss of revenues) that would be reasonably likely to result from the failure by the Company and certain third parties to complete efforts necessary to achieve Year 2000 compliance timely. A contingency plan has not been developed for dealing with the most reasonably likely worst case scenario, and such scenario has not yet been clearly identified. The Company currently plans to complete such analysis and contingency planning by the latter part of 1999. RISKS The failure to correct a material Year 2000 problem could result in an interruption in, or failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Year 2000 Project is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem. The Company believes that, with the implementation of new business systems and completion of the Project as scheduled, the possibility of interruptions to normal operations should be significantly reduced. 15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED RESULTS OF OPERATIONS - NINE MONTHS The Company's net loss for the nine months ended September 30, 1998 was $24 million, or $.23 per share, as compared to net income of $131 million, or $1.24 per share for the first nine months of 1997. Revenues for the nine months were $630 million in 1998 versus $896 million in 1997. Year-to-date results for 1998 include a $16 million net charge for employee terminations associated with the Company's cost-reduction initiatives, an $11 million net gain on the sale of assets and a $2 million provision for remeasurement of foreign deferred taxes. By comparison, year-to-date results for 1997 include a $2 million benefit associated with a change in the U.K. income tax rate and a $4 million benefit from remeasurement of foreign deferred taxes. Average worldwide net production of crude oil and condensate for the nine months ended September 30, 1998 was 106 thousand barrels daily compared to average net production for the nine months ended September 30, 1997 of 116 thousand barrels daily. Average net production of crude oil and condensate was 44 thousand barrels daily in the United States and 62 thousand barrels daily from foreign locations during the nine months ended September 30, 1998, compared to 46 thousand barrels daily in the United States and 70 thousand barrels daily from foreign locations during the nine months ended September 30, 1997. The worldwide crude oil and condensate price for the first nine months of 1998 was $13.44 per barrel compared to $18.58 per barrel for the first nine months of 1997. Average worldwide net production of natural gas was 390 million cubic feet daily for the nine months ended September 30, 1998, compared to 508 million cubic feet in the nine months ended September 30, 1997. The reduction in U.S. natural gas production resulted primarily from field declines, lower than expected drilling results, performance issues at certain fields and weather-related interruptions in the Gulf of Mexico. Average net production of natural gas was 379 million cubic feet daily in the United States and 11 million cubic feet daily from the United Kingdom in the first nine months of 1998, compared to 497 million cubic feet daily in the United States and 11 million cubic feet daily in the United Kingdom in the first nine months of 1997. The worldwide price of natural gas for the first nine months of 1998 was $2.10 per thousand cubit feet compared to $2.35 per thousand cubic feet for the first nine months of 1997. 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED RESULTS OF OPERATIONS - THREE MONTHS The Company reported a net loss of $43 million, or $.40 per share, for the quarter ended September 30, 1998, compared to net income of $42 million, or $.40 per share, for the same quarter last year. Revenues for the 1998 third quarter were $194 million versus $287 million for the 1997 third quarter. The 1998 third quarter includes a $16 million net charge for employee terminations associated with the Company's cost-reduction initiatives and a $2 million provision for the remeasurement of foreign deferred taxes. By comparison, the 1997 third quarter included a $2 million benefit for the remeasurement of foreign deferred taxes and a $2 million benefit primarily from a change in the U.K. income tax rate. Compared to the same quarter last year, worldwide oil prices decreased by $5.15 per barrel, or 29 percent and U.S. natural gas prices decreased by $.22 per mcf, or 10 percent. Crude oil volumes decreased by 11,000 barrels per day and natural gas volumes decreased 111 million cubic feet per day. The reduction in U.S. natural gas production resulted primarily from field declines, lower than expected drilling results, performance issues at certain fields and weather-related interruptions in the Gulf of Mexico. Average worldwide net production of crude oil and condensate for the three months ended September 30, 1998 was 106 thousand barrels daily compared to average net production for the three months ended September 30, 1997 of 117 thousand barrels daily. Average net production of crude oil and condensate was 41 thousand barrels daily in the United States and 65 thousand barrels daily from foreign locations during the three months ended September 30, 1998, compared to 49 thousand barrels daily in the United States and 68 thousand barrels daily from foreign locations in the third quarter of 1997. The worldwide crude oil and condensate price in the third quarter of 1998 was $12.86 per barrel compared to $18.01 per barrel in the third quarter of 1997. Average worldwide net production of natural gas was 377 million cubic feet daily for the three months ended September 30, 1998, compared to 488 million cubic feet daily in the three months ended September 30, 1997. Average net production of natural gas was 370 million cubic feet daily in the United States and 7 million cubic feet daily from the United Kingdom in the third quarter of 1998, compared to 475 million cubic feet daily in the United States and 13 million cubic feet daily from the United Kingdom in the third quarter of 1997. The worldwide price of natural gas for the third quarter of 1998 was $2.00 per thousand cubic feet compared to $2.22 per thousand cubic feet in the third quarter of 1997. 17 18 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 12 Computation of Consolidated Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Stock Dividend Requirements. 15 Accountant's letter regarding unaudited interim financial information. 27 Financial Data Schedule for the year ended September 30, 1998. 27.1 Restated Financial Data Schedule for the year ended September 30, 1997. (b) Reports on Form 8-K: The Company filed a Form 8-K (File No. 1-10053) dated October 22, 1998, which included Item 5, Other Events. 18 19 SIGNATURE Pursuant to the requirements 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. ORYX ENERGY COMPANY BY /s/ E. W. Moneypenny -------------------- E. W. Moneypenny (Executive Vice President, Finance and Chief Financial Officer) DATE: November 2, 1998 19 20 INDEX TO EXHIBITS
Exhibit Number Description ------- ----------- 12 Computation of Consolidated Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges and Preferred Stock Dividend Requirements. 15 Accountant's letter regarding unaudited interim financial information. 27 Financial Data Schedule for the year ended September 30, 1998. 27.1 Restated Financial Data Schedule for the year ended September 30, 1997.
EX-12 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 ORYX ENERGY COMPANY COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS - UNAUDITED(a) (Millions of Dollars)
Three Months Nine Months Ended Ended September 30 September 30 1998 1998 ------------ ------------ RATIO OF EARNINGS TO FIXED CHARGES: Fixed Charges: Consolidated interest cost and debt expense $ 30 $ 86 Interest allocable to rental expense(b) 1 4 ---- ---- Total $ 31 $ 90 ==== ==== Earnings: Consolidated income (loss) before provision (benefit)for income taxes $(56) $(35) Fixed charges 31 90 Interest capitalized (4) (15) Amortization of previously capitalized interest 1 4 ---- ---- Total $(28) $ 44 ==== ==== Ratio of Earnings to Fixed Charges(c) .49 ==== RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS: Fixed Charges: Consolidated interest cost and debt expense $ 30 $ 86 Preferred stock dividend requirements -- -- Interest allocable to rental expense(b) 1 4 ---- ---- Total $ 31 $ 90 ==== ==== Earnings: Consolidated income (loss) before provision (benefit) for income taxes $(56) $(35) Fixed charges 31 90 Interest capitalized (4) (15) Amortization of previously capitalized interest 1 4 ---- ---- Total $(28) $ 44 ==== ==== Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements(c) .49 ====
- ------------------ 2 (a) The consolidated financial statements of Oryx Energy Company include the accounts of all subsidiaries (more than 50 percent owned and/or controlled). (b) Represents one-third of total operating lease rental expense which is that portion deemed to be interest. (c) Since earnings for the three months ended September 30, 1998 were less than zero, the ratios of earnings to fixed charges, or fixed charges and preferred stock dividends for such period are not meaningful and, accordingly, have not been presented. Earnings for such period were inadequate to cover fixed charges, or fixed charges and preferred stock dividends by $59 million. Earnings for the nine months ended September 30, 1998 were inadequate to cover fixed charges, or fixed charges and preferred stock dividends by $46 million. EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, Northwest Washington, D.C. 20549 Attn.: Document Control Re: Oryx Energy Company Form 10-Q We are aware that our report dated November 2, 1998 on our review of the interim condensed consolidated balance sheet of Oryx Energy Company and its Subsidiaries as of September 30, 1998, the related condensed consolidated statements of income for the three and nine months ended September 30, 1998 and 1997, and the related condensed consolidated statements of cash flows for the nine months ended September 30, 1998 and 1997, included in this Form 10-Q, is incorporated by reference in the following registration statements:
Registration No. ---------------- On Form S-3 for: Oryx Energy Company $500,000,000 Debt Securities; Preferred Stock; and Common Stock 33-45611 Oryx Energy Company $600,000,000 Debt Securities 33-33361 Oryx Energy Company 7,259,394 shares of Common Stock 33-36799 Oryx Energy Company $500,000,000 Debt Securities; Preferred Stock; and Common Stock 333-33373 On Form S-8 for: Oryx Energy Company 1992 Long-Term Incentive Plan 33-42695 Oryx Energy Company Long-Term Incentive Plan 33-25032 Oryx Energy Company Capital Accumulation Plan 33-24918 Oryx Energy Company Equity and Deferred Compensation Plan for Non-Employee Directors 333-03075 Oryx Energy Company Executive Variable Incentive Plan 333-03089 Oryx Energy Company 1997 Long-Term Incentive Plan 333-26563
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ PricewaterhouseCoopers LLP Dallas, Texas November 2, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1998 SEP-30-1998 7 0 193 0 1 177 5,991 (4,016) 2,210 446 1,259 0 0 1,945 (1,803) 2,210 614 630 434 434 160 0 71 (35) (11) (24) 0 0 0 (24) (.23) (.23) (EPS-PRIMARY) DENOTES BASIC EPS.
EX-27.1 5 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1997 SEP-30-1997 13 0 241 0 3 254 5,561 (3,760) 2,112 439 1,180 0 0 1,945 (1,837) 2,112 912 896 548 548 93 0 71 184 53 131 0 0 0 131 1.24 1.24 (EPS-PRIMARY) DENOTES BASIC EPS.
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